SALES

FORM OF A CONTRACT OF SALE: A contract is valid in any form it may be entered into provided all its
requisites are present.

The law may require a certain form of order for the contract to be valid, enforceable, or for greater
convenience to bind 3rd parties.

EX: THE RULE ON STATUTE OF FRAUDS – these sales have to be in some writing, whether it be:
memorandum, note, or other form of writing as long as it is written and this only applies to executor
contracts. It will not apply to contracts which are partially performed because the statute of frauds is
merely a rule on evidence to prove the existence of a contract.

1) WHAT SALES ARE UNDER THE STATUTE OF FRAUDS?

 A sale of personal or movable property where the price is not less than 500 pesos;
 A sale of real property or an interest in real property;
 A sale of property which is not to be performed within 1 year from the date of the contract;
and
 Any other law which requires that the sale be in certain form.

FORMATION OF CONTRACTS (3 stages of contracts of sale in the book)

I. POLICITACCION

 Unaccepted unilateral (on the part of one party) promise to buy or to sell.
 It is not yet accepted.
 Follows the rules in ObliCon on OFFER AND ACCEPTANCE. As long as that promise is unaccepted
then it will produce no juridical effect. It creates no legal bind; it is a mere offer which may be
withdrawn and is not yet converted into a contract.

2) WHAT IF THE PROMISE TO BUY OR PROMISE TO SELL IS ACCEPTED?

OPTION CONTRACT – Accepted unilateral promise. It is binding if it is supported by a consideration

which is distinct from the purchase price. In other words, it is a separate contract from the actual
contract of sale. It is a contract granting a privilege to one of the parties for which he has paid a
consideration giving him the right to buy within the agreed period at a fixed price. It is a PREPARATPRY
CONTRACT that binds the party who gave the option not to enter into the principal contract with anyone
else, only with the person to whom the option was given. The party giving the option cannot enter into
the principal contract with anyone else during the period designated or agreed upon. And there is the
obligation on the party who gave the option to enter into the principal contract with the one to whom
the option was granted if the latter should decide to use the option.
There’s also consent here involved, the object in this case is not the thing to be sold under the contract
of sale but the OPTION RIGHT/the accepted unilateral offer to buy or sell. It must include, of course, the
manner of payment.

3) WHAT IS THE CONSIDERATION FOR AN OPTION CONTRACT? Any valuable consideration which is
sufficient to support a contract.

OPTION CONTRACT IS NOT A SALE, it merely secures the privilege to buy. So, it imposes no obligation on
the one with the option. Because as the person who holds the option, he has the choice to push through
or not to push through with the contract of sale. He’s paying that consideration to reserve his right to
enter into the contract of sale. That’s why, in order to be valid and binding, the option must be
supported by a consideration separate and distinct from the price.

4) WHAT IF THERE’S NO CONSIDERATION SEPARATE AND DISINCT FROM THE PRICE?

Then it is VOID AS AN OPTION. But it is still a VALID OFFER. So, if the option to enter into a valid contract
of sale has no separate consideration, it is still VALID AS AN OFFER BUT IT IS NOT AN OPTION CONTRACT.

So since, it is still valid as an offer, it may be withdrawn before acceptance. Provided, the withdrawal is
not arbitrary or whimsical in which case the person giving the option may be held liable for damages.

IF THERE IS A CONSIDERATION SEPARATE AND DISTINCT FROM THE PRICE, THEN THE OPTION
CONTRACT IS PERFECTED. And the person giving the option can no longer withdraw within the agreed
period.

5) WHAT IF THE OPTION WAS WITHDRAWN BY THE SELLER WITHOUT A VALID REASON?

There is breach of the option contract.

There is no specific performance in an option contract. Why? Because there’s no perfection yet. They
did not agree that the option may be availed of yet. So, the remedy in this case is DAMAGES.

Y can hold X liable for withdrawing the option before the agreed date.

6) WHAT IF Y EXERCISES THE OPTION. MEANING HE SAYS, HEY I AM AVAILING OF THE OPTION, LET’S
NOW ENTER AND EXECUTE A CONTRACT OF SALE.

In this case, Y does not have to pay for the price right away. All he has to do is pay it only after X has
already delivered the thing. And if the option is exercised, the prescriptive period to enforce the
contract is still 10 years from the accrual of the cause of action which is the BREACH.

7) IF Y ACCEPTS THE OPTION F X TO ENTER INTO A CONTRACT OF SALE?

