OPTION CONTRACTS

DETERMINING THE LOCATION

OF OPTIONS
Art. 1479, Par 2

An accepted unilateral
promise to buy or to
sell determinate thing
for a price certain is
binding upon the
promissor if the
promise is supported
by a consideration
distinct from the
price.

Art. 1324
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withdrawn at any time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

DEFINITION AND ESSENCE OF

OPTION CONTRACT
Adelfa Properties, Inc v. Court of
Appeals (G.R. No. 111238; January
25, 1995)
Equatorial Realty Dev., Inc. v.
Mayfair Theater (G.R. No. 106063,
November 21, 1996)

 Adelfa Properties, Inc v. Court of Appeals

(G.R. No. 111238; January 25, 1995)

an option is a continuing offer or contract by which

the owner stipulates with another that the latter shall
have the right to buy the property at fixed price within
a certain time, or under a certain terms and conditions
or which gives to the owner the right to sell or
demand

not a purchase but merely secures the privilege to buy

not a sale of property but a sale of the right to
purchase

 Equatorial Realty Dev., Inc. v.

Mayfair Theater (G.R. No.
106063, November 21, 1996)
involve the choice granted to another
for a distinct and separate consideration
as to whether or not to purchase a
determinate thing at a predetermined
price

CHARACTERISTICS AND OBLIGATIONS

Option Contract
Onerous
Consensual
Consideration: maybe
anything in value
Unilateral
Option to purchase
such subject matter
Not covered by
Statute of Frauds
Parol evidence

Sales
Onerous
Consensual
Valuable Consideration
Bilateral and Reciprocal
Subject matter at the
time of perfection
Subject to the Statute of
Frauds
Cannot be proved by oral
evidence, except: partial
execution
of underlying
sale

Adelfa Properties:
Option Contract
Unaccepted offer
Terms and conditions;
owner is willing to sell,
if the holder elects to
accept within the time
limited
Give notice to the
owner and accepted
offer becomes a valid
and binding contract

Sales
Fixes rights and
obligations of both
parties at the time of
execution
Leaves no choice to
either party whether
to withdraw or
proceed

Obligation of offeror in option

contract:
Personal obligation not to offer to any
third party the sale of the object of
the option during the option period
Personal obligation not to withdraw
the offer or option during option
period
Obligation to hold the subject matter
for sale to the offeree in the event
that offeree exercises his option
during the option period

ELEMENTS OF VALID OPTION

CONTRACT
Consent or the meeting of the minds
upon:
Subject Matter:
Determinate or determinable thing
For a price certain, including the manner
of payment

Prestation: consideration separate

and distinct from the purchase price
for the option given

 Salame v. Court of Appeals

- in order that such promise may be
binding upon the promissor, it must
contain a price certain
Kilosbayan, Inc. v. Morato
- by its statutory definition can only
arise when the minds of the parties
have met as to the specific object,
the price and the manner of payment

SEPARATE
CONSIDERATION
May be anything or undertaking of
value
Controlling Concept: separateness
from the purchase price agreed upon

Villamor v. Court of Appeals

OPTION WITHOUT SEPARATE

CONSIDERATION
Sanchez v. Rigos
- option contract would be void, as a
contract, but would still constitute a
valid offer

Sanchez Doctrine
Treated an accepted promise to sell,
although not binding as a contract
for lack of separate consideration,
nevertheless having capacity to
generate a bilateral contract of sale
upon acceptance

ACCEPTANCE TO CREATE OPTION

(SANCHEZ DOCTRINE)
- Can only apply if the option has been
accepted and such acceptance is
communicated to the offeror

OPTION NOT DEEM PART OF

RENEWAL OF LEASE
Option to purchase attached to a
contract of lease when not exercised
within
the
original
period
is
extinguished and cannot be deemed
to have been included in implied
renewal of lease. Principle of tacita
reconduccion

PERIOD OF EXERCISE OF
OPTION
Villamor v. Court of Appeals
- If it does not contain a period when the option
can be exercise, it cannot be presumed that the
exercise can be made indefinitely, and even
render uncertain the status of the subject
matter

Art. 1144 (1) of the Civil Code :

actions upon written contract must be
brought within 10 years and thereafter,
the right of option would prescribe

PROPER EXERCISE OF
OPTION
Carceller v. Court of Appeals

EFFECTS
Limson v. Court of Appeals
- the timely, affirmatively and clearly
accept[ance of] the offer, would convert
the option contract into a bilateral
promise to sell and to buy where both
[parties] were then reciprocally bound to
comply
with
their
respective
undertakings.

WHEN PERIOD IS GRANTED TO

PROMISEE
Ang Yu Asuncion v. Court of
Appeals

Summary Rules:
(a) If the period itself is not founded
upon or supported by a separate
consideration, the offeror is still free
and has the right to withdraw the
offer before its acceptance, or, if an
acceptance has been made, before
the offerors coming to know of such
fact,
by
communicating
that
withdrawal to the offeree. (In
accordance Sanchez Doctrine)

(b) The right to withdraw, however, must

not be exercised whimsically, or
arbitrarily; otherwise, it could give rise
to a damage claim under Article 19 of
the Civil Code which ordains that every
person must, in the exercise of his right
and in the performance of his duties, act
with justice, give everyone his due, and
observe honesty and good faith.
(c) If the period has a separate
consideration, a contract of option is
deemed perfected, and it would be a
breach of that contract to withdraw the
offer during the agreed period.

(d) The option, however, is an

independent contract by itself, and it
is to be distinguished from the
projected main agreement which is
obviously yet to be included. If, in
fact, the optioner-offeror withdraws
the offer before its acceptance by
the optionee-offeree, the latter may
not sue for specific performance on
the proposed contract since it has
failed to reach its own stage of
perfection.
The
optioner-offeror,
however, renders himself liable for

(e) In these cases, care should be

taken of the real nature of the
consideration given, for if in fact, it
has been intended to be part of the
consideration for the main contract
with a right of withdrawal on the part
of optionee, the main contract could
be deemed perfected; a similar
instance would be an earnest
money in sale that can evidence its
perfection.