2. Option Contract
an option to buy is not a contract of sale
a. meaning of consideration
 may be anything or undertaking of value
 the more controlling concept is the “separateness” of
such consideration from the purchase price agreed
upon.
 Villamor v. CA: the buyers previously bought one-half
of the parcel of land from the sellers at an agreed
price of P7 per square meter. Subsequently, a deed of
option was executed between the same parties over
the other half with an express provision therein that
the only reason why the buyers earlier agreed to
purchase the first half at that high price was because
of the undertaking of the sellers to sell the other half
later also at the same price. When the deed of option
was sought to be exercised thirteen years later, it was
interposed by the sellers-offerors that the option was
void for lack of consideration separate and distinct
from the purchase price stipulated.
o SC held that the consideration of the deed of
option is “the why of the contracts, the essential
reason which moves the contracting parties to
enter into the contract.” It held that the cause or
the impelling reason on the part of the buyers-
offerees in executing the deed of option as
appearing in the deed itself was the sellers-
offerors’ having agreed to buy the original half of
the land at 570.00 per square meter “which was
greatly higher than the actual reasonable
prevailing price,” and that such cause or
consideration is clear from the deed itself. Note
that the separate consideration under the
option was in fact an integral part of the higher
price they paid originally for the first parcel of
land bought, which the Court considered to be fi
ne, so long as it was not part of the price to be
paid for the other parcel of land.
 Soriano v. Bautista: an option to buy attached to a
real estate mortgage was deemed to be valid
stipulation, and “the mortgagor’s promise to sell is
supported by the same consideration as that of the
mortgage itself, which is distinct from that which
would support the sale, an additional amount having
been agreed upon to make up the entire price of
53,900.00 should the option be exercised.”
o According to Villanueva, the ruling in Soriano is
significant considering that a real estate
mortgage itself, being merely an accessory
contract, does not have its own consideration
and is supported by the same consideration that
pertains to the principal contract of mutuum.
That shows clearly the wide range of “cause or
consideration” that can validly support an option
contract.
b.
 An option contract is a unilateral contract, unlike a
contract of sale which is a bilateral contract.
 The most important distinction with sale, is that the
subject matter of an option contract is actually not the
subject matter of the sought sale, but rather the
option to purchase such subject matter, essentially an
intangible subject matter or a right
 Adelfa Properties v. CA: “the distinction between an
‘option’ and a contract of sale is that an option is an
unaccepted offer: It states the terms and conditions
on which the owner is willing to sell his land, if the
holder elects to accept them within the time limited.
If the holder does so elect, he must give notice to the
other party, and the accepted offer thereupon
becomes a valid and binding contract. If an
acceptance is not made within the time fixed, the
owner is no longer bound by his offer, and the option
is at an end. A contract of sale, on the other hand,
fixes definitely the relative rights and obligations of
both parties at the time of its execution and leaves no
choice to either party whether to withdraw or to
proceed with the contract. The offer and the
acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the
agreement.”
 Since an option contract, prior to its valid exercise, is
not a species of the genus sale, it is not covered by the
Statute of Frauds, and therefore can be proved by
parol evidence. This leaves very little comfort, since
with the exercise of an oral option, the resulting sale
contract itself would be subject to the Statute of
Frauds and cannot be proved by oral evidence,38
except if there has been partial execution of the
underlying sale.
c. without consideration void as option but valid as offer
 Sanchez v. Rigos: without a consideration separate
from the purchase price, an option contract would be
void, as a contract, but would still constitute a valid
offer; so that if the option is exercised prior to its
withdrawal, that is equivalent to an offer being
accepted prior to withdrawal and would give rise to a
valid and binding sale
o the burden of proof to show that the option
contract was supported by a separate
consideration is with the party seeking to show
it. No reliance can be placed upon the provisions
of Article 1354 of the Civil Code which presumes
the existence of a consideration in every
contract, since in the case of an option contract,
Article 1479 being the specific provision,
requires such separate consideration for an
option to be valid.
 d. proper exercise of option
 Nietes v. CA: in an option to buy, the party in whose
favor the option contract exist may validly and
effectively exercise his right by merely advising the
offeror of the decision to buy and expressing his
readiness to pay the stipulated price, provided that
the same is available and actually delivered to the
offeror upon execution and delivery by him of the
corresponding deed of sale. In other words, notice of
the exercise of the option need not be coupled with
actual payment of the price, so long as this is
delivered to the owner of the property upon
performance of his part of the agreement.
e. period of exercise of option
 Villamor v. CA: when the option contract does not
contain a period when the option can be exercised, it
cannot be presumed that the exercise thereof can be
made indefinitely, and even render uncertain the
status of the subject matter. Under Article 1144(1) of
the Civil Code, actions upon written contract must be
brought within ten (10) years, and thereafter, the
right of option would prescribe.
 Even when an option is exercised within the option
period by the proper tender of the amount due,
nevertheless the action for specific performance to
enforce the option to purchase must be fi led within
ten (10) year after the accrual of the cause of action
as provided under Article 1144 of the New Civil Code
f. there must be acceptance of option
 Vasquez v. CA: reiterated the Sanchez ruling that in
an option contract, the offeree has the burden of
proving that the option is supported by a separate
consideration.
o it also held that the Sanchez doctrine (i.e., that
the option contract not supported by a separate
consideration; is void as a contract, but valid as
an offer), can only apply if the option has been
accepted and such acceptance is communicated
to the offeror. It held that not even the
annotation of the option contract on the title to
the property can be considered a proper
acceptance of the option.
g. effects of exercise of option
 Limson v. CA: when there is an option contract, then
the “timely, affirmatively and clearly acceptance 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.”
3. Right of First Refusal
 Equatorial Realty v. Mayfair: modified the principle
pertaining to the right of first refusal, where it held that
in a contract of lease which gave the lessee a 30-day
exclusive option to purchase the leased property in the
event the lessor should desire to sell the same, such
contractual stipulation which does not provide for a price
certain nor the terms of payment, actually grants a right
for first refusal and is not an option clause or an option
contract
o In a situation where the right of first refusal clause
found in a valid lease contract was violated and the
property was sold to a buyer who was aware of the
existence of such right, the resulting contract is
rescissible by the person in whose favor the right of
first refusal was given, and although no particular
price was stated in the covenant granting the right of
first refusal, the same price by which the third-party
buyer bought the property shall be deemed to be the
price by which the right of first refusal shall therefore
be exercisable
 Paranaque Kings v. CA: in order to have full compliance
with the contractual right granting a lessee the first
option to purchase the property leased, the price for
which it was sold to a third party should have likewise
been first offered to the party entitled to the option.
o Reiterated the rule that the third-party who bought
the property from the seller who violated the right of
first refusal granted to the lessee of the property
cannot claim to be a stranger to the arrangement and
not a proper party in the action for rescission since
such buyer actually steps into the shoes of the owner-
lessor of the property by virtue of his purchase and
assumed all the obligations of the lessor under the
lease contract, especially when the complaint prayed
for the annulment of the sale of the property to him.
 Ang Yu v. CA: in giving judicial recognition to the “right of
first refusal” pertaining to transactions covering specific
property, the Court distinguished it from either a sale or
an option contract.
o While the Court classified the “right of first refusal” to
be “an innovative juridical relation,” it pointed out
that it cannot be deemed a perfected sale under
Article 1458 of the Civil Code, nor an option contract
under either Articles 1319 and 1479 thereof, because
it merely pertains to a specific property without
containing an agreement as to the price or the terms
of payment in case of exercise of the right of first
refusal.
o If only a right of first refusal is constituted over a
subject parcel of land, even if that right is supported
by a separate consideration, its breach cannot justify
correspondingly an issuance of a writ of execution
under judgment recognizing the mere existence of
such right of first refusal, nor would it sanction an
action for specific performance without thereby
negating the indispensable consensual element in the
perfection of contracts. At most, it would authorize
 the grantee to sue for recovery of damages under
Article 19 of the Civil Code on abuse of right.
 Guerrero v. Ynigo: under a right of fi rst refusal situation,
the Court would not allow an action for specific
performance or a rescission of the sale to a third party
which constitute the breach of the promise, even when
the third-party buyer was entering into the purchase of
the subject property in bad faith. The only remedy
afforded to the promissee was an action to recover
damages.
 Guzman v. Bocaling: Under Articles 1380 to 1381(3) of
the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of
creditors could be validly accorded the lessees for they
had substantial interest that were prejudiced by the sale
of the subject property to the petitioner without
recognizing their right of first priority under the Contract
of Lease.”
o Reversed the Guerrero ruling
 The prevailing doctrine is that a sale entered into in
violation of a right of first refusal of another person found
in a valid principal contract is rescissible. The basis of the
right of first refusal must be the current offer of the seller
to sell or the offer to purchase of a prospective buyer.
Only after the lessee grantee fails to exercise its rights
under the same terms and within the period
contemplated can the owner validly offer to sell the
property to a third person, again under the same terms
as offered to the grantee.
4. Mutual Promise to Buy and Sell
 The promise to sell a determinate thing coupled with a
correlative promise to buy at a specified price is binding
as an executory agreement. Even in this case the
certainty of the price must also exist, otherwise, there is
no valid and enforceable contract to sell.
 Such an arrangement would be the “true” contract to sell,
which embodies the main obligation of the seller to enter
into a contract of sale upon full compliance with the
condition of the buyer fully paying the purchase price,
wherein the main obligation is a person obligation “to
do.” Such contracts to sell are really within the
policitacion stage for they do not represent a species of a
sale defined under Article 1458 of the Civil Code.
 Coronel v. CA: in a contract to sell, upon the fulfillment of
the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer
to the buyer although the property may have been
previously delivered to him. The prospective seller still
has to convey title to the prospective buyer by entering
into a contract of absolute sale.
Perfection
 The contract is perfected when the seller obligates
himself, for a price certain, to deliver and to transfer
ownership of a thing or right to the buyer, over which
the latter agrees and obligates himself to pay the
price.
1. When deviation allowed
 Villongco v. Bormaheco: there was a perfected sale
that arose from the exchange of correspondences,
even if literally, there was a correction or modification
contained in the acceptance, the changes were not
substantial, but merely clarificatory. Such is
corroborated also by the fact, that upon receipt of the
check covering the earnest money, Bormaheco had
encashed the same.
2. Sale by Auction
 See codal
3. Earnest Money vs. Option Money
Earnest Money Option Money
Part of the purchase price Money given as a distinct
consideration for an option
contract
Given only where there is Applies to a sale not yet
already a sale perfected
When given, the buyer is When given by the would-
bound to pay the balance be buyer, he is not required
to buy, but may even
forfeit it depending on the
terms of the option
 San Miguel Properties v. Huang: when the amount is
given only as a guarantee that the buyer would not back
out of the sale, then what was given is not earnest money
as defined under Article 1482 of the Civil Code, especially
when at the time the amount is given, the final terms of
the purchase had not been agreed upon.
4. Perfection
 See codal
5. Place of Perfection
 Generally, the sale’s place of perfection is where there is
a meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.
 In case of acceptance through letter or telegram, it is
presumed that the contract was entered into in the place
where the offer was made.
Formalities of the Contract constitute partial performance and does not take the
1. General Rule: Form not important case out of the Statute of Frauds.
o where timely objections are made to the
 Art. 1483 provides that, subject to the provisions of the
introduction of parol evidence to prove a sale of
Statute of Frauds, “a contract of sale may be made in
real property and due exceptions are taken to
writing, or by word of mouth, or partly in writing and
the adverse rulings, such evidence must be
partly by word of mouth, or may be inferred from the
disregarded by the courts and the contract
conduct of the parties.”
cannot be enforced.
 In other words, Article 1483 stresses that sale being a
 Claudel v. CA: a sale of land once consummated, is
consensual contract, no form is really required for its
valid regardless of the form it may have been entered
validity.
into; for nowhere does the law or jurisprudence
 Dalion v. CA: the provisions of Art. 1358 on the necessity
prescribe that the sale be put in writing before such
of public document are for purposes of convenience, not
contract can validly cede or transmit rights over a
for validity or enforceability. Thus, even documents
certain real property between the parties themselves.
enumerated under Article 1358 which are not found in a
o The Court however held that in the event that a
public instrument are still valid and enforceable, and that
third party disputes the ownership of the
the article merely grants a cause of action to the party to
property, the person against whom that claim is
the contract in a suit to sue to compel the other party to
brought cannot present any proof of such sale
have the document covering the contract, acknowledged
and hence has no means to enforce the contract.
before a notary public.
