LAW ON SALES

(Jurisprudence)
NATURE OF THE CONTRACT OF SALE
Coronel v. Court of Appeals, enumerates the essential elements of a valid
contract of sale to consist of the following:
a) Consent
b) Subject Matter
c) Price, certain in money or its equivalent
Dizon v. Court of Appeals, holds that all three elements of consent, subject
matter and consideration must be present for a valid sale to exist; and that in a situation
where any of the elements is not present, “[t]there was no perfected contract of sale,”
and that “the absence of any of these essential elements negates the existence of a
perfected contract of sale, rather than using the technical term “void.”
In Manila Container Corp. v. PNB, the Court held that absence of the
concurrence of all the essential elements, the giving of earnest money cannot establish
the existence of a perfected contract of sale.
CHARACTERISTICS OF A SALE
In Lao v. Court of Appeals, the Court held that in determining the nature of a
contract, the courts look at the intent of the parties and not at the nomenclature used to
describe it, and that pivotal to deciding such issue is the true aim and purpose of the
contracting parties as shown by the terminology used in the covenant, as well as “by
their conduct, words, actions and deeds prior to, during and immediately after
executing the agreement.”
Buenaventura v. Court of Appeals, held that a sale over a subject matter is
not a real contract, but a consensual contract, which becomes a valid and binding
contract upon the meeting of the minds as to the price. Once there is a meeting of the
minds as to the price, the sale is valid, despite the manner of its actual payment, or even
when there has been breach thereof. If the real price is not stated in the contract, then
the sale is valid but subject to reformation; if there is no meeting of the minds as to the
price, because the price stipulated is simulated, then the contract is void.
Fule v. Court of Appeals, in explaining the nature of a sale as a consensual
contract, noted that “[f]ormal requirements are, therefore, for the benefit of third
parties,” but as to the immediate parties to the sale, “[n]on-compliance therewith does
not adversely affect the validity of the contract nor the contractual rights and
obligations of the parties thereunder.”
The consensual characteristic of sale can be affected by modalities that by
stipulation may be added into the contractual relationship, such as a suspensive term or
condition. Biñan Steel Corp. v. Court of Appeals, reminds us that “even if
consensual, not all contracts of sale become automatically and immediately effective. . .
In sales with assumption of mortgage, the assumption of mortgage is a condition
precedent to the seller’s consent and therefore, without approval of the mortgagee, the
sale is not perfected.”
On the other hand, National Housing Authority v. Grace Baptist
Church, demonstrates clearly that even the delivery and taking possession of the
subject matter by the buyer with the knowledge or consent of the seller, would not bring
about the perfection and binding effect of the sale, when the meeting of the minds is
incomplete, there being no agreement yet on the final price.
Carrascoso, Jr. v. Court of Appeals, held that since a sale is constituted of
reciprocal obligations, then “[t]he right of rescission of a party to an obligation under
Article 1191 is predicated on a breach of faith by the other party who violates the
reciprocity between them.”
In Gaite v. Fonacier, the Court ruled that the stipulation in a contract of sale
on the payment of the balance of the purchase price must be deemed to cover a
suspensive period rather than a condition since “there can be no question that greater
reciprocity obtains if the buyer’s obligation is deemed to be actually existing, with only
its maturity (due date) postponed or deferred, than if such obligation were viewed as
non-existing or not binding until the ore was sold.” The Court held that the rules of
interpretation would incline the scales in favor of “the greater reciprocity of interests,”
since sale is essentially an onerous contract.
In Acap v. Court of Appeals, the Court held that an asserted right or claim to
ownership, or a real right over a thing arising from a juridical act, is not per se sufficient
to give rise to ownership over the thing; that right or title must be completed by
fulfilling certain conditions imposed by law: “Hence, ownership and real rights are
acquired only pursuant to a legal mode or process. While title (such as sale) is the
juridical justification, mode (like delivery) is the actual process of acquisition or transfer
of ownership over a thing.”
Acap held that the “Declaration of Heirship and Waiver of Rights” executed by
the heirs waiving their inheritance rights in favor of a non-heir cannot be deemed a
proper mode to affect title to the land involved because waiver of inheritance right can
only be done in favor of another heir; whereas, it could not also be considered a sale
contract because the document did not provide for the element of price, which is
required for a valid sale under Article 1458 of the Civil Code.
SALE DISTINGUISHED FROM OTHER CONTRACTS
In Santos v. CA, the Court held that “[A] contract is what the law defines it to
be, taking into consideration its essential elements, and not what the contracting parties
call it. The transfer of ownership in exchange for a price paid or promised is the very
essence of a contract of sale.”
 As observed in Manongsong v. Estimo, unlike in a donation by the decedent,
a valid sale cannot have the legal effect of depriving the compulsory heirs of their
legitimes: “As opposed to a disposition inter vivos by lucrative or gratuitous title, a valid
sale for valuable consideration does not diminish the estate of the seller. When the
disposition is for valuable consideration, there is no diminution of the estate but merely
substitution of values, that is, the property sold is replaced by the equivalent monetary
consideration.”
In Carloz v. Romil, the Court held that solemnities provided for by the Law on
Donations are wholly irrelevant, even if the contract is called a “donation”; and since the
relationship is governed by the Law on Sales, the perfection and enforceability of the
contract happen upon consent.
Lo v. KJS Eco-Formwork System Phil., Inc., holds that in order that there
be a valid dation in payment, there must be:
a) Performance of the prestation in lieu of payment (animo solvendi) which may
consist in the delivery of a corporeal thing or a real right or a credit against the
third person;
b) Some difference between the prestation due and that which is given in
substitution (aliud pro alio); and
c) An agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a presentation different from that
due.
Lo also holds that in dacion en pago “[t]he undertaking really partakes in one
sense of the nature of sale, that is, the creditor is really buying the thing or property of
the debtor, payment for which is to be charged against the debtor’s debt. As such, the
vendor in good faith shall be responsible, for the existence and legality of the credit at
the time of the sale but not for the solvency of the debtor, in specified circumstances.”
In Vda. De Jayme v. Court of Appeals, the Court observed that in its
modern concept, what actually takes place in dacion en pago is an objective novation of
the obligation where the thing offered as an accepted equivalent of the performance of
an obligation is considered as the object of the contract of sale while the debt is
considered as the purchase price; that is why the elements of sale must be present,
including a clear agreement that the things offered is accepted for the extinguishment of
the debt.
It must be emphasized, however, that dacion en pago considerations are not in
the realm of perfection of contract, but rather in the stage of consummation, for indeed
dacion en pago is by defi nition a special mode of payment, whereby the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. Consequently, prior to delivery of the subject matter to constitute the dation in
payment, the agreement does not necessarily constitute a separate contract, but only an
arrangement by which an existing obligation may be extinguished.
 It must be noted that there is an implication in Social Security System v.
Atlantic Gulf and Pacific Company of Manila, Inc., that would consider the
mere agreement to dacion en pago identifying a particular parcel of land as the means
to extinguish an obligation as already constituting a new contract of sale that is subject
to specific performance. Quoting from the earlier decision in Vda. De Jayme v. Court of
Appeals, Atlantic Gulf which part held:
... In its modern concept, what actually takes place in dacion en pago is
an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as
the purchase price. In any case, common consent if an essential
prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.

