Michelle Gay A.

Palasan
ST
CHAPTER 5 – 1 PART
FORMATION OF SALE

STAGES IN LIFE OF SALE

A. POLICITACION
- negotiation, preparation, conception, or generation stage
- period of negotiation and bargaining
- ends at the moment of perfection
- an imperfect promise is merely an offer by an offeror to an offeree
- unaccepted unilateral promise to buy and sell, prior to acceptance, does not give rise to any
obligation or right, and creates no privity between the offeror and offeree.
- These relations, until a contract is perfected, are not considered binding commitments; and at
any time prior to the perfection of the contract, either negotiating parties may stop the
negotiation, and walk away from the situation, generally without adverse legal consequences.
- “freedom to contract” (right to choose with whom to contract and what to contract)
- an owner is free to offer the subject property for sale to any interested person, and is not duty
bound to sell the same to the occupant thereof, absent any prior agreement vesting the
occupants the right of first priority to buy
- Populated of legal creatures, which are not contracts of sale as defined under Art. 1458 of Civil
Code, but each of them have, as the main object of their existence, the fervent hope of becoming
a valid and binding sale
- None of the legal creatures within this stage constitute a sale.

Negotiation
- Covers the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).
- Deals with legal matters arising prior to the perfection of the contract of sale, covering the legal
concepts of invitation to make offer, offer, acceptance, right of first refusal, option contract,
supply agreement, mutual promises to buy and sell (contracts to sell), and even agency to sell
or agency to buy.
- formally initiated by an offer, which must be certain

1. ADVERTISEMENTS AND INVITATIONS

General Rules (GR)

- business advertisements of things for sale are not definite offers, but “mere invitations to make
an offer” (Art. 1325, CC)
- advertisements for bidders are simply invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder (Art. 1326, CC)
- less than offers
- constitute merely invitations to make an offer, or mere proposals
- direct acceptance of such advertisements does not give rise to a valid and binding sale
- even when the advertisement contains a certain offer, it remains legally a mere invitation so long
as it is addressed to the public at large

Exceptions (EXC)
- unless it appears otherwise (Art. 1325, CC)
- unless the contrary appears (Art. 1326, CC)
- covers a determinate subject matter, price certain and ascertainable, with the manner of
payment provided
- first absolute acceptance shall be binding, or when it is addressed to a particular offeree.
- Examples (EX)
 advertisements constitute offers, and if certain and accepted directly, would give rise to
a valid and binding sale
 Michelle Gay A. Palasan
 advertisement that specifies a determinate subject matter, the price, and terms of
payment as to be equivalent to an offer certain gives rise to a valid and binding contract
of sales ( indicates that it is not merely an invitation to make an offer, valid and binding
contract of sale if absolutely accepted)

2. OFFERS
- certain offer remains subject to the complete will of the offeror prior to its acceptance
- may be withdrawn or destroyed by the offeror prior to its acceptance regardless whether the
offeree learns about such withdrawal or not
- offer with a period expires at the end of the period without further action or by withdrawal at
any time prior to acceptance
- offer will be extinguished by the happening of resolutory condition, or the certainty that the
suspensive condition will not happen, and in all cases, without need of further action on the part
of the offeror

- Rights of the Offeror

 attach any term or condition he desires to his offer
 may fix the time, place, and manner of acceptance

- Offeree
 no authority to treat it as consisting of separate and distinct parts
 he must accept and comply with all the requirements provided in the offer
 has only the choice of accepting or rejecting the offer in its entirety
 no choice to reject a portion of the offer, which is disadvantageous and accept only that which
is beneficial
 choice to indicate further negotiations by making a counter-offer

- Counter – Offer
 replaces and repeals the original offer
 always considered in law a rejection of the original offer
 extinguishes the original offer
 when the offeree negotiates for a much lower price results to rejection of the offer
 conditional acceptance of an offer, which extinguishes the original offer
 must be absolutely accepted by the original offeror to give rise to a valid sale

