G.R. No. L-53820 June 15, 1992 5).

5). Delivery Schedule Shipment be made within four (4) days upon
receipt of your shipping instruction.
YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,
vs. 6). Bag/Container a) All be made of Standard Kraft (water resistant
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented paper, 4 ply, with bursting strength of 220 pounds, and b) Breakage
by its President-Chairman, CONSTANCIO B. MALAGNA, respondents. allowance additional four percent (4%) over the quantity of each
shipment.

7). Terms of Payment Down payment of PESOS: TWO HUNDRED

DAVIDE, JR., J.: FORTY THREE THOUSAND (P243,000.00) payable on the signing of this
contract and the balance to be paid upon presentation of corresponding
Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072- shipping documents.
R, 1 promulgated on 21 December 1979, reversing the decision 2 of the then Court of First Instance (now
Regional Trial Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading It is understood that in the event of a delay in our shipment, you hold the option to discount
versus Prime White Cement Corporation." any price differential resulting from a lower market price vis-a-vis the contract price. In
addition, grant (sic) you the option to extend this contract until the complete delivery of Forty
The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the
Board of private respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin option to renew this contract under the same price, terms and conditions.
Trading, hereinafter referred to as YKS, which describes itself as "a business concern of single proprietorship,"
3
and is represented by its manager, Mr. Henry Yao; the letter reads as follows: Please countersign on the space provided for below as your acknowledgement and
confirmation of the above transaction. Thank You.
PRIME WHITE CEMENT CORPORATION
602 Cardinal Life Building Very truly yours,
Herran Street, Manila
PRIME WHITE
Yao Ka Sin CEMENT
Tacloban City CORPORATION
BY: (SGD)
CONSTANCIO B.
Gentlemen:
MAGLANA
We have the pleasure to submit hereby our firm offer to you under the following quotations,
President & Chairman
terms, and conditions, to wit:

CONFORME:
1). Commodity Prime White Cement

YAO KA SIN TRADING

2). Price At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City;
BY: (SGD) HENRY YAO
and b) P23.30 per 94 lbs. bag net, FOB Asturias Cebu.

3). Quality As fully specified in certificate No. 224-73 by Bureau of WITNESSES:

Public Works, Republic of the Philippines.
(SGD) T. CATINDIG (SGD) ERNESTO LIM
4). Quantity Forty-five Thousand (45,000) bags at 94 lbs. net per bag
withdrawable in guaranteed monthly quantity of Fifteen Thousand (15,000)
bags minimum effective from June, 1973 to August 1973.
 RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the
sum of Pesos: TWO HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00) in the
form of Producers' Bank of the Philippines Check No. C-153576 dated June 7, 1973.
PRIME WHITE
CEMENT
CORPORATION
BY:
(SGD)
CONSTANCIO B.
MAGLANA
President & Chairman
4
This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the
office of Mr. Teodoro Catindig, Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid
Bank). 5
The principal issue raised in this case is whether or not the aforesaid letter-offer, as accepted by YKS, is a
contract that binds the PWCC. The trial court rule in favor of the petitioner, but the respondent Court held
otherwise.
The records disclose the following material operative facts:
In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the
Board of Directors of PWCC disapproved the same; the rejection is evidenced by the following Minutes
(Exhibit "10"):
the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the
alledged letter-contract adhered to by them, but must be understood as a new and separate
contract, and has in no way to do with the letter-offer which they (sic) as consummated is by
this resolution totally disapproved and is unacceptable to the corporation.
On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A".
Pursuant, however, to its decision with respect to the 10,000 bags of cement, it is issued the corresponding
Delivery Order (Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the same in the
amount of P243,000.00 This is the same amount received and acknowledged by Maglana in Exhibit "A".
YKS accepted without protest both the Delivery and Official Receipts.
While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown
to Mr. Henry Yao; since no one would sign a receipt for it, the original was left at the latter's office and this fact
was duly noted in Exhibit "1" (Exhibit "l-A").
On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter
stating that it is "withdrawing or taking delivery of not less than 10,000 bags of white cement on August 6-7,
1973 at Asturias, Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its (PWCC's) 5 July 1973
letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you correspondingly paid
10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973. 6
Unfortunately, no copy of the said 4 August 1973 letter of YKS was presented in evidence.
On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15
August 1973. Enclosed in the reply was a copy of Exhibit "2". While the records reveal that YKS received this
reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still denied having received it. Likewise, no copy of the so-
called 15 August 1973 letter was presented in evidence.
On 10 September 1973, YKS, through Henry Yao, wrote a letter 9 to PWCC as a follow-up to the letter of 15
August 1973; YKS insisted on the delivery of 45,030 bags of white cement. 10
On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the
statement of delivery dated 24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag
net FOB Asturias, Cebu. 11
On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the
terms of Exhibit "A" and informing the latter that it is exercising the option therein stipulated.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973
telegram, but this was returned to sender as unclaimed. 13
As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement.
On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the
latter with its obligation under
Exhibit "A". 14
On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974;
PWCC reiterated the unenforceability of Exhibit "A". 15
On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific
Performance with Damages against PWCC. The complaint 16 was based on Exhibit "A" and was docketed as
Civil Case No. 5064.
In its Answer with Counterclaim 17 filed on 1 July 1974, PWCC denied under oath the material averments in the
complaint and alleged that: (a) YKS "has no legal personality to sue having no legal personality even by fiction
to represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into signing Exhibit "A"; (c) such
signing was subject to the condition that Exhibit "A" be approved by the Board of Directors of PWCC, as
corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never
consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under
Exhibit "A", but under a separate contract prepared by the Board; (f) the rejection by the Board of Exhibit "A"
was made known to YKS through various letters sent to it, copies of which were attached to the Answer as
Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only
10;000 bags were sold to it without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu; (h) YKS is
solely to blame for the failure to take complete delivery of 10,000 bags for it did not send its boat or truck to
PWCC's plant; and (i) YKS has, therefore, no cause of action.
In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary
damages in the sum of P500,000.00 and attorney's fees in the sum of P10,000.00.
On 24 July 1974, YKS filed its Answer to the Counterclaim. 21
Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that
according to the By-Laws of PWCC, the Chairman of the Board, who is also the President of the corporation,
"has the power to execute and sign, for and in behalf of the corporation, all contracts or agreements which the
corporation enters into," subject to the qualification that "all the president's actuations, prior to and after he had
signed and executed said contracts, shall be given to the board of directors of defendant Corporation."
Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government
because of the NIDC participation in the same, and that all contracts of the corporation should meet the
approval of the NIDC and/or the PNB Board because of an exposure and financial involvement of around P10
million therein. 23
During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr.
Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. Per its By-
Laws (Exhibit "8"), only the Board of Directors has the power . . . (7) To enter into (sic) agreement or contract
of any kind with any person in the name and for and in behalf of the corporation through its President, subject
only to the declared objects and purpose of the corporation and the existing provisions of law. 24 Among the
powers of the President is "to operate and conduct the business of the corporation according to his own
judgment and discretion, whenever the same is not expressly limited by such orders, directives or resolutions."
25
Per standard practice of the corporation, contracts should first pass through the marketing and intelligence
unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over
contracts involving funds of and white cement produced by the PWCC. Finally, among the duties of its legal
counsel is to review proposed contracts before they are submitted to the Board. While the president. may be
tasked with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the
corporation. 26
On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner,
the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
(1) Ordering defendant: to complete the delivery of 45,000 bags of prime
white cement at 94 lbs. net per bag at the price agreed, with a breakage
allowance of empty bags at 4% over the quantity agreed;
(2) Ordering defendant to pay P50,000.00, as moral damages; P5,000.00 as
exemplary damages; P3,000.00 as attorney's fees; and the costs of these
proceedings.
