INTRODUCTION

Governing Law

The provisions of the Code of Commerce relating to sales have been repealed by the Civil Code. Today, sales are governed by the provisions of
the Civil Code on the subject. (Book IV, Title VI, Arts. 1458-1637.) The distinction between the so-called civil sales and commercial sales is
eliminated. The provisions of the Civil Code on Obligations (Title I, Arts. 1156-1304.) and Contracts (Title II, Arts. 1305-1422.) are applicable to
the contract of sale, but Articles 1458 to 1637 are special rules which are peculiar to sales alone.

Sources of our law on sales

(1) The Philippine law on sales, as it exists today, is an admixture of civil law and common law principles. According to the Code Commission:

“A 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 Civil Code with modifications to suit the principles of Philippine Law.” (Report of the Code Commission)

In incorporating some provisions of the Uniform Sales Act of the United States, the Commission states:

“This incorporation of a goodly number of American rules on sale of goods has been prompted by these reasons:
(1) The present [old] Code does not solve questions arising from certain presentday business practices. Among them are: the sale of “future
goods”; sale of goods by description or by sample; when goods are delivered “on sale or return”; sale of goods by negotiation or transfer of a
document of title; and the rights of the unpaid seller of goods.

(2) The present Code fails to regulate many incidents and aspects of delivery and acceptance of goods, of warranty of title and against hidden
defects, and of payment of the price.

(3) It is probable that a considerable portion of the foreign trade of the Philippines will continue for many years with the United States. In order
to lessen misunderstanding between the merchants on both sides of the Pacific, their transactions should, as far as possible, be governed by
the same rules. This desirable condition will not only facilitate trade but will also perpetuate sentiments of esteem and goodwill between the
two peoples. It is but a truism to say that fair and mutually beneficial trade incalculably enhances international friendship.”

(2) In addition:

“The Title on ‘Sales’ has been enriched by the addition of new provisions based on the opinions of commentators and on judicial decisions and
of new rules adopted with modifications to suit the philosophy and framework of Philippine Law, from the Uniform Sales Act of the United
States.”Many of the original articles were also amended for clarification or improvement.

NATURE AND FORM OF THE CONTRACT

ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. (1445a)

Concept of contract of sale.

The contract of sale is an agreement whereby one of the parties (called the seller or vendor) obligates himself to deliver something to the other
(called the buyer or purchaser or vendee) who, on his part, binds himself to pay therefor a sum of money or its equivalent (known as the price).

Under the Spanish Civil Code, the contract was referred to as a contract of “purchase and sale.” As every “sale” necessarily presupposes a
“purchase,” this name was regarded as redundant. Hence, the name of Title VI has been simplified by calling it “sales” and the name of the
contract has been changed for the same reason to “contract of sale.” (Report of the Code Commission)

“It is required in the proposed Code that the seller transfers the ownership of the thing sold. In the present Code (Art. 1445.), his obligation is
merely to deliver the thing, so that even if the seller is not the owner, he may validly sell, subject to the warranty (Art. 1474.) to maintain the
buyer in the legal and peaceful possession of the thing sold. The Commission considers the theory of the present law unsatisfactory from the
moral point of view.”

Characteristics of a contract of sale.

The contract of sale is:

(1) Consensual, because it is perfected by mere consent without any further act;

(2) Bilateral, because both the contracting parties are bound to fulfill correlative obligations towards each other — the seller, to deliver and
transfer ownership of the thing sold and the buyer, to pay the price;

(3) Onerous, because the thing sold is conveyed in consideration of the price and vice versa;
(4) Commutative, because the thing sold is considered the equivalent of the price paid and vice versa. However, the contract may be aleatory
as in the case of the sale of a hope (e.g., sweepstakes ticket);

(5) Nominate, because it is given a special name or designation in the Civil Code, namely, “sale”; and

(6) Principal, because it does not depend for its existence and validity upon another contract.

Essential requisites of a contract of sale.

The rules of law governing contracts in general are applicable to sales. Like every contract, “sale” has the following requisites or elements:

(1) Consent or meeting of the minds. — This refers to the consent on the part of the seller to transfer and deliver and on the part of the buyer
to pay. The parties must have legal capacity to give consent and to obligate themselves. The essence of consent is the conformity of the parties
on the terms of the contract, the acceptance by one of the offer made by the other. The contract to sell is a bilateral contract. Where there is
merely an offer by one party without the acceptance of the other, there is no consent. The acceptance of payment by a party is an indication of
his consent to a contract of sale, thereby precluding him from rejecting its binding effect.

There may, however, be a sale against the will of the owner in case of expropriation and the three different kinds of sale under the law, namely:
an ordinary execution sale, judicial foreclosure sale, and extra-judicial foreclosure sale. A different set of law applies to each class of sale
mentioned.

The sale of conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders the sale null
and void while the vitiation thereof makes it merely voidable.
(2) Object or subject matter. — This refers to the determinate thing which is the object of the contract. The thing must be determinate or at
least capable of being made determinate because if the seller and the buyer differ in regard to the thing sold, there is no meeting of the minds;
therefore, there is no sale. The subject matter may be personal or real property. The terms used in the law are “thing”, “article”, “goods”,
“personal property”, “property”, “movable property”, “real estate”, “immovable”, “immovable property”, and “real property.”

A buyer can only claim right of ownership over the object of the deed of sale and nothing else. Where the parcel of land described in the
transfer certificate of title is not in its entirety the parcel sold, the court may decree that the certificate of title be cancelled and a correct one
be issued in favor of the buyer, without having to require the seller to execute in favor of the buyer an instrument to effect the sale and
transfer of the property to the true owner.

The sale of credits and other incorporeal rights is covered by Articles 1624 to 1635; and

(3) Cause or consideration. — This refers to the “price certain in money or its equivalent” such as a check or a promissory note, which is the
consideration for the thing sold. It does not include goods or merchandise although they have their own value in money. However, the words
“its equivalent” have been interpreted to mean that payment need not be in money, so that there can be a sale where the thing given as token
of payment has “been assessed and evaluated and [its] price equivalent in terms of money [has] been determined.”
The price must be real, not fictitious; otherwise, the sale is void although the transaction may be shown to have been in reality a donation or
some other contract. A seller cannot render invalid a perfected contract of sale by merely contradicting the buyer’s allegation regarding the
price and subsequently raising the lack of agreement as to the price.
The absence of any of the above essential elements negates the existence of a perfected contract of sale. Sale, being a consensual contract, he
who alleges it must show its existence by competent proof.

Natural and accidental elements.

The above are the essential elements of a contract of sale or those without which no sale can validly exist. They are to be distinguished from:

(1) Natural elements or those which are deemed to exist in certain contracts, in the absence of any contrary stipulations, like warranty against
eviction or hidden defects; and
(2) Accidental elements or those which may be present or absent depending on the stipulations of the parties, like conditions, interest, penalty,
time or place of payment, etc.

Effect of absence of price/nonpayment of price.

(1) There can be no sale without a price. Technically, the cause in sale is, as to the seller, the buyer’s promise to pay the price, and as to the
buyer, the seller’s promise to deliver the thing sold. A contract of sale is void and produces no effect whatsoever where the same is without
cause or consideration in that the purchase price, which appears thereon as paid, has, in fact, never been paid by the buyer to the seller. Such
sale is nonexistent and cannot be considered consummated.
Where the figures referred to by the buyer as prices are mere estimates given them by the seller of the condominium units in question, the
transaction lacks an essential requisite for the perfection of the contract of sale.
(2) Non-payment of the purchase price is a resolutory condition for which the remedy is either rescission or specific performance under Article
1191 of the Civil Code. It constitutes a very good reason to rescind a sale, for it violates the very essence of the contract of sale.
But the failure to pay the price in full within a fixed period does not, by itself, dissolve a contract of sale in the absence of any agreement that
payment on time is essential, or make it null and void for lack of consideration, but results at most in default on the part of the vendee for
which the vendor may exercise his legal remedies. It is incumbent upon the party challenging the recital of a notarized deed of sale that the
vendor has received the purchase price to prove his claim with clear and convincing evidence. A notarized document is evidence of high
character.

An action to declare a contract void or inexistent does not prescribe

Transfer of title to property for a price, essence of sale.

(1) Obligations to deliver and to pay. — The transfer of title to property or agreement to transfer title for a price actually paid or promised, not
a mere physical transfer of the property, is the essence of sale. But neither is the delivery of the thing bought nor the payment of the price
necessary for the perfection of the contract of sale. Being consensual, it is perfected by mere consent. However, where the seller can no longer
deliver the object of the sale to the buyer because the latter has already acquired title and delivery thereof from the rightful owner, such
contract may be deemed to be inoperative and may thus fall, by analogy, under Article 1409(5) of the Civil Code: “those which contemplate an
impossible service,’’ since delivery of ownership is no longer possible.
It is only upon the existence of the contract of sale that the seller is obligated to transfer ownership to the buyer and the buyer, to pay the
purchase price to the seller. In defining the contract of sale, Article 1458 merely specifies the obligations of the parties to transfer ownership
and to pay under the contract. The parties will have these obligations even without Article 1458.

Kinds of contract of sale.

(1) As to presence or absence of conditions. — A sale may be either:
(a) Absolute. — where the sale is not subject to any condition whatsoever and where title passes to the buyer upon delivery of the thing sold.
Thus, it has been held that a deed of sale is absolute in nature although denominated as a “Deed of Conditional Sale” in the absence of any
stipulation that the title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period. In such case, ownership of the
property sold passes to the vendee upon the actual or constructive delivery thereof.
Payment of the purchase price is not essential to the transfer of ownership as long as the property sold has been delivered. Such delivery
operates to divest the vendor of title to the property which may not be regained or recovered until and unless the contract is resolved or
rescinded in accordance with law; or

(b) Conditional. — where the sale contemplates a contingency, and in general, where the contract is subject to certain conditions, usually, in
the case of the vendee, the full payment of the agreed purchase price and in the case of the vendor, the fulfillment of certain warranties, e.g.,
the timely eviction of squatters on the property sold.

In sales with assumption of mortgage, the assumption of mortgage is a condition to the seller-mortgagor’s consent to the sale so that without
approval by the mortgagee no sale is perfected and the seller remains the owner and mortgagor of the subject property with the right to
redeem in the case of foreclosure.

However, a sale denominated as a “Deed of Conditional Sale’’ is still absolute where the contract is devoid of any proviso that title is reserved
or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.

The delivery of the thing sold does not transfer title until the condition is fulfilled. Where the condition is imposed, instead, upon the perfection
of the contract the failure of such condition would prevent such perfection or the juridical relation itself from coming into existence.

If the condition is imposed on an obligation of a party (e.g., ejection by the vendor of squatters within a certain period before delivery of
property) not upon the perfection of the contract itself, which is not complied with, the other party may either refuse to proceed or waive said
condition. The stipulation that the “payment of the full consideration [of a parcel of land] shall be due and payable in five (5) years from the
execution of a formal deed of sale’’ is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which
the full consideration is to be computed and the time within which the same is to be paid. Similarly, the mere fact that the obligation of the
buyer to pay the balance of the purchase price was made subject to the condition that the seller first deliver the reconstituted title of the house
and lot sold does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale.

(2) Other kinds. — There are, of course, other kinds of sale depending on one’s point of view, e.g., as to the nature of the subject matter (real
or personal, tangible or intangible), as to manner of payment of the price (cash or installment), as to its validity (valid, rescissible,
unenforceable, void), etc.

Contract of sale and contract to sell with reserved title distinguished.

At this stage, it would be desirable to point out that there are distinctions between the two contracts.

(1) Transfer of title. — In a contract of sale, title passes to the buyer upon delivery of the thing sold, while in a contract to sell (or of “exclusive
right and privilege to purchase”), where it is stipulated that ownership in the thing shall not pass to the purchaser until he has fully paid the
price, ownership is reserved in the seller and is not to pass until the full payment of the purchase price. In the absence of such stipulation,
especially where the buyer took possession of the property upon execution of the contract, indicates that what the parties contemplated is a
contract of absolute sale.
(2) Payment of price. — In the first case, non-payment of the price is a negative resolutorycondition, and the remedy of the seller is to exact
fulfillment or to rescind the contract, while in the second case, full payment is a positive suspensive condition, the failure of which is not a
breach, casual or serious, of the contract but simply an event that prevents the obligation of the vendor to convey title from acquiring binding
force. Where the seller promises to execute a deed of absolute sale upon full payment of the purchase price, the agreement is a contract to
sell.