- Qualifiedly Accepted Offer

 Extinguishes the original offer and cannot be further accepted

- Offer Becomes Ineffective Upon:

 Death
 Civil Interdiction
 Insanity
 Insolvency of Either the Offeror or Offeree Before the Acceptance is Conveyed and Received
by the Offeror

3. OPTION CONTRACTS
 Remedy: Specific Performance
a. “Location” of Options
 An accepted unilateral promise to buy or sell a determinate thing for a price is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
(Art. 1479, CC)
 Michelle Gay A. Palasan
 GR
 When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal. (Art.
1324, CC)
 EXC
 When the option is founded upon a proper consideration (something paid or
promised), the offer may not be withdrawn during the OPTION PERIOD because it has
essentially become a “CONTRACTED OFFER”, which is bounded by the principles of
mutuality and obligatory force. (Art. 1324, CC)

b. Definition and Essence of Option Contract

 Jurisprudence (JPN)
 Enriquez de la Cavada v. Diaz
 Option Contract as a privilege existing in one person, for which he had paid a
consideration, giving him the right, if he chooses to buy a certain merchandise or
certain specified property at a fixed price from another person at any time within
the agreed period.

 Adelfa Properties, Inc. v. Court of Appeals (CA)

 Option is a continuing offer by which the owner stipulates with another that the
latter shall have the right to buy the property at a fixed price within a certain time,
or under, or in compliance with certain terms and conditions, or which gives to the
owner of the property the right to sell or demand a sale
 Sometimes called an unaccepted offer
 Not of itself a purchase, but merely secures the privilege to buy
 Not a sale of property, but a sale of the right to purchase
 Contract by which the owner agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time
 Owner does not then agree to sell the property
 Owner sold the right or privilege to buy at the election or option of the other party
 Imposes no binding obligation on the person holding the option, aside from the
consideration for the offer
 Until acceptance, it is not a contract of sale
 It does not vest, transfer, or agree to transfer any title to or any interest or right in
the subject matter, but it is merely a contract by which the owner of the property
gives the optionee the right or privilege of accepting the offer and buying the
property on certain terms

 Equatorial Realty Dev. v. Mayfair Theater

 option is one necessarily involving the choice granted to another for a distinct and
separate consideration as to whether or not to purchase a determinate thing at a
predetermined fixed price
 option is a contract granting a privilege to buy or sell within an agreed time and at
a determined price
 separate and distinct contract from which the parties may enter into upon the
consummation of the option
 must be supported by a consideration
 Deed of Option or Option Clause in a Contract
o MUST among other things indicate the definite price at which the person
granting the option is willing to sell to be VALID and ENFORCEABLE

 Carceller v. CA
 Enunciated the binding effects of options, with a more comprehensive definition
of an option
 Michelle Gay A. Palasan
 Option is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to
enter into a principal contract.
 Binds the party who has given the option not to enter into the principal contract
with any other person during the period designated, and within that period, to
enter such contract with the one to whom the option was granted, if the latter
should decide to use the option, which shall be a separate agreement distinct from
the contract which the parties may enter into upon the consummation of the
option.

c. Characteristics of an Option Contract as Compared with Sale

 Consensual contract
 Perfected by the meeting of the minds as to the subject matter and the price, even
when the separate consideration for the option itself has not been paid
 Onerous contract like sale
 Must have a separate consideration from the purchase price to be valid; without it, it
is void as a contract
 Unilateral Contract
 Only the offeror is obliged, even when the offeree has not paid the separate
consideration, and that his exercise of the option does not necessarily depend upon
his ability to pay the separate consideration
 Separate consideration is “something paid or promised” (Art. 1324, CC)
 Option to Purchase Such Subject Matter
 Subject Matter of an option contract
 Accepted promise to sell or accepted promise to buy
 Main Issues:
 Option or right to be secured is upon the obligation “to do”
o Unaccepted promise “to sell” or unaccepted promise “to buy”

