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SALES the subject matter becoming specific or determinate; does
Chapter 1 Nature of Sale
Definition of Sale
Sale a contract whereby one of the contracting parties
(seller) obligates himself to transfer the ownership, and to
deliver the possession, of a determinate thing; and the other
party (buyer) obligates himself to pay therefore a price certain
in money or its equivalent. (Art. 1458, CC)
o Purpose (modified): the obligation to transfer the
ownership of the subject matter of the sale as a principal
obligation of the seller.
1. Nature of Obligations Created in a Sale (perfection of the
contract brings about the creation of):
(a) Two Obligations of the Seller to:
a. Transfer the Ownership, and
b. Deliver the Possession of the Subject Matter;
(b) An Obligation for the Buyer to:
a. Pay the Price
Real obligations: obligation to give
Personal obligations: to do and/or not to do cannot be
enforced through actions for specific performance because
of the public policy against involuntary servitude;
2. Subject Matter of Sale
1. Determinate: satisfied if at the time the contract is entered
into, the thing is capable of being made determinate
without the necessity of a new further agreement between
the parties;
2. Generic objects which are at least determinable: even if the
subject matter of the sale was generic, the performance of
the sellers obligation would require necessarily its physical
segregation or particular designation, making the subject
determinate at the point of performance.
Determinate used to describe the subject matter: to
emphasize more specifically the fact that the obligation to
deliver and transfer ownership can be performed only with
NOT mean to exclude certain generic things from validly
becoming the proper subject matter of sale, at the point of
perfection.
3. Elements of Contract of Sale (based on Coronel v. Court of
Appeals)
(a) CONSENT: meeting of the minds to transfer ownership in
exchange for the price;
(b) SUBJECT MATTER; and
(c) PRICE, certain in money or its equivalent.
Presence of ALL three elements gives rise to a perfected
contract, otherwise, the resulting sale is void or no
contract situation.
Dizon v. Court of Appeals: All three elements of consent,
subject matter and consideration must be present for a
valid sale to exist; and that in a situation where any of the
elements is not present, [t]there was no perfected
contract of sale,14 and that the absence of any of these
essential elements negates the existence of a perfected
contract of sale, rather than using the technical term
void.
Manila Container Corp. v. PNB: Absence of the concurrence
of all the essential elements, the giving of earnest money
cannot establish the existence of a perfected contract of
sale.
Art. 1409: When all three elements are present, but there is
defect or illegality constituting any of such elements, the
resulting contract is either voidable when the defect
constitutes a vitiation of consent, or void.
4. Stages in the Life of Sale
Strict sense: (1) Perfection and (2) Consummation
Stages:
(a) POLICITACION, negotiation, or preparation stage: FROM
the time the prospective contracting parties indicate
their interests in the contract TO the time the contract
is perfected;

(b) PERFECTION, conception or birth: UPON the
concurrence of the essential elements of the sale
(meeting of the minds of the parties as to the object of
the contract and upon the price);
(c) CONSUMMATION or death: BEGINS when the parties
perform their respective undertaking under the contract
of sale, CULMINATING in the extinguishment thereof.
ESSENTIAL CHARACTERISTICS OF SALE
1. Nominate and Principal
a. Nominate: sale as a contract has been given a particular
name by the law;
Its nature and consequences are governed by Civil
Code;
b. Principal: sale as a contract can stand on its own, and
does not depend on another contract for its validity or
existence;
o The parties enter into sale to achieve within its
essence the objectives of the transaction, and not in
preparation for another contract.
In determining the real character of the contract, the
title given to it by the parties is not as significant as its
substance.
The courts look at the intent of the parties and not at
the nomenclature used to describe it, and that pivotal to
deciding such is the true aim and purpose of the
contracting parties as shown by the terminology used in
the covenant, as well as by their conduct, words,
actions and deeds prior to, during and immediately after
executing the agreement.
Contracts are not defined by the parties but by the
principles of law;
o Significance: All other contracts which have for their
objective the transfer of ownership and delivery of
possession of a determinate subject matter for a
valuable consideration, are governed necessarily by
the Law on Sales.
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2. Consensual (as distinguished from solemn or real
contracts)
- Because it is perfected by mere consent, at the moment
there is a meeting of the minds upon the thing which is
the object of the contract upon the price.
Buenaventura v. Court of Appeals: A sale over a subject
matter is not a real contract, but a consensual contract,
which becomes a valid and binding contract upon the
meeting of the minds as to the price. Once there is a
meeting of the minds as to the price, the sale is valid,
despite the manner of its actual payment, or even when
there has been breach thereof.
o Subject to reformation: if the real price is not stated
in the contract, then the sale is valid;
o Void: if there is no meeting of the minds as to the
price, because the price stipulated is simulated.
Article 1475, Civil Code: From the moment of perfection
of the sale, the parties may reciprocally demand
performance, even when the parties have not affixed
their signatures to the written form of such sale, subject
to the provisions of the law governing the form of
contracts.
o Actual delivery of the subject matter or payment of
the price agreed upon are NOT necessary
components to establish the existence of a valid
sale;
o Non- performance do not also invalidate or render
void a sale that has began to exist as a valid
contract at perfection; non-performance, merely
becomes the legal basis for the remedies of either
specific performance or rescission, with damages in
either case.
