SALES REVIEWER – KENKEN LAGUTAN, AUSL

INTRO TO SALES: Elements of CONTRACTS

OBLIGATION – is the juridical necessity to give to do or not to do (1156). It is also 1. Essential elements – those NECESSARYfor the EXISTENCE of the contract.
defined as a juridical relation whereby a person (creditor) may demand from a. Consent
another (debtor) the observance of a determinate conduct, and in case of breach, b. Object
may obtain satisfaction from the assets of the latter. c. Cause
2. Natural Elements – these elements are NOT ESSENTIAL for the existence of
Essential Elements of an OBLIGATION: a contract BUT THEY ARE PRESUMED to exist in certain contracts UNLESS
1. Juridical Tie or vinculum juris – the efficient cause established by the various there is an express stipulation to the contrary (e.g. warranty).
sources of obligations (law, contracts, quasi-contracts, delicts and quasi- 3. Accidental elements – exist only when parties EXPRESSLY PROVIDE them
delicts; (these are clause, terms, and conditions that the parties may deem
2. Object – the prestationor the particular conduct required to be observed by convenient, provided they are not contrary to laws, good customs, good
the debtor (to give, to do, or not to do); morals, public order, or public policy.
3. Active Subject (called oblige or creditor) – the person who can demand the DEFECTIVE CONTRACTS
fulfilment of the obligation; and
4. Passive subject (called the obligor or debtor) – the person from whom the 1. Rescissible Contracts – initially valid and enforceable but produces a lesion
obligation is juridically demandable. or a pecuniary damage to someone, until rescinded by a competent court.
Cannot be ratified.
SOURCES OF OBLIGATION: 2. Voidable Contracts – whenALL the essential requisites for the perfection of
1. Law the contract are present but the element of consent is DEFECTIVE either
2. Contract because of WANT OF CAPACITY to contract or because of VITIATION of
3. Quasi-contract consent by reason of mistake, violence, intimidation, undue influence, or
4. Delict fraud (MVIUF). Contract is valid and binding UNTIL it is set by a Final
5. Quasi-Delict Judgment of a competent court in an action for annulment. Can be ratified.
3. Unenforceable Contracts – Contracts cannot be sued upon or enforced by a
CONTRACTS – is a meeting of minds between two persons whereby one binds proper court action, unless they are ratified. Defense is personal to the
himself, with respect to the other, to give something or to render some service. It is contracting parties and not by 3rd persons.
a juridical convention manifested in legal form, by virtue of which one or more 4. Void Contracts – produce no effect whatsoever either because the contract
persons bind themselves in favour of another or others, or reciprocally, to the is invalid from its inception or because any of the essential requisites is
fulfilment of a prestation to give, to do, or not to do. totally wanting.

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SALES:
Is a contract where one of the contracting parties obligates himself to transfer the
ownership and to deliver the possession of a determinate thing, and the other
contracting parties (buyer) obligates himself to pay therefore a sum of money or its
equivalent (1458).
CHARACTERISTICS:
1. Consensual – the 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 (1475).
2. Bilateral – because both the contracting parties are bound to fulfil
correlative obligations towards each other – the seller to deliver and
transfer the ownership of the thing sold and the buyer to pay the price.
3. Onerous – because the thing sold is conveyed in consideration of the
priceand vice versa; has a burden or cause which the parties have to comply
with.
4. Commutative – because the thing sold is considered the equivalent of the
price paid and vice versa.
5. Principal – it does not depend, for its existence and validity, upon another
contract
6. Nominate – because it is given a special name or designation in the Civil
Code.
STAGES:
1. Negotiation (policitacion) – covers the period from the time the prospective
contracting parties indicate their interests in the contract to the time the
contract is perfected.
SALES REVIEWER – KENKEN LAGUTAN, AUSL
2. Perfection – takes place upon the concurrence of essential elements of the
sale which are the meeting of the minds of the parties as to the object of
the contract and upon the price (1475)
- Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfilment of
what has been expressly stipulate but also to the consequences
which, according to their nature, may be in keeping with good
faith, usage and law (1315)
3. Performance – rescission (1191)
- Statute of frauds [1403 (2)]
4. Consummation – Begins when the parties perform their respective
undertaking under the contract of sale, culminating in the extinguishment
thereof.
KINDS OF SALE:
*Essence: it is important to classify the contracts to know which law shall govern on
the kind of sale. One sale may be governed by one law and another sale by another
law.
A. As to the nature of the subject matter
a. Sale of real property – title passes to the buyer upon delivery of the
thing sold
b. Sale of personal property– ownership is reserved in the seller and is
not to pass until the full payment of the purchase price.
B. As to whether the object is tangible or intangible/corporeal or in
incorporeal
a. Sale of a thing
b. Sale of a right
C. As to validity or defect of the transaction
a. Valid – has all the essential requisites.
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 SALES REVIEWER – KENKEN LAGUTAN, AUSL

