Concept Map/ Guide

STAGES IN THE LIFE OF A CONTRACT

I. NEGOTIATION
A. ELEMENTS OF THE CONTRACT OF SALE
a. Consent
1. Offer and acceptance: See
perfection stage
2. FRIS free, real, intelligent and
spontaneous
3. Plurality of parties: Auto
contracts
4. Legal capacity of contracting
parties
Art. 1327
Art 1489
Art 1490
Constitution: Aliens
b. Object
1. licit
2. determinate
3. possible
emptio spei
emptio rei speratae
c. Price
A. Requisites
1. Real
- Simulated Price
2. Certain or Ascertainable
3. In money or its equivalent
B. Gross inadequacy of price

Elements.
1. Plurality of parties - there must be at least 2
parties
ART. 1305. A contract is a meeting
of minds between two persons whereby
one binds himself, with respect to
the other, to give something or to
render some service
In a contract, one or more persons bind himself
or themselves with respect to another or others,
or reciprocally, to the ful llment of a prestation
to give, to do, or not to do
In a contract, there must be at least two persons
or parties, because it is impossible for one to
contract with himself
Auto contracts: A single person may create a contract
by himself where he represents distinct interests (e.g.,
his own and that of another for whom he acts as agent,
or of two principals for both of whom he acts in a
representative capacity) subject to speci c prohibitions
of law against the presence of adverse or con icting
interests.
2. FRIS

II. PERFECTION: Contract of Sale is a CONSENSUAL

ART. 1330. A contract where consent
CONTRACT, as such, it is perfected by mere
consent.
is given through mistake, violence,
1. Option Contracts
intimidation, undue in uence, or
2. Option Money and Earnest Money
fraud is voidable.
2. Right of First Refusal
III. EXECUTION

N E G O T I AT I O N
Elements.
1. Consent
2. Object
3. Price
Consent

ART. 1331. In order that mistake may

invalidate consent, it should refer
to the substance of the thing which
is the object of the contract, or to
those conditions which have
principally moved one or both parties
to enter into the contract.
Mistake as to the identity or
quali cations of one of the parties
will vitiate consent only when such
identity or quali cations have been
the principal cause of the contract.
A simple mistake of account
shall give rise to its correction.

Definition.
Manifestation.
ART. 1319 (1) Consent is manifested
by the meeting of the offer and the
acceptance upon the thing and the
cause which are to constitute the
contract. The offer must be certain
and the acceptance absolute. A quali ART. 1332. When one of the parties is
ed acceptance constitutes a counter- unable to read, or if the contract is
offer.
in a language not understood by him,
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and mistake or fraud is alleged, the

person enforcing the contract must
show that the terms thereof have been
fully explained to the former.

person alleged to have been unduly

in uenced was suffering from mental
weakness, or was ignorant or in
nancial distress.
ART. 1339. Failure to disclose facts,
ART. 1333. There is no mistake if the when there is a duty to reveal them,
party alleging it knew the doubt,
as when the parties are bound by con
contingency or risk affecting the
dential relations, constitutes fraud.
object of the contract.
ART. 1341. A mere expression of an
ART. 1334. Mutual error as to the
opinion does not signify fraud,
legal effect of an agreement when the unless made by an expert and the
real purpose of the parties is
other party has relied on the
frustrated, may vitiate consent.
formers special knowledge.
ART. 1335. There is violence when in
order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one
of the contracting parties is
compelled by a reasonable and wellgrounded fear of an imminent and
grave evil upon his person or
property, or upon the person or
property of his spouse, descendants
or ascendants, to give his consent.
To determine the degree of the
intimidation, the age, sex and
condition of the person shall be
borne in mind.
A threat to enforce ones claim
through competent authority, if the
claim is just or legal, does not
vitiate consent.
ART. 1336. Violence or intimidation
shall annul the obligation, although
it may have been employed by a third
person who did not take part in the
contract.

ART. 1342. Misrepresentation by a

third person does not vitiate
consent, unless such
misrepresentation has created
substantial mistake and the same is
mutual.
ART. 1343. Misrepresentation made in
good faith is not fraudulent but may
constitute error.
ART. 1344. In order that fraud may
make a contract voidable, it should
be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the
person employing it to pay damages.
ART. 1390. The following contracts
are voidable or annullable, even
though there may have been no damage
to the contracting parties: (1) Those
where one of the parties is incapable
of giving consent to a contract; (2)
Those where the consent is vitiated
by mistake, violence, intimidation,
undue in uence or fraud. These
contracts are binding, unless they
are annulled by a proper action in
court. They are susceptible of rati
cation.

ART. 1337. There is undue in uence

when a person takes improper
advantage of his power over the will
of another, depriving the latter of a
reasonable freedom of choice. The
following circumstances shall be
considered: the con dential, family, 3. Legal capacity
spiritual and other relations between
Incapacity v. Disqualification
the parties, or the fact that the
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a. Absolute Incapacity
ART. 1327. The following cannot give
consent to a contract:
(1)Unemancipated minors;
(2) Insane or demented persons, and
deaf-mutes who do not know how to
write.
ART. 1328. Contracts entered into
during a lucid interval are valid.
Contracts agreed to in a state of
drunkenness or during a hypnotic
spell are voidable.
ART. 1390. The following contracts
are voidable or annullable, even
though there may have been no damage
to the contracting parties:
(1)One of the parties is incapable of
giving consent (want of capacity)
(2)Consent is vitiated by mistake,
violence, intimidation, undue
influence or fraud (vitiated consent)
These contracts are binding, unless
they are annulled by a proper court
action. They are susceptible of
ratification.

However, persons who are capable

cannot allege the incapacity of those
with whom they contracted; nor can
those who exerted intimidation,
violence or undue influence or
employed fraud or caused mistake base
their action upon these flaws of the
contract.
Art 1399. 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 price or thing received by him
ART. 1330. A contract where consent
is given through mistake, violence,
intimidation, undue in uence, or
fraud is voidable.
ART. 1332. 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.

ART. 1403. The following contracts

are unenforceable, unless they are
ratied
(3)Those where both parties are
incapable of giving consent to a
contract.

a. Minors
a minor is without capacity to give consent to a
contract, and since consent is an essential
requisite of every contract, the absence thereof
cannot give rise to a valid sale; voidable
XPNS.
ART. 1393.
Ratification may be
1. Where the contract involves the sale and delivery of
effected expressly or tacitly. It is necessaries to the minor
understood that there is a tacit
ratification if with knowledge of the Art. 194, FC Support is everything
reason which renders the contract
indispensable for sustenance,
voidable and such reason having
dwelling, clothing, medical
ceased, the person who has a right to attendance, education and
invoke it should execute an act which transportation, in keeping with the
necessarily implies an intention to
financial capacity of the family.
waive his right.
Requisites:
ART 1397:
The action for
1. Perfection of the contract of sale AND
annulment of the contracts may be
2. Delivery of the subject matter.
instituted by all who are thereby
obliged principally or subsidiarily. Notes.
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1. If there is no delivery, the contract is voidable

2. If there was delivery (and usually, consumption) Art. 96. The administration and
the contract is valid and the minor is obliged to enjoyment of the community property
shall belong to both spouses jointly.
pay a reasonable price therefor
3. What is reasonable price is a question of fact; In case of disagreement, the
husbands decision shall prevail,
it depends upon the circumstances present in
subject to recourse to the court by
each case
the wife for proper remedy, which
2. The sale of real property made by minors who have must be availed of within five years
already passed the ages of puberty and adolescence and from the date of the contract
implementing such decision.
are near the adult age when they pretend to have
In the event that one spouse is
already reached their majority, while in fact they have
not, is valid, and they cannot be permitted afterwards to incapacitated or otherwise unable to
excuse themselves from compliance with the obligation participate in the administration of
assumed by them or to seek their annulment. (Mercado the common properties, the other
spouse may assume sole powers of
and Mercado v. Espiritu)
administration. These powers do not
include the powers of disposition or
2. Insane or demented
encumbrance without authority of the
3, Deaf-mutes who do not know how to write
court or the written consent of the
other spouse. In the absence of such
b. relative incapacity
authority or consent, the disposition
ART. 1490. The husband and the wife
or encumbrance shall be void.
cannot sell property to each other,
However, the transaction shall be
except:
(1) When a separation of property was construed as a continuing offer on
the part of the consenting spouse and
agreed upon in the marriage
the third person, and may be
settlements; or
perfected as a binding contract upon
(2) When there has been a judicial
separation of property under article the acceptance by the other spouse or
authorization by the court before the
191.*
offer is withdrawn by either or both
offerors.
Art. 73, FC Either spouse may
exercise any legitimate profession,
occupation, business or activity
without the consent of the other. The REASON FOR THE RULE
Prevent commission of fraud or prejudice to third
latter may object only on valid,
persons
serious and moral grounds.
Prevent one from unduly influencing the other Avoid
In case of disagreement, the
indirect donations
court shall decide whether or not:
(1) The objection is proper, and
(2) Benefit has accrued to the family c. specific incapacity
prior to the objection or thereafter. ART. 1491. The following persons
cannot acquire by purchase, even at a
If the benefit accrued prior to the
public or judicial auction, either in
objection, the resulting obligation
person or through the mediation of
shall be enforced against the
another:
separate property of the spouse who
(1) The guardian, the property of the
has not obtained consent.
person or persons who may be under
The foregoing provisions shall
not prejudice the rights of creditors his guardianship;
who acted in good faith.
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(2) Agents, the property whose

administration or sale may have been
entrusted to them, unless the consent
of the principal has been given;

(Rubias vs. Batiller, 51 SCRA 120 [1973].) The persons

disqualified to buy referred to in Articles 1490 and
1491 are also disqualified to become lessees of the
things mentioned thereon. (Art. 1646.)

