• ORIGIN OF THE PHILIPPINE SALES LAW refer to it as “vendita” and the Spaniards call it a
"venta". The Pilipino term for sale is “bilihan.
Prior to the adoption of the New Civil Code,
Philippine law on Sales were based on the Spanish
Civil Code of Spain of 1887 and the Spanish Code of
Commerce of 1885. In 1947, however a Code
Commission was created to draft and update the Civil
Code. The Code Commission completed its work
sometime in December, 1947 and the New Civil Code
actually took effect on August 30, 1950. Provisions
on the sales of the Spanish Code of Commerce were
repealed and the distinction between Civil and
Commercial sales was eliminated.
• ORIGIN OF THE PHILIPPINE SALES LAW
Instead the Code Commission had adopted majority
of the provisions of the American Uniform Sales Act
which was prepared by the National Conference of
Commissioners on Uniform State Laws of 1907, the
principal objective of which was to eliminate the
diversities in the law on sales which existed as a
result of the divergent interpretations of sales
contracts by courts of different states in America.
• ORIGIN OF THE PHILIPPINE SALES LAW
The Uniform Sales Act was largely declaratory of the
common law rules which had been developed and
generally followed by the different states in America
at the time it was drafted. Report of the Code
Commission states “majority of the provisions of the
Uniform Sales Law” which is in force in 31 States and
Territories of the American Union have been adopted
in the New Civil Code with modifications to suit the
principles of Philippine Law.” The Philippine Law on
Sales today, as covered by the Title VI, Articles 1458
to 1637 of the New Civil Code, is a blend of Civil Law
and Common Law principles.
Contract of Sale Defined:
Sale is a contract where one party (seller or vendor)
obligates himself to transfer the ownership of and to
deliver a determinate thing, while the other party
(buyer or vendee) obligates himself to pay for said
thing a price certain in money or its equivalent. (Art.
1458, Civil Code)
Etymology of the word "Sale":
Roman law, a sale is termed as "vendito".
French refers to contract of sale as “vente”, Italians
Elements of the Contract of Sale:
Essential elements (those without which there can
be no valid sale)
• Consent or meeting of the minds, that is
consent transfer ownership in exchange for
the price
• Determinate subject matter (generally, there
is no sale of generic thing, moreover, if the
parties differ as to the object, there be no
meeting of the minds).
• Price certain in money or its equivalent (this
is the cause or consideration) (The price
need not be in money)
Natural elements (those which are inherent in the
contract, and which in the absence of any contrary
provision, are deemed to exist in the contract)
• Warranty against eviction, deprivation of the
property bought)
• Warranty against Hidden Defects
Accidental elements (those which may be present or
absent in the stipulation, such as the place or time of
payment, or the presence of conditions)
Query:
A sold a piano to B, by private instrument, for
P 10,000. In that contract of sale, which is the object,
and which is the cause?
Answer: There are at least two viewpoints here, the
latter of which appears to be preferable.
FIRST VIEW - The object (subject matter) of the sale is
the piano, while the cause (consideration) is the P
1,000 ( or, as the same authority puts in, the giving of
the P 1,000, at least insofar as the seller A is
concerned.
Insofar as the buyer B is concerned, the
object is the P 1,000. While the cause (consideration
for which he parted with his money) is the piano (or,
as the same authority puts in, the giving of the
piano)
SECOND VIEW - Insofar as both the seller and the
buyer are concerned, there is only one subject
matter, namely, the piano. The cause or
consideration for the seller is the price paid; for the
buyer, it is the delivery to him of the piano.
Essential Characteristics of the Contract of Sale:
• Consensual (as distinguished as real),
because the contract is perfected by mere
consent;
• Bilateral reciprocal - because both parties are
bound by obligations dependent upon each
other.
• Onerous, because to acquire the rights,
valuable considerations must be given.
• Commutative, as a rule, because the values
exchanged are almost equivalent to each
other.
• (NOTE: By way of exception, some contracts
of sale are aleatory, that is, what one
receives may in time greater or smaller than
what he has given. Example: The sale of
genuine sweepstakes ticket.)
• Principal (as distinguished from an accessory
contract), because for the contract of sale to
be validly exist, there is no necessity for it to
depend upon the existence of another valid
contract.
• Nominate because the Code refers to it by a
special designation or name, that is the
contract of sale.
Stages in the Contract of Sale:
• Generation or Negotiation
• Perfection - Meeting of the Minds
• Consummation - when the object is delivered
and the price is paid.
Kinds of Sales
a) As to the subject matter:
-sale of real property
-sale of personal property
b) As to the value of things exchanged:
-Commutative
-Aleatory
c) As to whether the object is tangible or
intangible:
- Sale of property (tangible or corporeal)
- Sale of Rights (Assignment of a right or a
credit, or some other intangibles such as copyright,
trademark or goodwill)
(NOTE: If the object is tangible, it is called a “chose
in possession”; if the object is intangible, as in the
case of a right, it is chose in action.
As to the validity or defect of the transaction:
-valid sale
-rescissible sale
-voidable sale
-unenforceable sale
-void sale
Article 1458 2nd parargraph
As to the presence or absence of conditions:
-Absolute Sale (no conditions imposed)
-Conditional Sale (As when there is a sale with a
pacto de retro, a right to repurchase or redeem; or
when there are suspensive
conditions, or when the things sold merely possess
potential existence, such as sale of future harvest of
a designated parcel of land.)
As to the legality of the object:
-Sale of a licit object
-Sale of an illicit object
As to whether wholesale or retail:
- Wholesale, if to be resold for a profit the
goods being unaltered when resold, the quantity
being large.
- Retail, if otherwise
As to proximate inducement for the sale:
- Sale by description
- Sale by sample
- Sale by description and sample (Art.1481)
As to when the price is tendered:
- Cash sale
- Sale on the installment plan
Example: I owe Maria P 100. But I ask her if she is
willing to accept my watch, instead of the money. If
Maria agrees, my debt will be extinguished. Please
observe that in this example , although what
happened is dation in payment, it is as if I sold my
watch for P 100. Hence, we have to distinguish
between the two transactions.
Difference between a Contract of Sale and a
Contract to Sell
• In a Contract of Sale, the non-payment of the
price is a resolutory condition, that is the
contract of sale may by such occurrence put
an end to a transaction that once upon a
time existed.; In a Contract to Sell, the
payment in full of the price is a positive
suspensive condition. Hence if the price is
not paid, it is as if the obligation of the seller
to deliver and to transfer ownership never
became effective.
• In the Contract of Sale, title over the
property generally transfer to the buyer upon
delivery; in the Contract of Sell, ownership is
retained by the seller, regardless of the
delivery and it will not pass until full
payment of the price.
• In a contract of Sale, after delivery has been
made, the seller has lost ownership and
cannot recover it unless the contract is
resolved or rescinded. In a Contract to Sell,
since the seller retains ownership, despite
delivery, he is enforcing the contract if he
seeks to oust the buyer for failure to pay.
Example 1”
S and B entered into a contract involving a specific
parcel of land under the following terms: a) total price
is 24M to be paid by B to S in 24 equal monthly
instalments. B) S will deliver to B the parcel of land
upon execution of the contract but the deed of sale
shall be executed only upon payment of the full
purchase price
This is a contract to sell which is preparatory to a
contract of sale.
Example 2
S and B entered into a contract involving a piece of
land under the following terms: (a) Total price of 24M
to be paid by B to S in 24 monthly installments (b) S
will immediately execute the deed of sale and B will
acquire ownership thereof upon delivery.
Contract of Sale considering ownership is immediately
transferred by delivery
Article 1459. The thing must be licit and the vendor
must have a right to transfer the ownership thereof at
the time it is delivered.
The object of Sale must be LICIT and the Vendor must
have the right to transfer ownership at the time the
object is delivered. (Art. 1459)
Licit vs. Illicit things
Article 1459 of the Philippine Civil Code requires that
the object of the contract of sale must be licit or
lawful. Illicit things are therefore things that are
unlawful or illegal. Things can be illicit per se or per
accidens.
