Option contract

(KEEPS TROUBLE AWAY) By JOSE C. SISON

An option is a contract granting a privilege to buy and sell within an agreed time and at a determined price. It is a separate and distinct contract which the parties may enter upon consummation of the option. It must be supported by a consideration distinct from the price. The question that arose in this case is whether the parties had entered into a contract of sale or only an option contract.

This transaction involves a house and lot owned by the spouses Leony and Vicky. The couple entered into a verbal contract with Caridad, a balikbayan for the latter to purchase said house and lot for a consideration of $100,000 payable in two payments of $40,000 on Dec. 4, 1984 and the balance of $60,000 on Jan. 5, 1985.

One week thereafter and shortly before Caridad left for the United States, she paid Leony and Vicky the amounts of $1,000 and P40,000 as earnest money inorder that the property may be reserved for her purchase, said earnest money to be deducted from the purchase price.

Caridad was not able to pay the $40,000 on Dec. 4, 1984 nor the $60,000 on Jan. 5, 1985. It was only on Jan. 25, 1985 when the period of payment had already expired that she paid to Vicky who was then in the US, the sum of $30,000 as partial payment of the purchase price.

Subsequently on March 15, 1985, the spouses thru their lawyer wrote Caridad demanding payment of the balance of $70,000. In said letter, the lawyer reiterated the verbal contract between Caridad and the spouses including the terms of payment of the price. Not receiving any response the said lawyer wrote another letter to Caridad five months later or on Aug. 8, 1985 informing her that she lost her option to purchase the property subject of the case and offered to sell her another property.

This time Caridad, thru her lawyer already replied. She informed the couple that she is now ready to pay the remaining balance to complete the sum of $100,000 the agreed amount as selling price.

Leony and Vicky, however, refused to accede to this offer of Caridad. They claimed that Caridad had already lost her option over the property and her failure to exercise said option resulted in the forfeiture of any amount paid by her pursuant to their letter of Aug. 8, 1985.

So Caridad filed a complaint against the spouses asking the court for the rescission of their contract and to order Vicky and Leony to return the amounts she paid consisting of the earnest money of $1,000 and P40,000 as well as the $30,000 partial payment of the purchase price. Could Caridad recover the said amounts?

Yes. The letter of March 15, 1989 by Vicky and Leony through their lawyer reveal that the parties entered into a perfected oral contract of sale and not an option contract.

A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. As evidenced by the March 15, 1985 letter, all three elements of a contract of sale are present in the transaction between Caridad and the spouses. Caridad's offer to purchase the house and lot subject of the sale at a price of $100,000 was accepted by Vicky and Leony. Even the manner of payment of the price was set forth in the letter. Earnest money in the amount of $1,000 and P40,000 was already received by the couple. Under Art. 1482 of the Civil Code, earnest money given in a sale transaction is considered part of the purchase price and proof of the perfection of the sale.

Caridad's failure to pay the amount of $40,000 and $60,000 on or before Dec. 4, 1984 and Jan. 5, 1985 respectively was a breach of her obligation under Art. 1191 of the Civil Code. So Vicky and Leony should have sued her in court for either specific performance or rescission of the contract. They could not just unilaterally and extrajudicially rescind the contract of sale since there is no express stipulation in the contract authorizing them to do so. It was a mistake for them to believe that Caridad had lost her option over the property when she failed to pay the remaining balance of $70,000 pursuant to their Aug. 8, 1985 letter. Accordingly, Caridad acted well within her rights when she attempted to pay the remaining balance of $70,000 to complete the sum owed in the amount of $100,000 as the contract was still subsisting at the time. When the couple refused to accept said payment and deliver the house and lot, rescission of the contract is in order. The power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him. Rescission creates the obligation to return the things which were the object of the contract together with their fruits and the price with interest (Spouses Co vs. Court of Appeals et. al. G.R. No. 112330 Aug. 17, 1999).

Atty. Sison's e-mail address is: [email protected]