SALES AND LEASE (CASE DIGESTS) - YEEN 1

Ang Yu Asuncion et al. vs. Court of Appeals and Buen Realty Corp.

Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the
Unjiengs. They have been leasing the property and possessing it since 1935 and have been paying
rentals.

In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and that
Petitioners were being given priority to acquire them (Right of First Refusal). They agreed on a price
of P5M but they had not yet agreed on the terms and conditions. Petitioners wrote to the Unjiengs twice,
asking them to specify the terms and conditions for the sale but received no reply. Later, the petitioners
found out that the property was already about to be sold, thus they instituted this case for Specific
Performance [of the right of first refusal].

The Trial Court dismissed the case. The trial court also held that the Unjiengs offer to sell was never
accepted by the Petitioners for the reason that they did not agree upon the terms and conditions of the
proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should
the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will
have the right of first refusal.

The Court of Appeals affirmed the decision of the Trial Court.

In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case. The
title to the property was transferred into the name of De Buen and demanded that the Petitioners vacate
the premises.

Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed the
Sheriff to execute an order directing the Unjiengs to issue a Deed of Sale in the Petitioners favour and
nullified the sale to De Buen Realty. But then, the CA reversed itself when the Private Respondents
Appealed.

Issues:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific
Performance.

Held:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an
option under Par. 2 Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the
object of the contract is determinate. This means that no vinculum juris is created between the
seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First
Refusal may not be enforced through an action for specific performance. Its conduct is governed
by the law on human relations under Art. 19-21 of the Civil Code and not by contract law.

Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of any
deed of sale between the Unjiengs and Petitioners.

Other Rules, Comments and Discussion:

SALES AND LEASE (CASE DIGESTS) - YEEN 2


This case is notable because it lays down the rules on options contracts and right of first refusal as well
as promises to buy and sell. First, the Supreme Court discussed the stages of the formation of a sales
contract, these are:
1. Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected).
2. Perfection takes place upon the concurrence of the essential elements thereof. In a
sales contract this is governed by Art. 1458
3. Consummation begins when the parties perform their respective undertakings under
the contract culminating in the extinguishment thereof

Until the contract is perfected (No. 2), it cannot, as an independent source of obligation, serve as a
binding juridical relation. A sales contract is perfected when a person, called the seller, obligates himself,
for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over
which the latter agrees (Art 1458).

Under Art. 1458, there is no perfection of a sale under a Contract to Sell. A Contract to Sell is
characterized as a conditional sale and the breach of the suspensive condition will prevent the obligation
to transfer title from acquiring obligatory force.

Promises to Buy and Sell
Unconditional mutual promise to buy and sell As long as the object is made determinate and the price is
fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. The Right
of First Refusal falls under this classification.

Accepted unilateral promise If it specifies the thing to be sold and the price to be paid and when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding. (Par. 2 Art. 1458) Note however,
that the option is a contract separate and distinct from the contract of sale. Once the option is exercised
before it is withdrawn, a bilateral promise to sell and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings.

Offers with a Period
Where a period is given to the offeree within which to accept the offer, the following rules generally
govern:
1. If the period is not itself founded upon or supported by a consideration Offeror may
withdraw offer at any time before its acceptance (or knowledge of its acceptance). However, the
right to withdraw must not be exercised whimsically or arbitrarily otherwise it can give rise to
damages under Art. 19 of the New Civil Code
2. If period is founded on a separate consideration This is a perfectedcontract of option.
Withdrawal of the offer within the period of the option is deemed a breach of the contract of option
(not the sale). If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may not sue for specific performance on the
proposed contract (object of the option) since it has failed to reach its own stage of perfection.
The optioner-offeror, however, renders himself liable for damages for breach of the option.
3. Earnest money This is not an offer with a period. Earnest money is distinguished from
the option contract if the consideration given will be considered as a part of the purchase price of
the object of the sale. Earnest money is evidence of a perfected contract of sale. (Art. 1482)

Right of First Refusal

SALES AND LEASE (CASE DIGESTS) - YEEN 3


This is an innovative juridical relation because it is neither a perfected contract of sale under Art. 1458
nor an option contract under par. 2 Art 1479. The object might be made determinate, the exercise of the
right, however, is dependent on the offerors eventual intention to enter into a binding juridical relation
with another but also on terms and conditions such as price. There is no juridical tie or vinculum juris.

Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court
judgement that recognizes its existence, such as inAng Yu Asuncion. An action for Specific Performance
is not allowed under a Right of First Refusal because doing so would negate the indispensable element of
consensuality in the perfection of contracts.

This right is not inconsequential because it gives right to an action for damages under Art. 19.

Other Acts that Wont Bind

Public advertisements or solicitations Construed as mere invitations to make offers and/or proposals.

Related Cases

The cases of Equatorial v. Mayfair and Paraaque Kings v. Court of Appealsheld that if a sale happens in
violation of a Right of First Refusal where the buyer is aware of the existence of that right in favor of
another (such as when it is written in a lease contract), the sale may be rescinded and the seller may be
forced to offer the property to the party with the Right of First Refusal.


However, the case of Ang Yu Asuncion may still be good law for cases not involving a third party buyer in
bad faith.













SALES AND LEASE (CASE DIGESTS) - YEEN 4


EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC. vs. MAYFAIR
THEATER, INC.

G.R. No. 106063 November 21, 1996

FACTS:

Carmelo entered into a contract with respondent for the latter to lease A PORTION OF THE SECOND
FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of 150 square meters.

The contract is set for the next 20 years.

2 years later, the parties entered into yet another contract involving; A PORTION OF THE SECOND
FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of 150 square meters.

Stipulated in the contract was; That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR
is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that
the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.

Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the respondent that it is
contemplating to sell the said property and that a certain Jose Araneta is willing to buy the same for
US$1,200,000. It also asked the respondent if its willing to the property for six to seven million pesos.
Respondent through Mr. Yang told the petitioner that it would respond once a decision was made.

Respondent in its reply mentioned a stipulated part of the contract as to when Carmelo would decide to
sell the property. Carmelo did not reply.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a
Deed of Absolute Sale, for the total sum of P11,300,000.00.

Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased
premises to Equatorial.

Carmelos defense; as special and affirmative defense (a) that it had informed Mayfair of its desire to sell
the entire C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it
was interested only in buying the areas under lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of
consideration.

Equitorials allegation; that the option is void for lack of consideration (sic) and is unenforceable by reason
of its impossibility of performance because the leased premises could not be sold separately from the
other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial
likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair's claims.

SALES AND LEASE (CASE DIGESTS) - YEEN 5



Trial Court rendered decision in favor of Carmelo and Equitorial.

ISSUE:
Whether or not the OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF
FIRST REFUSAL PROVISO

HELD:

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a
right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a
right of first refusal.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the
privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified
price.

The rule so early established in this jurisdiction is that the deed of option or the option clause in a
contract, in order to be valid and enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell