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ATENEO DE MANILA LAW SCHOOL

LAW ONSALES OUTLINE 1 DEAN CESAR L.VILLANUEVAFirst Semester, SY 2011-2012 ANDATTY.ALEXANDER C.DY

I. THE NATURE OF SALE

A.DEFINITION (Art. 1458)

Sale is a contract whereby one of the contracting parties [the seller] obligates himself to transfer theownership

2and to deliver the possession, of a determinate thing, and the other party [the buyer] to pay

therefor a price certain in money or its equivalent. xCruz v. Fernando, 477 SCRA 173 (2005).3

1. Elements of Sale

Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter; and (c) pricecertain in money or its equivalent.xNavarra v. Planters Dev. Bank, 527 SCRA 562 (2007).4

Sale being a consensual contract, its essential elements must be proven. xVillanueva v. CA, 267SCRA 89 (1997).

Absence of any essential elements negates a sale xDizon v. CA, 302 SCRA 288 (1999),5 evenwhen earnest money has been paid.xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).

But once all elements are proven, a sales validity is not affected by a previously executed fictitiousdeed of sale.xPealosa v. Santos, 363 SCRA 545 (2001); and the burden is on the other party to proveotherwise. xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001).

2. Stages of Contract of Sale

Policitacion covers the period from the time the prospective contracting parties indicate interest inthe contract to the time the contract is perfected. Perfection takes place upon the concurrence of theessential elements, which are the meeting of the minds of the parties as to the object of the contract andupon the price. Consummation begins when the parties perform their respective undertakings,culminating in the extinguishment thereof. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA

737 (2000).6

3.Sale Creates Real Obligations To Give (Art. 1165)

4. Essential Characteristics of Sale:

a. Nominate and Principal

A contract of sale is what the law defines it to be, taking into consideration its essential elements,and not what the contracting parties call it. xSantos v. Court of Appeals, 337 SCRA 67 (2000).7

b. Consensual (Art. 1475)

A contract of sale is not a real, but a consensual contract, and becomes valid and binding uponthe meeting of the minds of the parties as to the object and the price,8 consequently:

Upon its perfection, the parties may reciprocally demand performance. xHeirs of Venancio Bejentingv. Baez, 502 SCRA 531 (2006);

9subject only to the provisions of the law governing the form of

contracts. xCruz v. Fernando, 477 SCRA 173 (2005).

1The Outline presents the manner by which the LAW ON SALES will be taken-up in class. The x's and those footnoted in the Outline

represent cases or topics which need no extended discussions, either because the essence of the rulings are already summarized inthe Outline or they contain similar rulings or doctrines as other cases to be discussed. Unless otherwise indicated, the numberedarticles refer to articles of the Civil Code of the Philippines.

2Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits established

thereby. According to Art. 428 of the Civil Code, this means that: The owner has the right to enjoy and dispose of a thing, without other limitationsthan those established by law. x x x Aside from the jus utendiand thejus abutendiinherent in the right to enjoy the thing, the right to dispose, orthejus disponendi, is the power of the owner to alienate, encumber, transform and even destroy the thing owned. Flancia v. Court of Appeals,457 SCRA 224 (2005).

3Alfredo v. Borras, 404 SCRA 145 (2003); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515 SCRA 346

(2007).4Jovan Land, Inc. v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San Andres v.

Rodriguez, 332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Katipunan v.Katipunan, 375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA 683 (2003); Jimenez, Jr. v. Jordana,444 SCRA 250 (2004); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v. Papio, 515SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v. Florendo, 549 SCRA 527 (2008); GSIS v. Lopez, 592SCRA 456 (2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T.Primero, 624 SCRA 575 (2010).

5Roberts v. Papio, 515 SCRA 346 (2007);XYST Corp. v. DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009).

6Limketkai Sons Milling, Inc. v. Court of Appeals, 250 SCRA 523 (1995); Jovan Land, Inc. v. CA, 268 SCRA 160 (1997); Bugatti v. Court of

Appeals, 343 SCRA 335 (2000); Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006); Manila Metal Container Corp. v. PNB, 511SCRA 444 (2006); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008);GSIS v. Lopez, 592 SCRA 456 (2009);XYST Corp. v. DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009).

7Bowe v. CA, 220 SCRA 158 (1993); Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Cavite Development Bank v.

Lim, 324 SCRA 346 (2000).8Romero v. CA, 250 SCRA 223 (1995); Balatbat v. CA, 261 SCRA 128 (1996); Coronel v. CA, 263 SCRA 15 (1996); City of Cebu v. Heirs of

Candido Rubi, 306 SCRA 408 (1999); Agasen v. CA, 325 SCRA 504 (2000); Laforteza v. Machuca, 333 SCRA 643 (2000); Londres v. Court ofAppeals, 394 SCRA 133 (2002); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. Court of Appeals, 416 SCRA 263 (2003); SanLorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462 SCRA 614 (2005); Roberts v.Papio, 515 SCRA 346 (2007); MCC Industrial Sales Corp. v. Ssangyong Corp., 536 SCRA 408 (2007); Castillo v. Reyes. 539 SCRA 193 (2007);XYST Corp. v. DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009); Del Prado v. Caballero, 614 SCRA 102 (2010).

9Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).

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It remains valid even if parties have not affixed their signatures to its written form, xGabelo v. CA,316 SCRA 386 (1999), or the manner of payment is breached. xPilipinas Shell Petroleum Corp v.Gobonseng, 496 SCRA 305 (2006).

In an Extrajudicial Settlement of Estate with Absolute Sale, it would be immaterial that the buyers

signature does not appear thereon since the contract of sale is consensual and perfected by mereconsent.xBaladad v. Rublico, 595 SCRA 125 (2009).

Failure of the subdivision developer to obtain a license to sell the subdivision lots does not render

the sales void on that ground alone especially that the parties have impliedly admitted that therewas already a meeting of the minds as to the subject of the sale and price of the contract.Cantemprate v. CRS Realty Dev. Corp. 587 SCRA 492 (2009).

The binding effect of sale is based on the principle that the obligations arising therefrom have theforce of law between the parties. xVeterans Federation of the Philippines v. Court of Appeals , 345SCRA 348 (2000).

Perfection Distinguished from Demandability Not all contracts of sale become automaticallyand immediately effective. In sales with assumption of mortgage, there is a condition precedent to thesellers consent and without the approval of the mortgagee, the sale is not perfected. xBian SteelCorp. v. Court of Appeals, 391 SCRA 90 (2002).

No Contract Situation versus Void Contract Absence of consent (i.e., complete meetingof minds) negates the existence of a perfected sale.xFirme v. Bukal Enterprises and Dev. Corp., 414

SCRA 190 (2003). The contract then is null and void ab initio, absolutely wanting in civil effects;hence, it does not create, modify, or extinguish the juridical relation to which it refers. xCabotaje v.Pudunan, 436 SCRA 423 (2004).

When there is no meeting of the minds on price, the contract is not perfected and does notserve as a binding juridical relation between the parties. xManila Metal Container Corp. v. PNB, 511SCRA 444 (2006),

10and should be more accurately denominated as inexistent, as it did not pass the

stage of generation to the point of perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).

c. Bilateral and Reciprocal (Arts. 1169 and 1191)

A contract of sale gives rise to reciprocal obligations, which arise from the same cause witheach party being a debtor and creditor of the other, such that the obligation of one is dependent uponthe obligation of the other; and they are to be performed simultaneously, so that the performance of

one is conditioned upon the simultaneous fulfillment of the other. Cortes v. Court of Appeals, 494SCRA 570 (2006).11

A perfected contract of sale carries the correlative duty of the seller to deliver the property andthe obligation of the buyer to pay the agreed price. Congregation of the Religious of the Virgin Maryv. Orola, 553 SCRA 578 (2008).

The power to rescind is implied in reciprocal ones in case one of the obligors should not complywith what is incumbent upon him, and without need of prior demand. Almocera v. Ong, 546 SCRA164 (2008).12

d. Onerous (Gaite v. Fonacier, 2 SCRA 830 [1961])

e. Commutative (BUT SEE: Arts. 1355 and 1470)

In a contract of sale, there is no requirement that the price be equal to the exact value of thesubject matter of sale; all that is required is that the parties believed that they will receive good valuein exchange for what they will give.Buenaventura v. CA, 416 SCRA 263 (2003).

f. Sale Is Title and Not Mode

Sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownershipis created, transferred or destroyed, but title is only the legal basis by which to affect dominion orownership. Sale by itself does not transfer or affect ownership; the most that sale does is to createthe obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actuallytransfers ownership. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005),

13 citing VILLANUEVA,

PHILIPPINE LAW ON SALES, 1995 ed., at p. 5.

Sellers ownership of the thing sold is not an element of perfection; what the law requires is thatseller has the right to transfer ownership at the time of delivery. xQuijada v. CA, 299 SCRA 695(1998).14

BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a sale as a contract transferringdominion and other real rights in the thing sold.

B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS

A contract is what the law defines it to be, taking into consideration its essential elements, and the titlegiven to it by the parties is not as much significant as its substance.15 The transfer of ownership in

10Roberts v. Papio, 515 SCRA 346 (2007).

11Ong v. Court of Appeals, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000);Agro Conglomerates, Inc. v. CA, 348 SCRA 450

(2000 ); Velarde v. Court of Appeals, 361 SCRA 56 (2001); Carrascoso, Jr. v. Court of Appeals, 477 SCRA 666 (2005); Heirs of Antonio F.Bernabe v. Court of Appeals, 559 SCRA 53 (2008); Heirs of Antonio F. Bernabe v. Court of Appeals, 559 SCRA 53 (2008).