Per se is a Latin phrase which means "in itself". Things
that are illicit or illegal per se are things that are
inherently unlawful. An example of this is the selling
of rotten food for consumption, since it may be the
cause of food poisoning. Sale of shabu
Per accidens is a Latin phrase which means "by
chance". Things that are illicit per accidens then are
things that are illegal because of a provision that
declares it unlawful. An example of this would be the
selling of jueteng tickets.
The object (subject matter) of the sale must be licit
or legal Parenthetically, the seller must have a right
to transfer ownership at the time it is delivered.
Martinez v. Court of Appeals
G.R. No. L-31271, 29 April 1974
Spouses Martinez were enjoined from constructing a
dike on their property by the city government. As a
defense, the spouses claimed that they have bought
the property in good faith as the title to the property
did not indicate any lien or encumbrance. The local
government unit responded saying that the spouses
could not have bought the said property as it was a
river, which is public dominion.
HELD: Spouses Martinez cannot claim ownership
over the property. As a river, it belongs in the public
domain and is outside the commerce of men. The
property is bounded on all sides with rivers. By all
indications, it is in fact a river. Public domain is
outside the commerce of men.
Right to transfer ownership
“NEMO DAT QUAD NON HABET”
Nobody can dispose of that which does not belong to
him
In order for the sale to be valid, the vendor must be
the owner of the object of the contract of sale (or
authorized by the owner to sell the object) in order to
transfer the ownership of the thing being sold.
It should be noted however that if at the time of
delivery the right to transfer the ownership exists,
then the contract is valid. This means that it is not
necessary that the seller has the ownership of the
object of the contract of sale during the formation or
perfection of the contract for as long as the
ownership exists during the time of delivery.
This is of course to give way for future goods or goods
that depend on contingency to be the object of the
contract of sale.
Requisites for the object of the Contract of Sale
The thing or the object of the contract of sale must be
determinate or capable of being determinate. It also
needs to be licit or lawful, that is, it should not be
contrary to law, morals, good customs, public order,
and public policy. Third, it should not be impossible.
The object of the contract must be within the
commerce of men, which means that it is legal and its
ownership is transferable.
Rights that are transmissible or personal may also be
the object of the contract of sale. Examples of this is
the right of usufruct.
It should be noted that services (or obligations to do)
cannot be the object of a contract of sale, even if they
can be the object of a contract. (Contract for a piece
of work)
Article 1460. A thing is determinate when it is
particularly designated or physically segregated
from all others of the same class.
The object of the sale must be determinate, that is
specific, but it is not essential really that at the time
of perfection, the object be already specific. It is
sufficient that it be capable of being determinate
without need of any new agreement.
Relate with Article 1347 and 1349 of the Civil Code
Art. 1347. All things which are not outside the
commerce of men, including future things, may be the
object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract.
Art. 1348. Impossible things or services cannot be the
object of contracts.
Art. 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to
determine the same, without the need of a new
contract between the parties.
Determinate thing
A thing is determinate or specific when it is distinct
from all others of the same class. A determinate thing
is distinct because of its individuality. Examples of a
determinate thing are: the laptop you are viewing this
website on, your car (if you own only one), the lot on
443 Sto. Cristo, Guagua, Pampanga.
As noted on the preceding articles, it is not necessary
that the thing is not determinate during the
perfection of the contract, for as long as it is
determinable or capable of being determinate during
the delivery of the object, without the necessity of a
new or further agreement from the parties. Also, it is
not necessary that the object is seen during the
formation of the contract.
Example:
Apollo obligates himself to sell all of the cattle in a
particular farm to Artemis for a specific sum of money.
If at the formation of the contract Apollo did not
specify the farm, or if he owns several farms, then the
object of the contract is not determinate. The
contract therefore is null and void.
The object is determinate “when it is particularly
designated or physically segregated from all others of
the same class.” The requisite to constitute a thing as
determinate is met “if at the time the contract is
entered into, the thing is capable of being made
determinate without the necessity of a new or
further agreement between the parties.”
Melliza v. City of Iloilo, G.R. No. L-24732, 30 April
1968
Juliana Melliza sold properties to the Municipality of
Iloilo. The contract of sale enumerated the lots and
then adds on to say “such other portions or lots were
necessary for the municipal hall site according to the
Arellano plant.” Juliana sold her remaining interest to
another, who, in turn sold such to petitioner Pio Sian
Melliza. The city government donated the city-hall
site to the University of the Philippines (Iloilo
campus). In response, Pio Sian contested the first
sale claiming that it was invalid as the thing was not
determinate.
HELD: The contract of sale in favor of the city
government was valid. Since the property was
capable of being made determinate without the
necessity of a new or further agreement between
the parties.
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.
Distinction between Sale of expected thing and sale of
mere hope or expectancy). Art. 1461
• Sale of expected thing (Emptio Rei Sperati)
• Sale of hope itself (Emptio Spei)
NOTE:
If the expected thing in (a) does not materialize, the
sale is not effective.
In the second, it does not matter whether the
expected thing materialized or not; what IS
IMPORTANT IS THAT THE HOPE ITSELF VALIDLY
EXISTED. The first deals with future thing - that
which is expected; the second deals with the present
thing - certainty the hope or expectancy already
exist.
Example of Emptio Spei: Sale of a valid
sweepstakes ticket. Whether the sweepstake ticket
wins or not, the sale is valid.
NOTE: If the hope or expectancy itself is in vain, the
sale is itself VOID. Be it noted that this is not an
aleatory contract for while in aleatory contract there
is an element of chance, here there is completely no
chance.
Example : Sale of a losing ticket for a
sweepstake already drawn.
Things of potential Existence may be an object of
sale. This is a future thing that may be sold.
Example: "All my rice harvest next year." Note
however that future inheritance cannot be sold,
however. (Art. 1347, par. 2, Civil Code)
• Other examples of things possessed of a
potential existence:
• Young animals not yet in existence or still
ungrown fruits;
• The wine that a particular vineyard is
expected to produce;
• Expected goodwill of a business
Requisites for things potential existence:
-The object need not be in actual existence at the time
of perfection of the contract;
-The object is capable of potential existence;
-The thing sold must be determinate or capable of
being determinate;
-The thing sold belong to the vendor at the time of the
perfection of the sale. (An exception to Article 1459
which is applicable if things are existing)
Differentiate the following example:
Things of Potential existence
Note: This is an exception of Article 1459
I sold to you at the price of Php 100, 000 all the
mango fruits that will be harvested in my farm in
Panabo City this March 2017. – Valid object of a
contract – The thing sold belong to the vendor at the
time of the perfection of the sale.
I sold to you at the price of Php 100,000 all the mango
fruits that can be harvested in a farm I intend to buy in
Panabo City this March 2017. – void because seller is
not yet the owner of the thing sold at the time of
perfection of the contract.
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned
or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after
the perfection of the contract of sale, in this Title
called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen
Goods may be future or existing goods.
Future goods are those still to be
(1) Manufactured ( future airplane)
(2) raised or ( the young animals whether
conceived or not at the time of the
perfection of the contract)
(3) those acquired by the seller after the
perfection of the contract. Art. 1462 – this is
also referred to as the sale of hereafter-
acquired property. Like sale of a land which
the seller expects to buy
Art. 1465. Things subject to a resolutory condition
may be the object of the contract of sale.
Example of things subject to a resolutory condition:
Ex. Things acquired under legal or conventional right
of redemption, or subject to reserva troncal. (Art.
1465)
The essence of a pacto de retro sale is that title and
ownership of the property sold is immediately vested
in the vendee a retro, subject to the restrictive
condition of repurchase by the vendor a retro within
the period provided in Article 1606 of the New Civil
Code. The failure of the vendee a retro to repurchase
the property vests upon the latter by operation of
law the absolute title and ownership over the
property sold.
Summary
Requisites in order that a thing may be the object of
sale:
The thing must be existing, or at least, have a future
or contingent existence (Arts. 1461, 1462, 1465);
• It must be determinate or determinable by
description or segregation (Art. 140);
• It must be licit or legal (Art. 1459)
• The vendor must have real right to transfer
ownership of the thing at the time it is
delivered (Art. 1459)
Objects of Contract of Sale:
• The following may be the objects of sale:
• Things having potential existence (Art. 1461,
NCC);
• Things that are existing or to be
manufactured, raised or acquired in the future or
future goods (Art. 1462, NCC)
• Those whose acquisition by the seller
depends upon contingency which may or may
not happen (Art. 1462, NCC);
• Things subject to a resolutory condition (Art.
1465)
Art. 1463. The sole owner of a thing may sell an
undivided interest therein.
What the sole owner of the thing may sell
a. The whole property
b. An undivided interest in the property
c. A specific portion of the property
In case of ideal or intellectual divisibility, considering
the metes and bounds are not yet identified, the sale
will result to CO-OWNERSHIP
Art. 1464. In the case of fungible goods, there may be
a sale of an undivided share of a specific mass,
though the seller purports to sell and the buyer to buy
a definite number, weight or measure of the goods in
the mass, and though the number, weight or measure
of the goods in the mass is undetermined. By such a
sale the buyer becomes owner in common of such a
share of the mass as the number, weight or measure
bought bears to the number, weight or measure of the
mass. If the mass contains less than the number,
weight or measure bought, the buyer becomes the
owner of the whole mass and the seller is bound to
make good the deficiency from goods of the same
kind and quality, unless a contrary intent appears.
Meaning of fungible goods, concept –
"Goods" includes all chattels personal but not things
in action or money of legal tender in the Philippines.
The term includes growing fruits or crops. (See Article
1637)
Fungible goods refer to interchangeable goods such as
grain, oil, etc., that allow one to be replaced by
another without loss of value.
Sale of Fungible goods
There may be sale of an undivided share of a specific
mass of fungible goods though the seller purports to
sell and the buyer purports to buy definite number,
weight or measure of the goods in the mass is
undetermined. Co-ownership will result.
DISTINCTION BETWEEN FUNGIBLE AND
CONSUMABLE THINGS ( LEGAL PERSPECTIVE)
Whether a thing is consumable or not depends
upon its nature
Whether a thing is fungible or not depends
upon the Intention of the parties
Fungibles are goods, securities or instruments that are
equivalent and, therefore, interchangeable. In other
words, they are goods that consist of many identical
parts which can be easily replaced by other, identical
goods. If the goods are sold by weight or number, this
is a good sign that they are fungible.
Commodities, common shares, or the same company,
and dollar bills are examples of fungibles.
Art. 1480. Any injury to or benefit from the thing sold,
after the contract has been perfected, from the
moment of the perfection of the contract to the time
of delivery, shall be governed by Articles 1163 to 1165,
and 1262.
This rule shall apply to the sale of fungible things,
made independently and for a single price, or
without consideration of their weight, number, or
measure.
Should fungible things be sold for a price fixed
according to weight, number, or measure, the risk
shall not be imputed to the vendee until they have
been weighed, counted, or measured and delivered,
unless the latter has incurred in delay.
If quantity of the mass is more than what is bought,
buyer become owner in common of such share of the
mass with respect to his interest in weight, measure
or number.
If quantity of mass is less than the quantity bought,
the buyer becomes owner of the whole mass and
seller is bound to make good the deficiency.
Art. 1465. Things subject to a resolutory condition
may be the object of the contract of sale.
Example is Pacto de retro sale or sale with right to
repurchase.
Art. 1466. In construing a contract containing
provisions characteristic of both the contract of sale
and of the contract of agency to sell, the essential
clauses of the whole instrument shall be considered.
What govern relationship of principal and agent in
agency to sell is the law on agency (Arts. 1868 to
1932)
If agent entered the sale with authority and he acts
within the scope of his authority, the sale shall be
valid. All the terms and consequence of the sale will
bind the principal. Hence, the law on sales govern
relationship of the seller (principal thru agent) and the
buyer.
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him.
Art. 1317. No one may contract in the name of
another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of another by one
who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before
it is revoked by the other contracting party.
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his powers;
Art. 1467. A contract for the delivery at a certain price
of an article which the vendor in the ordinary course
of his business manufactures or procures for the
general market, whether the same is on hand at the
time or not, is a contract of sale, but if the goods are
to be manufactured specially for the customer and
upon his special order, and not for general market, it is
a contract for a piece of work.
Contract of Sale as against Contract for a Piece of
Work:
By the contract for a piece of work, the contractor
binds himself to execute a piece of work for the
employer (e.g., to construct a house) in consideration
of a certain price or compensation. The contractor
may either employ his labor or skill, or also furnish
the material. (Art. 1713.)
A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his
business manufactures or procures for the general
market, whether the same is on hand at the time or
not, is a contract of sale.
But if the goods are to be manufactured especially for
the customer and upon his special order (e.g. dress
made on the basis of the body measurement of the
customer) and not for the general market, it is a
contract for a piece of work. (Art. 1467)
Sale is covered by the Statute of Fraud but Contract of
Piece of work is not.
Example:
If I need a particular size (Size No. 10) of Gibi Shoes
and the same is not available (for the present), but I
place an order for one, the transaction is sale. If n the
other hand, I place an order for size No.14, colored
violet (something not ordinarily made by the
company), the resultant transaction is a contract for a
piece of work.
Three school of thoughts in distinction between a
contract of sale and contract for piece of work
The Massachusetts Rule – if the object of the
contract is specially order of another, it is a contract
for piece of work.
The New York Rule – If the article already exists and
subsequently acquired by another, it is a contract of
sale. If the article is still to be manufactured at
instance of another, it is a contract of piece of work.
The English Rule- if the material used in the
manufacture of the article is more valuable, it is a
contract of sale. If the labor or skill is more valuable
than the materials used in the manufacture of the
article, it is a contract of piece of work.
The Massachusetts Rule is followed in our
jurisdiction.
Art. 1468. If the consideration of the contract consists
partly in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the
value of the thing given as a part of the consideration
exceeds the amount of the money or its equivalent;
otherwise, it is a sale.
Example
If I give my car worth P 750,000 to Jose in
consideration of Jose’s giving me cash of P 500, 000
and P 250,000 worth of necklace, is the transaction a
sale or barter?
It depends on the intent of the parties.
According to Article 1371, in order to judge the
intention, we must consider the contemporaneous
and subsequent acts of the parties. The name given
by the parties is presumptive of course of their
intention but this may be disputed.
Rules to determine whether contract is sale or barter.
In a contract where the consideration is partly money
and partly goods, the following rules shall apply:
The intention of the parties must be determined.
Intent of the parties prevails at all times. Exceptions:
If the intent is not clear, then apply the following
rules:
• If the sold thing is more valuable than
money, the contract is barter;
• If the money and the thing are equal value,
the contract is sale;
• If the thing is less valuable than money, the
contract is a contract of sale (Art. 1468, NCC)
Art. 1469. In order that the price may be considered
certain, it shall be sufficient that it be so with
reference to another thing certain, or that the
determination thereof be left to the judgment of a
special person or persons.
Should such person or persons be unable or
unwilling to fix it, the contract shall be inefficacious,
unless the parties subsequently agree upon the
price.
If the third person or persons acted in bad faith or by
mistake, the courts may fix the price.
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller or
the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the
seller or the buyer, as the case may be.
Related Articles in the law on contracts
Article 1309. The determination of the
performance may be left to a third person, whose
decision shall not be binding until it has been made
known to both contracting parties.