The Court in Atlantic Gulf went on to rule that “This statement unequivocally
evinces its consent to the dacion en pago ... The controversy, instead, lies in the non-
implementation of the approved and agreed dacion en pago on the part of the SSS. As
such, respondents fi led a suit to obtain its enforcement which is, doubtless, a suit for
specific performance and one incapable of pecuniary estimation beyond the competence
of the Commission.” It should be noted that Atlantic Gulf did not categorically rule that
a mere agreement to effect a dacion en pago which has not been implemented can
successfully be the subject of an action for specific performance, since the ruling only
centered around which tribunal had jurisdiction on such cause of action.
The similarity between a sale and a contract for a piece of work has been
recognized in Commissioner of Internal Revenue v. Court of Appeals and
Ateneo de Manila University. The Court held that the research output delivered by
the Institute of Philippine Culture of the Ateneo de Manila University pursuant to an
endowment or grant given by sponsors cannot be considered a sale nor a contract for a
piece-of-work, since: “Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale. 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.”
In the early case of Inchausti & Co. v. Cromwell, the issue was whether the
seller could be made liable for sales tax on the price it received from bailing the hemp
that it sold to its customers. The seller contended that the charge for bailing is to be
treated not as part of the sale but as a charge for the service of bailing the hemp.
Inchausti & Co. held that the distinction between a sale and a contract for work,
labor, and materials is tested by the inquiry of whether the thing transferred is one not
in existence and which never would have existed but for the order of the party desiring
to acquire it, or a thing which would have existed and been the subject of sale to some
other person, even if the order had not been given. In that case, the Court held that the
hemp was in existence in baled form before the agreements of sale were made, or, at
least, would have been in existence even if none of the individual sales in question had
been consummated; and that it would have been baled, nevertheless, for sale to
someone else, since it was proven customary to sell hemp in bales.
Subsequently, Article 1467 of the Civil Code gave the statutory rules in
distinguishing a sale from a contract for a piece of-work, employing language similar to
the Inchausti & Co. ruling, thus:
ART. 1467. A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his business
manufactures or procures for the general market whether the
same is on hand at the time or not, is a contract of sale, but if the
goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it is a
contract for a piece of work. (n)
which gives two tests for distinction:
a) Manufacturing in the ordinary course of business to cover sales contracts; and
b) Manufacturing upon special order of customers, to cover contracts for piece-of-
work.
The jurisprudential doctrine that became the basis of Article 1467 therefore
indicated that the term “upon special order” is really based on the ability of the producer
to manufacture the goods in the condition that they customarily are without having to
wait for specific orders from customers.
In Celestino Co v. Collector of Internal Revenue, a duly registered co-
partnership did business under the trade name “Oriental Sash Factory.” Although in
previous years it paid the higher sales taxes on the gross receipts of its sash, door and
window factory as a manufacturer-seller (i.e., sales tax), in 1952 it began to claim tax
liability only to the lower contractor’s tax (i.e., for a piece-of-work). The company
averred and adduced evidence to show that since it manufactured sash, windows and
doors only for special customers and upon their special orders and in accordance with
the desired specifications and not for the general public, its contractual relations with its
customers was that of a contract for a piece-of-work. Notice that in Celestino Co the
thrust of the taxpayer position in the implementation of the “upon special order” test
was more of timing, rather than by necessity: that if the manufacture of goods is made
always upon or after the orders of customers and on the basis of their specifications, the
underlying relationship would be that of a contract for a piece-of work.
The Court held that the company could not claim the lower contractor’s tax, and
that it was actually a manufacturer, with its sales subject to the higher sales tax, taking
into consideration the following:
a) The Company habitually made sash, windows and doors, as it had represented
itself as manufacturer (factory) in its stationery and in advertisements to the
public;
 b) That the products were made only when customers placed their orders, did not
alter the nature of the establishment, for it was obvious that fulfilling the order,
only required the employment of such materials-moldings, frames, panels as it
ordinarily manufactured or was in a position to habitually manufacture; and
c) The nature of the products manufactured was such that “[a]ny builder or
homeowner, with suffi cient money, may order windows or doors of the kind
manufactured,” and it was not true that it served special customers only or confi
ned its services to them alone, and that it was possible for the company to “easily
duplicate or even mass-produce the same doors – it is mechanically equipped to
do so.”
Celestino Co recognized that the essence of a contract for a piece-of-work is the
“sale of service” unlike in a sale where the essence is the sale of an object. It also
conceded that if the company “accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by it — it thereby
contracts for a piece of work — fi lling special orders within the meaning of Article
1467.” In that case, however the Court found that the orders exhibited were not shown
to be special: “They were merely orders for work — nothing is shown to call them special
requiring extraordinary service of the factory.”
Celestino Co implies that the test of “special orders” under Article 1467 of the
Civil Code is not one of timing, or habit, but actually must be drawn from the nature of
the work to be performed and the products to be made: it must be of the nature that the
products are not ordinary products of the manufacturer, and they would require the use
of extraordinary skills or equipment, if to be performed by a manufacturer.
In Commissioner of Internal Revenue v. Engineering Equipment and
Supply Company, the Engineering Equipment and Supply Company (EEI), which
was engaged in the design and installation of central type air-conditioning system, was
assessed the advance sales tax for its importation of parts and materials as a
manufacturer and seller of the central air-conditioning system, instead of the
compensating tax it paid as a contractor. In countering the assessment, EEI claimed that
it is not a manufacturer and seller of air-conditioning units and spare parts or
accessories thereof, but a contractor engaged in the design, supply and installation of
the central type of air-conditioning system, “which is essentially a tax on the sale of
service or labor of a contractor rather than on the sale of articles subject.”
In resolving that EEI was a contractor and therefore subject only to the lower
compensating tax, the Court held that “[t]he distinction between a contract of sale and
one for work, labor and materials is tested by the inquiry whether the thing transferred
is one not in existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the subject of
sale to some other person even if the order had not been given.” It further explained the
test to mean: “If the article ordered by the purchaser is exactly such as the plaintiff
makes and keeps on hand for sale to anyone, and no change or modification of it is
made at defendant’s request, it is a contract of sale, even though it may be entirely made
after, and in consequence of, the defendants order for it.”
By the foregoing test, Engineering Equipment confirms the abandonment of the
timing application of the “upon special order” test under Article 1467, and that just
because the thing came into existence after, and was motivated to be produced by
reason of, a specific order, does not necessarily qualify the underlying transaction to be
a contract for a piece-of-work.
The crucial application of the “upon special order” test under Article 1467 in
Engineering Equipment was the “nature of the object” or “the test of necessity,” when it
took into consideration the nature of execution of each order.
The Court noted that EEI undertook negotiations and execution of individual
contracts for the design, supply and installation, “taking into consideration in the
process such factors as the area of the space to be air conditioned; the number of
persons occupying or would be occupying the premises; the purpose for which the
various air conditioning areas are to be used; and the sources of heat gain or cooling
load on the plant such as sun load, lighting, and other electrical appliances which are or
may be in the plan.” The Court determined that EEI “designed and engineered
completely each particular plant and that no two plants were identical but each had to
be engineered separately.” It also found that even if EEI wanted to mass-produce the
central air-conditioning system or to produce them ahead of any order of a client, it
could not do so because of the variable factors that had to be taken into consideration.
In Quiroga v. Parsons, plaintiff Quiroga granted to defendant Parsons the
right to sell as an “agent” the “Quiroga beds” in the Visayas. Parsons was obliged under
the contract to pay for the beds within a specified period after delivery even when not
yet sold, at a discount of 25% as commission for the sales. Quiroga subsequently sought
the rescission of the agreement claiming that Parsons, as agent, had violated its
obligation not to sell the beds at higher prices than those of the invoices; to open an
establishment in Iloilo; to keep the beds on public exhibition, and to pay for the
advertisement expenses incurred; and to order the beds in dozen and in no other
manner. Except for the ordering the beds in dozens, none of the other obligations
imputed to Parsons were expressly set forth in the contract to serve as a basis for
rescission based on substantial breach. However, Quiroga insisted that Parsons was his
agent, and that said obligations were implied from the commercial agency or at least
were instructed and disobeyed; in other words, he invoked the essential revocability of
agency as his legal basis to rescind the agreement.
Whether Quiroga could rescind (i.e., revoke) the contract therefore depended on
whether it was one of sale or agency to sell. The Court found the arrangement to be one
of sale since the essential clause provides that “[p]ayment was to be made at the end of
sixty days, or before, at the plaintiff’s request, or in cash, if the defendant so preferred,
and in these last two cases an additional discount was to be allowed for prompt
payment.” These conditions to the Court were “precisely the essential features of a
contract of purchase and sale” because there was the obligation on the part of the
plaintiff to supply the beds, and, on the part of the defendant, to pay their price, thus:
These features exclude the legal conception of an agency or order to sell
whereby the mandatory or agent received the thing to sell it, and does not
pay its price, but delivers to the principal the price he obtains from the sale
of the thing to a third person, and if he does not succeed in selling it, he
returns it. By virtue of the contract between the plaintiff and the defendant,
the latter, on receiving the beds, was necessarily obliged to pay their price
within the term fixed, without any other consideration and regardless as to
whether he had or had not sold the beds.

