Case Summary (G.R. No. L-7382)
Factual Background
On March 24, 1953, ATLANTIC GULF & PACIFIC COMPANY sent a written communication offering Barge No. 10 to SOUTHWESTERN SUGAR AND MOLASSES COMPANY at the fixed price of P30,000 and stating that the "option is to be good for ninety (90) days, or until June 30, 1953." On May 11, 1953, SOUTHWESTERN advised that it wished "to exercise our option at your earliest convenience" and asked to be notified when the barge would be available. On May 12 and again on June 25, 1953, ATLANTIC GULF replied that the transaction was to be a cash sale effected when the lighter was available and that further work on the barge prevented turnover. On June 27, 1953, SOUTHWESTERN filed this action for specific performance and deposited with the court a check for P30,000, later withdrawn with court approval. On June 29, 1953, ATLANTIC GULF communicated its withdrawal of the option, stating that the option had been granted merely as a favor.
Trial Court Proceedings
The trial court, after hearing the evidence, rendered judgment granting SOUTHWESTERN’s prayer for specific performance. The trial court ordered ATLANTIC GULF to sell the barge under the terms of the option, to pay damages computed at six percent per annum on P30,000 from the date of filing of the complaint, to pay P600 as attorney's fees, and to pay the costs of suit. The defendant appealed to the Supreme Court.
The Parties’ Contentions
ATLANTIC GULF contended that the option was void for want of consideration and therefore not binding, invoking Art. 1479, new Civil Code, which requires that an accepted unilateral promise to buy or sell be supported by a consideration distinct from the price. SOUTHWESTERN maintained that it had validly accepted the option within the period granted and that the acceptance rendered the offer irrevocable, relying on Art. 1324, new Civil Code, which ordinarily permits withdrawal of an offer before acceptance except where the option is founded on consideration.
Legal Basis and Reasoning
The Court analysed the interplay between Art. 1324 and Art. 1479, new Civil Code. It recognized the general rule in Art. 1324 that an offer may be withdrawn at any time before acceptance unless the option is founded upon consideration. The Court held, however, that Art. 1479 is a specific provision governing unilateral promises to buy or sell a determinate thing for a price certain. Under Art. 1479, an accepted unilateral promise is binding only if it is "supported by a consideration distinct from the price." The Court concluded that the specific rule in Art. 1479 modifies the general rule of Art. 1324 with respect to promises to buy or sell. Consequently, where an option to sell is unsupported by consideration distinct from the price, the promisor may withdraw the offer notwithstanding acceptance by the offeree.
Ruling of the Supreme Court
The Supreme Court reversed the trial court's judgment. The Court held that because the option was not supported by any consideration distinct from the price, it was not binding upon ATLANTIC GULF despite SOUTHWESTERN’s attempted acceptance. The Court noted contrary American authorities that treat an accepted offer as irrevocable even without consideration but declined to follow them because Art. 1479 governs in the domestic law. The Court reversed without pronouncement as to costs.
Doctrinal Takeaway
The Court affirmed that under the new Civil Code as then in force a unilateral promise to buy or to sell a determinate thing for a price certain becomes binding upon acceptanc
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Parties and Posture
- Southwestern Sugar & Molasses Co. (Far East) Inc. was the plaintiff and appellee who sought specific performance of an option to buy Barge No. 10.
- Atlantic Gulf & Pacific Company of Manila was the defendant and appellant who granted the option and later attempted to withdraw it.
- The trial court granted specific performance, awarded damages at six percent per annum on P30,000 from the filing of the complaint, assessed attorney's fees of P600, and taxed costs against the defendant.
- The present appeal raised primarily a question of law concerning the binding effect of an option not supported by consideration.
Facts
- On March 24, 1953, Atlantic Gulf & Pacific Company sent a letter offering to sell Barge No. 10, described as 120' by 44' by 9', for P30,000 and stated that "This option is to be good for ninety (90) days, or until June 30, 1953."
- The March 24 letter specified that the barge was to be cleaned of creosote and fuel oil and constituted the written "offer of option."
- On May 11, 1953, Southwestern Company wrote that it wished "to exercise our option at your earliest convenience" and asked to be notified when the barge became available.
- On May 12, 1953, Atlantic Gulf replied that its understanding was that the option was to be a cash transaction to be effected "at the time the lighter is available."
- On June 25, 1953, Atlantic Gulf reiterated that the barge was not yet available because further work remained to be done.
- On June 27, 1953, Southwestern Company filed suit for specific performance and deposited with the court a check for P30,000, which was later withdrawn with the court's approval.
- On June 29, 1953, Atlantic Gulf formally withdrew the "offer of option" and notified Southwestern Company that the option was granted merely as a favor and therefore revoked.
Issues
- Whether an accepted unilateral promise to sell a determinate thing for a price certain is binding when the promise is not supported by a consideration distinct from the price.
- Whether Atlantic Gulf could lawfully withdraw its option after the alleged acceptance by Southwestern Company in the absence of consideration.
- Whether the trial court erred in ordering specific performance and awarding damages and attorney's fees where the option lacked consideration.
Contentions
- Atlantic Gulf &