FORMATION OF SALE

Stages in the life of Sale a. Preparation, policitation, negotiation, conception, generation stage b. Perfection c. Consumation

Preparatory Stage
Preparation 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, mutual paromises to buy and sell or contracts to sell. i. Advertisements and invitations Unless it appears otherwise, 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, unless the contrary appears. (Art. 1326, CC) ii. Offer - An offer, prior to its acceptance, is subject to the complete will of the offeror. (See Art. 1321, CC) - It may be withdrawn or destroyed by the offeror prior to its acceptance. (See Art. 1324, CC) - It is not necessary that the offeree learns of the withdrawal. (Laudico v. Arias) - 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. (See Art. 1324, CC) iii. Option Contract a. Determining the Location of Options 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 (Art. 1479, 2nd par., CC) 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in general, provides that: When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. b. Definition and Essence of Option Contract An option contract is 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 time. c. Characteristics and Obligations Constituted in an Option Contract; Compared with Sale 1. 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. 2. An option contract is also a consensual contract, since the meeting of minds as to the subject matter and the price would also give rise to the option contract, even when the separate consideration for the option itself has not been paid. (See Art. 1324, CC) 3. Although a separate consideration must exist for an option contract to be valid, unlike sale, it is essentially a unilateral contract, since only the optioner is obliged under an option contract, even when the optionee has not paid the separate consideration. 4. The most important distinction with sale, is that the subject matter of an option contract is actually not the subject matter of the sale, but rather the option to purchase such subject matter. iv. Right of First Refusal (ROFR) 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 exercise of the right would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. (Vazquez v. Ayala Corp.) ROFR on its own is governed by the provisions on human relations. (Ang Yu Asuncion v. CA) ROFR when attached to a valid principal contract, like the contract of lease, is governed by law on contracts. Thus, it can be the subject of an action for specific performance or recission. (Equatorial Realty Dev., Inc v. Mayfair Theater, Inc.) ROFR, when supported by a separate consideration, like much in the case of a valid option contract would be akin to the mutual promise to buy and sell under Article 1479 of the Civil Code. The obligation is not to enter into a sale, but rather to negotiate in good faith for the possibility of entering into a sale; and when the promissor has in fact negotiated in good faith, but the parties' minds could not meet on the price and the terms of payment, then promissor has complied with his obligation. v. Mutual Promise 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. Article 1479, CC a promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

Perfection Stage: Offer and Acceptance

A contract of sale is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the thing which is the object of the contract and upon the price 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. (Katipunan v. Katipunan). 1. Consent that Perfects a Sale Being a consensual contract, Article 1475 of the Civil Code provides that thee sale is perfected 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. 2. Offer Must Be Certain In the Law on Sales, what makes an offer certain is when it is floated by the offeror having within terms the description of the subject matter, and with a price that has the requisites of being real, money or its equivalent (i.e., constitute valuable consideration), and must be certain or at least ascertainable, including on the terms of payment thereof. 3. Acceptance Must Be Absolute 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.

Formalities of the Contract

a. Form Not Generally Important For Validity Of Sale Art. 1483, CC Subject to the provisions of the Statute of Frauds, a contract 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. b. Statute of Frauds - 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. 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 pricenot less than P500.00; and (c) A sale of real property or of an interest therein.