REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS MARCH 03, 2021

CHAPTER 5
FORMATION OF SALE
(Paano nagkakaroon ng COS? How is it different with other contracts?)
STAGES IN THE LIFE OF SALE (This is also the stages in other kinds of contracts)
The phases that a contract of sale goes through have been summarized by the Supreme Court to be as follows:
a. POLICITATION, negotiation, preparation, conception or generation stage, which is the period of negotiation and
bargaining, ending at the moment of perfection; Ex. Namamlengke kayo, bibili ka ng baboy.
B: Pabili ng isang kilong baboy;
S: 400 pesos po;
B: Ang mahal naman, babaan mo 350 nalang
• Dito nakikipag negosasyon ka, bargaining, nagtatawaran
• WALA pang kontrata, hindi pa buhay ang contract sa stage na ito
b. PERFECTION or “birth” of the contract, which is the point in time when the parties come to agree on the terms of
the sale; and
S: Hindi po masyadong mababa ang 350, 380 nalang po
B: Ok 380
• In this stage nag meet na ang minds ng buyer and seller sa isang kilong baboy for Php 380
• Dito pa lang nagkaroon ng contract
c. CONSUMMATION or “death” of the contract, which is process of fulfillment or performance of the terms agreed
upon in the contract.
S: (binigay na ang baboy)
B: (binigay na yung 380, kabayaran doon sa baboy)
• Ito yung mga mangyayari after the perfection of the contract
• Dito ginagawa ang mga OBLIGATIONS – Seller: the transfer of ownership and the delivery of the thing;
Buyer: the payment of purchase price
• Sa scenario sa palengke, mabilis mako-consummate ang contract dahil mabilis lang ang delivery of the
thing at abutan ng bayad, pero kung ang payment ay three-gives means mas mahaba at mas matagal ang
consummation stage
• Remember that, dahil ito ay kontrata may mga rights, rules and obligation diro specially in the
consummation stage.
This is connected to the provisions for subject matter. The subject matter must be determinate or at least determinable at
the time of . Paano malalaman kung determine or at least determinable na ang subject mattercontract? RECAP:
A thing is determinable only when two (2) requisites are present: (according to Villanueva meron daw dalawang
test to know that a thing is determinate or determinable)
a. If at perfection of the sale, the subject matter is capable of being made determinate (the “capacity to
segregate” test); and
It is capable of being determinate or determinable at the time of perfection, dahil kapag consummation na
ang stage ng contract tyaka naging determinate or determinable pwedeng maging void ang contract.
b. Without the necessity of a new or further agreement between the parties (the “no further agreement”
test).
• No further agreement test – ang isang thing ay determinate or determinable kapag hindi mo na kailangan
ng another agreement.
• May ibebenta ka kay Joan , sabi mo Joan may ibebenta ako saiyo for 10,000 pesos, then pumayag si Joan
– dito walang valid COS dahil walang determinate or at least determinable thing. Sa no further agreement
test hindi rin siya pumasa, dahil kailangan niyo pang mag-usap ULIT para mapag-agreehan ang subject
matter ng contract niyo.
• Dapat at the time of perfection, hindi na kailangan mag-agree pa at pagkasunduan pa ang subject matter
niyo, dahil kapag ganito na kailangan pang pagkasunduan ang subject matter means hindi ito determinate
or at least determinable.
Paano malalaman kung nagkaroon na ng perfection ng contract ?
• Kapag hindi mo na kailangan ng further agreement in order to determine the subject matter valid ang subject
matter mo, kaya mo ng magkaroon ng PERFECTION stage. Kasi kung hindi determinate or
at least determinable ang isang subject matter nasa POLICITACION stage pa lang, so wala pang contract.
• Kailangang malaman mo kung ano ba yung mga nabuong kontrata at the time of perfection para malaman mo kung
ano yung mga corresponding obligations ng bawat isa.