(3) Ownership of vendor. — Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover
the ownership of the thing sold and delivered, actually or constructively, until and unless the contract of sale itself is resolved and set aside. In
the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at
the time specified in the contract. There is no actual sale until and unless full payment of the price is made and a contract of sale is entered into
to consummate the sale. If the vendor should eject the vendee for failure to meet the condition precedent he is enforcing the contract and not
rescinding it. Article 11915 is not applicable. A contract to sell is commonly entered into so as to protect the seller against a buyer who intends
to buy a property in installments by withholding ownership over the property until the buyer effects full payment therefore.

A stipulation in a contract providing for automatic rescission upon non-payment of the purchase price within the stipulated period is valid. It is
in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach without need of going to court.

Contract to sell and conditional sale distinguished.

A contract to sell may be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price.

(1) Transfer of title to the buyer. — A contract to sell as defined above may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of the suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may
not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive
condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of
the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale to consummate the transaction.
(2) Sale of subject property to a third person. — It is essential to distinguish between a contract to sell and a conditional contract of sale
specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person. In a contract
to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition
such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the
relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration
because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer.In a
conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect
the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is
automatically transferred to the buyer, such that the seller will no longer have any title to transfer to any third person. Applying Article 1544 of
the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at
least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

Other cases of contract to sell.

(1) Where the subject matter is not determinate or the price is not certain, the agreement is merely a contract to sell. For purposes of the
perfection of a contract of sale, there is already a price certain where the determination of the price is left to the judgment of a specified person
or persons, and notwithstanding that such determination has yet to be made.
(2) A sale of future goods even though the contract is in the form of a present sale operates as a contract to sell the goods.
(3) Where the stipulation of the parties is that the deed of sale and corresponding certificate of sale would be issued only after full payment of
the purchase price, the contract entered into is a contract to sell and not a contract of sale.

It has been held that the act of the vendor of delivering the possession of the property (land) to the vendee contemporaneous with the
contract (deed of sale in a private instrument) was an indication that an absolute contract of sale was intended by the parties and not a
contract to sell.

ART. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. (n)

Requisites concerning object.

(1) Things. — Aside from being (a) determinate, the law requires that the subject matter must be (b) licit or lawful, that is, it should not be
contrary to law, morals, good customs, public order, or public policy, and should (c) not be impossible. In other words, like any other object of a
contract, the thing must be within the commerce of men.

If the subject matter of the sale is illicit, the contract is void and cannot, therefore, be ratified. In such a case, the rights and obligations of the
parties are determined by applying the following articles of the Civil Code:
“Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to
comply with his promise.”

“Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the
performance of the other’s undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment
of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply
with his promise.”

2) Rights. — All rights which are not intransmissible or personal may also be the object of sale, like the right of usufruct, the right of
conventional redemption, credit, etc.

Examples of intransmissible rights are the right to vote, right to public office, marital and parental rights, etc.
No contract may be entered upon future inheritance except in cases expressly authorized by law. While services may be the object of a
contract, they cannot be the object of a contract of sale.

Kinds of illicit things.

The thing may be illicit per se (of its nature) or per accidens (because of some provisions of law declaring it illegal).
Article 1459 refers to both. Decayed food unfit for consumption is illicit per se, while lottery tickets are illicit per accidens. Land sold to an alien
is also per accidens because the sale is prohibited by the Constitution. The rule is well-settled that the mortgagor (or pledgor) continues to be
the owner of the property mortgaged, and, therefore, has the power to alienate the same; however, he is obliged, under pain of penal liability,
to secure the consent of the mortgagee.

Right to transfer ownership.

(1) Seller must be owner or authorized by owner of thing sold. — It is essential in order for a sale to be valid that the vendor must be able to
transfer ownership and, therefore, he must be the owner or at least must be authorized by the owner of the thing sold. This rule is in accord
with a well-known principle of law that one cannot transmit or dispose of that which he does not have — nemo dat quod non-habet.
Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer
legally.
Thus, a sale of paraphernal (separate) property of the deceased wife by the husband who was neither an owner nor administrator of the
property at the time of sale is void ab initio. Such being the case, the sale cannot be the subject of ratification by the administrator or the
probate court. Only so much of the share of the vendor-co-owner can be validly acquired by the vendee even if he acted in good faith in buying
the shares of the other coowners. Where the sale from one person to another was fictitious as there was no consideration, and, therefore, void
and inexistent, the latter has no title to convey to third persons.
(2) Right must exist at time of delivery. — Article 1459, however, does not require that the vendor must have the right to transfer ownership
of the property sold at the time of the perfection of the contract. Perfection per se does not transfer ownership which occurs upon the actual
or constructive delivery of the thing sold. Sale, being a consensual contract, it is perfected by mere consent, and ownership by the seller of the
thing sold is not an element for its perfection. It is sufficient if the seller has the “right to transfer the ownership thereof at the time it is
delivered.” Thus, the seller is deemed only to impliedly warrant that “he has a right to sell the thing at the time when the ownership is to pass.”

The reason for the rule is obvious. Since future goods or goods whose acquisition by the seller depends upon a contingency may be the subject
matter of sale, it would be inconsistent for the article to require that the thing sold must be owned by the seller at the time of the sale
inasmuch as it is not possible for a person to own a thing or right not in existence. An agreement providing for the sale of property yet to be
adjudicated by a court is thus valid and binding.
(3) Where property sold registered in name of seller who employed fraud in securing his title. — Although generally a forged or fraudulent
deed is a nullity and conveys no title, there are instances when such a document may become the root of a valid title. One such instance is
where the certificate of title was already transferred from the name of the true owner to the forger, and while it remained that way, the land
was subsequently sold to an innocent purchaser for value. Where there is nothing in the certificate to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, or in the absence of any fact or circumstance to excite suspicion, the purchaser is not
required to explore further than what the Torrens title upon its face indicates in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto.

If the rule were otherwise, the efficacy and conclusiveness of the certificate of title which the Torrens System seeks to insure would entirely be
futile and nugatory. The established rule is that the rights of an innocent purchaser for value must be respected and protected, notwithstanding
the fraud employed by the seller in securing his title. The proper recourse of the true owner of the property who was prejudiced and
fraudulently dispossessed of the same is to bring an action for damages against those who caused or employed the fraud, and if the latter are
insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund.
(4) Where properly sold in violation of a right of first refusal of another person. — The prevailing doctrine is that a contract of sale entered
into in violation of a right of first refusal of another person, while valid is rescissible. A right of first refusal is neither “amorphous nor merely
preparatory’’ and can be executed according to its terms. 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. Where, however, there is no showing of bad faith on the part of the vendee, the contract of sale may not be rescinded, and the
remedy of the person with the right of first refusal is an action for damages against the vendor.

(5) Where real property, subject of unrecorded sale, subsequently mortgaged by seller which mortgage was registered. — The mortgagee’s
registered mortgage right over the property is inferior to that of the buyer’s unregistered right. The unrecorded sale between the buyer and the
seller is preferred for the reason that if the seller the original owner, had parted with his ownership of the thing sold then, he no longer had
ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage is of no moment since it is
understood to be without prejudice to the better right of third parties.

ART. 1460. A thing is determinate when it is particularly designated or physically segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made
determinate without the necessity of a new or further agreement between the parties. (n)

Subject matter must be determinate.

(1) When thing determinate. — A thing is determinate or specific (not generic) when it is particularly designated or physically segregated from
all others of the same class. This requisite that the object of a contract of sale must be determinate is in accordance with the general rule that
the object of every contract must be determinate as to its kind. A determinate thing is identified by its individuality, e.g., my car (if I have only
one); the watch I am wearing; the house located at the corner of Rizal and Del Pilar Streets, etc.;
(2) Sufficient if subject matter capable of being made determinate. — It is not necessary that the thing sold must be in sight at the time the
contract is entered into. It is sufficient that the thing is determinable or capable of being made determinate without the necessity of a new or
further agreement between the parties to ascertain its identity, quantity, or quality. The fact that such an agreement is still necessary
constitutes an obstacle to the existence of the contract and renders it void.

Thus, a person may validly sell all the cavans of rice in a particular bodega or a parcel of land located at a particular street but if the bodega is
not specified and the seller has more than one bodega or owns more than one parcel of land at the particular street, and it cannot be known
what may have been sold, the contract shall be null and void. Similarly, an obligation by a person to sell one of his cars is limited to the cars
owned by him. The subject matter is determinable; it becomes determinate the moment it is delivered.

In a case, the respondent purchased a portion of a lot containing 345 square meters, which portion is located in the middle of another lot with a
total area 854 square meters, and referred to in the receipt as the “previously paid lot.’’ held: “Since the lot subsequently sold to respondent is
said to adjoin the ‘previously paid lot’ on three sides thereof, the subject lot is capable of being determined without the need of any new
contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that
they are determinate or determinable.

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. (n)

Sale of things having potential existence.

Even a future thing not existing at the time the contract is entered into may be the object of sale provided it has a potential or possible
existence, that is, it is reasonably certain to come into existence as the natural increment or usual incident of something in existence already
belonging to the seller, and the title will vest in the buyer the moment the thing comes into existence.
Thus, a valid sale may be made 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.”

Sale of a mere hope or expectancy.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing contemplated or expected will come
into existence.The sale really refers to an “expected thing” which is not yet in existence, and not to the hope or expectancy which already
exists, in view of the condition that the thing will come into existence. But the sale of a mere hope or expectancy is valid even if the thing hoped
or expected does not come into existence, unless the hope or expectancy is vain in which case, the sale is void.
A plan whereby prizes can be obtained without any additional consideration (when a product is purchased at the usual price plus the chance of
winning a prize) is not a lottery.

Sale of thing expected and sale of hope itself distinguished.

Emptio rei speratae (sale of thing expected) is the sale of a thing not yet in 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. On the other hand, emptio
spei is the sale of the hope itself that the thing will come into existence, where it is agreed that the buyer will pay the price even if the thing
does not eventually exist.
(1) 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, whatever its quantity or quality. In emptio spei (like the sale of a sweepstake ticket), it is not certain that
the thing itself (winning a prize) will exist, much less its quantity and quality.
(2) In the first, the contract deals with a future thing, while in the second, the contract relates to a thing which exists or is present — the hope
or expectancy

3) In the first, the sale is subject to the condition that the thing should exist, so that if it does not, there will be no contract by reason of the
absence of an essential element. On the other hand, the second produces effect even though the thing does not come into existence because
the object of the contract is the hope itself, unless it is a vain hope or expectancy (like the sale of a falsified sweepstake ticket which can never
win).

Presumption in case of doubt.

In case of doubt, the presumption is in favor of emptio rei speratae which is more in keeping with the commutative character 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. (n)
Goods which may be the object of sale.
Goods which form the subject of a contract of sale may be either:
(1) Existing goods or goods owned or possessed by the seller; or
(2) Future goods or goods to be manufactured (like the sale of milk bottles to be manufactured with the name of the buyer pressed in the
glass), raised (like the sale of the future harvest of palay from a ricefield), or acquired (like the sale of a definite parcel of land the seller expects
to buy).

Future goods as object of sale.

A sale of future goods, even though the contract is in the form of a present sale, is valid only as an executory contract to be fulfilled by the
acquisition and delivery of the goods specified.
In other words, “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.
Paragraph 1 of Article 1462 does not apply if the goods are to be manufactured especially for the buyer and not readily saleable to others in the
manufacturer’s regular course of business. The contract, in such case, must be considered as one for a piece of work.

Article 1462 contemplates a contract of sale of specific goods where one of the contracting parties binds himself to transfer the ownership of
and deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent. The said article requires that there be
delivery of goods, actual or constructive, to be applicable. It does not apply to a transaction where there was no such delivery; neither was
there any intention to deliver a determinate thing. Thus, a “futures” contract where the parties merely speculate on the rise and fall on the
price of the goods subject matter of the transaction is a form of gambling was declared null and void by Article 2018 of the Civil Code.