(3) Executors and administrators, the The disqualifications imposed by Article 1491 on the
property of the estate under
person enumerated is grounded on public policy
administration;
considerations which disallow the transactions entered
into by them, whether directly or indirectly, in view of
(4) Public officers and employees,
the fiduciary relationship involved or the peculiar
the property of the State or of any
control exercised by these individuals over the
subdivision thereof, or of any
properties or rights covered. (Mananquil vs. Villegas,
government owned or controlled
189 SCRA 335 [1990].)
corporation, or institution, the
administration of which has been
The prohibitions seek to prevent frauds on the part of
entrusted to them; this provision
such persons and minimize temptations to the exertion
shall apply to judges and government of undue and improper influence. The fear that greed
experts who, in any manner
might get the better of the sentiments of loyalty and
whatsoever, take part in the sale;
disinterestedness is the reason underlying Article 1491.
The law does not trust human nature to resist the
(5) Justices, judges, prosecuting
temptations likely to arise out of antagonism between
attorneys, clerks of superior and
the interest of the seller and buyer. (23 Scaevola 403;
inferior courts, and other officers
Gregorio Araneta, Inc. vs. Tuazon de Paterno, 91 Phil.
and employees connected with the
786 [1952].)
administration of justice, the
property and rights in litigation or
levied upon an execution before the
Uy Sui Pin vs Cantollas
The sale from Uy Siu Pin
court within whose jurisdiction or
to his wife Chua Hue is
territory they exercise their
null and void not only
respective functions; this
because the former had no
prohibition includes the act of
right to dispose of the land
acquiring by assignment and shall
in controversy in view of
apply to lawyers, with respect to the
the existence of the
property and rights which may be the
contract but because such
object of any litigation in which
sale comes within the
they may take part by virtue of their
prohibition of article 1458
profession;
of the Civil Code.
(6) Any others specially disqualified GUARDIANS
by law.
Prohibition applies even if the guardian did not acquire
De Leon: The above article enumerates the persons
the property of the ward from the ward directly as when
who, by reason of the relation of trust with the persons there was a third person who bought the property from
under their charge or their peculiar control over the
the ward and that third person sold the property in
property, are prohibited from acquiring said property question to the guardian.
either directly or indirectly and whether in private or
public sale. They are the: (1) guardians; (2) agents; (3) Proof that the third-party buyer was a mere
executors and administrators; (4) public officers and
intermediary buyer is not necessary for the prohibition
employees; (5) judicial officers, employees and
to apply (Philippine Trust Co. v. Roldan)
lawyers; and (6) others especially disqualified by law.
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QUESTIONS.
Can a ward acquire properties of guardian? Yes.
However the transaction is Voidable (Art. 1390)
Can a guardian acquire properties of a ward? No. The
transaction is Void (Art. 1491)
Hypothetical.
1. Jansen, 10 years old, sold his land to AC, his
guardian, for P500,000. The RTC granted such
transaction. Can there be a valid contract of
sale? Suggested Answer: No. the rule is
absolute. Contract is void, despite approval of
court, as provided by the law.
Sia Suan vs Alcantara
2. Gwy, a minor, owns a parcel of land worth 1
million pesos. Nice, his guardian, bought such
land for P10 million. Is there a valid contract of
sale? Suggested Answer: No. the rule is
absolute. Even if it be highly beneficial to the
ward, the contract is void as provided by the
law. Effect of contract is immaterial. What
matters is the relationship existing between the
contracting parties.
3. A, 10 years old, owns a parcel of land under the
guardianship of G. A stabbed X. Can A be held
civilly liable? Suggested Answer: Yes. A has to
pay the damages.
4. To compensate the victim, As land was sold at
public auction. Writ of execution on property. G
was the highest bidder, property was awarded to
him. Is the sale at public auction of As land to
G, the formers guardian, valid? Suggested
Answer: No it is not valid, as per subsection 1
of Article 1491. As As guardian, G cannot
acquire by purchase even at a public or judicial
auction, either in person or through the
mediation of another, the property of the person
or persons under hid guardianship.
Mercado and Mercado vs
Espiritu

The courts have laid down

the rule that the sale of
real property made by
minors who have already
passed the ages of puberty
and adolescence and are
near the adult age when
they pretend to have
already reached their
majority, while in fact they
have not, is valid, and they
Page 6

cannot be permitted
afterwards to excuse
themselves from
compliance with the
obligaiton assumed by
them or to seek their
annulment. This doctrine
is entirely in accord with
the provisions of the Rules
of Court (Rule 131, Sec.
1) and the principle of
estoppel.
The ruling in Mercado
case is affirmed. To bind a
minor who represents
himself to be of legal age,
it is not necessary for his
vendee to actually part
with cash, as long as the
contract is supported by a
valid consideration. Since
appellee's conveyance to
the appellants was
admittedly for and in
virtue of a pre-existing
indebtedness
(unquestionably a valid
consideration), it should
produce its full force and
effect in the absence of
any other vice that may
legally invalidate the
same. It is not here
claimed that the deed of
sale is null and void on
any ground other than the
appellee's minority.
Appellee's contract has
become fully efficacious
as a contract executed by
parties with full legal
capacity. The
circumstance that, about
one month after the date of
the conveyance, the
appellee informed the
appellants of his minority,
is of no moment, because
appellee's previous

misrepresentation had
already estopped him from R is the owner of two parcels of land. R, prior to
disavowing the contract. obligating A, the agent of R, owed X one million pesos.
Said belated information X filed a motion for execution. Sheriff offered for sale
at a public auction. A purchased the property. Is the sale
merely leads to the
valid? Suggested Answer: Yes. The propertys
inference that the
appellants in fact did not administration or sale has not been entrusted to A
know that the appellee
was a minor on the date of EXECUTORS AND ADMINISTRATIORS with
respect to the property of the estate under
the contract, and
administration.
somewhat emphasizes
appellee's had faith, when
it is borne in mind that no But an executor can acquire the hereditary rights of an
sooner had he given said heir to the estate under his administration (Naval v.
Enriquez)
information than he
ratified his deed of sale
upon receiving from the HYPOTHETICAL
A owns a parcel of land. When A died, X and Y were
appellants the sum of
declared heirs of As estate. Y ceded all his interests to
P500.
G, the administrator of the land, for P500k. Is the
contract valid? Suggested Answer: Yes. Whatever right
AGENTS with respect to property to whose
administration or sale may have been entrusted to them. Y has does not form part of the estate.
Exception: when the consent of the principal have been
given
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.

A owns two parcels of land. The first parcel of land is

under Gs administration, while the second is under Hs
administration. When A died, his heirs, X and Y, ceded
the first parcel of land to G. Is the sale valid? Suggested
Answer: Void. The administrator cannot acquire by
purchase the property under his administration

An agent of a principal is not automatically

disqualified from acquiring property from the principal. X and Y ceded the first parcel of land to H. Is the sale
For the prohibition to apply, the property which is the valid? Suggested Answer: Yes. H is not the
subject of the contract must be the property entrusted to administrator of the first parcel of land. He is not
the principal. Hence if the principal owns two parcels ofprohibited to acquire the same.
land and the agent was entrusted with one these
properties, the agent can acquire from the principal the PUBLIC OFFICERS AND EMPLOYEES with
respect to the property of the State or any of its
other property.
subdivisions, any Government-owned and controlled
corporations, or institution the administration of which
HYPOTHETICAL.
has been entrusted to them.
Kris Aquino is an actress. Boy Abunda, a TV host is
Kris Aquinos agent. Kris Aquino is the owner of two
Intended not only to remove any occasion for fraud but
parcels of land, lots A and B. Kris Aquino and Boy
also
to surround them with the prestige necessary to
Abunda entered into a contract of sale whereby the
ownership of lot A will be transferred to Boy Abunda in carry out their functions by freeing them from all
consideration of 2 million pesos. Is the contract valid? suspicion which although unfounded, tends to discredit
Suggested Answer: Yes. The contract is valid because the institution by putting into question the honor of said
functionaries
Boy Abunda is not an agent entrusted with the
administration or sale of the property which he acquired
It is a policy of the law that public officers who hold
from Kris Aquino.
positions of trust may not bid directly or indirectly to
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acquire prop properties foreclosed by their offices and Suggested Answer: Yes. There is meeting of minds. The
sold at public auction. (Maharlika Pub. Co. v. Tagle)
contract is only rescissible.
HYPOTHETICAL
A and B both claim ownership over a single parcel of
The Mayor of the City of San Pablo wanted to acquire land. A filed a case before RTC branch 43 of Manila.
the City Hall of Batangas. Batangas City Mayor, as
During pendency of the trial, A sold the said land to X,
authorized by the Sanggunian of said City, sold the City RTC judge Branch 150 of Laguna. Is the sale valid?
Hall to Mayor of San Pablo City. Is the contract of sale Suggested Answer: Yes. The land in litigation is not
valid? Suggested Answer: No. The contract is void for within the jurisdiction and territory of RTC of Laguna.
valid object is wanting. Object is for public use and is
thus property of public dominion of the local
A and B both claim ownership over a single parcel of
government. Properties of public dominion are
land. A filed a case before RTC branch 43 of Manila.
inalienable.
During pendency of the trial, A sold the said land to X,
RTC judge branch 42 of Manila. Is the sale valid?
City of Manila, through Mayor Lim, sold the Citys
Suggested Answer: No. The land in litigation is within
patrimonial property to PNoy for P500,000. Is the
the jurisdiction and territory of RTC of Manila.
contract of sale valid? Suggested Answer: The contract
of sale is void. PNoy, as the President of the
Supposing the Sandiganbayan Justice bought the land
Philippines, is entrusted with the administration of the levied upon execution before RTC branch 43 of Manila.
properties of the State and is therefore included in the Is there a valid contract of sale? Yes. The case is not
prohibition. The sale is void notwithstanding the fact appealable before the Sandiganbayan. It is not under his
that the property in question is the patrimonial property jurisdiction or territory.
of the City of Manila.
Supposing Justice Lopez of CA bought the land levied
What if a senator buys the land? Suggested Answer:
upon execution before RTC of Batangas. Is the sale
The sale is void. Under the Constitution, members of valid? No. The case may be appealed to the CA and is
Congress are prohibited from being financially
thus under his jurisdiction and territory.
interested, directly or indirectly, in any contract with the
government (Sec. 14, Art. VI, 1987 Constitution)
LAWYERS
Justices, judges, prosecuting attorneys and other
Prohibition applies only to a sale to a lawyer of record,
court officers and employees connected with the
and does not cover assignment of the property given in
administration of justice with respect to property and judgment made by a client to an attorney, who has not
rights in litigation or levied upon on execution before taken part in the case nor to a lawyer who acquired
the court within whose jurisdiction or territory they
property prior to the time he intervened as counsel in
exercise their respective functions.
the suit involving such property.
It is not required that some contest or litigation over
the property itself should have been tried by the judge;
such property is in litigation from the moment it
became subject to the judicial action of the judge, such
as levy on execution.
When is the object considered under litigation? When
subject of judicial action of judge. Upon filing of
answer, it is considered in litigation.
HYPOTHETICAL
A and B both claim ownership over a single parcel of
land. During pendency of the trial, A sold the said land
to S for P500k. Is there a perfected contract of sale?

Exceptions to prohibition: a. To sale of a 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; or b. To a contingency fee arrangement
which grants the lawyer of record proprietary rights to
the property in litigation since the payment of said fee
is not made during the pendency of litigation but only
after judgment has been rendered.
CASE

DOCTRINE

(Rubias v. Batiller)

The purchase by a lawyer

of the property in
litigation from his client is

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categorically prohibited by
Article 1491, paragraph
(5) of the Philippine Civil
Code, and that
consequently, plaintiff's
purchase of the property in
litigation from his client
(assuming that his client
could sell the same since
his client's claim to the
property was defeated and
rejected) was void and
could produce no legal
effect.
(Fornilda v. RTC)

The fact that the property

in question was first
mortgaged by the client to
his lawyer and only
subsequently acquired by
the latter in a foreclosure
sale long after the
termination of the case
will not remove it from the
scope of the prohibition
for at the time the
mortgage was executed
the relationship of lawyer
and client still existed, the
very relation of trust and
confidence sought to be
protected.

(Director of Lands v.
Abada)

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.

applies only to a sale or

assignment to the lawyer
by his client of the
property which is the
subject of litigation. In
other words, for the
prohibition to operate, the
sale of the property must
take place during the
pendency of the litigation
involving the property. A
contract for a contingent
fee is not covered by
Article 1491 because the
tranfer 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 of
Atty. Fernandez,
consisting of one-half
(1/2) of whatever Maximo
Abarquez 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
tranfer 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 Article 1491.

