Tess leased her 1,500 sq. m. lot in Antipolo City to Ruth for a period of three (3) years, from January 2010 to February 2013.
On March 19, 2011, Tess sent a letter to Ruth, part of which reads as follows:
“I am offering you to buy the property you are presently leasing at P5,000.00 per sq. m. or for a total of P7,500,000.00. You can pay the contract price by installment for two (2) years without interest.
I will give you a period of one (1) year from receipt of this letter to decide whether you will buy the property.”
After the expiration of the lease contract, Tess sold the property to her niece for a total consideration of P4 million.
Ruth filed a complaint for the annulment of the sale, reconveyance and damages against Tess and her niece. Ruth alleged that the sale of the leased property violated her right to buy under the principle of right of first refusal.
Is the allegation of Ruth tenable? (4%)
Suggested answer only. Not an official answer and not legal advice.
No, Ruth's allegation that the sale violated her right of first refusal is untenable. Under Articles 1324 and 1479 of the Civil Code, an option to buy is binding only if supported by a consideration distinct from the price. Lacking separate consideration,
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Quick check
Under Article 1479 of the Civil Code, what is required for an option contract to be legally binding and irrevocable?
An option contract is binding only if supported by a consideration distinct from the purchase price.
How does a right of first refusal differ from an option contract under Philippine civil law?
An option contract contains a fixed offer price, whereas a right of first refusal involves terms yet to be firmed up.
Under Article 1324 of the Civil Code, when may an offeror withdraw an offer that allowed a period for acceptance?
An offer unsupported by separate consideration may be withdrawn at any time prior to acceptance.
Why is Ruth's claim that Tess violated her right of first refusal legally untenable?
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What is the legal effect of the expiration of a one-year option period without acceptance or separate consideration?
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Learn more about these topics
1. Option Contract Nature
Under Article 1479 of the Civil Code, an option contract is an accepted unilateral promise to buy or to sell a determinate thing for a certain price. It grants the optionee a specified period within which to decide whether to accept the offer. For an option contract to be legally binding and irrevocable during the designated period, it must be supported by a consideration distinct and separate from the purchase price. Without such separate consideration, the option is a mere continuing offer that the offeror may withdraw at any time prior to acceptance.
2. Right First Refusal
A right of first refusal differs fundamentally from an option contract. In a right of first refusal, the object and the purchase price are not yet firmed up at the time the right is granted, as the property owner is not yet decided on selling. The right merely dictates that should the owner subsequently decide to sell the property, he must first offer it to the holder of the right under the same terms and conditions as those offered to third parties. An option contract, conversely, contains a definite offer with a fixed price.
3. Withdrawal of Offer
Under Article 1324 of the Civil Code, 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, unless the option is founded upon a consideration distinct from the price. If the period granted in an unaccepted offer expires without acceptance, the offer automatically lapses by operation of law. Once lapsed, the property owner regains complete freedom to sell the asset to third parties without incurring any legal liability to the former offeree.