SO ORDERED. 27
In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws granting its Board of
Directors the power to enter into an agreement or contract of any kind with any person through the President,
to mean that the latter may enter into such contract or agreement at any time and that the same is not subject
to the ratification of the board of directors but "subject only to the declared objects and purpose of the
corporation and existing laws." It then concluded:
It is obvious therefore, that it is not the whole membership of the board of directors who
actually enters into any contract with any person in the name and for and in behalf of the
corporation, but only its president. It is likewise crystal clear that this automatic representation
of the board by the president is limited only by the "declared objects and purpose of the
corporation and existing provisions of law." 28
It likewise interpreted the provision on the power of the president to "operate and conduct the business of the
corporation according to the orders, directives or resolutions of the board of directors and according to his own
judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions,"
to mean that the president can operate and conduct the business of the corporation according to his own
judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the board
of directors. 29 The trial court found no evidence that the board had set a prior limitation upon the exercise of
such judgment and discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved
by the Board of Directors. Finally, in the light of the Chairman's power to "execute and sign for and in behalf of
the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1"), it concluded
that Mr. Maglana merely followed the By-Laws "presumably both as president and chairman of the board
thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation.
The trial court, however, ruled that the option to sell is not valid because it is not supported by any
consideration distinct from the price; it was exercised before compliance with the original contract by PWCC;
and the repudiation of the original contract by PWCC was deemed a withdrawal of the option before acceptance
by the petitioner.
Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner
presented the following Assignment of Errors:
I
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE
CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE
EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY
DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED
BY ANY CONSIDERATION DISTINCT FROM THE PRICE.
 II
THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL
DAMAGES, SUFFICIENT EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS
ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31
while the private respondent cited the following errors:
I Before resolving the issue, it is helpful to bring out some preliminary facts. First, the
THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID
CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTER-
CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE
UNACCEPTED PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO
BE ENTERED INTO OR LATER ON RATIFIED BY THE DEFENDANTS BOARD OF
DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND
DISAPPROVED IN TOTO BY THE DEFENDANT'S BOARD OF DIRECTORS IN
CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO
PLAINTIFF.
II
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY
UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A
TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT.
III
THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND
CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE
AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR
10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS
TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR
IN EXHIBIT "A".
IV
THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS
THE SAME ARE DULY SUPPORTED BY CLEAR AND INDUBITABLE EVIDENCE. 32
In its decision 33
promulgated on 21 December 1979, the respondent Court reversed the decision of the trial
court, thus:
WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's
complaint is dismissed with costs. Plaintiff is ordered to pay defendant corporation
P25,000.00 exemplary damages, and P10,000.00 attorney's fees.
SO ORDERED.
Such conclusion is based on its findings, to wit:
defendant corporation is supervised and principally financed by the National Investment and
Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank
(PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial
institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is
very material to the issue of whether defendant corporations president can bind the
corporation with his own act.
Second, for failure to deny under oath the following actionable documents in support of
defendant's counterclaim:
1. The resolution contained in defendant's letter to plaintiff dated July 5,
1973, on the 10,000 bags of white cement delivered to plaintiff was not by
reason of the letter contract, Exhibit "A", which was totally disapproved by
defendant corporation's board of directors, clearly stating that "If within ten
(10) days from date hereof, we will not hear from you but you will
withdraw cement at P24.30 per bag from our plant, then we will deposit
your check of P243,000.00 dated June 7, 1973 issued by the Producers
Bank of the Philippines, per instruction of the Board." (Annex "I" to
defendant's Answer).
2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only
committed to you and which you accordingly paid 10,000 bags of white
cement of which 4,150 bags were already delivered to you as of August 1,
1973" (Annex "2" of defendant's Answer).
3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of
August 4, 1973 (Annex "3" to defendant's Answer).
4. Letter to stores dated August 21, 1973,
5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of
white cement at P24.30 per bag (Annex "5", to defendant's Answer).
plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said
documents, (Rule 8 Sec. 8, Rules of Court) but also the allegations therein (Rule 9, Sec. 1,
 Rules of Court). All of the foregoing documents tend to prove that the letter-offer, Exhibit
"A", was rejected by defendant corporation's Board of Directors and plaintiff was duly
notified thereof and that the P243,000.00 check was considered by both parties as payment of
the 10,000 bags of cement under a separate transaction. As proof of which plaintiff did not
complain nor protest until February 9, 1974, when he threatened legal action.
Third, Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly
upon the condition that it was subject to the approval of the board of directors of defendant
corporation. We find consistency herein because according to the Corporation Law, and the
By-Laws of defendant corporation, all corporate commitments and business are conducted by,
and contracts entered into through, the express authority of the Board of Directors (Sec. 28.
Corp. Law, Exh "I" or "8").
Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as
defendant corporation is concerned, was an unauthorized contract (Arts. 1317 and 1403 (1),
Civil Code). And because Maglana was not authorized by the Board of Directors of defendant
corporation nor was his, actuation ratified by the Board, the agreement is unenforceable (Art.
1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of
Manila, 43 O-G. 3224).
While it may be true that Maglana is President of defendant corporation nowhere in the
Articles of Incorporation nor in the By-Laws of said corporation was he empowered to enter
into any contract all by himself and bind the corporation without first securing the authority
and consent of the Board of Directors. Whatever authority Maglana may have must be derived
from the Board of Directors of defendant corporation. A corporate officers power as an agent
must be sought from the law, the articles of incorporation and the By-Laws or from a
resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw,
20 SCRA 987).
It clearly results from the foregoing that the judgment appealed from is untenable. Having no
cause of action against defendant corporation, plaintiff is not entitled to any relief. We see no
justification, therefore, for the court a quo's awards in its favor. . . . 34
35
Its motion for reconsideration having been denied by the respondent Court in its resolution dated 15 April
1980, petitioner filed the instant petition based on the following grounds:
1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of
Directors Constancio B. Maglana in behalf of the respondent corporation binds the said
corporation.
2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent
contract.
3. That the option to renew the contract as contained in Exhibit "A" is enforceable.
4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic)
to be a party to the instrument but not to one who is not a party to the instrument and Sec. 1,
Rule 9 of the said Rules with regards (sic) to denying under oath refers only to allegations of
usury. 36
We gave due course 37 to the petition after private respondent filed its Comment 38 and required the parties to
submit simultaneously their Memoranda, which the parties subsequently complied with. 39
Before going any further, this Court must first resolve an issue which, although raised in the Answer of private
respondent, was neither pursued in its appeal before the respondent Court nor in its Comment and
Memorandum in this case. It also eluded the attention of the trial court and the respondent Court. The issue,
which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of
both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is:
YAO KA SIN TRADING,
owned and operated by
YAO KA SIN. 40
and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao
Ka Sin." 41 In the body of the petition, it is described as "a single proprietorship business concern." 42 It also
appears that, as gathered from the decision of the trial court, no Yao Ka Sin testified. Instead, one Henry Yao
took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation
of the plaintiff" that he signed Exhibit "A" 43 Under Section 1, Rule 3 of the Rules of Court, only natural or
juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs.