12Vda. De Quirino v. Palarca, 29 SCRA 1 (1969)13Acap v. CA, 251 SCRA 30 (1995).

14Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001);Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Heirs of Jesus M.

Mascuana v. Court of Appeals, 461 SCRA 186 (2005).

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exchange for a price paid or promised is the very essence of a contract of sale. xSantos v. Court ofAppeals, 337 SCRA 67 (2000).

In determining the real character of sale, courts look at the intent of the parties, their true aim andpurpose in entering into the contract, as well as by their conduct, words, actions and deeds prior to, duringand immediately after executing the agreement, and not at the nomenclature used to describe it, xLao v.Court of Appeals, 275 SCRA 237 (1997).

1. Donation (Arts. 725 and 1471)Unlike a donation, sale is a disposition for valuable consideration with no diminution of the estate but

merely substitution of values, with the property sold replaced by the equivalent monetary consideration;unlike donation, a valid sale cannot have the legal effect of depriving the compulsory heirs of theirlegitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).

The rules on double sales under Art. 1544 find no relevance to contracts of donation. xHemedes v.Court of Appeals, 316 SCRA 347 (1999).

2. Barter (Arts. 1468, 1638 to 1641)

3.Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)

Crux: 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. xCommissioner of InternalRevenue v. CA, 271 SCRA 605 (1997), citingVILLANUEVA,LAW ON SALES, pp. 7-9 (1995). In both, theprovisions on warranty of title against hidden defects applies. xDio v. CA, 359 SCRA 91 (2001).

When a person stipulates for the future sale of articles which he is habitually making, and which atthe time are not made or finished, it is essentially a contract of sale and not a contract for laborxInchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes production thereof only afteran order is placed by customers. Celestino & Co. v. Collector, 99 Phil. 841 (1956).

If the thing is specially done only upon the specific order of another, this is a contract for a piece ofwork; if the thing is manufactured or procured for the general market in the ordinary course of business,it is a contract of sale. Commissioner of Internal Revenue v. Engineering Equipment & SupplyCo., 64 SCRA 590 (1975).16

To Tolentino, the distinction depends on the intention of parties: if parties intended that at some

future date an object has to be delivered, without considering the work or labor of the party bound todeliver, the contract is one of sale; but if one of the parties accepts the undertaking on the basis ofsome plan, taking into account the work he will employ personally or through another, the contract is fora piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).

4.Agency to Sell(Art. 1466)

Assumption by agent of the risk pertaining to the cost or price of the subject matter makes therelationship that of buyer-seller, for the agent does not assume risk with respect to the price or theproperty subject of the relationship. xKer & Co., Ltd. v. Lingad, 38 SCRA 524 (1971). Consequently: (a)the contractual relationship is not inherently revocable. Quiroga v. Parsons, 38 Phil. 501 (1918); or(b) the purported agent does not have to account for the profit margin earned from acquiring theproperty for the purported principal. Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).

One factor that most clearly distinguishes agency from other legal concepts, including sale, iscontrol; one person the agent agrees to act under the control or direction of another the principal.xVictorias Milling Co., Inc. v. CA, 333 SCRA 663 (2000).

Commercial broker, commission merchant or indentor is a middleman acting in his own name, andacts as agent for both seller and buyer to effect a sale between them. Although he is neither seller norbuyer to the contract effected he may voluntarily assume warranties of seller. xSchmid and Oberly, Inc.v. RJL Martinez, 166 SCRA 493 (1988).

5. Dacion En Pago (Arts. 1245 and 1934)

Governed by the law on sales, dation in payment is a transaction that takes place when property isalienated to the creditor in full satisfaction of a debt in money it involves the delivery and transmissionof ownership of a thing as an accepted equivalent of the performance of the obligation. Yuson v. Vitan,496 SCRA 540 (2007).

In its modern concept, what actually takes place in dacion en pago is an objective novation of theobligation where the thing offered as an accepted equivalent of the performance of an obligation isconsidered as the object of the contract of sale, while the debt is considered as the purchase price.xAquintey v. Tibong511 SCRA 414 (2006).17

Elements of dation in payment: (a) performance of the prestation in lieu of payment (animosolvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the thirdperson; (b) some difference between the prestation due and that which is given in substitution (aliud proalio); and (c) agreement between the creditor and debtor that the obligation is immediately extinguished

15Romero v. CA, 250 SCRA 223 (1995); Lao v. Court of Appeals, 275 SCRA 237 (1997); Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v.

Salvador, Sr., 564 SCRA 456 (2008)..16

Commissioner of Internal Revenue v. Arnoldus Carpentry Shop, 159 SCRA 199 (1988); Del Monte Philippines, Inc. v. Aragones, 461 SCRA139 (2005).

17Dao Heng Bank, Inc. (now Banco de Oro Universal Bank) v. Laigo , 571 SCRA 434 (2008); Technogas Philippines Mfg. Corp. v. PNB, 551

SCRA 183 (2008); Ocampo v. Land Bank of the Philippines, 591 SCRA 562 (2009); D.B.T. Mar-Bay Construction, Inc. v. Panes, 594 SCRA 578(2009).

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by reason of the performance of a presentation different from that due. Lo v. KJS Eco-FormworkSystem Phil., Inc., 413 SCRA 182 (2003).18

There is no dation in payment where there is no transfer of ownership in the creditors favor, aswhen the possession of the thing is merely given to the creditor by way of security. Fort Bonifacio Dev.Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008); as when the possession is only by way of security.xPNB v. Pineda, 197 SCRA 1 (1991).

For dacion to arise, there must be actual delivery of the property to the creditor by way of

extinguishment of the pre-existing debt. Philippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002).19BUTSEEOBITER: SSS v. Court of Appeals, 553 SCRA 677 (2008).

In a true dacion en pago, the assignment of the property extinguishes the monetary debt. Ong v.Roban Lending Corp., 557 SCRA 516 (2008).

A creditor, especially a bank, which enters into dacion en pago, should know and must accept thelegal consequence thereof, that the pre-existing obligation is totally extinguished. xEstanislao v. EastWest Banking Corp., 544 SCRA 369 (2008).

A property subject to a real estate mortgage, which has not been foreclosed, may validly be thesubject of dacion en pago, for a mortgage does not take away the property rights of the mortgagor;however, the creditor who becomes the buyer of the property is subject to the real estate mortgage lien.xTypingco v. Lim, 604 SCRA 396 (2009).

6. Lease (Arts. 1484 and 1485)

When rentals in a lease are clearly meant to be installment payments to a sale contract, despitethe nomenclature given by the parties, it is a sale by installments and governed by the Recto Law.xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).

II. PARTIES TO A CONTRACT OF SALES (Arts. 1489-1492)

1. General Rule: Every person having legal capacity to obligate himself, may validly enter into a contractof sale, whether as seller or as buyer. (Art. 1489)

2. Minors, Insane and Demented Persons, Deaf-Mutes(Arts. 1327, 1397 and 1399)

A minor cannot be deemed to have given her consent to a contract of sale; consent is among theessential requisites of a contract, including one of sale, absent of which there can be no valid contract.[?] xLabagala v. Santiago, 371 SCRA 360 (2001).

a. Necessaries (Arts. 1489 and 290)

b.xEmancipation (Arts. 399 and 1397; Inutile: Majority age now at 18 years, Arts. 234 and 236,Family Code, amended by R.A. 6809).

c. Protection of the Senile and Elderly (Art. 24) andIlliterates (Art. 1332)

Under Art. 1332, when one of the parties is unable to read, or if the contract is in a language notunderstood by him, and mistake or fraud is alleged, the person enforcing the contract must show thatthe terms thereof have been fully explained to the former; otherwise, sale is void. [?] xVda. De Ape v.

Court of Appeals, 456 SCRA 193 (2005).

While a person is not incompetent to contract merely because of advanced years or by reason ofphysical infirmities, when such age or infirmities have impaired the mental faculties so as to preventthe person from properly, intelligently or firmly protecting his property rights, then he is undeniablyincapacitated, and the sale he entered into is void [?]. Paragas v. Heirs of Dominador Balacano,468 SCRA 717 (2005).20

3. Sales By and Between Spouses:

a.Contracts with Third Parties (Arts. 73, 96, and 124, Family Code)

Under Art. 124 of Family Code, sale by husband of a conjugal property without the wifes consentis void, not merely voidable, since the resulting contract lacks one of the essential elements of full

consent.xGuiang v. CA, 291 SCRA 372 (1998).

21

A wife affixing her signature to a Deed of Sale as a witness is deemed to have given her consent.

xPelayo v. Perez, 459 SCRA 475 (2005).

As an exception, husband may dispose of conjugal property without wifes consent if such sale isnecessary to answer for conjugal liabilities mentioned in Articles 161 and 162.xAbalos v. Macatangay,Jr., 439 SCRA 64 (2004).

b.Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)

Sales between spouses who are not governed by a complete separation of property regime arevoid, not just voidable. xMedina v. Collector, 1 SCRA 302 (1960).

18Aquintey v. Tibong511 SCRA 414 (2006); Rockville Excel International Exim Corp. v. Culla, 602 SCRA 124 (2009).

19Filinvest Credit Corp. v. Philippine Acetylene Co., Inc. 111 SCRA 421 (1982); Vda. de Jayme v. Court of Appeals , 390 SCRA 380 (2002); Ongv. Roban Lending Corp., 557 SCRA 516 (2008).