ART. 1463. The sole owner of a thing may sell an undivided interest therein. (n)

Sale of undivided interest in a thing.

The sole owner of a thing may sell the entire thing; or only a specific portion thereof; or an undivided interest therein and such interest may be
designated as an aliquot part of the whole.
The legal effect of the sale of an undivided interest in a thing is to make the buyer a coowner in the thing sold. As co-owner, the buyer acquires
full ownership of his part and he may, therefore, sell it. Such sale is, of course, limited to the portion which may be allotted to him in the
division of the thing upon the termination of the co-ownership. This rule operates similarly with respect to ownership of fungible goods.
Article 1463 covers only the sale by a sole owner of a thing of an undivided share or interest thereof

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. (n)

Sale of an undivided share of a specific mass.

The Civil Code classifies movable goods into consumable or non-consumable, thereby discarding the old classification into fungible and non-
fungible. This change of classification seems to be in name only as the definition of fungible goods as those which cannot be used without being
consumed under the old Civil Code is precisely that of consumable goods. Article 1464, however, still speaks of fungible goods.
(1) Meaning of fungible goods. — It means goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent of any
other unit (Uniform Sales Act, Sec. 76.), such as grain, oil, wine, gasoline, etc.
(2) Effect of sale. — The owner of a mass of goods may sell only an undivided share thereof, provided the mass is specific or capable of being
made determinate.

(a) By such sale, the buyer becomes a co-owner with the seller of the whole mass in the proportion in which the definite share bought bears to
the mass.

(b) It must follow that the aliquot share of each owner can be determined only by the measurement of the entire mass. If later on it be
discovered that the mass of fungible goods contains less than what was sold, the buyer becomes the owner of the whole mass and
furthermore, the seller shall supply whatever is lacking from goods of the same kind and quality, subject to any stipulation to the contrary
(3) Risk of loss. — If the buyer becomes a co-owner, with the seller, or other owners of the remainder of the mass, it follows that the whole
mass is at the risk of all the parties interested in it, in proportion to their various holdings.
(4) Subject matter. — Take note that in the sale of an undivided share, either of a thing or of that of mass of goods, the subject matter is an
incorporeal right. Here, ownership passes to the buyer by the intention of the parties.
(5) Applicability of Article 1464 to non-fungible goods. — Although Article 1464 speaks of “fungible goods,” nevertheless it may also apply to
goods not strictly fungible in nature. “Indeed, the earliest case in which the doctrine was applied related to barrels of flour.
Though flour of the same grade is fungible in the strictest sense, barrels of flour are necessarily so. Other cases also have applied the doctrine
to goods in barrels. So it has been applied to bales of cotton and even to cattle or sheep. It is obvious that all cattle are not alike and that some
cattle in a herd are more valuable than the others. But in the cases under consideration, the parties had virtually agreed to act on the
assumption that all were alike and it can be seen that this is really the essential thing.”

ART. 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)

Sale of thing subject to a resolutory condition.

A resolutory condition is an uncertain event upon the happening of which the obligation (or right) subject to it is extinguished. Hence, the right
acquired in virtue of the obligation is also extinguished.
One of the obligations of the vendor is to transfer the ownership of the thing object of the contract. If the resolutory condition attaching to the
object of the contract, which object may include things as well as rights, should happen, then the vendor cannot transfer the ownership of what
he sold since there is no object.

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. (n)

Sale distinguished from agency to sell.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
In order to classify a contract, due regard must be given to its essential clauses. A contract is what the law defines it to be, and not what it is
called by the contracting parties. Sale may be distinguished from an agency to sell, as follows:
(1) In a sale, the buyer receives the goods as owner; in an agency to sell, the agent receives the goods as the goods of the principal who retains
his ownership over them and has the right to fix the price and the terms of the sale and receive the proceeds less the agent’s commission upon
the sales made;
(2) In a sale, the buyer has to pay the price; in an agency to sell, the agent has simply to account for the proceeds of the sale he may make on
the principal’s behalf;
(3) In a sale, the buyer, as a general rule, cannot return the object sold; in an agency to sell, the agent can return the object in case he is unable
to sell the same to a third person;

(4) In a sale, the seller warrants the thing sold; in an agency to sell, the agent makes no warranty for which he assumes personal liability as long
as he acts within his authority and in the name of the seller; and
(5) In a sale, the buyer can deal with the thing sold as he pleases being the owner; in an agency to sell, the agent in dealing with the thing
received, must act and is bound according to the instructions of his principal.

Contract creating both a sale and an agency relationship.

The transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the
position of an owner and makes him liable for the agreed price, the transaction is a sale. On the other hand, the essence of an agency to sell is
the delivery to an agent, not as his property, but as the property of his principal, who remains the owner and has the right to control sales, fix
the price and terms, demand and receive the proceeds less the agent’s commission upon sales made.

In some circumstances, however, a contract can create both a sale and an agency relationship. For example: An automobile dealer receives title
to the cars he orders from the manufacturer and that transaction is a sale; but he is an agent to the extent that he is authorized to pass on to
the ultimate purchaser the limited warranty of the manufacturer. In any event, the courts must look at the entire transaction to determine if it
is a principalagent relationship or a buyer-seller relationship.

ART. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. (n)
Sale distinguished from contract for a piece of work.
By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price
or compensation. The contractor may either employ his labor or skill, or also furnish the material.

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

(1) In the first case, the contract is one for work, labor and materials and in the second, one of sale.
(2) In the first case, the risk of loss before delivery is borne by the worker or contractor, not by the employer (the person who ordered). A
contract is for a piece of work if services dominate that contract even though there is a sale of goods involved. Where the primary objective of a
contract is a sale of a manufactured item, it is a sale of goods even though the item is manufactured by labor furnished by the seller and upon
previous order of the customer.
(3) The importance of marking the line that divides contracts for a piece of work from contracts of sale arises from the fact that the former is
not within the Statute of Frauds.

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. (1446a)

Sale distinguished from barter.

By the contract of barter or exchange, one of the parties binds himself to give one thing in consideration of the other’s promise to give another
thing. On the other hand, in a contract of sale, the vendor gives a thing in consideration for a price in money.
(1) The above distinction is not always adequate to distinguish one from the other. Hence, the rule in Article 1468 for those cases in which the
thing given in exchange consists partly in money and partly in another thing.
(a) In such cases, the manifest intention of the parties is paramount in determining whether it is one of barter or of sale and such intention may
be ascertained by taking into account the contemporaneous and subsequent acts of the parties.
(b) If this intention cannot be ascertained, then the last sentence of the article applies. But if the intention is that the contract shall be one of
sale, then such intention must be followed even though the value of the thing given as a part consideration is more than the amount of the
money given.
(2) The only point of difference between the two contracts is in the element which is present in sale but not in barter, namely: “price certain in
money or its equivalent.”

Sale distinguished from lease.

In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for a period
which may be definite or indefinite. In other words, in a lease, the landlord or lessor transfers merely the temporary possession and enjoyment
of the thing leased. In a sale, the seller transfers ownership of the thing sold.

Sale distinguished from dation in payment.

Dation in payment (or dacion en pago) is the alienation of property to the creditor in satisfaction of a debt in money. It is governed by the law
on sales. As such the essential elements of a contract of sales, namely, consent: object certain, and cause or considerations, must be present.
The distinctions are the following:
(1) In sale, there is no preexisting credit, while in dation in payment, there is;
(2) In sale, obligations are created, while in dation in payment, obligations are extinguished;
(3) In sale, the cause is the price paid, from the viewpoint of the seller, or the thing sold, from the viewpoint of the buyer, while in dation in
payment, the extinguishment of the debt, from the viewpoint of the debtor, or the object acquired in lieu of the credit, from the viewpoint of
the creditor;
(4) In sale, there is more freedom in fixing the price than in dation in payment; and
(5) In sale, the buyer has still to pay the price, while in dation in payment, the payment is received by the debtor before the contract is
perfected.

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 specified 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. (1447a)

When price considered certain.

The price in a contract of sale ought to be settled for there can be no sale without a price. It must be certain or capable of being ascertained in
money or its equivalent; and money is to be understood as currency, and its equivalent means promissory notes, checks and other mercantile
instruments generally accepted as representing money.
The fact that the exact amount to be paid for the thing sold is not precisely fixed, is no bar to an action to recover such compensation, provided
the contract, by its terms furnishes a basis or measure for ascertaining the amount agreed upon.

Under the above article, the price is certain if:

(1) The parties have fixed or agreed upon a definite amount; or

(2) It be certain with reference to another thing certain; or
(3) The determination of the price is left to the judgment of a specified person or persons and even before such determination.
It must be understood that the last two cases are applicable only when no specific amount has been stipulated by the parties.

Effect where price fixed by third person designated.

As a general rule, the price fixed by a third person designated by the parties is binding upon them. There are, however, exceptions such as:
(1) When the third person acts in bad faith or by mistake as when the third person fixed the price having in mind not the thing which is the
object of the sale, but another analogous or similar thing in which case the court may fix the price. But mere error in judgment cannot serve as
a basis for impugning the price fixed; and
(2) When the third person disregards specific instructions or the procedure marked out by the parties or the data given him, thereby fixing an
arbitrary price.

Effect where price not fixed by third person designated.

(1) If the third person designated by the parties to fix the price refuses or cannot fix it (without fault of the seller and the buyer), the contract
shall become ineffective, as if no price had been agreed upon unless, of course, the parties subsequently agree upon the price.
(2) If such third person is prevented from fixing the price by the fault of the seller or the buyer, the party not in fault may obtain redress against
the party in fault which consists of a choice between rescission or fulfillment, with damages in either case. If the innocent party chooses
fulfillment, the court shall fix the price.

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. (n)

Effect of gross inadequacy of price in voluntary sales.

(1) General rule. — While a contract of sale is commutative, mere inadequacy of the price or alleged hardness of the bargain generally does not
affect its validity when both parties are in a position to form an independent judgment concerning the transaction. This rule holds true in
voluntary contracts of sale otherwise free from invalidating defects. A valuable consideration, however small or nominal, if given or stipulated
in good faith is, in the absence of fraud, sufficient.

In determining whether the price is adequate or not, the price obtaining at the date of the execution of the contract, not those obtaining a
number of years later, should be considered.
(2) Where low price indicates a defect in the consent. — The inadequacy of price, however, may indicate a defect in the consent such as when
fraud, mistake, or undue influence is present in which case the contract may be annulled not because of the inadequacy of the price but
because the consent is vitiated. Contracts of sale entered into by guardians or representatives of absentees are rescissible whenever the wards
or absentees whom they represent suffer lesion by more than 1/4 of the value of the things which are the object thereof.
The unsupported claim that the sale of property was made for an inadequate price is a mere speculation which has no place in our judicial
system. Since every claim must be substantiated by sufficient evidence, such a conjectural pretension cannot be entertained. Allegation of
inadequacy of price must be proven.
(3) Where price so low as to be “shocking to conscience”. — While it is true that mere inadequacy of price is not a sufficient ground for the
cancellation of a voluntary contract of sale, it has been held that where the price is so low that “a man in his senses and not under a delusion”
would not accept it, the sale may be set aside and declared an equitablemortgage to secure a loan. But where the price paid is much higher
than the assessed value of the property and the sale is effected by a father to his daughter in which filial love must be taken into account, the
price is not to be construed “as so inadequate to shock the court’s conscience.”

Effect of gross inadequacy of price in involuntary sales.