Mendoza, 44 this Court held that a single proprietorship is neither a natural person nor a juridical person under
Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court:
The law merely recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual, and requires the proprietor or owner
thereof to secure licenses and permits, register the business name, and pair taxes to the
national government. It does not vest juridical or legal personality upon the sole
proprietorship nor empower it to file or defend an action in court. 45
Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46
The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin
Trading. However, it is now too late in the history of this case to dismiss this petition and, in effect, nullify all
proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of
capacity to sue. Considering that private respondent did not pursue this issue before the respondent Court and
this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to
cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a]
defect in the designation of the parties may be summarily corrected at any stage of the action provided no
prejudice is caused thereby to the adverse party;" and that "[a] sole proprietorship does not, of coarse, possess
any juridical personality separate and apart from the personality of the owner of the enterprise and the
personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin
should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As this Court
stated nearly eighty (80) years ago in Alonso vs. Villamor: 48
No one has been misled by the error in the name of the party plaintiff. If we should by reason
of this error send this case back for amendment and new trial, there would be on the retrial the
same complaint, the same answer, the same defense, the same interests, the same witnesses,
and the same evidence. The name of the plaintiff would constitute the only difference between
the old trial and the new. In our judgment there is not enough in a name to justify such action.
And now to the merits of the petition.
The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana,
its President and Chairman, was not empowered to execute it. Petitioner, on the other hand, maintains that it is a
valid contract because the Maglana has the power to enter into contracts for the corporation as implied from the
following provisions of the By-Laws of private respondent:
a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any
kind with any person in the name and for and in behalf of the corporation through its
President, subject only to the declared objects and purpose of the corporation and the existing
provisions of law. (Exhibit "8-A"); and
b) The power of the Chairman of the Board of Directors to "execute and sign, for and in
behalf of the corporation, all contracts or agreements which the corporation may enter into"
(Exhibit "I-1").
And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the
private respondent, pursuant to the doctrine laid down by this Court in Francisco vs. Government Service
Insurance
System 49 and Board of Liquidators vs. Kalaw, 50 is still bound by his act for clothing him with apparent
authority.
We are not persuaded.
Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within
the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or
restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of
law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of
whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or
members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of
individuals and private persons." 51 Moreover, " . . . a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that authority to do so has been conferred upon him,
and this includes powers which have been intentionally conferred, and also such powers as, in the usual course
of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to believe that it has conferred. 52
While there can be no question that Mr. Maglana was an officer the President and Chairman of private
respondent corporation at the time he signed Exhibit "A", the above provisions of said private respondent's By-
Laws do not in any way confer upon the President the authority to enter into contracts for the corporation
independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to
expedite or facilitate the execution of the contract, only the President and not all the members of the Board,
or so much thereof as are required for the act shall sign it for the corporation. This is the import of the words
through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for
and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit
"I-1". Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No
greater power can be implied from such express, but limited, delegated authority. Neither can it be logically
claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president
and chairman of the corporation.
Although there is authority "that if the president is given general control and supervision over the affairs of the
corporation, it will be presumed that he has authority to make contract and do acts within the course of its
ordinary business," 53 We find such inapplicable in this case. We note that the private corporation has a general
manager who, under its By-Laws has, inter alia, the following powers: "(a) to have the active and direct
management of the business and operation of the corporation, conducting the same accordingly to the order,
directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr.
Maglana did not have a direct and active and in the management of the business and operations of the
corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts
similar to that of Exhibit "A" either with the petitioner or with other parties.
Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr.
Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was
conferred with such power. The rule is of course settled that "[a]lthough an officer or agent acts without, or in
excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has
clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound
thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where
an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it,
continuously and publicly, for a considerable time." 54 Also, "if a private corporation intentionally or
negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be
estopped to deny that such apparent authority in real, as to innocent third persons dealing in good faith with
such officers or agents." 55 This "apparent authority may result from (1) the general manner, by which the
corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with
which it clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the scope of his ordinary powers. 56
It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with
the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by
evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do
that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed
by the president without first being approved by the Board of Directors; such approval may only be given after
the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel.
The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the
petitioner. In said cases, this Court found sufficient evidence, based on the conduct and actuations of the
corporations concerned, of apparent authority conferred upon the officer involved which bound the corporations
on the basis of ratification. In the first case, it was established that the offer of compromise made by plaintiff in
the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and over the
signature of defendant's general manager Rodolfo Andal, plaintiff was informed telegraphically that her
proposal had been accepted. It was sent by the GSIS Board Secretary and defendant did not disown the same.
Moreover, in a letter remitting the payment of P30,000 advanced by her father, plaintiff quoted verbatim the
telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized
telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court
then ruled that:
This silence, taken together with the unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding ratification of the original agreement
(Civil Code, Art. 1393).
Art. 1393. Ratification may be effected expressly or tactly it is understood
that there is a tacit ratification if, with knowledge of the reason which
renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should execute an act which necessarily implies
an intention to waive his right
In the second case, this Court found:
In the case at bar, the practice of the corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf
without prior board approval. If the by-laws were to be literally followed, the board should
give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-laws requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts.
The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil
Code which provides as follows:
Art. 1317. No one may contract in the name of another without being authorized by the latter,
or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it, has been execrated, before it
is revoked by the other contracting party.
The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A"
is a valid contract binding upon the private respondent. It was effectively disapproved and rejected by the Board
of Directors which, at the same time, considered the amount of P243,000.00 received Mr. Maglana as payment
for 10,000 bags of white cement, treated as an entirely different contract, and forthwith notified petitioner of its
decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement
at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by
the Producers Bank of the Philippines, per instruction of the Board." 57 Petitioner received the copy of this
notification and thereafter accepted without any protest the Delivery Receipt covering the 10,000 bags and the
Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that petitioner had in fact
agreed to a new transaction involving only 10,000 bags of white cement.
The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg
to stand on. The river cannot rise higher than its source. In any event, the option granted in. this case is without
any consideration Article 1324 of the Civil Code expressly provides that:
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 a consideration, as something paid or promised.
while Article 1749 of the same Code provides:
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 promissor if the promise is supported by a consideration distinct from the
price.
58
Accordingly, even if it were accepted, it can not validly bind the private respondent.
The fourth ground is, however, meritorious.
Section 8, Rule 8 of the Rules of Court provides:
Sec. 8. How to contest genuineness of such documents When an action or defense is
founded upon a written instrument, copied in or attached in the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument shall
be deemed admitted unless the adverse party, under oath, specifically denies them, and sets
forth what he claims to be the facts; but this provision does not apply when the adverse party
does not appear, to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused.
It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer.
Thus, the above quoted rule is not applicable. 59 While the respondent Court, erred in holding otherwise, the
challenged decision must, nevertheless, stand in view of the above disquisitions on the first to the third grounds
of the petition.
WHEREFORE, judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C.A.
G.R. No. 61072-R promulgated on 21 December 1979.
Cost against the petitioner.
G.R. No. L-51824 February 7, 1992
PERCELINO DIAMANTE, petitioner,
vs.
HON. COURT OF APPEALS and GERARDO DEYPALUBUS, respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Amancio B. Sorongon for private respondent.