20Domingo v. Court of Appeals, 367 SCRA 368 (2001).

21Cirelos v. Hernandez, 490 SCRA 625 (2006); Bautista v. Silva, 502 SCRA 334 (2006).

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Sale by husband of conjugal land to his concubine is null and void for being contrary to morals andpublic policy and subversive of the stability of the family, a basic social institution which public policycherishes and protects. Calimlim-Canullas v. Fortun, 129 SCRA 675 (1984).22

Since under Art. 1490, the spouses cannot validly sell property to one another, then policyconsideration and the dictates of morality require that the prohibition should apply also to common-lawrelationships. cf. Matabuena v. Cervantes, 38 SCRA 284 (1971).

Nevertheless, when property resold to a third-party buyer in good faith and for value,

reconveyance is no longer available. xCruz v. CA, 281 SCRA 491 (1997).

The in pari delicto doctrine would apply to the spouses-parties under Art. 1490, since only theheirs and the creditors can question the sales nullity. xModina v. Court of Appeals, 317 SCRA 696(1999).

4. Others Relatively Disqualified (Arts. 1491 and 1492)

Contracts entered into in violation of Arts. 1490 and 1492 are not merely voidable, but are null andvoid. Rubias v. Batiller, 51 SCRA 120 (1973).23

a.Guardians, Agents and Administrators

No more need to comply with xRodriquez v. Mactal, 60 Phil. 13 (1934) which required showingthat a third party bought as conduit/nominee of the buyer disqualified under Art. 1491; rather, the

presumption now is that such disqualified party obtained the property in violation of said article.Philippine Trust Co. v. Roldan, 99 Phil. 392 (1956).

Prohibition against agents does not apply if the principal consents to the sale of the property inthe hands of the agent.xDistajo v. CA, 339 SCRA 52 (2000).

Hereditary rights are not included in the prohibition insofar as administrator or executor of theestate of the deceased. xNaval v. Enriquez, 3 Phil. 669 (1904).

b.Attorneys

Prohibition applies only while litigation is pending. xDirector of Lands v. Ababa, 88 SCRA 513(1979); even when the litigation is not adversarial in nature Rubias v. Batiller, 51 SCRA 120(1973); or when it is a certiorari proceeding that may have no merit xValencia v. Cabanting, 196SCRA 302 (1991).

Prohibition applies only to a sale to a lawyer of record, and does not cover assignment of theproperty given in judgment made by a client to an attorney, who has not taken part in the case.Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930);24 nor to a lawyer who acquired propertyprior to the time he intervened as counsel in the suit involving such property. Del Rosario v. Millado,26 SCRA 700(1969).

Prohibition does not apply: (a) to sale of a land acquired by a client to satisfy a judgment in hisfavor, to his attorney as long as the property was not the subject of the litigation. x Daroy v. Abecia,298 SCRA 172 (1998); or (b) to a contingency fee arrangementwhich grants the lawyer of recordproprietary rights to the property in litigation since the payment of said fee is not made during thependency of litigation but only after judgment has been rendered. Fabillo v. IAC, 195 SCRA 28(1991).25

c.JudgesA judge should restrain himself from participating in the sale of propertiesit is incumbent upon

him to advise the parties to discontinue the transaction if it is contrary to law. Britanico v. Espinosa,486 SCRA 523 (2006).

A judge who buys property in litigation before his court after the judgment becomes finaldoes notviolate Art. 1491, but he can be administratively disciplined for violation of the Code of Judicial Ethics.xMacariola v. Asuncion, 114 SCRA 77 (1982).

Even when the main cause is a collection of a sum of money, the properties levied are stillsubject to the prohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).

III.SUBJECT MATTER OF SALE (Arts. 1459 to 1465)Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence

of sale. xCommissioner of Internal Revenue v. CA and Ateneo de Manila University, 271 SCRA 605(1997).

The Civil Code provisions defining sales is a catch-all provision which effectively brings within itgrasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.Polytechnic University v. CA, 368 SCRA 691 (2001).

Where under an agreement, a party renounces and transfers whatever rights, interests, or claims shehas over a parcel of land in favor of another party in consideration of the latters payment of therein loan,the agreement is essentially a sale, and the rule on delivery effected through a public instrument apply.xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).

22Ching v. Goynako, Jr., 506 SCRA 735 (2006).23

Uy Sui Pin v. Cantollas, 70 Phil. 55 (1940); Medina v. Collector, 1 SCRA 302 (1961).24

Gregorio Araneta, Inc. v. Tuason de Paterno, 49 O.G. 45 (1952).25

Recto v. Harden, 100 Phil. 427 (1956); Vda. de Laig v. CA, 86 SCRA 641 (1978).

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1. Must Be Existing, Future or Contingent (Arts. 1347, 1348, and 1462)

a. Emptio Rei Speratae (Arts. 1461 and 1347)

Pending crops which have potential existence may be valid object of sale. xSibal v. Valdez, 50Phil. 512 (1927); and such transaction cannot be considered to effectively be sale of the land or anypart thereof. xPichel v. Alonzo, 111 SCRA 341 (1981).

b. Emptio Spei (Art. 1461)

c. Subject to Resolutory Condition (Art. 1465)

2. Must Be Licit (Arts. 1347, 1459 and 1575)

Under Art. 1347, a sale involving future inheritance is void and cannot be the source of any rightnor create any obligation.xTaedov. Court of Appeals, 252 SCRA 80 (1996).

Article 1347 does not cover waiver of hereditary rights which is not equivalent to sale, sincewaiver is a mode of extinction of ownership in favor of the other persons who are co-heirs. xAcap v.Court of Appeals, 251 SCRA 30 (1995).

A mortgagor is not prevented from selling the property, since it is merely encumbrance and effecta loss of his principal attribute as owner to dispose of the property. Law even considers void a

stipulation forbidding the owner from alienating mortgaged immovable. xPineda v. CA, 409 SCRA438 (2003).

3. Must Be Determinate or At Least Determinable (Art. 1460)

When the deed of sale describes a lot adjacent to the land seen, agreed upon and delivered tothe buyer, such land is the one upon which the minds have met, and not that erroneously describedin the deed. Atilano v. Atilano, 28 SCRA 231 (1969).26

a.Generic things may be object of sale (Arts. 1246 and 1409[6])

Subject matter is determinable when by a formula or description agreed upon at perfectionthere is a way by which the courts can delineate independent of the will of the parties. Melliza v.City of Iloilo, 23 SCRA 477 (1968).

Where the lot sold is said to adjoin the previously paid lot on three sides thereof, the subject

lot is capable of being determined without the need of any new contract, even when the exact areaof the adjoining residential lot is subject to the result of a survey. xSan Andres v. Rodriguez, 332SCRA 769 (2000).

Determinable subject matter of sale are not subject to risk of loss until they are physicallysegregated or particularly designated. Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915).

b.Undivided Interest(Art. 1463) orUndivided Share in a Mass of Fungible Goods(Art. 1464) May result it co-ownership.

4. Quantity of Subject Matter Not Essential for Perfection? (Art. 1349)

Sale of grains is perfected even when the exact quantity or quality is not known, so long as thesource of the subject is certain. NGA v. IAC, 171 SCRA 131 (1989).

Where seller quoted to buyer the items offered for sale, by item number, part number, descriptionand unit price, and the buyer had sent in reply a purchase order without indicating the quantity beingorder, there was already a perfected contract of sale, even when required letter of credit had notbeen opened by the buyer. Johannes Schuback & Sons Phil. Trading Corp. v. CA, 227 SCRA719 (1993).

5. Sellers Obligation to Transfer Title to Buyer(Art. 1459, 1462, and 1505)

a. Seller's Ownership Need Not Exist at Perfection:

Sale of copra for future delivery does not make seller liable for estafa for failing to deliverbecause the contract is still valid and the obligation was civil and not criminal. xEsguerra v.People, 108 Phil. 1078 (1960).

A perfected contract of sale cannot be challenged on the ground of the sellers non-ownershipof the thing sold at the time of the perfection of the contract; it is at delivery that the law requiresthe seller to have the right to transfer ownership of the thing sold. xAlcantara-Daus v. de Leon, 404SCRA 74 (2003).27

It is essential that seller is owner of the property he is selling. The principal obligation of aseller is to transfer the ownership of the property sold (Art. 1458). This law stems from theprinciple that nobody can dispose of that which does not belong to him. NEMO DAT QUOD NONHABET. xNoel v. CA, 240 SCRA 78 (1995).

That the sellers are no longer owners of the goods at perfection does not appear to be one ofthe void contracts enumerated in Art. 1409 of Civil Code, and under Art. 1402 the Civil Code itselfrecognizes a sale where the goods are to be acquired x x x by the seller after the perfection of thecontract of sale clearly implying that a sale is possible even if the seller was not the owner at thetime of sale, provided he acquires title to the property later on; nevertheless such contract may be

26Londres v. CA, 394 SCRA 133 (2002).

27Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).

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deemed to be inoperative and may thus fall, by analogy, under Art. 1409(5): Those whichcontemplate an impossible service. Nool v. CA, 276 SCRA 149 (1997).

b.Subsequent Acquisition of Title by Non-Owner Seller(Art. 1434) validates the sale and titlepasses to the seller by operation of law.

c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462).

X6.Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)

a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare wild plants (Act3983); poisonous plants or fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder and explosives(Act 2255); firearms and ammunitions (P.D. 9); sale of realty by non-Christians (Sec. 145, RevisedAdm. Code, R.A. 4252)

b. Following Sales of Land Void:

By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised Administrative Code.xTac-an v. CA, 129 SCRA 319 (1984).

