Formation of the Contract of Sale
Modes of ratifying contracts to satisfy compliance to Statute of Frauds
(1) If the adverse party fails to object to the presentation of parol/oral evidence to prove the contract, it is deemed ratified under the Statute of Frauds. (2) Partial performance - When the adverse party accepts the benefits provided by the contract. He is estopped from claiming that it is unenforceable.
Difference in the contract to sell vs. option contract
- both are preparatory contracts - option contract => subject matter of contract is the option to buy and option period
Effect of Option Contract
- gives the offeree the right to decide whether or not to enter into a principal contract -binds the offeror the option not to enter into the principal contract with any other person during the agreed time and within that period, to enter into such contract with the offeree Note: burden to prove consideration is on the offeree
Subject Matter in an option contract
- option period and the option to buy the object of the contract
Earnest deposit
-would be part of the purchase price ONLY IF sale was perfected -"show money" (Manila Metal Container Corp v. PNB; San Miguel Properties v. Huang)
Elements of a Valid Option Contract
1. Consent 2. Subject Matter: right to an unaccepted unilateral offer to sell/buy 3. Prestation: consideration separate and distinct from the purchase price for the option given
When is Form Important for enforceability (contract of sale)
1. If contract is covered by the Statute of Frauds -> requires that the agreement be in writing, note, or memorandum; Note that IF sale by auction THEN entry made by the auctioneer in sales book at the time of sale at the time of sale (+ info on the amount, kind of property sold, terms of sale, price, name of purchasers, and persons on whose account the sale is made) = memorandum -> regulates the formalities of the contract necessary to render it enforceable -> applicable only to executory contracts (future promises) and not to contracts which are totally (consummated) or partially performed. Art. 1403 (d) - An agreement for the sale of goods, chattels or things in action (personal property), at a price not less than Php500 [contract to sell] (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
When is Form important for validity (exception to general rule)
=> when prescribed by law (Art. 1356) => in sales: (1) Sale of Realty through an Agent - SPA must be in writing otherwise the sale is void (2) Sale of Large Cattle - must be registered and a certificate of transfer obtained as herein provided; but large cattle under two years of age may be registered and branded gratis for the purpose of effecting a valid transfer, if the registration and transfer are made at the same time (Sec. 529, Revised Administrative Code) (3) Electronic data in accordance to Electronic Commerce Act
When is form required for the convenience of the parties? Purpose and effect?
> Purpose for convenience in order that the sale may be registered in the Registry of Deeds => to make effective against 3rd persons the right acquired under the sale > Those required to appear in public document => Art. 1358 a. acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest is governed by statute of frauds b. cession, repudiation, or renunciation of hereditary rights or those of CPG c. power to administer property; any other power that should appear in public document or that prejudice 3rd person d. cession of actions or rights proceeding from an act appearing in a public document e. any other contracts where the amount involved exceeds Php500
What is the right of first refusal?
> The right of a person to have the first opportunity to purchase or lease a property > an innovative juridical relation governed by laws of general application such as the pertinent scattered provisions of the Civil Code on human conduct > consideration is deemed incorporated in the main contract (e.g. contract of lease)
Effect of exercise of the option contract (i.e. the offer is accepted)
A bilateral promise to sell and buy ensues and both parties are then reciprocally bound to comply with their respective undertakings
Effect of non-compliance to Statute of Frauds
Art. 1403 [2], NCC: statute of frauds => regulates formalities to render the contract enforceable => so if not complied with, no action can be proven and unenforceable unless ratified
Effect and difference between an oral and written right of first refusal?
Both are valid HOWEVER 1. Oral - must be proven to exist - binding between the two contracting parties but NOT to the 3rd parties => lessee must prove that there's bad faith (i.e. the 3rd party knows about the right) in order for there to be a rescission of the 2nd sale involving 3rd party (Rosencor v. Inquing) 2. Written - if expressly stipulated in the contract, then the stipulations would be enforced according to the contract instead of the rule on human relations (Equatorial Realty Dev't v. Mayfair Theater) - since it's written, there is a presumption that the 3rd party would know about said right => bad faith can be presumed => second sale involving the 3rd party is rescissible
Difference between earnest money and option money
Earnest money - part of the purchase price; given only where there is already a perfected contract of sale Option money - distinct consideration for an option contract; applies to a sale not yet perfected (potential buyer may or may not exercise his right to buy within the option period)
Distinction between earnest money and earnest deposit?