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STAGES IN THE LIFE OF SALE
The negotiation stage “covers the period from the time the prospective contracting parties indicate interest in the contract
to the time the contract is concluded (perfected) – parehong parties nagbigay ng interes na makipag kontarata a isa’t isa.
The perfection stage of the contract takes place upon the concurrence of the essential elements thereof – elements are
Consent, Subject Matter, and Price. The stage of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.”
• Perfection stage – is a single point in time lang, actually MARK lang siya kung kailan mag-uumpisa ang
consummation. POLICITACION STAGE
Policitacion or negotiation stage actually deals with legal matters arising prior to the perfection of sale, dealing with the
concepts of invitation to make offer, offer, acceptance, right of first refusal, option contract, supply agreement, mutual
promises to buy and sell or contracts to sell, and even agency to sell or agency to buy.
• Bakit natin dinidiscuss ang Stages of Contract? Kasi ang COS, meron yang mga preliminary contracts ang it covers
the Policitation Stage.
• Kapag ba nagkaroon ka na ng Contract to sell may perfected contract ka na? No because lahat ng nakaundelrline
sa taas ay ang mga pangyayari BEFORE perfection of the COS, ito yung mga preparatory contracts na ginagawa
ng tao.
• Kailangan ba may mga ganito para magkaroon ng COS? No, not necessarily pero ginagawa ito kung malalaki na
ang amounts involve sa COS. Dahil masyado nang malalaki ang responsibilities nagkakaroon ka na ang
preparatory contracts.
Normally, negotiation is formally initiated by an offer, which, however, must be certain; an imperfect promise (policitation) is
merely an offer by an offeror to an offeree. Policitation, or unaccepted unilateral promise to buy or to sell, prior to acceptance,
does not give rise to any obligation or right, and creates no privity between the purported seller (offeror) and buyer (offerees).
• Sabi mo doon sa nagtitinda ng baboy sa palengke bibilhin mo yung 1 kilo ng baboy for 400 pesos, may legal
obligation na ba si seller kapag ganito? No, wala pa kaya ang sabi sa itaas … “unaccepted unilateral promise to
buy or to sell, prior to acceptance, does not give rise to any obligation or right” – in this case hindi pa tinatanggap
ng Seller ang alok ni Buyer.
• Usually in the Policitacion stage, wala pa kayong legal repercussions on normal circumstances kasi hindi pa
tinatanggap ang offer, wala pang meeting of the minds. (maliban nalang sa mga idi-discuss mamaya).
o Atty: Mica ibebenta ko sa’yo ang cellphone ko in the future, gusto mo bang bilhin?
 Habang di pa ina accept ni Mica ang offer, wala pa siyang obligation unles i-accept niya ang offer ni
atty.
o Mica: Yes atty. bibilhin ko ang cellphone mo
 In this phase, may obligation na si Mica kasi may meeting of the minds na sila ni Atty. Pero this is
not a valid COS dahil wala pang price
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 party may stop the negotiation, and walk away from the situation, generally without adverse
legal consequences.
• Dahil nasa Policitaion palang wala pang perfected COS, it is generally without adverse legal consequences, kasi
nga wala pa sa Perfection so wala pang napo-form na obligations – this is applicable to COS only, kasi sa ibang
contract may mga legal consequences yan.
o Ex. Nagpareserve ka ng Condo worth 20,000, hindi mo tinuloy, so technically di natuloy ang COS. In this case
may adverse legal consequence ka – na forfeit ang reservation pay mo na 20,000. Pero HINDI iyon adverse
consequence ng sale, kasi hindi nga natuloy ang COS.

PREPARATORY / POLICITATION STAGE

(1) ADVERTISEMENTS AND INVITATIONS

Article 1325 of the Civil Code provides that “unless it appears otherwise,” business advertisements of things for sale
are not definite offers, but “mere invitations to make an offer.” likewise, advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.
• Sinasabi na yung mga ads, halimbawa real etate agent, sinabi na ibebenta niya ang bahay at lupa na ito ng 1.5M,
in so far as the Civil Code is concern, that is not considered as a definite offer daw – in this case protected ang
seller doon but that is merely an invitation to make an offer. Pero ang provision na ito ay hindi na masyadong
gumagana, kasi meron ng Consumer Protection Act na kung ano ang ine-expect ni buyer yun dapat ang mangyari,
kung ano ang inoffer mo, but in so far as the Law on Sales is concern, hindi siya considered as definite offer. Kasi
technically mga misleading ads ito ng seller, so ligtas sila sa Law on Sales, pero meron kasi tayong iba pang batas
which is yun ngang Consumer Protection Act that prohibits misleading ads, so ang ginagawa ng mga sellers /

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 advertisers naglalagay sila ng mga disclaimer para di sila makasuhan ‘For limited time only’, ‘for the first 100 callers’,
‘until supply last’
• So itong Art. 1325 hindi masyado itong ginagamit sa Pilipinas,
The general rule for advertisements is that they are less than offers, and constitute merely invitations to make an
offer, or mere proposals; the direct acceptance of such advertisements thereof do not give rise to a valid and binding
sale. The exception to this general rule is when “it appears otherwise,” in which case such advertisements would
constitute offers, and if certain and accepted directly, would give rise to a valid and binding sale.

(2) OFFERS
An offer, prior to its acceptance, is subject to the complete will of the offeror; it may be withdrawn or destroyed by
the offeror prior to its acceptance; and it is not even necessary that the offeree learns of the withdrawal. If the offer
is given for a period, the expiration of the period without further act or its withdrawal prior to acceptance would
destroy the offer.
• Offer is a component of Consent. Sabi nga na sa isang kontrata dapat may meeting of the minds –
nangyayari ang meeting of the minds kapag may nag-offer (“Suki bili ka na 200 nalng para sa isang kilong
isda” “Gawa mo ako ng assignment, treat ko lunch mo”). Kapag nag-offer ka at HABANG hindi pa ina-
accept ni offeree pwede mong i-withdraw ang offer mo, dahil kapag na-accept na ‘touch move’ na yun,
bawal ng bawiin, dahil nagkaroon na kayo ng meeting of the minds and so obligation arises.
• Sa offer na di pa natatanggap, unilateral pa lang, si offeror nagbigay pa lang ng offer wala pang feedback
galing sa inalok mo, so pwede mo pang bawiin kung ayaw mo na, dahil wala ka pa naman legal
responsibility
The offeror has the right to attach to an offer any term of condition he desires, and may fix the time, place and
manner of acceptance; and the offeree has no authority to treat it as consisting of separate and distinct parts, since
he must accept and comply with all the requirements provided in the offer.
• “Ibebenta ko yung bahay ko, pero kailangan ng 500,000 down payment at 50,000 monthly” – that’s the
condition of the seller. Then si B gusto niyang bilhin yung bahay payag siya sa 50,000 monthly pero 200,000
lang ang down payment. Is that considered as an accepted offer? No, because the terms and conditions
are not fully accepted, walang meeting of the minds. Ang taong magkakaroon ako ng meeting of the mind
ay yung taong makakasatisfy sa lahat ng kondisyon na binigay ko.
• Another ex. “Before ko ibenta ko ang bahay na ito kailangan ko ng Birth Certificate, ID, then dapat BIR
registered ka” then may tao na gustong bumili kaya niyang i-satisfy ang pera pero hindi siya BIR registered
– the offeror or yung seller hindi pa siya naka-lock in sa tao na iyon kasi hindi niya nasunod ang mga
conditions ko.
• COUNTER-OFFER ang nangyari sa unang scenario kanina kung saan 200,000 lang ang gustong i-down
ni Buyer, wala ring acceptance na nangyari. Remember sa consent kailangan mag-meet ang offer and then
acceptance is completely and unconditionally met – dapat swak lahat in all matters, kasi yung nangyari
qualified ang acceptance – tinanggap niya pero may iba pang mga kondisyon. MAGKAKAROON lang ng
meeting of the minds kung tinangggap ni offeror ang counter-offer ni offeree – kung tinanggap niya yung
200,000 na down payment.

(3) OPTION CONTRACTS

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise
is supported by a consideration distinct from the price.
• Kung may promise ka daw to but or sell a determinate thing tapos meron itong hiwalay na Cause or
Consideration DISTINCT or hiwalay doon sa price it is valid and binding, pwede mong i-demand ito.

(a) Definition and Essence of Option Contract

Carceller v. Court of Appeals, enunciated the binding effects of options, which seems to be a more comprehensive
definition of an option, thus –
• An 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. It 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 into such contract with the one to whom the option was granted,
if the latter should decide to use the option. It is a separate agreement distinct from the contract which the
parties may enter into upon the consummation of the option.
• Ito muna ang ginagawang kontrata bago magkaroon ng COS.
• Para magkaroon kayo ng COS, gumawa ka ng preparatory contract which is the Option Contract (OC).

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 • OC gives sufficient time sa isang tao para ibenta or bilhin ang isang bagay. Ex. Sabi ng buyer “Atty. pag-
iisipan ko muna kung bibilhin ko yung bahay at lupa mo, i-lock in mo sa akin for 30 days bago ako magsabi
kung bibilhin ko or not”. If yung buyer na ito after 30 days hindi pa rin siya nakakapag decide , the seller
pwede na niyang ibenta sa iba ang property
• Sabi ni Seller : “ gusto mo ng option contract, sige ang kontrata na ito ay nagkakahalaga ng 30,000”. Is this
30,000 pesos kasama na sa halaga nung COS na 1.5 M na halaga nung bahay? No, kasi siya ay isang OC
kaya siya nagiging OC because siya ay supported ng consideration distinct from the price. Siya ay isang
independent contract, meron siyang sariling Consent, Cause and Consideration. – Consent: agreement ng
parties a ila-lock in ang property, Object/Subject matter: RIGHT to enter into a contract of sale, Cause or
consideration: 30,000.

(b) Determining the “Location” of Options

The second paragraph of Article 1479 of the Civil Code governing options, provides that “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.”

In connection therewith, Article 1324 of the Civil Code, which covers offers and acceptance in general, provides
that: “When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal, except when the option is founded upon a consideration,
as something paid or promised.”

The exception would mean the opposite of what the previous phrase provides for, which should properly mean:
When the option is founded upon a proper consideration, then the offer may not be withdrawn at any time during
the option period; it has essentially become a “contracted offer,” bounded by the principles of mutuality and
obligatory force.

(c) Characteristics and Obligations Constituted in an Option Contract; Compared With Sale When
compared to a sale, an option contract is an onerous contract like sale, for it must have a separate
consideration from the purchase price, to be valid. An option without separate consideration from the offered
purchase price is void as a contract. Consideration in an option contract may be anything of value, unlike in
sale where it must be the price certain in money or its equivalent, or essentially a “valuable consideration.”
• Iba ang COS sa OC, ang OC ay isang preparatory contract while the COS ay kung anong alam natin ito
yung end goal ng isang OC
• Sa COS kailangana ng consideration ay price certain in money or its equivalent, sa OC naman pwedeng –
“Atty bibilhin ko yung bahay at lupa mo, bigyan mo ako ng 1 month to determine at makapaghanda kung
kaya kong bilhin ang property mo, kapalit ng 1 month na pag lock-in ng property mo na hindi mo ibebenta
sa iba, ipapahiram ko saiyo ang kotse ko” Cause or Consideration in this manner ay yung lease ng isang
bagay. (this is a valid contract dahil sa OC hindi kailangan na ang consideration ay price certain in money).
The most important distinction with sale, is that the subject matter of an option contract is actually not the subject
matter of the sought sale, but rather the option to purchase such subject matter, essentially an intangible subject
matter or a right; or more pointedly, the subject matter of an option contract is the accepted promise to sell or
accepted promise to buy.
• Sabi nga kanina ang subject matter ng OC ay yung right to buy, the right to sell, or the right to enter into a
COS, not the property itself ang binabayaran mo sa OC but the right.
Although a valid option contract has for its subject matter an option in favor of the offeree, it is also constituted of
the following obligations on the part of the offeror: (Obligations ng Offeror sa OC)
a) Personal obligation not to offer to any third party the sale of the object of the option during the option period;
(Vazquez v. Ayala Corp., 443 SCRA 231, 255 (2004)
• Hindi mo io-offer sa ibang tao yung property, kasi nga naka lock-in ito sa isang tao, may taong nagbayad
para ilock-in yung property for a certain period
b) Personal obligation not to withdraw the offer or option during option period; and
• Kai kung anong binigaykong option nakalagay yung mga conditions nito sa bentahan, kaya bawal i-retract
or bawiin yung mga kondisyon kasi nga naka lock-in yung kontrata.
c) Obligation to hold the subject matter for sale to the offeree in the event that offeree exercises his option
during the option period.
• Kailangan aalagaaan ko yung property, Ex. Ang inoffer mo ay aso, Pitbull 100,000 pesos, may buyer ka na
inaayos pa lang ang bahay at mga kagamitan nung dog so humingi siya ng lockin period. During the option
period kailangan alagaan ko yung aso (the obligation of the obligor in the obligation to give a determinate
thing – I must observe diligence of a good father of a family), part ito ng obligation mo habang hindi mo pa

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 naibibigay yung determinate thing, at dahil may OC kailangang alagaan mo pa rin ang aso, paliguan,
pakainin as part of your obligation.

(d) Elements of Valid Option Contract

The elements of a valid option contract are therefore as follows:
a) CONSENT or the meeting of the minds upon:
b) SUBJECT MATTER: an option right to an unaccepted unilateral offer to sell/accepted promise to sell, or
unaccepted unilateral offer to buy/accepted promise to buy:
i. a determinate or determinable object;
ii. For a price certain, including the manner of payment thereof;
• Take note na ang OC can either be an OC to sell or OC to buy
• Goal of the OC is to enter into the COS, so dapat part of your subject matter is that kumpleto na yung price
and subject matter mo. Isa-satisfy mo na yung requisites in order to have a valid subject matter and valid
price.
• Take note of the Subject matter – it must be licit, a possible thing and it must be determinate or at least
determinable.
• Sa price naman – it must be real, it must be certain or ascertainable…
c) PRESTATION: A consideration separate and distinct from the purchase price for the option given.
• Iba ang presyo ng OC sa purchase price.
Salame v. Court of Appeals, ruled that in an option, in order that such a promise may be binding upon the
promissor, it must contain a price certain. Kilosbayan, Inc. v. Morato, held that although an option to buy is
not a contract of purchase and sale, but like a contract of sale, an option contract by its statutory definition
can only arise when the minds of the parties have met as to the specific object thereof, the price and the
manner of payment thereof.
(e) 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. The more controlling concept is the
“separateness” of such consideration from the purchase price agreed upon.
(f) When Option is Without Separate Consideration
• Sanchez v. Rigos, held that without a consideration separate from the purchase price, an option contract
would be void, as a contract, but would still constitute a valid offer; so that if the option is exercised prior to
its withdrawal, that is equivalent to an offer being accepted prior to withdrawal and would give rise to a valid
and binding sale. (g) Period of Exercise of Option
• Villamor v. Court of Appeals, held that 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. Under Article 1144(1) of the Civil Code, actions upon written
contract must be brought within ten (10) years, and thereafter, the right of option would prescribe.
• Kailan ine-exercise ang OC? Normally kasi kapag sinabing OC, meron ka ng certain period, kapag walang
period sabi ng Art. 1144 of the Civil Code, kung ito daw ay written agreement 10 years effective ang isang
OC, sinusunod yung rule sa prescription.
SUMMARY OF THE CONCEPT OF OPTION CONTRACTS:
• Binibigyan mo ng time ang isang tao para makapag-isip kung bibilhin or ibebenta niya ang isang bagay
then it is founded by a separate consideration.

TIPS: ‘Know the concept by heart’, kasi kapag alam mo na ang concept makikita mo na ang obligasyon ng isang
tao, then iispin mo nalang kung ano ba yung fair and reasonable treatment pagdating sa transaction na ganun. Ex.
Magbebenta ka ng aso, questionable pa ba kung aalagaan mo ang aso o hindi? Siyempre kapag ganito alam mo
na that you have the obligation to take care of it.
Is Reservation Fee an Option Contract?
No, reservation agreement is not an option contract because it is not founded by a separate consideration. Ito yung
major factor kaya siya nadi-differenciate from OC and Contract to sell – Contract to sell may mga reservation din
kasi yan. Yung binayad mo kasi as reservation fee kadalasan iyan ay naga-act as ‘initial or advance payment’ na
doon sa purchase price. Di din kaila na masyado talagang magkahawig ang reservation agreement sa OC,
masyado kasing creative ang tao so ginagawa nila minsan pinapalabas nila ito as OC but in the first place advance
payment talaga ito. Always remember nalang that for it to be regarded as OC dapat meron siyang separate
consideration and meron ka dapat valid subject matter and valid consideration sa SALE. Means sa option contract
included na doon yung determinate or determinable object at price certain or at least certainable. Kasi kung wala

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 yung mga yun pwedeng hindi siya yung option contract under the Law on Sales pwedeng ibang kontrata siya or
walang contract at all. Ang laging tanong is kung ito ba ay Valid Option Contract ng COS?

Ex: May bentahan ng lupa ang value ng lupa ay 1M pero binenta mo lang for 1,000 – this is not a valid COS but it
can be another valid form of contract which is the COD.

TIPS: In answering the exam kailangan maging particular tayo sa mga wordings natin, at wag yung ‘sabi niyo po..’,
‘sabi ni atty’, have a formal basis kailangan very accurate tayo.