 Option or right to be secured is upon the obligation “to give”

o Unaccepted obligation to transfer ownership and deliver possession of the
subject matter
 Consideration may be anything of value
 There can be a valid option contract even when no separate consideration is paid by the
optionee if the option is embedded in another valid contract, such as a contract of lease
or mortgage.
 Not covered by the Statute of Frauds and can be proved by parol evidence
 Oral option results to a sale contract itself subject to the Statute of Frauds and cannot
be proved with oral evidence
 EXC: there has been partial execution of the underlying sale

 JPN
 Adelfa Properties, Inc. v. Court of Appeals (CA)
 Held that a valid option is in essence a “contracted certain offer”
 Option is an unaccepted offer
o States the terms and conditions on which the owner is willing to sell his
land
o If the holder elects to accept within the time set, he must give notice to the
other party
o Accepted offer becomes a valid and binding contract
o If acceptance of the offer did not make within the allowed timeframe,
owner is no longer bound by his offer and the option is at an end
 Michelle Gay A. Palasan
 Contract of sale
o Fixes the relative rights and obligations of both parties at the time of its
execution, and leaves no choice to either party whether to withdraw or to
proceed with the contract
o Offer and acceptance are concurrent since the minds of both parties meet
in terms of the agreement

d. Obligations of the Offeror in a Valid Option

 Not to offer the sale of the object of option during the option period to any third party
 Not to withdraw the offer or option during the option period
 Hold the subject matter for sale and to transfer it to the offeree in the event that the
offeree exercises his option during the option period

e. Elements of a Valid Option Contract

 Consent
 Meeting of the minds

 Subject Matter
 Determinate or determinable object for a price certain, including the manner of
payment therof
 Option right to an “unaccepted unilateral offer to sell or to buy”
 real obligation

 Option right to an “accepted promise to sell or to buy”

 Personal obligation

 Prestation
 Consideration separate and distinct from the purchase price for the option given

 Must have all the requisites required for subject matter (possible thing, licit, determinate
or determinable) and its price (real, valuable, certain or ascertainable, terms of payment
stipulated). Absence of such requisites even if there’s a separate consideration is void as
an option contract and will not result into a valid sale.

 Valid option contract is essentially a contracted certain offer.

 JPN
 Salame v. CA
 In order for an option to be valid and binding upon the promissor, it must contain
the price certain.

 Kilosbayan, Inc. v. Morato

 Option contract is not a contract of purchase or sale but like the latter, the former
can only arise when the minds of the parties have met as to the specific object,
price, and payment thereof.

f. Meaning of “Separate Consideration”

 May be anything or undertaking of value
 Controlling Concept
 “separateness” of such consideration from the purchase price agreed upon

 JPN
 Villamor v. CA
 Buyers both a half parcel of land @Php70.00 per sq.m.
 Michelle Gay A. Palasan
 Executed Deed of Option for the remaining half parcel of land between the parties
with an express provision that purchase price will remain the same during the
option period.
 Such provision made the buyers agree for a greatly higher purchase price than the
actual reasonable prevailing price as stipulated on the Deed of Option.
 Option sought 13 years later, but was interposed by the sellers/offerors that it was
void for lack of consideration separate and distinct from the price stipulated.
 Separate consideration was an integral part of the higher price they paid originally
for the property, which is considered to be fine by the Court as long as it was not
part of the price to be paid for the other parcel of land.

 Vda. de Quirino v. Palarca

 Option to buy the leased premises at a stipulated price in the lease contract is not
without a separate consideration for in a reciprocal contract like lease, obligation
or promise of each party is the consideration for that of the other.

 Dijamco v. CA
 Bank granted the spouses/borrowers an option to pay monthly interest during the
one-year option period was considered to be a separate consideration to hold the
resulting option contract valid.

 Soriano v. Bautista
 There’s a wide range of cause or consideration that can validly support option
contracts.
 Real estate mortgage is merely an accessory contract does not have its own
consideration and supported by the same consideration that pertains to the
principal contract of mutuum.