(1) General rule. — A judicial or execution sale is one made by a court with respect to the property of a debtor for the satisfaction of his
indebtedness.
Like in a voluntary sale, mere inadequacy of price is not a sufficient ground for the cancellation of an execution sale if there is no showing that
in the event of a resale, a better price can be obtained. It has been held that the public sale of a lot valued at P40,500.00 for P12,000.00 cash
“does not appear to be inadequate.”
(2) Where price so low as to be “shocking to the conscience.” — If the “price is so inadequate as to shock the conscience of the Court”, “such
that the mind revolts at it and such that a reasonable mind would neither directly or indirectly be likely to consent to it,’’ a judicial sale, say, of
real property, will be set aside. Thus, where a land with an assessed value of more than P60,000.00 was sold for only P867.00, the sale was set
aside.
Similarly, an execution sale whereby 33 hectares of land were ceded to the judgment creditor to satisfy a liability for 146 cavans of palay was
held void for inadequacy of price.So, also the price of the sale of properties at around 10% of their value was held to be grossly inadequate.
(3) Where seller is given the right to repurchase. — The validity of the sale is not necessarily affected where the law gives to the owner the
right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect the
redemption. He may reacquire the property or also sell his right to redeem and thus recover the loss he claims he suffered by reason of the
price obtained at the execution sale.

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. (n)

Effect where price is simulated

(1) 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.
(2) 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
inexistence of a contract does not prescribe.
(3) Simulation occurs when an apparent contract is a declaration of a fictitious will deliberately made by agreement of the parties, in order to
produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really
executed. Its requisites 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 fact that the seller continues to pay realty taxes on the land sold even after the execution of the contract to sell does not necessarily prove
ownership, much less simulation of said contract. The non-payment of the price does not prove simulation; at most, it gives the seller the right
to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the remedy of the seller is to exact
fulfillment or, in case of a substantial breach, to rescind the contract. The non-payment of the price by the supposed buyer, a minor, when
taken into account together with the many intrinsic defects of the deed of sale, may, however, show that the price is simulated, making the sale
void.

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. (1448)

Price on a given day at particular market.

The above provision follows the principle in Article 1469 that a price is considered certain if it could be determined with reference to another
thing certain.
Note the last phrase of the above article: “provided said amount be certain.” When an amount is fixed above or below the price on a given day
or in a particular exchange or market, the said amount must be certain; otherwise, the sale is inefficacious because the price cannot be
determined.

This article is especially applicable to fungible things like securities, grain, liquids, etc. the price of which are subject to fluctuations of the
market.
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. (1449a)

Fixing of price by one of the contracting parties, not allowed.

The reason for the rule is obvious.

(1) If consent is essential to a contract of sale, the determination of the price cannot be left to the discretion of one of the contracting parties;
otherwise, it cannot be said that the other consented to a price he did not and could not previously know. The validity or compliance of the
contract cannot be made to depend upon the will of one party.
(2) Moreover, to be just, the price must be determined impartially by both parties or left to the judgment of a specified person or persons.
However, where the price fixed by one party is accepted by the other, the contract is deemed perfected because in this case, there exists a true
meeting of minds upon the price.

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. (n)

Effect of failure to determine price.

(1) Where contract executory. — If the price cannot be determined in accordance with Articles 1469 and 1472, or in any other manner, and the
bargain is still executory, the contract is without effect. Price certain is an essential element of the contract of sale.Consequently, there is no
obligation on the part of the vendor to deliver the thing and on the part of the vendee to pay.
(2) Where delivery has been made. — If the thing or any part thereof has already been delivered and appropriated by the buyer, the latter must
pay a reasonable price therefor. This obligation of the buyer is sometimes contractual (if the agreement omits any reference to price), and
sometimes, quasi-contractual (if the agreement provides that the parties are thereafter to agree on the price).
(a) If a buyer, for example, orders a cavan of rice from a store, nothing being said as to the price, the parties intend and understand that a
reasonable price shall be paid. The obligation here is contractual. The law merely enforces the intention of the parties.
(b) Article 1474 applies only where the means contemplated by the parties for fixing the price have, for any reason, proved ineffectual. In this
case, the obligation of the buyer to pay a reasonable price is an obligation imposed by law as distinguished from a contractual obligation. It is
based on the fundamental principle that no one should enrich himself at the expense of another. In case, however, the parties do not intend to
be bound until after the price is settled, the buyer must return any goods already received or if unable to do so, must pay their reasonable value
at the time of delivery, and the seller must return any portion of the amount received.

Concept of reasonable price.

The reasonable price or value of goods is generally the market price at the time and place fixed by the contract or by law for the delivery of the
goods. Under special circumstances of unnatural conditions in the market, the market price does not furnish the only test. In the leading case
upon this point, the court said:
“A reasonable price may or may not agree with the current price of the commodity at the port of shipment when such shipment is made. The
current price of the day may be highly unreasonable from accidental circumstances, as on account of the commodity having been purposely
kept back by the vendor himself, or with reference to the price at the other ports in the immediate vicinity, or from various other causes. This
doctrine has been applied in cases where the market has been monopolized.”

Determination of fair market value.

Offers to sell are not competent evidence of the fair market value of a property, because they are no better than offers to buy, which have been
held to be inadmissible as proof of said values.
“In discussing the term ‘market value’, the author of a well-known treatise on the subject of damages observes that to make a market there
must be both buying and selling; and the ‘market value’ is that ‘reasonable’ sum which property would bring on a fair sale by a man willing
but not obliged to sell to a man willing but not obliged to buy.”

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.
(1450a)

Perfection of contract of sale.

This article follows the general rule that contracts are perfected by mere consent. The contract of sale being consensual, it is perfected at the
moment of consent without the necessity of any other circumstances. From the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price, the reciprocal obligations of the parties arise even when neither has been delivered. The essence
of consent is the conformity of the parties on the term of the contract, the acceptance by one of the offer made by the other.

(1) Conduct of the parties. — Appropriate conduct by the parties may be sufficient to establish an agreement. While there may be instances
where interchanged correspondence does not disclose the exact point at which the deal was closed, the actions of the parties may indicate that
a binding obligation has been undertaken. There is, however, no perfected sale where it is conditional (e.g., approval by higher authorities) and
the condition is not fulfilled.
(2) Transfer of ownership. — The ownership is not transferred until the delivery of the thing. The parties, however, may stipulate that the
ownership in the thing, notwithstanding its delivery, shall not pass to the purchaser until after he has fully paid the purchase price thereof.
(3) Form of contract. — Generally, a contract of sale is binding regardless of its form.
However, in case the contract of sale should fall within the provisions of the Statute of Frauds or of any other applicable statute which requires
a certain form for its enforceability or validity, then that form must be complied with. A contract of sale may be in a private instrument; the
contract is valid and binding between the parties upon its perfection and a party may compel the other to execute a public instrument
embodying the contract.
A sale of real estate, whether made as a result of a private transaction or of a foreclosure or execution sale, becomes legally effective against
third persons only from the date of its registration.
In a case, a letter-offer to buy a particular property for a specified price was received by the offeree who annotated on the copy the phrase
“Received original, 9-4-89’’ beside which appears his signature. Held: The receipt can neither be regarded as a contract of sale nor a promise to
sell. Such an annotation by the offeree amounts to neither a written nor an implied acceptance of the offer. It is merely a memorandum of the
receipt by him of the offer. The requisites of a valid contract of sale are lacking in said receipt.
(4) Consent reluctantly given. — There is no difference in law where a person gives his consent reluctantly and even against his good sense and
judgment as when he acts voluntarily and freely.
(5) Notarized deed of sale states receipt of price. — The unsupported verbal claim of the seller that the sale of a motor vehicle was not
consummated for failure of the purchaser to pay the purchase was held insufficient to overthrow a notarized deed of sale wherein it is recited
that the seller “sold, transferred and conveyed” the motor vehicle to the purchaser “for and in consideration of the amount of P10,000 and
other valuable considerations, receipt of which is hereby acknowledged.”
To overcome a public document solemnly executed before a notary public, the evidence to the contrary must be clear, strong, and convincing.
Parol evidence will not suffice to negate the clear and positive recitals of a public document not otherwise tainted with fraud or falsification.
(6) Applicant’s qualification to buy still subject for investigation. — In a case, the agreement denominated as “contract of sale” was considered
by the court as a mere application to buy the land in question, and not a perfected contract of sale. Although it embodied all the essential
elements of a contract of sale by installment, it appearing that “after the approval of such application it was still necessary to have the
[applicant’s] qualifications investigated as well as whether or not he has complied with the provisions of the law regarding the disposition of
lands by the Board of Liquidators,” the application was subject to revocation in case the applicant was found not to possess the qualifications
necessary.

(7) Chattel mortgage of car by mortgagor-buyer prior to transfer of title to his name. — The fact that the chattel mortgage of a car by the
buyers in favor of the seller was executed on a date earlier than the transfer of the registration certificate thereof in the name of the buyers
does not render the said mortgage made by the buyers invalid, because the mortgagors were already the owner of the car when the mortgage
was executed, inasmuch as at the time of the sale wherein the parties agreed over the car and the price, the contract became perfected, and
when part of the purchase price was paid and the car was delivered, upon the execution of the promissory note and the mortgage by the
mortgagors, the sale became consummated. The registration of the transfer of automobiles and of the certificates of license for their use in the
Bureau of Land Transportation merely constitutes an administrative proceeding which does not bear any essential relation to the contract of
sale entered into between the parties.
Registration of motor vehicles is required not because it is the operative act that transfers ownership in vehicles (as in land registration cases),
but because it is the means to identify the owner thereof in case of accident so that responsibility for the same can be fixed.
(8) Non-fulfillment by one party of his obligation. — In case one of the contracting parties should not comply with what is incumbent upon
him, the injured party may sue for fulfillment or rescission with the payment of damages in either case. This right is predicated on the violation
of the reciprocity between the parties brought about by a breach of obligation by one of them.

When definite agreement on manner of payment essential.

As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds of the parties as to the price,
despite the manner of payment, or even the breach of that manner of payment. It is not the act of payment of price that determines the
validity of a contract of sale.
Where the parties, however, still have to meet and agree on how and when the downpayment and installment payments are to be made, it
cannot be said that a contract of sale has been perfected.
Thus, in a case where the buyer is “to give a down-payment of P10,000 to be followed by P20,000 and the balance of P70,000 would be paid in
installments, the equal monthly amortization of which has to be determined as soon as the P30,000 had been completed,” it was held that the
fact that the buyer delivered the sum of P1,000 as part of the downpayment cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties under Article 1482. In this case, a definite agreement on the manner of payment of the
purchase price is an essential element in the formation of a binding and enforceable contract of sale.
It appears, however, that the parties in the Velasco case agreed on the purchase price of P100,000. It is believed that upon the meeting of the
minds of the parties on the thing which is the object of the contract and the price (P100,000), the contract of sale must be deemed to have
been perfected. The terms and conditions of payment are merely accidental, not essential, elements of the contract of sale except where the
parties themselves clearly stipulate that in addition to the subject matter and the price, they are essential or material to the contract. A
disagreement on the manner of payment is tantamount to a failure to agree on the price.
Article 1197 of our Civil Code authorizes courts to fix the period or periods of payment where there is lack of agreement regarding the same.
In Uraca vs. Court of Appeals (86 SCAD 734, 278 SCRA 702 [1997].), S sent a letter to B, offering to sell a lot and commercial building for
P1,050,000. B sent a reply-letter within the 3-day period contained in the offer accepting the aforesaid offer. Later, B was told by S that the
price was P1,400,000 in cash or manager’s check and not P1,050,000 as erroneously dated in the letter-offer. B agreed to the price of
P1,400,000 but counterproposed that payment be paid in installments, with a downpayment of P1,000,000 and the balance of P400,000 to be
paid in 30 days. It was held that a contract of sale was perfected at the original price of P1,050,000 but there was no agreement in the sale at
the increased price of P1,400,000. The qualified acceptance by B constitutes a counter-offer and, in effect, a rejection of S’s offer. Since there
was no definite agreement on the manner of the payment of the purchase price of P1,400,000, the first sale for P1,050,000 remained valid and
existing.
Although the law does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the
same is needed. Agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount
to failure to agree on the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent. This lack
of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never
been paid.

Effect of failure to pay price.