(4) RIGHT OF FIRST REFUSAL

One of the early cases that covered the situation of a right of first refusal (i.e., 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 promisee), would be case of Guerrero v.
Yñigo, where the promise was part of the undertaking of the mortgagor to the mortgagee.
• Kapag magbebenta sa ibang tao ang isang stockholder ng kanyang shares of stock, merong preemptive right yung
ibang stockholder, meaning pwede nilang bilhin yung binebentang shares nung stockholder. The right of first refusal
– bago mo ibenta sa ibang tao yung property ibenta mo muna kung kanino mo na promise yung property na iyon,
hayaan mo munang mag-refuse yung isang tao na merong Right of First Refusal (ROFR).
• This happens minsan kapag ginawang collateral yung isang property. Ex. Umutang ka kay Irene ng 1M then ang
security ay yung gagawin mong collateral sa utang yung lupa mo. Given na pwedeng ibenta sa iba ang isang
property kahit naka-mortgage, minsan may mga agreement sa Loan or utangan na kasama ang ROFR kasi
technically ikaw pa rin naman ang owner noon hindi yung inutangan mo, since ikaw ang owner may right ka na
ibenta yung lupa mo kahit nakasanla ito. Minsan doon sa mortgage agreement may ROFR, meaning kung ibebenta
ko sa ibang tao yung property iooffer ko muna ito doon kay Irene, on the same terms and condition kung paano ko
ibebenta ang property na iyon.
• Pwede rin ito in some scenario sa family or relatives, nagkakaroon ng inside agreement. Ex. A and B are
siblingsbinenta ni A kay B yung lupa niya dahil kailangan niya ng pera, so ngayon si B na ang may-ari nung lupa,
may times na naguusap yung both parties at nagkakaroon ng ROFR na in the future na gustuhing ibenta naman ni
B yung lupa io-offer niya muna ito kay A yung dating may-ari nung lupa, in the instance na hindi io-offer at hayaang
mag-refuse si A bago ibenta sa iba then may ROFR sa agreement , halimbawa binenbta ni B kay Z yung lupa,
pwedeng humingi ng danyos si a kay B sometimes pwede pang i-cancel yung kontrata kung naka annotate siya sa
titulo.
The prevailing doctrine therefore is that a sale entered into in violation of a right refusal of another person found in a valid
principal contract is rescissible. The basis of the right of first refusal must be the current offer of the seller to sell or the offer
to purchase of a prospective buyer. Only after the lessee grantee fails to exercise its rights under the same terms and within
the period contemplated can the owner validly offer to sell the property to a third person, again under the same terms as
offered to the grantee.
• Kung gusto mong bilhin yung property pabalik sayo dapat kung magkano siya ibebenta sa third person ganun rin
siya ibebenta sa taong may ROFR (promisee), which is ikaw.
• Sa ibang bansa ang term nila ay Right of First Offer (ROFO).

(5) MUTUAL PROMISES TO BUY AND SELL

The promise to sell a determinate thing coupled with a correlative promise to buy at a specified price is binding as an
executory agreement. Even in this case the certainty of the price must also exist, otherwise, there is no valid and enforceable
contract to sell.
• Nagpromise ang seller to sell at nagpromise ang buyer to buy, in both instances nagkakaroon sila ng accepted
offer, so in short meron nang valid consent, then dun sa promise to buy and sell meron na ring price and
consideration

CONTRACT OF SALE VS CONTRACT TO SELL

• COS may transfer ng ownership, sa Contract to sell wala pa siyang transfer ng ownership.
• Isa sa condition ng COS ay kailangan bayad mo muna yung whole purchase price bago ma-transfer ang ownership
kaya minsan may mga time na nako-confuse ang students sa delivery, kasi sabi delivery transfer ownership, pero
kung may agreement kayo na conditional ang transfer ng ownershipthen pwede iyon. Example: may mamahaling
cellphone ka worth 100,000 binenta mo kay Irene 10-gives monthly magbabayad si Irene saiyo ng 10,000,
nagkaroon kayo ng pirmahan, binigay mo ang phone mo kay Irene – dito ang legal owner pa rin ng phone ay ikaw,
dahil exception ito dun sa general rule na ‘delivery transfer ownership’, kahit na na kay Irene ng phone mo hindi pa
rin siya ang legal owner, kasi isa sa mga exception to the general rule ay kapag may prior agreement tapos ang
pirmahan ninyo ni Irene ay isang Contract to Sell, so yung ownership mata-transfer lang kay Irene upon completion
ng whole purchase price, doon pa lang mata-transfer yung legal title. Ito yung mga sample cases na kahit naibigay

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 mo na yung property hindi pa rin siya yung legal owner and commonly sa Contract to Sell ganun. Sa COS meron
ka ng perfected sale, sa Contract to Sell wala ka pang perfected sale.

*THE CONCEPTS ABOVE ARE ALL CONCEPTS THAT HAPPEN SA POLICITACION STAGE*

PERFECTION STAGE: OFFER AND ACCEPTANCE

A contract of sale is “born” form the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price (Art. 1475) and the manner of its payment. This meeting of the minds speaks of the intent of the parties
into entering into the contract respecting the subject matter and the consideration thereof.
• Ang batas kasi sinabi lang yung price, the manner of payment Supreme Court ang nagsabi noon, kaya di mo siya
madalas na makikita sa batas or in some authors, di sila nag-eexist.
• According to Villanueva, hindi lang dapat presyo ang determined s isang valid contract of sale dapat pati rinyung
manner of payment, though normally pwede naman iyon, sinusunod nalang nila what is customary (anong yung
practice sa market)
• Kailan nagkakaroon ng meeting of the minds? Kailangan alma ng seller and buyer ang obligation nila, pareho silang
nag-agree sa price, sa subject matter at sa iba’t ibang kondisyon ng bentahan.