Earnest money is part of the purchase price and considered to be evidence of a perfected contract of sale while Earnest Deposit would only be part of the purchase price IF the contract of sale between the parties is perfected. Even if it was characterized as an earnest money, IF the there was no clear indication that the parties had a perfected contract of sale (i.e. there was no concurrence of ALL essential elements of contract) THEN this earnest money is just a deposit (Manila Metal Container Corp v. PNB)
Effect of failure to agree on the manner of payment of the price
Failure to agree on the manner of payment of the price is tantamount to failure to agree on the price (i.e. no meeting of the minds) => contract was not perfected
Gen. Rule as to Form of Contract of Sale (Validity and Enforceability)
Form of a contract refers to the manner in which it is executed or manifested; and it has no prescribed form, provided all the essential requisites for its validity are present Form is not important as to validity; Form may be important as to enforceability
Effect of breach of right of first refusal
In the earlier case of Ang Yu Assuncion v. CA, breach of first refusal does not justify an issuance of a writ of execution, nor does it sanction an action for specific performance => proper remedy is action for damages => BUT in this case, the right of first refusal was not stipulated in the contract => common law doctrine applied by the trial court (Ang Yu Assuncion v. CA) In the later case of Equatorial Realty Dev't v. Mayfair Theater, the tenant may demand an action for specific performance if a right to first refusal was stipulated in the contract
W/N full payment upon notice to exercise the option to buy is necessary for the same to be valid?
No. In an option to buy, the creditor may validly exercise his option to buy by merely advising the debtor of said decision and expressing readiness to pay the stipulated purchase price, provided that the said price is available and actually delivered to the debtor upon execution of the deed of sale. (Nietes v. CA)
What if there's no period within which to exercise the option indicated in the option contract?
Pursuant to Art. 1144(1), actions upon a written contract must be brought within 10 years
When is the right of first refusal complied with by the owner?
The owner must first offer to sell the property to the lessee for its current price => there should be an identity of terms and conditions Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee. (Paranaque Kings v. CA) e.g. if owner sells property to lessee for the price of x and lessee refuses before owner can sell property to 3rd party for the price of y, owner must sell it to lessee for the price of y first
Distinction between contract of sale and an option contract
The subject matter of an option contract is NOT the subject matter of the sought sale but the OPTION TO PURCHASE such subject matter Option contract - unaccepted offer Contract of sale - offer already fixes the relative rights and obligations of both parties
Effect of the non fulfillment of a condition of performance by another party
This presupposes an already perfected contract of sale. Such party may: 1. refuse to proceed with the contract (rescind) => note that in a sale of immovable property, the vendee may still pay even after the expiration of the period as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act (Art. 1592, NCC) IF the contract has no express stipulation that allows seller to extrajudicially rescind 2. waive the performance of the condition (Art. 1545[1], NCC)
Remedy for withdrawal of offer before the lapse of the option period
Withdrawal would be a breach of the option => damages But cannot sue for specific performance on the proposed contract since the contract was not perfected
Effect of accepted and unaccepted unilateral promise
accepted unilateral promise Gen. Rule: does not bind the promisor even if accepted and may be withdrawn at any time Exception: Option contract => consideration distinct and separate from the price unaccepted unilateral promise => doesn't give rise to any obligation or right
Distinction between the condition imposed for the perfection of the contract, and a condition imposed on the performance of an obligation
condition imposed for the perfection of the contract => failure to comply with the condition results in the failure of the contract (e.g. contract to sell) Condition imposed on the performance of an obligation => there's already a perfected contract; => gives the other party the option either to refuse to proceed with the sale or waive the condition (Art. 1545) (Laforteza v. Machuca)
Validity and Enforceability of Electronic Data Message or Electronic Document
electronic data messages or electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing Integrity and Reliability of the electronic data: The criteria for assessing integrity shall be whether the information has remained complete and unaltered The standard of reliability shall be assessed in light of the purpose for which the information was gathered
Effect of a right of first refusal
gives lessee exclusive option before it's offered to a 3rd party
How is sale by auction perfected?
perfected by the falling of the hammer
When is a sale perfected if there's an option contract?
when the option is exercised
What determines whether the 2nd sale can be rescinded?
whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold
Sanchez doctrine (option contract => consideration)
without a consideration separate from the purchase price, an option contract would be void as a contract but would still constitute a valid offer; BUT! once there has been an acceptance of the offer, the contract is perfected so it may no longer be withdrawn regardless of the existence of option money