Failure to pay the consideration of contract is different from lack of consideration; the former results in a right to demand fulfillment or
cancellation of the obligation under an existing valid contract, while the latter prevents the existence of a valid contract.
(1) The failure to pay the stipulated price after the execution of the contract does not convert the contract into one without cause or
consideration as to vitiate the validity of the contract, it not being essential for the existence of cause that payment or full payment be made at
the time of the contract. Non-payment of the purchase price is not among the instances where the law declares a contract of sale to be null and
void. Such failure does not ipso facto resolve the contract in the absence of any agreement to that effect.
The situation is rather one in which there is failure to pay the consideration, with its resultant consequences. The vendor’s remedy in such case
is generally to demand specific performance or rescission with damages in either case under Article 1191.
(2) But a contract of sale is null and void where the purchase price, which appears thereon as paid, has, in fact, never been paid by the buyer to
the seller. In such case, the sale is without cause or consideration. Such sale is non-existent or cannot be considered consummated. It produces
no effect whatsoever.
If the real price is not stated in the contract, then the contract is valid but subject to reformation. If there is no meeting of the minds of the
parties as to the price, because the price stipulated in the contract is simulated, then the contract is void. Article 1471 states that if the price is
simulated, the sale is void.

Right of owner to fix his own price.

(1) The owner of a thing has the right to quote his own price, reasonable or unreasonable. It is up to the prospective buyer to accept or reject it.
He may even impose a condition hard to fulfill and name a price quite out of proportion to the real value of the thing offered for sale.
(2) He is also well within his right to quote a small or nominal consideration and such consideration is just as effectual and valuable a
consideration as a larger sum stipulated or paid.

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. (n)
Rules governing auction sales.

(1) Sales of separate lots by auction are separate sales. — Where separate lots are the subject of separate biddings and are separately knocked
down, there is a separate contract in regard to each lot. As soon as the hammer falls on the first lot, the purchaser of that lot has a complete
and separate bargain. He need not make another. When a second lot is put up and knocked down to the highest bidder, there is a separate
complete contract as to the said lot whether the bidder who secured the first lot or whether another person happens to be the highest bidder.
Such is the rule in No. (1) though no doubt the parties may subsequently consolidate all the purchases into one transaction — as by giving a
single note — for the aggregate price.
(2) Sale perfected by the fall of the hammer. — In putting up the goods for sale, the seller is merely making an invitation to those present to
make offers which they do by making bids, one of which is ultimately accepted. Each bid is an offer and the contract is perfected only by the fall
of the hammer or in other customary manner. It follows that the bidder may retract his bid and the auctioneer may withdraw the goods from
sale any time before the hammer falls. However, if the sale has been announced to be without reserve, the auctioneer cannot withdraw the
goods from sale once a bid has been made and the highest bidder has a right to enforce his bid.
(3) Right of seller to bid in the auction. — The seller or his agent may bid in an auction sale provided: (a) such right was reserved; (b) notice was
given that the sale is subject to a right to bid on behalf of the seller; and (c) the right to bid by the seller is not prohibited by law or by
stipulation.
(a) Where no notice given of right to bid. — Where there is no notice that the sale is subject to seller’s right to bid, it shall be unlawful for the
seller to bid either directly or indirectly or for the auctioneer to employ or induce any person to bid on behalf of the seller. (No. 4.) The purpose
of the notice is to prevent puffing or secret bidding by or on behalf of the seller by people who are not themselves bound. The employment of a
puffer or by bidder to enhance or inflate the price of the goods sold is a fraud upon the purchaser and a sufficient ground for relieving him from
his bid and avoiding the sale. This is true although the employment of the puffer by the auctioneer was without the owner’s knowledge, since
the auctioneer is the owner’s agent.
(b) Where notice of right to bid given. — Though bidding by the seller or his agent is fraudulent, a right to bid may be expressly reserved by or
on behalf of the seller. (No. 3.) It is, therefore, the secrecy of puffing which renders it a fraud upon bidding. Where there is notice of the
intention to bid by the seller, the bidding in such a case would not operate as a fraud.
(4) Contract not to bid. — A sale may be fraudulent not only because of conduct of the seller, but because of conduct of the buyer. It is not
permissible for intending buyers at auction or other competitive sales to make an agreement for a consideration that only one of them shall
bid, in order that the property may be knocked down at a low price. The bargain is fraudulent as regards the seller though the agreement is
without consideration, if it is actually carried out, for the fraud against the seller is the same as if there were considerations.
(5) Advertisements for bidders. — They are simply invitations to make proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears.

Right of owner to prescribe terms of public auction.

The owner of property which is offered for sale, either at public or private auction, has the right to prescribe the manner, conditions, and terms
of such sale. He may provide that all of the purchase price or any portion thereof should be paid at the time of the sale, or that time will be
given for that payment, or that any or all bids may be rejected.
The conditions of a public sale announced by an auctioneer or by the owner of the property at the time and place of the sale are binding upon
all bidders, whether they knew of such conditions or not.

ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)
ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (n)

Ownership of thing transferred by delivery.

The delivery of the thing sold is essential in a contract of sale. Without it, the purchaser may not enjoy the thing sold to him. It is only after the
delivery of the thing sold that the purchaser acquires a real right or ownership over it.
In the absence of stipulation to the contrary, the ownership of the thing sold passes on to the vendee upon delivery thereof. This is true even if
the purchase has been made on credit. Payment of the purchase price is not essential to the transfer of ownership, as long as the property sold
has been delivered. Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of
bouncing checks.

The delivery may be actual or constructive. The contract is consummated by the delivery of the thing sold and of the purchase money.
In all forms of delivery, it is necessary that the act of delivery, whether actual or constructive, should be coupled with the intention of delivering
the thing sold. The act without the intention is insufficient; there is no tradition. It has been held that the issuance of a sales invoice does not
prove transfer of ownership of the thing sold to the buyer, an invoice being nothing more than a detailed statement of the nature, quantity,
and cost of the thing sold, and considered not a bill of sale.

Exceptions to the rule.

(1) Contrary stipulation. — The ownership of things is transferred by delivery, and not by mere payment. However, the parties may stipulate
that despite the delivery, the ownership of the thing shall remain with the seller until the purchaser has fully paid the price. In other words,
non-payment of the price, after the thing has been delivered, prevents the transfer of ownership only if such is the stipulation of the parties.
This stipulation is usually known as pactum reservati dominii or contractual reservation of title, and is common in sales on the installment plan.
A contract which contains this kind of stipulation is considered a contract to sell. The agreement may be implied.
(a) Where in a contract of sale the seller agreed that the ownership of the goods shall remain with the seller until the purchase price shall have
been fully paid, merely to secure the performance by the buyer of his obligation, such stipulation cannot make the seller liable in case of loss of
the goods.
(b) If there is doubt by the wording of the contract whether the parties intended a suspensive condition or a suspensive period for the payment
of the stipulated price, the doubt shall be resolved in favor of the greatest reciprocity of interests. There can be no question that greater
reciprocity will be obtained if the buyer’s obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred.
Sale is essentially onerous.
(c) A stipulation that ownership in the thing sold shall not pass to the purchaser until after he has fully paid the price thereof could only be
binding upon the contracting parties, their assigns, and heirs but not upon third persons without notice. Such a stipulation is only a kind of
security for the benefit of the vendor who has not been fully paid.
(2) Contract to sell. — In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such
payment is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. To say that there is only a casual breach is to proceed from the
assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case.
(3) Contract of insurance. — A perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over
the goods sufficient to be the subject of insurance. Thus, a perfected contract of sale between the vendee-consignee and the shipper of goods
operates to vest in the former an equitable title even before delivery or before he performed the conditions of the sale, the contract of
shipment, whether under F.O.B., or C.I.F., or C & F, being immaterial in the determination of whether the vendee has an insurable interest or
not in the goods.

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. (1451a)

Kinds of promise treated in Article 1479.

The above article refers to three kinds of promises, namely:

(1) An accepted unilateral promise to sell in which the promisee (acceptor) elects to buy;
(2) An accepted unilateral promise to buy in which the promisee (acceptor) elects to sell; and
(3) A bilateral promise to buy and sell reciprocally accepted in which either of the parties chooses to exact fulfillment.

Effect of unaccepted unilateral promise.

A unilateral promise or offer to sell or to buy a thing which is not accepted creates no juridical effect or legal bond. Such unaccepted imperfect
promise or offer is called policitacion. A period may be given to the offeree within which to accept the offer.

Meaning of option.
An option is a privilege existing in one person for which he has paid a consideration which gives him the right to buy/sell, for example, certain
merchandise or certain specified property, from/to another person, if he chooses, at any time within the agreed period at a fixed price, or
under, or in compliance with certain terms and conditions.

Nature of option contract.

(1) An option is a contract. It is a preparatory contract, separate and distinct from the main contract itself (subject matter of the option) which
the parties may enter into upon the consummation of the option.
(2) It gives the party granted the option the right to decide, whether or not to enter into a principal contract, while it binds the party who has
given the option, not to enter into the principal contract with any other person during the agreed time and within that period, to enter into
such contract with the one to whom the option was granted if the latter should decide to use the option.
(3) An option must be supported by a consideration distinct from the price. The promisee has the burden of proving such consideration.
(4) A consideration of an option contract is just as important as the consideration for any other kind of contract. An option without
consideration is void; the effect is the same as if there was no option.

Effect of accepted unilateral promise.

The second paragraph of Article 1479 refers to what is called as “option” in the commercial world.
A unilateral promise to sell or to buy a determinate thing for a price certain does not bind the promissor even if accepted and may be
withdrawn at any time. It is only if the promise is supported by a consideration distinct and separate from the price that its acceptance will give
rise to a perfected contract.
The optionee (holder of the option), after accepting the option and before he exercises it, has the right, but not the obligation, to buy or sell, as
the case may be. Once the option is exercised, i.e., offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues
and both parties are then reciprocally bound to comply with their respective undertakings. It would be a breach of the option for the optioner-
offeror to withdraw the offer during the agreed period. If in fact, he withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed contract since it has failed to reach its own stage of
perfection. The offeror, however, renders himself liable for damages for breach of the option.
Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent.
Lacking any proof of such consideration, the option is unenforceable. A contract of option to buy is separate from the contract to sell, and both
contracts need separate and distinct considerations for validity.

Full payment of price not necessary for exercise of option to buy.

The obligations under an option to buy are reciprocal obligations — the performance of one obligation is conditioned upon the simultaneous
fulfillment of the other obligation.

In an option to buy, the party who has an option may validly and effectively exercise his right by merely notifying the owner of the former’s
decision to buy and expressing his readiness to pay the stipulated price.The notice need not be coupled with actual payment of the purchase
price so long as this is delivered to the owner of the property upon the execution and delivery by him of the deed of sale. The payment of the
price is contingent upon the delivery of the deed of sale. Unless and until the owner shall have done this, the buyer who has the option is not
and cannot be held in default in the discharge of his obligation to pay. Consequently, since the obligation to pay is not yet due, consignation in
court of the purchase price is not required.
An option to buy is not, of course, a contract of purchase and sale.

Article 1479 and Article 1324 compared.

Article 1324 of the Civil Code provides as follows:
“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.”
Under the above-quoted article, the general rule regarding offer and acceptance is that, when the offerer has allowed the offeree a certain
period within which to accept the offer, the offer may be withdrawn as a matter of right at any time before acceptance. But if the option is
founded upon a separate consideration, the offerer cannot withdraw his offer, even if the same has not yet been accepted, before the
expiration of the stipulated period. Regardless of whether it is supported by a consideration or not, the offer, of course, cannot be withdrawn
after acceptance of the offer.
This general rule as embodied in Article 1324 was interpreted as modified by the provision of Article 1479 which applies specifically to a
promise “to buy or to sell.” As already stated, this rule requires that for a promise to sell to be valid, it must be supported by a consideration
distinct from the price. American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether or not it is
supported by a consideration, uphold the general rule applicable to offer and acceptance as contained in our Civil Code.
In a later case, the Supreme Court abandoned the view adhered to in Southwestern Sugar which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and reaffirmed the doctrine in Atkins, Kroll & Co., Inc. vs. Cua
Hian Tek, holding that it could no longer be withdrawn after acceptance. In other words, if acceptance is made before withdrawal, it constitutes
a binding contract of sale although the option is given without consideration. Before acceptance, the offer may be withdrawn as a matter of
right.20 Be that as it may, the offerer cannot revoke, before the period has expired, in an arbitrary or capricious manner the offer without being
liable for damages which the offeree may suffer under Article 19 of the Civil Code.