DAVIDE, JR., J.:
Assailed in this petition for review is the Resolution of the respondent Court of Appeals dated 21 March 1979 in
C.A.-G.R. No. SP-04866 setting aside its earlier decision therein, promulgated on 6 December 1978, which
reversed the decision of the then Court of First Instance (now Regional Trial Court) of Iloilo City. The latter
nullified the Orders of the Secretary of the Department of Agriculture and Natural Resources (DANR) dated 29
August 1969, 20 November 1969 and 21 April 1970, declared binding the Fishpond Lease Agreement (FLA)
issued to private respondent and disallowed petitioner from repurchasing from private respondent a portion of
the fishery lot located at Dumangas, Iloilo, covered by the FLA.
The pleadings of the parties and the decision of the respondent Court disclose the factual antecedents of this
case.
A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the Cadastral Survey of
Dumangas, Iloilo, was previously covered by Fishpond Permit No. F-2021 issued in the name of Anecita
Dionio. Upon Anecita's death, her heirs, petitioner Diamante and Primitivo Dafeliz, inherited the property
which they later divided between themselves; petitioner got 4.4. hectares while Dafeliz got 5 hectares. It is the
petitioner's share that is the subject of the present controversy. Primitivo Dafeliz later sold his share to private
respondent.
On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in question for
P8,000.00 with the right to repurchase the same within three (3) years from said date.
On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated 12 July 1960,
for a fishpond permit and a fishpond lease agreement over the entire lot, submitting therewith the deeds of sale
executed by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights over the property
in question to the private respondent for P4,000.00.
On 25 October 1960, private respondent, with his wife's consent, executed in favor of the petitioner an Option
to Repurchase the property in question within ten (10) years from said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not, however, submit
the Option to Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond Permit No. 4953-
Q; on 17 December 1962, it approved FLA No. 1372 in the latter's favor.
On 11 December 1963, petitioner, contending that he has a valid twenty-year option to repurchase the subject
property, requested the Bureau of Fisheries to nullify FLA No. 1372 insofar as the said property is concerned.
On 18 December 1964, his letter-complaint was dismissed. Petitioner then sought a reconsideration of the
dismissal; the same was denied on 29 April 1965. His appeal to the Secretary of the DANR was likewise
dismissed on 30 October 1968. Again, on 20 November 1968, petitioner sought for a reconsideration; this time,
however, he was successful. On 29 August 1969, the DANR Secretary granted his motion in an Order
cancelling FLA No. 1372 and stating, inter alia, that:
Evidently, the application as originally filed, could not be favorably acted upon by reason of
the existing right of a third party over a portion thereof. It was only the submission of the deed
of absolute sale which could eliminate the stumbling block to the approval of the transfer and
the issuance of a permit or lease agreement. It was on the basis of this deed of sale, in fact, the
one entitled "option to repurchase" executed barely a week from the execution of the deed of
absolute sale, (which) reverted, in effect, the status of the land in question to what it was after
the execution of the deed of sale with right to repurchase; that is, the land was again placed
under an encumbrance in favor of a third party. Circumstantially, there is a ground (sic) to
believe that the deed of absolute sale was executed merely with the end in view of
circumventing the requirements for the approval of the transfer of leasehold rights of
Diamante in favor of Deypalubos; and the subsequent execution of the "Option to
Repurchase" was made to assure the maintenance of a vendor a retro's rights in favor of
Diamante. There was, therefore, a misrepresentation of an essential or material fact committed
by the lessee-appellee (Deypalubos) in his application for the permit and the lease agreement,
without which the same could not have been issued. 1
The Secretary based his action on Section 20 of Fisheries Administrative Order No. 60, the second paragraph of
which reads:
Any and all of the statements made in the corresponding application shall be considered as
essential conditions and parts of the permit or lease granted. Any false statements in the
 application of facts or any alteration, change or modification of any or all terms and
conditions made therein shall ipso facto cause the cancellation of the permit or lease.
Private respondent moved for a reconsideration of this last Order arguing that the DANR Secretary's previous
Order of 30 October 1968 dismissing petitioner's letter-complaint had already become final on the ground that
he (private respondent) was not served a copy of petitioner's 20 November 1968 motion for reconsideration. On
20 November 1969, private respondent's motion for reconsideration was denied; a second motion for
reconsideration was likewise denied on 20 April 1970.
On 5 May 1970, private respondent filed with the Court of First Instance of Iloilo City a special civil action for
certiorari with preliminary injunction (docketed as Civil Case No. 8209), seeking to annul the Secretary's
Orders of 20 April 1970, 20 November 1969 and 29 August 1969 on the ground that the Secretary: (1) gravely
abused his discretion in not giving him the opportunity to be heard on the question of whether or not the Option
to Repurchase was forged; and (2) has no jurisdiction to set aside FLA No. 1372 as the Order of the Bureau of
Fisheries dismissing petitioner's 11 December 1963 letter-complaint had already become final.
After issuing a temporary restraining order and a writ of preliminary injunction, the lower court tried the case
jointly with Criminal Case No. 520 wherein both the petitioner and a certain Atty. Agustin Dioquino, the Notary
Public who notarized the 25 October 1960 Option to Repurchase, were charged with falsification of a public
document.
After due trial, the lower court acquitted the accused in the criminal case and decided in favor of the private
respondent in Civil Case No. 8209; the court ruled that: (1) the DANR Secretary abused his discretion in issuing
the questioned Orders, (2) petitioner cannot repurchase the property in question as the Option to Repurchase is
of doubtful validity, and (3) FLA No. 1372 in the name of private respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6 December 1978, reversed the decision of the trial court
2
on the ground that no grave abuse of discretion was committed by respondent Secretary inasmuch as private
respondent was given the opportunity to be heard on his claim that the Option to Repurchase is spurious, and
that the trial court merely indulged in conjectures in not upholding its validity. Said the respondent Court:
With all the foregoing arguments appellee had exhaustively adduced to show the spuriousness
of the deed of "Option to Repurchase", appellee can hardly complain of not having been given
an opportunity to be heard, which is all that is necessary in relation to the requirement of
notice and hearing in administrative proceedings. Moreover, appellee never asked for a formal
hearing at the first opportunity that he had to do so, as when he filed his first motion for
reconsideration. He asked for a formal hearing only in his second motion for reconsideration
evidently as a mere afterthought, upon realizing that his arguments were futile without proofs
to support them.
The only remaining question, therefore, is whether the Secretary acted with grave abuse of
discretion in giving weight to the alleged execution by appellee of the deed of Option to
Repurchase, on the basis of the xerox copy of said deed as certified by the Notary Public,
Agustin Dioquino.
With such documentary evidence duly certified by the Notary Public, which is in effect an
affirmation of the existence of the deed of "Option of Repurchase" (sic) and its due execution,
the Secretary may not be said to have gravely abused his discretion in giving the document
enough evidentiary weight to justify his action in applying the aforequoted provisions of
Fisheries Adm. Order No. 60. This piece of evidence may be considered substantial enough to
support the conclusion reached by the respondent Secretary, which is all that is necessary to
sustain an administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635; Ang Tibay vs.
CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture and Natural Resources, et al. L-29097,
Jan. 28, 1974, 55 SCRA 330). Reviewing courts do not re-examine the sufficiency of the
evidence in an administrative case, if originally instituted as such, nor are they authorized to
receive additional evidence that was not submitted to the administrative agency concerned.
For common sense dictates that the question of whether the administrative agency abused its
discretion in weighing evidence should be resolved solely on the basis of the proof that the
administrative authorities had before them and no other (Timbancaya vs. Vicente, L-19100,
Dec. 27, 1963, 9 SCRA 852). In the instant case the evidence presented for the first time
before the court a quo could be considered only for the criminal case heard jointly with this
case.
