FORMATION OF SALE: distinct contract from that which the parties

may enter into upon the consummation of

CONTRACT OF SALE TIME LINE: the option.
NEGOTATION  Hence, it is not the purchase itself but
merely secures the privilege to buy.
The stages of a contract of sale are as
follows: (1) negotiation, covering the period OPTION MONEY - Distinct consideration;
from the time the prospective contracting Applies to a sale not yet perfected;
parties indicate interest in the contract to Potential buyer is not required to buy; may
the time the contract is perfected; even have the amount forfeited.
(2) perfection, which takes place upon the
concurrence of the essential elements of EARNEST MONEY - Part of the purchase
the sale which are the meeting of the minds price; Given when there is already a sale;
of the parties as to the object of the When given, buyer is bound to pay the
contract and upon the price; and balance.
(3) consummation, which begins when the
parties perform their respective Carceller v. CA, 302 SCRA 718 (1999)
undertakings under the contract of sale, An option is a preparatory contract in which
culminating in the extinguishment thereof. one party grants to the other, for a fixed
(San Miguel Properties v. Huang, 2000) period and under specified conditions, the
power to decide, whether or not to enter
For the perfection of a valid sale, there into a principal contract. It binds the party
must be a “meeting of the minds,” which who has given the option, not to enter into
means that an OFFER CERTAIN is met by an the principal contract with any other person
ABSOLUTE ACCEPTANCE. during the period designated, and, within
that period, to enter into such contract with
“Advertisements are less than offers. They the one to whom the option was granted, if
are mere invitations.” the latter should decide to use the option. It
is a separate agreement distinct from the
“Before acceptance, an offer is subject to contract which the parties may enter into
the will of the offeror.” upon the consummation of the option.

Question: What happens the offeree offers IMPORTANT:

a different price?  An option contract is an onerous
contract
Cronico v. JM Tuason, GR L-35272 (1977)  An option contract is a consensual
In order that a unilateral promise may be contract – i.e., perfected by the
binding upon the promisor, Article 1479, meeting of the minds as to the
Civil Code of the Philippines, requires the subject matter and the price
concurrence of the condition that the  The subject matter of the option
promise be "supported by a consideration contract is not the subject matter of
distinct from the price. Accordingly, the the sale
promisee can not compel the promisor to
comply with the promise, unless the former San Miguel Properties v. Huang, 336 SCRA
establishes the existence of said distinct 737 (2000)
consideration. The promisee has the burden Under the second paragraph of Art. 1479,
of proving such consideration. an accepted unilateral promise to buy or
sell a determinate thing for a price certain is
OPTION CONTRACTS: binding upon the promisor only if the
An accepted unilateral promise to buy or to promise is supported by a distinct
sell a determinate thing for a price certain is consideration. Consideration in an option
binding upon the promissor if the promise contract may be anything of value, unlike in
is supported by a consideration distinct sale where it must be the price certain in
from the price (Art. 1479, par 2) money or its equivalent.