 Montinola v. Cojuangco (1947)

 Although there’s no consideration expressly mentioned in an option contract, it is
presumed that it exists and may be proved, and once proven, the contract is
binding.

 Sanchez v. Rigos (infra) (1972)

 Court refused to apply the presumption of existence of consideration for option
contracts.

g. When Option is Without Separate Consideration

 JPN
 Sanchez v. Rigos (1972)
 Without a consideration separate from the purchase price, an option contract
would be void as a contract, but will still constitute a valid offer.
 In an accepted unilateral promise, there may be no valid contract without cause
or consideration, the promissor is not bound by his promise and may, accordingly
withdraw it.
 Burden of proof to show that the option contract was supported by a separate
consideration is with the party seeking to show it.
 Affirms Atkins Kroll and Co., Inc. v. Cua ruling, which treated an accepted promise
to sell, although not binding as a contract for lack of separate consideration, as
having a capability to generate a contract of sale.
 Overturned Southwestern Sugar Molasses Co. v. Atlantic Gulf and Pacific Co., and
Mendoza v. Comple stating that option contract without a separate consideration
is VOID, and can be withdrawn notwithstanding the acceptance made previously
by the offeree.
 Sanchez Doctrine
 Michelle Gay A. Palasan
o Option contract not supported by a separate consideration; void as a
contract, but valid as an offer.

 Montilla v. CA
 Oral promise to sell was not binding upon the offeror in view of the absence of any
consideration distinct from the stipulated price, despite allegations of having
accepted and demanded the option.

h. Option Not Deemed Part of Renewal of Lease

 An option to purchase embedded into a contract of leased when not exercised within the
original period is extinguished and cannot be deemed to have been included in the
implied renewal (tacita reconduccion) of the lease.

i. Option Period
 JPN
 Villamor v. CA
 When option contract does not contain a period, it is presumed that the exercise
thereof can be made indefinitely, otherwise, it would render uncertain status of
the subject matter.
 Actions upon written contracts must be brought within 10 years, and thereafter,
the right of option would prescribe. (Art. 1144, CC)
 Lessee loses his right to buy the leased property for a stipulated piece per sq. m.
upon his failure to make the purchase within the time specified. It reiterated that
where the lessee failed to accept the offer or to purchase on time, he loses his
right to buy the property and the owner can validly offer it to another.
 Even when an option is exercised within the option period by the proper tender of
amount due, nevertheless the action for specific performance to enforce the
option to purchase must be filed within 10 years after the accrual of the cause of
action as provided on Art. 1144, CC.

j. Proper Exercises of Option

 JPN
 Nietes v. CA
 The buyer (whose favor the option contract exist) may validly and effective
exercise his right by merely advising the seller (debtor of the decision) of his
decision to buy and express his readiness to pay the stipulated price (notice, need
not to be coupled with actual payment), provided that the same is available and
actually delivered to the offeror upon execution and delivery by him of the
corresponding deed of sale upon performance of each part of the agreement

 Carceller v. CA
 Discussed the principle of substantial compliance with the exercise of an option
and an instance where the Court allowed the exercise of the option beyond the
original option period.
 Leased Agreement granted lessee the option to purchase the leased property
within the lease period for the aggregate amount of Php1.8M and it stipulated
that such option shall be exercise through a written notice at anytime within the
option period and the document of sale has to be consummated within the month
immediately following the month when the Lessee exercised his option under said
contract.
 Lessee sent a written notice requesting for a six-month extension of the lease
contract to give him ample time to raise sufficient funds to exercise the option
within 15 days prior to the expiration of the lease period.
 Request was denied after the expiration of the lease period.
 Michelle Gay A. Palasan
 Lessee sent a written notice exercising his option to purchase but the lessor
refused on the ground that it was made beyond the option period.
 Court held in favor of the lessee because his notice within the option period
indicates his clear intention to purchase the property and that in a valid option
contract, the refusal of the offeror to comply with the demand of the offeree to
comply with the option may be enforced by an action for specific performance.
The delay of 18 days was considered neither “substantial” nor “fundamental” that
would defeat the intention of the parties. The purchase price would have to be
the fair market value of the property with legal interest thereon at the time the
option was exercised.