Abada
Article 1491 prohibits
only the sale or
assignment between the
lawyer and his client, of
property which is the
subject of litigation.The HYPOTHETICAL
prohibition in said article B filed a case against As lot no. 50 before RTC of
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Marikina. During the pendency of the case, atty. De, the lands in the Philippines
lawyer of B bought the said lot. Is there a valid contract
of sale? Suggested Answer: No. A lawyer who takes
Ryan, an Iranian, bought a condominium unit at Mezza
part by virtue of his profession in any litigation is
residences. Is there a valid contract of sale? Suggested
prohibited to acquire subject property.
Answer: Yes, under the Condominium Act, aliens may
acquire units in a condominium project for as long as it
B filed a case against As lot no. 50 before RTC of
does not exceed the 40% of the total number of shares
Marikina. During the pendency of the case, atty. Do, the
lawyer of A bought his clients lot no. 49. Is there a
A charitable institution wholly owned by aliens
valid contract of sale? Suggested Answer: Yes. The
acquired by purchase a condo unit. Can it acquire a
property bought is not in litigation.
condominium unit? Suggested Answer: Yes, aliens are
allowed by law to own a condominium unit.
ADDITIONAL.
1. ALIENS
CASE
DOCTRINE
Aliens are disqualified to purchase agricultural lands
Aliens are disqualified to
(Secs. 3 and 7, Art. XII, 1987 Consitution). (Krivenko Krivenko vs Register of
Deeds
purchase agricultural lands
v. Register of Deeds)
(1987 Consitution, Art.
XII, Secs. 3 and 7). Our
Where a land is sold to an alien who later sold it to a
lands form part of our
naturalized Filipino, the sale to the latter cannot be
heritage thus we should
impugned. (Sarsosa vda. de Barsobia v. Cuenco)
preserve them. We need to
nationalize them otherwise
Prescription may never be invoked to defend that which
foreigners might end up
the Constitution prohibits. (Vicente Godinez v. Fong
owning them which would
Pak Luen)
make a mockery out of our
independence. They can
Under Republic Act (R.A.) No. 4726, otherwise known
lease lands if they wish or
as the Condominium Act, foreign nationals can own
if they really want to own
Philippine real estate through the purchase of
land, they can always
condominium units or townhouses constituted under the
acquire Filipino
Condominium principle with Condominium Certificates
citizenship.
of Title. It expressly allows foreigners to acquire
condominium units and shares in condominium
Sarsosa vda. de Barsobia
corporations up to not more than 40% of the total and vs Cuenco
outstanding capital stock of a Filipino-owned or
controlled corporation. Under this set up, the ownership
of the land is legally separated from the unit itself.
(Jacobus Bernard Hulst v. PR Builders, Inc.)
HYPOTHETICAL

Where a land is sold to an

alien who later sold it to a
naturalized Filipino, the
sale to the latter cannot be
impugned. In such case,
there would be no no more
public policy to be served
in allowing the FIlipino
seller of his heirs to
recover the land as the
same is already owned by
a qualified person

H, an alien, married T, a Filipina, during their marriage,

they acquired land in the Phils. Upon dissolution of
their marriage, H claims his share in the said land. Is he
entitled to a share? Suggested Answer: No. An alien
Herrera vs Luy Kim Guan Where a land is sold to an
cannot acquire land in the Phils
alien who later sold it to a
Filipino, the sale to the
F, an alien, bought the building of J for 1 million pesos.
latter cannot be impugned.
Is the sale valid? Suggested Answer: Yes. There is
In such case, there would
meeting of minds. Aliens are prohibited only to acquire
Page 10

be no no more public
policy to be served in
allowing the FIlipino
seller of his heirs to
recover the land as the
same is already owned by
a qualified person.
Vicente Godinez vs Fong
Pak Luen

Jacobus Bernard Hulst vs

PR Builders, Inc

unit itself. The land is

owned by a Condominium
Corporation and the unit
owner is simply a member
in this Condominium
Corporation. As long as
60% of the members of
this Condominium
Corporation are Filipino,
the remaining members
can be foreigners.

Prescription may never be

invoked to defend that
which the Constitution
prohibits. However, where
a land is sold to an alien
who later sold it to a
Filipino, the sale to the
latter cannot be impugned. Stages in the Life of a Contract of Sale
In such case, there would A. Negotiation stage
be no no more public
Option Contracts
policy to be served in
allowing the FIlipino
Right of first refusal
seller of his heirs to
recover the land as the
Option Contracts
same is already owned by
ART. 1324. When the offerer has
a qualified person
allowed the offeree a certain period
Under Republic Act (R.A.)
to accept, the offer may be withdrawn
No. 4726, otherwise
at any time before acceptance by
known as the
communicating such withdrawal, except
Condominium Act, foreign
when the option is founded upon a
nationals can own
consideration, as something paid or
Philippine real estate
promised.
through the purchase of
condominium units or
ART. 1479. A promise to buy and sell
townhouses constituted
a determinate thing for a price
under the Condominium certain is reciprocally demandable.
principle with
An accepted unilateral promise to buy
Condominium Certificates or to sell a determinate thing for a
of Title. It expressly
price certain is binding upon the
allows foreigners to
promissor if the promise is supported
acquire condominium
by a consideration distinct from the
units and shares in
price.
condominium corporations
up to not more than 40% Definition. Option Contract a preparatory contract in
of the total and
which one party grants to the other, for a fixed period
outstanding capital stock and under specified conditions, the power to decide
of a Filipinoowned or
whether or not to enter into a principal contract. It must
controlled corporation.
be supported by an independent consideration and the
Under this set up, the
grant must be exclusive (Tolentino) Option Contract in
ownership of the land is Sales a contract by virtue of which, the offeree, in
legally separated from the consideration of the payment of a certain sum to the
Page 11

offeror, acquires the privilege of buying from the latter rescission, even
after he has chosen
certain properties within a limited time at a specified
ful llment, if the
price.
Option Contract v. Contract of Sale
Contract of Sale
Option Contract
Principal contract; it does Preparatory contract; there
not depend on another
is a principal contract that
contract to exist
the parties have in mind
like a contract of sale.
Onerous

latter should become

impossible.
The court shall
decree the rescission
claimed, unless there
be just cause
authorizing the
xing of a period.
This is understood to
be without prejudice
to the rights of
third persons who
have acquired the
thing, in accordance
with Articles 1385
and 1388 and the
Mortgage Law.

give every one

his due, and
observe honesty
and good faith.

Consideration is the
Consideration is anything
(purchase) price certain in of value or is valuable not
money or its equivalent
necessarily in money or its
equivalent; as long as it is
separate and distinct from
the purchase price
Can there be an option contract without a
Consensual
If already perfected,
meaning there is already a
meeting of the offer and
consent, offer and
acceptance can no longer
be withdrawn. Withdrawal
of offer and acceptance
entitles the innocent party
to:
a. file an action for
specific performance
b. rescind the contract
include restitution
c. damages added to a and
b

consideration?

If already perfected
a. offer/acceptance
subsequently withdrawn
- innocent party cannot
file an action for specific
performance ( Rationale:
since only the option
contract was perfected,
not the contract of a sale;
the obligation in an option
contract is a personal
obligation, thus it cannot
be compelled by an action
for specific performance ~
involuntary servitude) nor
- legal basis: ART. 1191.
can he file for rescission.
The power to rescind b. innocent party can file
obligations is
implied in reciprocal for damages for breach of
ones, in case one of contract; one cannot
the obligors should
whimsically do something
not comply with what to injure others.
is incumbent upon
- legal basis: Art. 19.
him.
The injured party may Every person
must, in the
choose between the
fulllment and the
exercise of his
rescission of the
rights and in the
obligation, with the
performance of
payment of damages
his duties, act
in either case. He
with justice,
may also seek

Atty Casino: For purposes of the bar, when you are

faced with the question involving option contract NOT
supported by a separate consideration and the a) option
is accepted within the time given; or b) offer is
withdrawn within the time given, and the question is
WON there was a perfected contract of sale, you must
cite the cases of Southwestern Sugar and Molasses Co.
vs Atlantic Gulf & Pacific Co. Atkins Kroll & Co. vs
Cua Hien Tek and Sanchez vs Rigos because these are
conflicting rulings by the SC. Then say that the doctine
laid down in Sanchez v. Rigos is more in keeping with
the provisions of the law.
Case

Doctrine

Southwestern Sugar and

When an option is not
Molasses Co. vs Atlantic supported by a separate
Gulf & Pacific Co. (1955) consideration, it is void
and can be withdrawn
notwithstanding the
acceptance made
previously by the offeree.
Atkins Kroll & Co. vs Cua Upon accepting the offer,
Hien Tek (1958)
a bilateral promise to sell
and to buy ensues; the
buyer assumes ipso facto
the obligations of a
purchaser, and not merely
the right subsequently to

Page 12

buy or not to buy. The

concurrence of both acts
the offer and the
acceptance generates a
binding contract of sale.
Sanchez vs Rigos (1972)

If acceptance is made
before withdrawal, it
Rural Bank of Paranaque
constitutes a binding
vs CA (1985)
contract of sale although
the option is given without
consideration. Before
acceptance, the offer may
be withdrawn as a matter
of right. Be that as it may,
the offerer cannot revoke,
before the period has
expired, in an arbitrary
manner the offer without
being liable for damages
which the offeree may
Natino vs IAC (1991)
suffer under Article 19 of
the Civil Code.
This view has the
advantage of avoiding a
conflict between Article
1324 and Article 1479, in
line with the cardinal rule
of statutory construction
that, in construing
different provisions of one
and the same law or code,
such interpretation should
be favored as will
reconcile or hamonize said
provisions and avoid a
conflict between the same.
The decision in
Ang Yu Asuncion vs CA
Soutwestern case
considers Article 1479 as (1994)
an exception to Article
1324, and exceptions are
not favored unless the
intention to the contrary is
clear, and it is not so
insofar as said two articles
are concerned. (The
doctrine laid down in the
Atkins case is reaffirmed,
Page 13

and, insofar as
inconsistent therewith, the
view adhered to in
Southwestern case should
be deemed abandoned or
modified.)
The commitment by a
bank to resell a property
within a specified period,
although accepted by the
party in whose favor it
was made, was considered
an option not supported by
a consideration. Lacking
such consideration, the
option was held void
pursuant to Southwestern
Sugar and Molasses Co.
case.
Citing Rural Bank of
Paranaque, Inc. case, the
Supreme Court held that
the promise made by the
President of a bank to
allow the petitioners to
buy (or to re-sell them) the
foreclosed property (not
redeemed since the offer
took place after the
expiration of the
redemption period) at any
time they have money is
not binding on the bank
because it was a promise
unsupported by a
consideration distinct from
the re-purchase price.
Rules where a period is
given to the offeree within
which to accept: 1. If the
period itself is not founded
upon or supported by a
separate consideration, the
offerer is still free and has
the right to withdraw the
offer before its acceptance,
or if an acceptance has
been made, before the