An option is a contract granting a privilege Villamor v. CA, 202 SCRA 607 (1991)
to buy or sell within an agreed time and at a As expressed in Gonzales v. Trinidad, 67
determined price. It is a separate and Phil. 682, consideration is "the why of the
contracts, the essential reason which moves contract of sale entered into in violation of
the contracting parties to enter into the a right of first refusal of another person,
contract." The cause or the impelling reason while valid, is rescissible. Tanay Recreation
on the part of private respondent executing v. Fausto, 455 SCRA 436 (2005)
the deed of option as appearing in the deed
itself is the petitioner's having agreed to CONTRACT OF SALE TIME LINE: PERFECTION
buy the 300 square meter portion of private
respondents' land at P70.00 per square For the perfection of a valid sale, there
meter "which was greatly higher than the must be a “meeting of the minds,” which
actual reasonable prevailing price." This means that an OFFER CERTAIN is met by an
cause or consideration is clear from the ABSOLUTE ACCEPTANCE.
deed which stated:
That the only reason why the spouses- Zayco v. Serra, 44 Phil 326 (1923)
vendees Julio Villamor and Marina V. In order for an acceptance to have the
Villamor agreed to buy the said one-half effect of converting an offer to sell into a
portion at the above stated price of about perfected contract, it must be plain and
P70.00 per square meter, is because I, and unconditional, and it will not be so, if it
my husband Roberto Reyes, have agreed to involves any new proposition, for in that
sell and convey to them the remaining one- case, it will not be in conformity with the
half portion still owned by me ... (p. offer, and constitute a counter offer.
26, Rollo)
Question: Is there an absolute prohibition
IMPORTANT: on deviations during acceptance?
When the option contract does not contain
a period, it cannot be presumed that the Villonco v. Bormaheco, 65 SCRA 352 (1975)
exercise thereof can be made indefinitely, There was a perfected sale that arose from
otherwise, it would render uncertain the the exchange of correspondences, even if
status of the subject matter. Under Article literally, there was a correction or
1144 (1) of the Civil Code, actions upon modification contained in the acceptance,
written contract must be brought within the changes were not substantial, but
TEN years, after which, the right of option merely CLARIFICATORY.
shall prescribe.
Claudel v. CA, 199 SCRA 113 (1991)
RIGHT OF FIRST REFUSAL: The rule of thumb is that a sale of land,
once consummated, is valid regardless of
OPTIONS - Requires a clear certainty on the form it may have been entered into. For
both the OBJECT and the CONSIDERATION; nowhere does law or jurisprudence
Breach is governed by various provisions on prescribe that the contract of sale be put in
contracts, etc. writing before such contract can validly
cede or transmit rights over a certain real
RIGHT OF FIRST REFUSAL - Object is property between the parties themselves.
determinate but the exercise of the rights
would depend not only on the grantors However, in the event that a third party, as
original intention to enter into a binding in this case, disputes the ownership of the
juridical relation but also on other terms property, the person against whom that
such as the price which are yet to be firmed claim is brought can not present any proof
up; Breach results in recovery for damages of such sale and hence has no means to
(at best) under Art. 19 under human enforce the contract. Thus the Statute of
relations Frauds was precisely devised to protect the
parties in a contract of sale of real property
IMPORTANT: cannot be subject of an action so that no such contract is enforceable
for specific performance because of lack of unless certain requisites, for purposes of
agreement on the price. proof, are met.

The prevailing doctrine therefore, is that a Secuya v. vda de Selma, 326 SCRA 244
right of first refusal means identity of terms (2000)
and conditions to be offered to the lessee While a sale of a piece of land appearing in
and all other prospective buyers and a a private deed is binding between the
parties, it cannot be considered binding on by Prudencio Alonzo, as vendor, in favor of
third persons, if it is not embodied in a Luis Pichel, as vendee, involving property
public instrument and recorded in the awarded to the former by the Philippine
Registry of Property. Government under Republic Act No. 477.

