SALES right to buy certain property at any time within the

agreed period at a fixed price

- A preparatory contract by nature which grants the
other party the power to decide whether or not to
enter into a principal contract
Elements of a valid Option Contract:
1. Contract of Sale o Consent
- A contract wherein one of the contracting parties o Subject Matter
obligates himself to transfer ownership of and to o Prestation – A consideration separate and
deliver a determinate thing, and the other to pay distinct from the purchase price for the option
therefor a price certain in money or its equivalent given
(Art. 1458, NCC)

Essential Elements of a Contract of Sale: Contract of Sale vs. Option Contract

Contract of Sale Option Contract
a. Consent/Meeting of the Minds – refers to the As to Consideration
consent on the part of the seller or vendor to Consideration must be a Consideration may be
transfer and deliver, and on the part of the buyer or price certain in money or anything of value.
vendee to pay its equivalent
Such consideration is
b. Object/Subject – refers to the determinate thing separate and distinct from
which is the object of the contract the purchase price
Bilateral/Unilateral
c. Cause/Consideration – refers to a price certain in Bilateral Contract Unilateral Contract. Only
money or its equivalent. It includes the manner of the optioner has an
payment obligation
Subject Matter
Definition of terms: Subject matter of the The “option to purchase”
contract of sale itself such subject matter. It is an
1. Option Contract intangible subject matter or
- A contract granting a privilege to one person, for right.
which he has paid a consideration, giving him the
2. Right of First Refusal
 - A right of first priority, wherein all things and
conditions being equal, and there is identity of the Note: Option Money may become earnest money if the
terms and conditions offered to the optionee and all parties agree
other prospective buyers, with optionee to enjoy the
right of first priority. Earnest Money vs. Option Money
Earnest Money Option Money
Transfer of Ownership
Option Contract vs. Right of First Refusal Title passes to the buyer Ownership is reserved to
Option Contract Right of First Refusal upon delivery of the thing the seller and is not to pass
Nature sold. until full payment.
Principal Contract Accessory Contract Effect of Non-payment
An option contract is a The right of first refusal is In case of non-payment, In case of non-payment
separate and distinct an integral part of the an action for specific there can be an action for
contract from that which contract of lease. performance or recission specific performance.
the parties may enter into can be filed by the injured
upon consummation of the party.
option. Consideration
It is part of the purchase Money is given as a
Consideration price distinct consideration for
Must be supported by a The consideration is built an option contract
separate consideration into the reciprocal Obligation of the Buyer upon Payment of
obligations of the parties Consideration
When given, the buyer is The would-be buyer is not
bound to pay the balance. required to buy.
Earnest Money Perfection of Sale
- Something of value to show that the buyer was There is already a sale. Applies to a sale not yet
really in earnest, and given to the seller to bind the perfected.
bargain

It is considered as: Contract to Sell/ Executory Contract

1. Part of the purchase price, and earnest money is - A sale is an executory contract. Under such
deducted from the total price; contract, until the act is performed or the condition
2. Proof of perfection of the contract fulfilled, which is necessary to convert the executory
 into an executed contract, no title passes to the puts an end to the breach but prevents the
buyer, as against the seller or persons claiming transaction obligation of the vendor
under him. to convey title from
- A contract where the seller promised to executed a Remedies: having a binding force.
deed of absolute sale upon completing payment of 1. Specific
the price. Performance
2. Rescission
Sale vs. Contract to Sell
Contract of Sale Contract to Sell Sale vs. Contract for a Piece of Work
Obligation Contract
The perfection of the The perfection of the Contract of Sale Contract for a Piece of
contract gives rise to contract only gives rise to Work
reciprocal demandable a reciprocal suspensive Existence of a thing
obligations: conditional obligation on The thing transferred is The thing transferred is not
1. On the part of the the part of the seller to one which would have in existence and would
seller, obligations to transfer ownership only existed and would have never have existed but for
transfer ownership upon fulfillment of the been the subject of sale to the order of the party
and deliver obligation of the buyer to some other person, even if desiring to acquire it.
possession of the pay the price in full. the order had not been
subject matter; and given.
2. On the part of the Object of the Contract
buyer, to pay a price Sale of a manufactured The services dominate the
certain in money or item; it is a sale of goods contract even though
its equivalent. even though the item is there is a sale of goods
Transfer of Ownership manufactured by labor involved.
Title passes to the buyer Ownership is reserved in furnished by the seller and
upon delivery of the thing the seller and will pass upon previous order of the
sold only to the buyer upon customer.
full payment of the price. Applicability of Statute of Frauds
Effect of Non-payment of Price Governed by the Statute Not within the Statute of
Failure to pay is a negative Full payment is a positive of Frauds Frauds
resolutory condition, which suspensive condition, the
failure of which is not a Risk of Loss
Borne by the buyer. Borne bu the worker or However, the fixing of the rent, is usually not
contractor, not by the price cannot be left to the mentioned.
employer discretion of one of the
Rules in Determining if the Contract is one of Sale contracting parties.
or a Piece of Work
If ordered or manufactured If manufactured especially
in the ordinary course of for the customer and upon Sale vs. Agency to Sell
business. his special order, and not Contract of Sale Agency to Sell
for the general market.
Transfer of Ownership
Sale vs. Lease of Things Buyer receives the goods Agent receives the goods
Contract of Sale Lease as owner. as goods of the principal
who retains his ownership
Transfer of Ownership over them.
Ownership is transferred No transfer of ownership Obligation as Regards the Price
upon delivery because the rights of the Buyer pays the price. Agent delivers the price,
lessee are limited to the which he got from his
use and enjoyment of the buyer, to his principal.
thing leased. Right to Return the Thing
Extent of Transfer Buyer, as a general rule, Agent can return the goods
Permanent, unless subject Temporary cannot return the object in case he is unable to sell
to a resolutory condition sold. the same to a third person.
Who may convey the property
Seller must be the owner Lessor need not be the Warranty as to the Object Sold
at the time the property is owner Seller warrants the thing Agent makes no warranty
delivered, or at least sold for which he assumes
authorized by the owner to personal liability as long as
transfer ownership. he acts within his authority
and in the name of the
Significance of Price of Object seller.
Usually, the selling price is The price f the object Right over the Thing
mentioned, as the parties distinguished from the
involved can fix it.
Buyer can deal with the Agent in dealing with the b. Sale if the value of the thing is equal or
thing sold as he pleases thing received, must act less than the amount of money.
being the owner according to the
instructions of the principal
Revocability
Contract of sale is not Essentially revocable,
unilaterally revocable because it covers an
underlying fiduciary
relationship between the
principal and the agent

Sale vs. Barter

Contract of Sale Barter
Nature
A thing is given in A thing is given in
exchange of a price certain exchange of another thing.
in money or its equivalent.
Applicable Law
Law on Sales Law on Sales

If the consideration is partly in money and partly in

another thing
1. The transaction is characterized by the manifest
intention of the parties
2. If there is no manifest intention –
a. Barter if the value of the thing is more
valuable than money