Binding effect of a deed of sale, basis: The obligations
arising therefrom have the force of law between them.
Fule v. Court of Appeals: A contract of sale is perfected
at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the
price. Being consensual, a contract of sale has the force
of law between the contracting parties and they are

expected to abide in good faith by their respective
contractual commitments. Article 1358 of the Civil Code
which requires the embodiment of certain contracts in a
public instrument, is only for convenience, and
registration of the instrument only adversely affects
third parties. Formal requirements are, therefore, for the
benefit of third parties. Non-compliance therewith does
not adversely affect the validity of the contract nor the
contractual rights and obligations of the parties
thereunder.
Burden to prove: The party who alleges that a sale is a
consensual contract, must show its existence by
competent proof, as well as of the essential elements
thereof.
When a perfected contract of sale arises, and its validity
is not affected by the fact that previously a fictitious
deed of sale was executed by the parties; and at that
point the burden is on the other party to prove the
contrary.
Article 1332 of the Civil Code: When one of the parties
is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms
thereof have been fully explained to the former.
a. Modalities That Affect the Characteristic of
Consensuality
- Modalities that by stipulation may be added into the
contractual relationship (e.g. suspensive term or
condition)
Bian Steel Corp. v. Court of Appeals: even if
consensual, not all contracts of sale become
automatically and immediately effective. . . In sales
with assumption of mortgage, the assumption of
mortgage is a condition precedent to the sellers
consent and therefore, without approval of the
mortgagee, the sale is not perfected.
National Housing Authority v. Grace Baptist Church:
Even the delivery and taking possession of the
subject matter by the buyer with the knowledge or
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consent of the seller, would not bring about the
perfection and binding effect of the sale, when the
meeting of the minds is incomplete, there being no
agreement yet on the final price.
3. Bilateral and Reciprocal (as distinguished from bilateral
contracts)
a. Bilateral: because it imposes obligations on both parties
to the relationship, whereby the obligation or promise of
each party is the cause or consideration for the
obligation or promise of the other.
b. Reciprocal those which arise from the same cause,
and in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon
the obligation of the other; simultaneous performance is
necessary.
Legal effects and consequences (sale being a bilateral
contract composed of reciprocal obligations)
(a) The power to rescind is implied, and such power
need not be stipulated in the contract in order for
the innocent party to invoke the remedy;
(b) Neither party incurs delay if the other party does not
comply, or is not ready to comply in a proper
manner, with what is incumbent upon him; and
(c) From the moment one of the parties fulfills his
obligation, the default by the other begins, without
the need of prior demand.
A party cannot simply choose not to proceed with the
sale by offering also the other party not to be bound by
his own obligation;
Each party has the remedy of specific performance;
Rescission or resolution cannot be enforced by
defaulting party upon the other party who is ready and
willing to proceed with the fulfillment of his obligation.
Polytechnic University of the Philippines v. Court of
Appeals: It is therefore a general requisite for the
existence of a valid and enforceable contract of sale
that it be mutually obligatory, i.e., there should be a

concurrence of the promise of the vendor to sell a
determinate thing and the promise of the vendee to
receive and pay for the property so delivered and
transferred.
Carrascoso, Jr. v. Court of Appeals: Since a sale is
constituted of reciprocal obligations, then [t]he right of
rescission of a party to an obligation under Article 1191
is predicated on a breach of faith by the other party who
violates the reciprocity between them.
4. Onerous (as distinguished from gratuitous contracts)
- Because it imposes a valuable consideration as a
prestation, which ideally is a price certain in money or
its equivalent.
Gaite v. Fonacier: The rules of interpretation would
incline the scales in favor of the greater reciprocity of
interests, since sale is essentially an onerous contract.
5. Commutative (as distinguished from aleatory contracts)
- Because a thing of value is exchanged for equal value;
There is no requirement that the price be equal to the
exact value of the subject matter; all that is required is
for the seller to believe that what was received was of
the commutative value of what he gave.
Gaite v. Fonacier: A sale is normally commutative and
onerous: not only does each one of the parties assume
a correlative obligation (the seller to deliver and
transfer ownership of the thing sold, and the buyer to
pay the price), but each party anticipates performance
by the other from the very start.
o Although in a sale the obligation of one party can
be lawfully subordinated to an uncertain event, so
that the other understands that he assumes the risk
of receiving nothing for what he gives (as in the case
of a sale of hope or expectancy, emptio spei)
hence, the contingent character of the obligation
must clearly appear.
o The test for compliance therewith is not objective
but rather subjective; i.e., so long as the party
believes in all honesty that he is receiving good
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value for what he transferred, then it complies with
the commutative character of a sale, and would not
be deemed a donation nor an aleatory contract.
Inadequacy of price does not affect ordinary sale.
o Inadequacy of price may show vice in consent - the
sale may be annulled, but such annulment is not for
inadequacy of price, but rather for vitiation in
consent.
Buenaventura v. Court of Appeals: there is no
requirement that the price be equal to the exact value
of the subject matter of sale; all that sellers believed
was that they received the commutative value of what
they gave.
6. Sale Is Title and Not Mode
Mode the legal means by which dominion or
ownership is created, transferred or destroyed (e.g.,
succession, donation, discovery, intellectual creation,
etc.);
Title constitutes the legal basis by which to affect
dominion or ownership.