Thus, the Statute of Frauds was precisely devised
 Secuya v. Vda. De Selma: while the sale of the land
to protect the parties in a sale of real property
appearing in a private deed is binding between the
so that no such contract is enforceable unless
parties, it cannot be considered binding on a third
certain requisites, for purpose of proof, are met.
persons, if it is not embodied in a public instrument and
 Ortega v. Leonardo: it is not only partial payment of
recorded in the Registry of Deeds.
the purchase price that is the only manner of partial
performance to take the contract out of the coverage
a. requirements in sale of immovables
of the Statute of Frauds.
 Art. 1358 provides that “acts and contracts which
o The Court recognized other modes which
have for their object the creation, transmission,
constitute partial performance, such as
modification or extinguishment of real rights over
possession, the making of improvements,
immovable property” must appear in a public
rendition of services, payment of taxes,
document.
relinquishment of rights, etc.
 However, it specifically provides that “sales of real
o It also held that although tender of payment by
property or an interest therein are governed by
itself would not be considered partial
Articles 1403, No. 2, and 1405.”
performance, but accompanied by other acts,
 Santos v. Manalili: a sale of a piece of land appearing
such as building of improvements, the same may
in a private deed cannot be considered binding on
be considered as partial performance.
third persons if it is not embodied in a public
 Partial performance to constitute as an exception to
instrument and recorded in the Registry of Deeds.
the Statute of Frauds must by itself pertain to the
subject matter or to the price of the purported sale,
2. Exceptions: When form important and must involve an act or “complicity” on the party
a. form important for enforceability sought to be changed. These requisites are essential
i. Statute of Frauds because partial performance must amount to
 The purpose of the Statute is to prevent fraud and estoppel against the party sought to be charged. This
perjury in the enforcement of obligations depending is in accordance with the provision of Article 1405
for their evidence upon the unassisted memory of which states that contracts covered by the Statute of
witnesses Frauds “are ratified . . . by the acceptance of benefits
 Since the rules under the Statute of Frauds pertain not under them.”
to perfection, but to enforceability and proof, then
they operate only when there is an underlying b. form important for validity
contract that is validly perfected.  The general rule is that form is not important for the
 Baretto v. Manila Railroad Co.: delivery of the deed validity of sale, except in the following instances:
to the agent of the buyer, with no intention to part o The power to sell a piece of land or interest therein
with the title until the purchase price is paid, does not must be in writing, otherwise, the sale thereof by the
 agent (even when the sale itself is in writing) would be
void;
o Sale of large cattle must be in writing, otherwise the
sale would be void; and no sale of large cattle shall be
valid unless the sale is registered with the municipal
treasurer who shall issue a certificate of transfer; and
o Sale of land by “non-muslim hill tribe cultural
minorities all throughout the Philippines” is void if not
approved by the National Commission on Indigenous
Peoples (NCIP), which took over the previous
requisite of approval by the Provincial Governor
under Section 145 of Administrative Code of
Mindanao and Sulu.
i. sale of realty through an agent
 The authority of an agent to execute a contract for the
sale of real estate must be conferred in writing and
must give him specific authority; and that the express
mandate required by law to enable an appointee of
an agency couched in general terms to sell must be
one that expressly mentions a sale or that includes a
sale as a necessary ingredient of the act mentioned;
and that the power granted to an agent to institute a
suit and to appear at pre-trial and enter into any
stipulation of facts and/or compromise agreement
does not include the authority to sell the land by way
of compromise, and any sale effected under such
authority is void.
 City Lite v. CA: when the sale by a corporation
involves a piece of land, the authority of the individual
acting as agent must be in writing, otherwise, the sale
is void and cannot be saved under principles of
estoppel and apparent authority.202 Even the receipt
by the supposed agent of part of the purchase price
does not validate the void sale.
 Just because the authority of the agent to sell a parcel
of land is in writing, does not mean that the actual
sale would therefore be exempt from the
requirements of the Statute of Frauds.
ii. sale of large cattle
 Sale of large cattle must be in writing, otherwise the
sale would be void; and no sale of large cattle shall be
valid unless the sale is registered with the municipal
treasurer who shall issue a certificate of transfer; and
 Sec. 529, Rev. Admin. Code. Registration necessary to
validity of transfer. No transfer shall be valid unless
the same is registered and a certificate of transfer
obtained as herein provided, but the large cattle
under two years of age may be registered and
branded gratis for the purpose of effecting a valid
transfer, if the registration and transfer are made at
the same time.
iii. Electronic Commerce Act
Sec. 7. Legal Recognition of Electronic Documents -
Electronic documents shall have the legal effect, validity
or enforceability as any other document or legal
writing, and –
(a) Where the law requires a document to be in
writing, that requirement is met by an electronic
document if the said electronic document maintains
its integrity and reliability and can be authenticated
so as to be usable for subsequent reference, in that
–
i. The electronic document has remained
complete and unaltered, apart from the
addition of any endorsement and any
authorized change, or any change which
arises in the normal course of
communication, storage and display; and
ii. The electronic document is reliable in the
light of the purpose for which it was
generated and in the light of all relevant
circumstances.