Then this now becomes a bilateral promise to buy and to sell. On the part of X, it’s a promise to sell and
on the [art of Y it’s a promise to buy. IT IS NOW RECIPROCALLY DEMANDABLE.

BILATERAL PROMISE to buy and sell does not necessarily arise from an option. It can arise just by itself.
Distinguish OPTION CONTRACT to RIGHT OF REFUSAL:

OPTION CONTRACT RIGHT OF 1st REFUSAL

  It is a contract grant of first priority to
buy the property if or when the owner
decides to sell it.
 Usually attached to contract of lease.
 Is an accessory to a contract and is
considered built into the reciprocal
obligations of the parties.
 CONSIDERATION: Whatever the main
consideration of the principal contract is.
 Has no price involved. It’s simply a right
to be offered the premises first.
 Meaning, the seller may offer to 3rd
persons only if he first offers to the
grantee of the right of 1st refusal.
 If the grantee did not exercise his right to
purchase then the sale to a 3 rd person is
VALID.
 If the right of 1st refusal has already
lapsed without it having been exercised,
then the seller can sell to any 3rd person.

*As long as negotiations are undertaken, as long as it was offered to be sold first to the buyer but
there’s no agreement, then of course, the seller is now free to sell it to a 3 rd person.

8) WHAT IF THE SELLER VIOLATES THE RIGHT OF FIRST REFUSAL BY OFFERING IT TO A 3 RD PERSON
BEFORE OFFERING IT TO THE BUYER OR GRANTEE?

The contract to the 3rd person may be RESCINDED. This is under the contract of RESCISSIBLE CONTRACT.

II. PERFECTION

Remember that a contract of sale is CONSESNSUAL. Meaning: it is perfected by mere consent.

In other words, generally, the contract of sale is perfected from the moment the minds of the parties
meet upon the thing which is the object and the price of the contract.

Except for contracts with suspensive condition. The contract will only be perfected when the condition is
fulfilled.

REQUISITES OF THING AND PRICE.

ACCEPTANCE OF THE OFFER MJUST BE ABSOLUTE AND THE OFFER MUST BE CERTAIN.
AUCTION SALES

In case of sale of separate lots by auction, this is considered as separate contract of sale. So, each thing
being sold is a separate contract of sale. When perfected, it’s announced by the fall of the hammer.
Before the hammer falls, the bidder may retract his bid or the auctioneer may withdraw the goods
unless the auction is without reservation.

9) DOES THE SELLER HAVE THE RIGHT TO BID?

Generally, he has the right to bid, provided his right to bid was reserved and also that notice is given that
the sale is subject to the right to bid by the seller or his representative and finally that the right is not
prohibited by the law or by a stipulation.

10) WHAT’S THE PURPOSE OF THESE RULES?

It’s in order to avoid or prevent puffing or secret bidding because the introduction of people who will
just blow up the price is a FRAUD upon the buyer. Here, the seller or the agents are trying to drive it up
to earn a higher profit which is prohibited by the law. Hence, the rules.

EANEST MONEY

This is something of value. It is given to the seller to bind him to the contract.

The law says it is part of the purchase price and it is proof of perfection of a contract.

However, of course, the best test to know if the contract is perfected is the presence of the essential
elements (object, cause, consent). Because if one of those 3 is lacking, even if there’s an earnest money
paid, the contract is still not perfected.

If there is an earnest money and all the elements are present, then it is a stronger proof that the sale is
perfected.

11) WHAT IF THE EARNEST MONEY OR DOWNPAYMENT IS FORFEITED?

That forfeiture is not provided by law but rather a contractual stipulation. In other words, the parties
agree that that money is forfeited.

Forfeiture is only allowed if there is a stipulation. Otherwise, if there’s no stipulation for the forfeiture of
earnest money and the contract is rescinded, then by virtue of RESTITUTION, the earnest money must
also be returned.

DISTINGUISH EARNEST MONEY FROM OPTION MONEY

EARNEST MONEY: The title of the thing passes to the buyer upon delivery. There’s already a sale,
perfected. It may be proof of perfection of contract. Forms part of the purchase price. The buyer has to
pay the balance.
OPTION MONEY: The title remains with the seller until the price is fully paid. Not yet perfected, it’s
merely an option to enter into the contract of sale or not. There’s no balance to talk about. Option
contract is supported by consideration separate from the purchase price and the contract of sale has its
own separate consideration agreed upon by the parties.