The lower court's action of acquitting the notary public, Agustin Dioquino, and appellant
Diamante in Criminal Case No. 520 for falsification of public document is in itself a finding
that the alleged forgery has not been conclusively established. This finding is quite correct
considering the admission of the NBI handwriting expert that admission of the NBI
handwriting expert that he cannot make any finding on the question of whether appellee's
signature on the deed of "Option to Repurchase" is forged or not, because of the lack of (sic)
specimen signature of appellee for comparative examination. The Secretary may have such
signature in the application papers of appellee on file with the former's office upon which to
satisfy himself of (sic) the genuineness of appellee's signature. It would be strange, indeed,
that appellee had not provided the NBI expert with a specimen of his signature when his
purpose was to have an expert opinion that his signature on the questioned document is
forged.
On the other hand, as to the signature of his wife, the latter herself admitted the same to be her
own. Thus
Q There is a signature below the typewritten words "with
my marital consent" and above the name Edelina Duyo,
whose signature is this?
A That is my signature. (T.s.n., Crim. Case No. 520, April
5, 1971, p. 14).
In not finding in favor of the perfect validity of the "Option to Repurchase," the court a quo
merely indulged in conjectures. Thus, believing the testimony of appellee that the later (sic)
could not have executed the deed of option to repurchase after spending allegedly P12,000.00,
and that if there was really a verbal agreement upon the execution of the deed of absolute sale,
 as alleged by appellant, that appellant's right to repurchase, as was stipulated in the earlier
deed of sale, shall be preserved, such agreement should have been embodied in the deed of
sale of October 17, 1960 (Exh. D), the court doubted the genuineness of the deed of Option to
Repurchase (sic).
It is highly doubtful if appellee had spent P12,000.00 during the period from October 17,
1960 to October 25, 1960 when the deed of option was executed. Likewise, the right to
repurchase could not have been embodied in the deed of absolute sale since, as the Secretary
of DANR found, the purpose of the deed of absolute sale is to circumvent the law and insure
the approval of appellee's application, as with his right to 4.4 hectares appearing to be subject
to an encumbrance, his application would not have been given favorable action.
Above all, the speculation and conjectures as indulged in by the court a quo cannot outweigh
the probative effect of the document itself, a certified xerox copy thereof as issued by the
Notary Public, the non-presentation of the original having been explained by its loss, as was
the testimony of the same Notary Public, who justly won acquittal when charged with
falsification of public document at the instance of appellee. The fact that the spaces for the
document number, page and book numbers were not filled up in the photostatic copy
presented by the representative of the Bureau of Records Management does not militate
against the genuineness of the document. It simply means that the copy sent to the said
Bureau happens to have those spaces unfilled up (sic). But the sending of a copy of the
document to the Bureau of Records Management attests strongly to the existence of such
document, the original of which was duly executed, complete with the aforesaid data duly
indicated thereon, as shown by the xerox copy certified true by the Notary Public.
Indeed, in the absence of positive and convincing proof of forgery, a public instrument
executed with the intervention of a Notary Public must be held in high respect and accorded
full integrity, if only upon the presumption of the regularity of official functions as in the
nature of those upon the presumption of the regularity of official functions as in the nature of
those of a notary public (Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar Filipino vs. Olviga,
60 Phil. 17).
Subsequently, the respondent Court, acting on private respondent's motion for reconsideration, promulgated on
21 March 1979 the challenged Resolution 3 setting aside the earlier decision and affirmed, in toto, the ruling of
the trial court, thus:
. . . the respondent (DANR) Secretary had gone beyond his statutory authority and had clearly
acted in abuse of discretion in giving due weight to the alleged option to repurchase whose
(sic) genuiness (sic) and due execution had been impugned and denied by petitioner-appellee
(Deypalubos). While the certified true copy of the option to repurchase may have been the
basis of the respondent Secretary in resolving the motion for reconsideration, the Court
believes that he should have first ordered the presentation of evidence to resolve this factual
issue considering the conflicting claims of the parties. As earlier pointed out, all that was
submitted to the Bureau of Fisheries and consequently to the respondent Secretary, was a
xerox copy of the questioned document which was certified to by a notary public to be a copy
of a deed found in his notarial file which did not bear any specimen of the signatures of the
contracting parties. And assuming that a certification made by a notary public as to the
existence of a document should be deemed an affirmation that such document actually exists.
Nevertheless, (sic) when such claim is impugned, the one who assails the existence of a
document should be afforded the opportunity to prove such claim, because, at most, the
presumption of regularity in the performance of official duties is merely disputable and can be
rebutted by convincing and positive evidence to the contrary.
His motion for reconsideration having been denied, the petitioner filed the instant petition for review.
Petitioner contends that the Rules of Court should not be strictly applied to administrative proceedings and that
the findings of fact of administrative bodies, absent a showing of arbitrariness, should be accorded respect.
While the petition has merit, petitioner's victory is hollow and illusory for, as shall hereafter be shown, even as
We reverse the assailed resolution of the respondent Court of Appeals, the questioned decision of the Secretary
must, nevertheless, be set aside on the basis of an erroneous conclusion of law with respect to the Option to
Repurchase.
The respondent Court correctly held in its decision of 6 December 1978 that the respondent Secretary provided
the private respondent sufficient opportunity to question the authenticity of the Option to Repurchase and
committed no grave abuse of discretion in holding that the same was in fact executed by private respondent. We
thus find no sufficient legal and factual moorings for respondent Court's sudden turnabout in its resolution of 21
March 1979. That private respondent and his wife executed the Option to Repurchase in favor of petitioner on
25 October 1960 is beyond dispute. As determined by the respondent Court in its decision of 6 December 1978,
private respondent's wife, Edelina Duyo, admitted having affixed her signature to the said document. Besides,
the trial court itself in Criminal Case No. 520 which was jointly tried with the civil case, acquitted both the
petitioners and the notary public, before whom the Option to Repurchase was acknowledged, of the crime of
falsification of said document.
We hold, however, that the respondent Secretary gravely erred in holding that private respondent's non-
disclosure and suppression of the fact that 4.4 hectares of the area subject of the application is burdened with or
encumbered by the Option to Repurchase constituted a falsehood or a misrepresentation of an essential or
material fact which, under the second paragraph of Section 29 of Fisheries Administrative Order No. 60 earlier
quoted, "shall ipso facto cause the cancellation of the permit or lease." In short, the Secretary was of the opinion
that the Option to Repurchase was an encumbrance on the property which affected the absolute and exclusive
character of private respondent's ownership over the 4.4 hectares sold to him by petitioner. This is a clear case
of a misapplication of the law on conventional redemption and a misunderstanding of the effects of a right to
repurchase granted subsequently in an instrument different from the original document of sale.
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the provisions of article 1616 and other
stipulations which may have been agreed upon.
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29 November 1968, or barely seven (7) days before
the respondent Court promulgated its decision in this case, this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in 1927, this Court had already ruled that "an
agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made
without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the
vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of
the object. In that case the vendor has not reserved to himself the right to repurchase."
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to
sell, which must be governed by Article 1479 of the Civil Code which reads as follows:
Art. 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 promissor if the promise is supported by a consideration distinct from the
price.
A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the
pleadings of the parties. This Court cannot, therefore, properly rule on whether the promise was accepted and a
consideration distinct from the price, supports the option. Undoubtedly, in the absence of either or both
acceptance and separate consideration, the promise to sell is not binding upon the promissor (private
respondent).
