Only an option
Lourd leased her parcel of land to Rob for a period of three years.
During the effectivity of the lease, Lourd sent a letter to Rob where she offered to sell to the latter the said parcel of land. She pegged the price at P37 million and gave him two years from January 2, 1995 to decide on the said offer.
Rob tried to negotiate the amount. Four months after the expiration of the Contract of Lease, however, Lourd sold the said parcel of land to her only child, Lina, her husband and their two grandsons for a consideration of only P2 million.
Rob questioned the sale in court. Rob claims that Lourd violated his right to buy subject property under the principle of “right of first refusal” by not giving him “notice” and the opportunity to buy the property under the same terms and conditions or specifically based on the much lower price paid by the new owners.
Meanwhile, Lourd and the new owners posit that the principle of “right of first refusal” is inapplicable. This is not a case of right of first refusal but an unaccepted unilateral promise to sell or, at best, a contract of option which was not perfected.
According to Lourd and the new owners, the letter of Lourd to Rob clearly embodies an option contract as it grants the latter only two years to exercise the option to buy the subject property at a price certain of P37 million.
As an option contract, the said letter would have been binding upon Lourd without need of any consideration, had Rob accepted the offer. But in this case, there was no acceptance made, neither was there a distinct consideration for the option contract.
Q: What is an option contract?
A: An agreement in writing to give a person the “option” to purchase land within a given time at a named price is neither a sale nor an agreement to sell. 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.
He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party.
The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or rather, from his point of view, he receives the right to elect to buy.
Q: What does the “right of first refusal” mean in the law on sales?
A: In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up.
Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.
Q: What then is the basic difference of option contract from right of first refusal?
A: An option contract is entirely different and distinct from a right of first refusal in that in the former, the option granted to the offeree is for a fixed period and at a determined price. Lacking these two essential requisites, what is involved is only a right of first refusal.
Q: Is the letter of Lourd to Rob an option contract or a contract of a right of first refusal?
A: The letter embodies an option contract as it grants Rob a fixed period of only two years to buy the subject property at a price certain of P37 million. It being an option contract, the rules applicable are found in Articles 1324 and 1479 of the Civil Code which provide:
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; and
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
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.
In this case, it is undisputed that Rob did not accept the terms stated in the letter of Lourd as he negotiated for a much lower price. Rob’s act of negotiating for a much lower price was a counter offer and is therefore not an acceptance of the offer of Lourd.
Article 1319 of the Civil Code provides: “Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.”
The counter offer of Rob for a much lower price was not accepted by Lourd. There is therefore no contract that was perfected between them with regard to the sale of subject property.
Rob, thus, does not have any right to demand that the property be sold to him at the price for which it was sold to the new owners, neither does he have the right to demand that said sale to the new owners be annulled.
Even if the offer of Lourd was accepted by Rob, still, the former is not bound because of the absence of a consideration distinct and separate from the price. (Source: Tuazon vs. Suarez, et al., G.R. No. 168325, December 8, 2010, [per J. Del Castillo, First Division])
The author is Dean of College of Law at Lyceum of the Philippines University; member of the Civil Law Department, Philippine Judicial Academy