Tradition or delivery the mode by which ownership
over the subject matter is transferred to the buyer as a
consequence of sale.
Sale is merely title that creates the obligation on the
part of the seller to transfer ownership and deliver
possession, but on its own sale is not a mode that
transfers ownership.
Alcantara-Daus v. de Leon: While a sale is perfected by
mere consent, ownership of the thing sold is acquired
only upon its delivery to the buyer. Upon the perfection
of the sale, the seller assumes the obligation to transfer
ownership and to deliver the thing sold, but the real
right of ownership is transferred only by tradition or
delivery thereof to the buyer.

Acap v. Court of Appeals: An asserted right or claim to
ownership, or a real right over a thing arising from a
juridical act, is not per se sufficient to give rise to
ownership over the thing; that right or title must be
completed by fulfilling certain conditions imposed by
law: Hence, ownership and real rights are acquired
only pursuant to a legal mode or process. While title
(such as sale) is the juridical justification, mode (like
delivery) is the actual process of acquisition or transfer
of ownership over a thing.
Manongsong v. Estimo: Once a sale has been duly
perfected, its validity cannot be challenged on the
ground of the non-transfer of ownership of the property
sold at that time of the perfection of the contract, since
it is consummated upon delivery of the property to the
vendee. It is through tradition or delivery that the buyer
acquires ownership of the property sold.
Sale by itself does not transfer or affect ownership; the
most that sale does is to create the obligation to
transfer ownership;
SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS
[A] contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting
parties call it. The transfer of ownership in exchange for a price
paid or promised is the very essence of a contract of sale.
1. from Donation
Donation an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another person, who
accepts it.
Distinctions:
Donation Sale
o gratuitous contract o onerous contract
o being a solemn contract, o perfected by mere consent
although consent is also
required, must comply
with the formalities
mandated by law for its
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validity.
Manongsong v. Estimo: As opposed to a disposition inter
vivos by lucrative or gratuitous title, a valid sale for
valuable consideration does not diminish the estate of the
seller. When the disposition is for valuable consideration,
there is no diminution of the estate but merely substitution
of values, that is, the property sold is replaced by the
equivalent monetary consideration.
Article 1471, Civil Code: A contract may be entered into in
the form of a sale and may end up being governed by the
Law on Donations, even when there may be a formal price
agreed upon, if it is (a) simulated, and (b) the real intention
is that the subject matter is being donated to the supposed
buyer. the governing rule on perfection of sale by
mere consent does not resolve whether the real contract is
valid, since being a donation, the formality for donation
should also have been complied with for the transaction to
be considered valid.
A purported donation may have been executed by the
parties, but it is not mere liberality that permeates the
contract as the only consideration, because other
consideration or burdens are placed upon the donee.
Article 726, Civil Code: When the value of the burden
placed upon the donee is more than the value of the thing
given, it becomes an onerous donation, as either a barter
or sale, which are both governed by the Law on Sales.
and since the relationship is governed by the Law on Sales,
the perfection and enforceability of the contract happen
upon consent.
2. from Barter
Barter or Exchange Sale
o one of the parties binds o one of the parties binds
himself to give one thing himself to deliver a thing
in consideration of the in consideration of the
others promise to give others undertaking to pay
another thing. the price in money or its
equivalent.

Trades Corp. v. IAC: An assignment of property to the
corporation by controlling shareholders in exchange for
shares is not a sale nor barter because the corporation
cannot be considered a third party when it would be
controlled by the transferor as part of estate planning.
a. Rules to Determine Whether Contract Is Sale or
Barter (Art. 1468, CC)
(a) Manifest Intention of the Parties Even if the acquisition
of a thing is paid for by another object of greater value
than the money component, it may still be a sale and
not a barter, when such was the intention of the parties;
(b) When Intention Does Not Appear and Consideration
Consists Partly in Money and Partly in Another Thing:
i. It is a barter, where the value of the thing given as
part of the consideration exceeds the amount of
money given or its equivalent;
ii. It is a sale, where the value of the thing given
as part of the consideration equals or is less than the
amount of money given.
Rules applicable to both barter and sale (on warranty
against eviction):
(a) If one of the contracting parties, having received the
thing promised in barter, should prove that it did not
belong to the person who gave it, he cannot be
compelled to deliver that which he offered in exchange,
but he shall be entitled to damages; and
(b) One who loses by eviction the thing received in barter
may recover that which he gave in exchange with a
right to damages, or he can only make use of the right
to recover the thing which he has delivered while the
same remains in the possession of the other party, but
without prejudice to the rights acquired in good faith by
a third person.
Instances when difference between the two is critical:
1. Rules on Statute of Frauds which apply to the sale of
real property, and personal property bought at 5500.00
or more, do not apply to barter.
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2. The right of legal redemption granted by law to an
adjoining owner of an urban land, covers only resale
and does not cover exchanges of properties.
3. From Contract for a Piece-of-Work
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.
Similarity (to Contract of Sale):
o Commissioner of Internal Revenue v. Court of
Appeals and Ateneo de Manila University: Transfer
of title or an agreement to transfer it for a price paid
or promised to be paid is the essence of sale.96
Ineluctably, whether the contract be one of sale or
one for a piece of work, a transfer of ownership is
involved and a party necessarily walks away with an
object.
a. Statutory Rule on Distinguishing Sale from
Contract for a Piece-of-Work
Art. 1467, CC: 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)
Tests for distinction:
a. Manufacturing in the ordinary course of business
to cover sales contracts; and
b. Manufacturing upon special order of customers,
to cover contracts for piece-of-work: based on the
ability of the producer to manufacture the goods
in the condition that they customarily are without
having to wait for specific orders from customers.
