1324 - Option Contract (What Constitutes Consideration)

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LIMSON V.

CA 357 S 209
1324 – Option Contract (What constitutes consideration)

FACTS: Lourdes Limson alleged that Spouses De Vera offered to sell to Limson a parcel of and informed her that they were the owners of the subject property. Limson
agreed to buy the property at the price of P34/sq.m. and gave the sum of P20K as earnest money and respondent De Vera issued a receipt and gave her a 10-day option
period to purchase the property.

On 23 August 1978 Limson allegedly gave respondent Lorenzo de Vera three


(3) checks for the settlement of the back taxes of the property and for the payment of the quitclaims of the three (3) tenants of subject land. The amount was purportedly
considered part of purchase price and respondent Lorenzo de Vera signed the receipts therefor.

Limson was surprised to learn that the property was subject to negotiation
for the sale to Sunvar Realty.

A Deed of Sale between De Vera and Sunvar was made on September 26, 1978. Limson claimed that the Spouses de Vera ignored her right to purchase the property. In their
Answer, the Spouses De Vera stated that the option to buy the property had long expired and that there was no perfected contract to sell

Limson argues that there was a perfected contract to sell between her and De Vera meanwhile the respondents argued that what was contract was merely an option contract.

ISSUE: WON the contract was a contract of option or a contract to sell

RULING: the agreement between the parties was a contract of option and not a contract to sell.

Option Contract, Definition


It is also sometimes called an "unaccepted offer." An option is not itself a purchase, but merely secures the Privilege to buy. It is not a sale of property but a sale of
right to purchase. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a
certain time.

Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until
acceptance, it is not a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the
owner of the property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.
In this case, the receipt shows that they only entered into a contract of option and not a contract of sale. A contract by which Spouses De Vera and Limson agreed that Limson
shall have the right to buy the property at a fixed price within 10 days.

Respondent spouses did not sell their property; they did not also agree to sell it; but they sold something, i.e., the privilege to buy at the election or option of petitioner. The
agreement imposed no binding obligation on petitioner, aside from the consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money."
However, a careful examination of the words used indicated that the money is not earnest money but option money.
There was nothing in the receipt stating that the amount was part of the purchase. The receipt did not reveal that she was bound to pay the balance of the purchase price.

The option period(10 days) having expired, and acceptance was not effectively made by petitioner, the purchase of subject property by respondent SUNVAR was perfectly
valid and entered into in good faith.

On the other hand, if a downpayment has been made, it shall be deducted therefrom in the form of a partial payment. And, this is called as an earnest money.

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