The Court also noted that merely because by their contract, the parties
designated the arrangement as an agency did not mean the characterization to be
conclusive, “[b]ut it must be understood that a contract is what the law defines it to be,
and not what it is called by the contracting parties.”
In Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company, Arco
Amusement Company had engaged the services of Gonzalo Puyat & Sons to purchase
from the Starr Piano Company in the United States specified sound reproducing
equipment. Later, when Arco found out that Puyat had quoted to Arco not the net price
but the list price, and that Puyat had received a discount from Starr Piano Company, it
sought to recover the same under the premise that being only its agent, any benefit or
profit received from the transaction must inure to Arco, as the principal.
In construing that the underlying contract between Arco and Puyat was not an
agency to buy, but rather a sale, the Court looked into the provisions of their contract,
and found that the letters between the parties clearly stipulated for fixed prices on the
equipment ordered, which “admitted no other interpretation than that the respondent
agreed to purchase from the petitioner the equipment in question at the prices indicated
which are fixed and determinate.” The Court held that “whatever unforeseen events
might have taken place unfavorable to the defendant (petitioner), such as change in
prices, mistake in their quotation, loss of the goods not covered by insurance or failure
of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff
(respondent) might still legally hold the defendant (petitioner) to the prices fixed.”
The Court held that such stipulation “is incompatible with the pretended relation
of agency between the petitioner and the respondent, because in agency, the agent is
exempted from all liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal.” Although under their
agreement, Gonzalo Puyat & Sons was entitled to receive 10% commission, the same did
not necessarily make it an agent, as the provision is only an additional price which Arco
bound itself to pay, and which stipulation was not incompatible with the contract of
purchase and sale.
Being a contract of sale and purchase, the Court also did not sustain the
allegation of fraud by Gonzalo Puyat & Sons against Arco. Firstly, it held that “the
contract is the law between the parties and should include all the things they are
supposed to have agreed upon. What does not appear on the face of the contract should
be regarded merely as ‘dealer’s’ or ‘trader’s talk,’ which cannot bind either party.”
Secondly, it held that the fact that Gonzalo Puyat & Sons obtained more or less profit
than the respondent calculated before entering into the arrangement, was no ground for
rescinding the contract or reducing the price agreed upon between them: “Not every
concealment is fraud; and short of fraud, it were better that, within certain limits,
business acumen permit of the loosening of the sleeves and of the sharpening of the
intellect of men and women in the business world.”
In Ker & Co., Ltd. v. Lingad, the company entered into a contract with an
American company, whereby Ker & Co., specifi cally designated as “Distributor,” would
receive products from the American company by way of consignment, for sale in the
Philippines. It was specifi cally stipulated in the contract that “all goods on consignment
shall remain the property of the Company until sold by the Distributor to the purchaser
or purchasers, but all sales made by the Distributor shall be in his name.” It was further
stipulated that the contract “does not constitute the Distributor the agent or legal
representative of the Company for any purpose whatsoever. Distributor is not granted
any right or authority to assume or to create any obligation or responsibility, express or
implied in behalf of or in the name of the Company, or to bind the Company in any
manner or thing whatsoever.”
The Commissioner of Internal Revenue assessed Ker & Co. liable as commercial
broker under the agreement. In finding for the Commissioner, the Court held that in
spite of the disclaimer in the agreement, it was still an agent of the American company.
The decisive test for the Court was “the retention of the ownership of the goods
delivered to the possession of the dealer, like herein petitioner, for resale to customers,
the price and terms remaining subject to the control of the fi rm consigning such goods.”
It also found significant the stipulation in the agreement that the American company “at
its own expense, was to keep the consigned stock fully insured against loss or damage by
fi re or as a result of fire, the policy of such insurance to be payable to it in the event of
loss.” Since insurable interest remained with the American company, it clearly showed
that ownership over the goods was never transferred to Ker & Co., thus:
The transfer of title or agreement to transfer it for a price paid or promised
is the essence of sale. If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor for
the agreed price, and not merely as an agent who must account for the
proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of
the principal, who remains the owner and has the right to control the sale, fi
x the price, and terms, demand and receive the proceeds less the agent’s
commission upon sales made.