b. Rescissible – valid until rescinded; has ALL essential requisites but E. Distinguished from other transactions
because of injury/damage to one of the parties or to a 3rd person, a. Contract for a Piece of Work (1467)
the contract may be rescinded. Contract for a Piece of Work Sales
c. Voidable – valid until annulled; has ALL essential requisites but The thing transferred is one not The thing transferred is one
because of defect in consent, contract may be annulled. in existence &which never which would have existed &
d. Unenforceable – cannot be sued/enforced unless ratified; no effect would have existed but for the would have been the subject of
order of the party desiring to sale to some other person, even
NOW but may take effect upon ratification.
acquire it. if the order had not been given.
e. Void – No effect at all; cannot be ratified/validated. Not within the Statute of Frauds Within the Statute of Frauds
D. As to the presence or absence of condition Involves lease of service Involves sale of thing or right
a. Absolute Sale – one wherein there is no condition whatever and Obligation of contractor is a Obligation of the seller is a real
imposes upon the vendor the obligation to deliver the subject personal (obligation to do) obligation (obligation to give)
matter of the agreement to the vendee who upon the receipt of the
property hands over and pays the purchase price that has been b. Lease
previously agreed upon with the vendor. Lease Sales
b. Conditional Sale – This is an agreement to sell or buy the thing with Use of thing is for specified Obligation to absolutely transfer
certain conditions that must be accomplished by either or both the period only ownership of thing
Consideration is rent Consideration is price
parties so as to extinguish and or create ownership over the subject
property. This is merely an executory contract in contemplation of
c. Dacion En Pago (1245)
the law and the right of ownership is withheld for the meantime. In
Dacion En Pago Sales
other words, the certificate of title of the real property is not turned
(contract where property is
over to the vendee until and after certain conditions have been alienated to satisfy/extinguish
accomplished by either or both the parties. Then it becomes an obligation to pay debt)
executed contract. With pre-existing contract No pre-existing contract
c. Contract to Sell – one form of conditional sale where ownership or
title is retained until the fulfilment of a positive suspensive d. Barter or Exchange (1468,1638,1954)
condition normally the payment of the purchase price in the Barter or Exchange Sales
manner agreed upon. Consideration is the giving of a Giving of money as payment
- The failure of which is not a breach but an event that prevents thing
the obligation of the vendor to convey title from becoming Governed by law on sales Governed by law on sales
If consideration consists partly in money and partly by thing – look
effective.