offerors coming to know

consideration for the main
of such fact, by
contract with a right of
communicating that
withdrawal on the part of
withdrawal to the offeree.
the optionee, the main
(this is in accordance with
contract could be deemed
Sanchez doctrine) 2. The
perfected; a similar
right to withdraw,
instance would be an
however, must not be
earnest money in contract
exercised whimsically or
of sale that can evidence
arbitrarily; otherwise, it
its perfection.
could give rise to a
Nietes vs CA (1972
Notice of the exercise of
damage claim under
the option need not be
Article 19 of the Civil
coupled with actual
Code. 3. If the period has
payment of the price, so
a separate consideration, a
long as this is delivered to
contract of option is
the owner of the property
deemed perfected, and it
upon performance of his
would be a breach of that
part of the agreement.
contract to withdraw the
offer during the agreed
HYPOTHETICAL QUESTIONS:
period. 4. The option,
1. On 1 June 2009, A offered to sell a parcel of land to
however, is an
independent contract by B for P500k. B was given a period to accept the offer
(up to 1 July 2009). B said he will give the
itself, and it is to be
consideration on 30 August 2009. Rule the case.
distinguished from the
projected main agreement 2. On 1 June 2009, A offered to sell a parcel of land to
B for P500k. B was given a period to accept the offer
(subject matter of the
option) which is obviously (up to 1 July 2009). On 2 July 2009, B accepted the
yet to be concluded. If, in offer. Rule the case.
3. On 1 June 2009, A offered to sell a parcel of
fact, the optioner-offeror
land to B for P500k. B was given a period to
wwithdraws the offer
accept the offer (up to 1 July 2009). On 2 June
before its acceptance
2009, B accepted the offer. Rule the case. 4. On
(exercise of option) by the
1 June 2009, A offered to sell a parcel of land to
optioneeofferee, the latter
B for P500k. B was given a period to accept the
may not sue for specific
offer (up to 1 July 2009). On 2 June 2009, B
performance on the
accepted the offer. However, on 3 June 2009, A
proposed contract (object
said that he is no longer interested in selling the
of the option) since it has
land. Rule the case. 5. On 1 June 2009, A
failed to reach its own
offered to sell a parcel of land to B for P500k. B
stage of perfection. The
was given a period to accept the offer (up to 1
optioner-offeror, however,
July 2009). On 2 June 2009, A wanted to
renders himself liable for
withdraw the offer, but he was unable to
damages for breach of the
communicate the withdrawal to B. B accepted
option. 5. In these cases,
the offer on 3 June 2009. Rule the case. 6. On 1
care should bo taken of the
June 2009, A offered to sell a parcel of land to B
real nature of the
for P500k. B was given a period to accept the
consideration given, for if
offer (up to 1 July 2009). They further agreed
in fact, it has been
that should B give P5k, A will not withdraw the
intended to be part of the
offer prior to the expiration of the period given
Page 14

to B. On 2 June 2009, B offered to A the P5k

consideration. A, however, said that he would
not accept the P5k as he is willing to enter into
an option contract with B even without the
payment of P5k. Rule the case.

Option Contract

Right of first refusal

Preparatory contract

Accessory contract- it
needs a principal contact
to attach to and to exist

Definition.

Concept/ Definition. It is a
right that is usually found
in a contract of lease; it is
when the lessor grants to
the lessee the privilege
that in case the lessor
decided to sell the leased
property, it would be
offered first to the lessor
in the same terms and
conditions as it would be
offered to a third person or
prospective buyers if ever
the lessee is not interested
to buy the said property.
In contracts of sale, the
basis of the right of first
refusal must be the current
offer of the seller to sell or
the offer to purchase of
the prospective buyer.
Only after the grantee
fails to exercise his right
under the same terms and
within the period
contemplated can the
owner validly offer to sell
the property to a third
person, again, under the
same terms as offered to
the grantee. (Polytechnic
University of the
Philippines vs. Court of
Appeals)

The offer must be

complete in its terms and

condition (such that the

it is still subject to further
subsequent acceptance
negotiation
would automatically give
rise to a perfected contract
of sale)
There must be a separate
and distinct consideration
other than the
consideration in the
principal contract.

No need for a separate

consideration; the
consideration is the same
for the princpal contract
where it is attached

If already perfected
a. offer/acceptance
subsequently withdrawn
- innocent party cannot
file an action for specific
performance ( Rationale:
since only the option
contract was perfected, not
the contract of a sale; the
obligation in an option
contract is a personal
obligation, thus it cannot
be compelled by an action
for specific performance ~
involuntary servitude) nor
can he file for rescission.
b. innocent party can file
for damages for breach of
contract; one cannot
whimsically do something
to injure others.

A sale in violation of the

right of first refusal:
1. Thus, the prevailing
doctrine is that a right of
first refusal means identity
of terms and conditions to
be offered to the lessee
and all other prospective
buyers and a contract of
sale entered into in
violation of a right of first
refusal of another person,
while valid, is rescissible.

Legal bases:
ART. 1380. Contracts
validly agreed upon
may be rescinded in
the cases established
by law.
ART. 1381. The
following contracts
are rescissible:
xxx
- legal basis: Art. 19.
(3) Those undertaken
Every person must, in in fraud of creditors
the exercise of his
when the latter
rights and in the
cannot in any other
performance of his
manner collect the
duties, act with
claims due them;
justice, give every
one his due, and
Since it is anchored on a
observe honesty and
valid principal contract
good faith.

If the offer is incomplete

like if there is no price or
Page 15

(usually lease), the lessor

can file an action for
specific performance.
Lessor may also rescind
the contract of sale made
in violation of his right of
first refusal.
Notes:
Lessor is under no

obligation to disclose the

same. Pursuant to Article
1339 of the New Civil
Code, silence or
concealment, by itself,
does not constitute fraud,
unless there is a special
duty to disclose certain
facts, or unless according
to good faith and the
usages of commerce the
communication should be
made. ((Riviera Filipina,
Inc. vs. Court of Appeals,
380 SCRA 245 [2002].)
(Thus, if the negotiation is
done between lessor and
lessee who had the right of
first refusal, and such
negotiation yielded to
nothing, meaning, there
was no perfected contract
between them, the lessor
can now offer the sale of
the property to other
prospective buyers-- in
Riviera, the property was
offered to lessor at 5k per
sqm but after negotiation,
lessee was unwilling to
buy so lessor offered the
property for sale to a
corporation at 5.3K per
sqm. SC: it's okay that it
was offered at a higher
price, not the same price
as it was offered to the
lessee.
(Clarine: I'm not sure if
offering it at a lower price
is also okay. Siguro naman
okay, lang kasi tapos
naman na ang negotiation
nila, following SC's
statement that the lessor
has no obligation to
disclose other transactions
after negotiation; pero
kung iisipin, pwede naman

palang mas mababang

price ibenta, bakit hindi
yun ang inoffer niya kay
lessee 'di ba? Kaya may
doubts ako 'pag lower ang
price. Hi Dana! Hi Lex!
Hihihi)
Option Money

Earnest Money

Definition. Money given Money given to signify

as a distinct consideration one's earnest intention to
for an option contract
buy the property being
offered for sale.
De Leon: Earnest money
is something of value
given by the buyer to the
seller to show that the
buyer is really in earnest,
and to bind the bargain. It
is actually a partial
payment of the purchase
price and is considered as
proof of the perfection of
the contract.
As a distinct and separate Earnest money becomes
consideration other than
part of the purchase
the purchase price, option price.~down payment
money and the purchase
price is NOT the SAME
Presumption: There is no
perfected contract of sale
but there is a perfected
contract of option

There is already a
perfected contract of sale.

The would-be buyer who

gives option money is not
required to buy. (Adelfa
Properties, Inc. vs. Court
of Appeals, 58 SCAD 962,
240 SCRA 565 [1995]

When earnest money is

given, the buyer is bound
to pay the balance. (Adelfa
Properties, Inc. vs. Court
of Appeals, 58 SCAD 962,
240 SCRA 565 [1995]

Legal basis: ART. 1482.

Whenever earnest
money is given in a
contract of sale, it
shall be considered
as part of the price
and as proof of the
perfection of the
contract.

De Leon: But option money may become earnest

Page 16

over the property of Madame. Does Clau have the right

to demand? Suggested Answer: No. No knowledge of
acceptance yet.

money if the parties so agree.

B. Perfection Stage
ART. 1319. Consent is manifested by
the meeting of the offer and the
acceptance upon the thing and the
cause which are to constitute the
contract. The offer must be certain
and the acceptance absolute.
A quali ed acceptance
constitutes a counter-offer.

Ariel offered to sell his laptop to Anjojo for P40k.

Anjojo accepted the offer as signified by a small piece
of paper indicating his acceptance and a reminder from
Ariel of their friendship so as the latter to give him
discount. Is there a perfected contract of sale?
Suggested Answer: No. Acceptance is not absolute

ART. 1319 (2) Acceptance made by

letter or telegram does not bind the
Offer a unilateral proposition which one party makes offerer except from the time it came
to his knowledge. The contract, in
to the contracting parties for the celebration of the
such a case, is presumed to have been
contract.
entered into in the place where the
Requisites: i. Definite the offer must be definite, so
offer was made.
that upon acceptance an agreement can be reached on
the whole contract. ii. Complete the offer must be
complete indicating with sufficient clearness the kind of Acceptance by correspondence
1. Manifestation theory contract is perfected from the
contract intended and definitely stating the essential
moment the acceptance is declared or made (followed
conditions of the proposed contract, as well as the
nonessential ones desired by the offeror. iii. Intentional by the Code of Commerce)
2. Expedition theory the contract is perfected from the
an offer without seriousness made in such manner
that the other party would not fail to notice such lack of moment the offeree transmits the notification of
seriousness, is absolutely without juridical effects and acceptance to the offeror, as when the letter of
acceptance is place in the mailbox.
cannot give rise to a contract. '
Withdrawal of the offer the offeror may still withdraw 3. Reception theory the contract is perfected from the
moment that the notification of acceptance is in the
his offer or proposal so long as he still has no
hands of the offeror in such a manner that he can, under
knowledge of the acceptance by the offeree.
ordinary conditions, procure the knowledge of its
contents, even if he is not able to actually acquire such
Acceptance the signification of the assent of the
knowledge due to some reason.
offeree to the proposition of the offeror. The
4. Cognition theory the contract is perfected from the
acceptance must not qualify the terms of the offer; a
qualified acceptance constitutes a counter-offer (Art. moment the acceptance comes to the knowledge of the
offeror (followed by the Civil Code)
1319)
Requisites: i. Clear. ii. Absolute. iii. Directed to the
offeror. iv. Made known to the offeror within a
reasonable time. v. Communicated to the offeror and
learned by him

Exception: Constructive knowledge. When the offeror

already has a constructive knowledge of the contents of
the letter or telegram, it is but logical that he shall be
bound by the acceptance made by the offeree.

Madame Sheila offered her IPAD2 for sale in the class.

She said that whoever is interested to buy it may simply
ART. 1320. An acceptance may be
leave a note and a downpayment worth P10k in her bag.
express or implied.
Clau showed her interest by doing exactly as per
Madames instruction. After an hour, Utol Ella
ART. 1321. The person making the
approached Madame personally and asked the latter to offer may x the time, place, and
sell her IPAD2 with her. When Madame Sheila sold it manner of acceptance, all of which
to Utol Ella, Clau complained and insisted her right
must be complied with.
Page 17