k. Effects of the Exercise of Option

 JPN
 Heirs of Luis Bacus v. CA
 Once an option is exercised, it gives rise to the ff:
o Obligations under an option to buy are reciprocal obligations
o Performance of one obligation is conditional on the simultaneous
fulfillment of the other obligation
o When private respondent (offeree) opted to buy the property, their
obligation was to advise petitions of their decision and make their
readiness to pay the price. They were not obliged to make actual payments
(just yet). They are required to pay upon the petitioner’s (offeror) actual
execution and delivery of the deed of sale.
 When an option is properly exercised, there is already a sale existing, and the laws
applicable to sales shall then apply.

 Limson v. CA
 In option contract, timely, affirmatively, and clearly acceptance of the offer would
convert the option contract into a bilateral promise to sell and to buy where both
parties are then reciprocally bound to comply with their respective undertakings.

l. Summation of Rules Pertaining to Options

 JPN
 Ang Yu Asuncion v. CA (1994)
 Applicable rules where there’s a period given to the offeree to accept a certain
offer:
o Unfounded period upon a separate consideration gives the offeror a right
to withdraw the offer before its acceptance or if an acceptance has been
made before the offeror knew about such acceptance, communicate the
withdrawal to the offeree
o Withdrawal must not be arbitrarily exercised; otherwise, could give rise to
a damage claim under Art. 19, CC.
o If there is a separate consideration, option contract is deemed perfected
and it would be a breach of contract to withdraw the offer during the
option period.
o An option contract is an independent contract and should be distinguished
from the projected main agreement of sale (has yet to be concluded). If
offeror withdraws the offer before its acceptance by the offeree, the latter
may not sue for specific performance on the proposed contract since it
failed to reach the perfection stage; however, the former renders himself
liable for damages for breach of the option.
o Care should be taken of the real nature of the consideration given, if it has
been intended to be part of the consideration for the main contract with a
right of withdrawal on the part of the offeree resulting to the perfection of
 Michelle Gay A. Palasan
the main contract or that of earnest money (similar instance) in sale that
can evidence its perfection.
 Optionee has the right but not the obligation to buy. Once the option is exercised
timely (offer is accepted before a breach of option), a bilateral promise to sell and
buy ensures and both parties are then reciprocally bound to comply with their
respective undertakings.
 Does not provide a commercially sound doctrine
o Offeror withdraws the offer prior to the acceptance or if accepted could
not give rise to a valid and binding sale
o Whether the offeror received consideration or not, he could in either case
withdraw the offer prior to the time the offeree have exercised the option.
 Not consistent with the doctrine it adopted for a “lesser form” of option (right of
first refusal)

 Tuazon v. Del Rosario-Sanchez

 Upheld Art. 1324 of CC

4. Right of First Refusal

 Remedy: Rescission
 Promise on the part of the owner that if he decides to sell the property any time in future,
he would first negotiate its sale to the promissee

 JPN
 Guerrero v. Yñigo (1954)
 Promised to sell the land to the mortgagee does not bind the land but it only gives
rise to a personal obligation of the mortgagor. Failure to comply does not
invalidate the sale to a 3rd person, but can institute a personal action for damages
against the mortgagor.
 If buyer contributed to the breach of contrac, both the buyer and mortgagor can
be liable for the damages.
 If buyer is guilty of fraud, gives rise to a ground for rescission of the contract of
sale in the mortgagor’s favor.
 Court did not allow an action for specific performance or rescission of the sale to
a 3rd party which constituted a breach of promise even when the latter purchase
the subject property in bad faith.