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 SALES REVIEWER – KENKEN LAGUTAN, AUSL

at manifest intention; if intention is not clear (1468): The following contracts are voidable or annullable, even
a. Value of thing is less than or equal to the amount of money though there may have been no damage to the contracting
– sale parties:
b. Value of thing is more than the amount of money – barter (1) Those where one of the parties is incapable of giving
consent to a contract;
e. Agency to Sell (1466)
(2) Those where the consent is vitiated by mistake, violence,
Agency to Sell Sales
intimidation, undue influence or fraud.
Agent not obliged to pay for Buyer pays for price of object
price These contracts are binding, unless they are annulled by a
Principal remains owner even if Buyer becomes owner of thing proper action in court. They are susceptible of ratification.
object delivered to him (1390)
Agent assumes no risk/liability Seller warrants
as long as within authority The following contracts are unenforceable, unless they are
Agent not allowed to profit Seller receives profit ratified:
…. (3) Those where both parties are incapable of giving
ELEMENTS OF A CONTRACT OF SALE consent to a contract. (1403)

A. Essential Element 1. Absolute (1327,1328-NCC; 234-FC) – persons who

a. CONSENT OF THE CONTRACTING PARTIES
i. Parties to the Contract – General rule: all parties with
capacity to contract can enter into a valid contract of sale.
ii. Capacity of Parties (1489,1390,1403)
All persons who are authorized in this Code to obligate
themselves may enter into a contract of sale, saving the
modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor
or other person without capacity to act, he must pay a
reasonable price therefor. Necessaries are those referred to
in Article 290. (1489)
cannot bind themselves
The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes
who do not know how to write. (1327)
Contracts entered into during a lucid interval are
Valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable. (1328)
Emancipation takes place by the attainment of
majority. Unless otherwise provided, majority
commences at the age of eighteen years. (234)