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Celestino Co v. Collector of Internal Revenue: The o If the essence is the service, knowledge, or
test of special orders under Article 1467 of the reputation of the manufacturer: the contract is for
Civil Code is not one of timing, or habit, but actually piece of work sale of service or labor.
must be drawn from the nature of the work to be Engineering & Machinery Corp. v. Court of Appeals:
performed and the products to be made: it must be (Tolentino) the distinction between the two contracts
of the nature that the products are not ordinary depends on the intention of the parties:
products of the manufacturer, and they would o If the parties intended that at some future date
require the use of extraordinary skills or equipment, an object has to be delivered, without considering
if to be performed by a manufacturer. the work or labor of the party bound to deliver,
the contract is one of sale;
Commissioner of Internal Revenue v. Engineering o If one of the parties accepts the undertaking on
Equipment and Supply Company: [t]he distinction the basis of some plan, taking into account the
between a contract of sale and one for work, labor work he will employ personally or through
and materials is tested by the inquiry whether the another, there is a contract for a piece of work.
thing transferred is one not in existence and which
never would have existed but for the order of the b. Practical Needs for Being Able to Distinguish
party desiring to acquire it, or a thing which would Sale Piece-of-work
have existed and has been the subject of sale to o constituted of real o the main subject
some other person even if the order had not been obligations and would matter is the service to
given. be the proper subject of be rendered (obligation
o If the article ordered by the purchaser is exactly such an action for specific to do) does not allow
as the plaintiff makes and keeps on hand for sale to performance; an action for specific
anyone, and no change or modification of it is made at performance in case
defendants request, it is a contract of sale, even the contractor refuses
though it may be entirely made after, and in to comply with his
consequence of, the defendants order for it. obligation.
o Upon special order test (Art. 1467), as applied in the o Governed by the o NOT governed by the
instant case: the nature of the object or the test of Statute of Frauds Statute of Frauds
necessity, when it took into consideration the nature o only when the subject o
of execution of each order. matter is indeterminate
Dio v. Court of Appeals: The large quantity of the or generic is the buyer
products to be delivered do not also indicate that the granted the remedy
underlying contract is one of sale. to have the subject
matter done by a third
Main distinguishing factor between a sale and a party with cost
contract for a piece-of-work is the essence of why chargeable to the seller.
the parties enter into it:
o If the essence is the object: the contract is sale, Article 1715: [S]hould the work be not of such
irrespective of the party giving or executing it; quality, the employer may require that the
contractor remove the defect or execute another
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work. If the contractor fails or refuses to comply with Sale Contract of Agency to
this obligation, the employer may have the defect Sell/Buy
removed or another work executed at the o agent or a broker is can
contractors cost. legally voluntarily bind
himself to the
4. From Agency to Sell or to Buy warranties of the seller.
Contract of Agency a person binds himself to render o o The agent is disqualified
some service or to do something in representation or on from receiving any
behalf of the principal, with the consent or authority of the personal profit from the
latter. transaction covered by
the agency due to the
a. Distinguishing Sale and Agency to Sell/Buy fiduciary relationship,
Contract of agency one that essentially establishes and any profit received
a representative capacity in the person of the agent should pertain to the
on behalf of the principal, and one characterized as principal.
highly fiduciary.
b. Statutory Rule
Sale Contract of Agency to Article 1466, Civil Code: [i]n construing a contract
Sell/Buy containing provisions characteristic of both the sale
o not unilaterally o (Sell) Essentially and of the contract of agency to sell, the essential
revocable; revocable, as it covers clauses of the whole instrument shall be
fiduciary relationship. considered.
o the buyer himself pays o (Sell) The agent is NOT
for the price of the obliged to pay the price, Quiroga v. Parsons: The Court found the
object, which and is merely obliged to arrangement to be one of sale since the essential
constitutes his main deliver the price which clause provides that [p]ayment was to be made at
obligation; he may receive from the end of sixty days, or before, at the plaintiffs
the buyer. request, or in cash, if the defendant so preferred,
o the buyer, after o (Buy) The agent does and in these last two cases an additional discount
delivery, becomes the not become the owner was to be allowed for prompt payment. These
owner of the subject of the thing subject of conditions to the Court were precisely the essential
matter; the agency, even if the features of a contract of purchase and sale because
object is delivered to there was the obligation on the part of the plaintiff to
him. supply the beds, and, on the part of the defendant,
o the seller warrants; o The agent who effects to pay their price.
the sale assumes no Gonzalo Puyat & Sons, Inc. v. Arco Amusement
personal liability as long Company: whatever unforeseen events might have
as he acts within his taken place unfavorable to the defendant
authority and in the (petitioner), such as change in prices, mistake in
name of the principal their quotation, loss of the goods not covered by

insurance or failure of the Starr Piano Company to
properly fill the orders as per specifications, the
plaintiff (respondent) might still legally hold the
defendant (petitioner) to the prices fixed.
o Such stipulation is incompatible with the pretended
relation of agency between the petitioner and the
respondent, because in agency, the agent is exempted
from all liability in the discharge of his commission
provided he acts in accordance with the instructions
received from his principal.