(1) CONSENT THAT PERFECTS A SALE

Being a consensual contract, Article 1475 of the Civil Code provides that the sale is perfected at the moment there is a
“meeting of minds” upon the thing which is the object of the contract and upon the price. Article
1319 defines “consent” or “meeting of minds” as “manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.”
• The acceptance must be complete and unqualified, kasi kapag may nabago it is counted as counteroffer.
It stresses that the offer must be certain, and the acceptance absolute – it must be plain, unequivocal, unconditional and
without variance of any sort from the proposal; and that a qualified acceptance constitutes merely a counter-offer which
must in turn be absolutely accepted to give rise to a valid and binding contract. • Kung hindi full ang acceptance pwedeng
i-retract ang offer kasi hindi naman naperfect ang COS.
• Kung may counter-offer man dapat accepted yung counter-offer in order to constitute a valid meeting of the minds.
(2) OFFER MUST BE “CERTAIN”
For the perfection of a valid sale, there must be a “meeting of minds,” which means that an “offer certain” is met by an
“absolute acceptance;” any other offer which is not certain, no matter how absolutely it is accepted, can never give rise to
a valid sale.
• Atty: Irene may ibebenta ako sa’yo for 10,000; Irene: sige atty. bibilhin ko yan ng 10,000 – this is not a valid offer
kasi walang valid subject matter. Kailangan yung offer mo ay certain.
(3) ACCEPTANCE MUST BE “ABSOLUTE”
Zayco v. Serra, held that in order for an acceptance to have the effect of converting an offer to sell into a perfected contract,
it must be plain and unconditional, and it will not be so, if it involves any new proposition, for in that case, it will not be in
conformity with the offer, which is what gives rise to the birth of the contract.

(b) ACCEPTANCE MAY BE EXPRESS 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.
• Implied acceptance – walang sinabi yung buyer kung tinatanggap niya ba yung offer or hindi, maya-maya
nagdeposit na agad ng 10,000 sa seller (walang sinabi vocally). Another ex. Walang sinabi kung tinanggap
ang offer basta kinuha niya yung phone for example at ginamit at nilagyan ng sim card (wala man sinabi
kung tinatanggap yung binebenta na phone nakakuha naman si Seller ng implied acceptance thru doon sa
actions nung buyer basta kapag ginagamit na nung buyer yung thing as if sa kanya ito that can be regarded
as implied acceptance)
(c) ACCEPTANCE BY LETTER OR TELEGRAM (ART. 1319)
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 had been mailed or sent to the offeror, the offeror may still withdraw his offer
anytime before he has knowledge of the acceptance.
• Modes of Communication noon: letters or telegram
• Gumawa ng letter si Seller pinadala kay buyer, si buyer in-accept yung offer at nagsulat rin ng letter as
feedback pero hindi nakabalik kay seller ang response ni buyer – walang perfected contract sa ganito, dahil
dapat ma-receive muna ni Seller yung response letter ni Buyer, dapat may bumalik muna kay Seller na
letter as representation ng meeting of the minds, since hindi pa natatnggap ni Seller ang letter ni Buyer
pwede pa niyang i-withdraw yung offer
(e)ACCEPTANCE IN AUCTION SALES (ART. 1476)

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 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.
• Auction master – siya yung “ok 1,000 ; 2,000” yung last price na sinasabi iyun yung offer sa ibang tao, kung
may nagbi-bid at hindi na nagincrease pa ang price malalaman mo na inaccept na ang offer by the fall of
hammer (point of perfection) Kapag nag-fall na ang hammer considered sold na. ibig sabihin inaccept na
ni auctioneer kung ano yung highest bid.
Where the goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale.
(4) EARNEST MONEY
• Kanina may option money at ayun yung nasa option contract. Sa earnest money best example ay yung reservation
agreement.
(a) Function of Earnest Money
Under Article 1482 of the Civil Code, whenever earnest money is given in a sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
• Nagkakaroon ka ng perfected contract sa MIND kahit hindi bayad yung property pero na perfect na yung sale
hindi mo na pwedeng kuwestyunin kung whether or not nagkaroon ng existence of sale. Generally kung ito ay
COS at hindi Contract to Sell. In COS, meron kang perfected contract kahit hindi panababayaran at kahit wala
pang delivery of property
• Perfection is different from consummation, ang mga pagbabayad at obligations yan ay sa consummation.
• Isang determining factor ay kapag may Earnest money, kapag kasi nagbigay ka ng earnest money ibig sabihin
you want to be a party in a COS, gusto mong ma-pursue ang COS kaya nagbigay ka na ng pera, kaya nagiging
proof siya na nagkaroon ng bentahan.
(b) VARYING TREATMENTS OF EARNEST MONEY
When the amount is given only as a guarantee that the buyer would not back out of the sale, then what was given is not
earnest money as defined under Article 1482 of the Civil Code, especially when at the time the amount is given, the
final terms of the purchase had not been agreed upon. The same is also true when earnest money is given under the
terms of a contract to sell, in which case the provisions of Article 1482 would also be inapplicable.