Finally, in Victorias Milling Co. v. Court of Appeals, the Court held that one
of the factors that most clearly distinguishes agency from other legal concepts, including
sale, “is control; one person — the agent — agrees to act under the control of direction of
another — the principal.” In that decision, it was held that when an entity purchases
sugar under a Shipping List/Delivery Receipt from the original owner to the buyer, “for
and in our behalf,” in order to authorize the buyer to withdraw part of the merchandise
from the bailee, such did not establish an agency, since the letter to the bailee of the
original owner used clearly the words “sold and endorsed” for the document of title,
which meant clearly to cover a sale, not an agency to sell.
Filinvest Credit Corp. v. Court of Appeals, holds that when a “lease”
clearly shows that the rentals are meant to be installment payments to a sale contract,
despite the nomenclature given by the parties, it is a sale by installments.
Contract of Sale vs. Contract to Sell
Parties to the Contract of Sale
Subject Matter of the Contract of Sale
Price and Other Consideration
Advertisements, Invitations, Offers
Acceptance of Offer
Earnest Money
Option Contracts
Right of First Refusal
Letter of Intent to Buy and Sell
Form of Sales
Tradition and Delivery
Double Sales
Sale by a Non-Owner or by One Having Voidable Title
Loss and Deterioration, Fruits and Other Benefits
Obligations of the Buyer
Remedies in Cases of Movables
Recto Law
Remedies in Cases of Immovables
Maceda Law
CONDITIONS AND WARRANTIES
Conditions
Romero v. Court of Appeals, emphasized the distinction between a condition
imposed on the perfection of the contract and a condition imposed on the performance of an
obligation: The failure to comply with the first condition results in the failure of the contract,
while the failure to comply with the second condition only gives the other party the option to
either refuse to proceed with the sale or to waive the condition as mandated under Article 1545;
and that the choice is not with the obligor but with the injured party.

In Heirs of Pedro Escanlar v. Court of Appeals, where the sale contract

contained the stipulation that “this Contract of Sale of rights, interests and
participations shall become effective only upon the approval by the Honorable Court,” it
was held that the non-happening of the condition did not affect the validity of the
contract itself, thus —
There has arisen here a confusion in the concepts of validity and the efficacy
of a contract. Under Art. 1318 of the Civil Code, the essential requisites of a
contract are: consent of the contracting parties; object certain which is the
subject matter of the contract and cause of the obligation which is
established. Absent one of the above, no contract can arise. Conversely,
where all are present, the result is a valid contract. However, some parties
introduce various kinds of restrictions or modalities, the lack of which will
not, however, affect the validity of the contract.
In the instant case, the Deed of Sale, complying as it does with the essential
requisites, is a valid one. However, it did not bear the stamp of approval of
the court. This notwithstanding, the contract’s validity was not affected. ...
In other words, only the effectivity and not the validity of the contract is
affected.

David v. Tiongson, citing Escanlar, held that a stipulation that the deed of sale
and corresponding certifi cate of title would be issued after full payment, did not
prevent the perfection of a contract, which would then be a contract to sell.
On the other hand, Ramos v. Court of Appeals, held that under a “Sale with
Assumption of Mortgage,” the formal assumption of mortgage was a condition to the
seller’s consent, so that without approval by the mortgagee, no sale was perfected; and
that where the mortgagee has not approved the assumption of mortgage by the buyer,
the seller remained the owner and mortgagor of the property and retained the right to
redeem the foreclosed property. The gravamen of Ramos was not the perfection of the
valid contract of sale, but rather the effect of transfer of ownership, which goes into
consummation stage.
Power Commercial and Industrial Corp. v. Court of Appeals,
demonstrates the difference in the legal effect between a condition and a warranty:
The alleged “failure” of [sellers] to eject the lessees from the lot in question
and to deliver actual and physical possession thereof cannot be considered a
substantial breach of a condition for two reasons: first, such “failure” was
 not stipulated as a condition — whether resolutory or suspensive — in the
contract; and second, its effects and consequences were not specified either.
xxx.
If the parties intended to impose on the [sellers] the obligation to eject the
tenants from the lot sold, it should have included in the contract a provision
similar to that referred to in Romero vs. Court of Appeals, where the
ejectment of the occupants of the lot sold ... was the operative act which set
into motion the period of [buyer’s] compliance with his own obligation, i.e.,
to pay the balance of the purchase price. Failure to remove the squatters
within the stipulated period gave the other party the right to either refuse to
proceed with the agreement or to waive that condition of ejectment in
consonance with Article 1545 of the Civil Code ...
xxx.
As stated, the provision adverted to in the contract pertains to the usual
warranty against eviction, and not to a condition that was not met. The
terms of the contract are so clear as to leave no room for any other
interpretation.

