Essential elements of contracts of sale

Here are the three essential elements of a contract of sale. Without any of them, there would be no contract of sale; in other words, the contract would be nonexistent. A nonexistent contract is one which lacks one of the essential elements. On the other hand, a void contract is one that is expressly declared void by law or that is contrary to law, morals, good customs, public order and public policy.

Note that the discussion below is based on an outline by Paras (2008). Note further that most of the principles discussed below are applicable to contracts in general.

[1] Consent or meeting of the minds, i.e., consent to transfer ownership in exchange for the price. More specifically, the seller must agree to receive a purchase price certain from the buyer to whom he shall deliver the thing purchased and the buyer must agree to pay a purchase price certain to the buyer who binds himself to deliver to the buyer the thing purchased.

To make it less complicated, it is best to say that the buyer and the seller must agree on the following: (a) the purchase price; and (b) the thing to be sold and paid for.

"Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made."

[2] Determinate subject matter (generally, there is no sale of generic thing; moreover, if the parties differ as to the object, there can be no meeting of the minds).

"Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract."

The subject matter (object) must be determine. The seller and the buyer must agree to sell and buy a thing certain. If they cannot agree as to which thing is to be sold and bought, there is no meeting of the minds.

Paras (2008) is of the opinion that, GENERALLY, buyers and sellers engage in a contract of sale over a specific thing. This is because, in a marketplace or a supermarket, buyers usually pick which among many items to buy and they specifically point to one particular thing for which they are willing to pay. However, please note that there are transactions in which the buyer simply tells the seller that the former intends and agrees to buy from the latter a certain quality of a certain product. This is especially true when it comes to the wholesale industry.
[3] Price certain in money or its equivalent (this is the cause or consideration). (The price need not be in money, according to Paras who cites Republic v. Phil. Resources Dev. Corp., L-10414, Jan. 31, 1958).

"Article 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy."

Paras (2008) is of the opinion that the cause or consideration need not be money. However, other authors have expressed their dissent. It must be emphasized that, under the New Civil Code of the Philippines, "By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's promise to give another thing." (Article 1638)

"Cause" is "the essential reason which moves the contracting parties to enter into it." (General Enterprises, Inc. vs. Lianga Bay Logging Co., G.R. No. L-18487, August 31, 1964) In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. (3 Castan, 4th ed., p. 347) In one case, the Supreme Court applied this definition and ruled that the cause of the agreement would be the existing account of Lopez with the appellee. And for the appellant it was mere liberality of gratuitousness on his part that moved him to oblige himself severally with Lopez. (G.R. No. L-20753) In other words, liberality, love and affection, among others, can be sufficient consideration to support a contract's existence.

With regard to contracts of sale, the cause or consideration on the part of the seller is the price he would receive from the buyer. (His motive is normally profit. Note that motive and profit are different. Please watch the video below.) On the part of the buyer, the cause or consideration is the thing bought and his motive depends on the nature of the thing. (For example, a buyer eats food to eat it or give it as a gift to another.)

SOURCE: Paras (2008). Civil Code Of The Philippines Annotated By Edgardo L. Paras † Litt. B., LL.B., LL.M., LL.D. Associate Justice, Supreme Court (1986-1992). 16th Edition, 2008. Volume V Articles 1458-2270 (Special Contracts).

CASE: Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: (a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) Determinate subject matter; and (c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. (G.R. No. 103577)