(c) DISTINGUISHING EARNEST MONEY AND OPTION MONEY

Adelfa Properties, Inc. v. Court of Appeals, enumerates the clear distinctions between earnest money and option money,
viz.:
a) Earnest money is part of the purchase price (advance payment), while option money is the money given as a
distinct consideration for an option contract (hindi siya part ng purchase price/advance paymet);
b) Earnest money is given only where there is already a sale (perfection stage), while option money applies to a
sale not yet perfected (negotiation stage palang pwedeng tumuloy pwedeng hindi); 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.
• Kapag nagbayad ka ng earnest money may contract na so oblige ka na bayaran yung remaining of the purchase
price pero kapag sa option money wala pang contract so wala kang obligation to pay the purchase price kasi
sa option contract magdedecide ka lang naman kung bibilhin mo ang property or not, kung bibilhin mo dun ka
lang magbabayad ng purhase price pero kung hindi the seller cannot obligate you to pay the purchase price.
•
(d) EFFECT OF RESCISSION ON EARNEST MONEY RECEIVED
In the absence of a specific stipulation, the seller of real estate cannot keep the earnest money received to answer for
the damages sustained in the event the sale fails due to the fault of the prospective buyer.

Under Article 1482 of the Civil Code, whenever earnest money is given in a sale, it shall be considered as part of the
purchase price and as proof of the perfection of the contract; consequently, amounts received as part of the
downpayment and to be credited to the payment of the total purchase price could not be forfeited when the buyer should
fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. When the seller
seeks to rescind the sale, under Article 1385 of the Civil Code, such rescission creates the obligation to return the things
which were the object of the contract together with their fruits and interest.

(5) PLACE OF PERFECTION (ART. 1319) (Saan nagyayari ang perfection of Sale?)
Generally, the sale’s place of perfection is where there is a meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. In case of acceptance through letter or telegram, it is presumed that the contract
was entered into in the place where the offer was made (kung saan ginawa ang offer)

(6) EXPENSES OF EXECUTION AND REGISTRATION (ART. 1521)

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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 sale is imposed on the seller.
• Sino ang in-charge sa pagbabayad ng tax or sa registration? Normally si SELLER ang nag sushoulder ng expenses
– notary, taxes, si seller dapat yun as a general rule.
• Kapag sa agreement napag-usapan at napagkasunduan na si buyer or kapag binenta ni seller ng neto ang isang
property (means bawas na doon ang expenses) technically gustong sabihin na si buyer ang mag su-shoulder nito.
• Ang sinasabi lang ng Civil Code ay kapag walang napag-usapan, di mo malaman kung kaninong obligation ito and
default room ay si seller ang in-charge doon.

(7) PERFORMANCE SHOULD NOT AFFECT PERFECTION

Since sale is a consensual contract, then the ability of the parties to perform the contract (after the fact of perfection) does
not affect the perfection of the contract, which occurs when the minds of the parties have met as to the subject matter, price
and terms of payment.
Kapag nakipag-enter ka into a COS, bawal sabihin na void ang contract kasi hindi nagbayad or balewala ang
kontrata kasi hindi binigay ni seller yung thing – this is not a valid legal argument. Kasi consummation / performance
of the obligation is different from perfection. As a general rule, kung hindi nagperform ang isang party, hindi mo
pwedeng i-claim na void ang isang kontrata, pero kapag hindi ginagawa ng isang party ang obligation niya pwede
kang mag kaso to cancel the contract. Hindi mo pwedeng sabihin unilaterally na cancel na ang kontrata, kasi sa
batas meron tayong term na “annulment of contract” na procedure. Mage-exist pa din ang pinag-usapan kahit hindi
ginagawa, the only way to cancel a contract ay hingiin niyo ang decision ng court, magkakasuhan kayo dun para
formally ma-cancel ang contract. Pero kapag parehas at nagkasundo na ika-cancel ang kontrata no need to go to
the court, kasi meeting of the minds, pwedeng pag-uasapan ng dalawang partido. Kung yung isa gustong i-cancel
at yung isa ayaw at gustong ituloy ang contract, court ang magde-decide, hindi pwedeng basta basta i-declare ng
kabilang party na cancel ang contract na walang consent ng kabilang party.
• MUTUALITY OF CONTRACT – bawal basta basta mag-declare ang isang party at baguhin basta basta nag contract
ng walang consent ng kabilang party, kailangan consensual silang dalawa.
•
FORM OF SALES
1. FORM NOT GENERALLY IMPORTANT FOR VALIDITY OF SALE
• Article 1483 provides that, subject to the provisions of the Statute of Frauds, “a contract of sale may be made in
writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of
the parties.” In other words, Article 1483 stresses that sale being a consensual contract, no form is really required
for its validity.
a) REQUIREMENT FOR PUBLIC INSTRUMENT FOR IMMOVABLES UNDER ARTICLE 1358
• In contrast to Article 1358 of the Civil Code provides that “[a]cts and contracts which have for their object the
creation, transmission, modification or extinguishment of real rights over immovable property” must appear in a
public document; however, it specifically provides that “sales of real property or an interest therein are governed by
Articles 1403, No. 2, and 1405.” The same article also provides that all other contracts not enumerated therein
where the amount involved exceeds P500.00 must appear in writing, even a private one, “but sales of goods,
chattels or things in action are governed by Articles 1403, No.2 and 1405.”

b) FUNCTION OF DEED OF SALE

• The deed of sale operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the
document as proof of ownership. The ability to cover all forms of sale, whether the subject matter is tangible or
intangible, makes the execution of a public document one of the highest form of constructive delivery in the Law on
Sales.
• To make it a public document, a deed of sale must be properly subscribed and acknowledged before a notary public;
and when so acknowledged, a deed of sale enjoys the presumption of regularity and due execution.

