SOUTHWESTERN SUGAR AND MOLASSES COMPANY, PLAINTIFF AND APPELLEE, VS. ATLANTIC GULF & PACIFIC COMPANY, DEFENDANT AND APPELLANT.

Southwestern Sugar and Molasses versus Atlantic Gulf and Pacific

The Case

This is a lecture on Southwestern Sugar and Molasses versus Atlantic Gulf and Pacific, a decision of the Supreme Court of the Philippines promulgated in June 1955. It is an action for specific performance: the Southwestern Sugar and Molasses Company sought to compel the Atlantic Gulf and Pacific Company to sell it a barge, Barge Number 10, in line with a written option to buy. The case matters because it fixes the rule on the unilateral promise to buy or to sell — the option — under the Civil Code: such a promise, even when accepted, binds the promisor only if it is supported by a consideration distinct from the price. It is the classic illustration of how the specific provision on options modifies the general rule on offer and acceptance.

Procedural History

The Southwestern Company filed the action for specific performance in the Court of First Instance, depositing with the court a check for 30,000 pesos covering the price. After trial, the lower court rendered judgment in favor of the plaintiff, granting the prayer for specific performance. It further ordered the defendant to pay damages equivalent to six per centum per annum on the sum of 30,000 pesos from the date of the filing of the complaint, plus 600 pesos as attorney's fees and the costs of action. The case reached the Supreme Court on appeal, the parties asserting that the only issue involved is one of law.

Facts

On March 24, 1953, the Atlantic Gulf and Pacific Company granted the Southwestern Company an option to buy its Barge Number 10 for the sum of 30,000 pesos, the option to be good for ninety days, or until June 30, 1953. The barge was to be cleaned of creosote and fuel oil.

On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising that it wanted to exercise its option at the earliest convenience, and requested that it be notified as soon as the barge was available. Atlantic Gulf replied the next day, stating that its understanding was that the offer of option was to be a cash transaction, to be effected at the time the lighter is available. On June 25, 1953, reiterating the unavailability of the barge, it advised that since there was still further work for it, the barge could not be turned over.

On June 27, 1953, in view of such vacillating attitude, the Southwestern Company instituted the action to compel the sale, depositing the check for 30,000 pesos, which was later withdrawn with the approval of the court. On June 29, 1953, Atlantic Gulf withdrew its offer of option, with due notice, stating as its reason that the option was granted merely as a favor. In its defense, Atlantic Gulf set up that the option to sell was null and void because it was not supported by any consideration.

Issues

• Whether or not the unilateral promise to sell, or option, is binding upon the promisor when it is not supported by any consideration distinct from the price.
• Whether or not the acceptance of the option by the offeree, within the period granted, prevents its withdrawal by the offerer.
• Whether or not the general rule on offer and acceptance, allowing withdrawal before acceptance except when the option is founded upon consideration, prevails over the specific rule on a promise to buy and sell.

Applicable Provisions

Article 1479 of the new Civil Code provides:

Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.

This is the specific provision the Court applies: it requires a consideration distinct from the price before an accepted unilateral promise binds the promisor.

Article 1324 of the Civil Code provides:

Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised.

This is the general rule on offer and acceptance, which the Court reads as modified by Article 1479 for promises to buy and sell.

Ruling

On the first issue, the Court held that the option is not binding because it is not supported by any consideration. Under Article 1479, an option to sell, or a promise to buy or to sell, to be valid must be supported by a consideration distinct from the price. The Court reasoned that an accepted unilateral promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it was not disputed that the option was without consideration; it could therefore be withdrawn notwithstanding the acceptance made by the Southwestern Company.

On the second issue, the Court held that acceptance within the period did not prevent withdrawal, for the same reason: without a consideration distinct from the price, the accepted promise does not bind.

On the third issue, the Court held that the general rule in Article 1324 must be interpreted as modified by Article 1479, which applies specifically to a promise to buy and sell. The Court acknowledged American authorities holding that an offer, once accepted, cannot be withdrawn regardless of consideration, but declined to apply them in view of the specific provision of Article 1479. It noted that while the appellant had assumed a clear obligation to sell and there appeared no valid reason to withdraw, the law on the matter is clear, and the Court's imperative duty is to apply it unless modified by Congress.

Doctrine

An option — an accepted unilateral promise to buy or to sell a determinate thing for a price certain — is binding upon the promisor only if it is supported by a consideration distinct from the price. Without such consideration, the option may be withdrawn even after acceptance. The general rule on offer and acceptance in Article 1324, permitting withdrawal before acceptance except when the option is founded upon consideration, is modified for promises to buy and sell by the specific rule in Article 1479.

Disposition

The Supreme Court reversed the decision appealed from, without pronouncement as to costs; the defendant Atlantic Gulf and Pacific prevailed.

Remember This

Memorize the line: an accepted unilateral promise to buy or to sell binds only if supported by a consideration distinct from the price. Examiners use this case to test the option under Article 1479 and its relation to the offer and acceptance rule in Article 1324.