Dear Atty. Gab,

Musta Atty? My neighbor, Ricardo, and I signed a document two months ago where I agreed to sell him my vacant lot in Batangas for PHP 500,000. We both signed, and he gave me PHP 50,000 as initial payment. However, another person, Mr. Lim, is now offering me PHP 800,000 for the same lot! Ricardo hasn’t paid me anything beyond the initial PHP 50,000. Can I legally back out of my agreement with Ricardo and sell to Mr. Lim instead? I really need the extra money, but I don’t want to get into legal trouble. I’m so confused about my rights and obligations here. I heard that contracts are hard to get out of but I’m hoping that since Ricardo hasn’t paid the rest yet, maybe I have a chance. I hope you can help Atty. Gab!

Thank you very much!

Sincerely,
Ana Ibarra

Dear Ana,

Hello Ana, I understand your dilemma. You’re facing a situation where you’ve agreed to sell your land but now have a better offer. In essence, your question is: are you legally bound to your initial agreement, or can you pursue the new, more lucrative offer? Let’s look at the legal principles involved.

Is the Agreement to Sell Your Land a Done Deal?

The key issue revolves around whether your agreement with Ricardo constitutes a perfected contract of sale. A contract of sale is perfected when there is consent, a determinate subject matter, and a price certain. However, even if these elements are present, specific conditions may affect its enforceability.

To analyze your situation, we must determine if the signed document with Ricardo is a perfected contract of sale or merely an option contract. An option contract gives a person the privilege to buy a certain piece of property within a specified period at an agreed price. If the agreement is only an option contract, then Ricardo needs to exercise that option by paying you the purchase price for it to be considered a perfected contract. The initial payment of PHP 50,000 might be considered as option money, the amount paid for the privilege of buying or not buying your land. It is separate and distinct from the purchase price.

However, if the agreement with Ricardo is a perfected contract of sale, you may have breached your obligations if you sold it to another party. A contract of sale requires both parties to fulfill their respective duties. For you as the seller, this means transferring ownership of the property. For Ricardo, as the buyer, this means paying the agreed-upon price. Before you can sell the property to another buyer, you have to make sure that there is a valid ground to rescind or cancel the contract. If Ricardo fails to pay the purchase price, you may have grounds to rescind the contract, as provided in Article 1191 of the Civil Code. As the Supreme Court has said:

“The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.” (Article 1191, New Civil Code)

However, this rescission is not automatic. You must either file a case in court or make a demand, usually through a lawyer, for Ricardo to fulfill his obligations. You can only sell to another buyer once the contract with Ricardo has been legally rescinded. It would be best to also note that:

“The amendment of a previously bidded contract is not per se invalid. For it to be nullified, the amendment must be substantial such that the other bidders were deprived of the terms and opportunities granted to the winning bidder after it won the same and that it is prejudicial to public interest. In our assailed decision, we found the amendment not substantial because no additional right was made available to Smartmatic-TIM that was not previously available to the other bidders; except for the extension of the option period, the exercise of the option was still subject to same terms and conditions such as the purchase price and the warranty provisions; and the amendment is more advantageous to the Comelec and the public.”

Without a legal rescission, selling the land to Mr. Lim would be a breach of contract. Ricardo could sue you for damages, or even seek specific performance, asking the court to compel you to sell the land to him. If you sold it to Mr. Lim and he knew of the first contract with Ricardo, Ricardo can ask the court to award damages. Keep in mind:

“What are prohibited are modifications or amendments which give the winning bidder an edge or advantage over the other bidders who took part in the bidding, or which make the signed contract unfavorable to the government. In this case, as thoroughly discussed in our June 13, 2012 Decision, the extension of the option period and the eventual purchase of the subject goods resulted in more benefits and advantages to the government and to the public in general.”

As you can see, the interpretation of the contract and applicable remedies are highly dependent on specific details and can be confusing. The court will consider everything surrounding your transaction in evaluating the contracts.

Practical Advice for Your Situation

• Review the signed document: Carefully examine the agreement with Ricardo to determine if it’s a contract of sale or an option contract. Look for clauses that specify the payment terms, transfer of ownership, and whether the PHP 50,000 is considered part of the purchase price or option money.
• Communicate with Ricardo: Talk to Ricardo about the new offer. It may be possible to negotiate a mutual release from your agreement.
• Seek legal advice: Consult with an attorney to review the document and advise you on the best course of action. They can help you understand the legal implications of your situation and draft the necessary legal documents.
• Send a demand letter: If the agreement is a perfected contract of sale, send Ricardo a demand letter through a lawyer, giving him a reasonable timeframe to pay the balance. If he fails to comply, you can proceed with rescinding the contract.
• File a case for rescission: If Ricardo does not pay and refuses to release you from the agreement, file a case in court to formally rescind the contract.
• Exercise due diligence: Make sure that if you sell to Mr. Lim, make sure to let him know of the other contract.

Ultimately, acting decisively and legally is of paramount importance. Understand that government contracts are taken with utmost responsibility, so your actions should be viewed with greater scrutiny. Pursuing the best course of action would be in everyone’s best interest.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.