Express Warranties
Carrascoso v. CA: Requisites for an express warranty in a contract of sale:
(AIR)
1. It must be an Affirmation of fact relating to the subject matter of sale;
2. Natural tendency is to Induce buyer to purchase subject matter; and
3. Buyer purchases the subject matter Relying thereon.
Investments & Development, Inc. v. Court of Appeals, which involved
the sale of agricultural land, distinguished between the legal effects of an express
warranty which provided that the subject land was “free from all liens and
encumbrances,” and another express warranty that the subject land was “free from all
liens, adverse claims, encumbrances, claims of any tenant and/or agricultural workers,
either arising as compensation for disturbance or from improvements.” It held that the
actual existence of a tenancy relationship on the subject land did not breach the first
general express warranty, since the existence of tenancy relationship thereon cannot be
considered a lien or encumbrance that the seller warranted did not exist at the time of
sale, since “[I]t is a relationship which any buyer of agricultural land should reasonably
expect to be present and which it is its duty to specifically look into and provide for.”16
Whereas, the second more specific express warranty by its very wordings did take such
tenancy relationship into consideration as a part of the express warranty.
Implied Warranties
Although only a seller is bound by the implied warranties of law, nevertheless, by
express contractual stipulation, an agent of the seller may bind himself to such
warranties. (Schmid and Oberly, Inc. v. RJL Martinez)
When is there breach of Warranty against Eviction
The seller’s implied warranty against eviction only applies (i.e., there has been a breach
of warranty) when the following conditions are present:
(a) Purchaser has been deprived of, or evicted from, the whole or part of the thing sold;
(b) Eviction is by a final judgment;
(c) Basis thereof is by virtue of a right prior to the sale made by the seller; and
(d) Seller has been summoned and made co-defendant in the suit for eviction at the
instance of the buyer.

Power Commercial and Industrial Corp. v. Court of Appeals, held that

there can be no action for breach of the said warranty when the buyer was well aware of
the presence of the tenants at the time the buyer entered into the sale transaction, and it
even undertook the job of ejecting the squatters which in fact fi led suit to eject the
occupants.
Jovellano v. Lualhati, held that “[N]o discussion, therefore, should be made
here as to whether or not the vendor had means of defense. All of this counts very little.
There is only one condition to be complied with by the vendee, and that is to give notice
of the complaint. Once this is proven, his right to the warranty is perfect, and the vendor
cannot set up anything against it.”
Escaler v. Court of Appeals, held that the breach of warranty against eviction
cannot be enforced against the seller when the only thing that the buyer did was to
furnish the seller, by registered mail, with a copy of the opposition the buyer fi led in the
eviction suit, without going through formally summoning the seller to be a
party to the case.
J.M. Tuazon v. Court of Appeals, has, however, held that even when there is
no specif c waiver, a buyer cannot take refuge on the warranty against eviction when he
purchases the land fully aware of a claim by a third party on the title to the land and
who was in actual possession thereof; when the buyer cannot show that he is a buyer in
good faith, it is not entitled to the warranty against eviction.
When is there breach of Warranty against non-apparent burden or servitude
(a) The immovable sold is encumbered with any non-apparent burden or servitude, not
mentioned in the agreement; and
(b) The nature of such non-apparent burden or servitude is such that it must presumed
that the buyer would not have acquired it had he been aware thereof.
XPN: Warranty not applicable when non-apparent burden or servitude is recorded in
the Registry of Property – Unless there is expressed warranty that the thing is free from
all burdens and encumbrances.
When is there breach of Warranty against Hidden Defects
Under Article 1561 of the Civil Code, the seller shall be responsible for warranty against
“hidden defect” only when:
(a) The nature of the hidden defect is such that it should render the subject matter unfit
for the use for which it is intended; or
(b) Should diminish its fitness for such use to such an extent that, had the buyer been
aware thereof, he would not have acquired it or would have given a lower price for it.
For example, in Investments & Development, Inc. v. Court of Appeals,
the Court held that the implied warranty against hidden defects under Article 1547 of
the Civil Code covers only those that make the object of the sale unfit for the use for
which it was intended at the time of sale, and that in the sale of agricultural land, the
existing tenancy relationship pertaining thereto cannot be considered as “hidden fault
or defect” since it did not go into the use of the land.
Nutrimix Feeds Corp. v. Court of Appeals, held that “the requisites to
recover on account of hidden defects are as follows:”
(a) Defect must be hidden;
(b) Defect must exist at the time the sale was made;
(c) Defect must ordinarily have been excluded from the contract;
(d) Defect, must be important (render the thing unfit or considerably decreases fitness);
(e) Action must be instituted within the statute of limitations.

CONVENTIONAL REDEMPTION
Misterio v. Cebu State College of Science and Technology, held that the
essence of a pacto de retro sale is that title and ownership of the property sold is
immediately vested in the vendee a retro, subject to the restrictive condition of
repurchase by the vendor a retro within the redemption period.
 Villarica v. Court of Appeals, distinguished between the right to redeem
from an option to purchase, in that it is clear from Article 1601 of the Civil Code that
“the right of repurchase ... must be reserved by the vendor, by stipulation to that effect,
in the contract of sale.” It held that “[T]he right of repurchase is not a right granted [to]
the vendor by the vendee in a subsequent instrument, but is a right reserved by the
vendor in the same instrument of sale as one of the stipulations of the contract. Once
the instrument of absolute sale is executed, the vendor can no longer reserve the right to
repurchase, and any right thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other right like the option to buy in
the instant case.”
Ong Chua v. Carr, held that the pendency of an action brought in good faith
and relating to the validity of a sale a retro tolls the running of the period of redemption,
thus: “Neither was it error on the part of the court to hold that the pendency of the
action tolled the term for the right of redemption; that is an old and well established
rule.”
Catangcatang v. Legayada, held that the non-payment of the purchase price
by itself would not serve to suspend the period of redemption, thus —
The sale was consummated upon the execution of the document and the
delivery of the land subject matter thereof to the vendee, petitioner herein.
It was a perfectly valid agreement, and the non-payment of the balance of
the purchase price could not have the effect of suspending the effi cacy of
the provisions thereof. ... The sale under consideration was perfected from
the moment Legayada consented to sell the land in question and
Catangcatang agreed to purchase it for the sum of 51,400.00 and the latter
had partially complied with his obligation by paying the sum of 51,200.00
and the former by delivering possession of the land to the vendee.”

