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June 1, 2022

WHAT IS OPTION CONTRACT?

Read also: Walking through the essential traits of contracts

  • An Option Contract is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time.

  • An option imposes no binding obligation on the person holding the option aside from the consideration for the offer. Until accepted, it is not treated as a sale.

  • An option contract must be supported by a separate consideration that is either clearly specified as such in the contract or duly proven by the offeree/promisee.

A purchaser who is unsure whether or not he wants to buy the property can enter into an option contract with the seller. This will give the him/her an option to buy a particular asset at a later date at an agreed upon price. If the seller reneges on his word and disposes of the property in favor of another before the end of the agreed time, the purchaser can sue him for damages.

Under the Civil Code:

An option contract is defined in the second paragraph of Article 1479 of the Civil Code as:

Article 1479. x x x An accepted promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

It is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is binding upon the promissor if the promise is supported by a consideration distinct from the price. An option contract is likewise a separate and distinct contract from a contract of sale.

In the case of Philippine National Oil Company and PNOC Dockyard & Engineering Corporation, vs. Keppel Philippines Holdings, Inc., (G.R. No. 202050, July 25, 2016) the Supreme Court discussed that:

An option contract must be supported by a separate consideration that is either clearly specified as such in the contract or duly proven by the offeree/promisee.

An option contract is a contract where one-person (the offeror/promissor) grants to another person (the offeree/promisee) the right or privilege to buy (or to sell) a determinate thing at a fixed price, if he or she chooses to do so within an agreed period.

As a contract, it must necessarily have the essential elements of subject matter, consent, and consideration. Although an option contract is deemed a preparatory contract to the principal contract of sale, it is separate and distinct therefrom, thus, its essential elements should be distinguished from those of a sale.

In an option contract, the subject matter is the right or privilege to buy (or to sell) a determinate thing for a price certain, while in a sales contract, the subject matter is the determinate thing itself. The consent in an option contract is the acceptance by the offeree of the offeror’s promise to sell (or to buy) the determinate thing, i.e., the offeree agrees to hold the right or privilege to buy (or to sell) within a specified period. This acceptance is different from the acceptance of the offer itself whereby the offeree asserts his or her right or privilege to buy (or to sell), which constitutes as his or her consent to the sales contract. The consideration in an option contract may be anything of value, unlike in a sale where the purchase price must be in money or its equivalent. There is sufficient consideration for a promise if there is any benefit to the offeree or any detriment to the offeror.

An option imposes no binding obligation on the person holding the option aside from the consideration for the offer. Until accepted, it is not treated as a sale.


Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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