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2. Relative – it exists only with reference to certain
persons or a certain class of property.
- Sale by minors – VOIDABLE; action for Annulment.
- Sale by & between Husband & Wife–VOID. Except: (1) a
separation of property was agreed upon in the marriage
settlement; (2) there has been a Juridical separation of property
- Sale between Guardian & Wards –VOID. Only while the
guardianship exists.
- Sale between agents and principal – VOID. Prohibition no
longer applies if the affairs of the agency terminates.
o Xpns: if the Principal consents to the sale
- Sale between Executors or Administrates and estate of the
deceased –VOID.
- Sale involving properties of government – VOID. Nullity is
permanent and cannot be ratified.
- Sale of property in Litigation – VOID. Nullity is permanent and
cannot be ratified
* Not all insanity will render a contract voidable since not all vitiate consent (e.g.
nymphomaniac)
* Thru hereditary succession, a foreigner can acquire land thru acquiring share in
corporation (acquiring unit in a corporation condominium)
* Contract of Sale between Husband and Wife = VOID (1490); cannot be ratified
- 2 XPNS: [1490(1) & (2)]
- Can they question the validity of their contract? NO. Only the creditors (3rd
party) has the right to question. This is to avoid collusion between the parties.
SALES REVIEWER – KENKEN LAGUTAN, AUSL
- 1412 (1) – In Pari delicto – the Court will just leave them (spouses) as they
are.
b. SUBJECT MATTER
i. Requisites (1458[1], 1459-1462, 1347-1349)
1. Determinate thing (1460) – when it is particularly
designated or physically segregated from all others
of the same class.
2. Must be licit or lawful – it should not becontrary to
laws, morals, good customs, public order, or public
policy. Otherwise, it is VOID and cannot be ratified.
a. 1411,1412 - If both parties are at fault,
neither may recover what he has given.
b. When only 1 is at fault, he who is at fault
cannot recover what he has given. The
other who is NOT at Fault may DEMAND the
return of what he has given w/o obligation
to comply with his promise.
Kinds of illicit things: (1) illicit per se (of its
nature); and illicit per accidens (because of
some provisions of law declaring it illegal).
3. Not be impossible –the thing must be within the
commerce of men.
ii. Rules on the object of a contact of sale
Sale of things having potential existence (Expected Thing)
(Emptiorei speratae)
o It is REASONABLY CERTAIN to come into existence as
the natural increment or usual incident. (ex. The wine a
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vine is expected to produce; the grain a field may grow;
the milk a cow may yield during the coming year)
o 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.
Sale of a mere Hope or Expectancy (Emptio Spei)
o Subject to the condition that the thing contemplated or
expected WILL COME INTO EXISTENCE. VALID even if it
does not come into existence, UNLESS the hope or
expectance is VAIN (in which case is VOID)
o The sale 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.
Emptiorei speratae Emptio Spei
The future thing is CERTAIN as to (like sale of sweepstake ticket), it
itself but uncertain as to its is NOT CERTAIN that the thing
quantity/quality itself (winning a prize) WILL
EXIST.
Deals with FUTURE THINGS Relates to thing which Exists or is
present – the HOPE or
EXPECTANCY
The Sale is subject to the PRODUCES EFFECT even though
condition that the thing SHOULD the thing DOES NOT COME INTO
EXIST, so that if it does not, EXISTENCE because the object of
THERE WILL BE NO CONTRACT. the contract is the hope itself,
unless it is vain hope or
expectancy (like sale of falsified
sweepstake ticket w/c can never
win)
SALES REVIEWER – KENKEN LAGUTAN, AUSL
Art. 1462. Goods which may be the object of sale
1. Existing goods OWNED or POSSESSED by the seller;
2. FUTURE GOODS or goods to be manufactured,
raised or acquired.
Art. 1463. Sale of UNDIVIDED INTEREST IN A THING
 EFFECT: to make a buyer a co-owner in the thing sold.
(Acquires full ownership of his part & he may sell it) but it is
LIMITED only to the portion which may be allotted to him in
the division of the thing upon termination of co-ownership.
B
S 500
500
Art. 1464. Sale of an Undivided Share of Specific Mass
Fungible goods – goods of which any unit is, from its nature or
by mercantile usage, treated as the equivalent of any other unit
(such as grain, oil, wine, gasoline, etc.)
Effect of sale: the owner of mass of goods may sell only thereof,
provided the mass is specific or capable of being made
determinate.
Art. 1465. Sale of thing subject to a Resolutory Condition
Resolutory condition – an uncertain event upon the happening
of which the obligation (or right) is EXTINGUISHED.
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iii. Assignment of Credit and Other Incorporeal Rights (1624-
1635)
Art. 1624. Assignment of Credit
o A contract by which the owner (assignor/creditor) of a
credit & other incorporeal rights TRANSFERS, either
onerously or gratuitously, to ANOTHER (assignee) his
rights & actions against a 3rd person.
