FORMATION OF CONTRACT OF SALE

3 STAGES IN LIFE OF A CONTRACT OF SALE

1. Policitacion/Negotiation Stage – offer is floated, acceptance is floated but they do not meet; the time when parties indicate their interest but no concurrence of offer & acceptance

2. Perfection – concurrence of all requisites; meeting of the minds

3. Consummation – parties perform their respective undertakings

POLICITACION

1. offer is floated but not absolute

2. acceptance is likewise floated but conditional

RULES:

1. offer is floated – prior to acceptance, may be withdrawn at will by offeror

2. offer floated with a period – without acceptance, extinguished when period has ended & maybe withdrawn at will by offeror; right to withdraw must not be arbitrary otherwise, liable to damage under Art 19, 20, 21 of civil code

3. offer floated with a condition – extinguished by happening/non-happening of condition

4. offer floated without period/without condition – continues to be valid depending upon circumstances of time, place & person

5. offer is floated & there is counter-offer – original offer is destroyed, there is a new offer; can not go back to original offer

6. offer is floated – no authority of offeror to modify offer

7. offer is accepted absolutely – proceed to perfected stage

OPTION CONTRACT

• floats in the policitacion stage

• offer with a period but founded upon a separate consideration distinct from the price

• no presumption of consideration, needs to be proven

• Characteristics:

a. not the contract of sale by itself, distinct

b. nominate

c. principal; but can be attached to other principal contracts

d. onerous

e. commutative

f. unilateral – vs contract of sale which is bilateral

• to be perfected & give rise to action, the following must concur:

a. subject matter of sale must be agreed upon

b. price of sale & manner of payment must be agreed upon

c. consideration separate & distinct from price

d. period – as per contract; if period not provided – prescribes in 10 years (written contract)

e. how exercised: notice of acceptance should be communicated to offeror without actual payment as long as there is delivery of payment in consummation stage

2 SITUATIONS IN AN OPTION CONTRACT:

1. with separate consideration

• Legal consequence:

a. option contract is valid

b. offeror can not withdraw offer until after expiry period

c. subject to rescission, damages but not to specific performance because this is not an obligation to give

2. without separate consideration

• Legal consequence:

 OLD RULE:

a. offer is still valid, but

b. option contract is void

c. not subject to rescission, damages

 NEW RULE: Right of first refusal recognized

RIGHT OF FIRST REFUSAL:

• creates a promise to enter into a contract of sale and it has no separate consideration, not subject to specific performance because there is no contractual relationship here & it is not an obligation to give (not a real contract)

• New doctrine: may be subject to specific performance

• Effect of new doctrine: turned the world of policitacion upside down because while valid option contract is not subject to specific performance, right of first refusal which does not even have a separate consideration may be subject to specific performance

PERFECTION: OFFER & ACCEPTANCE

PERFECTION

• Sale is a consensual contract, perfected by meeting of minds regarding subject matter & price

• Meeting of Minds:

1. Offer – certain

2. Acceptance – absolute

• Qualified acceptance – merely a counter-offer which needs to be absolutely accepted to give rise to perfected contract of sale

• Business ads are mere invitations to make an offer except when it appears to be otherwise

• Acceptance by letter/telegram – binds only at time it came to knowledge of SELLER; prior thereto – offer may still be withdrawn

• Must be exact terms to be considered absolute

• When deviations allowed:

a. anything that refers to price is material

b. small items are insignificant, does not make acceptable unconditional

• when sale is subject to suspensive condition, no perfected contract of sale yet; becomes perfected only upon happening of condition

• A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer or in other customary manner.

Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.

• Place of perfection: where the meeting of minds happen; when acceptance sent by mail, perfection is deemed where the offer is made

• Performance has nothing to do with perfection stage

EARNEST MONEY

1. money given as part of purchase price

2. its acceptance is proof that contract of sale exists
• nothing in law prevents parties from treating earnest money differently

• old concept: subject to forfeiture when BUYER backs out

• new concept: can not be forfeited – part of purchase price; must be restored

• qualification: if old concept is stipulated – VALID

• presumption of perfection of contract of sale and such earnest money as part of purchase price is disputable

FORM OF SALES

1. Form not important in validity of sale

• Sale being consensual, may be oral or written, perfected by mere consent as to price & subject matter

• If particular form is required under the statute of frauds:

a. valid & binding between parties

b. not binding to 3rd persons only

• Reason: purposes of convenience only & not for validity & enforceability; cause of action is granted to sue & compel other party to execute the document

2. When form is important for validity; exception by specific provision of law;

a. power to sell a piece of land granted to an agent – otherwise VOID

b. sale of large cattle; must also be registered with Municipal treasurer – otherwise VOID

c. sale of land by non-Christian if not approved by Governor – VOID

3. When form is important for enforceability (STATUTE OF FRAUDS)

a. sale to be performed 1 year after

b. Agreement to sell things with value of 500 and up

c. Sale of real property or any interest therein

• Exception:

i. When there is a note or memorandum in writing & subscribed to by party or his agent (contains essential terms of the contract)

ii. When there has been partial performance/execution (seller delivers with intent to transfer title/receives price)

iii. when there has been failure to object to presentation of evidence (oral)
- constitutes waiver