Option Contract

(1) An option is a contract

- It is a preparatory contract separate and distinct from the main contract itself (subject
matter of the option) which the parties may enter into upon the consummation of the
option.
- It merely secures the privilege to buy/sell

(2) It gives the party granted the option the right to decide, whether or not to enter into a principal
contract, while it binds the party who has given the option, not to enter into the principal
contract with any other person during the agreed time and within that period, to enter into such
contract with the one to whom the option was granted if the latter should decide to use the
option.

(3) It imposes no binding obligation on the person holding the option aside from the consideration
for the offer.

- It is only when the option is exercised may a sale be perfected

(4) An option must be supported by a consideration distinct from the price.

- The optionee or promise has the burden of proving such consideration.
- A contract of option to buy is separate from the contract to sell, and both contracts need
separate and distinct considerations for validity

(5) The consideration need not be monetary or actual cash.

- It may consist of other things or undertakings but they must be something of value, in view
of the onerous nature of the option contract (unlike in a sale where it must be in price certain
in money or its equivalent)
- When the consideration is not monetary, it must be clearly specified as such in the option
contract or clause.

(6) A consideration of an option contract is just as important as the consideration for any kind of
contract.
- The consideration is the “Why of the contract, the essential reason which moves the
contracting parties to enter into the contract:
- An option without consideration is void. The effect is the same as if there was no option.

EFFECT OF ACCEPTED UNILATERAL PROMISE

The second paragraph of Art. 1479 refers to what is called as “option” in the commercial world.

(1) A unilateral promised to sell or to buy a determinate thing for a price certain does not bind the
promissor even if accepted and may be withdrawn at any time. (if walay option money)
 It is only if the promise is supported by a consideration distinct and separate from the price that
its acceptance will give rise to a PERFECTED CONTRACT (of option)

(2) The optionee (holder of option), after accepting the option and before he exercises it, has the
right (but not the obligation), to buy or sell, as the case may be.

(3) Once the option is exercised, a BILATERAL PROMISE TO SELL AND BUY ENSUES AND BOTH
PARTIES ARE THEN RECIPROCALLY BOUND to comply with their respective undertakings

- It would be a breach of the option for the optioner- offeror to withdraw the offer during the
agreed period
- If optioner-offeror withdraws offer before its acceptance (exercise of the option) by the
optionee, the latter may not sue for specific performance on the proposed contract since it
has failed to reach its own stage of perfection. The offeror is liable for damages for breach of
the option.

**Until accepted, an option is not, properly speaking, treated as a contract.

**When the consideration is given, for what otherwise would have been an option, partakes the nature
in reality of a part payment of the purchase price (termed as money) and is considered as an initial
payment thereof, an actual contract of sale is deemed entered into and enforceable as such.

Example:
In the preceding example, even if B accepts the promise of S (this is a case of an accepted unilateral
promise to sell), S is not bound to sell his car to B because there is no promise, in turn, on the part of B to
buy.
However, if the promise is covered by a consideration distinct from the price of the car, as when B
paid or promised to pay a sum of money to S for giving him the right to buy the car id he chooses within
an agreed period at a fixed price, its acceptance produces consent or meeting of the minds. A legally
binding and independent contract of option is deemed perfected.

FULL PAYMENT OF PRICE NOT NECESSARY FOR EXERCISE OF OPTION TO BUY.

The obligation under an option to buy are reciprocal obligations – the performance of one
obligation is conditioned upon the simultaneous fulfillment of the other obligation.

(1) In an option to buy, the party who has an option may validly and effectively exercise his right by
merely notifying the owner of the former’s decision to buy and expressing his readiness to pay
the stipulated price.
- The notice need not be coupled with actual payment of the purchase price so long as this is
delivered to the owner of the property upon the execution and delivery by him of the deed
of sale.
(2) The payment of the prce is continged upon