Ker & Co., Ltd. v. Lingad: 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 attitude or position of an owner and
makes him liable to the transferor as a debtor for the
agreed price, and not merely as an agent who must
account for the proceeds of a resale, the transaction
is a sale; while the essence of an agency to sell is
the delivery to an agent, not as his property, but as
the property of the principal, who remains the owner
and has the right to control the sale, fix the price,
and terms, demand and receive the proceeds less
the agents commission upon sales made.
Victorias Milling Co. v. Court of Appeals: One of the
factors that most clearly distinguishes agency from
other legal concepts, including sale, is control; one
person the agent agrees to act under the
control of direction of another the principal.
c. Other Practical Value of Being Able to Distinguish
Lim v. Court of Appeals: An agency to sell on
commission basis does not belong to any of the
contracts covered by Articles 1357 and 1358
requiring them to be in a particular form, and not
one enumerated under the Statutes of Frauds in
Article 1403.
o Unlike a sale contract which must comply with the
Statute of Frauds for enforceability, a contract of
agency to sell is valid and enforceable in whatever
form it may be entered into.
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Exception: Art. 1874, CC - when the sale of a piece of
land or any interest therein is through an agent, the
authority of the latter shall be in writing, otherwise,
the sale shall be void.
5. From Dacion En Pago
Dation in payment one whereby property is alienated
to the creditor in full satisfaction of a debt in money;
- it constitutes the delivery and transmission of a
thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.
- governed by the Law on Sales, since it essentially
involves the transfer of ownership of a subject
matter.
Vda. De Jayme v. Court of Appeals: What actually takes
place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted
equivalent of the performance of an obligation is
considered as the object of the contract of sale while
the debt is considered as the purchase price;
o The elements of sale must be present, including a
clear agreement that the things offered is accepted
for the extinguishment of the debt.
Considerations are not in the realm of perfection of
contract, but rather in the stage of consummation.
Prior to delivery of the subject matter to constitute the
dation in payment, the agreement does not necessarily
constitute a separate contract, but only an arrangement
by which an existing obligation may be extinguished.
Lo v. KJS Eco-Formwork System Phil., Inc.: Requisites for
a valid dation in payment:
(a) Performance of the prestation in lieu of payment
(animo solvendi): delivery of a corporeal thing, real
right, or credit against the third person;
(b) Some difference between the prestation due and
that which is given in substitution (aliud pro alio);
and
(c) An agreement between the creditor and the debtor
that the obligation is immediately extinguished by

reason of the performance of a prestation different
from that due.
Philippine National Bank v. Pineda (first requisite):
Dation in payment requires delivery and transmission of
ownership of a thing to the creditor as an accepted
equivalent of the performance of the obligation;
o When there is no such transfer of ownership in favor
of the creditor, as when re-possession of the subject
matter of a trust receipt is only by way of security,
there is no dacion.
Philippine Lawin Bus Co. v. Court of Appeals (third
requisite): A transfer of property between debtor and
creditor does not automatically amount to a dacion en
pago, since it is essential that the transfer must be
accompanied by a meeting of the minds between the
parties on whether the loan ... would be extinguished by
dacion en pago.
Legal effects of dacion en pago take effect only when
both the debtor and creditor agree to the terms thereof;
o The pre-existing obligation is hereby extinguished.
Social Security System v. Atlantic Gulf and Pacific
Company of Manila, Inc.: (Vda. De Jayme v. Court of
Appeals) ... In its modern concept, what actually takes
place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted
equivalent of the performance of an obligation is
considered as the purchase price. In any case, common
consent if an essential prerequisite, be it sale or
novation, to have the effect of totally extinguishing the
debt or obligation.
6. From Lease
Contract of lease: The lessor binds himself to give to
another (lessee) the enjoyment or use of a thing for a price
certain, and for a period which may be definite or
indefinite.
Filinvest Credit Corp. v. Court of Appeals: When a
lease clearly shows that the rentals are meant to be
installment payments to a sale contract, despite the
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nomenclature given by the parties, it is a sale by
installments.
Chapter 2 Parties of Sale
General Rule on Capacity of Parties
Any person who has capacity to act, or the power to
do acts with legal effects, or more specifically with the
power to obligate himself, may enter into a contract of
sale,2 whether as seller or as buyer.
Natural persons: 18 years is the beginning of age of
majority (upon which they have the capacity to act)
Juridical persons: separate and distinct from that of the
shareholders, partners or members, is expressly
recognized by law,4 with full juridical capacity to
obligate themselves and enter into valid contracts.
MINORS, INSANE OR DEMENTED PERSONS, AND DEAF-
MUTES
General rule: No legal capacity to contract, and therefore are
disqualified from being parties to a sale.
Contracts entered into by such legally incapacitated persons
are not void but merely voidable subject to annulment or
ratification.
o Action for annulment cannot be instituted by the
incapacitated person.
Contracts entered into during lucid intervals by insane or
demented persons are generally valid;
Those entered into in a state of drunkenness, or during a
hypnotic spell, are merely voidable.
When the defect of the contract consists in the incapacity of
one of the parties, the incapacitated person is not obliged to
make any restitution;
o Exception: Insofar as he has been benefited by the thing
or price received by him.