Friar land without consent of Secretary of Agriculture required under Act No. 1120. x Alonso v. CebuCountry Club, Inc., 375 SCRA 390 (2002); Liao v. CA, 323 SCRA 430 (2000).

Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they tilled.xSiacor v. Gigantana, 380 SCRA 306 (2002).

Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold, public or private.Fisheries Dev. Authority v. Court of Appeals, 534 SCRA 490 (2007).

IV. PRICE AND OTHER CONSIDERATION(Arts. 1469-1474)

Price signifies the sum stipulated as the equivalent of the thing sold and also every incident takeninto consideration for the fixing of the price put to the debit of the buyer and agreed to by him. Inchausti& Co. v. Cromwell, 20 Phil. 345 (1911).

Seller cannot unilaterally increase the price previously agreed upon with the buyer, even when due toincreased construction costs. GSIS v. Court of Appeals, 228 SCRA 183 (1993).

Buyer who opted to purchase the land on installment basis with imposed interest, cannot laterunilaterally disavow the obligation created by the stipulation in the contract which sets the interest at 24%per annum: The rationale behind having to pay a higher sum on the installment is to compensate thevendor for waiting a number of years before receiving the total amount due. The amount of the statedcontract price paid in full today is worth much more that a series of small payments totaling the sameamount. x x x To assert that mere prompt payment of the monthly installments should obviate impositionof the stipulated interest is to ignore an economic fact and negate one of the most important principles onwhich commerce operates. Bortikey v. AFP RSBS, 477 SCRA 511 (2005).

1. Price Must Be Real (Art. 1471)

a. When Price Simulated(1) Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two aged ladies, not versed in English,

sign a Deed of Sale on representation by buyer that it was merely to evidence their lending ofmoney, the situation constitutes more than just fraud and vitiation of consent to give rise to avoidable contract, since there was in fact no intention to enter into a sale, there was no consentat all, and more importantly, there was no consideration or price agreed upon, which makes thecontract void ab initio. Rongavilla v. Court of Appeals, 294 SCRA 289 (1998).

(2) Mate v. CA, 290 SCRA 463 (1998), versus: When Deed of Sale was executed to facilitatetransfer of property to buyer to enable him to construct a commercial building and to sell theproperty to the children, such arrangement being merely a subterfuge on the part of buyer, theagreement cannot also be taken as a consideration and sale is void. Yu Bun Guan v. Ong, 367SCRA 559 (2001).

(3) Effects When Price Simulated The principle ofin pari delictononoritur action, which denies allrecovery to the guilty parties inter se, where the price is simulated; the doctrine applies onlywhere the nullity arises from the illegality of the consideration or the purpose of the contract.xModina v. Court of Appeals, 317 SCRA 696 (1999).28

b. When Price is False (Arts. 1353 and 1354)

When the parties intended to be bound but the deed did not reflect the actual price agreedupon, there is only a relative simulation of the contract which remains valid and enforceable, butsubject to reformation. xMacapgal v. Remorin, 458 SCRA 652 (2005).

When price indicated in deed of absolute sale is undervalued consideration pursuant tointention to avoid payment of higher capital gains taxes, the price stated is false, but the sale is stillvalid and binding on the real terms. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

28Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)

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c.Non-Payment of Price

Sale being consensual, failure of buyer to pay the price does not make the contract void for lackof consideration or simulation, but results in buyers default, for which the seller may exercise hislegal remedies. xBalatbat v. CA, 261 SCRA 128 (1996).29

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishesthe transaction that, for a time, existed and discharges the obligations created thereunder. [?] Theremedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission.

xHeirs of Pedro Escanlar v. Court of Appeals, 281 SCRA 176 (1997).30

Badge That Price Is Simulated, Not Just Unpaid: It is a badge of simulated price, whichrender the sale void, when the price, which appears thereon as paid, has in fact never been paid bythe purchaser to the seller. xVda. de Catindig. v. Heirs of Catalina Roque, 74 SCRA 83 (1976).31

2. Must Be in Money or Its Equivalent (Arts. 1458 and 1468)

Price must be valuable consideration as mandated by Civil Law, instead of any pricemandated in common law.Ong v. Ong, 139 SCRA 133 (1985); Bagnas v. CA, 176 SCRA 159(1989); Republic v. Phil. Resources Dev., 102 Phil. 960 (1958).

Consideration for sale can take different forms, such as the prestation or promise of a thing orservice by another, thus:

When deed provides that the consideration was the expected profits from the subdivision project.xTorres v. Court of Appeals, 320 SCRA 428 (1999).

Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. Court ofAppeals,368SCRA691(2001).

Assumption of mortgage constituted on the property sold. xDoles v. Angeles, 492 SCRA 607 (2006).32

3. Must Be Certain or Ascertainable at Perfection (Art. 1469)

a. How Price Determined to Be Ascertainable

(i) Set by third person appointed at perfection (Art. 1469)

(ii) Set by the courts (Art. 1469)

(iii) By reference to a definite day, particular exchange or market (Art. 1472)

(iv) By reference to another thing certain, such as to invoices then in existence and clearlyidentified by the agreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or known factors orstipulated formula (xMitsui v. Manila, 39 Phil. 624 (1919).

Price is ascertainable if the terms of the contract furnishes the courts a basis or measure fordetermining the amount agreed upon, without having to refer back to either or both parties.xVillanueva v. Court of Appeals, 267 SCRA 89 (1997).33

Where the sale involves an asset under a privatization scheme which attaches a peculiarmeaning or signification to the term indicative price as merely constituting a ball-park figure, thenthe price is not certain.xMoreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).

Consideration is generally agreed upon as whole even if it consists of several parts, and even if itis contained in one or more instruments; otherwise there would be no price certain, and the contractof sale not perfected. xArimas v. Arimas, 55 O.G. 8682.

b. Price Never Set By One or Both Parties (Arts. 1473, 1182), unless the price is separatelyaccepted by the other party.

c. Effects of Un-Ascertainability: Sale is inefficacious.

BUT:If Buyer Appropriates the Object, He Must Pay Reasonable Price (Art. 1474)

There can be no concept of appropriation when it comes to land? Where a churchorganization has been allowed possession and introduce improvements on the land as part of itsapplication to purchase with the NHA, and thereafter it refused the formal resolution of the NHABoard setting the price and insisted on paying the lower price allegedly given by the NHA FieldOffice, there can be no binding contract of sale upon which an action for specific performancecan prosper, not even on fixing the price equal to the fair market value of the property. xNHA v.Grace Baptist Church, 424 SCRA 147 (2004).

4. Manner of Payment of Price ESSENTIAL (Art. 1179)

A definite agreement on the manner of payment of price is an essential element in the formation of abinding and enforceable contract sale; without it the sale is void and an action for specific performancemust fail. Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).34

29Pealosa v. Santos, 363 SCRA 545 (2001); Soliva v. The Intestate Estate of Marcelo M. Villalba , 417 SCRA 277 (2003); Province of Cebu v.

Heirs of Rufina Morales, 546 SCRA 315 (2008).30

Villaflor v. Court of Appeals, 280 SCRA 297 (1997).31

Ocejo v. Flores, 40 Phil. 921 (1920); Ladanga v. CA, 131 SCRA 361 (1984); Rongavilla v. Court of Appeals, 294 SCRA 289 (1998); Labagalav. Santiago, 371 SCRA 360 (2001); Cruz v. Bancom Finance Corp., 379 SCRA 490 (2002); Montecillo v. Reynes, 385 SCRA 244 (2002);Republic v. Southside Homeowners Asso., 502 SCRA 587 (2006); Quimpo, Sr. v Abad Vda de Beltran, 545 SCRA 174 (2008); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008).

32The deed of sale with assumption of mortgage is a registrable instrument and must be registered with the Register of Deeds in order to bind

third parties. Rodriguez v. Court of Appeals, 495 SCRA 490 (2006).33

Boston Bank of the Philippines v. Manalo, 482 SCRA 108 (2006).

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When the manner of payment of the price is discussed after acceptance, then such acceptancedid not produce a binding and enforceable contract of sale. xNavarro v. Sugar Producer's Corp., 1 SCRA1180 (1961).

Where there is no other basis for the payment of the subsequent amortizations in a Deed ofConditional Sale, the reasonable conclusion one can reach is that the subsequent payments shall bemade in the same amount as the first payment. [?] xDBP v. Court of Appeals, 344 SCRA 492 (2000).

5. Inadequacy of Price Does Not Affect Ordinary Sale (Arts. 1355 and 1470)Mere inadequacy of the price does not affect the validity of the sale when both parties are in a

position to form an independent judgment concerning the transaction, unless fraud, mistake, or undueinfluence indicative of a defect in consent is present. The contract may be annulled for vitiated consentand not due to the inadequacy of price. xBautista v. Court of Appeals, 436 SCRA 141 (2004).35

Absent any evidence of the fair market value of a land as of the time of its sale, it cannot beconcluded that the price at which it was sold was inadequate. x Acabal v. Acabal, 454 SCRA 897(2005).36

a. Gross Inadequacy of Price May Avoid Judicial Sale:

(i) Only when it is shocking to the conscience of man. xPascua v. Simeon, 161 SCRA 1 (1988); and

(ii) There is showing that, in the event of a resale, a better price can be obtained. x Cu Bie v. Court ofAppeals, 15 SCRA 307 (1965).37

UNLESS: There is right of redemption, in which case the proper remedy is to redeem.xDe Leon v.Salvador, 36 SCRA 567 (1970).38

BUT: By way of extraordinary circumstances perceived, when in a judicial sale the right ofredemption has been lost, where the inadequacy of the price is purely shocking to theconscience, such that the mind revolts at it and such that a reasonable man would neitherdirectly or indirectly be likely to consent to it, the same will be se aside. xCometa v. Court ofAppeals, 351 SCRA 294 (2001).

Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of pricedoes not even affect the validity of a contract of sale, unless it signifies a defect in the consent or thatthe parties actually intended a donation or some other contract. Inadequacy of cause will not invalidate

a contract unless there has been fraud, mistake or undue influence. (at p. 649) Bacungan v. Court ofAppeals, 574 SCRA 642 (2008).

There is gross inadequacy in price if a reasonable man will not agree to dispose of his property.Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).

When judicial sale is voided without fault of purchaser, the latter is entitled return of price withsimple interest, together with all sums paid out by him in improvements introduced on the property,taxes, and other expenses. xSeven Brothers Shipping Corp. v. Court of Appeals, 246 SCRA 33(1995).

b. Lesion of more than 1/4 of value of thing makes sale rescissible unless approved by court (Art. 1386)

c.Gross inadequacy of price may raise the presumption of equitable mortgage(Art. 1602)

V. FORMATION OF CONTRACT OF SALE (Arts. 1475-1488)

A.POLICITACIONSTAGE (Art. 1479)

Policitation stage covers the doctrine of freedom of contract which signifies or implies the right tochoose with whom to contract. A property owner is free to offer his property for sale to any interestedperson, and is not duty bound to sell the same to the occupant thereof, absent any prior agreementvesting the occupants the right of first priority to buy. xGabelo v. Court of Appeals, 316 SCRA 386(1999).

A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to

the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offermay be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offerinto a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must beplain, unequivocal, unconditional and without variance of any sort from the proposal. Manila MetalContainer Corp. v. PNB, 511 SCRA 444 (2006).39

An unaccepted unilateral promise (offer to buy or to sell) prior to acceptance, does not give rise toany obligation or right. xRaroque v. Marquez, 37 O.G. 1911.

34Velasco v. CA, 51 SCRA 439 (1973); Co v. Court of Appeals, 286 SCRA 76 (1998); San Miguel Properties Philippines v. Huang, 336 SCRA

737 (2000); Montecillo v. Reynes, 385 SCRA 244 (2002); Edrada v. Ramos, 468 SCRA 597 (2005); Cruz v. Fernando, 477 SCRA 173 (2005);Marnelego v. Banco Filipino Savings and Mortgage Bank, 480 SCRA 399 (2006); Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006);Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156 (2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).

35Ereeta v. Bezore, 54 SCRA 13 (1973); Bacungan v. Court of Appeals, 574 SCRA 642 (2008); Bacungan v. Court of Appeals, 574 SCRA 642

(2008).36Avila v. Barabat, 485 SCRA 8 (2006).37

Tayengco v. Court of Appeals, 15 SCRA 306 (1965); Republic v. NLRC, 244 SCRA 564 (1995).38

Vda. de Gordon v. Court of Appeals, 109 SCRA 388 (1981).39

Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).

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Where the offer is given with a stated time for its acceptance, the offer is terminated at theexpiration of that time.xVillegas v. Court of Appeals, 499 SCRA 276 (2006).

The Letter of Intent to Buy and Sell is just thata manifestation of Sea Foods Corporations (SFC)intention to sell the property and United Muslim and Christian Urban Poor Association, Inc. (UMCUPAI)intention to acquire the samewhich is neither a contract to sell nor a conditional contract of sale.Muslim and Christian Urban Poor Association, Inc. v. BRYC-V Development Corp., 594 SCRA724 (2009).

1. OPTION CONTRACT

An option is a preparatory contract in which one party grants to the other, for a fixed period andunder specified conditions, the power to decide, whether or not to enter into a principal contract. Itbinds the party who has given the option, not to enter into the principal contract with any other personduring the period designated, and, within that period, to enter into such contract with the one to whomthe option was granted, if the latter should decide to use the option. It is a separate agreement distinctfrom the contract of sale which the parties may enter into upon the consummation of the option.Carceller v. Court of Appeals, 302 SCRA 718 (1999).40

An option imposes no binding obligation on the person holding the option aside from theconsideration for the offer. Until accepted, it is not treated as a sale. Tayag v. Lacson, 426 SCRA282 (2004).41

Tenants, not being the registered owners, cannot grant an option on the land, much less anyexclusive right to buy the property under the Latin saying nem dat quod non habet. xTayag v.Lacson, 426 SCRA 282 (2004).

a. Meaning of Separate Consideration (Arts. 1479 and 1324)

A unilateral promise to sell, in order to be binding upon the promissor, must be for a pricecertain and supported by a consideration separate from such price. xSalame v. Court of Appeals,239 SCRA 356 (1995).42

The separate consideration in an option may be anything of value, unlike in sale where it mustbe the price certain in money or its equivalent. Villamor v. Court of Appeals, 202 SCRA 607(1991),43 such when the option is attached to a real estate mortgage xSoriano v. Bautista, 6 SCRA946 (1962).

Although no consideration is expressly mentioned in an option contract, it is presumed that itexists and may be proved, and once proven, the option is binding. xMontinola v. Cojuangco, 78Phil. 481 (1947).

b. No Separate Consideration: Void as Option, Valid as a Certain OfferSanchez v. Rigos, 45 SCRA 368 (1972).44

BUTLATELY: xYao Ka Sin Trading v. CA, 209 SCRA 763 (1991); xMontilla v. CA, 161 SCRA 855(1988);xNatino v. IAC, 197 SCRA 323 (1991); andxDiamante v. CA, 206 SCRA 52(1992).

c. There Must Be Acceptance of Option Offer. Vazquez v. CA, 199 SCRA 102 (1991).

d. Proper Exercise of Option Contract. Nietes v. CA, 46 SCRA 654 (1972).

An option attached to a lease when not exercised within the option period is extinguished andcannot be deemed to have been included in the implied renewal (tacita reconduccion) of the lease.xDizon v. CA, 302 SCRA 288 (1999).

Proper exercise of an option gives rise to the reciprocal obligations of sale x Heirs of Luis Bacusv. Court of Appeals, 371 SCRA 295 (2001),45 which must be enforced with ten (10) years asprovided under Art. 1144. xDizon v. Court of Appeals, 302 SCRA 288 (1999).

There must be virtual exercise of option with the option period. Carceller v. Court ofAppeals, 302 SCRA 718 (1999).

2.RIGHT OF FIRST REFUSAL

A right of first refusal cannot be the subject of specific performance, but breach would allow arecovery of damages.xGuerrero v. Yigo, 96 Phil. 37 (1954).

Rights of first refusal only constitute innovative juridical relations, but do not rise to the level ofcontractual commitment since with the absence of agreement on price certain, they are not subject tocontractual enforcement. Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994).

Right of first refusal contained in a lease, when breached by promissor allows enforcement by thepromisee by way of rescission of the sale entered into with the third party, pursuant to Arts. 1381(3)and 1385 of Civil Code. xGuzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992); Equatorial

40Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. CA, 357 SCRA 846 (2001);Abalos v. Macatangay, Jr., 439 SCRA 649 (2004); Vasquez

v. Ayala Corp., 443 SCRA 231 (2004); Eulogio v. Apeles, 576 SCRA 561 (2009).41Adelfa Properties, Inc. v. CA, 240 SCRA 565 (1995); Kilosbayan, Inc. v. Morato, 246 SCRA 540 (1995); San Miguel Properties Philippines,

Inc. v. Huang, 336 SCRA 737 (2000); Limson v. CA, 357 SCRA 209 (2001).42

JMA House, Inc. v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526 (2006).43De la Cavada v. Diaz, 37 Phil. 982 (1918); San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000)44AffirmingAtkins, Kroll & Co., Inc. v. Cua , 102 Phil. 948 (1958); OverturningSouthwestern Sugar Molasses Co. v. Atlantic Gulf & Pacific Co.,

97 Phil. 249 (1955).45

Limson v. Court of Appeals, 357 SCRA 209 (2001).

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Realty Dev., Inc. v. Mayfair Theater, Inc., 264 SCRA 483 (1996);46Paranaque Kings Enterprises,Inc. v. CA, 268 SCRA 727, 741 (1997).

In a right of first refusal, while the object might be made determinate, the exercise of the rightwould be dependent not only on the grantors eventual intention to enter into a binding juridical relationwith another but also on terms, including the price, that are yet to be firmed up. . . the offer may bewithdrawn anytime by communicating the withdrawal to the other party. Vasquez v. Ayala Corp.,443 SCRA 231 (2004).

A right of first refusal clause simply means that should the lessor decide to sell the leased propertyduring the term of the lease, such sale should first be offered to the lessee; and the series ofnegotiations that transpire between the lessor and the lessee on the basis of such preference isdeemed a compliance of such clause even when no final purchase agreement is perfected betweenthe parties. The lessor was then at liberty to offer the sale to a third party who paid a higher price, andthere is no violation of the right of the lessee. Riviera Filipina, Inv. v. Court of Appeals, 380 SCRA245 (2002).47

When a lease contract contains a right of first refusal, the lessor has the legal duty to the lesseenot to sell the leased property to anyone at any price until after the lessor made an offer to sell theproperty to the lessee and the lessee has failed to accept it. Only after the lessee has failed toexercise his right of first priority could the lessor sell the property to other buyers under the same termsand conditions offered to the lessee, or under terms and conditions more favorable to the lessor.Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).

