SOUTHWESTERN SUGAR AND MOLASSES COMPANY vs.

ATLANTIC GULF & PACIFIC COMPANY

G.R. No. L-7382, June 29, 1955

Facts:

1. On March 24, 1953, the Atlantic granted an option to Southwestern to buy its barge No. 10 for the sum of P30,000
to be exercised within a period of ninety days.

2. On May 11, 1953, the Southwestern advised Atlantic that it wanted to exercise the option and requested that it be
notified as soon as the barge was available.

3. On June 25, 1953, citing the unavailability of the barge, Atlantic advised Southwestern that there is still further
work for it, and the barge could not be turned over to Southwestern.

4. On June 27, 1953, in view of the delay in the transaction, the Southwestern Company instituted a court action to
compel the Atlantic Gulf to sell the barge in accordance with the option, depositing with the court a check covering
the sum of P30,000.

5. On June 29, 1953, the Atlantic withdrew its offer of option with due notices to the Southwestern Company, stating
as reason therefor that the option was granted merely as a favor. Atlantic set up as a defense that the option to
sell made by it to the Southwestern Company is null and void because it is not supported by any consideration.

6. The lower court ruled in favor of Southwestern and declared the sale valid.

Argument of Atlantic:

The option granted to Southwestern has no legal effect because it is not supported by any consideration and in support
Atlantic it invokes article 1479 of the Civil Code. This article provides:

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 sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.

Argument of Southwestern:

Even granting that the "offer of option is not supported by any consideration, that option became binding on Atlantic
Gulf when the Southwestern gave notice to its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support, Atlantic Gulf invokes article
1324 of the Civil Code which provides:

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 When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn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
consideration, as something paid or promised.

Ruling:

The Court ruled in favor of Atlantic, reversed the lower courts decision, and declared the sale invalid because the
option is without consideration.

There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell",
as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred
from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if supported
by a consideration. In other words, "an accepted unilateral promise" can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same
is not supported by any consideration.

Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by Southwestern.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance"
except when the option is founded upon consideration, but this general rule must be interpreted as modified by
the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically.

As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.
NICOLAS SANCHEZ vs.SEVERINA RIGO
G.R. No. L-25494, June 14, 1972

Facts:

1. On April 3, 1961, the parties executed an instrument entitled "Option to Purchase," where Rigos promised to sell
to Sanchez a certain parcel of land in the sum of P1,510.00, within two (2) years from said date with the
understanding that said option shall be deemed terminated if Sanchez shall fail to exercise his right to buy the
property within the stipulated period.

2. Several tenders of payment of the sum of P1,510.00 made by Sanchez within said period were rejected by Rigos.

3. On March 12, 1963, Sanchez deposited said amount with the Court and commenced against the Rigos an action
for specific performance and damages.

4. The lower court ruled in favor of Sanchez and declared the sale valid.

Argument of Sanchez:

By virtue of the option, Rigos agreed and committed to sell and Sanchez committed to buy the land described in the
option. Hence, Sanchez maintains that the promise contained in the contract is "reciprocally demandable," pursuant to
the first paragraph of said Article 1479.
Argument of Rigos:

The contract between the parties is a unilateral promise to sell, and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and void.

Ruling:

The Supreme Court ruled in favor of Sanchez and affirmed the lower courts decision declaring the sale valid.

The Court in this occasion had the opportunity to clarify the prior decision in the Southwestern case as follows:

The unilateral promise to sell, (as an option contract), although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance (exercise of the
option).

An option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option
within the specified time. After accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. He is free either to buy or not to buy later.

In this case, however, upon accepting herein petitioner's offer, a bilateral promise to sell and to buy ensued,
and the Sanchez assumed the obligation of a purchaser.

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound
by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, HIS ACCEPTED PROMISE
PARTAKES, HOWEVER, OF THE NATURE OF AN OFFER TO SELL WHICH, IF ACCEPTED, RESULTS IN A
PERFECTED CONTRACT OF SALE.

Stated differently:

Without a consideration separate and distinct from the purchase price, an option contract is VOID as a contract, but
would still constitute a VALID OFFER, so that if the option is exercised prior to its withdrawal, the offer is
accepted, and a valid and binding contract of sale is perfected.