1. Necessaries
- (Art. 194, Family Code) everything indispensable for
sustenance, dwelling, clothing, medical attendance,

education and transportation, in keeping with the financial
capacity of the family ... [and education] include[s] his
schooling or training for some profession, trade or vocation,
even beyond the age of majority. Transportation shall
include expenses in going to and from school, or to and
from place of work.
o Article 1489 can only cover sales pertaining to
sustenance, dwelling, and clothing, and perhaps
medicine and educational books and materials.
Elements:
(a) Perfection of the sale; and
(b) Delivery of the subject necessaries
o Absence of (b) at the time of the case reaches litigation,
the sale is voidable due to vice of consent; rules on
voidable contracts apply.
2. Emancipation
RA 6809: lowered the age of majority to 18 years of age;
the issue on the validity of sales entered into by
emancipated minors no longer exists.
Previous Family Code: emancipation takes place by the
attainment of majority ... [which] commences at the age of
twenty-one years.
Emancipation took place by:
(1) By marriage of the minor; or
(2) By the voluntarily emancipation
o Effect: Emancipation would terminate parental authority
over the person and property of the minor, who shall
then be qualified and responsible for all acts of civil life,
including validly entering into contracts of sale.
Present Family Code:
(1) Marriages entered into below eighteen years of age are
void, rendering emancipation by marriage at the age of
18 years inutile, since by merely reaching 18 years of
age, even without marrying, one is already of legal age.
(2) Voluntary emancipation by registration of the public
instrument requires that the minor be at least 18 years
old, which is now legally impossible, because at
eighteen years of age there is no longer a minor who
may be voluntarily emancipated.
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3. Senility and Serious Illness
Domingo v. Court of Appeals: Although [t]he general rule
is that a person is not incompetent to contract merely
because of advanced years or by reason of physical
infirmities. However, when such age or infirmities have
impaired the mental faculties so as to prevent the person
from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated.
Paragas v. Heirs of Dominador Balacano: The Court used
the protective provisions of Article 24 of the Civil Code for
ruling that the sale was void, i.e., [i]n all contractual,
property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence,
ignorance, mental weakness, tender age or other handicap,
the courts must be vigilant for his protection.
SALES BY AND BETWEEN SPOUSES
1. Sales With Third Parties
Art. 73, Family Code: Either spouse may exercise any
legitimate profession, occupation, business or activity
without the consent of the other; and the latter may object
only on valid, serious and moral grounds. In cases of
disagreements, the courts shall decide
Law on Sales: A spouse may, without the consent of the
other spouse, enter into sale transactions in the regular or
normal pursuit of his or her profession, vocation or trade.
Articles 96 and 124, Family Code: The administration and
enjoyment of the community property or the conjugal
property, as the case may be, shall belong to both spouses
jointly; and in case of disagreement, the husbands
decision shall prevail, subject to the wife seeking remedy
from the courts
o The disposition or encumbrance of community property
or conjugal property, as the case may be, shall be void
without authority of the court or the written consent of
the other spouse.
o As an exception, the husband may dispose of conjugal
property without the wifes consent if such sale is

necessary to answer for conjugal liabilities mentioned in
Articles 161 and 162 of the Civil Code.
2. Sales Between Spouses
Article 1490, Civil Code: Spouses cannot sell property to
each other, except:
(a) when a separation of property was agreed upon in
the marriage settlements; or
(b) when there has been a judicial decree for the
separation of property.
Article 1492: The prohibition relating to spouses selling
to one another is applicable even to sales in legal
redemption, compromises and renunciations.
a. Status of Prohibited Sales Between Spouses
Contracts entered into in violation of Arts. 1490 &
1492 have been declared by the SC as being null
and void.
Not anyone is given the right to assail the validity of
the transaction (i.e. parties to an illegal act on the
ground of pari delicto.
Parties who may question the legality of the sale:
(a) Heirs of either of the spouses who have been
prejudiced;
(b) Prior creditors; and
(c) The State when it comes to the payment of the
proper taxes due on the transactions.
b. Rationale for Prohibition
Medina v. Collector of Internal Revenue: Rationale for
the relative incapacity of spouses to sell properties
to one another:
(a) To prevent a spouse defrauding his creditors by
transferring his properties to the other spouse;
(b) To avoid a situation where the dominant spouse
would unduly take advantage of the weaker
spouse, thereby effectively defrauding the latter;
and
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(c) To avoid an indirect violation of the prohibition
against donations between spouses under Article
133 of the Civil Code.
o The prohibition shall also apply to persons living
together as husband and wife without a valid
marriage.
c. Rationale for Exceptions to Prohibition under
Article 1490
- in a complete separation of property regime, where
the spouses are bound only by their separate
properties to their separate creditors and not to the
creditors of the other spouses, there would seem to
be greater risk that by allowing spouses to sell to
one another, as the law allows, the separate
creditors of the selling spouses could equally, if not
with greater degree, be defrauded.
Key element to the exceptions provided for the
restrictions under Article 1490, lies in the
psychology of the situation.
Two ways by which a complete separation of
property regime could exist between married
spouses:
(a) by the execution of a prenuptial agreement
stipulating such property regime to apply; or
(b) by the spouses going to court to ask for the
dissolution of the prevailing conjugal partnership
of gains or absolute community of property
regimes.