Effect of bilateral promise to buy and sell.

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.
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. (1452a)

Risk of loss or deterioration

Four rules may be given regarding risk of loss:

(1) If the thing is lost before perfection, the seller and not the one who intends to purchase it bears the loss in accordance with the principle
that the thing perishes with the owner (res perit domino);
(2) If the thing is lost at the time of perfection, the contract is void or inexistent. The legal effect is the same as when the object is lost before
the perfection of the contract of sale;
(3) If the thing is lost after perfection but before its delivery, that is, even before the ownership is transferred to the buyer, the risk of loss is
shifted to the buyer as an exception to the rule of res perit domino; and
(4) If the thing is lost after delivery, the buyer bears the risk of loss following the general rule of res perit domino.

Scope of Article 1480.

Article 1480 contemplates two rules:
(1) The first rule — where the thing is lost after perfection but before its delivery —applies to non-fungible things and fungible things sold
independently and for a single price or for a price fixed without consideration of their weight, number, or measure. Under this rule, which
follows the Roman Rule, the risk of the thing sold passes to the buyer, even though the thing has not yet been delivered to him. Therefore, if a
house (sold) be destroyed wholly or partly by fire the loss falls upon the buyer who must pay the price, even though he has not received the
thing. For the seller is not liable for anything which happens without his fraud or negligence. But if after the sale any alluvion has accrued to the
land, the benefit goes to the buyer for the benefit ought to belong to him who has the risk. In other words, the buyer assumes the risk of loss
caused by fortuitous event without the fault of the seller, that is, in spite of the exercise of due diligence on his part and before he has incurred
in delay after the perfection of the contract to the time of delivery. With respect to the fruits, the buyer has a right to the same from the time
the obligation to deliver the thing arises. If the risk ought to belong to the buyer before delivery, the benefit ought to belong to him who has
the risk.

Article 1480, paragraph 1 is applicable only where the thing is determinate. It also applies to fungible things sold for a price not fixed in relation
to weight, number, or measure because in such case the fungible things have been “particularly designated or physically segregated.”

Is Article 1480 above in conflict with Article 1504?

(2) The second rule relates to fungible things sold for a price fixed in relation to weight, number, or measure. Under the third paragraph, “the
risk shall not be imputed to the vendee until they have been weighed, counted, or measured, and delivered.” Paragraph 3 is an exception to the
rule that the vendee bears the loss after the perfection of the contract and before delivery. However, the vendee assumes the risk if he has
incurred in delay in receiving the goods sold.

ART. 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 by 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. (n)

Sale of goods by description and/or sample.

The above article covers a sale of goods by description, by sample, and by sample as well as by description. It provides a cause for rescission
distinct from those stated in Article 1597.
(1) Sale by description. — Sale by description occurs where a seller sells things as being of a particular kind, the buyer not knowing whether the
seller’s representations are true or false, but relying on them as true; or, as otherwise stated, where the purchaser has not seen the article sold
and relies on the description given him by the vendor, or has seen the goods but the want of identity is not apparent on inspection.
The reason for the rule is that a dealer who sells an article describing it as the kind of an article of commerce the identity of which is not known
to the purchaser, must understand that such purchaser relies upon the description as a representation by the seller that it is the thing
described. If the bulk of the goods delivered do not correspond with the description, the contract may be rescinded. But if the thing delivered is
as described, the fact that the buyer cannot use the thing sold for the purpose for which it was intended without the seller’s fault does not
exempt the buyer from paying the purchase price agreed upon.
(2) Sale by sample. — To constitute a sale by sample, it must appear that the parties contracted solely with reference to the sample, with the
understanding that the bulk was like it. But a mere exhibition of a sample by the seller in the absence of any showing that it was an inducement
of the sale or formed the sole basis thereof, does not amount to a sale by sample as where the quality of the articles to be furnished is
expressly described in the contract without reference to the sample or the parties agree that the goods ordered shall differ from the sample in
some particular matter. Whether a sale is by sample is determined by the intent of the parties as shown by the terms of the contract and the
circumstances surrounding the transaction. In a sale by sample, the vendor warrants that the thing sold and to be delivered by him shall
conform with the sample in kind, character, and quality.
A sale by sample is really a species of sale by description. The sample is employed instead of words to communicate to the buyer the
characteristics of the goods being sold. It is itself a tacit assertion of the qualities of the bulk it represents.
(3) Sale by description and sample. — When a sale is made both by sample and by description, the goods must satisfy all the warranties
appropriate to either kind of sale, and it is not sufficient that the bulk of the goods correspond with the sample if they do not also correspond
with the description, and vice versa.

Meaning of bulk of goods.

In this article, the term “bulk of goods” is not used to designate the greater portion of the goods. Rather, it is used to denote the goods as
distinguished from the sample with which they must correspond. The word “goods” in the phrase is an oppositional genitive defining “bulk.” In
other words, “bulk of goods” mean the same as “goods” which, as a whole body, must correspond substantially with the sample and
description.
The buyer is given a reasonable opportunity of comparing the bulk with the description or the example.

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. (1454a)

Meaning of earnest money

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. Since earnest money constitutes an
advance payment, it must be deducted from the total price.
Note: By agreement of the parties, the amount given may be merely a deposit of what would eventually become earnest money or
downpayment should a contract of sale be made by them, not as a part of the purchase price and as proof of the perfection of the contract of
sale but only as a guarantee that the buyer would not back out of the sale. Thus, it is not really the giving of earnest money but the proof of the
concurrence of all the essential elements of a contract which establishes the existence of the perfected contract.
There is no sale where the parties still have to agree on the acceptable terms of payment. The earnest money forms part of the consideration
only if the sale is consummated upon full payment of the purchase price.
Under Article 1454 of the old Civil Code, it has been held that the delivery of part of the purchase price should not be understood as
constituting earnest money to bind the agreement in the absence of something in the contract showing that such was the intention of the
parties.

Earnest money and option money distinguished.

They may be distinguished as follows:
(1) Earnest money is part of the purchase price, while option money is the money given as distinct consideration for an option contract;
(2) Earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and
(3) When earnest money is given, the buyer is bound to pay the balance, while the wouldbe buyer who gives option money is not required to
buy.

But option money may become earnest money if the parties so agree.

ART. 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. (n)
Form of contract of sale.

(1) General rule. — The form of a contract refers to the manner in which it is executed or manifested. As a general rule, a contract may be
entered into in any form provided all the

essential requisites for its validity are present. It may be in writing; it may be oral; it may be partly in writing and partly oral. It may even be
inferred from the conduct of the parties.
Sale is a consensual contract and is perfected by mere consent.
(2) Where form is required in order that a contract may be enforceable. — In case the contract of sale should be covered by the Statute of
Frauds, the law requires that the agreement (or some note or memorandum thereof) be in writing subscribed by the party charged, or by his
agent; otherwise, the contract cannot be enforced by action.
Under the Statute of Frauds of the Civil Code, the following contracts must be in writing; otherwise, they shall be unenforceable by action:
(a) Sale of personal property at a price not less than P500.00;
(b) Sale of real property or an interest therein regardless of the price involved; and
(c) Sale of property not to be performed within a year from the date thereof regardless of the nature of the property and the price involved.
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced in writing. Contracts infringing the
Statute of Frauds are ratified when the defense fails to object to the introduction of parol evidence, or asks questions on cross-examination,
which elicits evidence proving the existence of a perfected contract of sale.

The Statute of Frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated therein. The
application of the Statute presupposes the existence of a perfected contract. A right of first refusal is not among those listed as unenforceable
under the statute. At best, it is a contractual grant not of the sale of the property involved, but of the right of first refusal over the property
sought to be sold.

Hence, a right of first refusal need not be written to be enforceable and may be proven by oral evidence.
(3) Where form is required in order that a contract may be valid. — Where the “applicable statute” requires that the contract of sale be in a
certain form for its validity, the required form must be observed in order that the contract may be both valid and enforceable.
(4) Where form is required only for the convenience of the parties. — In certain cases, a certain form (e.g., public instrument) is required for
the convenience of the parties in order that the sale may be registered in the Registry of Deeds to make effective as against third persons the
right acquired under such sale. As between the contracting parties, the form is not indispensable since they are allowed by law to compel each
other to observe that form.
Hence, the fact that the deed of sale of a parcel of land still had to be signed and notarized does not mean that no contract had already been
perfected. A sale of land is valid regardless of the form it may have been entered into as long as the requisites for a valid contract of sale are
present.
On the other hand, the fact that a deed of sale is a notarized document does not necessarily justify the conclusion that the said sale is a true
conveyance to which the parties thereto are irrevocably bound. Though its notarization vests in its favor the presumption of regularity and due
execution, it is not the function of the notary public to validate and make binding an instrument never intended by the parties to have any
binding legal effect upon them. The intention of the parties still and always is the primary consideration in determining the true nature of the
contract. Where the vendor did not personally appear before the notary public, such fact raises doubt regarding the vendor’s consent to the
sale notwithstanding that the deed states the contrary.
An invalidly notarized deed of sale must be considered merely as a private document. Even if validly notarized, the deed would still be classified
as a private document if it is merely subscribed and sworn to by way of jurat but was not properly acknowledged.

Sale of real property or an interest therein.

(1) A sale of a piece of land or interest therein when made through an agent is void unless the agent’s authority is in writing.
(2) For the sale of real property to be effective against third persons, the sale must be registered in the Registry of Deeds (or Property) of the
province or city where the property is located. The sale must be in a public document (e.g., acknowledged before a notary public or any public
officer authorized by law to administer oath) for otherwise, the registration will be refused.
(3) The real purpose of registration of a contract of sale being to give notice to third persons and to protect the buyer against claims of third
persons arising from subsequent alienations by the vendor, it is certainly not necessary to give efficacy to the deed of sale, as between the
parties to the contract and their privies because actual notice is equivalent to registration. It is settled that registration is not a mode of
acquiring ownership.

(4) The sale of land in a private instrument is valid and binding upon the parties, for the time-honored rule is that even a verbal contract of sale
of real estate produces legal effects between the parties, since sale is a consensual contract and is perfected by mere consent.
(5) The fact that the notarization of a deed of sale of real property is false is of no consequence, for it need not be notarized; it is enough that it
be in writing.

Modes of satisfaction of the Statute of Frauds.

The statute specifies three ways in which contracts of sales of goods within its terms may be made binding, namely:
(1) the giving of a memorandum;
(2) acceptance and receipt of part of the goods (or things in action) sold and actual receipt of the same; and
(3) payment or acceptance at the time some part of the purchase price.
The requirement of a memorandum is obviously suitable either for a contract to sell or a sale. The other two modes of satisfaction seem more
naturally to apply to sales than to executory contracts.
The Statute of Frauds applies not only to goods but to things in action as well. Thus, an assignment of credit at a price not less than P500.00 is
within the operation of the Statute.

Statute of Frauds applicable only to executory contracts.

The Statute of Frauds is applicable only to executory contracts (where no performance, i.e., delivery and payment, has as yet been made by
both parties) and not to contracts which are totally (consummated) or partially performed. It does not forbid oral evidence to prove a
consummated sale.
(1) Reason for the rule. — The reason is that partial performance like the writing, furnishes reliable evidence of the intention of the parties or
the existence of the contract. A contrary rule would result in injustice or unfairness to the party who has performed his obligation, and would
promote fraud or bad faith on the part of the party who has not performed his obligation, for it would enable him to keep the benefits already
derived by him from the transaction and at the same time, evade the responsibilities or liabilities assumed or contracted by him.
Thus, where a parol contract of sale is adduced not for the purpose of enforcing it, but as a basis of the possession of the person claiming to be
the owner, the Statute of Frauds is not applicable, in the same way that it does not apply to contracts which are either totally or partially
performed upon the theory that there is a wide field for the commission of frauds in executory contracts which can only be prevented by
requiring them to be in writing, a fact which is reduced to a minimum in executed contracts because the intention of the parties become
apparent by their execution.
(2) Circumstances indicating partial performance. — Where there is partial performance of a parol contract of sale of realty, the principle
excluding evidence of such contract does not apply.
Other circumstances indicating partial performance of an oral contract of sale of realty are relinquishment of rights, continued possession by a
purchaser who is already in possession, building of improvements, tender of payment, rendition of services, payment of taxes, surveying of the
land at the vendee’s expense, and acceptance of initial payment.
The application of the Statute of Frauds presupposes the existence of a perfected contract and requires only that a note or memorandum
subscribed by the party charged or by his agent be executed in order to compel judicial enforcement. Where there is no perfected contract,
there is no basis for the application of the Statute. Thus, the annotation on the letter-offer of the phrase “Received original, 9-4-89,’’ beside
which appears the signature of the addressee, can neither be regarded as a contract of sale nor a promise to sell. It is merely a memorandum of
the receipt of the offer. Hence, the alleged transaction is unenforceable as the requirements under the Statute of Frauds have not been
complied with.