 If the assignment is on account of PURE
LIBERALITY = Rules on Donations.
 Where valuable considerations is involved =
Contract of Sale.
o Nature of Assignment of Credit
 Consensual, bilateral, onerous, and
commutative or aleatory contract.
 Involves No Transfer of Ownership BUT
MERELY effects the transfer of rights w/c the
assignor has at the time to the assignee.
 Assignee steps into the shoes of the creditor as
a subrogee
Art. 1625. Binding effect of Assignment
o Between parties – VALID even in Private Document
o To 3rd persons – Public instrument; in case of real
property – be recorded in the Registry of Property.
o The assignee is deemed subrogated to rights as well as
to the obligations of the seller
Art. 1626. Consent of Debtor to Assignment not required.
o BUT not of NOTICE to the Debtor.
Art. 1627. Extent of Assignment of Credit.
o Includes not only the credit byt also all rights accessory
thereto.
SALES REVIEWER – KENKEN LAGUTAN, AUSL
Art. 1629. Duration of Assignor’s Liability where Debtor’s
solvency guaranteed.
o With stipulation – term or period fixed;
o No stipulation:
 1 year from the assignment of credit when
period for payment has expired;
 1 year after its maturity when such period for
payment has not yet expired.
o Reason: (1) to prevent fraud w/c may be committed by
feigning the solvency of the debtor at the time of the
assignment when in fact he is not insolvent. (2) to
oblige the assignee to exert efforts in the recovery of
the credit and thereby avoid that by his oversight, the
assignor may suffer.
Art. 1630. Sale of succesional or hereditary rights
o Subject of sale is hereditary right not objects w/c make
up inheritance
o The seller of inheritance WARRANTS only the fact of his
heirship but he does not warrant the objects w/c make
up his inheritance
o Limitation – “except that any such sale must be deemed
subject to the result of the administration proceedings
& any pending litigation.
Art. 1634. Legal Redemption in sale of credit or other
incorporeal right in litigation.
o Requisites:
 There must be a sale or assignment of a credit;
 There must be a pending litigation at the time
of the assignment;
 The debtor must pay the assignee: the price,
judicial cost, interest on the price
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 The right must be exercised by the debtor
within 30 days from the date the assignee
demands payment from him.
* Seller can be excused from being not able to transfer & deliver the
thing if due to fortuitous event
c. CAUSE (1350, 1352-1353)
- The prestation or promise of a thing or service by the other
i. Price Certain in money (RMC)
General rule: it is stated in the contract. If none, it must be
with reference to another thing certain; or the
determination of the price is left to the judgment of a
specified person or persons and even before such
determination. Absence such stipulation, LEGAL TENDER
will apply.
1. it must be real or true. If price is simulated=VOID.
But the act may be shown to have been in reality a
donation, or some other act or contract, 1471. s
2. it must be in money or its equivalent (refers to
something representative of money, e.g. check or
draft)
3. it must be certain (it shall be sufficient that it be so
with reference to another thing certain, 1469)
a. Price fixed by a 3rd person/s – Yes.
i. If 3rd person acted in bad faith or by
mistake – THE COURT MAY FIX THE
PRICE, 1469 par.3.
ii. If such person/s were prevented
from fixing the price or terms by
SALES REVIEWER – KENKEN LAGUTAN, AUSL
fault of one of the contracting
parties – party not fault may have
remedies against party at fault.
iii. If such person/s is unwilling – the
contract is INEFFICACIOUS unless
the parties subsequently agree
upon the price.
b. Price may NOT BE FIXED BY ONE OF THE
CONTRACTING PARTIES – but if the price
fixed by one party is ACCEPTED, the sale is
PERFECTED.
c. If Price CANNOT BE DETERMINED –
contract is INEFFICACIOUS.
 Effect of INADEQUACY OF PRICE – Does NOT
AFFECT the validity of contract, except if there’s
a defect in the consent or the parties intended a
donation, 1470)
Legal tender is a medium of payment recognized by a
legal system to be valid for meeting a financial obligation.
Currency w/c has been made suitable by law for the
purpose of a tender in the payment of debts.
* RA 8183 now allows other currency as payment of the
obligation.
ii. E
arnest Money, 1482
1. Something of value given by the buyer to the seller
to show that the buyer is really earnest and to bind
the bargain.
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2. Partial payment of the purchase price and is
considered as proof of the perfection of the
contract.
iii. Lesion – economic damage suffered by one party.
B. Contract of Option (1479, 1324) – a preparatory contract in w/c one party
B. Natural Elements – are NOT ESSENTIAL for the existence of a contract BUT
THEY ARE PRESUMED to exist in certain contracts UNLESS there is an
express stipulation to the contrary (e.g. warranty).
a. Warranties – a statement or representation made by the seller of
goods, contemporaneously and as part of the contract of sale,
having reference to the character, quality, or title of the goods, &