The absolute prohibition under Article 87 of the
Family Code on donations between spouses should
also be made to apply to sales between spouses,
irrespective of their property regime.
3. Applicability of Incapacity to Common Law Spouses
Matabuena v. Cervantes: [i]f the policy of the law . . . is
to prohibit donations in favor of the other consort and
his descendant because of fear of undue and improper
pressure and influence upon the donor, a prejudice
deeply rooted in our ancient law . . . then there is every

reason to apply the same prohibitive policy to persons
living together as husband and wife without the benefit
of nuptials.
Calimlim-Canullas v. Fortun: (on sales between
common-law spouses being void) Article 1409 of the
Civil Code declares such contracts void as being
contrary to morals and public policy, and not only
because Article 1352 declares them void for having an
unlawful because, but specifically because Article 1490
prohibits sales between spouses.
o Reason: if transfers or conveyances between
spouses were allowed during marriage, that would
destroy the system of conjugal partnership, a basic
policy in civil law. It was also designed to prevent
the exercise of undue influence by one spouse over
the other, as well as to protect the institution of
marriage, which is the cornerstone of family law.
The prohibition apply (sic) to a couple living as
husband and wife without the benefit of marriage,
otherwise, the condition of those who incurred
guilt would turn out to be better than those in legal
union.
Cruz v. Court of Appeals: [a]lthough under Art. 1490 the
husband and wife cannot sell property to one another as a
rule which, for policy consideration and the dictates of
morality require that the prohibition apply to common-law
relationship
SPECIFIC INCAPACITY MANDATED BY LAW
Article 1491, Civil Code: Persons prohibited from entering
into contracts of sale under the covered circumstances*:
a. Agent: to the property whose administration or sale
may have been entrusted to him, unless the consent of
the principal has been given;
b. Guardian: to the property of the person who is under his
guardianship;
c. Executor or administrator: To the property of the estate
under his administrations;
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d. Public officers and employees: to property of the State
or any subdivision thereof, or of any government-owned
or controlled corporation, or institution, the
administration of which has been entrusted to them;
i. includes judges and government experts who, in any
manner whatsoever, take part in the sale;
e. Justices, judges, prosecuting attorneys, clerks of courts,
and other officers and employees connected with the
administration of justice: to the property and rights in
litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their
respective functions; and
f. Lawyers: to the property and rights which may be the
object of any litigation in which they may take part by
virtue of their profession.
* Applicable to: (1)sales in legal redemption,
(2)compromises and renunciations, (3)confirming the policy
that what cannot be done directly, cannot be done by
indirection.
1. Legal Status of Contracts Entered Into In Violation of
Articles 1491 and 1942
Art. 1491: Only purchases made by agents of the
property covered by the agency are valid and binding
when made with the express consent of their principals;
and no such exception is granted in all the other
instances covered by said article.
- consent or knowledge by the persons who is sought
to be protected by the law, cannot validate any of
the transactions covered.
Wolfson v. Estate of Martinez: The sales voidability can
not be asserted by one not a party to the transaction or
his representative.
a. A Different Form of Ratification
Rubias v. Batiller: re: in the state of nullity between
prohibited contracts entered into by:
o Guardians, agents, administrators and executors
(First group): May be ratified by means of and
in the form of a new contract.

o Judges, judicial officers, fiscals and lawyers
(Second group): grounded on public policy.
The causes of nullity which have ceased to exist
cannot impair the validity of the new contract.
The ratification or second contract would then be
valid from its execution; however, it does not
retroact to the date of the first contract.
Functional difference:
o First group: after the inhibition has ceased, the
only real wrong that subsists is the private wrong
to the ward, principal or estate; and therefore, if
private parties wish to condone the private
wrongs among themselves, the State would not
stand in the way.
o Second group: even when the inhibition has
ceased, there exists not only the private wrong,
but in fact a public wrong, which is damage to
public service or to the high esteem that should
be accorded to the administration of justice in our
society; therefore, even when the private parties
seek to ratify the private wrong by executing a
new contract between themselves when the
inhibition no longer exists, such cannot resurrect
and validate a relationship.
Private parties cannot ratify or compromise among
themselves matters contrary to public interests.
b. Proper Party to Raise Issue of Nullity
[A]ny person may invoke the inexistence of the
contract whenever juridical effects found thereon are
asserted against him.
Contract is still fully executor: No party need bring
an action to declare its nullity;
o If any party should bring an action to enforce it,
the other party can simply set up the nullity as
defense.
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c. Fraud or Lesion Not Relevant for Nullity
The rationale for the absolute disqualifications
(Article 1491): each of [such relationships] is a trust
of the highest order, and the trustee cannot be
allowed to have any inducement to neglect his
wards interest; and therefore to avoid [t]he
temptation which naturally besets a [person holding
such a fiduciary position] so circumstanced,
necessitates the annulment of the transaction.
2. Agents
Schmid & Oberly v. RJL Martinez Fishing Corp.: [a]
broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative
to property with the custody of which he has no
concern; the negotiation between other parties, never
acting in his own name but in the name of those who
employed him;
Brokers do not come within the coverage of the
prohibition as their authority consist merely in looking
for a buyer or a seller, and to bring the former and the
latter together to consummate the transaction;
therefore, they are not prohibited to buy for themselves.