ART. 1459. The thing must be licit

and the vendor must have a right to
Right of the offeror The offeror has the right to
prescribe the manner, conditions, and terms of sale, and transfer the ownership thereof at the
where these are reasonable and are and made known to time it is delivered.
the buyer, they are binding upon the latter; an
acceptance which is not made in the manner prescribed
OBJECT
by the offeror is not effective, but constitutes a counteroffer which the offeror may accept.
Recall. Objects of a contract may either be a thing or
service.
Withdrawal of the acceptance acceptance may be
revoked before it comes to the knowledge of the offeror ART. 1347. All things which are not
because in such case there is still no meeting of the
outside the commerce of men,
minds. Note: both the offer and acceptance can be
including future things, may be the
revoked before the contract is perfected; a contract is object of a contract. All rights
perfected only from the time the acceptance is known to which are not intransmissible may
the offeror.
also be the object of contracts. No
contract may be entered into upon
future inheritance except in cases
ART. 1322. An offer made through an
expressly authorized by law. All
agent is accepted from the time
services which are not contrary to
acceptance is communicated to him.
law, morals, good customs, public
order or public policy may likewise
ART. 1323. An offer becomes
be the object of a contract.
ineffective upon the death, civil
interdiction, insanity, or insolvency BUT from the definition of the contract of sale itself,
of either party before acceptance is contracts of sale can only have THINGS as its object,.
conveyed.
ART. 1458. By the contract of sale
Goku offered to sell his dragon balls to Vegeta. Vegeta one of the contracting parties
accepted the offer. However, Goku died. So Vegeta
obligates himself to transfer the
communicated his acceptance to Gokus son, Gohan. Is ownership of and to deliver a
there a perfected contract of sale? Suggested Answer: determinate thing, and the other to
No. Because acceptance did not come to the knowledge pay therefor a price certain in money
of the offeror who made the offer. The offer became
or its equivalent.
ineffective upon Gokus death because acceptance was
not yet conveyed (Art. 1323)
Recall. What may NOT be the object of ANY contract:
Requisites: 1. It must be licit 2. It must be existing, or it
What if acceptance came to the knowledge of the
may be future, or even contingent 3. It must be
offeror before he died? Suggested Answer: There is a determinate or at least determinable.
perfected contract of sale. Thus, Gohan, as heir of
1. contrary to law, morals, good customs, public
Goku, shall be bound by the contract entered into by his
policy or public order
father, based on the principle of the relativity of
2. indeterminate things as to their kind
contracts (Art. 1311)
3. outside the commerce of men
4. intransmissible rights
ART. 1325. Unless it appears
5. future inheritance except when authorized by
otherwise, business advertisements of
law
things for sale are not de nite
6. impossible things or services
offers, but mere invitations to make
an offer.
A. LICIT.
ART. 1459. The thing must be licit
Page 18

and the vendor must have a right to

possessed by the seller, or goods to
transfer the ownership thereof at the be manufactured, raised, or acquired
time it is delivered.
by the seller after the perfection of
the contract of sale, in this Title
called future goods. There may be a
ART. 1347. All things which are not
contract of sale of goods, whose
outside the commerce of men,
acquisition by the seller depends
including future things, may be the
upon a contingency which may or may
object of a contract. All rights
not happen.
which are not intransmissible may
also be the object of contracts. No
ART. 1465. Things subject to a
contract may be entered into upon
resolutory condition may be the
future inheritance except in cases
object of the contract of sale.
expressly authorized by law. All
services which are not contrary to
law, morals, good customs, public
Existing goods goods owned or possessed by the
order or public policy may likewise
seller (Art. 1462) Future goods goods to be
be the object of a contract.
manufactured, raised or acquired by the seller after the
perfection of the contract of sale (Art. 1462) Future
HYPOTHETICAL.
things those which do not belong to the obligor at the
a. A offered for sale 1 kg of dried marijuana leaves to B.time the contract is made
B accepted the offer.
Was there a perfected contract of sale? YES
Things having a potential existence (Emptio rei
What is the nature of the contract? VOID. The object is speratae) may the object of the contract of sale. The
illicit.
efficacy of a mere hope or expectancy (Emptio spei) is
deemed subject to the condition that the thing will come
Examples of void sale due to being illicit: - Sale of
into existence. The sale of a vain hope or expectancy is
animals suffering from contagious diseases (Art. 1575) void (Art. 1461)
- Sale of animals if the use or service for which they are
acquired has been stated in the contract, and they are
Emptio rei speratae sale of a thing with potential
found to be unfit therefor (Art. 1575) - Sale of future existence, subject to a suspensive condition that the
inheritance. (Art. 1347)
thing will come into existence. If the subject matter
does not come into existence, the contract is deemed
extinguished as soon as the time expires or if it has
B. POSSIBLE
become indubitable that the event will not take place
ART. 1348. Impossible things or
(Art. 1184).
services cannot be the object of
Example: sale of pending crops which have potential
contracts.
existence may be a valid object of sale (Sibal v. Valdez)
ART. 1461. Things having a potential
existence may be the object of the
contract of sale. The efficacy of the
sale of a mere hope or expectancy is
deemed subject to the condition that
the thing will come into existence.
The sale of a vain hope or expectancy
is void.

Emptio spei sale of a mere hope or expectancy.

Example: sale of a sweepstake ticket for P100 where
the buyer purchases the ticket with the hope that upon
the draw the ticket would win him a million pesos. The
object of sale here is not the prize, but rather the ticket
or the chance to win.

ART. 1462. The goods which form the

subject of a contract of sale may be
either existing goods, owned or

Emptio rei speratae (sale

of thing expected) is the
sale of a thing not yet in

EMPTIO REI SPERATAE EMPTIO SPEI

Page 19

emptio spei is the sale of

the hope itself that the
thing will come into

Future inheritance inheritance includes all the

properties, rights, and obligations of a person which are
not extinguished by his death (Art. 776). The
inheritance of a person includes not only the property
and transmissible rights and obligations existing at the
time of his death, but also those which have accrued
thereto since the opening of the succession (Art. 781)

existence subject to the

condition that the thing
will exist and on failure of
the condition, the contract
becomes ineffective and
hence, the buyer has no
obligation to pay the price.

existence, where it is
agreed that the buyer will
pay the price even if the
thing does not eventually
exist.

In emptio rei speratae, the

future thing is certain as to
itself but uncertain as to
its quantity and quality.
Such sale is subject to the
condition that the thing
will come into existence
(see Art. 1545, par. 2.),
whatever its quantity or
quality.

In emptio spei (like the

Requisites for the exception 1. The succession has not
sale of a sweepstake
yet been opened. 2. The object of the contract forms
ticket), it is not certain that part of the inheritance. 3. That the promissory has, with
the thing itself (winning a respect to the object, an expectancy of a right which is
prize) will exist, much less purely hereditary in nature.
its quantity and quality.
ART. 1463. The sole owner of a thing
may sell an undivided interest
therein.

ART. 1464. In the case of fungible

goods, there may be a sale of an
undivided share of a specific mass,
though the seller purports to sell
and the buyer to buy a definite
the sale is subject to the
produces effect even
number, weight or measure of the
condition that the thing
though the thing does not goods in the mass, and though the
should exist, so that if it
come into existence
number, weight or measure of the
does not, there will be no because the object of the goods in the mass is undetermined. By
contract by reason of the contract is the hope itself, such a sale the buyer becomes owner
absence of an essential
unless it is a vain hope or in common of such a share of the mass
element.
expectancy (like the sale as the number, weight or measure
of a falsified sweepstake bought bears to the number, weight or
ticket which can never
measure of the mass. If the mass
win).
contains less than the number, weight
or measure bought, the buyer becomes
the owner of the whole mass and the
DE LEON: Presumption in case of doubt. In case of
doubt, the presumption is in favor of emptio rei sperataeseller is bound to make good the
deficiency from goods of the same
which is more in keeping with the commutative
kind and quality, unless a contrary
character of the contract.
intent appears.
Sale of a thing subject to a resolutory condition
things subject to a resolutory condition may be the
C. DETERMINATE OR AT LEAST
object of a contract of sale (Art. 1465). When the
condition have for their purpose, the extinguishment of DETERMINABLE
an obligation to give, the parties, upon fulfilment of
ART. 1349. The object of every
said conditions, shall return to each other what they
contract must be determinate as to
have received (Art. 1190)
its kind. The fact that the quantity
Future things may be the object of a contract of sale, is not determinate shall not be an
obstacle to the existence of the
exception
contract, provided it is possible to
Sale of future inheritance
the contract deals with a
future thing

the contract relates to a

thing which exists or is
present the hope or
expectancy.

Page 20

determine the same, without the need

of a new contract between the
parties.

A thing is generic or indeterminate when it

refers only to a class or genus to which it
pertains and cannot be pointed out with
particularity.
ART. 1460. A thing is determinate
EXAMPLES: (1) a Bulova calendar watch. (2) a
when it is particularly designated or
2006 model Japanese car. (3) a police dog. (4) a
physically segregated from all others
cavan of rice. (5) the sum of P10,000.00.
of the same class. The requisite that
A determinate thing is identi ed by its
a thing be determinate is satisfied
individuality. The debtor cannot substitute it
if at the time the contract is
with another although the latter is of the same
entered into, the thing is capable of
kind and quality without the consent of the
being made determinate without the
creditor. (Art. 1244.)
necessity of a new or further

A generic thing is identi ed only by its specie.

agreement between the parties.
The debtor can give anything of the same class
as long as it is of the same kind.
REASON WHY THE LAW REQUIRES THE THING
EXAMPLES: (1) If Ds obligation is to deliver
TO BE DETERMINATE.
to C a Bulova calendar watch, D can deliver any
Ans. Mutuality of a contract.
watch as long as it is Bulova with calendar. But
ART. 1308. The contracts must bind
if Ds obligation is to deliver to C a particular
both contracting parties; its
validity or compliance cannot be left
watch, the one D is wearing, D cannot substitute
to the will of one of them.
it with another watch without Cs consent nor
can C require D to deliver another watch
De Leon: Article 1308 expresses this principle. The
without Ds consent although it may be of the
ultimate purpose of the principle is to nullify a contract
same kind and value. (see Arts. 1244, 1246.) (2)
containing a condition which makes its ful llment or
If Ds obligation is to deliver to C one of his
pre-termination dependent exclusively upon the
cars, the object refers to a class which in itself is
uncontrolled will of one of the contracting parties. A
determinate. Here, the particular thing to be
contract is an agreement which gives rise to obligations.
delivered is determinable without the need of a
It must bind both parties in order that it can be enforced
new contract between the parties (see Art.
against either. Needless to say, a contract can be
1349.); it becomes determinate upon its
renewed, revived, extended, abandoned, renounced, or
delivery.
terminated only by mutual consent of the parties.
Without this mutuality and equality between the parties,
Duties of debtor in obligation to give a
it cannot be said that the contract has the force of law
determinate thing. : (1) To preserve or take care
between them.
of the thing due; (2) To deliver the fruits of the
thing (see Art. 1164.); (3) To deliver its
DE LEON
accessions and accessories (see Art. 1166.); (4)
The above provision refers to an obligation to
To deliver the thing itself (see Arts. 1163, 1233,
1244; as to kinds of delivery, Arts. 1497 to
give a speci c or determinate thing.
1501.); and (5) To answer for damages in case
A thing is said to be speci c or determinate
of non-ful llment or breach. (see Art. 1170.)
when it is particularly designated or physically

The debtor must exercise diligence to insure that

segregated from all others of the same class.
the thing to be delivered would subsist in the
(Art. 1460.)
same condition as it was when the obligation
EXAMPLES: (1) The watch I am wearing. (2)
was contracted. Without the accessory duty to
The car sold by X. (3) My dog named Terror.
take care of the thing, the debtor would be able
(4) The house at the corner of Rizal and Del
to afford being negligent and he would not be
Pilar Streets. (5) The Toyota car with Plate No.
liable even if the property is lost or destroyed,
AAV 344. (6) This cavan of rice. (7) The money
thus rendering illusory the obligation to give.
I gave you.
DUTIES OF THE OBLIGOR IF THE THING TO BE
Page 21

DELIVERED IS A DETERMINATE THING.

1. TO DELIVER THE THING ITSELF

ART. 1166. The obligation to give a

determinate thing includes that of
delivering all its accessions and
accessories, even though they may not
have been mentioned.