Legal recognition of electronic data messages and electronic documents.

The following are the pertinent provisions of the implementing rules and regulations of R.A. No. 8792, otherwise known as the “Electronic
Commerce Act.’’
(1) Validity and enforceability. — Information shall not be denied validity or enforceability solely on the ground that it is in the form of an
electronic data message or electronic document, purporting to give rise to such legal effect. Electronic data messages or electronic documents
shall have the legal effect, validity or enforceability as any other document or legal writing. In particular, subject to the provisions of R.A. No.
8792 and the
Rules:
(a) A requirement under law that information is in writing is satisfied if the information is in the form of an electronic data message or
electronic document.
(b) A requirement under law for a person to provide information in writing to another person is satisfied by the provision of the information in
an electronic data message or electronic document.
(c) A requirement under law for a person to provide information to another person in a specified non-electronic form is satisfied by the
provision of the information in an electronic data message or electronic document if the information is provided in the same or substantially
the same form.

(d) Nothing limits the operation of any requirement under law for information to be posted or displayed in specified manner, time or location;
or for any information or document to be communicated by a specified method unless and until a functional equivalent shall have been
developed, installed, and implemented.

(2) Incorporation by reference. — Information shall not be denied validity or enforceability solely on the ground that it is not contained in an
electronic data message or electronic document but is merely incorporated by reference therein.
(3) Writing. — Where the law requires a document to be in writing, or obliges the parties to conform to a writing, or provides consequences in
the event information is not presented or retained in its original form, an electronic document or electronic data message will be sufficient if
the latter:
(a) maintains its integrity and reliability; and
(b) can be authenticated so as to be usable for subsequent reference, in that:
1) It has remained complete and unaltered, apart from the addition of any endorsement and any authorized change, or any change which arises
in the normal course of communication, storage and display; and
2) It is reliable in the light of the purpose for which it was generated and in the light of all relevant circumstances.

(4) Original. — Where the law requires that a document be presented or retained in its original form, that requirement is met by an electronic
document or electronic data message if:
(a) There exists a reliable assurance as to the integrity of the electronic document or electronic data message from the time when it was first
generated in its final form and such integrity is shown by evidence aliunde (that is, evidence other than the electronic data message itself) or
otherwise; and
(b) The electronic document or electronic data message is capable of being displayed to the person to whom it is to be presented.
(c) For the purposes of No. (1) above:

1) The criteria for assessing integrity shall be whether the information has remained complete and unaltered, apart from the addition of any
endorsement and any change which arises in the normal course of communication, storage and display; and
2) The standard of reliability required shall be assessed in the light of the purpose for which the information was generated and in the light of
all relevant circumstances.
An electronic data message or electronic document meeting and complying with the requirements of Section 6 or 7 of R.A. No. 8792 shall be
the best evidence of the agreement and transaction contained therein.

(5) Solemn contracts. — No provision of the R.A. No. 8792 shall apply to vary any and all requirements of existing laws and relevant judicial
pronouncements respecting formalities required in the execution of documents for their validity. Hence, when the law requires that a contract
be in some form in order that it may be valid or enforceable, or that a contract is proved in a certain way, that requirement is absolute and
indispensable.

Legal recognition of electronic signatures.

The following are the pertinent provisions of the implementing rules and regulations:
An electronic signature relating to an electronic document or electronic data message shall be equivalent to the signature of a person on a
written document if the signature:
(1) is an electronic signature as defined in Section 6(g) of the Rules; and
(2) is proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document or electronic data
message, existed under which:
(a) A method is used to identify the party sought to be bound and to indicate said party’s access to the electronic document or electronic data
message necessary for his consent or approval through the electronic signature;

(b) Said method is reliable and appropriate for the purpose for which the electronic document or electronic data message was generated or
communicated, in the light of all circumstances, including any relevant agreement;
(c) It is necessary for the party sought to be bound, in order to proceed further with the transaction, to have executed or provided the
electronic signature; and
(d) The other party is authorized and enabled to verify the electronic signature and to make the decision to proceed with the transaction
authenticated by the same.
The parties may agree to adopt supplementary or alternative procedures provided that the requirements of paragraph (b) are complied with.

Communication of electronic data messages and electronic documents.

The following are the pertinent provisions of the implementing rules and regulations:
(1) Formation and validity of electronic contracts. — Except as otherwise agreed by the parties, an offer, the acceptance of an offer and such
other elements required under existing laws for the formation and perfection of contracts may be expressed in, demonstrated and proved by
means of electronic data message or electronic documents and no contract shall be denied validity or enforceability on the sole ground that it is
in the form of an electronic data message or electronic document, or that any or all of the elements required under existing laws for the
formation of the contracts is expressed, demonstrated and proved by means of electronic documents.
(2) Consummation of electronic transactions with banks. — Electronic transactions made through networking among banks, or linkages
thereof with other entities or networks, and vice versa, shall be deemed consummated under rules and regulations issued by the Bangko
Sentral ng Pilipinas, upon the actual dispensing of cash or the debit of one account and the corresponding credit to another, whether such
transaction is initiated by the depositor or by an authorized collecting party. The obligation of one bank, entity, or person similarly situated to
another arising therefrom shall be considered absolute and shall not be subjected to the process of preference of credits. The foregoing shall
apply only to transactions utilizing the Automated Teller Machine switching network.
Without prejudice to the foregoing, all electronic transactions involving banks, quasi-banks, trust entities, and other institutions which under
special laws are subject to the supervision of the Bangko Sentral ng Pilipinas shall be covered by the rules and regulations issued by the same
pursuant to its authority under Section 59 of R.A. No. 8791 (The General Banking Act), R.A. No. 7653 (the Charter of the Bangko Sentral ng
Pilipinas) and Section 20, Article XII of the Constitution.
(3) Recognition by parties of electronic data message. — As between the originator and the addressee of an electronic data message or
electronic document, a declaration of will or other statement shall not be denied legal effect, validity or enforceability solely on the ground that
it is in the form of an electronic data message or electronic document.

ART. 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. (1454-Aa)

Remedies of vendor in sale of personal property payable in installments.

The vendor of personal property payable in installments may exercise any of the following remedies:
(1) elect fulfillment upon the vendee’s failure to pay; or
(2) cancel the sale, if the vendee shall have failed to pay two or more installments; or
(3) foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to pay two or more installments.

Remedies alternative.
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.
Thus, where from the prayer of the vendor in its brief, it asks the appellate court to order the vendee to pay the remaining unpaid sum under
the promissory note, it thereby waives the other remedies. To file an action containing the three remedies: to collect the purchase price; to
seize the property purchased by suing for replevin; and to foreclose the mortgage executed thereon, is not only irregular but is a flagrant
circumvention of the prohibition of the law.

Applicability of Article 1484.

The law is aimed at those sales of personal property where the price is payable in several installments.
(1) Sale of personal property not payable in installments. — Article 1484 does not apply to a sale of personal property on straight term or
partly in cash and partly in term. Where the balance, after payment of the initial sum, should be paid in its totality at the time specified, the
transaction is not by installment as contemplated in Article 1484.
(2) Sale or mortgage of real estate. — Neither does the article apply to sale of immovable property nor to real estate mortgage. Under Article
1484, the creditor is given the right or option to seize the chattel and dispose of the same in accordance with the Chattel Mortgage Law, while
the mortgage on real property may only be foreclosed in conformity with the provisions of the Rules of Court, or those of Act No. 3135, if a
special power to sell is granted to the creditor under the contract.
(3) Action of replevin. — It does not also apply to an action of replevin. An action by the mortgagee for recovery of possession of personal
property with replevin as a provisional remedy is not an action for collection much less for foreclosure (extra-judicial) of chattel mortgage. It is a
preliminary step to foreclosure which should be conducted in accordance with Section 14 of Act No. 1508.

Right of vendor to recover unpaid balance of purchase price.

(1) Remedy of specific performance. — The vendor who has chosen to exact the fulfillment of the obligation is not limited to the proceeds of
the sale of the mortgaged goods. He may still recover from the purchaser the unpaid balance of the price, if any, on the real and personal
properties of the purchaser not exempt by law from attachment or execution. The mere fact that the seller secures possession of the personal
property through an attachment after filing an action for collection of the unpaid balance, with a prayer for an issuance of a writ of preliminary
attachment does not necessarily mean that he intends to resort to a foreclosure of the mortgage. Unlike in a judicial foreclosure sale, there is
no need for the court to confirm the sale on execution.
(2) Remedy of cancellation. — 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. In a case, for failure of
the buyer to pay two or more installments, the vendor-mortgagee (or his assignee) repossessed the car. The receipt issued by the vendor’s
assignee to the vendee when it took possession of the vehicle states that the vehicle could be redeemed within 15 days, meaning that should
the vendee fail to redeem within the said period by paying the balance of the purchase price, the assignee would retain permanent possession
of the vehicle as it did in fact. It was held that by this act, the vendor exercised its option to cancel the contract of sale, barring it from exacting
payment of the balance of the purchase price.

“It cannot have its cake and eat it too.”

(3) Remedy of foreclosure. — If the vendor has chosen the third remedy of foreclosure of the chattel mortgage if one has been given on the
property, he is not obliged to return to the vendee the amount of the installments already paid should there be an agreement to that effect.
But he shall have no further action against the vendee for the recovery of any unpaid balance of the price remaining after the foreclosure and
actual sale of the mortgaged chattel, and any agreement to the contrary is void.

(a) Recovery by mortgagee of other than unpaid balance of purchase price. — Article 1484(3) is inapplicable where the amounts adjudged in
favor of the vendormortgagee were not part of the unpaid balance of the purchase price or in the concept of a deficiency judgment but were
expenses of the suit. Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure to pay two or more
installments or if he conceals the chattel to place it beyond the reach of the mortgagee it logically follows as a matter of common sense, that
the necessary expenses incurred in the prosecution by the mortgagee in the prosecution of the action for replevin so that he can regain
possession of the chattel, should be borne by the mortgagor. Recoverable expenses would include expenses properly incurred in effecting
seizure of the chattel and attorney’s fees in prosecuting the action for replevin.

(b) Recourse of mortgagee against guarantor of vendee. — Neither can the vendor after the foreclosure of the chattel mortgage proceed
against any third party who may have guaranteed the vendee’s performance of his obligation, for “if the guarantor should be compelled to pay
the balance of the purchase price, the guarantor will, in turn, be entitled to recover what he has paid from the debtorvendee; so that
ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel
mortgage given by him. Thus, the protection given by Article 1484 (to the unpaid vendor) would be indirectly subverted, and public policy
overturned.”
(c) Recourse of assignee against mortgagee. — When the vendor assigns his credit to another person, the latter is likewise bound by the same
law. Accordingly, when the assignee forecloses on the mortgage, there can be no further recovery of the deficiency and the seller-mortgagee is
deemed to have renounced any right thereto. Article 1484(3), however, does not bar one to whom the seller-mortgagee has assigned on a
with-recourse basis his credit against the buyer from recovering from the seller the assigned credit in full although the seller may have no right
of recovery against the buyer for the deficiency.

Meaning of certain terms as used in Article 1484.