A right of first refusal is a contractual grant, not of the sale of a property, but of the first priority tobuy the property in the event the owner sells the same. As distinguished from an option contract, in aright of first refusal, whole the object might be made determinate, the exercise of the right of firstrefusal would be dependent not only on the owners eventual intention to enter into a binding juridicalrelation with another but also on terms, including the price, that are yet to be firmed up. PolytechnicUniversity of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).

A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee.xSadhwani v. Court of Appeals, 281 SCRA 75 (1997).

4.MUTUAL PROMISES TO BUY AND SELL(Art. 1479): TRUECONTRACT TOSELL

Mutual promises to buy and sell a certain thing for a certain price gives each of the contracting

parties a right to demand from the other the fulfillment of the obligation. xBorromeo v. Franco, 5 Phil.49 (1905).

Even in this case the certainty of the price must also exist, otherwise, there is no valid andenforceable contract to sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).

An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, asa perfected contract of sale because there is already a meeting of minds upon the thing which is theobject of the contract and upon the price.48 But a contract of sale is consummated only upon deliveryand payment, whereas in a bilateral promise to buy and sell gives the contracting parties rights inpersonam, such that each has the right to demand from the other the fulfillment of their respectiveundertakings. Macion v. Guiani, 225 SCRA 102 (1993).49

The cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. Court ofAppeals, 202 SCRA 607 (1991).

B.PERFECTION STAGE (Arts. 1475, 1319, 1325 and 1326)

Sale is perfected at the moment there is a meeting of minds upon the thing which is the object of thecontract and upon the price. From that moment, the parties may reciprocally demand performancesubject to the law governing the form of contracts. xMarnelego v. Banco Filipino Savings and MortgageBank, 480 SCRA 399 (2006).50

Mutual consent being a state of mind, its existence may only be inferred from the confluence of twoacts of the parties: an offer certain as to the object of the contract and its consideration, and anacceptance of the offer which is absolute in that it refers to the exact object and consideration embodiedin said offer.xVillanueva v. PNB, 510 SCRA 275 (2006).51

If a material element of a contemplated contract is left for future negotiations, the same is tooindefinite to be enforceable. For a contract to be enforceable, its terms must be certain and explicit, not

vague or indefinite. xBoston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).

So long as there is any uncertainty or indefiniteness, or future negotiations or consideration yet tobe had between the parties, there is no contract at all. xMoreno, Jr. v. Private Management Office, 507SCRA 63 (2006).

The essence of consent is the conformity of the parties on the terms of the contract, that is, theacceptance by one of the offer made by the other. However, the acceptance must be absolute;

46Rosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001); Conculada v. CA, 367 SCRA 164 (2001); Polytechnic University v. CA,368SCRA691

(2001); Riviera Filipina, Inv. v. Court of Appeals, 380 SCRA 245 (2002); Lucrative Realty and Dev. Corp. v. Bernabe, Jr., 392 SCRA 679 (2002);Villegas v. Court of Appeals, 499 SCRA 276 (2006);Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478(2010).

47Polytechnic University v. CA,368SCRA691(2001);Villegas v. CA, 499 SCRA 276 (2006).

48El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960).

49Borromeo v. Franco, 5 Phil. 49 (1905); Villamor v. CA, 202 SCRA 607 (1991); Coronel v. CA, 263 SCRA 15 (1996).50

Valdez v. Court of Appeals, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); Ainza v. Padua, 462 SCRA 614 (2005);Cruz v. Fernando, 477 SCRA 173 (2005).

51Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).

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otherwise, the same constitutes a counter-offer and has the effect of rejecting the offer. XYST Corp. v.DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009).

1.Absolute Acceptance of a Certain Offer(Art. 1475)

Under Article 1319, the acceptance of an offer must therefore be unqualified and absolute. In otherwords, it must be identical in all respects with that of the offer so as to produce consent or meeting ofthe minds. This was not the case herein considering that petitioners acceptance of the offer wasqualified, which amounts to a rejection of the original offer. Limketkai Sons Milling, Inc. v. Court ofAppeals, 255 SCRA 626 (1996).

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and arejection of the original offer. The acceptance must be identical in all respects with that of the offer soas to produce consent or meeting of minds. Manila Metal Container Corp. v. PNB, 511 SCRA 444(2006).52

Placing the word Noted and signing such note at the bottom of the written offer cannot beconsidered an acceptance that would give rise to a valid contract of sale. xDBP v. Ong, 460 SCRA 170(2005).

If sale subject to suspensive condition: No perfected sale of a lot where the award thereof wasexpressly made subject to approval by the higher authorities and there eventually was no acceptancemanifested by the supposed awardee. xPeople's Homesite & Housing Corp. v. CA, 133 SCRA 777

(1984).

2. When Deviation Allowed:

It is true that an acceptance may contain a request for certain changes in the terms of the offerand yet be a binding acceptance, so long as it is clear that the meaning of the acceptance ispositively and unequivocally to accept the offer, whether such request is granted or not, a contract isformed. The vendors change in a phrase of the offer to purchase, which change does not essentiallychange the terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer. Villonco v. Bormaheco, 65 SCRA 352 (1975).53

3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)

The terms and conditions provided by the owner of property to be sold at auction are bindingupon all bidders, whether they knew of such conditions or not. xLeoquinco v. Postal Savings Bank,

47 Phil. 772 (1925).

An auction sale is perfected by the fall of the hammer or in other customary manner and it doesnot matter that another was allowed to match the bid of the highest bidder. xProvince of Cebu v.Heirs of Rufina Morales, 546 SCRA 315 (2008).

4.Earnest Money(Art. 1482)

Earnest money given by the buyer shall be considered as part of the price and as proof of theperfection of the contract. It constitutes an advance payment to be deducted from the total price.xEscueta v. Lim, 512 SCRA 411 (2007).

Absent proof of the concurrence of all the essential elements of a contract of sale, the giving ofearnest money cannot establish the existence of a perfected contract of sale. Manila MetalContainer Corp. v. PNB, 511 SCRA 444 (2006).

54

Article 1482 does not apply when earnest money given in a contract to sell xSerrano v. Caguiat,517 SCRA 57 (2007), especially where by stipulation the buyer has the right to walk away from thetransaction, with no obligation to pay the balance, although he will forfeit the earnest money. x Chua v.Court of Appeals, 401 SCRA 54 (2003).55

Whenever earnest money is given in a contract of sale, it shall be considered as part of the priceand as proof of the perfection of the contract. But when there is no contract of sale because the partiesnever went pass the negotiation stage, or more accurately, have not reached the perfection stage withthe present of the three essential elements of the contract of sale, the concept of earnest money iscertainly inapplicable. The earnest money forms part of the consideration only if the sale isconsummated upon full payment of the purchase price. Hence, there must first be a perfected contractof sale before we can speak of earnest money. xGSIS v. Lopez, 592 SCRA 456 (2009).56

When there is no provision for forfeiture of earnest money in the event the sale fails to materialize,then with the rescission it becomes incumbent upon seller to return the earnest money as legalconsequence of mutual restitution.xGoldenrod, Inc. v. Court of Appeals, 299 SCRA 141 (1998).

5. Difference Between Earnest Money and Option Money. Oesmer v. Paraiso Dev. Corp., 514SCRA 228 (2007).

6. Sale Deemed Perfected Where Offer Was Made. (Art. 1319)

C. FORMAL REQUIREMENTS OF SALES (Arts. 1357, 1358, 1406 and 1483)

52Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326 (1923).

53Reiterated in Limketkai Sons Milling, Inc. v. Court of Appeals, 250 SCRA 523 (1995), but reversed in 255 SCRA

54Limjoco v. CA, 37 SCRA 663 (1971); Villonco v. Bormaheco, 65 SCRA 352 (1975); Spouses Doromal, Sr. v. CA, 66 SCRA 575 (1975); PNB v.

CA, 262 SCRA 464 (1996); San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000); Platinum Plans Phil. Inc. v. Cucueco, 488SCRA 156 (2006).

55San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000).

56XYST Corp. DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009).

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1. Form Not Important for Validity of Sale

Sale of land under private instrument is valid. Gallar v. Husain, 20 SCRA 186 (1967).57

Articles 1357 and 1358, in relation to Art. 1403(2), require that the sale of real property must be inwriting for it to be enforceable, it need not be notarized for there is nothing in those provisions whichrequire that it must be executed in a public document to be valid. x Martinez v. CA, 358 SCRA 38(2001);58 but both its due execution and its authenticity must be proven, pursuant to Sec. 20, Rule 132of the Rules of Court.xTigno v. Aquino, 444 SCRA 61 (2003).

Although the conveyance of land is not made in a public document, it does not affect the validity ofsuch conveyance. Article 1358 of the Civil Code does not require the accomplishment of the acts orcontracts in a public instrument in order to validate the act or contract but only to insure its efficacy.The Estate of Pedro C. Gonzales v. Their Hiers of Marcos Perez, 605 SCRA 47 (2009).

a. Other Rulings on Deeds of Sale:

Seller may agree to a deed of absolute sale before full payment of the purchase price. x Pan PacificIndustrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

Assuming that the buyers failed to pay the full price stated in the Deed of Sale, such partial failure wouldnot render the sale void. Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

That marital consent was executed prior to the Deed of Absolute Sale does not indicate that it is a phoney.Pan Pacific Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

A Deed of Sale when acknowledged before a notary public, enjoys the presumption of regularity and dueexecution. To overthrow that presumption, sufficient, clear and convincing evidence is required, otherwisethe document should be upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

59

Notarization of Deeds of Sale by one who was not a notary public does not affect the validity thereof; saiddocuments were merely converted into private documents. xR.F. Navarro & Co. Inc. v. Vailoces, 361SCRA 139 (2001).