To be considered paid/ fulfilled, 2 requisites must

concur:
1. integrity of the prestaton.- This requisite means
4. TO DELIVER THE FRUITS
that the prestation be ful lled completely.
Partial fulfillment is not allowed.
ART. 1164. The creditor has a right
to the fruits of the thing from the
ART. 1233. A debt shall not be
time the obligation to deliver it
understood to have been paid unless
arises. However, he shall acquire no
the thing or service in which the
real right over it until the same has
obligation consists has been
completely delivered or rendered, as been delivered to him.
the case may be.
ART. 1248. Unless there is an express CORRELATIVE RIGHTS OF THE OBLIGEE
stipulation to that effect, the
creditor cannot be compelled
1. RIGHT TO COMPEL DELIVERY plus DAMAGES
partially to receive the prestations 1st Basis: The Contract of Sale involves a reciprocal
in which the obligation consists.
obligation.
Neither may the debtor be required to
ART. 1191. The power to rescind
make partial payments.
obligations is implied in reciprocal
However, when the debt is in part
liquidated and in part unliquidated, ones, in case one of the obligors
should not comply with what is
the creditor may demand and the
debtor may effect the payment of the incumbent upon him. The injured party
may choose between the fulllment and
former without waiting for the
the rescission of the obligation,
liquidation of the latter.
with the payment of damages in either
case. He may also seek rescission,
2. Identity of the the prestation. the very
prestation due must be delivered or performed. even after he has chosen fulllment,
if the latter should become
ART. 1244. The debtor of a thing
cannot compel the creditor to receive impossible. The court shall decree
a different one, although the latter the rescission claimed, unless there
may be of the same value as, or more be just cause authorizing the xing
of a period. This is understood to be
valuable than that which is due.
without prejudice to the rights of
2. TO PRESERVE THE THING WITH DUE CARE third persons who have acquired the
thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
ART. 1163. Every person obliged to
give something is also obliged to
take care of it with the proper
2nd basis: The object in a contract of sale is a
diligence of a good father of a
determinate thing.
family, unless the law or the
ART. 1165. When what is to be
stipulation of the parties requires
delivered is a determinate thing, the
another standard of care.
creditor, in addition to the right
granted him by Article 1170, may
3. TO DELIVER THE ACCESSIONS AND
compel the debtor to make the
ACCESSORIES
Page 22

delivery. If the thing is

indeterminate or generic, he may ask
that the obligation be complied with
at the expense of the debtor. If the
obligor delays, or has promised to
deliver the same thing to two or more
persons who do not have the same
interest, he shall be responsible for
any fortuitous event until he has
effected the delivery.

which the debtor may have done to

defraud them.

5. ACCION PAULIANA
ART. 1177. The creditors, after
having pursued the property in
possession of the debtor to satisfy
their claims, may exercise all the
rights and bring all the actions of
the latter for the same purpose, save
those which are inherent in his
person; they may also impugn the acts
2. RESCIND THE OBLIGATION
Basis: Contract of sale involves a reciprocal obligation which the debtor may have done to
defraud them.
ART. 1191. The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
*6. OTHER SPECIFIC REMEDIESACCION
should not comply with what is
DERECTA
incumbent upon him. The injured party a. Lessor v. Sub-lessee
may choose between the fulllment and ART. 1652. The sublessee is
the rescission of the obligation,
subsidiarily liable to the lessor for
with the payment of damages in either any rent due from the lessee.
case. He may also seek rescission,
However, the sublessee shall not be
even after he has chosen fulllment, responsible beyond the amount of rent
if the latter should become
due from him, in accordance with the
impossible. The court shall decree
terms of the sublease, at the time of
the rescission claimed, unless there the extra-judicial demand by the
be just cause authorizing the xing lessor.
of a period. This is understood to be
without prejudice to the rights of
b. Vendee a retro v. vendee a retro's transferee
third persons who have acquired the
ART. 1608. The vendor may bring his
thing, in accordance with Articles
action against every possessor whose
1385 and 1388 and the Mortgage Law.
right is derived from the vendee,
even if in the second contract no
mention should have been made of the
3. ASK FOR DAMAGES (EXCLUSIVELY)
ART. 1170. Those who in the
right to repurchase, without
performance of their obligations are prejudice to the provisions of the
guilty of fraud, negligence, or
Mortgage Law and the Land
delay, and those who in any manner
Registration Law with respect to
contravene the tenor thereof, are
third persons.
liable for damages.
4. ACCION SUBROGATORIA
ART. 1177. The creditors, after
having pursued the property in
possession of the debtor to satisfy
their claims, may exercise all the
rights and bring all the actions of
the latter for the same purpose, save
those which are inherent in his
person; they may also impugn the acts

Recall.
Prestations may be:
1. obligation to give
2. obligation to do or not to do
The obligation to give may be:
a. to give a determinate thing
b. to give a generic or indeterminate thing
***The contract of sale involves an obligation to give
a determinate thing.***

Page 23

TO GIVE A
DETERMINATE/
SPECIFIC THING

TO GIVE AN
INDETERMINATE/
GENERIC THING

(1) If the thing is lost without the fault

of the debtor, the obligation shall be
extinguished;

-Action for specific

performance plus damages
-To rescind the contract
plus damages

-To ask that the obligation

be complied with, but not
via an action for specific
performance
-To demand that the
obligation be complied
with at the expense of the
debtor plus damages

(2) If the thing is lost through the fault

of the debtor, he shall be obliged to pay
damages; it is understood that the thing is
lost when it perishes, or goes out of
commerce, or disappears in such a way that
its existence is unknown or it cannot be
recovered;

ART. 1246. When

the obligation
consists in the
delivery of an
indeterminate or
generic thing,
whose quality and
circumstances have
not been stated,
the creditor
cannot demand a
thing of superior
quality. Neither
can the debtor
deliver a thing of
inferior quality.
The purpose of the
obligation and
other
circumstances
shall be taken
into
consideration.
(rule of the medium
quality: de leon)

(3) When the thing deteriorates without the

fault of the debtor, the impairment is to be
borne by the creditor;
(4) If it deteriorates through the fault of
the debtor, the creditor may choose between
the rescission of the obligation and its
ful llment, with indemnity for damages in
either case;
(5) If the thing is improved by its nature,
or by time, the improvement shall inure to
the bene t of the creditor;
(6) If it is improved at the expense of the
debtor, he shall have no other right than
that granted to the usufructuary.

In case the thing was loss

during the pendency of the
condition, if without fault
of obligor: Obligation is
extinguished
If lost was due to FE:
obligation extinguished if
there was no fault on the
part of the obligor AND
he was not in delay.

ART. 1165. When

what is to be
delivered is a
Entitled to fruits from the None
determinate
time the obligation to
thing, the
deliver arises
creditor, in
addition to the
ART. 1189. When the conditions have been
imposed with the intention of suspending the right granted him
by Article 1170,
ef cacy of an obligation to give, the
following rules shall be observed in case of may compel the
the improvement, loss or deterioration of
debtor to make
the thing during the pendency of the
the delivery. If
condition:
the thing is
Page 24

In case of loss, the

obligation is not
extinguished, even if loss
was due to FE
Rationale: genus nunquam
perit (genus never
perishes)

indeterminate or
generic, he may
ask that the
obligation be
complied with at
the expense of
the debtor. If
the obligor
delays, or has
promised to
deliver the same
thing to two or
more persons who
do not have the
same interest, he
shall be
responsible for
any fortuitous
event until he
has effected the
delivery.

CASE

DOCTRINE

Martin vs Reyes

Property or goods which

at the time of the sale are
not owned by the seller
but which thereafter are to
be acquired by him,
cannot be the subject of an
executed sale but may be
the subject of a contract
for the future sale and
delivery thereof, even
though the acquisition of
the goods depends upon a
contingency which may or
may not happen. In such
case, the vendor assumes
the risk of acquiring the
title and making the
conveyance, or responding
in damages for the
vendee's loss of his
bargain.

De Leon: The manner of

compliance with an
obligation to deliver a
generic thing is governed Melizza vs City of Iloilo
by Article 1246. Under the
Constitution, no person
shall be imprisoned for
non-payment of debt. (Art.
III, Sec. 20 thereof.)
However, a person may be
subject to subsidiary
imprisonment for nonpayment of civil liability
adjudged in a criminal
case. (see Art. 1161.) The
constitutional prohibition
refers to purely civil debt
or one arising from
contractual obligations
only.

A thing is determinable (and this satisfies the

requirement that the thing be determinate as per Art.
1458) when the following concur: (a) If at the time the
contract is entered into, the thing is capable of being
made determinate; and (b) Without the necessity of a
new or further agreement between the parties.
Page 25

Iloilo
The requirement of the
law that a sale must have
for its object a determinate
thing, is fulfilled as long
as, at the time the contract
is entered into, the object
of the sale is capable of
being made determinate
without the necessity of a
new or further agreement
between the parties (Art.
1273, old Civil Code; Art.
1460, New Civil Code).
The specific mention of
some of the lots plus the
statement that the lots
object of the sale are the
ones needed for city hall
site; avenues and parks,
according to the Arellano
plan, sufficiently provides
a basis, as of the time of
the execution of the
contract, for rendering

determinate said lots

without the need of a new
and further agreement of
the parties. Appellant
however fails to consider
that the area needed under
that plan for city hall site
was then already known; it
could be determined
which, and how much of
the portions of land
contiguous to those
specifically named, were
needed for the
construction of the city
hall site.

of "the wine a vine is

expected to produce; or
the grain a field may grow
in a given time; or the
milk a cow may yield
during the coming year; or
the wool that shall
thereafter grow upon a
sheep; or what may be
taken at the next cast of a
fisherman's net; or the
goodwill of a trade, or the
like. The thing sold,
however, must be specific
and identified. They must
be also owned by the
vendor at the time.

National Grains Authority The object of the contract,

vs IAC
being the palay grains
Domingo Realty vs CA
The object of a contract, in
produced in Soriano's
order to be considered as
farmland and the NFA was
"certain," need not specify
to pay the same depending
such object with absolute
upon its quality. The fact
certainty. It is enough that
that the exact number of
the object is determinable
cavans of palay to be
in order for it to be
delivered has not been
considered as "certain."
determined does not affect
-In the instant case, the
the perfection of the
title over the subject
contract. Article 1349 of
property contains a
the New Civil Code
technical description that
provides: ". . .. The fact
provides the metes and
that the quantity is not
bounds of the property of
determinate shall not be an
petitioners. Such technical
obstacle to the existence
description is the final
of the contract, provided it
determinant of the extent
is possible to determine
of the property of
the same, without the need
petitioners. Thus, the area
of a new contract between
of petitioners property is
the parties." In this case,
determinable based on the
there was no need for NFA
technical descriptions
and Soriano to enter into a
contained in the TCTs.
new contract to determine
the exact number of
*Art. 1459 provides that the seller must have the right
cavans of palay to be sold. to transfer the ownership at the time the thing is
Soriano can deliver so
delivered. Hence, it is not required that the seller is the
much of his produce as
owner of the thing at the moment of the perfection of
long as it does not exceed the contract of sale. GEN. RULE: The owner need not
2,640 cavans. Pichel
be the owner of the thing at the time of perfection.
Pichel vs Alonzo
A valid sale may be made EXCEPTION: Conchita Nool vs CA and Cavite
Development Bank vs Lim
Page 26

from denying the seller's

authority to sell." Here,
there is no allegation at all
that petitioners were
authorized by DBP to sell
the property to the private
respondents.
Jurisprudence, on the
other hand, teaches us that
"a person can sell only
what he owns or is
authorized to sell; the
buyer can as a
consequence acquire no
more than what the seller
can legally transfer." As
petitioners "sold" nothing,
it follows that they can
also "repurchase" nothing.
In this light, the contract
of repurchase is also
inoperative and by the
same analogy, void.

CASE

DOCTRINE

Cavite Development
Bank, et al vs Cyrus Lim,
et al.