by which he promises or undertakes to insure that certain facts are
C. Formalities of Contract of Sale [Statute of Frauds] (1483,1403,1625,1356-
or shall be as he then represents them, 1546.
i. A mere expression of an opinion does not signify fraud
unless made by an expert and the other party has relied on
the former’s special knowledge.
b. Subrogation - the substitution of one person or group by another in
respect of a debt or insurance claim, accompanied by the transfer of
any associated rights and duties.
C. Accidental Elements - exist only when parties EXPRESSLY PROVIDE them
(these are clause, terms, and conditions that the parties may deem
convenient, provided they are not contrary to laws, good customs, good
morals, public order, or public policy.
VI. PERFECTION OF THE CONTRACT
A. When Perfected (1475-1476, 1479[1])
a. Sale is consensual (perfected by mere consent, or 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).
SALES REVIEWER – KENKEN LAGUTAN, AUSL
i. Must also agree on the manner of payment of the price.
ii. Seller need not be the owner at the time of perfection.s
iii. Delivery of thing or payment of price, not required for
perfection.
grants to the other, for a fixed period and under specified conditions, the
POWER TO DECIDE, WON to enter into a principal contract.
- A contract granting a privilege to buy or sell w/in an agreed time
and at a determined price.
a. When option is binding – when there is period and supported by a
separate consideration.
b. When not binding – *opposite of the above.
1358, 1874,Act No. 1147)
a. Preparatory contracts:
i. Right of first refusal – a mechanism that gives to a specific
party the right to be the first allowed to purchase in
particular property if offered for sale. Need not be written
to be enforceable and may be proven by oral evidence
(since not among those listed under the Statute of Frauds.
ii. Option Contract – a sale of right to purchase. Need not be
written to be enforceable and may be proven by oral
evidence (since not among those listed under the Statute of
Frauds.
iii. Agency to Sell a piece of Land – the authority of the Agent
SHALL BE IN WRITING (otherwise, VOID)
b. Contract of Sale itself:
i. 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, 1483.
ii. Formal requirement for VALIDITY:
1. NO PARTICULAR FORM IS REQUIRED.
a. Except:
i. Sale of Large Cattle
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ii. Sale of parcel of land by an Agent.
iii. Formal requirement for enforceability – the sale of goods,
chattels, or things in action, at a price not less than 500
(1403 2d) and sale of real property or any interest therein
are governed by the Statute of Frauds (Statutes w/c require
certain classes of contracts to be in writing to be
enforceable)
VII. RIGHTS AND OBLIGATIONS OF THE VENDOR (1495)
* to transfer ownership of the thing w/c is the object of the sale;
* to deliver it;
* to warrant the same;
* to observe the diligence of a good father of the family
A. To Transfer Ownership
a. Who can transfer ownership
i. General Rule (1505-1506,1547)
1. Only the owner of the property can pass ownership;
2. The seller is not required to have ownership at the
time of the perfection of the sale. It is sufficient that
he has ownership at the time of the thing sold is
delivered because it is delivery that transfers
ownership.
3. Where goods are sold by a person who is not the
owner thereof and who does not sell them under
authority or with consent of the owner, the buyer
acquires no better title to the goods than the seller
had, UNLESS the owner of the goods is by his
conduct precluded from denying the seller’s
authority, 1505.
ii. Exceptions (1505)
SALES REVIEWER – KENKEN LAGUTAN, AUSL
1. Estoppel (1431,1433-1434) – a person is precluded
from denying that another person has authority to
sell because of his acts. The principle that precludes
a person from asserting something contrary to
what is implied by a previous action or statement
of that person or by a previous pertinent judicial
determination.
Art. 1431 – Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon;
2. Sale by an Apparent Owner – or through an Agent.
An agent may not be an owner but he was given the
authority by the owner to sell.
3. Purchase at Merchant’s Store, Market or Fair (559)
The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the
owner has been unlawfully deprived, has acquired it
in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid
therefor. (559)
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 SALES REVIEWER – KENKEN LAGUTAN, AUSL

B. When/How Transfer is effected? (1477, 1459, 1496, 1547, 1588)

a. General Rule
b. Exceptions
i. Sale or return
C. Risk of Loss or Deterioration (Total/Partial) [1504, 1480, 1493-
1494,1538(1189)]
D. Double Sales(1544)
E. To Deliver the object and its accessions [1537 (1164)]
F. Quality/Quantity (1481, 1522, 1539-1543, 1630, 1632-1633)
G. Not bound to deliver when? (1524, 1536/1198)
H. Place of Delivery (f.o.b.,c.i.f.,f.a.s) (1521(1), 1251, 1582)
I. Time of Delivery (1521(2))
J. Prescription (1543)

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