2. WHEN FORM OF SALE AFFECTS ITS VALIDITY

• The general rule therefore is that form is not important for the validity of a sale, except in the following instances:
a) The power to sell a piece of land or interest therein must be in writing, otherwise, the sale thereof by the
agent (even when the sale itself is in writing) would be void;
b) Sale of large cattle must be in writing, otherwise the sale would be void; and no sale of large cattle shall be
valid unless the sale is registered with the municipal treasurer who shall issue a certificate of transfer; and

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 c) Sale of land by “non-muslim hill tribe cultural minorities all throughout the Philippines” is void if not approved
by the National Commission on Indigenous Peoples (NCIP), which took over previous requisites of approval
by the Provincial Governor under Section 145 of Administrative Code of Mindanao and Sulu.

STATUTE OF FRAUDS: WHEN FORM IS IMPORTANT FOR ENFORCEABILITY

a) NATURE AND PURPOSE OF STATUTE OF FRAUDS
• The term “Statute of Frauds” is descriptive of the statutes which require certain classes of contracts, such as
agreements for the sale of real property, to be in writing, the purpose being to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.
• The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses.
ART. 1403
• The following contracts are unenforceable, unless they are ratified:
1. Those entered into the name of another person by one who has been given no authority or legal representation, or
who has acted beyond his powers;
Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases, an agreement
hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence,
2. therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents…
3. Those where both parties are incapable of giving consent to a contract.
EXCEPTIONS TO ART. 1403 (2)
A. An agreement that by its terms is not to be performed within a year from the making thereof;
B. Special promise to answer for the debt, default, or miscarriage of another;
C. An agreement made in consideration of marriage, other than a mutual promise to marry;
D. An agreement for the sale of goods, chattels, or things in action, at a price not less than Five hundred pesos, unless
the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in
action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and
persons on whose account the sale is made, it is sufficient memorandum; EXCEPTIONS TO ART.
1403 (2)
• E. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;
• F. A representation as to the credit of a third person.
b) SALES COVERAGE IN STATUTE OF FRAUDS
• Insofar as applicable to sales, Article 1403 (2) of the Civil Code provides that the following agreements shall be
unenforceable by action, “unless the same, or some note or memorandum thereof, be in writing, and subscribed by
the party charged, or by his agent.”
a) A sale agreement which by its terms is not to be performed within a year from the making thereof;
b) An agreement for the sale of goods, chattels or things in action, at a price not less than
P500.00; and
c) A sale of real property or of an interest therein.
c) EXCEPTIONS TO COVERAGE OF STATUTE IN SALES CONTRACTS
• Although a sale transaction may fall under any of the foregoing covered transactions under the Statute of Frauds,
the following sales would still not be covered and would be enforceable:
a) When there is a note or memorandum thereof in writing, and subscribed by the party charged or his agent;
b) When there has been partial consummation of the sale;
c) When there has been a failure to object to the presentation of evidence aliunde as to the existence of a
contract; and
d) When sales are effected through electronic commerce.
d) NATURE OF MEMORANDUM
• Article 1403 of the Civil Code clearly states the nature of the memorandum that would take the transaction out of
the coverage of the Statute of Frauds against proof by oral evidence: it must be in writing and subscribed by the
party charged. The party charged of course would either be the seller or buyer against whom the sale is sought to
be enforced.
e) PARTIAL PERFORMANCE

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 • Partial performance of the sale would take the same outside the coverage of the Statute of Frauds. When it comes
to sale of goods, chattels, or things in action, Article 1403 of the Civil Code specifically states that the Statute of
Frauds shall not apply when “the buyer accept[s] and receive[s] a part of such goods and chattels, or the evidence,
or some of them, of such things in action, or pay at the time some part of the purchase money.”
i) VALUE OF BUSINESS FORMS TO PROVE SALE
• Business forms, e.g., order slip, delivery charge invoice and the like, which are issued by the seller in the ordinary
course of the business are not always fully accomplished to contain all the necessary information describing in detail
the whole business transaction – more often than not they are accomplished perfunctorily without proper regard to
any legal repercussion for such neglect such that despite their being often incomplete, said business forms are
commonly recognized in ordinary commercial transactions as valid between the parties and at the very least they
serve as an acknowledgement that a business transaction has in fact transpired.
i) VALUE OF BUSINESS FORMS TO PROVE SALE
By themselves, order slip and charge invoice may be inadequate to establish the case for the vendor but their probative
weight must be evaluated not in isolation but in conjunction with the other evidence adduced such as testimony of a witness
and the demand letter.
ALES EFFECTED AS ELECTRONIC COMMERCE
a) LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGE
• Under Section 6 of the Electronic Commerce Act, information shall not be denied validity or enforceability solely on
the ground that it is in the form of an electronic data message purporting to give rise to such legal effect, or that it is
merely incorporated by reference in that electronic data message.
a) LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGE
• The Act defined an “electronic document” as that referring to information or the representation to information, data,
figures, symbols or other modes of written expression, described or however represented, by which a fact may be
proved or affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically.
a) LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGE
• It defines an “electronic signature” as that referring to any distinctive mark, characteristics and/or sound in electronic
form, representing the identity of a person and attached to or logically associated with the electronic data message
or electronic document or any methodology or procedures employed or adopted by a person and executed or
adopted by such person with the intention of authenticating or approving an electronic data message or electronic
document.

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