SALCLAW WEEK 6

STAGES OF CONTRACT OF SALE

1. Policitation – unilateral promise to buy or sell, which occurs before the acceptance of an offer.
a. Offer
i. Prior to acceptance, is subject to the complete will of the offeror.
ii. It may be withdrawn by the offeror prior to its acceptance.
iii. The offer will disappear or lapse upon the happening of the condition or period
placed upon it.
iv. When the offer is floated unconditionally (meaning if offeree knows about the
offer but is not doing something about it, such as accepting or rejecting it) the offer
will be extinguished through the passage of reasonable time.
v. The offer cannot be accepted partially or even substantially. The offer must be
accepted absolutely

b. Option Contract – Art 1479 “An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.”
- a privilege existing in one person, for which he had paid a consideration,
and which gives him the right to buy certain merchandise or certain specified property,
from another person, if he chooses, at any time within the agreed period at a fixed price.
(Enriquez de la Cavada v. Diaz)
- It is simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price within a certain time.
He does not sell his land; he does not then agree to sell it; but he does sell something, that
is, the right or privilege to buy at the election or option of the other party. Its distinguishing
characteristic is that it imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a
contract and does not vest, transfer, or agree to transfer, any title to, or any interest or
right in the subject matter, but is merely a contract by which the owner of property gives
the optionee the right or privilege of accepting the offer and buying the property on certain
terms. (Adelfa Properties, Inc. v. Court of Appeals)
- Suppose A is a movie script writer and B runs a movie production
company. A says to B, "buy my script." B says "How about this – I will pay you $5,000 so
that you do not let anyone else produce your movie until one year from now. If I do
produce your movie in that year, then I will give you another $50,000, and no one else
can produce it. If I do not produce your movie in that year, then you're free to go." If the
two subsequently get into a dispute, the issue of whether a contract exists is answered.
B had an option contract—he could decide to produce the script, or not. B's consideration
passed was the $5,000 down, and the possibility of $50,000. A's consideration passed was
the exclusive rights to the movie script for at least one year.
 Characteristics of Option Contract

1. Onerous – It has its own price or consideration apart from the purchase price.
2. Principal – Separate and distinct to the main contract
3. Consensual – Meeting of minds as to the subject matter and the price would give
rise to the option contract.

Elements of Option Contract

1. Consent
2. Subject matter
3. Prestation - A consideration separate and distinct from the purchase price for the
option given.

- the why of the contracts, the essential reason which moves the contracting parties
to enter into the contract (Gonzales v. Trinidad, 67 Phil. 682)

Meaning of “Separate Consideration”

Unlike in a sale where the price refers to cash or its equivalent (“valuable
consideration”), in an option contract the consideration may be anything or undertaking
of value.

Period of Exercise of Option

Written contract – 10 years (Art. 1144 (1) Civil Code)

when the option contract does not contain a period when the option can be
exercised, it cannot be presumed that the exercise thereof can be made indefinitely, and
even render uncertain the status of the subject matter. (Villamor vs Court of Appeals)

c. Rights of First Refusal - a promise on the part of the owner that if he decides to sell the
property in the future, he would first negotiate its sale to the promissee.
- The boundaries of the property sold should be the boundaries of the offer under the
right of first refusal. (Equitorial v. Mayfair)
- Sen Po Ek Marketing Corp. v. Martinez,264 ruled that when the right of first refusal is
not stipulated in the lease contract, it cannot be exercised, and verbal grants of such
right cannot be enforceable since the right of first refusal must be clearly embodied in
a written contract.
2. Perfection – A COS is “born” from the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price and the manner of its payment.
- Until a sale is perfected, it cannot be an independent source of obligation.

Acceptance must be absolute

- (Zayco v. Serra,121) it must be plain and unconditional, if it involves any new proposition, for
in that case, it will not be in conformity with the offer.
- (In DBP v. Ong,124) “By no stretch of imagination, however, can the mere ‘NOTING’ of such an
offer be taken to mean an approval of the supposed sale. Quite the contrary, the very
circumstance that the offer to purchase was merely ‘NOTED’ by the branch manager and not
‘approved,’ is a clear indication that there is no perfected contract of sale to speak of.

Acceptance may be expressed or implied

- Acceptance may be evidenced by some act, or conduct, communicated to the offeror, either
in a formal or an informal manner, that clearly manifest the intention or determination to
accept the offer to buy or sell.

Acceptance by letter or telegram

- Acceptance made by letter or telegram does not bind the offeror except from the time it came
to his knowledge. Therefore, even if an acceptance has been mailed or sent to the offeror, the
offeror may still withdraw his offer any time before he has knowledge of the acceptance.

EARNEST MONEY - money paid to confirm a contract.

- Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract. (Art. 1482, Civil Code)
- it is not the giving of earnest money, but the proof of the concurrence of all the essential
elements of the sale which establishes the existence of a perfected sale

Distinction bet. Earnest Money and Option Money

(a) Earnest money is part of the purchase price, while option money is the money given as a distinct
consideration for an option contract;

(b) Earnest money is given only where there is already a sale, while option money applies to a sale
not yet perfected; and

(c) When earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms
of the option.

Expenses of Execution and Registration

In general, the expenses for the execution and registration of the sale shall be borne by the seller,
unless there is a stipulation to the contrary. In the case of goods, unless otherwise agreed, the
expenses of, and incidental to, putting the goods into a deliverable state must be borne by the
seller.

The duty to withhold taxes due on the sale is imposed on the seller.