Article 1310. The determination shall not be
obligatory if it is evidently inequitable. In such case,
the courts shall decide what is equitable under the
circumstances
Requisites of a valid cause:
- cause should be in existence
- cause should be licit or lawful and
- cause should be true
Presumption in cause:
Under Article 1354 - the law presumes that a
contract has an existing and lawful cause and
consideration. Thus, though cause is not stated in
the contract, it is presumed to exist and is lawful,
unless the debtor proves otherwise. This is only a
disputable presumption.
Requisites of price in a contract of sale:
• The price must be in money or its equivalent
(Art. 1458)
• It must be certain or ascertainable (Art.
1469)
• It must be real, i.e., not simulated, (Art.
1471)
Meaning of a price certain:
• The parties have fixed or agreed upon a
definite amount; or
• It be certain with reference to another thing
certain (See Art. 1472), as where the buyer
agrees to pay the price as indicated in the
invoices;
• The determination of the price is left to the
judgment of a specified person or persons
(Art. 1469)
• The last two cases are applicable only when
no specific amount has been stipulated by
the parties.
Rules if price is to be determined by a third person:
The price fixed by the third person is binding except
when he acts in bad faith or by mistake;
• In such case, the courts may fix the price;
• If the third person is unable or unwilling to
fix the price, the contract shall be
inefficacious (without effect), unless the
parties subsequently come to an agreement ;
and
• If the third person is prevented from fixing
the price by the fault of the seller or buyer,
the party not in fault may choose between
rescission or fulfillment with damages in
either case. (Art. 1469)
The fixing of the price may not be left to the
discretion of one of the contracting parties, as it
cannot be said that there is meeting of minds upon
the fixed price. (Art. 1308) But if the other accepts
price fixed, the sale is deemed perfected.
Art. 1473. The fixing of the price can never be left to
the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected.
Related to the principle of Mutuality
Article 1308 – The contract must bind both
contracting parties; its validity or compliance cannot
be left to the will of one of them.
Price cannot be left to the discretion of one of the
contracting parties: the other could not have
consented to the price, for he did not know what it
was. However if the offer was made as to the price by
the seller during the negotiation stage and accepted
by thee buyer unconditionally, hence, it is as if the
buyer participated in the fixing of the price and this is
true meeting of the minds.
Art. 1474. Where the price cannot be determined in
accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the
thing or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable
price therefor. What is a reasonable price is a question
of fact dependent on the circumstances of each
particular case.
Effect if the Price cannot be determined
a) If the price cannot really be determined, the sale is
void for the buyer cannot fulfil his duty to pay. Cause
is an essential element of a contract. Under Article
1409 (3) those whose cause or object did not exist at
the time of the transaction
Effect if delivery is made but price has not yet been
fixed by the parties.
If the price cannot be determined, the contract is
inefficacious. Under 1409 the law says “void”.
However, if the thing or any part thereof has been
delivered to and appropriated by the buyer, he is
under obligation to pay reasonable price thereof.
(Art. 1474)
Of course, if the buyer has made use of it, he should
not be allowed to enrich himself unjustly at the
expense at another’s expense. So he must pay the
reasonable price. The seller’s price however must be
the one paid if the buyer knew how much the seller
was charging and there was an acceptance of the
goods delivered. Here, there is implied assent to the
price fixed.
Art. 1472. The price of securities, grain, liquids, and
other things shall also be considered certain, when
the price fixed is that which the thing sold would
have on a definite day, or in a particular exchange or
market, or when an amount is fixed above or below
the price on such day, or in such exchange or market,
provided said amount be certain.
Correlating this with Articles 1469 and 1474, this
article refers to fungible things such as grains, liquids,
etc., the price of which shall be considered certain if
the price is fixed is the same price the thing sold
would have
a. On a definite date or
b. In particular exchange or market or
c. When an amount is fixed above or below the
market on such day , or in such exchange or
market
Example:
I can sell to you today my fountain pen at
price equivalent to the stock quotation two days from
today of 100 shares in the Philippine Long Distance
Company.
If the assuming the stock quotation price two days
later cannot really be ascertained at that time ( 2 days
later), the sale is inefficacious. Note the last clause in
this article – “provided said amount be certain”
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in
the consent, or that the parties really intended a
donation or some other act or contract.
Art. 1471. If the price is simulated, the sale is void,
but the act may be shown to have been in reality a
donation, or some other act or contract.
Effect of Gross Inadequacy of Price:
It does not affect the contract of sale except when
the inadequacy may indicate that there is a defect in
the consent, or that the parties really intended a
donation or some other act or contract.
See Article 1355
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
influence.
If consent is obtained as to the price by means of
vitiated consent – contract is voidable. (Art. 1390)
Lesion under Article 1381 pars 1 and 2 will make
contract rescissible.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians
whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees,
if the latter suffer the lesion stated in the preceding
number;
Art. 1098. A partition, judicial or extra-judicial, may
also be rescinded on account of lesion, when any one
of the co-heirs received things whose value is less, by
at least one-fourth, than the share to which he is
entitled, considering the value of the things at the
time they were adjudicated.
Simulation of a contract – it is a process of
intentionally deceiving others by producing the
appearance of a contract that really does not exist
(absolute simulation) or which is different from the
true agreement (relative simulations) (Article 1345)
Effects:
a) Absolute Simulation or fictitious contracts,
effect is void, as the parties do not intend to be
bound.
b) Relative Simulation – Here parties conceal
their true agreement. Effect: The parties are
bound to the real or true agreement except if the
contract should prejudice third person or if the
purpose is contrary to law, morals, good customs,
public order, public policy. (art. 1346)
Illustration:
S and B entered into a contract where they made it
appear that S was selling his lot and building to B. The
truth, however was that S was donating his lot and
building to B. What is the status of the contract?
* The contract is a relative simulated contract.
Therefore the parties are bound by the contract of
donation, their true intention, since no third person is
prejudiced
Things to remember:
In ordinary sale, the sale remains valid even if the
price is very low except if there is vices of consent or
lesion. In this case, th sale can be annulled or
rescinded.
In execution on judicial sale, while inadequacy of the
price will not set aside a judicial sale of real property,
still if the price is so inadequate as to shock the
conscience of the court, it will be set aside. But in
extrajudicial sale where right to redemption is
allowed, inadequacy of cause will not invalidate the
sale. The truth is it would be beneficial or less
onerous to the owner of the property in redeeming
the property.
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of the
law governing the form of contracts.
Perfection of sale: The contract of sale is perfected
at the moment there is meeting of the minds upon
the thing which is the object of contract and upon
the price.
Effects of perfection of sale:
• From the moment consent is given, the
reciprocal obligations of the parties arise and
they may reciprocally demand the
performance, subject to the Statute of Fraud;
• The ownership of the thing sold is not
transferred until it is delivered, actually or
constructively, to the buyer (Art. 1477)
exception see Article 1478 in case of
reservation of ownership of the seller despite
delivery); and
In case one of the contracting parties does not
comply with what is incumbent upon him, the
injured party may sue for fulfillment or rescission
with the right to damages in either case. (art. 1191)
Relevant provisions:
1. Article 1315
2. Article 1159
Perfection of Sale
It is consensual and for this reason principle of
consensuality applies.
“Contracts are perfected by mere consent, and from
that moment the parties bound not only to the
fulfillment of the what has been expressly stipulated
but also to all the consequences which, according to
their nature, may be keeping with good faith, usage
and law (Art. 1315).
Obligations arising from contracts have the fore of law
between the contracting parties and should be
complied with in good faith (Art. 1159).
Since sale is reciprocal, the parties may reciprocally
demand performance subject to the provision of law
governing forms.
Requirements for perfection
a) When parties are face to face, when an offer is
accepted without conditions and without
qualifications. (A conditional acceptance is
counter-offer) Art. 1319 Take note if
negotiated thru phone, it is as if the parties
are face to face.
b) When contract is thru correspondence or
thru telegram, there is perfection when the
offerer receives or has knowledge of the
acceptance by the offeree. If the buyer has
already accepted but the seller does not know
yet of the acceptance, the seller may still
withdraw.
c) When the sale is made subject to a suspensive
condition, perfection is had from the moment
the condition is fulfilled. (See Article 1187) in
relation to the retroactive effect of the
fulfillment of a suspensive condition.
