Earnest Money Option Money

Money is part of the purchase price Money given is distinct consideration

Perfected sale X perfected
Bound to pay the balance X bound to buy
X apply to contract of sell Option money may become earnest
money if parties agree
2. Atkins, Kroll & Co. vs. Cua Hian Tek, 102 Phil 948
 Atkins Kroll & Co. (Atkins) sent a letter to respondent B. Cu Hian Tek (Hian Tek) offering
(a) 400 cartons of Luneta brand Sardines in Tomato Sauce 48 / 15-oz. Ovals at $8.25 per
carton, (b) 300 cartons of Luneta brand Sardines Natural 48/15 oz. talls at $6.25 per
carton, and (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at
$7.48 per carton, with all of the offers subject to reply by September 23, 1951.
 Hian Tek unconditionally accepted the said offer through a letter but Atkins failed to
deliver the commodities due to the shortage of catch of sardines by the packers in
California.
 Hian Tek, therefore, filed an action for damages in the CFI of Manila which granted the
same in his favor. Upon Atkins’ appeal, the Court of Appeals affirmed said decision but
reduced the damages to P3,240.15 representing unrealized profits.
 Atkins herein contends that there was no such contract of sale but only an option to
buy, which was not enforceable for lack of consideration because it is provided under
the 2nd paragraph of Article 1479 of the New Civil Code that "an accepted unilatateral
promise to buy or to 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.” Atkins
also insisted that the offer was a mere offer of option, because the "firm offer" was a
continuing offer to sell until September 23.

Was there a contract of sale between the parties or only a unilateral promise to buy?

 The Supreme Court held that there was a contract of sale between the parties.
Petitioner’s argument assumed that only a unilateral promise arose when the
respondent accepted the offer, which is incorrect because a bilateral contract to sell and
to buy was created upon respondent’s acceptance.
 Had B. Cua Hian Tek backed out after accepting, by refusing to get the sardines and / or
to pay for their price, he could also be sued. But his letter-reply to Atkins indicated that
he accepted "the firm offer for the sale" and that "the undersigned buyer has
immediately filed an application for import license.” After accepting the promise and
before he exercises his option, the holder of the option is not bound to buy. In this case
at bar, however, upon respondent’s acceptance of herein petitioner's offer, a bilateral
promise to sell and to buy ensued, and the respondent had immediately assumed the
obligations of a purchaser.

3. Ang Yu Asuncion vs. CA, December 2, 1994

 Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial
spaces owned by the Unjiengs. They have been leasing the property and
possessing it since 1935 and have been paying rentals.
  Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold
and that Petitioners were being given priority to acquire them (Right of First
Refusal). They offered P5M but they had not yet agreed on the terms and
conditions. Petitioners wrote to the Unjiengs twice, asking them to specify the
terms and conditions for the sale but received no reply. Later, the petitioners
found out that the property was already about to be sold, thus they instituted
this case for Specific Performance [of the right of first refusal].
o The trial court also held that the Unjieng’s offer to sell was never
accepted by the Petitioners for the reason that they did not agree upon
the terms and conditions of the proposed sale, hence, there was no
contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-
million or below, plaintiffs will have the right of first refusal.The Court of
Appeals affirmed the decision of the Trial Court.

 In the meantime, in 1990, the property was sold to De Buen Realty, Private
Respondent in this case. The title to the property was transferred into the name
of De Buen and demanded that the Petitioners vacate the premises.

W/N the Contract of Sale is perfected by the grant of a Right of First Refusal. No. A Right
of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an option under
Par. 2 Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the object of
the contract is determinate. This means that no obligation is created between the seller-
offeror and the buyer-offeree.

W/N a Right of First Refusal may be enforced in an action for Specific Performance. No.
Since a contractual relationship does not exist between the parties, a Right of First
Refusal may not be enforced through an action for specific performance. Its conduct is
governed by the law on human relations under Art. 19-21 of the Civil Code and not by
contract law.

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 another, called the buyer, over
which the latter agrees. Read Art. 1458.

4. Bible Baptist Church vs. CA, 26 November 2004

Bible Baptist church entered into a contract of lease with Sps. Villanueva who own the
subject property in Malate.
 lease shall be for a period of 15 years
 upon signing of the lease, lessee shall pay 84k
 lessee has the opition to buy the leased premises during the 15 years of
lease
 if lessee decides to purchase the premises, it shall be for 1.8M, with
downpayment of 120k
BBC seeks to buy the leased premises from Villanuevas under the option given to them.
They claim that the BBC agreed to advance large amount needed for the property but in
exchange, it asked Villanueva to grant it a long term lease and an option to by the
property for 1.8M.
However Villanuevas did not agree saying that there is no separate consideration. BBC
argues that there is a consideration, the 84k loan with the bank, freeing the property
from mortgage encumbrance. The 84k it paid in advance should be deemed
consideration for the contract they entered into the lease with option to buy. They insist
that a consideration need not be a separate sum of money.

W/N there is a separate consideration that would render the option contract valid and
binding.
An option contract, to be valid and binding, needs to be supported by a separate
consideration. The consideration need not be monetary but could consist of other things
or undertakings. However, if the consideration is not monetary, these must be things or
undertakings of value.

 Petitioners cannot insist that the P84,000 they paid in order to release the
Villanuevas property from the mortgage should be deemed the separate
consideration to support the contract of option.
 It must be pointed out that said amount was in fact apportioned into monthly
rentals spread over a period of one year, at P7,000 per month. Thus, for the
entire period of June 1985 to May 1986, petitioner Baptist Churchs monthly rent
had already been paid for, such that it only again commenced paying the rentals
in June 1986. This is shown by the testimony of petitioner Pastor Belmonte
where he states that the P84,000 was advance rental equivalent to monthly rent
of P7,000 for one year, such that for the entire year from 1985 to 1986 the
Baptist Church did not pay monthly rent.