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GENERAL RULE: All parties with capacity to contract can enter into a valid contract of sale.

1. Natural

2. Juridical - corporation/partnership/associations/Cooperatives

  Status of contract valid  Remedies available therefor are:

1. specific performance2. rescission3. damages

EXCEPTION TO GENERAL RULE:

1. Minors

  status of contract: voidable only, therefore can be ratified

**Justice Paras: Minors may buy, but the contract is GENERALLY void. If what is bought by theminor is/are necessaries, then the minor must pay a reasonable price therefor.

  remedy is action for annulment (with partial restitution in so far as the minor is benefited)

2. SALE BY & BETWEEN SPOUSES

a. Contract with 3rd parties

  status of contract is valid

b. Sale between spouses

  Status not provided for by law but VOID according to case law ( Uy Siu Pin vs Cantollas). 

Reason:

i. prevent defraudation of creditors

Rule: A sale of one spouse to the other is VOID. This is to protect creditors. BUT if a creditorbecomes a creditor only AFTER the contract of sale between the spouses, then such creditor

may not invoke the nullity of the sale. Creditor here is not protected.

(Atty. Bandonill Jr: This is one instance when a void act creates legal effects.)

ii. avoid situation where dominant spouse take advantage of others

iii. avoid circumvention on prohibition of donation between spouses

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  Exception

i. separation of property agreed (marriage settlement)

ii. judicial separation of property

c. Common Law Spouses (Paramours)

  Status of contract: VOID (per case law)

  Rationale: evil sought to be avoided is present 

3. OTHERS PER SPECIFIC PROVISIONS OF LAW (Article 1491 of the Civil Code) (RelativeIncapacity)

a. Guardian with regards to property of ward during period of guardianship

b. Agent with regards to property of principal

c. Executor/administrator with regards to the estate of the deceased

d. Public officers with regards to the property of the estate

e. Officer of court & employee – with regards to property in litigation

** A violation of Article 1491 renders the sale VOIDABLE.

** In the sale of an agent with regards to the property of the principal, it would be valid if it iswith the principal’s consent. Consent should be written. 

TWO GROUPS OF PROHIBITED PARTIES FROM ENGAGING IN CONTRACT OF SALE:

1. Guardian / Agent / Executors – ratifiable in the sense that only private wrong is involved.

2. Public Officials / Officers of Court – not ratifiable in the sense that public wrong is concerned.

Contract of Sale Involving Lawyers 

Not Allowed if:

1. Lawyer-Client relationship exists.

2. Subject matter of sale is in litigation.

3. Lawyer is not allowed to buy said property while in litigation. May include property subjectto future litigation.

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  Reason: due to public policy; ground for malpractice

a. Client is at the mercy of the lawyer

b. Law is a noble profession

c. 2 Masters – 2 interest; one cannot serve 2 masters at the same time

  Exception: CONTINGENT FEE ARRANGEMENT

a. Amount of legal fees is based on a value of property

b. Property itself is involved

  Not a sale but service contract

  I give that you may do (innominate contract) so has to be governed by law on sales but

because of public policy, considered VALID

  Reason why contingent fee is followed:

i. constitutional prohibition against impairment of contract

ii. subject to control of courts (may be reduced if unconscionable or nullified)

iii. canons of legal ethics

:

How is a contract of sale distinguished from all other contracts?

DISTINGUISHED FROM OTHER CONTRACTS:

1. Donation 

donation is gratuitous; sale is onerous

donation is formal contract; sale is consensual

donation is governed by law on donation; sale is governed by law on sales.

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2. Barter

in barter, the consideration is the giving of a thing; in sale, it is giving of money as payment

both are governed by law on sales; both are species of the genus sales

if consideration consists partly in money & partly by thing  – look at manifest intention; ifintention is not clear (Article 1468 of the Civil Code of the Philippines):

a. if value of thing = or < than amount of money then it is a sale

b. if value of thing > amount of money then it is a barter

3. Contract for piece of work

• Test in Article 1467 (Civil Code):

a. contract for delivery of an article which the vendor in the ordinary course of businessmanufactures or procures for general market ( whether on hand or not ) – sale

b. goods are to be manufactured specially for a customer and upon special order and not for thegeneral market – contract for piece of work.