Before perfection of the contract of sale, no mutual
rights and obligation exist between the would be
buyer and would be seller. The same is true when
perfection is conditioned upon something, and the
thing is not performed.
Example:
A person wanted to buy for Php 15,000 a schooner
(sailing vessel) called “Viva Maria”. The parties agreed
but on the condition that the seller’s title paper could
be perfected. Before the seller’s title could be
perfected, the ship was lost. The would be seller now
sues for the price.
In the above problem, the would be buyer was not yet
a buyer. The condition not having been fulfilled, there
was no perfected sale. Therefore, the defendant
would be buyer is not liable.
Formalities for perfection
Under the Statute of Fraud (enforceability)
in some note or memorandum, in writing,
signed by the person charged
a) Sale of real property or any interest therein
regardless of value
b) Personal property if P 500 or more
c) Sales which are to be performed only after
more than one year regardless of the value
and regardless as to whether the property is
real or personal
For Validity
The sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in
writing; otherwise the sale shall be void. (Article 1874)
Sale of Real Property must be in writing for
enforceability. Any form of writing is sufficient.
Problem: A sold to B in a private instrument a parcel
of land for Php 1M. B now wants to place the contract
in a public instrument so that B could have the same
registered in the Registry of Property. Is B given the
right to demand the execution of the public
instrument?
ANS: Yes under Article 1357 in relation Article 1406,
the law provides that if the law requires a document
or other special form, as in acts and contracts
enumerated in Article 1358, the contracting parties
may compel each other to observe that form, once
the contract has been perfected. This right may be
exercised simultaneously with the action upon the
contract. Take note this can be availed of provided
contract of sale is valid and enforceable under the
Statute of Fraud
Art. 1406 – When a contract is enforceable under the
Statute of Frauds and a public document is necessary
for its registration in the Registry of Deeds, the parties
may avail themselves of the right under Article 1357
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots,
each lot is the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or
in other customary manner. Until such announcement
is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without
reserve.
(3) A right to bid may be reserved expressly by or on
behalf of the seller, unless otherwise provided by law
or by stipulation.
(4) Where notice has not been given that a sale by
auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself
or to employ or induce any person to bid at such sale
on his behalf or for the auctioneer, to employ or
induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or
any person employed by him. Any sale contravening
this rule may be treated as fraudulent by the buyer.
Sale by auction is the sale in public of goods,
commodities or properties to the highest bidder.
It is conducted by an auctioneer who initiates the
bidding process by presenting the goods to be
auctioned off and asking the audience to make their
offers, which are known as bids.
Each lot ( which may consist of several items) is the
separate object of a contract of sale. People in the
audience respond with their bids. The highest bid is
accepted by the auctioneer, usually by the rap of the
gavel and calling out of word “SOLD”. In making such
act, the sale is perfected and ownership passes to the
buyer at time of delivery.
Two kinds of auction
Public auction – auction sale through public bidding
as per order of the court or appropriate government
entity and usually administered by sheriff’s office in
case of court ordered sale.
Private auction – Auction sale through private
auctioneer.
Rights of parties before perfection
a. Any bidder may retract his bid. - Until the
announcement of the perfection of the sale, any
bidder may retract his bid. (Art. 1476) consistent with
the rule that a bid is merely an offer and any offer may
be withdrawn at any time before acceptance by the
offeree.
b. The auctioneer may withdraw the goods form the
sale unless the auction has been announced to be
without reserve. .
Rights after perfection
After perfection, the winning bidder cannot
retract his bid not can the auctioneer withdraw the
goods. The parties will be bound by the sale any
withdrawal from the contract by either party
constitutes a violation of the principle of mutuality of
contracts. (Art. 1308)
Gross inadequacy of price in cases of auction sales
where there is right to redeem is not material as in
forced sales, judgment debtors ought not to expect
their properties to be sold on its market value.
The nature of such sales precludes any reasonable
expectation of obtaining prices such as are procured in
ordinary sales where the elements of free bargaining
is in full play.
It has likewise been held by the Supreme Court in
DBP vs. Vda de Moll, 43 SCRA 82 that if there is right
to redeem in foreclosure sale, inadequacy of the price
is not material because the lesser the price, the easier
it will be for the owner to effect the redemption.
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or
constructive delivery thereof.
Ownership of a thing is not transferred by mere
perfection of the contract of sale but by ACTUAL or
CONSTRUCTIVE delivery. Delivery is discussed in
Articles 1497-1501)
General Rule – The ownership of the thing sold is
transferred by delivery. There is delivery if the object
is placed in possession and control of the buyer.
Delivery may be either Physical/actual or constructive.
Art. 1478. The parties may stipulate that ownership in
the thing shall not pass to the purchaser until he has
fully paid the price.
EXPRESS STIPULATION OF RESERVATION OF
OWNERSHIP BY SELLER. – An exception to the rule on
res perit domino… the loss of the thing is borne by the
owner.
The parties may stipulate that ownership in the thing
shall not pass to the purchaser until he has fully paid
the price. (PACTUM RESERVATI DOMINI) – express
stipulation
There is also implied reservation – See Article 1503
This stipulation exists in order to ensure that buyer
fulfills his obligation to pay the price. Hence despite
delivery to the buyer, ownership passes to the latter
only upon fulfillment of the condition.
Art. 1504. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has
been retained by the seller merely to secure
performance by the buyer of his obligations under
the contract, the goods are at the buyer's risk from
the time of such delivery;
(2) Where actual delivery has been delayed through
the fault of either the buyer or seller the goods are at
the risk of the party in fault.
Issue:
How to reconcile Article 1504 with 1480 1 st
paragraph?
Art. 1480. Any injury to or benefit from the thing sold,
after the contract has been perfected, from the
moment of the perfection of the contract to the time
of delivery, shall be governed by Articles 1163 to 1165,
and 1262.
Art. 1479.
A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price.
Relate with Article 1324.
- When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any
time before acceptance by communicating such
withdrawal, except when the option is founded upon
a consideration, as something paid or promised.
Effect of an accepted unilateral promise to sell or buy
a thing for a price certain:
• Such unilateral promise also known as option
contract does not bind the promissor and
may be withdrawn at any time;
• If the promise, however, is supported by a
consideration distinct from the price, its
acceptance gives rise to the perfection of the
contract.
Effect of a bilateral promise to buy and sell a thing
for a price certain:
• When the promise is bilateral, that is, one
party accepts the other's promise to buy and
the latter, the former's promise to sell, a
determinate thing for a price certain, it has
practically the same effect as a perfected
contract of sale since it is reciprocally
demandable. But there is no contract of sale
yet until it is executed.
Application of Article 1324 in relation to Article 1479
of the New Civil Code
Article 1324 of the New Civil Code which presumes
the existence of a consideration in every contract
applies to contracts in general, whereas the second
paragraph of Article 1479 thereof refers to sales and
more specifically to an accepted unilateral promise to
buy and sell.
“Policitation” simply means an unilateral promise to
buy or sell which is not accepted. That being the case,
it is a mere offer and has not yet been converted into
a contract. Therefore, of no judicial effect.
Article 1480. Any injury to or benefit from the thing
sold, after the contract has been perfected, from the
moment of the perfection of the contract to the time
of delivery, shall be governed by articles 1163 to 1165,
and 1262.
This rule shall apply to the sale of fungible things,
made independently and for a single price, or without
consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed
according to weight, number, or measure, the risk
shall not be imputed to the vendee until they have
been weighed, counted, or measured and delivered,
unless the latter has incurred in delay.
Rules with regards to any injury to or benefit from
the thing sold, after contract is perfected but before
delivery.