In the case at bar, a

contract of sale was
perfected. The sum of
P30,000.00, although
denominated in the offer
to purchase as "option
money," is actually in the
nature of earnest money or
down payment when
considered with the other
terms of the offer.
Contracts are not defined
by the parties thereto but
by principles of law. In
determining the nature of
a contract, the courts are
not bound by the name or
title given to it by the
contracting parties. However, a legal obstacle
has rendered it impossible
in the case at bar, to
perform its obligation. The HYPOTHETICAL.
1. A brought B to the place where As property is
sale to Lim of the property
located. A told B that the size of his land is as
mortgaged by Rodolfo is
big as far as Bs eyes can see. A offered to sell
deemed a nullity for CDB
this land to B for P500k. B accepted the offer. Is
never acquired a valid title
there a perfected contract? Yes. The subject
to the property because the
matter is determinable or capable of being made
foreclosure sale, in which
determinate without the need for a new or
CDB has been awarded
further agreement between A and B.
the property is also a
2. In 1911, the sale of alcoholic drinks to
nullity since the mortgagor
members of the non-Christian tribes is
is not the real owner of the
prohibited. During that time, A sold B (a
said property.
member of the non-Christian tribe) an alcoholic
Article 1505 of the Civil
drink. In 1912, Congress passed a law
Code provides that "where
decriminalizing the sale of alcoholic drinks to
goods are sold by a person
members of non-Christian tribes. Is the sale
who is not the owner
between A and B valid? No. The contract of sale
thereof, and who does not
is still void for being illegal. The validity of the
sell them under authority
contract is determined as of the time it is
or with consent of the
perfected.
owner, the buyer acquires
3. A sold B a very old lottery ticket (dated 1965).
no better title to the goods
Is the sale valid? It is void as it is a sale of vain
than the seller had, unless
hope. However, if the lottery ticket is a
the owner of the goods is
collectors item, there is a valid sale.
by his conduct precluded
4. Tracy bought one of the 10 horses of Joy for

Conchita Nool vs CA

Page 27

50K. Is there a valid contract of sale? Suggested

object? Yes. Upon the division of the land, A is
Answer: Yes, the object can be ascertained or
already the owner of the land.
determinable.
14. F owns a parcel of land. During his lifetime, his
5. Irene sold 4kg of wagwag rice to Ela for 400. Is
wife and three children executed a partition of
there a valid contract of sale? Suggested
the said land and sold their shares to H. Is the
Answer: Yes, the object is determinable without
partition valid? Suggested Answer: No, the
the need of a new or further agreement between
partition was executed during the lifetime of F
the parties.
and without his consent. Is there a valid
6. A entered into a contract of sale with B a dog
contract? No, the sellers have no right to sell the
for P5k. Is there a perfected contract? Suggested
property.
Answer: No. Not all the elements of a contract
15. Quantity of things to be delivered or agreed
of sale are present.
upon is not stated in the contract. Is the contract
7. Is there a valid object? Suggested Answer: No.
valid? Yes. Quantity can be ascertained by
The object is not determinate or determinable.
simple mathematical computation
8. A entered into a contract of sale of a mazda car
16. Is the sale of losing lottery ticket valid? It
zjn 245 with B for P500k. Is there a perfected
depends upon the intention of the buyer. It is
contract? Suggested Answer: Yes. All the
valid if the losing lottery ticket was sold for
elements of a contract of sale are present.
collection or memorabilia, otherwise, it is void.
Is there a valid object? Suggested Answer: Yes. The
object is determinate
PRICE
9. A entered into a contract of sale of a mazda car Definition. Price price signifies the sum stipulated as
zjn 245 or lot with B for P500k. Is there a
the equivalent of the thing sold and also every incident
perfected contract? Suggested Answer: Yes. All taken into consideration for the fixing of the price put to
the elements of a contract of sale are present. the debit of the buyer and agreed to by him (Inchausti
Is there a valid object? Suggested Answer: Yes. As to & Co. v. Cromwell)
the car, the object is valid as to the lot not valid object
for it is not a determinate or determinable object.
ART. 1458. By the contract of sale
10. A entered into a contract of sale of a mazda car one of the contracting parties
zjn 245 and lot with B for P500k. Is there a
obligates himself to transfer the
perfected contract? Suggested Answer: No. Not ownership of and to deliver a
all the elements of a contract of sale are present. determinate thing, and the other to
Is there a valid object? Suggested Answer: No. The
pay therefor a price certain in money
object is not determinate. Only the car is determinate. or its equivalent. xxx
11. Is it necessary that the object be in existence at
the time of perfection of contract? No. Art 1462. Requisites: 1. It must be real 2. It must be in money or
12. A owns a parcel of land worth P500k. S son of its equivalent (Arts. 1458 and 1468) 3. It must be
A, entered into a contract of sale with B for the certain or ascertainable at the time of the perfection of
sale of the said parcel of land. Is there a
the contract
perfected contract of sale? Suggested Answer:
No as to A and B as they dont have privity of REAL (not simulated)
contracts. Yes as between S and B (privity of
Price is real when at the perfection of the contract, there
contracts). Is there a valid object? No. Future is every intention on the part of the buyer to pay the
inheritance cannot be a valid object of contract price, and every intention on the part of the seller to
of sale.
receive such price
13. F has a paraphernal land. During his lifetime, F
divided the land to W, A, B, and C. A entered
into a contract of sale with H for his share of
ART. 1471. If the price is simulated,
land for P500k. Is there a perfected contract?
the sale is void, but the act may be
Suggested Answer: Yes. All the elements of a shown to have been in reality a
contract of sale are present. Is there a valid
Page 28

donation, or some other act or

contract
If the price is simulated General Rule: The sale is
VOID
Exception: If it can be shown to be a donation or
another contract (Art. 1471).

their contemporaneous
and subsequent acts.

When a contract is void due to absence of

consideration, no title over the subject matter can be
conveyed. Nemo potest nisi quod de jure potest no
man can do anything except what he can do lawfully
(Traders Royal Bank v. Court of Appeals, G.R . No .
93397, March 3 , 1997).
SIMULATED
CONTRACT

SIMULATED PRICE

Simulation of a contract is
the act of deliberately
deceiving others, by
feigning or pretending by
agreement, the appearance
of a contract which is
either non-existent or
concealed or is different
from that which was really
executed.

The contract is real and

not simulated.
Simulation of price is the
act of making it appear
that there was a price
certain in money or its
equivalent that was agreed
upon when in reality there
is none OR if the price
stated is not the one
intended to be paid.

The purpose of simulation

is to hide the parties true
intent, or to deceive or
defraud third persons
The requisites for
simulation are: (a) an
outward declaration of
will different from the will
of the parties; (b) the false
appearance must have
been intended by mutual
agreement; and (c) the
purpose is to deceive third
persons.
The primary consideration
in determining the true
nature of a contract is the
intention of the parties.
Such intention is
determined from the
express terms of the
agreement as well as from

ART. 1345.
Simulation of a
contract may be
absolute or
relative. The
former takes
place when the
parties do not
intend to be
bound at all; the
latter, when the
parties conceal
their true
agreement.
ART. 1346. An
absolutely
simulated or
ctitious contract
is void. A
relative
simulation, when
it does not
prejudice a third
person and is not
intended for any
purpose contrary
to law, morals,
good customs,
public order or
public policy
binds the parties
to their real
agreement.
The contract is:
a. VOI D if the simulation
was ABSOLUTE.
Art. 1409 (2) The
ff. Contracts are
inexistent and
void from the
beginning:
(2) those which

Page 29

A contract of sale where

the price is simulated is:
a. VOID if there was, in
reality, no price. It is void
because there is no cause.
Art. 1409 (3) The
ff. Contracts are
inexistent and
void from the
beginning:
(3) those whose
cause or object
did not exist at
the time of the
transaction.
BUT the act may be
shown to have been in
reality a donation, or some
other act or contract (Art.
1471).
If the price is simulated or
false such as when the
vendor really intended to
transfer the thing
gratuitously, then the sale
is void but the contract
shall be valid as a
donation. (Arts. 1471,
1345, 1353.)
If the contract is not
shown to be a donation or
any other act or contract
transferring ownership
because the parties do not
intend to be bound at all ,
the ownership of the thing
is not transferred. The
contract is void and
inexistent.
The action or defense for
the declaration of the

are absolutely
simulated or
fictitious.

inexistence of a contract
does not prescribe.
b. VALID if there was a
price but what was
b. VALID if the simulation indicated in the instrument
was RELATIVE and it
is false. This gives rise for
does not prejudice a third the reformation of the
person and is not intended contract.
for any purpose contrary
ART. 1359. When,
to law, morals, good
there having been
customs public order or
a meeting of the
public policy.
minds of the
-It binds the parties to
their real agreement (Art. parties to a
contract, their
1346).
true intention is
- This gives rise for the
not expressed in
reformation of the
the instrument
contract.
purporting to
embody the
agreement, by
reason of mistake,
fraud, inequitable
conduct or
accident, one of
the parties may
ask for the
reformation of the
instrument to the
end that such true
intention may be
expressed. If
mistake, fraud,
inequitable
conduct, or
accident has
prevented a
meeting of the
minds of the
parties, the
proper remedy is
not reformation of
the instrument but
annulment of the
contract.
On Reformation:
In order that reformation may be availed of as a
remedy, the following requisites must be present: (1)
There is a meeting of the minds of the parties to the

contract; (2) The written instrument does not express

the true agreement or intention of the parties; (3) The
failure to express the true intention is due to mistake,
fraud, inequitable conduct, or accident; (4) The facts
upon which relief by way of reformation of the
instrument is sought are put in issue by the pleadings;
and (5) There is clear and convincing evidence1
(which is more than mere preponderance of evidence)
of the mistake, fraud, inequitable conduct, or accident.
ART. 1361. When a mutual mistake of
the parties causes the failure of
the instrument to disclose their
real agreement, said instrument may
be reformed.
ART. 1362. If one party was mistaken
and the other acted fraudulently or
inequitably in such a way that the
instrument does not show their true
intention, the former may ask for
the reformation of the instrument
ART. 1363. When one party was
mistaken and the other knew or
believed that the instrument did not
state their real agreement, but
concealed that fact from the former,
the instrument may be reformed
ART. 1366. There shall be no
reformation in the following cases:
(1) Simple donations inter vivos
wherein no condition is imposed; (2)
Wills; (3) When the real agreement
is void.
ART. 1367. When one of the parties
has brought an action to enforce the
instrument, he cannot subsequently
ask for its reformation.
ART. 1368. Reformation may be
ordered at the instance of either
party or his successors in interest,
if the mistake was mutual;
otherwise, upon petition of the
injured party, or his heirs and
assigns.

