OPTION MONEY

What is the effect of failure to determine the price?

1. Where contract is executory – ineffective

2. Where the thing has been delivered to and appropriated by the buyer – the buyer must pay a reasonable price therefore Note: The fixing of the price cannot be left to the discretion of one of the parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected.

What is an option money?

The distinct consideration in case of an option contract. It does not form part of the purchase price hence, it cannot be recovered if the buyer did not continue with the sale.

When is payment considered option money?

Payment is considered option money when it is given as a separate and distinct consideration from the purchase price. Consideration in an option contract may be anything or undertaking of value.

EARNEST MONEY

What is an earnest money or “arras”?

This is the money given to the seller by the prospective buyer to show that the latter is truly interested in buying the property, and its aim is to bind the bargain. (Pineda, p. 75) 

What is the effect of giving an earnest money?

It forms part of the purchase price which may be deducted from the total price. It also serves as a proof of the perfection of the contract of sale. The rule is no more than a disputable presumption and prevails only in the absence of contrary or rebuttable evidence. (PNB v CA, 262 SCRA 464, 1996)

Note: Option money may become earnest money if the parties so agree.

When is payment considered an earnest money?

When the payment constitutes as part of the purchase price. Hence, in case when the sale did not happen, it must be returned to the prospective buyer.