Unit 3 – Contract of Sale (Art.

1458 -1637, Civil Code)

LESSON 1
A. TOPIC LISTS:
1. Nature, Form, Requisites of Sale
2. Earnest Money vs Option Money
3. Sale distinguished from other Contracts

B. TOPIC LEARNING OUTCOMES:

At the end of the unit, the students should be able to:
1. Define sale.
2. Know the nature, requisites and characteristics of sale.
3. Distinguish earnest money from option money.
4. Distinguish Sale from other contracts.
5. Apply the above concepts to real life problems.

C. TEACHING – LEARNING ACTIVITIES:

a. Preparatory:
Describe the steps and procedure you will basically follow if you buy a “thing” from your
favorite department store. Basically that is the definition of sale.
b. Acquiring New knowledge
b.1. Definition:
Article 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)
b.1.1. Nature of Obligation Created
a) For the SELLER - To transfer ownership and to deliver possession of the
subject matter
b) For the BUYER - to pay the price
b.2. Characteristics of a Contract of Sale
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.
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.
b.3. Essential requisites of a contract of sale
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. (see Art. 1475.) The parties must have
legal capacity to give consent and to obligate themselves. (Arts. 1489, 1490, 1491.)
2. Object or subject matter — This refers to the determinate thing which is the object of
the contract. (Art. 1460.) 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.
2.1. Requisites of a Valid Object or Subject Matter
2.1.1. For Things:
1. Licit/ lawful
The thing is licit when:
1) It is within the commerce of man
2) When right is transmissible
3) It does not contemplate a future inheritance, unless expressly authorized by law

Example of properties not within the commerce of man:

a. Public property
b. Church
c. Narcotics or drugs Examples of illicit sale:
a. Sale of Future inheritance
b. Sale of animals suffering from contagious disease
c. Sale of animal to be used for a service stated in a contract, and
they have found to be unfit therefor.
d. Sale or transfer of land to aliens
If the subject is illicit, contract is VOID and cannot be ratified.
2. Should not be impossible
3. Determinate or determinable
2.1.2. For Rights:
1. Transmissible
 2. Licit
2.2. Goods which may be an Object of Sale
a. Existing Goods- goods owned or possessed by the seller
b. Future Goods- goods to be manufactured, raised or acquired by the seller after
the perfection of the contract. These are things which are expected Objects must be within the
commerce of men.
2.3. Future Goods (Emptio Rei Speratae) vs Mere Hope or expectancy (Emptio Spei)
2.3.1. Future Goods (Emptio Rei Speratae)
It 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. Upon the acquisition of goods, either party may
demand the execution of the contract.

Example of future things:

1. Goods to be manufactured or printed
2. To be raised or future agricultural products
3. To be acquired by seller after the perfection of the contract
4. Things whose acquisition depends upon a contingency
Potential Existence Goods not existing at the time can be an object as long as it has a potential
or possible existence, that is, it is reasonably certain to come into existence, and the title will vest
in the buyer the moment the thing comes into existence.
2.3.2. Mere Hope or expectancy (Emptio Spei)
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 itself is valid even if the thing
hoped or expected does not come into existence. However, sale of such hope or expectancy that
is vain is VOID.
In Emptio Rei Speratae, it is the sale of an expected thing but subjected to the condition that the
thing will come into existence. It is uncertain with regard to quantity and quality of the thing.
The object is a future thing. If the expected thing will not be realized, the sale is Void.
In Emptio Spei, the object of the sale is hope itself. The sale produces effect even if the Hope
does not come into existence. It is uncertain with the existence of the thing. The object is a
present thing. The sale is Valid even if the Hope does not come.
3. Cause or consideration — This refers to the “price certain in money or its equivalent”
(Art. 1458.) such as a check or a promissory note, which is the consideration for the thing sold.
The Price is the sum stipulated as equivalent of the thing sold.
3.1. Requisites of a valid Price:
1. Certain or ascertained at the time of perfection
Price must be certain, otherwise the sale is void by reason of absence of meeting of minds. Price
can be determined or certain when:
a. Parties have fixed or agreed upon a definite price. Fixing of price cannot be left to
the discretion of one of the parties unless if such was accepted by the other, therefor the sale is
perfected.
b. If it be certain with reference to another thing certain
c. Determination is left to the judgement of a specified person.
Gross inadequacy of price does not affect the validity of a contract of sale unless there is a
defect in consent (consent was vitiated by fraud, mistake, violence, undue influence or
intimidation).
2. In money or its equivalent
3. Real, not fictitious
If the price is simulated, the contract is void for the lack of cause or consideration, but can
be shown as a donation or some other contract.
If the Price stated in the written contract is not the true price, the parties are bound by
their intention (hidden Price) if no third persons are affected. (Relative Simulation)
If the Price stated in the contract is not intended to be paid, that is, the parties never
intended to be bound, the contract is void and inexistent. (Absolute
Simulation)
b.4. EARNEST MONEY vs OPTION MONEY
b.4.1. EARNEST MONEY
It is a partial payment of the purchase price & considered proof of the perfection of the contract.
In Earnest Money, the money given is a part of purchase price. It is given only when there is
already a sale. The buyer is bound to pay the balance. In case of nonpayment, specific
performance or rescission can be filed by the seller.
b.4.2. OPTION MONEY
It is a money given as consideration for an Option Contract.
In Option Money, the money given is separate and distinct from purchase price. It is given as a
consideration to exercise an option or to establish an Option Contract. The Seller and Buyer is
bound by the option contract, hence, any violation of the option contract can be enforceable in
court.
The absence of any of the above essential elements negates the existence of a perfected contract
of sale.