• Jurisprudence: 

a. Timing test – under Art. 1467; Inchausti; whether the thing transferred would have neverexisted but for the order – contract for piece of work (abandoned)

b. Habituality test – enunciated in Celestino v CIR ; contract of sale if manufacturer engages inactivity without need to employ extraordinary skills and equipment; contract for piece of work issale of service; contract of sale is sale of things.

c. Nature of the object test – enunciated in EEI v CIR ; each product’s nature of execution differsfrom the others; products are not ordinary products of manufacturer.

• main factor in decision of the SC: essence of why parties enter into it: 

a. essence is object – contract of sale

b. essence is service – contract for piece of work

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4. Agency to sell

in sale, buyer pays for price of object; in agency to sell, agent not obliged to pay for price,merely obliged to deliver price received from buyer.

in sale, buyer becomes owner of thing; in agency; principal remains owner even if objectdelivered to him

in sale, seller warrants; in agency, agent assumes no risk/liability as long as within authoritygiven

in sale, not unilaterally revocable; in agency, may be revoked unilaterally because fiduciary &even w/o ground

o in sale, seller receives profit; in agency, agent not allowed to profit

o TEST: essential clauses of whole instrument (art 1466 – motherhood statement, not good

law)

o Agency is a personal contract; sale is real contract ( to give ) – rescission not available inagency.

5. Dacion en pago  

o In dacion , there is a pre-existing credit. In sale there is none.

o In dacion: obligation is extinguished. In sale, it gives rise to obligations.

o In dacion, there is less freedom in determining the price. In Sale, there is greater freedom

as to price determination.

o In dacion, partial or complete fulfillment may be had by the giving of the object. In sale, thegiving of the price may generally end the obligation of the buyer.

6. Lease 

o in sale: obligation = to absolutely transfer ownership of thing; in lease: use of thing is forspecified period only with obligation to return

  in sale: consideration is price; in lease: consideration is rent  o in sale: seller needs to be owner of thing to transfer ownership; in lease: lessor need

not be owner

o lease with option to buy: really a contract of sale but designated as lease in name only.

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What are the stages of a contract of sale?

1. negotiation – bargaining period

2. perfection – by mere consent; performance may be demanded ( specific performance )

3. consummation – consists of the delivery of the thing, constructive or actual.

CHARACTERISTICS OF CONTRACT OF SALE:

1. Consensual – contract is by mere consent. There is meeting of minds.

2. Bilateral Reciprocal – both parties are bound by obligations.

3. Onerous – Valuable considerations must be given in order to acquire rights.

4. Commutative – Values exchanged are almost equivalent to each other; not aleatory.

5. Principal – No need for it to depend on the existence of another contract; not accessory.

6. Nominate – the law specifically designates it a name, that is, Contract of Sale

7. It is a title and not a mode of acquiring ownership. It merely gives rise to an obligation totransfer ownership.

What are the essential requisites of a contract of sale?

1. Consent  – this is the meeting of the minds of both parties, i.e., consent to transfer ownershipin exchange for the price.

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2. Subject Matter  – this should be determinate. A thing is considered determinate if when it isparticularly designated or physically segrated from all others of the same class. Generally, thereis no sale of generic thing. If the parties cannot agree as to the subject matter, there is nomeeting of the minds.

NOTE: The thing subject of sale needs not to be determinate at the time the contract of sale isentered into. What is required is that it should be capable of being determinate without thenecessity of a new agreement or further agreement between the parties.

3. Price  – It should be certain in money or its equivalent. This is the cause or consideration.Note that the price need not be in money.

Distinguish Contract of Sale and Contract to Sell

I. Contract of sale (absolute)

• real obligation – obligation to give

• remedies available: 

1. specific performance2. rescission3. damages

II. Contract to sell (conditional)

• personal obligation – obligation to do

• remedies available:

1. resolution2. damages

What is a Contract of Sale?

CONTRACT OF SALE  – One of the contracting parties obligates himself to transfer theownership of and to deliver a determinate thing, and the other to pay therefor a price certainmoney or its equivalent. A contract of sale may be absolute or conditional.