Legaspi v. Court of Appeals, held that in order to exercise the right to

redeem, only tender of payment is sufficient. The Court further held that “[S]ince the
case at bar involves the exercise of the right to repurchase, a showing that petitioner
made a valid tender of payment is sufficient. It is enough that a sincere or genuine
tender of payment and not a mock or deceptive one was made. The fact that he
deposited the amount of the repurchase money with the Clerk of Court was simply an
additional security for the petitioner. It was not an essential act that had to be
performed after tender of payment was refused by the private respondent although it
may serve to indicate the veracity of the desire to comply with the obligation.”
On the other hand, in Lee Chuy Realty Corp. v. Court of Appeals, the
Court held that a formal offer to redeem, accompanied by a bona fi de tender of
redemption price, is not essential where the right to redeem is exercised through a
judicial action within the redemption period and simultaneously depositing the
redemption price. The fi ling of the action itself within the period of redemption is
equivalent to a formal offer to redeem. Lee Chuy held that there is actually no prescribed
form for an offer to redeem to be properly effected. It can either be through a formal
tender with consignation, or by filing a complaint in court coupled with consignation of
the redemption price within the prescribed period, thus:
... a formal offer to redeem, accompanied by a bona fi de tender of the
redemption price, is not essential where the right to redeem is exercised
through a judicial action within the redemption period and simultaneously
depositing the redemption price. The formal offer to redeem accompanied
by a bona fi de tender of the redemption price prescribed by law is only
essential to preserve the right of redemption for future enforcement even
beyond the period of redemption. The fi ling of the action itself within the
period of redemption is equivalent to a formal offer to redeem.
In sum, the formal offer to redeem is not a distinct step or condition sine
qua non to the fi ling of the action in court for the valid exercise of the right
of legal redemption. What constitutes a condition precedent is either a
formal offer to redeem or the filing of an action in court together with the
consignation of the redemption price within the reglementary period.

Outside of seeking court action within the redemption period to enforce the
redemption right, Lee Chuy thereby discussed when the right of redemption is deemed
“vested,” i.e., the “formal offer to redeem accompanied by a bona fi de tender of the
redemption price” within the redemption period, which thereafter allows the
enforcement of the right even beyond the redemption period.
EQUITABLE MORTGAGES
Matanguihan v. Court of Appeals, defined an equitable mortgage “as one
which although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, and contains nothing impossible or contrary to law.” It
also enumerated the essential requisites of an equitable mortgage to be as follows:
a) That the parties entered into a contract denominated as a contract of sale; and
b) That the intention was to secure existing debt by way of a mortgage.

San Pedro v. Lee, held that when the two above-enumerated conditions are
not proven, the existence of any of the circumstances enumerated in Article 1602 cannot
become the basis to treat the transaction as an equitable mortgage.
Banga v. Bello, reiterating such ruling, added that —
Debtors usually find themselves in an unequal position when bargaining
with their creditors, and will readily sign onerous contracts just to have the
money they need. Necessitous men are not always free, in that to answer a
pressing emergency, they will submit to any term that the crafty may
impose on them. This precisely the evil that the above-quoted provision on
equitable mortgage seeks to prevent.

LEGAL REDEMPTION
 The Court held in Basa v. Aguilar, that “[L]egal redemption is in the nature of
a privilege created by law partly for reasons of public policy and partly for the benefit
and convenience of the redemptioner, to afford him a way out of what might be a
disagreeable or [an] inconvenient association into which he has been thrust. It is
intended to minimize co-ownership. The law grants a co-owner the exercise of the said
right of redemption when the shares of the other owners are sold to a ‘third person.’”
In Plan v. Intermediate Appellate Court, the Court held that there is no
right of legal redemption available to the coheirs when the sale covers a particular
property of the estate, since the legal right of redemption applies only to the sale by an
heir of his hereditary right.
Likewise, Cua v. Vargas, held that the heirs who participated in the execution
of the extrajudicial settlement which included the sale to a third person of their pro
indiviso shares in the property are bound by the same, which the co-heirs who did not
participate would have the right to redeem their shares pursuant to Article 1088 of the
Civil Code.
In Avila v. Barabat, the Court held that since legal redemption is intended to
minimize co-ownership, once a property is subdivided and distributed among the co-
owners, the community ceases to exist and there is no more reason to sustain any right
of legal redemption.
In Mariano v. Court of Appeals, the Court was confronted with the issue of
which redemption clause to apply when a coheir had exercised the right of legal
redemption over the sale of a parcel of land belonging to the estate of the decedent.
Mariano held that “the fi ne distinction between Article 1088 and Article 1620 is that
when the sale consists of an interest in some particular property or properties of the
inheritance, the right of redemption that arises in favor of the other co-heirs is that
recognized in Article 1620. On the other hand, if the sale is the hereditary right itself,
fully or in part, in the abstract sense, without specifying any particular object, the right
recognized in Article 1088 exists.” Thus, under Mariano when the subject matter sold
was a particular property of the estate and not hereditary rights, the redemption by a
co-owner/co-heir redounded to the benefit of all other co-owners, while redemption by
a co-heir of hereditary rights sold is only for his own account.
In Primary Structures Corp. v. Valencia, the Court held that under Article
1621 of the Civil Code, the owners of adjoining lands have the right of redemption when
a piece of rural land, the area of which does not exceed one (1) hectare, is alienated,
unless the grantee does not own any rural land. The burden of proof to apply the
exemption (i.e., the buyer does not own any other rural land) lies with the buyer. This
right is not applicable to adjacent lands which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the benefit of other estates.
Ortega v. Orcine, discussed the purpose of the introducing into the New Civil
Code the right of pre-emption or redemption for urban lands, thus:
 The right of redemption of adjoining urban land did not exist in the Spanish Civil
Code, which confined itself to the redemption of rural lands. It was introduced
here only by the new Civil Code. Whereas, as already observed, the objective of
the right of redemption of adjoining rural land under the old code as adopted in
the new Civil Code, is to encourage the maximum development and utilization of
agricultural lands, it is evident that the purpose of the new Civil Code in allowing
redemption of adjoining urban land is to discourage speculation in real estate and
the consequent aggravation of the housing problems in centers of population.