The vendor is obliged to take care of the thing sold
with proper diligence. (Art. 1163)
• The vendor has the right to the fruits of the
thing from the time the obligation to deliver
arises but shall acquire no real right or
ownership over it until the same has been
delivered to him (Art. 1164; Art. 1537)
• If the thing is determinate, the vendee may
compel the vendor to make the delivery, and
hold him liable for damages by reason of
fraud, delay, etc., Arts. 1165 and 1170)
• If the thing is generic, he may ask that the
obligation be complied with at the expense
of the vendor if the latter fails to make
delivery also with a right to damages in
proper case (Arts. 1165, 1170);
If the thing is determinate, and it is lost or destroyed
---
a. Through the fault of one party, the party at fault is
liable for damages;
b. Through fortuitous event, the vendor is released
from the obligation to deliver and the vendee is
liable to pay the price if he has not yet paid the same
(see Arts. 1480, 1583, 1189 and 1269). Art. 1504, par.
1 however provides a rule contrary to 1480);
c. The vendor shall be responsible for any fortuitous
event if it is so stipulated, or if the same took place
after he has incurred delayed, or he has promised to
deliver the same thing to two or more persons who
do not have the same interest, Arts. 1164, 1262)
d. The rule under letter (b) applies to the sale of
fungible things, made independently and for a single
price or without consideration or their weight,
number or measurement (Art. 1480). Reason: In
such case, the fungible things have been "
particularly designated or physically segregated“
e. It does not apply where the fungible things have
been sold for a price fixed in relation to weight,
number or measure. In such case, the risk shall not
be imputed to the vendee until they have been
weighed, counted or measured and delivered;
• If the thing is generic, the loss with or
without the vendor's fault, of anything of the
same kind does not distinguish his obligation
to deliver. (Art 1262)
Applicable Provisions:
Art. 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him. (1095)
Art. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the
right granted him by Article 1170, may compel the
debtor to make the 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.
• Art. 1188. The creditor may, before the
fulfillment of the condition, bring the
appropriate actions for the preservation of his
right.
• The debtor may recover what during the same
time he has paid by mistake in case of a
suspensive condition.
Art. 1189. When the conditions have been imposed
with the intention of suspending the efficacy of an
obligation to give, the following rules shall be
observed in case of the improvement, loss or
deterioration of the thing during the pendency of the
condition:
(1) If the thing is lost without the fault of the debtor,
the obligation shall be extinguished;
(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;
(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 fulfillment, 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 benefit 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.
• Art. 1262. An obligation which consists in the
delivery of a determinate thing shall be
extinguished if it should be lost or destroyed
without the fault of the debtor, and before he
has incurred in delay.
• When by law or stipulation, the obligor is liable
even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies
when the nature of the obligation requires the
assumption of risk.
Note:
If the thing is generic, the loss with or without the
vendor's fault, of anything of the same kind does not
distinguish his obligation to deliver. (Art 1262)
Article 1481. In the contract of sale of goods by
description or by sample, the contract may be
rescinded if the bulk of the goods delivered do not
correspond with the description or the sample, and if
the contract be by sample as well as description, it is
not sufficient that the bulk of goods correspond with
the sample if they do not also correspond with the
description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the sample
• Special Rules on sales by description and sale
by sample
• In the contract of sales of goods by
description or by sample, the contract may
be rescinded if the bulk of goods delivered
do not correspond with the description or by
the sample;
• If the contract be by sample as well as by
description, it is not sufficient that the bulk
of goods correspond with sample if they do
not correspond with the description;
• The buyer shall have reasonable opportunity
of comparing bulk with the description or
sample (Art. 1481)
Notes:
a) For exhibition of sample to result in sale by
sample, it is necessary that such exhibition of the
sample must have been sole basis or inducement of
the sale to the buyer.
b) It is important to know whether a sale was
made by description or sample because it the goods
sold does not correspond to the sample or description
or both if agreed upon, the sale may be rescinded.
Article 1482. Whenever earnest money is given in a
contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
Principle of Earnest Money:
Earnest Money is that given by the buyer to the seller
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.
Earnest Money vs. Option Money
• Earnest money is part of the purchase price,
while option money is given as distinct
consideration for an option contract;
• Earnest money is given only if there is
already a sale while option money applies to
sales not yet perfected;
• When the earnest money is given, the buyer
is bound to pay the balance, while the would
be buyer who gives option money is not
required to buy.
But option money may become earnest money if the
parties so agree.
Article 1483. Subject to the provisions of the Statute
of Frauds and of any other applicable statute, a
contract of sale may be made in writing, or by word of
mouth, or partly in writing and partly by word of
mouth, or may be inferred from the conduct of the
parties.
2 Formalities for validity or enforceability of
contracts
The general rule, a contract of sale may be made
orally or in writing or partly oral or partly in writing or
even inferred from the conduct of the parties thereto.
Some of the exceptions are provided by law.
In contract of sale, some forms are prescribed for
reasons of validity, enforceability or convenience.
Examples:
a) Sale of a piece of land or any interest therein
through an agent, authority of the latter shall be in
writing, otherwise sale shall be void (Art. 1874).
b) Agreement for sale of goods, chattels or
things in action at a price not less than P 500 must be
in writing to be enforceable (Art. 1403 par 2 (d)
c) Agreement of sale of real property or any
interest therein must be in writing for enforceability
( Art. 1403 par. 2 (e)
d) Agreement of sale not to be performed within
a year from the making thereof must be in writing for
enforceability
e) Sale must be in public instrument for
convenience to bind third person (Art. 1356)
Article 1484. In a contract of sale of personal property
the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's failure
to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to
recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
Commonly known as the Recto Law. It is embodied in
Art. 1484 of the NCC which provides for the remedies
of a seller in the contracts of sale of personal property
by installments.
Note: Art. 1484 of the NCC incorporates the provisions
of Act No. 4122 passed by the Philippine Legislature
on Dec. 9, 1939, known as the "Installment Sales Law"
or the "Recto Law," which then amended Art. 1454 of
the Civil Code of 1889.
To what does the Recto Law apply?
This law covers contracts of sale of personal property
by installments (Act No. 4122). It is also applied to
contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
(PCI Leasing and Finance Inc. v. Giraffe-X Creative
Imaging, Inc., G.R. No. 142618, July 12, 2007)
RATIONALE the object of Recto Law was to remedy
the abuses committed in connection with the
foreclosure of chattel mortgages and was meant to
prevent mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price
and then bringing suit against the mortgagor for a
deficiency judgment.
Remedies of vendor in Sale of Personal Property
Payable in Installments. (RECTO LAW))
• The vendor of personal property payable in
installments may exercise any of the
following remedies:
• Elect fulfillment upon the vendee's failure to
pay;
• Cancel the sale, if the vendee shall have
failed to pay two or more installments; or
• Foreclose the chattel mortgage, if one has
been constituted, if the vendee shall have
failed to pay two or more installments.
Nature of the above remedies in Recto Law:
These remedies are alternative and are not to be
exercised cumulatively or successively and the
election of one is a waiver of the right to resort to
the others.
Requisites before Art. 1484 may be applied:
• There must be a contract
• The contract must be of sale,
• What is sold in personal property
• The sale must be in installment
Instances where Art. 1484 may not be applied:
• It does not apply in real property mortgage.
• It does not apply to sale of personal property
in straight terms, a sale on straight terms
being one, which the balance, after the
payment of initial sum should be paid in totality at
the time specified.
Right of the vendor to recover the unpaid balance of
the purchase price:
The vendor who has chosen specific performance or
to exact fulfillment of the obligation is not limited to
the proceeds of the sale, on execution, of the
mortgaged goods. He may still recover from the
purchaser the unpaid balance of the price, if any on
real or personal properties of the purchaser not
exempt by law from attachment or execution;
If the vendor chooses rescission or cancellation of
the contract upon the vendee's failure to pay two or
more installments, the latter can demand the return
of payments already made unless there is a
stipulation about forfeiture. (See Art. 1486)
Rescission is followed by mutual restitution – parties
will be restored to their original status or condition.