Notarization of a deed of sale does not guarantee its validity nor is it conclusive of the true agreement ofthe parties thereto, because it is not the function of the notary public to validate an instrument that wasnever intended by the parties to have any binding legal effect.xSalonga v. Concepcion, 470 SCRA 291(2005).

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Buyers immediate taking of possession of subject property corroborates the truthfulness and authenticityof the deed of sale. xAlcos v. IAC, 162 SCRA 823 (1988). Conversely, the sellers continued possession ofthe property makes dubious the contract of sale between them. xSantos v. Santos, 366 SCRA 395

(2001).

61

Any substantial difference between the terms of the Contract to Sell and the concomitant Deed of Absolute

Sale (such as difference in subject matter, and difference in price and/or the terms thereof), does not makethe transaction between the seller and the buyer void, for it is truism that the execution of the Deed ofAbsolute Sale effectively rendered the previous Contract to Sell ineffective and cancelled [through theprocess of novation].xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).

b. Value of Business Forms to Prove Sale

Business forms, e.g., order slip, delivery charge invoice and the like, which are issued by theseller in the ordinary course of the business are not always fully accomplished to contain all thenecessary information describing in detail the whole business transactionmore often than notthey are accomplished perfunctorily without proper regard to any legal repercussion for suchneglect such that despite their being often incomplete, said business forms are commonly

recognized in ordinary commercial transactions as valid between the parties and at the very leastthey serve as an acknowledgment that a business transaction has in fact transpired. xDonato C.Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).

These documents are not mere scraps of paper bereft of probative value but vital pieces ofevidence of commercial transactions. They are written memorials of the details of theconsummation of contracts. xLagon v. Hooven Comalco Industries, Inc., 349 SCRA 363 (2001).

2. WHEN FORM IMPORTANT IN SALE

a. To Bind Third Parties

Article 1358 which requires the embodiment of certain contracts in a public instrument is onlyfor convenience, and registration of the instrument only adversely affects third parties. Formalrequirements are, therefore, for the benefit of third parties; and non-compliance therewith does not

adversely affect the validity of the contract nor the contractual rights and obligations of the partiesthereunder. Fule v. CA, 286 SCRA 698 (1998);62Dalion v. CA, 182 SCRA 872 (1990).63

Article 1358 of the Civil Code which requires the embodiment of certain contracts in a publicinstrument, in only for convenience; and registration of the instrument only adversely affects thirdparties, and non-compliance therewith does not adversely affect the validity of the contract or the

57F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902).

58Heirs of Biona v. CA, 362 SCRA 29 (2001); The Estate of Pedro C. Gonzales v. The Heirs of Marcos Perez, 605 SCRA 47 (2009).

59Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong, 491 SCRA 581 (2006); Tapuroc v. Loquellano Vda. De Mende, 512 SCRA 97

(2007);Alfaro v. Court of Appeals, 519 SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of Benedicto Pedrano, 539SCRA 401 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008).

60Nazareno v. CA, 343 SCRA 637 (2000); Santos v. Heirs of Jose P. Mariano, 344 SCRA 284 (2000)61

Domingo v. CA, 367 SCRA 368 (2001).62

Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002).63

Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995);Agasen v. CA, 325 SCRA 504 (2000).

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contractual rights and obligations of the parties thereunder. xEstreller v. Ysmael, 581 SCRA 247(2009).64

While sale of land appearing in a private deed is binding between the parties, it cannot beconsidered binding on third persons, if it is not embodied in a public instrument and recorded in theRegistry of Deeds. Secuya v. Vda. De Selma, 326 SCRA 244 (2000).65

b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)

The term Statute of Frauds is descriptive of the statutes which require certain classes ofcontracts, such as agreements for the sale of real property, to be in writing, the purpose being toprevent fraud and perjury in the enforcement of obligations depending for their evidence on theunassisted memory of witnesses by requiring certain enumerated contracts and transactions to beevidenced by a writing signed by the party to be charged. Shoemaker v. La Tondea, 68 Phil. 24(1939).

Presupposes Valid Contract of Sale The application of the Statute of Frauds presupposesthe existence of a perfected contract. When the records show that there was no perfected contractof sale, there is no basis for the application of the Statute of Frauds. xFirme v. Bukal Enterprisesand Dev. Corp., 414 SCRA 190 (2003).66

(1) Coverage:

(i) Sale of Real Property A sale of realty cannot be proven by means of witnesses, but must necessarilybe evidenced by a written instrument, duly subscribed by the party charged, or by secondary evidence

of the contents of such document. No other evidence can be received except the documentaryevidence referred to. xGorospe v. Ilayat, 29 Phil. 21 (1914).

67

(ii)Agency to Sell or to Buy As contrasted from sale, an agency to sell does not belong to any of thethree categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under theStatutes of Frauds in Art. 1403. xLim v. Court of Appeals, 254 SCRA 170 (1996).

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(iii) Rights of First Refusal A right of first refusal is not covered by the statute of frauds. Furthermore,Art. 1403(2)(e) of Civil Code presupposes the existence of a perfected, albeit unwritten, contract ofsale; a right of first refusal, such as the one involved in the instant case, is not by any means a

perfected contract of sale of real property.xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).

(iv) Equitable Mortgage Statute does not stand in the way of treating an absolute deed as a mortgage,when such was the parties intention, although the agreement for redemption or defeasance is proved

by parol evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).

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(v) Right to Repurchase The deed of sale and the verbal agreement allowing the right of repurchase

should be considered as an integral whole; the deed of sale is itself the note or memorandumevidencing the contract. xMactan Cebu International Airport Authority v. Court of Appeals, 263 SCRA736 (1996).

(2) Memorandum (Yuviengco v. Dacuycuy, 104 SCRA 668 [1981];

Under Article 1403, an exception to the unenforceability of contracts pursuant to the Statuteof Frauds is the existence of a written note or memorandum evidencing the contract. Thememorandum may be found in several writings, not necessarily in one document. Thememorandum or memoranda is/are written evidence that such a contract was entered into. Theexistence of a written contract of the sale is not necessary so long as the agreement to sell realproperty is evidenced by a written note or memorandum, embodying the essentials of thecontract and signed by the party charged or his agent. Limketkai Sons Milling, Inc. v. CA, 250SCRA 523 (1995).

BUT:The memoranda must be signed by the party sought to be charged, and must clearlyprovide a deed of sale categorically conveying the subject property. Limketkai Sons Milling,Inc. v. CA,255 SCRA 6 (1996); 261 SCRA 464 (1996).

For the memorandum to take the sale out of the coverage of the Statute of Frauds, it mustcontain all the essential terms of the contract of sale. xTorcuator v. Bernabe, 459 SCRA 439(2005),70 even when scattered into various correspondences which can be brought togetherxCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).71

EXCEPTION:Electronic Documents under the E-COMMERCE ACT(R.A.8792)

(3) Partial Execution (Art. 1405) Ortega v. Leonardo, 103 Phil. 870 (1958);Claudel v. Court

of Appeals, 199 SCRA 113 (1991).

Delivery of the deed to buyers agent, with no intention to part with the title until the purchaseprice is paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila RailroadCo., 46 Phil. 964 (1924).

The Statute of Frauds does not apply to contracts either partially or totally performed. Inaddition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefits

64Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002).

65Talusan v. Tayag, 356 SCRA 263 (2001); Santos v. Manalili, 476 SCRA 679 (2005).

66Rosencor Development Corp. v. Inquing, 354 SCRA 119 (2001).

67Alba Vda. De Ray v. Court of Appeals, 314 SCRA 36 (1999).

68Torcuator v. Bernabe, 459 SCRA 439 (2005).

69Rosales v. Suba, 408 SCRA 664 (2003);Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).70

Paredes v. Espino, 22 SCRA 1000 (1968).71

Berg v. Magdalena Estate, Inc., 92 Phil. 110 (1952); Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); First Philippine Intl Bank v. CA,252 SCRA 259 (1996).

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under the contract, such as the acceptance of the purchase price and using the proceeds to payoutstanding loans. Alfredo v. Borras, 404 SCRA 145 (2003).72

(4) Waiver (Art. 1405) Cross-examination on the contract is deemed a waiver of the defense ofthe Statute.xAbrenica v. Gonda, 34 Phil. 739 (1916); Talosig v. Vda. De Nieba, 43 SCRA 472(1972).73

When the purported buyers exhibits failed to establish the perfection of the contract of sale,

oral testimony cannot take their place without violating the parol evidence rule. It was thereforeirregular for the trial court to have admitted in evidence testimony to prove the existence of acontract of sale of a real property between the parties, despite thepersistent objection made bythe purported sellers counsel as early as the first scheduled hearing, even when cross-examination was made on the basis of the witnesses affidavit-form testimony. LimketkaiSons Milling, Inc. v. CA,255 SCRA 6 (1996); 261 SCRA 464 (1996).