 Guzman, Bocaling, and Co. v. Bonnevie (1992)

 Right of first refusal was included in a contract of lease, but lessor sold the
property to another entity.
 Court held that a contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors. (Art. 1380-1381, CC)
Status of creditors could be validly accorded to that of the lessee for they had
substantial interest that were prejudiced by the sale of the subject property to
the petitioner without recognizing their right of first refusal priority under the
Contract of Lease.
 In lease contracts (reciprocal contracts), obligation or promise of each party is the
consideration for that of the other.
 Buyer is in bad faith since he is aware of the existing lease agreement.

 Ang Yu v. CA (1994)
 Court classified the right of first refusal as an innovative juridical relation or
belongs to a class of preparatory or juridical relations governed not by law on
contracts but by codal provisions on human relations for withdrawal of offer on
promises to buy and sell a real property. (commonly inserted on contract of lease)
 Michelle Gay A. Palasan
 Right of first refusal and option contracts are not deemed as perfected sale.
 Breach of right of first refusal authorizes the promisee to sue for recovery of
damages under Art. 19, CC.
 Right of first refusal is not governed by Art. 1324 and 1479, CC.
 Right of first refusal embodied in a separate contract creates an obligation of the
lessor to first offer the subject property to the lessee and should be enforced
according to the law of contracts instead of the panoramic and indefinite rule on
human relations. Lessee has to accept the offer at a certain price offered by the
lessor. (Should be considered under the doctrines applicable to option contracts.)
 Right of first refusal clause or contract cannot be subject of an action for specific
performance due to the lack of agreement on price.

 Equatorial Realty Dev. v. Mayfair Theater

 Right of first refusal is a contractual stipulation which does not provide for a price
certain nor the terms of payment, but only the specific period giving an exclusive
option in favor of the lessee to purchase the leased property in the event that the
lessor desires to sell the same.
 Found that the right of first refusal clause was violated and sold to buyer in bad
faith. The resulting contract is rescissible by the person in whose favor the right
of first refusal was given, and although no particular price was stipulated, the
purchase price will be the same price as that of the 3rd party buyer.
 Pins the enforceability of a right of first refusal on the obligatory force of the main
contract of lease to which it is attached to.

a. Limited Application of Equatorial Realty

 Applies only to rights of first refusal attached to a valid principal contract like a contract
of lease.

 JPN
 Sen Po Ek Marketing Corp. v. Martinez
 Held that the right of first refusal may be provided in a lease contract.
 Such right when not stipulated in a lease contract cannot be exercised and verbal
grants of such right cannot be enforced.
 Right of first refusal must be embodied in a written contract.

 Parañaque Kings Enterprises, Inc. v. CA and Riviera Filipina Inc. v. CA

 Purchased price offered to a 3rd party should be first offered to the lessee to have
full compliance to the contractual right of first refusal.
 Only if the person with such right of first option fails to exercise his right of first
priority could the seller lawfully sell it to others with the same terms and
conditions previously offered or at a higher price even if their agreement did not
provide it.
 3rd party buyer from the seller-lessor who violated the right of first refusal
assumes all the obligations of the lessor under the leased contract.

 PUP v. Golden Horizon Realty Corp.

 Right of first refusal is a contractual grant of the first priority to buy the subject
property and is dependent on the owner’s eventual intention and terms including
the price, that are yet to be firmed up.

b. Various Rulings on Rights of First Refusal Contained in Lease Agreements

i. Rentals Deemed to Be Consideration to Support Right
 JPN
 Lucrative Realty and Dev. Crop. V. Bernabe, Jr.
 Michelle Gay A. Palasan
 Consideration for the lease includes the consideration for the grant of the right of
first refusal.

ii. Sublessee May Not Take Advantage of Sublessor’s Right

 GR
 Grant of the right of first refusal cannot be availed by sublessee because the latter is
a stranger to the lessor and it may violate the principle of relativity if they are granted
with such right.