Exception is found in Article 1486
Article 1486. In the case referred to in the two
preceding articles, a stipulation that the installments
or rents paid shall not be returned to the vendee or
lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.
If the vendor has chosen the third remedy of
foreclosure of the chattel mortgage, he shall have no
further action against the vendee for the recovery of
any unpaid balance of the price and any agreement
to the contrary is void. The foreclosure is caused by
selling the mortgaged personal property at public
auction and applying the proceeds of the sale to the
satisfaction of the claim secured by the mortgage.
• If the seller should foreclose on the mortgage
constituted on the thing sold, he shall have no
further action against the purchaser to
recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
• The provisions of Recto Law are applicable to
financing transactions derived or arising from
sales of movables on installments, even if the
underlying contract at issue is a loan because
the promissory note has been assigned or
negotiated by the original seller.
Illustrations:
• Case I :
ABC Corporation, a dealer in appliances sold
to Mr. T, a Video-CD for P 15,000 payable on
installment at the rate of P 1,200.00 per month. Mr. T
executed a chattel mortgage over the thing sold.
When Mr. T defaulted in the payment of his
obligation, ABC Corporation foreclosed the mortgage.
At the sale, only P 10,000 was realized. Can the seller
recover the deficiency?
Answer: No, because in case of foreclosure of the
chattel mortgage and there is deficiency, the seller
cannot recover the deficiency. This is an absolute
prohibition in the Recto Law, amending Art. 1484, NCC
Case II :
X purchased on installment basis a car from
ABC Corp. Having failed to pay his installments, the
corporation sued X for replevin (an action for recovery
of personal property) and seized the unit, sold it but it
failed to realize the balance of X in the sheriff's sale.
Can ABC Corp. recover the balance? Why?
Answer: Yes, where the mortgagee in installment
sales of personal property chose specific performance
in a replevin suit with damages, it is entitled to an
alias writ of execution for the portion of the judgment
that has not been satisfied.
The rule is that in installment sales, if the
action instituted is for specific performance and the
mortgaged property is subsequently attached and
sold, the sale thereof does not amount to a
foreclosure of the mortgage. Hence, the seller
creditor is entitled to a deficiency judgment
Lease of Personal Property with Option to Buy is
considered as sale of property in installments. (Art.
1485)
Reason:
This may really be considered a sale of
personal property in installments. Therefore the
purpose of Article 1485 is to prevent an indirect
violation of Article 1484.
Meaning of the clause, “when the seller has deprived
the lessee of the possession or enjoyment of the
thing”
This means that for failure to pay the lessor is
apparently exercising the right of an unpaid seller
and has taken possession of the property. This is so
even if the property had been given up in obedience
to the lessor’s extrajudicial demand, such surrender
not really being voluntary.
Even if the word “lease” is employed, when a sale on
installments is evidently intended, it must be
construed as a sale.
Article 1487. The expenses for the execution and
registration of the sale shall be borne by the vendor,
unless there is a stipulation to the contrary.
Expenses for the execution and registration shall be
borne by the vendor in the absence of any
agreement between the parties to the contrary.
MACEDA LAW - REPUBLIC ACT No. 6552
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL
ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No.
6552)
Section 1. This Act shall be known as the "Realty
Installment Buyer Act."
Section 2. It is hereby declared a public policy to
protect buyers of real estate on installment payments
against onerous and oppressive conditions.
Section 3. In all transactions or contracts involving the
sale or financing of real estate on installment
payments, including residential condominium
apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act
Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to
the following rights in case he defaults in the payment
of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned
by him which is hereby fixed at the rate of one month
grace period for every one year of installment
payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to
the buyer the cash surrender value of the payments
on the property equivalent to fifty per cent of the
total payments made, and, after five years of
installments, an additional five per cent every year but
not to exceed ninety per cent of the total payments
made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to
the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total
number of installment payments made.
Section 4. In case where less than two years of
installments were paid, the seller shall give the buyer
a grace period of not less than sixty days from the
date the installment became due.
If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
Section 5. Under Section 3 and 4, the buyer shall have
the right to sell his rights or assign the same to
another person or to reinstate the contract by
updating the account during the grace period and
before actual cancellation of the contract. The deed of
sale or assignment shall be done by notarial act.
Section 6. The buyer shall have the right to pay in
advance any installment or the full unpaid balance of
the purchase price any time without interest and to
have such full payment of the purchase price
annotated in the certificate of title covering the
property.
Section 7. Any stipulation in any contract hereafter
entered into contrary to the provisions of Sections 3,
4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or
unconstitutional, no other provision shall be affected
thereby.lawphi1™
Section 9. This Act shall take effect upon its approval.
Rights of a Defaulting Buyer under RA 6552
Realty Installment Buyers Protection Act (MACEDA
LAW)
1. Right to update payments without additional
interest or in the alternative a refund of cash
surrender value.
There are two categories of buyers accorded
protection under this law:
- A buyer with at least 2 years of installments under
Section 3 RA 6552, and
- A buyer with less than 2 years of installments under
Section 4 RA 6552
In transactions involving the sale or financing of real
estate on installment payments including residential
condominium apartments, under the Maceda Law,
(R.A.NO. 6552),
the rights of the buyer who has paid at least two (2)
years installments and subsequently defaulted in the
succeeding installments are the following:
• To pay w/out additional interest, the unpaid
installment within total grace period earned
by him fixed at the rate of one-month grace
period for every one year of installments
made. The right however shall be exercised
by him only once in every 5 years of the life
of the contract and its extensions, if any; and
If the contract is cancelled, the seller shall refund to
the buyer :
a. the cash surrender value of the payments on
property equivalent to 50% of the total
payments made; and
b. after 5 years of installments, and additional
5% every year but not to exceed 90% of the
total payments made. (Section 3, R.A. No.
6552 (Maceda Law), Realty Installment Buyer
Protection Act)
The actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the
buyer.
• The above law excludes from its operation
sales on installments of industrial lots and
commercial buildings and sales to tenants
under the CARP.
• Down payments, deposits or options on the
contract shall be included in the computation
of the total number of installments payable.
Effect of buyer on realty installments has paid less
than 2 years of installments:
• The seller shall give him a grace period of not
less than 60 days from the date the
installment became due.
• If he fails to pay the installments due at the
expiration of the grace period, the seller may
cancel the contract after 30 days from receipt
of the buyer of the notice of cancellation or
the demand for rescission of the contract by
notarial act.
Sec. 24 of P.D No. 957 otherwise known as the
Subdivision and Condominium Buyers Protective
Decree provides that the rights of the buyer of
subdivision lot or condominium unit in the event of
his failure to pay the installments due to reasons
other than failure of the owner or developer to
develop the project shall be governed by R.A No.
6552 or the Maceda Law.
Right to Assign/Reinstate Contract
The buyer has a right to sell or assign his rights over
the lot or unit to another person or reinstate the
contract by updating the account provided this is done
during the grace period and before actual cancellation
of the contract.
Section 5 of RA 6552 states:
“SECTION 5. Under Sections 3 and 4, the buyer shall
have the right to sell his rights or assign the same to
another person or to reinstate the contract by
upgrading the account during the grace period and
before actual cancellation of the contract. The deed of
sale or assignment shall be done by notarial act.”
Right to Advance Payment without Interest and
Annotation of Full Payment in the Title Subject of the
Sale
The buyer has the right to pay in advance any
installments or the full unpaid balance without
interest any time and have such full payment
annotated in the title.
Section 6 of RA 6552 states:
“SECTION 6. The buyer shall have the right to pay in
advance any installments or the full unpaid balance of
the purchase price any time without interest and to
have such full payment of the purchase price
annotated in the certificate of title covering the
property.”