The issue here was whether or not the

SUBJECT MATTER: grantee of a public land under the Public
Land Act had violated the prohibition on
REQUISITES VALID SUBJECT MATTER: disposing, assigning or encumbering land.
The court held that there was no violation
Subject Matter at the time of PERFECTION of the law, since the subject matter of the
must be: contract of sale were fruits of the coconut
 Existing, having potential trees on the land over specified years, and
existence, a future thing, the same could be dealt with separately
or contingent or subject from the land itself, and even from the
to a resolutory condition coconut trees themselves. The court also
(it must be a possible held that the subject matter was
thing) determinate, although with a potential
 Licit existence.
 Determinate, or at least
determinable; Melliza v. City of Iloilo
Article 1461 – Things having a potential Juliana Melliza during her lifetime owned,
existence may be the object of the contract among other properties, three parcels of
of sale (but the sale is subject to the residential land in Iloilo City registered in
condition that the thing will come into her name under Original Certificate of Title
existence). No. 3462. Said parcels of land were known
If the subject matter does not come into as Lots Nos. 2, 5 and 1214. The total area of
existence, as in the case of conditional Lot No. 1214 was 29,073 square meters.
obligations, the contract is deemed On November 27, 1931 she donated to the
extinguished as soon as the time expires or then Municipality of Iloilo, 9,000 square
as soon as it becomes clear that the event meters of Lot 1214, to serve as site for the
will not happen. municipal hall.  The donation was however
revoked by the parties for the reason that
 Existing, having potential the area donated was found inadequate to
existence, a future thing, meet the requirements of the development
or contingent or subject plan of the municipality, the so-called
to a resolutory condition "Arellano Plan". The instrument of sale did
(it must be a possible not mention lot 1214-B, although it was
thing) contiguous to the other lots, but stipulated
 Licit but stipulated that the area being sold shall
 Determinate, or at least include needed for the construction of the
determinable; city hall, avenues, and parks.
Determinate – particularly or physically
segregated from all others of the same class The requirement of the law that a sale must
have for its object a determinate thing, is
Determinable – two tests: fulfilled as long as, at the time the contract
 Capacity to segregate test is entered into, the object of the sale is
 No further agreement test capable of being made determinate without
the necessity of a new or further agreement
Pichel v. Alonzo, 111 SCRA 34 (1981) between the parties (Art. 1273, old Civil
This is a petition to review on certiorari the Code; Art. 1460, New Civil Code). The
decision of the Court of First Instance of specific mention of some of the lots plus
Basilan City dated January 5, 1973 in Civil the statement that the lots object of the
Case No. 820 entitled "Prudencio Alonzo, sale are the ones needed for city hall site,
plaintiff, vs. Luis Pichel, defendant.“ This avenues and parks, according to the
case originated in the lower Court as an Arellano plan, sufficiently provides a basis,
action for the annulment of a "Deed of as of the time of the execution of the
Sale" dated August 14, 1968 and executed contract, for rendering determinate said
lots without the need of a new and further question, opening and paving roads within
agreement of the parties. (The Arellano and outside their boundaries, making other
plan was in existence as early as 1928.) improvements and installing facilities
therein for use in the development of the
Gaite v. Fonacier mines, and in time extracted therefrom
This case involves the sale of undivided what he claim and estimated to be
share in mass. approximately 24,000 metric tons of iron
ore.
Defendant-appellant Isabelo Fonacier was
the owner and/or holder, either by himself The court held that when the parties to a
or in a representative capacity, of 11 iron sale covering a specific mass had not made
lode mineral claims, known as the Dawahan any provisions in their contract for the
Group, situated in the municipality of Jose measuring and weighing of the subject
Panganiban, province of Camarines Norte. matter sold, and the price agreed upon was
Gaite embarked upon the development and not based on such measurement, then the
exploitation of the mining claims in subject matter of the sale is, therefore a
question, opening and paving roads within determinate thing, the mass and not the
and outside their boundaries, making other actual number of units or tons contained
improvements and installing facilities therein, so that all that was required of the
therein for use in the development of the seller Gaite was to deliver in good faith to
mines, and in time extracted therefrom the buyer all the ore found in the mass,
what he claim and estimated to be notwithstanding that the quantity delivered
approximately 24,000 metric tons of iron is less than the amount estimated.
ore.
A perfected contract of sale cannot be
In ruling that there was a determinate challenged on the ground that the seller
object, the court held that when parties to a had no ownership of the thing sold at the
sale covering a specific mass had not made time of perfection. It is sufficient that he be
any provisions in their contract for the the owner at the time of delivery.
measuring and weighing of the subject
matter sold, and the price agreed upon was When goods are sold by a person who is
not based on such measurement, then the not the owner thereof and who does not
subject matter of the sale is, therefore, a sell them under authority or with the
determinate object, the MASS, and not the consent of the owner, the buyer acquires
actual number of units or tons contained no better title to the goods than the seller
therein, so that all that is required of the had, unless there is estoppel on the part of
seller Gaite was to deliver in good faith to the owner, but this pertains only to the
his buyer all of the ore found in the mass, consummation stage of the sale and does
notwithstanding that the quantity delivered not affect the validity of the contract itself.
is less than the amount estimated.