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract
except at the moment it is accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the promissor may withdraw it at any
time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and the
offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand,
would be liable for damages if he fails to deliver the thing he had offered for sale.
xxx xxx xxx
. . . The contract of option is a separate and distinct contract from the contract which the
parties may enter into upon the consummation of the option, and a consideration for an
optional contract is just as important as the consideration for any other kind of contract. Thus,
a distinction should be drawn between the consideration for the option to repurchase, and the
consideration for the contract of repurchase itself. 7
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct
consideration. 8
It may be true that the foregoing issues were not squarely raised by the parties. Being, however, intertwined
with the issue of the correctness of the decision of the respondent Secretary and, considering further that the
determination of said issues is essential and indispensable for the rendition of a just decision in this case, this
Court does not hesitate to rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not considered a direct challenge to the decision of
the court below, we still believe that the objection takes a narrow view of practice and
procedure contrary to the liberal spirit which pervades the Rules of Court. The first injunction
of the new Rules (Rule 1, section 2) is that they "shall be liberally construed in order to
promote their object and to assist the parties in obtaining just, speedy, and inexpensive
determination of every action and proceeding." In line with the modern trends of procedure,
we are told that, "while an assignment of error which is required by law or rule of court has
been held essential to appellate review, and only those assigned will be considered, there are a
number of cases which appear to accord to the appellate court a broad discretionary power to
waive the lack of proper assignment of errors and consider errors not assigned. And an
unassigned error closely related to an error properly assigned, or upon which the
determination of the question raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as error." (4 C.J.S.,
1734; 3 C.J., 1341, footnote 77). At the least, the assignment of error, viewed in this light,
authorizes us to examine and pass upon the decision of the court below.
10
In Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd., this
Court ruled:
. . . (t)he Supreme Court has ample authority to review and resolve matter not assigned and
specified as errors by either of the parties in the appeal if it finds the consideration and
determination of the same essential and indispensable in order to arrive at a just decision in
the case. 11 This Court, thus, has the authority to waive the lack of proper assignment of errors
if the unassigned errors closely relate to errors properly pinpointed out or if the unassigned
errors refer to matters upon which the determination of the questions raised by the errors
properly assigned depend. 12
The same also applies to issues not specifically raised by the parties. The Supreme Court,
likewise, has broad discretionary power, in the resolution of a controversy, to take into
 consideration matters on record which the parties fail to submit to the Court as specific
questions for determination. 13 Where the issues already raised also rest on other issues not
specifically presented, as long as the latter issues bear relevance and close relation to the
former and as long as they arise from matters on record, the Court has the authority to include
them in its discussion of the controversy as well as to pass upon them. In brief, in those cases
wherein questions not particularly raised by the parties surface as necessary for the complete
adjudication of the rights and obligations of the parties and such questions fall within the
issues already framed by the parties, the interests of justice dictate that the Court consider and
resolve them.
WHEREFORE, the instant petition is GRANTED. The Resolution of respondent Court of Appeals of 21 March
1979 in C.A.-G.R. No. SP-04866 and the Decision of the trial court in Civil Case No. 8209, insofar as they
declare, for the reasons therein given, Fishpond Lease Agreement No. 1372, valid and binding, are hereby
REVERSED and SET ASIDE. The challenged Orders of the respondent Secretary of Agriculture and Natural
Resources of 29 August 1969, 20 November 1969 and 21 April 1970 are likewise REVERSED and SET ASIDE
and Fishpond Lease Agreement No. 1372 is ordered REINSTATED.
No pronouncement as to costs.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION,
respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-
G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court,
dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang
Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging,
among others, that plaintiffs are tenants or lessees of residential and commercial spaces
owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they
have occupied said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and
are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter offer of P5-million; that
plaintiffs thereafter asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24,
1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs
did not receive any reply, they sent another letter dated January 28, 1987 with the same
request; that since defendants failed to specify the terms and conditions of the offer to sell and
because of information received that defendants were about to sell the property, plaintiffs
were compelled to file the complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties 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. Thus the
dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and
against the plaintiffs summarily dismissing the complaint subject to the
aforementioned condition that if the defendants subsequently decide to offer
their property for sale for a purchase price of Eleven Million Pesos or
lower, then the plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by
Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando
A. Santiago), this Court affirmed with modification the lower court's judgment, holding:
 In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the claim for
specific performance will not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no justifiable ground
for its award. Summary judgment for defendants was properly granted.
Courts may render summary judgment when there is no genuine issue as to
any material fact and the moving party is entitled to a judgment as a matter
of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites
obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed
from is hereby AFFIRMED, but subject to the following modification: The
court a quo in the aforestated decision gave the plaintiffs-appellants the
right of first refusal only if the property is sold for a purchase price of
Eleven Million pesos or lower; however, considering the mercurial and
uncertain forces in our market economy today. We find no reason not to
grant the same right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review on
certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form
and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and Development Corporation, subject
to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the above-
described property with all the improvements found therein including all the
rights and interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration
fees for the transfer of title in his favor and other expenses incidental to the
sale of above-described property including capital gains tax and accrued
real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the
lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng
and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in today's consideration of
the motion as evidenced by the rubber stamp and signatures upon the copy
of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21,
1990 as modified by the Court of Appeals in its decision in CA G.R. CV-
21123, and elevated to the Supreme Court upon the petition for review and
that the same was denied by the highest tribunal in its resolution dated May
6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there
was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating
that the aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in dispute was the
subject of the Notice of Lis Pendens and that the modified decision of this
Court promulgated by the Court of Appeals which had become final to the
effect that should the defendants decide to offer the property for sale for a
price of P11 Million or lower, and considering the mercurial and uncertain
forces in our market economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for a price
in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million
 pesos in recognition of plaintiffs' right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the
issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion of
which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to
implement said Writ of Execution ordering the defendants among others to
comply with the aforesaid Order of this Court within a period of one (1)
week from receipt of this Order and for defendants to execute the necessary
Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to
cancel and set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and
defendants and to register the new title in favor of the aforesaid plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without
force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen
Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental
precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie
which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to
do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the
active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to render some service
(Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The
perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real
contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of
real property, is essential in order to make the act valid, the prescribed form being thereby an essential element
thereof. The stage of consummation begins when the parties perform their respective undertakings under the
contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the 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. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of
the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the
failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party
which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code). 4
An 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. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, 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, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is
merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations
to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). 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, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's
coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see
also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45
SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a
breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. 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. In these cases, care should be taken of the
real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the
main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection
(Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out,
it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code.
An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate,
the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into
a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions
of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal
would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there
is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058,
cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership
and possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of
execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123.
The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court as
modified by this Court. As already stated, there was nothing in said decision 13 that decreed
 the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing
of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC,
147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman
vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time
the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30
August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.
G.R. No. 168325 December 8, 2010
ROBERTO D. TUAZON, Petitioner,
vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE LEON,
MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L. SANDICO-SILVA,
as attorney-in-fact of the defendants, except Lourdes Q. Del Rosario-Suarez, Respondents.
DECISION
DEL CASTILLO, J.:
In a situation where the lessor makes an offer to sell to the lessee a certain property at a fixed price within a
certain period, and the lessee fails to accept the offer or to purchase on time, then the lessee loses his right to
buy the property and the owner can validly offer it to another.
This Petition for Review on Certiorari1 assails the Decision2 dated May 30, 2005 of the Court of Appeals (CA)
in CA-G.R. CV No. 78870, which affirmed the Decision3 dated November 18, 2002 of the Regional Trial Court
(RTC), Branch 101, Quezon City in Civil Case No. Q-00-42338.