3. Guardians, Administrators and Executors (as officers
of the courts)
Rodriquez v. Mactal: The prohibition under the Civil
Code cannot be made to apply unless there was proof
that a third-party buyer was a mere intermediary of the
guardian, or that the latter had previously agreed with
the third-party buyer to buy the property for the
disqualified guardian.
Philippine Trust Co. v. Roldan: Abandoned the Rodriguez
vs Mactal doctrine; even without such proof, the sale
can be rescinded: Remembering the general doctrine
that guardianship is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to
neglect his wards interest and in line with the courts
suspicion whenever the guardian acquires the wards
property.

a. Hereditary Rights Not Included in Coverage
Naval v. Enriquez: Hereditary rights are not included
in the prohibition insofar as the administrator or
executor of the estate of the deceased;
o Although hereditary rights pertain immediately to
the heirs upon the death of the decedent and do
not form part of the estate under the
administration of the administrator or executor
such hereditary rights derive their value only
from the assets that constitute the estate of the
decedent, which is clearly within the fiduciary
control of the administrator or executor.
4. Judges, Justices and Those Involved in
Administration of Justice
Gan Tingco v. Pabinguit: For the prohibition under
Article 1491 to apply to judges, it is not required that
some contest or litigation over the property itself should
have been tried by the said judge; such property is in
litigation from the moment that it became subject to the
judicial action of the judge, such as levy on execution.
Macariola v. Asuncion: The doctrine that prohibition
under Article 1491 is applicable only during the period
of litigation, should cover not only lawyers, but judges
as well.
o Property and rights in litigation applies only to
the sale or assignment of the property under
litigation, which must take place during the
pendency of the litigation involving the property.
5. Attorneys
Valencia v. Cabanting: Public policy prohibits the
transactions in view of the fiduciary relationship
involved. It is intended to curtail any undue influence of
the lawyer upon his client. Any violation of this
prohibition would constitute malpractice ... and is a
ground for suspension.
Rubias v. Batiller: The nullity of such prohibited
contracts is definite and permanent and cannot be
cured by ratification. The public interest and public
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policy remain paramount and do not permit of
compromise or ratification.
Gregorio Araneta, Inc. v. Tuason de Paterno: The
prohibition under Article 1491 applies only to attorneys
when the property they are buying is the subject of
litigation, and does not apply to a sale to attorneys who
were not the defendants attorneys in that case.
Del Rosario v. Millado: The prohibition does not apply to
a lawyer who acquired the property prior to the time he
intervened as counsel in an ejectment suit involving
such property.
The prohibition applies only to sale to a lawyer who in
fact represented the client in the particular suit
involving the object of the sale, and cannot cover the
assignment of the property given in judgment made by
a client to an attorney, who has NOT taken part in the
case wherein said judgment was rendered, made in
payment of professional services in other cases.
The prohibition does not apply to the sale of a parcel of
land, acquired by a client to satisfy a judgment in his
favor, to his attorney as long as the property was not
the subject of the litigation.
The prohibition applies only during the period the
litigation is pending.
o Pending certiorari: the disqualification still applies,
and the purchase by the lawyer during the
pendency of the certiorari proceedings would
constitute malpractice, notwithstanding the
property is the subject of a final judgment.
a. Contingent Fee Arrangements
Recto v. Harden: The prohibition under Article 1491
does not apply to a contingent fee based on the
value of property involved in litigation and therefore
does not prohibit a lawyer from acquiring a certain
percentage of the value of the properties in litigation
that may be awarded to his client.
Vda. de Laig v. Court of Appeals: The agreement on
contingent fee based on the value of the property
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involved is not prohibited since the payment of said Although a contingency fee arrangement has for its
fee is not made during the pendency of the litigation main subject matter the service of the lawyer,
but only after judgment has been rendered in the nevertheless when the consideration for such service
case handled by the lawyer. allows the lawyer to obtain ownership and
Director of Lands v. Ababa: A contingent fee contract possession of the clients property in litigation, the
is always subject to the supervision of the courts Court does not hesitate to apply Article 1491
with respect to the stipulated amount and may be prohibitions to test the validity of such an
reduced or nullified; arrangement.
o A contract for a contingent fee is not covered by
Article 1491 because the transfer or assignment
of the property in litigation takes effect only after
the finality of a favorable judgment.
Fabillo v. Intermediate Appellate Court: The Court
justified excluding contingency fee arrangement
from the coverage of Article 1491 because the
payment of said fee is not made during the
pendency of the litigation but only after judgment
has been rendered in the case handled by the
lawyer;
o 1988 Code of Professional Responsibility: A
lawyer may have a lien over funds and property
of his client and may apply so much thereof as
may be necessary to satisfy his lawful fees and
disbursements.
o Limitations: As long as the lawyer does not exert
undue influence on his client, that no fraud is
committed or imposition applied, or that the
compensation is clearly not excessive as to
amount to extortion, a contract for contingent fee
is valid and enforceable.
A contingency fee arrangement, although effective
and demandable only after litigation, may in fact be
negotiated and bargained for between the lawyer
and the client during the pendency of litigation, a
period in which the lawyer would exercise moral and
professional influence over his client, and therefore
would rightly be covered by Article 1491.
Contingency fee arrangement as an obligation
subject to a suspensive condition.