Lack of consideration

Article 1479 of the Civil Code says that "an accepted unilateral promise to buy or 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." This promise to buy or sell is otherwise known as an "option contract." For it to be valid and enforceable against the promissor, there must be a distinct and separate consideration that supports it as illustrated in the case of the spouses Villar.

The Villar spouses were the registered owners of a property in Manila which has already been foreclosed by a rural bank. On June 7, 1985, they leased the property to a Baptist Church (BC) for 15 years at a monthly rental of P10,000 to be increased by 10 percent starting June 7, 1988. This monthly rental shall be reduced to P7,000 if the spouses could not eject the other tenants in the leased premises by June 1, 1986. Among the other pertinent provisions in the Contract of Lease are: that upon signing, BC shall pay P84,000 directly to the rural bank for the purpose of redeeming said property and hold the title for safekeeping; and that BC has the option to buy the leased premises at any time during the 15 years lease period at a selling price of P1.8 million with a down payment to be agreed upon by the parties and the balance payable at the rate of P120,000 per year.

And so upon signing of the contract, BC paid the P84,000 to the rural bank to redeem the property, kept the title, occupied and renovated the premises to be fit and usable as a Church. From June 1985 to May 1986, BC did not pay any rentals since the P84,000 was considered as advance rental equivalent to a monthly rent of P7,000 for one year.

Thereafter, BC sought to buy the leased premises from the Villar spouses under the option given to them. BC claimed that it agreed to advance the large amount needed for the rescue of the property but in exchange, it asked the couple to grant it a long term lease and an option to buy the property for P1.8 million. BC said that it would not have agreed to advance such large amount had it not been given an enforceable option to buy as provided in the lease agreement. They insisted that the consideration for the option to buy need not be a separate sum of money. The act of advancing large sum of money to rescue the property from mortgage and impending foreclosure should be enough consideration to support the option according to BC. Was BC correct?

No. The P84,000 paid by BC in order to release the Villar’s property could not be considered as the separate consideration to support the option contract. The said amount was in fact apportioned into monthly rentals spread over a period of one year at the rate of P7,000 per month. Thus for the entire period of June 1985 to May 1986 BC’s monthly rent had already been paid. The P84,000 had been fully exhausted and utilized by their occupation of the premises and there is no consideration to speak of which could support the option.

The consideration need not be monetary but it should consist of other things or undertakings of value in view of the onerous nature of the option contract. Furthermore, when a consideration is not monetary, it must be clearly specified as such in the option contract or clause. In this case, BC did not part with anything of value aside from the amount of P84,000 which was in fact eventually utilized as rental payments; and there was no agreement between the parties that BC’s rescue of the mortgaged property was the consideration contemplated in support of the option contract (Bible Baptist Church et. al. vs. Court of Appeals et. al., G.R. 126454, November 26, 2004).

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