Page 30

fix it, the contract shall be

inefficacious, unless the parties
subsequently agree upon the price. If
The price is false when
The failure of the buyer to the third person or persons acted in
there is a real price not
pay the price.
bad faith or by mistake, the courts
declared, and what is
may fix the price. Where such third
stated or declared in the
person or persons are prevented from
sale is not the one
fixing the price or terms by fault of
intended to be paid.
the seller or the buyer, the party
Art 1353. The
The failure does not make not in fault may have such remedies
statement of a
the sale null and void for against the party in fault as are
false cause or
lack of consideration but allowed the seller or the buyer, as
consideration
results in buyers default, the case may be.
shall render a
for which the seller may
contract of sale
It must be certain or capable of being
exercise his legal remedies
void if it should (Balatbat v. Court of
ascertained in money or its equivalent; and
not be proved
money is to be understood as currency, and its
Appeals, G.R. No.
that it was
equivalent means promissory notes, checks and
109410. August 28, 1996).
founded upon
other mercantile instruments generally accepted
another cause
as representing money.
Rationale: Contract of
which is true and sale, being consensual, is
Under the above article, the price is certain if:
lawful.
perfected by mere consent.
(1) The parties have fixed or agreed upon a
Delivery of the thing
definite amount;
bought or payment of the
or
price is not necessary for
(2) It be certain with reference to another thing
the perfection of the
certain (see Art. 1472; Majarabas vs. Leonardo,
contract.
11 Phil. 272 [1908].); or (3) The determination
of the price is left to the judgment of a specified
CERTAIN OR ASCERTAINABLE
person or persons and even before such
Certain expressed and agreed in terms of specific
determination. (
pesos and centavos
Ascertainable in order that the price may be
considered certain, it shall be sufficient that it be so
ART. 1472. The price of securities,
grain, liquids, and other things
with reference to another thing certain, or that the
shall also be considered certain,
determination thereof be left to the judgment of a
when the price fixed is that which
specified person or persons.
the thing sold would have on a
Where the price cannot be determined in accordance definite day, or in a particular
with any of the preceding rules, or in any other manner, exchange or market, or when an amount
is fixed above or below the price on
the contract of sale is inef cacious.
such day, or in such exchange or
market, provided said amount be
certain.
ART. 1469. In order that the price
may be considered certain, it shall
Although under Art. 1469, the parties give rise
be sufficient that it be so with
to a contract of sale when they appoint a third
reference to another thing certain,
party to fix the price, such formula is not
or that the determination thereof be
allowed for the determination of the subject
left to the judgment of a specified
matter of the sale.
person or persons. Should such person
Rationale: The obligation to pay the price is
or persons be unable or unwilling to
SIMULATED PRICE/
FALSE PRICE

NON PAYMENT OF
PRICE

Page 31

essentially a fungible obligation; the price is

fault of the seller and the buyer), the contract
essentially generic, and generally, cannot be
shall become ineffective, as if no price had been
extinguished by fortuitous event. On the other
agreed upon unless, of course, the parties
hand, the obligation to deliver a subject matter
subsequently agree upon the price. (par. 2.)
and the title thereto is not a generic obligation,
If such third person is prevented from fixing the
but rather a specific obligation, and therefore its
price by the fault of the seller or the buyer, the
designation cannot be left to the will of a third
party not in fault may obtain redress against the
party who may choose a subject matter beyond
party in fault (par. 2.) which consists of a choice
the capacity of the seller to comply with his
between rescission or fulfillment, with damages
obligations to deliver the same.
in either case. (Art. 1191, par. 2; see Art. 1594.)
The fixing of the price can never be left to the
If the innocent party chooses fulfillment, the
discretion of one of the contracting parties.
court shall fix the price.
However, if the price fixed by one of the parties
is accepted by the other, the sale is perfected
(Art. 1473).
Why should the price be certain?
The owner of a thing has the right to quote his A seller cannot unilaterally increase the price
own price, reasonable or unreasonable. It is up previously agreed upon with the buyer, even when the
to the prospective buyer to accept or reject it. need to adjust the price of sale is due to increased
construction cost;7 otherwise, it would be a violation of
the essential characteristic of obligatory force8 of
ART. 1473. The fixing of the price
contracts of sale.
can never be left to the discretion
of one of the contracting parties.
However, if the price fixed by one of Manner of Payment of Price Must Be Agreed Upon
the parties is accepted by the other, VILLANUEVA
the sale is perfected.
Although the Civil Code provisions governing the
The reason for the rule is obvious. (1) If consent contract of sale do not explicitly require that a meeting
of the minds of the parties must include the terms or
is essential to a contract of sale, the
determination of the price cannot be left to the manner of payment of the price, the same is deemed to
be an essential ingredient before a valid and binding
discretion of one of the contracting parties;
contract of sale can be said to exist, since it is part of
otherwise, it cannot be said that the other
the prestation of the contract,75 and without which
consented to a price he did not and could not
there can be no valid sale,76 nor can an action for
previously know.
speci c performance be made against the alleged
As a general rule, the price fixed by a third
person designated by the parties is binding upon seller.77 Manner of payment of the price goes into the
them. There are, however, exceptions such as: essence of what makes price certain or ascertainable
When the third person acts in bad faith or
by mistake as when the third person fixed Even from an economists point of view, the manner
the price having in mind not the thing which and terms of payment of the price is an integral part of
the concept of price because of the time value of
is the object of the sale, but another
analogous or similar thing in which case the money. A seller may be willing to accept a comparative
court may fix the price. But mere error in lower price for the object of the sale if it is payable
within a short period of time as to allow him to make
judgment cannot serve as a basis for
investments or apply the proceeds to earn more pro ts;
impugning the price fixed; and
and yet would be demanding a higher price if the
When the third person disregards specific
purchase price were to be paid over a long stretch of
instructions or the procedure marked out by time. Thus, in Bortikey v. AFP Retirement and
the parties or the data given him, thereby
Separation Bene ts System,78 the Court pointed out
fixing an arbitrary price.
that the buyer was free to decide on the manner of
If the third person designated by the parties to payment [of the purchase price], either in cash or
fix the price refuses or cannot fix it (without
installment. Since he opted to purchase the land on
Page 32

installment basis, he consented to the imposition of

interest [24% per annum] on the contract price. He
cannot now unilaterally withdraw from it by
disavowing the obligation created by the stipulation in
the contract.

basis for the payment of the subsequent amortization in

a Deed of Conditional Sale the reasonable conclusion
one can reach is that the subsequent payments shall be
made in the same amount as the rst payment.

The point being made is this: that the terms of

payment, being an integral part of the price, would
have the same requisites that the law imposes on price
to support a valid contract of sale- certain or at least
ascertainable. If a price, unknown to both parties, can
support a valid and binding contract of sale, such as
when the xing of the price is left to a third party, then
also, if the terms of payment are provided for in a
formula or process that does not require the agreement
of the parties for the formula to work, then the terms of
payment are deemed to have been agreed upon and the
sale would be valid, but subject to the same condition
af xed to the price.

IN MONEY OR ITS EQUIVALENT

Money a medium that can be exchanged for goods
and services and is used as a measure of their values in
the market.
ITS EQUIVALENT
What is the meaning of or its equivalent? This means
that there is certainty as to the price but what is given as
payment is an object (e.g. P50k worth of Maggi
noodles)

Its equivalent means that there is certainty as to the

price but what is given as payment is an object. It does
not refer to negotiable instruments. A negotiable
The imperative need for the meeting of the minds of the instrument, by its form, is intended as a substitute for
parties on the terms of payment of the price should be money
quali ed by the proper understanding that terms of
payment do not always have to be expressly agreed,
Example: a 5 thousand pesos worth of magi noodles
when the law supplies by default such terms
was given as a consideration for a 5 thousand pesos
worth of pure foods corned beef. This is a contract of
A close reading of the rulings in Navarro, Velasco, and sale and not a contract of barter.
Leabres indicates clearly that in each of the cases, the
parties were to have a mode of payment of the price
VILLANUEVA
other than immediate payment. In each of those cases By de nition under Article 1458, the ideal
therefore, there could not have been a nal meeting of consideration for a contract of sale would be price as
the minds of the parties as to the price because both
a sum certain in money or its equivalent. However, it
parties in each case knew and expected that certain
is possible that a sale may still be valid when it has
negotiations still had to be made with respect to the
for its cause or consideration an item other than price.
manner of payment of the price.
Consider the Supreme Courts ruling in Torres v. Court
of Appeals,1 thus: Consideration, more properly
In all other cases, price is deem to be demandable at
denominated as cause, can take different forms, such as
once. Under Article 1179 of the Civil Code, [e]very the prestation or promise of a thing or service by
obligation whose performance does not depend upon a another. Therefore, it would be valid for a sale of the
future or uncertain event, or upon a past event unknown subject matter to have as its consideration the
to the parties, is demandable at once. Therefore, in the expectation of pro ts from the subdivision project as
absence of any stipulation or agreement or actuation
part of the joint venture arrangement between the
indicating that a different term of payment would be
parties.
applicable and for which a meeting of the minds must
be achieved, the price is deemed to be by operation of In other words, the usual or de ned consideration for a
law immediately demandable upon the perfection of the sale is price, but that a contract of sale may still validly
contract.
exist and thereby be governed by the Law on Sales,
when it is supported by other valuable considerations.
In Development Bank of the Philippines v. Court of
Appeals,87 it was held that where there is no other
This is in line with the principal doctrine reiterated by
Page 33

the Court in Polytechnic University of the Philippines v.being essentially a generic obligation, may be subject to
Court of Appeals,3 that the concept of contract of salevariations.
under Article 1458 of the Civil Code is in effect, a
catchall provision which effectively brings within its The signi cance of the use of the term price to be in
grasp a whole gamut of transfers whereby ownership of money or its equivalent is for the law to demonstrate
a thing is ceded for a consideration.
the ideal example of the onerous nature of sales, that it
must be supported by a valuable consideration.
Price signi es the sum stipulated as the equivalent of Money being the highest form or representation of
the thing sold and also every incident taken into
commercial value in society, removes any doubt that of
consideration for the xing of the price put to the debit what is valuable consideration and functions merely
of the buyer and agreed to by him
as the model of prestation, cause or consideration that
would promote the onerous nature of the contract of
Article 1458 of the Civil Code, in de ning the
sale. There is little doubt, therefore that other forms of
obligation of the buyer, provides that he must pay the cause or consideration which are valuable would
price certain in money or its equivalent. It had been
support a valid contract of sale.
proposed, though not resolved, in Bagnas v. Court of
Appeals,50 that Article 1458 requires that equivalent
be something representative of money, e.g., a check or ADEQUACY OF PRICE
draft, citing Manresa,51 to the effect that services are The essence of the Ong ruling is that in our jurisdiction,
not the equivalent of money insofar as said requirement it is possible for parties to a sale to agree on an
is concerned and that a contract is not a true sale where adequate consideration, and though they will state a
the price consists of services or prestations.
false or nominal consideration in their covering deed, it
would not affect the validity of the contract of sale,
Nevertheless, even Article 1468 of the Civil Code
provided that valuable consideration was in fact agreed
recognizes that if the consideration of the contract
upon. In effect through Ong, Philippine jurisprudence
consists partly in money, and partly in another thing, has not accepted the Anglo-Saxon concept that any
the transaction can still be considered a contract of sale consideration is enough to support a contract; and what
when this is the manifest intention of the parties. This prevails in Philippine jurisdiction is that for
shows that the consideration for a valid contract of sale consideration to support an onerous contract, such as a
can be the price and other additional consideration.
contract of sale, it would have to be valuable
consideration under the Roman Law concept.
Torres v. Court of Appeals,55 held that when the
covering contract for the sale of a parcel of land clearly
provides that the consideration for the sale was the
expectation of pro ts from the subdivision project, it
constituted valid cause or consideration to validate the
sale and delivery of the land.
In Polytechnic University of the Philippines v. Court of
Appeals,56 it was held that the cancellation of liabilities
of the seller constitute valid consideration for sale.
In all, the requisite that the price must be in money or
its equivalent is one that has not been held steadfast by
the Supreme Court as determinative of the validity of a
sale. This shows the essence of sale is the existence of
the obligation of the seller to transfer ownership and
delivery possession of the subject matter, whereas the
price, although an essential element of a valid contract,
Page 34