Under SECTION 24 of PD 957 otherwise known as
Subdivision and Condominium Buyers Protective Act:
Failure to pay installments. — The rights of the buyer
in the event of this failure to pay the installments due
for reasons other than the failure of the owner or
developer to develop the project shall be governed by
Republic Act No. 6552.
Where the transaction or contract was entered into
prior to the effectivity of Republic Act No. 6552 on
August 26, 1972, the defaulting buyer shall be entitled
to the corresponding refund based on the installments
paid after the effectivity of the law in the absence of
any provision in the contract to the contrary.
Presidential Decree No. 957 - THE SUBDIVISION AND
CONDOMINIUM BUYERS' PROTECTIVE DECREE
Purpose: According to the Supreme Court, (In Sps. Co
Chien v. Sta. Lucia Realty & Dev., Inc., et al., G.R. No.
162090, January 31, 2007 (Puno, J) P.D. 957 is a law
that seeks to regulate the sale of subdivision lots and
condominiums in view of the increasing number of
incidents wherein “real estate subdivision owners,
developers, operators, and/or sellers have reneged on
their representations and obligations to prove and
maintain properly” the basic requirements and
amenities, as well as “reports of alarming magnitude…
of swindling and fraudulent manipulations
perpetrated by unscrupulous subdivision and
condominium sellers and operators.”
As such, P.D. 957 requires the registration not just of
the developers, seller, brokers and/or owners of the
project but also of the project itself.
Upon the registration of the project, a license to sell
must be obtained prior to the sale of the subdivision
lots or condominium units therein.
The law also provides for the suspension and
revocation of the registration and license in certain
instances, as well as the procedure to be observed in
the event thereof.
Finally, the law provides for administrative fines and
other penalties in case of violation of, or non-
compliance with its provisions
A review of the relevant provisions of P.D. 957 reveals
that while the law penalizes the selling of subdivision
lots and condominium units without prior issuance of
a Certificate of Registration and License to Sell by the
HLURB, it does not provide that the absence thereof
will automatically render a contract, otherwise
validly entered, void.
The penalty imposed by the decree is the general
penalty provided for the violation of any of its
provisions.
It is well-settled in this jurisdiction that the clear
language of the law shall prevail. This principle
particularly enjoins strict compliance with provisions
of law which are penal in nature, or when a penalty is
provided for the violation thereof. With regard to P.D.
957, nothing therein provides for the nullification of a
contract to sell in the event that the seller, at the time
the contract was entered into, did not possess a
certificate of registration and license to sell. Absent
any specific sanction pertaining to the violation of the
questioned provisions (Secs. 4 and 5), the general
penalties provided in the law shall be applied. The
general penalties for the violation of any provisions in
P.D. 957 are provided for in Sections 38 and 39. As can
early be seen in the aforequoted provisions, the same
do not include the nullification of contracts that are
otherwise validly entered.
The requirements of Section 4 and 5 of P.D. 957 do not
go into the validity of the contract, such that the
absence thereof would automatically render the
contract null and void. It is rather more of an
administrative convenience in order to allow for a
more effective regulation of industry. While it is the
intent of the prohibition in Section 5 of P.D. 957 “to
prevent cases of swindling and fraudulent
manipulations perpetrated by unscrupulous
subdivision and condominium sellers and operators”
and to ensure that “penalties be imposed on
fraudulent practices and manipulations committed in
connection therewith”
The Housing and Land Use Regulatory Board (HLURB)
is a national government agency tasked as the
planning, regulatory and quasi-judicial body for land
use development and real estate and housing
regulation. These roles are done via a triad of
strategies namely, policy development, planning and
regulation.
The Subdivision and Condominium Buyers Protective
Decree (PD 957) is covered by the following features;
a) Regulate sale of subdivision lots and condominiums
units to buyers;
b) Defines sale to be covered by registration;
c) Defines duties and responsibilities of
owner/developer or of condominium and subdivision
projects
and
d) Defines rights of condominium/subdivision
units/lot buyers.
Article 1488. The expropriation of property for public
use is governed by special laws.
Stage 1: Determination of the Right to Expropriate
The government or LGU will file a verified complaint:
a) stating its right and the purpose for its exercise
b) description of the property
c) name of all persons owning, or claiming to own,
or occupying it, showing as far as practicable their
separate interest
d) if the title to the property is in the name of the
Republic of the Philippines but is occupied by a private
individual, or if the title is obscure or doubtful, this
fact must be stated
Upon filing of the complaint, the expropriator may
enter the property after depositing a certain amount
with an authorized government depositary. The value
of the deposit will vary – if it is real property, the
assessed value for tax purposes, and if it is personal
property, the court will provisionally determine
it. www.pinoylegal.com
• If it is an LGU expropriating a real property,
the deposit should be equal to 15% of the
market value of the property based on the tax
declaration. www.pinoylegal.com
• If the acquisition involves property to be used
for national government infrastructure
projects (RA 8794), the government should
deposit 100% of the value of the property
based on the current zonal valuation of the
Bureau of Internal Revenue, including the
value of improvements, if
any. www.pinoylegal.com
• These amounts are only provisional; the
purpose is only to allow the
plaintiff/expropriator to enter the property
while the case is pending. It is for the
protection of the property owner, who, in the
meantime, will be deprived of the use and
enjoyment of his/her property. If the case
pushes through, the court will still have to
determine the amount of just compensation
to be paid to the owner in exchange for his or
her property. www.pinoylegal.com
• Then, the court may either dismiss the
complaint or issue an Order of Expropriation
declaring the plaintiff’s right to
expropriate. W
• .pinoylegal.com
Stage 2: Determination of Just Compensation
• The just compensation is equivalent to the fair
market value of the property – that is the
price agreed upon by a buyer not compelled
to buy and a seller not compelled to sell. This
is to avoid a price that is either lower or
 higher than the actual market to fully understand the meaning of “taking”
value. www.pinoylegal.com for us to know WHEN taking has occurred. Pi

• The court will determine the just • gal

compensation with the aid of commissioners.
The court will appoint not more than three Taking, in expropriation, “may be defined generally as
entering upon private property for more than a
competent and disinterested persons. They
are to submit a report with recommendations momentary period, and, under the warrant or color of
legal authority, devoting it to a public use, or
to the court after they have viewed and
examined the property. The court may otherwise informally appropriating or injuriously
affecting it in such a way as substantially to oust the
wholly or partially accept or reject their
report, securing the rights of both parties in owner and deprive him of all beneficial enjoyment
thereof” (Republic vs. vda. de Castellvi, GR No. L-
either case. www.pinoylegal.com
20620, August 15, 1974). Thus, “taking” takes place
• Just compensation means not only the correct when the following requisites are
determination of the amount to be paid to the present: www.pinoylegal.com
owner, but also payment within reasonable
1) The expropriator entered the private property;
time after taking. Without prompt payment,
compensation cannot be considered just. buying drugs online left;
(Republic vs. Lim, June 29,
2005) www.pinoylegal.com 2) The entrance is for more than a momentary
period;
Basis for determining the value of the property:
3) The entrance is under warrant of authority or
• 1) If the expropriator has entered the color of legal
property or was already in possession when
the complaint for expropriation was filed, authority;
compensation should be based on the value
4) The property is devoted for public use; and
of the property at the time of the taking.
5) The owner is deprived of all beneficial
• 2) If the taking coincides with the filing of
enjoyment of the
the case or if the taking happened after the
case was filed, the basis should be the value at property.
the time of the filing.

• The purpose of these rules is to avoid a

situation where the government would first
negotiate with the owner to lease the
property and inform the owner of its intent to
expropriate later when the lease is about to
expire. Then it would claim that the taking
began at the time of the lease and that the
compensation should be based on the value
at such time of taking, when the value of the
property was still lower. This would result in
an injustice to the private property
owner. www.pinoylegal.com

• Thus, for the purpose of determining the just

compensation, it is important to know the
time of the “taking”. And it is also important