(5) Rulings on Receipts and Other Documentary Evidence of Sale

Since a contract of sale is perfected by mere consent, then when the dealer of motorvehicles accepts a deposit of P50,0000 and pulls out a unit from the assembler for that purpose,it was in breach of contract when it sold the car subsequently to another buyer. xXentrexAutomotive, Inc. v. Court of Appeals, 291 SCRA 66 (1998).

A sales invoice is a commercial document-commercial documents or papers are those usedby merchants or businessmen to promote or facilitate trade or credit transactionsthey are notmere scraps of paper bereft of probative value, but vital pieces of evidence of commercialtransactions, written memorials of the details of the consummation of contracts. SeaiolPetroleum Corp. v. Autocorp Group, 569 SCRA 387 (2008).

Sales invoices are not evidence of payment of the price, but evidence of the receipt of thegoods; since the best evidence to prove payment is the official receipt. El Oro Engravers Corp.v. Court of Appeals, 546 SCRA 42 (2008).

A receipt which is merely an acknowledgment of the sum received, without any indicationtherein of the total purchase price of the land or of the monthly installments to be paid, cannotbe the basis of valid sale. xLeabres v. CA, 146 SCRA 158 (1986).74

In itself, the absence of receipts, or any proof of consideration, would not be conclusive of

the inexistence of a sale since consideration is always presumed. xTigno v. Aquino, 444 SCRA61 (2003).

Receipts proves payment which takes the sale out of the Statute of Frauds. Toyota Shaw,Inc. v. Court of Appeals, 244 SCRA 320 (1995).

c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)

When sale of a piece of land or any interest therein is through an agent, the authority of the lattershall be in writing; otherwise, the sale shall be void,75 even when:

Agent is the son of the owner. xDelos Reyes v. CA, 313 SCRA 632 (1999)

There is partial payment of the price received by the supposed agent. xDizon v. CA, 396 SCRA 154(2003).

76

In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325 SCRA 385 (2000).

77

When Contract to Sell was signed by the co-owners themselves as witnesses, the written

authority for their agent mandated under Article 1874 of the Civil Code is no longer required. xOesmerv. Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).

c. Sale of Large Cattle (Art. 15851; Sec. 529, Revised Adm. Code)

XD.SIMULATED SALES

Characteristic of simulation is that the apparent contract is not really desired or intended to producelegal effect or in any way alter the parties juridical situation, or that the parties have no intention to bebound by the contract. The requisites are: (a) an outward declaration of will different from the will of theparties; (b) false appearance must have been intended by mutual agreement; and (c) purpose is todeceive third persons. xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).78

1.Badges and Non-badges of Simulation:

Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their alleged

rights over the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).79

Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98 (1997); but not

when there appears a legitimate lessor-lessee relationship between the vendee and the vendor. xUnion Bankv. Ong, 491 SCRA 581 (2006).

72Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Soliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003);Ainza v. Padua, 462

SCRA 614 (2005); De la Cena v. Briones, 508 SCRA 62 (2006); Yaneza v. Court of Appeals, 572 SCRA 413 (2008).73

Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); Lacanilao v. CA, 262 SCRA 486 (1996).74

Limson v. CA, 357 SCRA 209 (2001).75Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. V. Pajo-Reyes, 632 SCRA 400 (2010).

76Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).

77Pineda v. CA, 376 SCRA 222 (2002).78

Rosario v. CA, 310 SCRA 464 (1999); Loyola v. CA, 326 SCRA 285 (2000); Yu Bun Guan v. Ong, 367 SCRA 559 (2001); Payongayong v. CA,430 SCRA 210 (2004).

79Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008).

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Although the agreement did not provide for the absolute transfer ownership of the land to buyer, that did not

amount to simulation, since delivery of certificate of ownership and execution of deed of absolute sale wereexpressly stipulated as suspensive conditions, which gave rise to the corresponding obligation on part ofbuyer to pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997).

When signature on a deed of sale is a forgery. Fidel v. Court of Appeals, 559 SCRA 186 (2008).80

But bare

assertions that the signature appearing on the Deeds of Sale is not that of her husband is not enough toallege simulation, since forgery is not presumed; it must be proven by clear, positive and convincingevidence.xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).

Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects theconcept of a simulated sale is incompatible with inadequacy of price. When the parties to an alleged contractdo not really intend to be bound by it, the contract is simulated and void. Gross inadequacy of price by itselfwill not result in a void contract, and it does not even affect the validity of a contract of sale, unless it signifiesa defect in the consent or that the parties actually intended a donation or some other contract. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

2.When Motive Nullifies the Sale

In sale, consideration is, as a rule, different from the motive of parties, and when the primarymotive is illegal, such as when the sale was executed over a land to illegally frustrate a person's rightto inheritance and to avoid payment of estate tax, the sale is void because illegal motivepredetermined purpose of the contract. xOlegario v. CA, 238 SCRA 96 (1994).81

Where the parties to a contract of sale agreed to a consideration, but the amount reflected in thefinal Deed of Sale was lower, their motivation being to pay lower taxes on the transaction, thecontract of sale remains valid and enforceable upon the terms of the real consideration. Althoughillegal, the motives neither determine nor take the place of the consideration. xHeirs of SpousesBalite v. Lim, 446 SCRA 54 (2004).

An action or defense for the declaration of the inexistence of a contract is imprescriptible. On theother hand, an action to rescind is founded upon and presupposes the existence of a contract. Acontract which is null and void is no contract at all and hence could not be the subject of rescission.xCampos v. Pastrana, 608 SCRA 55 (2009).

3. Remedies Allowed When Sale Simulated

When a contract of sale is void, the right to set up its nullity or non-existence is available to thirdpersons whose interests are directly affected thereby. Likewise, the remedy of accion pauliana is

available when the subject matter is a conveyance, otherwise valid, undertaken in fraud of creditors.xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).

The rescissory action to set aside contracts in fraud of creditors is accion pauliana, essentially asubsidiary remedy accorded under Article 1383 which the party suffering damage can avail of onlywhen he has no other legal means to obtain reparation for the same. In such action, it must be shownthat both contracting parties have acted maliciously so as to prejudice the creditors who wereprevented from collecting their claims. Rescission if generally unavailing should a third person, acting ingood faith, is in lawful possession of the property since he is protect by law against a suit for rescissionby the registration of the transfer to him in the registry. xUnion Bank v. Ong, 491 SCRA 581 (2006).

4. Effect When Sale Declared Void:

The action for the declaration of the contracts nullity is imprescriptiblean action for reconveyance of

property on a void contract of sale does not prescribe. Fil-Estate Golf and Dev., Inc. v. Navarro, 526 SCRA 51(2007).

Possessor is entitled to keep the fruits during the period for which the buyer held the property in good faith.

xDBP v. CA, 316 SCRA 650 (1999).

Then restoration of what has been given is in order, since the relationship between parties in any contracteven if subsequently voided must always be characterized and punctuated by good faith and fair dealing.xDe los Reyes v. CA, 313 SCRA 632 (1999); xHeirs of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97(2003).

Alien who purchases land in the name of his Filipina lover, has no standing to seek legal remediesto either recover the property or the purchase price paid, since the transaction is void ab initio for beingin violation of the constitutional prohibition.xFrenzel v. Catito, 406 SCRA 55 (2003).

VI. CONSUMMATION (Arts. 1493-1506) ANDPERFORMANCE OF CONTRACT OF SALE (Arts. 1536-1544, 1582-1590)

A. OBLIGATIONS OF SELLER

1. Preserve Subject Matter (Art. 1163)

2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)

3.DELIVER THE SUBJECT MATTER (Art. 1477)

a. Legal Premises for Doctrines on Tradition

80Rufloe v. Burgos, 577 SCRA 264, 272-273 (2009).

81Uy v. CA, 314 SCRA 69, 81 (1999).

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When the sale is void or fictitious, no valid title over the subject matter can be conveyed tothe buyer even with delivery. Nemo potest nisi quod de jure potest No man can do anythingexcept what he can do lawfully. xTraders Royal Bank v. CA, 269 SCRA 15 (1997).

When seller had no ownership over the subject matter at the time of delivery, no valid titlecan pass in favor of the buyer. Nemo dat quod non habet No man can give that which he doesnot have. xTsai v. CA, 366 SCRA 324 (2001).82

A forged deed of sale is null and void and conveys no title. It is a well-settled principle that no

one can give what one does not have, nemo dat quod non habet. One can sell only what oneowns or is authorized to sell, and the buyer can acquire no more right than what the seller cantransfer legally.xRufloe v. Burgos, 577 SCRA 264, 272-273 (2009).

Article 1459 of the Civil Code on contracts of sale specifically requires that the vendor musthave ownership of the property at the time it is delivered. xHeirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211, 220-221 (2008).

A contract to sell, or a condition contract of sale where the suspensive condition has nothappened, even when found in a public document, cannot be treated as constituting constructivedelivery, especially when from the face of the instrument it is shown that the seller was not yetthe owner of the property and was only expecting to inherit it. (at p. 221) Heirs of Arturo Reyes v.Socco-Beltran, 572 SCRA 211 (2008).

One can sell only what one owns or is authorized to sell, and the buyer can acquire no morethan what the seller can transfer legally. Daclag v. Macahilig, 560 SCRA 137 (2008).

A tax declaration, by itself, is not considered conclusive evidence of ownership it is merelyan indicium of a claim of ownership. Daclag v. Macahilig, 560 SCRA 137 (2008).Neverthelesswhen at the time of delivery there is no proof that the seller had ownership and as in fact the taxdeclaration to the subject property was in the name of another person, then there was no transferof ownership by delivery. xHeirs of Severina San Miguel v. C