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Formation of A Contract of Sale

The formation of a contract of sale involves three phases: (1) negotiation, (2) perfection of the contract upon a meeting of the minds regarding an offer and acceptance, and (3) consummation through performance of the contract. This process can sometimes take years as parties conduct due diligence like examining physical assets of the property. Advertisements are merely invitations to offer rather than offers, and an offer can be amended by the offeror before acceptance. A counteroffer arises if the offeree proposes different terms. Option money given during negotiations allows certain privileges but does not require purchase, while earnest money paid after a sale binds the buyer to pay the balance.

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334 views3 pages

Formation of A Contract of Sale

The formation of a contract of sale involves three phases: (1) negotiation, (2) perfection of the contract upon a meeting of the minds regarding an offer and acceptance, and (3) consummation through performance of the contract. This process can sometimes take years as parties conduct due diligence like examining physical assets of the property. Advertisements are merely invitations to offer rather than offers, and an offer can be amended by the offeror before acceptance. A counteroffer arises if the offeree proposes different terms. Option money given during negotiations allows certain privileges but does not require purchase, while earnest money paid after a sale binds the buyer to pay the balance.

Uploaded by

Jica Gula
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FORMATION OF A CONTRACT OF SALE

Negotiation phase -> perfection of the contract (meeting of the minds or that an offer certain is met by
an absolute acceptance) (birth of the contract) -> Consummation (performance of the contract)

*it can be a protracted process

due diligence exercise/ process – the buyer will visit the site, examine the buildings and other physical
assets; basically a very long process upto the negotiations

* there are cases that the process can take a lot of years but ends up badly and fell apart with both
parties not gaining anything or failure of negotiations

Advertisements are less than offers. They are mere invitations

Before acceptance, an offer is subject to the will of the offeror (the offeror can bend the offer)

What happens if the offeree offers a different price?

- There arises a counter-offer

In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil code, requires
the concurrence of the condition that the promise

What is the distinction between an earnest money and option money?

Option money (talked during the negotiation phase) – given in order to be entitled of a certain privilege

- Distinct consideration (different consideration from the main consideration of the contract of
sale)
- Applies to a sale not yet perfected
- Potential buyer is not required to buy; may even have the amount forfeited

*if the main consideration is 500,000 and you pay 100,000 as option money, you still need to pay
the whole 500,000; unlike with earnest money, u just have to pay the balance

Earnest money (talked during the perfection stage, when there is already a sale)

- Part of the purchase price


- Given when there is already a sale
- When given, buyer is bound to pay the balance
An option contract is

- An onerous contract
- A consensual contract – perfected by the meeting of the minds
- Subject matter of the option contract is not the subject matter of the sale

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

- Implication is that it can be of any value not necessarily money in order to have a certain
privilege

When the option contract does not contain a period, it cannot be presumed that the exercise thereof
can be made indefinitely, otherwise it would render uncertain the status of the subject matter

Option Right of first refusal


Requires a clear certainty on both the object and Object is determinate but the exercise of the
the consideration rights would depend not only on the grantors
original intention to enter into a binding juridical
relation but also on the other terms such as the
price which are yet to be firmed up
Breach is governed by various provisions on Breach results in recovery for damages (at best)
contracts under Art 19 under human relations

Important: cannot be subject of an action for


specific performance because of lack of
agreement on the price

The prevailing doctrine therefore, is that a right of first refusal means identity of terms and conditions to
be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation
of a right of first refusal of another person, while valid, is rescissible

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

There was a perfected sale that arose from the exchange of correspondences, even if literally, there was
a correction or modification contained in the acceptance, the changes were not substantial, but merely
clarificatory

Statue of frauds – devised to protect the parties..


REQUISITES of a valid subject matter:

- Must be existing, or having potential existence, a future thing, or contingent or subject to a


resolutory condition
- Licit
- Determinate, or at least determinable

Ended in meliza case

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