Ortega further held that the term “urban” in Article 1622 does not necessarily
refer to the nature of the land itself sought to be redeemed nor to the purpose to which
it is devoted, but to the character of the community or vicinity in which it is found.
In De Santos v. City of Manila, the Court held that redemption of urban land
applies only when it involves its “resale,” and therefore there is no right of redemption
that can be exercised by an adjoining owner when the urban land is transferred under
an “exchange” of properties.
Legaspi v. Court of Appeals, held that in order to exercise the right to
redeem, only tender of payment is sufficient. The Court further held that “[S]ince the
case at bar involves the exercise of the right to repurchase, a showing that petitioner
made a valid tender of payment is sufficient. It is enough that a sincere or genuine
tender of payment and not a mock or deceptive one was made. The fact that he
deposited the amount of the repurchase money with the Clerk of Court was simply an
additional security for the petitioner. It was not an essential act that had to be
performed after tender of payment was refused by the private respondent although it
may serve to indicate the veracity of the desire to comply with the obligation.”
DOCUMENTS OF TITLE
Warehouse Receipts and Bonded Warehouse Acts
The provisions of the Civil Code on documents of title, i.e., Articles 1507 to 1520,
appear as original provisions (“n”), and have neither been derived nor taken from the
old Civil Code. In addition, they were promulgated part of the the New Civil Code as of a
later date than the provisions of the Warehouse Receipts Act and the Bonded
Warehouse Act; yet the New Civil Code includes within the enumerations of what
constitute “documents of title” under Article 1636, quedans and warehouse receipts.
When Articles 1507 to 1520 were being considered as integral part on the Title on Sales,
Legislature was fully aware of the existing provisions of the Warehouse Receipts Act and
the Bonded Warehouse Act, as in fact many of the key principles were copied from said
statutes.
Consequently, the provisions of the Warehouse Receipts Act and the Bonded
Warehouse Act constitute the primary sets of rules governing warehouse receipts, and
the provisions of Articles 1507 to 1520 of the Civil Code should be treated as having
suppletory effect.
 In Siy Long Bieng v. Hongkong and Shanghai Banking Corp., it was
held that as between the owner of a negotiable document of title who endorsed it in
blank and entrusted it to a friend, and the holder of such negotiable document of title to
whom it was negotiated and who received it in good faith and for value, the latter is
preferred, under the principle that as between two innocent persons, he who made the
loss possible should bear the loss.
BULK SALES LAW
In People v. Mapoy, the Court held that a sale in bulk done without complying
with the terms of the Law, makes the transaction fraudulent and void, but does not
change the basic relationship between the seller, assignor or encumbrancer and his
creditor. In that case, the defendants were charged criminally with violation of the Law
for mortgaging all their stock of goods in violation of the provision of the law. The
judgment of the trial court found them guilty of the crime charged and to indemnify the
creditor of the amount of the credit with subsidiary imprisonment in case of insolvency.
Mapoy held that portion of the judgment providing for subsidiary liability to be invalid,
since the proper remedy of the creditor is to collect on the credit against the defendant,
and if they cannot pay, to attach on the property fraudulently mortgaged since the same
still pertains to the debtors-defendants.
RETAIL TRADE LIBERALIZATION ACT
Balmaceda v. Union Carbide Philippines, Inc., held that the term “retail
trade” should be associated with, and limited to, goods for personal, family or
household use, consumption and utilization. It construed the old Retail Trade
Nationalization Law to refer to “consumption goods” or “consumer goods” which
directly satisfy human wants and desires and are needed for home and daily life.
Accordingly, it excluded from the coverage of retail trade goods which are considered
generally raw materials used in the manufacture of other goods, or if not, as one of the
component raw material, or at least as elements utilized in the process of production
and manufacturing.
Goodyear Tire and Rubber Co. v. Reyes, held that a manufacturer which
sells rubber products to the government, public utilities, agricultural enterprises,
logging, mining and other entities and persons engaged in the exploitation of natural
resources, automotive assembly plants, industrial and commercial enterprises engaged
in manufacture and sale of essential commodities, is not engaged in retail business
within the purview of the law; but its sales to its own officers and employees would be
considered retail trade.
ANTI-DUMMY LAW
King v. Hernaez, held that taking into consideration the language of the then
Retail Trade Nationalization Law that prohibits non-Filipinos from engaging in retail
trade directly or indirectly, and although the Law does not deal on the employment of
aliens in non-control positions in a retail establishment, nevertheless Section 2-A of the
Anti-Dummy Law was considered broad enough to prohibit employment of aliens in
control and non-control positions in retail establishments or trades, except for technical
positions with previous authority from the President.
Asbestos Integrated Manufacturing, Inc. v. Peralta, held that an
agreement of a domestic entity to deal exclusively with the products of a foreign
manufacturer, where the domestic entity retains entire control and direction of its
business operations, does not make the domestic entity an alter ego of the foreign
manufacturer nor convert the relation into one of agency as to be violative of the Anti-
Dummy Act or the old Retail Trade Nationalization Law.
Talan v. People, held that the Filipino common-law wife of a Chinese national
is not barred from engaging in the retail business provided she uses capital exclusively
derived from her paraphernal properties; however, allowing her common-law Chinese
husband to take part in management of the retail business would be a violation of the
Law.

