Federico Serra vs Court of Appeals

G.R. No. 103338 – 229 SCRA 60 – Civil Law – Obligations and Contracts – Law on Sales – Option Contract – Consideration Distinct from the Price

In 1975, a “Lease Contract with Option to Buy” was executed between Federico Serra and the Rizal Commercial Banking Corporation (RCBC). It was agreed that Serra shall lease to RCBC his land from the year 1975 to 2000. It was also agreed that within 10 years from 1975, RCBC shall exercise an option whether or not to buy the said lot at a price not exceeding per square meter. However, no option money was provided for in the contract hence, RCBC did not pay any option money for the exercise of such option to buy. What was provided, however, was a clause which states that in case RCBC fails to exercise such option to buy, it shall forfeit all improvements it made (or will make) on said land in favor of Serra.

In 1984, RCBC communicated to Serra that it now wants to buy the said land. Serra however refused. RCBC sued Serra. Serra now contends that the option to buy was ineffective because it was not supported by any consideration distinct from the price hence, it is not binding upon him.

ISSUE: Whether or not there was no consideration distinct from the price.

HELD: No, there is a consideration here. The Supreme Court ruled that in this case, the consideration which is distinct from the price was the agreement in the contract which stated that if RCBC fails to exercise its option to buy, it shall transfer all improvements made on the land [by RCBC] in favor of Serra. Such is an agreement more onerous than the payment of option money. Since there is a consideration distinct from the price, Serra is bound by the option contract. Therefore, he cannot refuse to sell the land to RCBC.

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