b.5. Natural and accidental elements

1. Natural elements or those which are deemed to exist in certain contracts, in the absence
of any contrary stipulations, like warranty against eviction (Art. 1548.) or hidden defects (Art.
1561.); 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.
b.6. Form of Contract of Sale
Contract of sale is valid in whatever form as long as the three essential requisites are present.
For the following contract of sale to be enforceable, it must be in writing:
1. An agreement for the sale of goods, chattels or things in action, at a price not less than P500,
unless the buyer accepts and receives part of such goods and chattels, or the evidence, or
some of them, of such things in action, or pay at the time some part of the purchase money;
but when a sale is made by auction and entry is made by the auctioneer in his sales book, at
the time of sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient memorandum
(Article 1403 (d))
2. The sale of real property or of an interest therein (Article 1403 (e))
b.7. Sale distinguished from other contracts
b.7.1. DONATION
Sale is Onerous and Perfected by mere consent. It can be in whatever form. while Donation is
Gratuitous and Perfected by donee’s acceptance. It must comply with the form required by law to
be valid.
Example, if a donation involves movable or personal property not exceeding P5,000 in value, the
donation may be made oral, accompanied by simultaneous delivery of the thing but If the
property involved exceeds P5,000, the law requires that both the donation and the acceptance
thereof must be in writing. If the property donated is an immovable or real property, the donation
and the acceptance thereof must both be made in a public instrument.
b.7.2. BARTER
In Sale, the Cause or consideration is in money while in Barter, the Cause or consideration is
another thing.
By contract of barter or exchange, one of the parties binds himself to give a thing in
consideration of the other’s promise to give another thing. [Art. 1638]
If the consideration is partly in money and partly in another thing, the type of contract is
determined under the following hierarchy:
a. Manifest intention of the parties
b. If intention is not clear, the following rules shall apply:
1. Thing is more valuable than money- barter
2. Money is equal or more than to the value of the thing- sale
b.7.3. CONTRACT FOR PIECE OF WORK
In Sale, the thing is ordered in the ordinary course of the business. The Thing transferred already
existed and can be a subject of sale to other persons.
In Contract for Piece of Work, the Thing is made specially for the customer upon his special
order. The thing transferred existed due to the order of the party desiring it.
When each product or system executed is always UNIQUE and could not be mass
produced because of its very nature, such is a contract for a piece of work. [Commissioner vs.
Engineering Equipment and Supply Co., 1975]
b.7.3. DACION EN PAGO
In Sale, there is no pre-existing to pay in money. It creates an obligation. There is freedom in
determining the price.
In Dacion en Pago (Payment in kind or dation in payment), there is a pre-existing to pay in
money. A thing is given as payment and It extinguishes the obligation. The price of the thing
given is the amount in the obligation. This is governed by the law on sale.
b.7.4. CONTRACT TO SELL
In Contract of sale, ownership is transferred upon delivery. Non-payment is a resolutory
condition. Sale is already perfected. Subsequent buyer is presumed to be in bad faith. The vendor
conveys ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded. Example is when an earnest money isgiven.
In Contract to sell, title or ownership is retained by the vendor until the full payment of the
purchase price. Full payment is a positive suspensive condition; that is, the non-payment of the
purchase price is an event which terminates the contract to sell. No perfected sale yet.
Subsequent buyer is presumed to be in good faith. Title remains in the vendor if the vendee does
not comply with the conditions of the contract and there is no need for judicial action to
terminate the contract. Example is in promise to sell and promise to buy.
b.7.5. AGENCY TO SELL
In Sale, Buyer receives the goods as owner. The Buyer pays the price. The Buyer, as a general
rule, cannot return the object sold. The Seller warrants the thing sold. The Buyer can deal with
the thing sold.
In Agency to Sell, Agent receives the goods of the principal who retains ownership. The Agent
delivers the price which he got from his buyer. The Agent can return the goods to the principal.
The Agent makes no warranty. The Agent can deal with the thing received as long as it is within
his authority given by the principal.