 EXC
 The contract of lease granted the lessee the right to assign the lease, then the
assignee would be entitled to exercise such right as he steps into the shoes of an
assignor-lessee.

iii. Right Does Not Extend with the Extension of the Lease
 Provision entitling the lessee the option to purchase the leased premises expires with
the termination of the original lease and not deemed incorporated in the impliedly
renewal or extension of the contract of lease.

iv. Obligations of the Offeror Under a Right of First Refusal Attached to a Lease
 Lessor has a legal duty to the lessee not to sell the leased property to anyone at any
price until after the lessor made an offer to sell and the lessee failed to accept it.

v. Right Does Not Apply When There is No Intention to Sell to a Third Party
 If the lessor-owner seeks to eject the tenant on the ground that the former needs the
premises for residential purposes, the tenant cannot invoke his right of first refusal.

5. Proposed Doctrine on Option Contracts vis-à-vis

a. Alternative Doctrine of Enforceability of Rights of First Refusal
 Right of first refusal is a valid contractual relation within the coverage of the
innominate contract do ut facia (I give that you may do.) and becomes a personal
obligation to do.
 The promissee gives a separate consideration to support a contractual commitment.
Thus, becomes a binding contract between the promissor and promissee and would
constitute a mutual promises to negotiate a possible contract of sale over a
determinate subject matter under Art. 1479.
 Remedy: Rescission for breach of contract allowing recovery of damages under the
Contract Law than the difficult cause of action for recovery of damages under Art. 19,
CC on “abuse of right”.

b. Enforceability of Options Should Be at Par With, If Not At a Higher Level Than Rights of First
Refusal
 Supported by a separate consideration to give rise to a valid and binding contract of sale
for option contracts.
 Earnest Money Scheme
 Sale is perfected upon the granting of earnest money with clear option on the part of
the buyer that stipulates withdrawal from the contract will result to the forfeiture of
the money paid as earnest money.

6. Letter of Intent to Buy and Sell

 Manifestation whereby the purported seller and buyer memorialize their mutual intentions
to buy and sell a determinate thing
 Means to negotiate in earnest towards achieving a perfected contract of sale.
 Michelle Gay A. Palasan
 Neither a contract to sell or a conditional contract of sale, but only a manifestation of the
mutual intentions (Muslim and Christian Urban Poor Assn., Inc. v. BRYC-V Dev’t. Corp.

7. Mutual Promises to Buy and Sell

 A mutual promise to buy and sell a determinate thing at a specified price is binding as an
executory agreement.
 Acceptance of the option offered is equivalent to an acceptance of an offer to sell for a price
certain creates a bilateral contract to sell and buy upon acceptance. The offeree assumes the
obligations of a buyer (Villamor v. CA).
 Remedy for Breach: Recovery of Damages since it is a personal obligation. Demanding specific
performance equates to involuntary servitude (Villamor v. CA).
 Unconditional mutual promise to buy and sell of a determinate object at a fixed price can be
obligatory. Remedy: Specific Performance (Ang Yu Asuncion)

B. PERFECTION
- birth of the contract
- point in time when the parties come to agree on the terms of the sale
- takes place upon the concurrence of the essential elements thereof
- born from the moment there is meeting of the minds upon the thing which is the object of the
contract and upon the price and the manner of its payment
- actual contract of sale
- seller obligates himself for a price certain to deliver and transfer ownership of a specified thing
or right to the buyer over which the latter agrees
- until a sale is perfected, it cannot become an independent source of obligation, nor serve as a
binding juridical relation
- vitiated consent makes the contract VOIDABLE
- consent may be vitiated by any of the ff:
 mistake
 violence
 intimidation
 undue influence
 fraud

1. Consent that Perfects a Sale

 must have mutual consent
 involves a meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service such that the offer must be certain
and the acceptance is absolute (Gomez v. CA)

2. Offer Must Be “Certain”

 In the Law of Sales, an offer becomes certain when it is floated by the offeror having within
its terms the description of the ff:
 subject matter that has all three requisites:
 Possible thing
 Licit
 Determinate or determinable at the moment of delivery

 Price that must have the following requisites

 Real
 Constitute Valuable Consideration
 Must Be Certain or Ascertainable
 Michelle Gay A. Palasan
 Terms of Payment

 Offer is certain when there is an offer to sell or to buy a subject matter for a price having all
the seven essential requisites mandated by law for the subject matter or price.
 Absence of even just one essential requisite pertaining to the subject matter or price in the
terms of the offer, makes such offer not certain and cannot give rise to a valid sale even when
such offer is accepted by the offeree.

