Option Contracts

OPTION CONTRACTS
Q: Sergio is the registered owner of a 500-square meter land. His friend, Marcelo, who has long been
interested in the property, succeeded in persuading Sergio to sell it to him. On June 2, 2012, they
agreed on the purchase price of P600,000 and that Sergio would give Marcelo up to June 30, 2012
within which to raise the amount. Marcelo, in a light tone usual between them, said that they should
seal their agreement through a case of Jack Daniels Black and P5,000 "pulutan" money which he
immediately handed to Sergio and which the latter accepted. The friends then sat down and drank the
first bottle from the case of bourbon. On June 15, 2013, Sergio learned of another buyer, Roberto, who
was offering P800,000 in ready cash for the land. When Roberto confirmed that he could pay in cash
as soon as Sergio could get the documentation ready, Sergio decided to withdraw his offer to Marcelo,
hoping to just explain matters to his friend. Marcelo, however, objected when the withdrawal was
communicated to him, taking the position that they have a firm and binding agreement that Sergio
cannot simply walk away from because he has an option to buy that is duly supported by a duly
accepted valuable consideration. (2013)
Does Marcelo have a cause of action against

Sergio?
A: YES. Marcelo has a cause of action against Sergio.
Under Art. 1324, when the offerer 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withdrawn at any time before acceptance by communicating such withdrawal, except when the option is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.
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).
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 (San Miguel Properties Inc v. Spouse: Huang, G.R. No. 137290, July 31, 2000). Here,
the ease of Jack Daniels Black and the 5,000 “pulutan” money was a consideration to “seal their agreement",
an agreement that Marcelo is given until June 30, 2012 to buy the parcel of land. There is also no showing that
such consideration will be considered part of the purchase price. Thus, Sergio‘s unilateral withdrawal of the
offer violated the Option Contract between him and Marcelo.
RIGHT OF FIRST REFUSAL

Q: Dux leased his house to Iris for a period of 2 years, at the rate of P25,000.00 monthly, payable annually in
advance. The contract stipulated that it may be renewed for another 2-year period upon mutual agreement of the
parties.
The contract also granted Iris the right of first refusal to purchase the property at any time during the lease, if
Dux decides to sell the property at the same price that the property is offered for sale to a third party.
23 months after execution of the lease contract, Dux sold breach of her right of first refusal. Dux said there was no
breach because the property was sold to his mother who is not a third party. Iris filed an action to rescind the
sale and to compel Dux to sell the property to her at the same price. Alternatively, she asked the court to extend
the lease for another 2 years on the same terms. Can Iris seek rescission of the sale of the property to Dux's
mother? (2008 BAR)
A: YES. The right of first refusal is included in the contract signed by the parties. Only if the lessee failed to exercise the right of
first refusal could the lessor lawfully sell the subject property to others, under no less than the same terms and conditions
previously offered to the lessee. Granting that the mother is not a third party, this would make her privy to the agreement of
Dux and Iris, aware of the right of first refusal. This makes the mother a buyer in bad faith, hence giving more ground for
rescission of the sale to her (Equitorial Realty Development, Inc. v. Mayfair Theater, Inc., G.R. No. 106063, November 21, 1996).

Option Contracts

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OPTION CONTRACTS

Does Marcelo have a cause of action against

RIGHT OF FIRST REFUSAL

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