By a "Deed of Assignment", Fonacier

constituted and appointed Fernando A. Laroza v. Guia (1985)
Gaite as his true and lawful attorney-in-fact This involves an action to quiet title filed by
to enter into a contract with any individual appellants Timoteo Laroza and Conchita Uri
or juridical person for the exploration and in the then Court of First Instance of Laguna
development of the mining claims and San Pablo City versus appellee Donaldo
aforementioned on a royalty basis of not Guia over a parcel of land.
less than P0.50 per ton of ore that might be The court held that, having purchased the
extracted therefrom. On March 19, 1954, property with notice of lis pendens,
Gaite in turn executed a general assignment appellants took the risk of losing it in case
conveying the development and the decision in the said civil case, as what
exploitation of said mining claims into the actually happened, is adverse to their
Larap Iron Mines, a single proprietorship predecessor-in-interest, Francisco Guia
owned solely by and belonging to him, on Time and again.
the same royalty basis. Thereafter, Gaite
embarked upon the development and The filing of a notice of lis pendens charges
exploitation of the mining claims in all strangers with a notice of the particular
litigation referred to therein and, therefore, what
any right they may thereafter acquired on they ay
the property is subject to the eventuality of have
the suit. The doctrine of lis pendens is given
founded upon reason of public policy and under
necessity, the purpose of which is to keep the
the subject matter of the litigation within contra
the power of the Court until the judgment ct.
or decree shall have been entered; o FALSE PRICE – real
otherwise, by successive alienation's agreed price is
pending the litigation, its judgment or different from what
decree shall be rendered abortive and has been declared.
impossible of execution.  If the price indicated in the contract
is false:
PRICE: o Contract is valid
o Contract is subject to
Art. 1458. By the contract of sale one of reformation
the contracting parties obligates himself to  When the parties intended to be
transfer the ownership and to deliver a bound by the contract except that it
determinate thing, and the other to pay did not reflect the actual purchase
therefor a price certain in money or its price of the property, there is only
equivalent. relative simulation of a contract
which remains valid and enforceable
Requisites for a Valid Price but subject to reformation.
 It must be REAL  If the parties state a false cause in
 It must be MONEY OR ITS the contract to conceal their real
EQUIVALENT agreement, such contract is
 It must be CERTAIN or relatively simulated and the real
ASCERTAINABLE agreement of the parties shall bind
IMPORTANT: The above must concur at the them.
time of perfection of the sale.  Question: Antonio, a lawyer, offered
to sell a parcel of land to Victorina,
It must be REAL also a lawyer. The parcel of land was
 There is legal intention on the part located in Barotac Viejo, Iloilo. The
of the buyer to pay the price, and parties agreed that the real
 There is legal expectation on the consideration be the market value of
part of the seller to receive such the property which is 12 million.
price as the value of the subject They further agreed that the
matter he obligates himself to document shall state a price of 20
deliver million in order to make the financial
o SIMULATED PRICE - If position acceptable to a bank which
there was no intent shall loan money to Victoria on the
by the parties to pay premise that it owns sufficient
and receive the price properties. Is reformation proper?
stipulated, then price  Answer: As a rule, if the price
is SIMULATED. This indicated in the covering instrument
makes the contract is false, the contract is valid, but the
VOID for lack of underlying deed is subject to
consideration. reformation to indicate the real
 If price upon which the minds of the
VOID, parties have met. Price is “false”
the when there is a real price upon
parties which the minds of the parties had
may met, but not declared, and what is
recove stated in the covering deed is not
r from the one intended to be paid.
each HOWEVER, the parties may be held
other bound to the false price in the instrument
under estoppel principle, especially when If they were only voidable, then it is a
the interest of the Government or third correct proposition that since the vendor
parties would be adversely affected by the Mateum had no forced heirs whose
reformation of the instrument. legitimes may have been impaired, and the
petitioners, his collateral relatives, not
It must be MONEY OR ITS EQUIVALENT being bound either principally or
subsidiarily to the terms of said deeds, the
ONG V. ONG (1985) latter had and have no actionable right to
In our jurisdiction, it is possible for parties question those transfers.
to a sale to agree on an adequate
consideration, and though they will state a The court noted that the gross proportion
false or nominal consideration in their between the consideration stipulated and
covering deed, it would not affect the the value of the property, would show that
validity of the contract of sale, provided the price was a “false and fictitious
that adequate consideration was agreed consideration, and no other true and lawful
upon. cause having been shown, the court finds
both said deeds, insofar as the purport to
Records show that on February 25, 1976 be sales, not merely voidable but void ab
Imelda Ong, for and in consideration of One initio.
(P1.00) Peso and other valuable
considerations, executed in favor of private  The essence of sale is the existence
respondent Sandra Maruzzo, then a minor, of the obligation of the seller to
a Quitclaim Deed whereby she transferred, transfer ownership and deliver
released, assigned and forever quit-claimed possession of the subject matter,
to Sandra Maruzzo, her heirs and assigns, all whereas the price, although an
her rights, title, interest and participation in essential element of a valid contract
the ONE-HALF (½) undivided portion of the being essentially a generic
parcel of land. In Ong the court considered obligation, may be subject to
the validity of a sale of real property where variations.