(1) “Exercise.” — In a case, the issue was “whether the plaintiff (mortgagee) is precluded to press for collection of an account secured by a
chattel mortgage, after it shall have informed the defendant (mortgagor) of its intention to foreclose on the same mortgage and the voluntary
acceptance of such step (foreclosure) by the defendants.”
The Supreme Court held that such desistance of the plaintiff, on its own initiative, from proceeding with the auction sale without gaining any
advantage or benefit, and without causing any disadvantage or harm to the defendant-mortgagor, rendered useless its previous choice to
foreclose, and for this reason, it could not be considered as having “exercised” (the Code uses the word “exercise”) the remedy of foreclosure
because of its incomplete implementation. Therefore, the plaintiff was not barred from suing on the unpaid account. In desisting from a
foreclosure of chattel mortgage, and suing instead for the unpaid balance, the creditor does not assume really inconsistent positions, nor is he
estopped considering that detriment to the opposing party is a prerequisite to the operation of estoppel.
(2) “Action.” — Considering the purpose for which the prohibition contained in Article 1484 was intended, the word “action” used therein may
be construed as referring to any judicial or extra-judicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of
the supposed unsatisfied balance of the purchase price from the purchaser or his privy.
(3) “Any unpaid balance.” — The phrase should be interpreted as having reference to the deficiency judgment to which the mortgagee may be
entitled where, after the mortgaged chattel is sold at public auction, the proceeds obtained therefrom are insufficient to cover the full amount
of the secured obligation. It includes all other claims that may likewise be called for such as interest on the principal, attorney’s fees, expenses
of collection, and the costs. Were it the intention of the legislature to limit its meaning to the unpaid balance of the principal, it would have so
stated. Thus, where the mortgagor unjustifiably refused to surrender the chattel subject of the mortgage upon failure of two or more
installments, or if he concealed the chattel to place it beyond the reach of the mortgagee, that thereby constrained the latter to seek court
relief, the expenses incurred for the prosecution of the case, such as attorney’s fees, could rightly be awarded.
(4) “Foreclosure.” — Article 1484(3), in referring to foreclosure of a chattel mortgage given to secure payments in installments of the purchase
price of the thing sold, means foreclosure by the usual methods including sale of the thing at public auction.

(a) Where there is no sale because the sheriff released the property without proceeding to sell the same and the sale was not rescinded by the
vendor, the latter was not precluded from suing the vendee for the balance of the purchase price.
(b) Similarly, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold by virtue of
an execution, the sale thereof does not amount to a foreclosure of the mortgage; hence, the sellercreditor is entitled to deficiency judgment
and for an alias writ of execution for the portion of the judgment that has not been satisfied.
(c) Under the law, the delivery by the mortgagor of the possession of the mortgaged chattel to the mortgagee preparatory for its foreclosure
sale can only operate to extinguish the mortgagor’s liability if the mortgagee had actually caused the foreclosure of the property when it
recovered possession thereof. It is the fact of foreclosure and actual sale of the mortgaged chattel that bars the recovery by the vendor of the
balance of the vendee’s outstanding obligation not satisfied by the sale. Accordingly, if the vendor desisted, on his own initiative, from
consummating the auction sale when it discovered that foreclosure would be impractical, such desistance would operate as a timely disavowal
of the remedy of foreclosure, and the vendor can still sue for specific performance. The mortgagee who accepted delivery of the mortgaged
property is not estopped from demanding payment of the unpaid obligation in the absence of clear consent on his part to accept the delivery in
full satisfaction of the mortgaged debt in the concept of dacion en pago.
(d) In ordinary alternative obligations, a mere choice categorically and unequivocally made and then communicated by the person entitled to
exercise the option concludes the parties. The creditor may not thereafter exercise any other option, unless the chosen alternative proves to be
ineffectual or unavailing due to no fault on his part. This rule, in essence, is the difference between alternative obligations, on the one hand,
and alternative remedies, upon the other hand, where, in the latter case, the choice generally becomes conclusive only upon the exercise of the
remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil Code, it is only when there has been a foreclosure of the
chattel mortgage that the vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the case is one for specific
performance, even when this action is selected after the vendee has refused to surrender the mortgaged property to permit an extrajudicial
foreclosure, that property may still be levied on execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the
judgment credit. So, also, a mere demand to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure, but
the repossession thereof by the vendor-mortgagee would have the effect of foreclosure.

(e) Actual sale in accordance with the Chattel Mortgage Law resulting in a deficiency of the mortgaged chattel is the foreclosure contemplated
by law. But the taking by the mortgagee of the mortgaged chattel without proceeding to the sale of the same at public auction is not lawful. The
express purpose of taking the mortgaged property is to sell the same and/or foreclose the mortgage constituted thereon either judicially or
extra-judicially and thereby liquidate the indebtedness in accordance with law.

Recovery of deficiency after foreclosure prohibited.

(1) Purpose of prohibition. — The principal object of Article 1484 (3) is to remedy the abuses committed in connection with foreclosure of
chattel mortgages. This amendment prevents 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. The almost invariable result of this procedure was that the mortgagor found
himself minus the property and still owing practically the full amount of his original indebtedness. In other words, in all proceedings for the
foreclosure of chattel mortgages, the mortgagee is limited to the property included in the mortgage. He has no more cause of action against the
purchaser or his guarantor. “Although, of course, the purchaser must suffer the consequences of his imprudence and lack of foresight, the
chastisement must not be to theextent of ruining him completely and, on the other hand, enriching the vendor in a manner which shocks the
conscience.”
(2) Prohibition not affected by assignment by vendor of his rights. — The assignment by the vendor of his rights to the sale of personal
property on installment basis covered by Article 1484 of the Civil Code does not change the nature of the transaction between the parties —the
vendor and the vendee. It remains the same. Hence, the assignee can have no better rights than the assignor. Accordingly, where the obligation
of the vendee had already been discharged by sale at public auction of the property subject of the chattel mortgage, no deficiency amount can
be recovered by the assignee. To rule otherwise would pave the way for subverting the policy underlying Article 1484 on the foreclosure of
chattel mortgages over personal property sold on installment basis.

Sale or financing of real estate on installment payments.

(1) Rights of buyer. — In transactions or contracts involving the sale or financing of real estate on installment payments, including residential
condominium apartments, the following are the rights given to the buyer who has paid at least two (2) years of installments in case he defaults
in the payment of succeeding payments:
(a) To pay without additional interest, the unpaid installments due within the total grace period earned by him fixed at the rate of one (1)-
month grace period for every one (1) year of installment payments made. This right however, shall be exercised by him only once in every five
(5) years of the life of the contract and its extension, if any; and
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50%
of the total payments made and, after five (5) years of installments, an additional 5% every year but not to exceed 90% of the total payments
made.
(c) The buyer has the right to sell his right or assign the same before actual cancellation of the contract and to pay in advance any unpaid
installment anytime without interest and to have such full payment of the purchase price annotated in the certificate of title covering the
property.
(2) Conditions for cancellation of sale by seller. — The actual cancellation shall take place after 30 days from receipt by the buyer of the notice
of cancellation or the demand for rescission 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.In case the
defaulting buyer has paid less than two (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 by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.
(3) Installment sales not covered. — The Act excludes from its operation sales on installments of industrial lots, commercial buildings, and sales
to tenants under the Code of Agrarian Reforms. In other words, in the case of such kind of property, the Act recognizes the vendor’s right
unqualifiedly to cancel the sale upon the buyer’s default.
(4) Purpose of the law. — The purpose is to protect buyers of real estate on installment payments against onerous and oppressive conditions.
In a case, the petitioner claims that he is entitled to a conveyance of at least eight (8) of the 12 lots subject of the conditional sale, on the theory
that since the total price of the 12 lots was P120,000, each lot then had a value of P10,000 and, therefore, with his P80,000.00, he had paid in
full the price for the 8 lots. In support of his claim, he invokes earlier rulings in Legarda Hermanos vs. Saldaña (55 SCRA 324 [1978].) and
Calasanz vs. Angeles. (135 SCRA 323 [1985].)
In the first case, the contract of sale provided for payment of the price of two (2) subdivision lots at P1,500.00 each, exclusive of interest, in 120
monthly installments and at time of default, the buyer had already paid P3,582.00, inclusive of interest; and in the second, the agreement had a
price of P3,720.00 with interest at 7% per annum, and at time of default, the buyer had paid installments totaling P4,533.38, inclusive of
interest. Upon considerations of justice and equity and in the light of the general provisions of the civil law, the Supreme Court resolved in the
first case to direct the conveyance of one of the lots to the buyer since he had already paid more than the value thereof, and in the second, to
disallow cancellation by the seller and direct transfer of title to the buyer upon payment of the first installments yet unpaid.In both cases, the
Supreme Court equitably allocated the benefits and losses between the parties to preclude undue enrichment by one at the expense of the
other. It was held that the cited precedents are not applicable. The petitioner cannot be permitted to claim that all his payments should be
credited to him in their entirety, without regard whatever, to the damages his default might have caused to the seller. In any event, it is no
longer possible to apply the rulings in the said cases to the case at bar, i.e., to resort to principles of equity and the general provisions of the
Civil Code in the resolution of the present controversy, because at the time of the execution of the contract in question and the breach thereof,
R.A. No. 6552 was already in force and applicable thereto. It precludes resort to equity and analogous provisions of the Civil Code, it being
axiomatic that where there is an adequate remedy at law available to the parties, equity should not come into play.

ART. 1485. The preceding article shall be 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. (1454-A-a)

Lease of personal property with option to buy.

(1) Nature of transaction. — Leases of personal property with option to buy on the part of the lessee who takes possession or enjoyment of the
property leased are really sales of personalty payable in installments. Accordingly, the rules provided in Article 1484 are equally applicable to
the so-called leases of personal property. Sellers desirous of making conditional sales of their goods but do not wish openly to make a bargain in
that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with option to the
buyer to purchase for small consideration at the end of the term provided the so-called rent has been duly paid, or with the stipulation that if
the rent throughout the term is paid, the title shall thereupon vest on in the lessee.
(2) Purpose of provision. — The evident purpose of Article 1485 is to prevent vendors from resorting to this form of contract which usually is in
reality contract of sale of personal property payable in installments in contravention of the provisions of Article 1484. Through the set-up, the
vendor by retaining ownership over the property in the guise of being the lessor, retains likewise the right to repossess the same, without going
through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises, therefore, no need
to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, cancelling
the contract of sale, gets to keep all the installments-cumrental already paid.

ART. 1486. In the cases 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. (n)

Stipulation authorizing the forfeiture of installments or rents paid.

In sales of personal property by installments or leases of personal property with option to buy, the parties may stipulate that the installments or
rents paid are not to be returned. Such a stipulation is valid “insofar as the same may not be unconscionable under the circumstances’’;
otherwise, the court has the power to order the return of a portion of the total amount paid in installments or rents.
Thus, in a case, where the monthly installment payable by defendants (buyers) was P774.00 and the P5,655.92 installment payments
corresponded only to seven (7) monthly installments, the treatment of the installment as rentals as stipulated in the contract of sale for failure
of the defendants to comply with the terms thereof, was held not unconscionable, since they admitted having used the air-conditioners sold for
22 months, meaning they did not pay 15 monthly installments on the said air-conditioners and were thus using the same free for said period to
the prejudice of the plaintiff (seller). In another case, the forfeiture of the installments paid as rentals, was applied only to the purchase price of
P3,556 which was considered as fair and reasonable rental for the period in which the property was under the control of the awardee of the
homelot but not to the overpayment of the amount of P8,244.00 for “a contrary ruling would unjustly enrich the vendor to the prejudice of the
vendee.’’

ART. 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. (1455a)
Expenses for execution and registration.

Under this article, the vendor has the duty to pay not only the expenses for the execution of the sale but also for the registration of the same in
the absence of any agreement between the parties to the contrary.Expenses incurred subsequent to the transfer of title are to be borne by the
buyer, unless caused by the fault of the seller.

ART. 1488. The expropriation of property for public use is governed by special laws. (1456)
Expropriation of property for public use.
The procedure for the exercise of the power of eminent domain is provided for in Rule 67 of the Rules of Court. Expropriation must be decreed
by competent authority and for public use and always upon payment of just compensation.