(b) Paragraph (a) applies whether the requirement
therein is in the form of an obligation or whether the
law simply provides consequences for the
document not being presented or retained in its
original from.
(c) Where the law requires that a document be
presented or retained in its original form, that
requirement is met by an electronic document if –
i. There exists a reliable assurance as to the
integrity of the document from the time
when it was first generated in its final form;
and
ii. That document is capable of being displayed
to the person to whom it is to be presented:
Provided, That no provision of this Act shall
apply to vary any and all requirements of
existing laws on formalities required in the
execution of documents for their validity.
For evidentiary purposes, an electronic document shall
be the functional equivalent of a written document
under existing laws.
This Act does not modify any statutory rule relating to
admissibility of electronic data massages or electronic
documents, except the rules relating to authentication
and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures. - An
electronic signature on the electronic document shall
be equivalent to the signature of a person on a written
document if that signature is proved by showing that a
prescribed procedure, not alterable by the parties
interested in the electronic document, existed under
which -
 (a) A method is used to identify the party sought to
be bound and to indicate said party's access to
the electronic document necessary for his
consent or approval through the electronic
signature;
(b) Said method is reliable and appropriate for the
purpose for which the electronic document was
generated or communicated, in the light of all
circumstances, including any relevant
agreement;
(c) It is necessary for the party sought to be bound,
in or order to proceed further with the
transaction, to have executed or provided the
electronic signature; and
(d) The other party is authorized and enabled to
verify the electronic signature and to make the
decision to proceed with the transaction
authenticated by the same.
Sec. 11. Authentication of Electronic Data Messages
and Electronic Documents. - Until the Supreme Court by
appropriate rules shall have so provided, electronic
documents, electronic data messages and electronic
signatures, shall be authenticated by demonstrating,
substantiating and validating a claimed identity of a
user, device, or another entity is an information or
communication system, among other ways, as follows;
(a) The electronic signature shall be authenticated
by proof than a letter , character, number or
other symbol in electronic form representing the
persons named in and attached to or logically
associated with an electronic data message,
electronic document, or that the appropriate
methodology or security procedures, when
applicable, were employed or adopted by such
person, with the intention of authenticating or
approving in an electronic data message or
electronic document;
(b) The electronic data message or electronic
document shall be authenticated by proof that
an appropriate security procedure, when
applicable was adopted and employed for the
purpose of verifying the originator of an
electronic data message and/or electronic
document, or detecting error or alteration in the
communication, content or storage of an
electronic document or electronic data message
from a specific point, which, using algorithm or
codes, identifying words or numbers,
encryptions, answers back or acknowledgement
procedures, or similar security devices.
The supreme court may adopt such other
authentication procedures, including the use of
electronic notarization systems as necessary and
advisable, as well as the certificate of authentication on
printed or hard copies of the electronic document or
electronic data messages by electronic notaries, service
providers and other duly recognized or appointed
certification authorities.
The person seeking to introduce an electronic data
message or electronic document in any legal
proceeding has the burden of proving its authenticity by
evidence capable of supporting a finding that the
electronic data message or electronic document is what
the person claims it be.
In the absence of evidence to the contrary, the integrity
of the information and communication system in which
an electronic data message or electronic document is
recorded or stored may be established in any legal
proceeding -
a.) By evidence that at all material times the
information and communication system or other
similar device was operating in a manner that
did not affect the integrity of the electronic data
message and/or electronic document, and there
are no other reasonable grounds to doubt the
integrity of the information and communication
system,
b.) By showing that the electronic data message
and/or electronic document was recorded or
stored by a party to the proceedings who is
adverse in interest to the party using it; or
c.) By showing that the electronic data message
and/or electronic document was recorded or
stored in the usual and ordinary course of
business by a person who is not a party to the
proceedings and who did not act under the
control of the party using the record.