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land, containing more or
less an area of 1,211 square meters located along Tandang Sora Street, Barangay Old Balara, Quezon City and
previously covered by Transfer Certificate of Title (TCT) No. RT-561184 issued by the Registry of Deeds of
Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a Contract of Lease 5 over the
abovementioned parcel of land for a period of three years. The lease commenced in March 1994 and ended in
February 1997. During the effectivity of the lease, Lourdes sent a letter 6 dated January 2, 1995 to Roberto
where she offered to sell to the latter subject parcel of land. She pegged the price at P37,541,000.00 and gave
him two years from January 2, 1995 to decide on the said offer.
On June 19, 1997, or more than four months after the expiration of the Contract of Lease, Lourdes sold subject
parcel of land to her only child, Catalina Suarez-De Leon, her son-in-law Wilfredo De Leon, and her two
grandsons, Miguel Luis S. De Leon and Rommel S. De Leon (the De Leons), for a total consideration of only
P2,750,000.00 as evidenced by a Deed of Absolute Sale7 executed by the parties. TCT No. 1779868 was then
issued by the Registry of Deeds of Quezon City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to vacate the premises.
Roberto refused hence, the De Leons filed a complaint for Unlawful Detainer before the Metropolitan Trial
Court (MeTC) of Quezon City against him. On August 30, 2000, the MeTC rendered a Decision 9 ordering
Roberto to vacate the property for non-payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the RTC of Quezon City a
Complaint10 for Annulment of Deed of Absolute Sale, Reconveyance, Damages and Application for Preliminary
Injunction against Lourdes and the De Leons. On November 13, 2000, Roberto filed a Notice of Lis Pendens11
with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with Counterclaim12 praying that the Complaint be dismissed
for lack of cause of action. They claimed that the filing of such case was a mere leverage of Roberto against
them because of the favorable Decision issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order 13 declaring Lourdes and the De Leons in default for their
failure to appear before the court for the second time despite notice. Upon a Motion for Reconsideration, 14 the
trial court in an Order15 dated October 19, 2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made by Lourdes in favor
of the De Leons as valid and binding. The offer made by Lourdes to Roberto did not ripen into a contract to sell
because the price offered by the former was not acceptable to the latter. The offer made by Lourdes is no longer
binding and effective at the time she decided to sell the subject lot to the De Leons because the same was not
accepted by Roberto. Thus, in a Decision dated November 18, 2002, the trial court dismissed the complaint. Its
dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled Complaint for
lack of merit, and ordering the Plaintiff to pay the Defendants, the following:
1. the amount of P30,000.00 as moral damages;
 2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorneys fees; and
4. cost of the litigation.
16
SO ORDERED.
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and affirming the Decision of the
RTC.
Hence, this Petition for Review on Certiorari filed by Roberto advancing the following arguments:
I.
The Trial Court and the Court of Appeals had decided that the "Right of First Refusal" exists only within the
parameters of an "Option to Buy", and did not exist when the property was sold later to a third person, under
favorable terms and conditions which the former buyer can meet.
II.
What is the status or sanctions of an appellee in the Court of Appeals who has not filed or failed to file an
appellees brief?17
Petitioners Arguments
Roberto claims that Lourdes violated his right to buy subject property under
the principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the property under
the same terms and conditions or specifically based on the much lower price paid by the De Leons.
Roberto further contends that he is enforcing his "right of first refusal" based on Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc.18 which is the leading case on the "right of first refusal."
Respondents Arguments
On the other hand, respondents posit that this case is not covered by the principle of "right of first refusal" but
an unaccepted unilateral promise to sell or, at best, a contract of option which was not perfected. The letter of
Lourdes to Roberto clearly embodies an option contract as it grants the latter only two years to exercise the
option to buy the subject property at a price certain of P37,541,000.00. As an option contract, the said letter
would have been binding upon Lourdes without need of any consideration, had Roberto accepted the offer. But
in this case there was no acceptance made neither was there a distinct consideration for the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of a right of first refusal
In Beaumont v. Prieto,19 the nature of an option contract is explained thus:
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. (Story
vs. Salamon, 71 N. Y., 420.)
From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10
Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a given time at a named price is
neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price within a certain time. He
does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege
to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an
agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive
lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited
period. The second party receives this right, or rather, from his point of view, he receives the right to elect to
buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the
case where there was cause or consideration for the obligation x x x. (Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an elucidation on the "right of first refusal" was
made thus:
In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out,
it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An
option or an offer would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual
intention to enter into a binding juridical relation with another but also on terms, including the price,
that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging I hope the Lord God will help you be the recipient of multi-billion projects aid from other countries.
to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, Thank you,
the pertinent scattered provisions of the Civil Code on human conduct.
Lourdes Q. del Rosario vda de Suarez
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its It is clear that the above letter embodies an option contract as it grants Roberto a fixed period of only two years
existence, nor would it sanction an action for specific performance without thereby negating the indispensable to buy the subject property at a price certain of P37,541,000.00. It being an option contract, the rules applicable
element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal
are found in Articles 1324 and 1479 of the Civil Code which provide:
would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages.
(Emphasis supplied.) Art. 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 a
consideration, as something paid or promised.
From the foregoing, it is thus clear that an option contract is entirely different and distinct from a right of first
refusal in that in the former, the option granted to the offeree is for a fixed period and at a determined price.
Lacking these two essential requisites, what is involved is only a right of first refusal. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2, 1995 involved an An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
option contract or a contract of a right of first refusal. In its entirety, the said letter-offer reads: promissor if the promise is supported by a consideration distinct from the price.

206 Valdes Street It is clear from the provision of Article 1324 that there is a great difference between the effect of an option
Josefa Subd. Balibago which is without a consideration from one which is founded upon a consideration. If the option is without any
Angeles City 2009 consideration, the offeror may withdraw his offer by communicating such withdrawal to the offeree at anytime
before acceptance; if it is founded upon a consideration, the offeror cannot withdraw his offer before the lapse
of the period agreed upon.
January 2, 1995
The second paragraph of Article 1479 declares that "an accepted unilateral promise to buy or to sell a
Tuazon Const. Co. determinate thing for a price certain is binding upon the promissor if the promise is supported by a
986 Tandang Sora Quezon City
consideration distinct from the price." Sanchez v. Rigos21 provided an interpretation of the said second
paragraph of Article 1479 in relation to Article 1324. Thus:
Dear Mr. Tuazon,
There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a promise to buy or
I received with great joy and happiness the big box of sweet grapes and ham, fit for a kings party. Thanks very to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is
much. clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is
only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only family. I need money to binding effect if supported by a consideration, which means that the option can still be withdrawn, even if
buy a house and lot and a farm with a little cash to start. accepted, if the same is not supported by any consideration. Hence, it is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in dollars in the name of
my daughter. I never offered it to anyone. Please shoulder the expenses for the transfer. I wish the Lord God It is true that under Article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that,
will help you buy my lot easily and you will be very lucky forever in this place. You have all the time to when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before
decide when you can, but not for 2 years or more. acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as
modified by the provision of Article 1479 above referred to, which applies to "a promise to buy and sell"
I wish you long life, happiness, health, wealth and great fortune always! specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a
consideration distinct from the price.