Quijada v. Court of Appeals, did not consider as void the sale by the donor of land
previously donated to a local government unit under a resolutory condition as a sale
“outside the commerce of men under Article 1409(4)” of the Civil Code, in that
patrimonial properties of a local government unit, especially those conditionally owned
by said unit, as being outside the commerce of men. It held that the “objects referred to
as outside the commerce of man are those which cannot be appropriated, such as the
open seas and the heavenly bodies.” (SUBJECT MATTER – Sales declared illegal by
law)
Peñalosa v. Santos, held that when the parties execute a Deed of Absolute Sale over
a parcel of land with the understanding that the price indicated therein would be paid
from the proceeds of the loan to be obtained by the buyer from a bank using the subject
property as mortgage collateral, then neither the contract of sale nor the price can be
considered as wholly simulated, for there was valuable consideration, and the non-
payment of the price because of the refusal of the seller to turn-over the title to the
bank, would not grant the seller the right to rescind the sale after the buyer has duly
consigned the price with the courts. (PRICE – When price is real)
In Mapalo v. Mapalo, the spouses Mapalo, who were simple illiterate farmers, were
made to sign a deed of sale over their registered land although they were told that they
were signing a donation for the eastern half of said property in favor of the brother.
Although the deed of sale stated a consideration of 5500.00, no such consideration was
paid. On the issue over the western part of the land which was never intended to be
conveyed by the spouses, the Court differentiated between a contract that had no
consideration from one which merely contained a false consideration. It ruled that
according to Manresa, what is meant by a contract that states a false consideration is
one that has in effect a real consideration but the same is not the one stated in the
document. In Mapalo, aside from the false consideration of 5500.00, there was no real
consideration as to the western half of the property; therefore, the contract was one with
no consideration and not one that merely states a false consideration. It was void, and
its inexistence was permanent and incurable and could not be subject of prescription.
(PRICE – Meeting of the minds as to price)
Ang Yu Asuncion v. Court of Appeals, summarized the applicable rules where a
period is given to the offeree within which to accept the offer, i.e., the option, thus:
a) If the period itself is not founded upon or supported by a separate consideration,
the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror’s coming to
know of such fact, by communicating that withdrawal to the offeree. (This is in
accordance with the Sanchez doctrine.)
b) The right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code
which ordains that “every person must, in the exercise of his right and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.”
c) If the period has a separate consideration, a contract of “option” is deemed
perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period.
d) The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders himself liable for damages for
breach of the option.
e) In these cases, care should be taken of the real nature of the consideration given,
for if in fact, it has been intended to be part of the consideration for the main
 contract with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an “earnest money” in
sale that can evidence its perfection.
Ang Yu Asuncion would hold therefore that in an option contract, the granting of a
consideration separate and distinct from the purchase price of the intended sale, does
not guarantee to the optionee that he has the absolute right to exercise the option,
anytime during the option period. The separate consideration merely guarantees that
within the option period, before the optioner breaches his obligation and withdraws the
offer, an acceptance by the optionee would give rise to a valid and binding sale; and that
an acceptance within the option period after the optioner shall have unlawfully
withdrawn the offer would not give rise to a sale. This rule is clear from Ang Yu
Asuncion, when it held that —
The optionee has the right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is accepted before a breach of
the option, a bilateral promise to sell and to buy ensures and both
parties are then reciprocally bound to comply with their respective
undertakings.

Such a rule would practically be the same as the Sanchez doctrine when no
separate consideration is given for the option. That would be contrary to the language of
Article 1324 of the Civil Code that recognizes the right of the offeror to withdraw the
offer only when there is no separate consideration to support the period given: “When
the offeror has allowed, the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as something paid or promised.”
Under the Ang Yu Asuncion ruling, insofar as the optionee is concerned, whether
or not he gives a separate consideration for the option, he would be saddled with the
same dilemma: if the optioner withdraws the offer prior to the time he (the optionee)
shall have exercised the option or accepted the offer, his acceptance could not give rise
to a valid and binding sale. To the optioner, whether he has received consideration or
not for the grant of the option, he could in either case withdraw the offer prior to the
time the optionee shall have exercised the option.
Ang Yu Asuncion does not therefore provide for a “commercially sound” doctrine
because it emasculates the effectiveness of an option supported by a consideration
separate, and removes any motivation for the optionee to give, and for the optioner to
demand for, a separate consideration on the option. And yet in the subsequent ruling in
Carceller v. Court of Appeals, the Court granted the optioner leeway to enforce the
conditional exercise of his option right even after the option period and after the
optioner-offeror-lessor had in fact given clear notice of the withdrawal of the option;
and even granted the remedy of specific performance requested by the optionee to
compel the optioner to execute the covering Deed of Absolute Sale.
 The Ang Yu Asuncion treatment of the option contract is also not consistent with
the doctrine it adopted for a “lesser form” of option called the “right of first refusal.” The
author therefore dares to predict that in the future the Supreme Court would “adjust”
the prevailing doctrine to conform to the essence of its rulings on rights of first refusal,
discussed hereunder. (Formation of Sale - Summary Rules when period is granted to
Promisee)
In San Miguel Properties Philippines, Inc. v. Huang, although the parties had
agreed on the real properties purchased and the price, there was still no valid sale since
the evidence showed that they failed to arrive at mutually acceptable terms of payment
scheme, despite the 45-day extension given by the seller.
The point being made is this: that the “terms of payment,” being an integral part of the
price, would have the same requisites that the law imposes on price to support a valid
contract of sale certain or at least ascertainable. If a price, unknown to both parties, can
support a valid and binding contract of sale, such as when the fixing of the price is left to
a third party, then also, if the terms of payment are provided for in a formula or process
that does not require the agreement of the parties for the formula to work, then the
terms of payment are deemed to have been agreed upon and the sale would be valid, but
subject to the same condition affixed to the price. (Price and other consideration)
Equatorial Realty Dev., Inc. v. Mayfair Theater, Inc., held that an option
contract is one “necessarily involving the choice granted to another for a distinct and
separate consideration as to whether or not to purchase a determinate thing at a
predetermined fixed price. The rule so early established in this jurisdiction is that the
deed of option or the option clause in a contract, in order to be valid and enforceable,
must, among other things, indicate the definite price at which the person granting the
option, is willing to sell. An option is a contract granting a privilege to buy or sell within
an agreed time and at a determined price. It is a separate and distinct contract from that
which the parties may enter into upon the consummation of the option. It must be
supported by consideration.” (FORMATION OF SALE)