3. Acceptance Must Be “Absolute”

 Offer must be plain and unconditionally accepted. There is no room for negotiations. Any
negotiation extinguishes the offer.
 Acceptance must be unequivocal and shall be without any variation whatsoever; any
modification or deviation from the offer annuls it and frees the offeror to offer it to another
person. (Beaumont v. Prieto)
 Placing the word “Noted” and signing such note at the bottom of the written offer cannot be
considered an acceptance that would give rise to a valid sale. Such note by a branch matter
and not approved is a clear indication that there is no perfected contract of sale to speak of
(DBP v. Ong).

a. When Deviation Allowed

 JPN
 Villonco Realty v. Bormaheco
 Bormaheco sent a writer offer to Villonco Realty providing the terms for the sale
of its Buendia lots Php400.00 per sq. m. with earnest money of Php100K, which
will be returned if the sale is not consummated and that the deed of sale would
be executed within 45 days.
 Villonco Realty replied confirming the terms with the deviation that if the sale is
not consummated it will earn interest of 10% accompanied by a check of Php100K
as earnest money.
 Bormaheco encashed the check but he later refused to proceed with the sale and
returned the earnest money stating that Villonco Realty had given a mere
counter-offer to the original offer. Thus, no sale was perfected.
 Court ruled that there was a perfected sale that arose from the exchange of
correspondences even if there was a modification or correction contained in the
acceptance. The changes were not substantial but merely clarificatory.

b. Acceptance May Be Express or Implied

 May be evidenced by some act, or conduct communicated to the offeror, either in a
formal or informal manner that clearly manifests the intention or determination to accept
the offer to buy or sell.
 Plethora of Acts Manifested in JPN:
 Payment of the purchase price
 Declaration of the property for taxation purposes
 Payment of real estate taxes thereon
 Co-owner’s signing as witnesses to the covering deed of sale
 Similar acts showing buyer’s assent to the contract

c. Acceptance By Letter or Telegram

 Does not bind the offeror EXCEPT form the time it came to his knowledge
 The offeror may withdraw his offer anytime even if an acceptance has been mailed or
sent to the offeror provided that such withdrawal happened before the offeror has
knowledge of the acceptance.
 Michelle Gay A. Palasan
d. Acceptance Subject to Suspensive Condition
 The sale is not deemed perfected if the sale is subject to a suspensive condition even
when there is meeting of minds as to the subject matter and its price.
 When a sale is made subject to a suspensive condition, there is already a contract upon
the meeting of the minds as to the subject matter and its price. Since the principles of
mutuality and obligatory force come into play but because the condition did not happen,
the contract itself and its underlying obligations are not yet demandable; and in case of
non-happening of the condition, the contract is extinguished as though the contract has
never been entered into, as the consequence of the retroactive effect of the non-
happening of the suspensive condition.

e. Acceptance in Auction Sales

 Perfected when the auctioneer announces its perfection by the fall of the hammer or in
other customary manner.
 Until the announcement of perfection of sale, 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.
 A right to bid may be reserved expressly by or on behalf of the seller; however, where
notice has not been given that the sale by auction is subject to a right to bid on behalf of
the seller, it shall be unlawful for the seller to bid for himself or to employ or induce any
person to bid at such sale on his behalf.

C. CONSUMMATION
- Death of the contract, which is the process of fulfillment or performance of the terms agreed
upon in the contract
- It begins when the parties perform their respective undertakings under the contract culminating
in the extinguishment thereof.