the consideration stated in the deed of sale  The significance of the use of the
was “one peso and other valuable term “price to be in money or its
considerations. The court held that since no equivalent” is for the law to
evidence was adduced to show that the demonstrate the ideal example of
stated consideration was not paid or was the onerous nature of sales, that it
simulated, it was presumed to exist under must be supported by a “valuable
Article 1354 of the Civil Code. The court consideration.”
added that the apparent inadequacy is of
no moment since it is the usual practice in Republic v. Phil. Resources, 102 Phil 960
deeds of conveyance to place a nominal (1958)
amount although there is a more valuable This involves a complaint alleges as the first
consideration given. cause of action, that defendant Apostol
submitted the highest bid in the amount of
BAGNAS V. CA (Narvasa, 1989) P450.00 per ton for the purchase of 100
It was proposed that “equivalent” be tons of Palawan Almaciga from the Bureau
something representative of money, e.g. a of Prisons; that a contract therefor was
check or a draft. drawn and by virtue of which, Apostol
obtained goods from the Bureau of Prisons
One issue clearly predominates here. It is valued P15,878.59; that of said account,
whether, in view of the fact that, for Apostol paid only P691.10 leaving a balance
properties assuredly worth in actual value obligation of P15, 187.49. The complaint
many times over their total assessed further avers, as second cause of action,
valuation of more than P10,000.00, the that Apostol submitted the best bid with
questioned deeds of sale each state a price the Bureau of Prisons for the purchase of
of only one peso (P1.00) plus unspecified three million board feet of logs at P88.00
past, present and future services to which per 1,000 board feet;
no value is assigned, said deeds were void
or inexistent from the beginning ("nulo") or In affirming the CA, the court said that,
merely voidable, that is, valid until annulled. although Article 1458 of the new Civil Code
provides that price . . . is always paid in Appeals, the law governing tax sales for
terms of money and the supposed payment delinquent taxes may be "harsh and drastic,
being in kind it is no payment at all," yet the but it is a necessary means of insuring the
same article provides that the purchaser prompt collection of taxes so essential to
may pay "a price certain in money or its the life of the Government."
equivalent" which means that payment of
the price need not be money. Ladanga v. CA, 131 SCRA 361 (1984)
The spouses Salvacion Serrano and Doctor
It must be CERTAIN or ASCERTAINABLE Agustin S. Ladanga appealed from the
decision of the Court of Appeals (affirming
 Price is certain when it has been the decision of the Manila Court of First
expressed and agreed in terms of Instance), declaring void the sale to
specific pesos and or centavo, which Salvacion by her aunt, Clemencia A.
affirms the proposition that money Aseneta, of the 166-square-meter lot with a
represents the best model of house located at in Paco, Manila for non-
valuable consideration payment of the price of P26,000. It ordered
 Under Article 1469, in order that the the register of deeds of Manila to issue a
price may be considered new title to Clemencia.
ascertainable, it shall be sufficient
that it be so with reference to Clemencia, a spinster who retired as
another thing certain, or that the division superintendent of public schools at
determination thereof be left to the 65 in 1961, had a nephew named Bernardo
judgment of a specified person or S. Aseneta, the child of her sister Gloria, and
persons. a niece named Salvacion, the daughter of
 The designation of a third party to her sister Flora. She legally adopted
fix the price is valid, and such Bernardo in 1961. On a single date, (when
designation by itself makes the price Clemencia was about 78 years old), she
ascertainable as to give rise to a signed nine deeds of sale in favor of
valid contract of sale Salvacion for various real properties. One
 In contrast, the fixing of the price deed of sale concerned the said Paco
cannot be validly left to the property (administered by the Ladanga
discretion of one of the contracting spouses) which purportedly was sold to
parties. To consider a contract of Salvacion for P26,000. The total price
sale already existing when the price involved in the nine deeds of sale and in the
has yet to be fixed by one of the tenth sale executed on November 8, 1974
parties would render the contract to was P92,200.
be without the characteristics of
mutuality and obligatory force. A contract of sale is void and produces no
 IMPORTANT: It has been held that effect whatsoever where the price, which
an agreement on the manner of appears therein as paid, has in fact never
payment goes into the price so been paid by the purchaser to the vendor. It
much so that the disagreement on was not shown that Clemencia intended to
the manner of payment is donate the Paco property to the Ladangas.
tantamount to a failure to agree on Her testimony and the notary's testimony
the price, and no contract of sale is destroyed any presumption that the sale
deemed to have been perfected. was fair and regular and for a true
consideration.
Vda. De Gordon v. CA, 109 SCRA 88 (1981)
In ruling against the annulment of the Toyota Shaw v. CA, 244 SCRA 320 (Davide,
public sale, the court cited its ruling in 1995)
Velasquez vs. Coronet.  The alleged gross Neither logic nor recourse to one's
inadequacy of price is not material "when imagination can lead to the conclusion that
the law gives the owner the right to redeem Exhibit "A" is a perfected contract of sale. It
as when a sale is made at public auction, is not a contract of sale. No obligation on
upon the theory that the lesser the price the part of Toyota to transfer ownership of
the easier it is for the owner to effect the a determinate thing to Sosa and no
redemption." As the Court further stressed correlative obligation on the part of the
in the recent case of Tajonera vs. Court of latter to pay therefor a price certain
appears therein. The provision on the
downpayment of P100,000.00 made no
specific reference to a sale of a vehicle. If it
was intended for a contract of sale, it could
only refer to a sale on installment basis.