In Diamante v. Court of Appeals,22 this Court further declared that:
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it
is accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is
accepted, the promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell
and to buy is created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other
hand, would be liable for damages if he fails to deliver the thing he had offered for sale.
xxxx
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct
consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes as he negotiated
for a much lower price. Robertos act of negotiating for a much lower price was a counter-offer and is therefore
not an acceptance of the offer of Lourdes. Article 1319 of the Civil Code provides:
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer. (Emphasis supplied.)
The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is therefore no
contract that was perfected between them with regard to the sale of subject property. Roberto, thus, does not
have any right to demand that the property be sold to him at the price for which it was sold to the De Leons
neither does he have the right to demand that said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here
It is the position of Roberto that the facts of this case and that of Equatorial are similar in nearly all aspects.
Roberto is a lessee of the property like Mayfair Theater in Equatorial. There was an offer made to Roberto by
Lourdes during the effectivity of the contract of lease which was also the case in Equatorial. There were
negotiations as to the price which did not bear fruit because Lourdes sold the property to the De Leons which
was also the case in Equatorial wherein Carmelo and Bauermann sold the property to Equatorial. The existence
of the lease of the property is known to the De Leons as they are related to Lourdes while in Equatorial, the
lawyers of Equatorial studied the lease contract of Mayfair over the property. The property in this case was sold
by Lourdes to the De Leons at a much lower price which is also the case in Equatorial where Carmelo and
Bauerman sold to Equatorial at a lesser price. It is Robertos conclusion that as in the case of Equatorial, there
was a violation of his right of first refusal and hence annulment or rescission of the Deed of Absolute Sale is the
proper remedy.
Robertos reliance in Equatorial is misplaced. Despite his claims, the facts in Equatorial radically differ from
the facts of this case. Roberto overlooked the fact that in Equatorial, there was an express provision in the
Contract of Lease that
(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-days exclusive option
to purchase the same.
There is no such similar provision in the Contract of Lease between Roberto and Lourdes. What is involved
here is a separate and distinct offer made by Lourdes through a letter dated January 2, 1995 wherein she is
selling the leased property to Roberto for a definite price and which gave the latter a definite period for
acceptance. Roberto was not given a right of first refusal. The letter-offer of Lourdes did not form part of the
Lease Contract because it was made more than six months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In this case, the subject
property was sold not only after the expiration of the period provided in the letter-offer of Lourdes but also after
the effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound thereby because
of the absence of a consideration distinct and separate from the price. The argument of Roberto that the separate
consideration was the liberality on the part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes
would show that what drove her to offer the property to Roberto was her immediate need for funds as she was
already very old. Offering the property to Roberto was not an act of liberality on the part of Lourdes but was a
simple matter of convenience and practicality as he was the one most likely to buy the property at that time as
he was then leasing the same.
All told, the facts of the case, as found by the RTC and the CA, do not support Robertos claims that the letter
of Lourdes gave him a right of first refusal which is similar to the one given to Mayfair Theater in the case of
Equatorial. Therefore, there is no justification to annul the deed of sale validly entered into by Lourdes with the
De Leons.
What is the effect of the failure of Lourdes to file her appellees brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her appellees brief before the
CA.
Certainly, the appellees failure to file her brief would not mean that the case would be automatically decided
against her. Under the circumstances, the prudent action on the part of the CA would be to deem Lourdes to
have waived her right to file her appellees brief. De Leon v. Court of Appeals,23 is instructive when this Court
decreed:
On the second issue, we hold that the Court of Appeals did not commit grave abuse of discretion in considering
the appeal submitted for decision. The proper remedy in case of denial of the motion to dismiss is to file the
appellees brief and proceed with the appeal. Instead, petitioner opted to file a motion for reconsideration
which, unfortunately, was pro forma. All the grounds raised therein have been discussed in the first resolution
of the respondent Court of Appeals. There is no new ground raised that might warrant reversal of the resolution.
A cursory perusal of the motion would readily show that it was a near verbatim repetition of the grounds stated
in the motion to dismiss; hence, the filing of the motion for reconsideration did not suspend the period for filing
the appellees brief. Petitioner was therefore properly deemed to have waived his right to file appellees
brief. (Emphasis supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in the RTC. He obtained a
favorable judgment and so defendant went to the CA. The appeal of defendant-appellant was taken cognizance
of by the CA but De Leon filed a Motion to Dismiss the Appeal with Motion to Suspend Period to file
Appellees Brief. The CA denied the Motion to Dismiss. De Leon filed a Motion for Reconsideration which
actually did not suspend the period to file the appellees brief. De Leon therefore failed to file his brief within
the period specified by the rules and hence he was deemed by the CA to have waived his right to file appellees
brief.
The failure of the appellee to file his brief would not result to the rendition of a decision favorable to the
appellant. The former is considered only to have waived his right to file the Appellees Brief. The CA has the
jurisdiction to resolve the case based on the Appellants Brief and the records of the case forwarded by the
RTC. The appeal is therefore considered submitted for decision and the CA properly acted on it.
WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 78870, which affirmed the Decision dated November 18, 2002 of the Regional
Trial Court, Branch 101, Quezon City in Civil Case No. Q-00-42338 is AFFIRMED.
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent appellate court analyzed and
interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the
respondent court reversed the trial court 3 which, in dismissing the complaint for specific performance
with damages and annulment of contract, 4 found the option clause in the lease contracts entered into
by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann,
Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the
subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost
verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon
located at Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name
by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of
a portion of Carmelo's property particularly described, to wit:
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.
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.
for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair
thereafter constructed on the leased property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with
Carmelo for the lease of another portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square
meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a floor area of 300 square meters and bearing street numbers
1871 and 1875,
for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up
another movie house known as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph 8, which reads:
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 August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President
of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire
Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to
buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter
was willing to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974,
Mayfair replied through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed our
client's Mr. Henry Yang through the telephone that your company desires to
sell your above-mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our client, it is uniformly
provided:
8. 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 is (sic) herebinds
(sic) and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest
in acquiring not only the leased premises but "the entire building and other improvements if
the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of
the second letter.
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.
In September 1978, Mayfair instituted the action a quo for specific performance and
annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged 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. Equatorial, in its Answer, pleaded as special and affirmative
defense 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.
During the pre-trial conference held on January 23, 1979, the parties stipulated on the
following:
1. That there was a deed of sale of the contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation granting
the plaintiff exclusive option to purchase the leased premises should the
lessor desire to sell the same (admitted subject to the contention that the
stipulation is null and void);
3. That the two buildings erected on this land are not of the condominium
plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of
the contracts of lease constitute the consideration for the plaintiff's
occupancy of the leased premises, subject of the same contracts of lease,
Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy embodied
in the contract;
7. That Carmelo & Bauermann owned the land and the two buildings
erected thereon;
8. That the leased premises constitute only the portions actually occupied by
the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant Equatorial
Realty is the land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision, the decretal
portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
 (2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00
by way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per
month as reasonable compensation for the use of areas not covered by the
contract (sic) of lease from July 31, 1979 until plaintiff vacates said area
(sic) plus legal interest from July 31, 1978; P70,000 00 per month as
reasonable compensation for the use of the premises covered by the
contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff
vacates the premises plus legal interest from June 1, 1987; P55,000.00 per
month as reasonable compensation for the use of the premises covered by
the contract of lease dated March 31, 1969 from March 30, 1989 until
plaintiff vacates the premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo
& Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared
expired and all persons claiming rights under these contracts are directed to
vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to
be an option clause which however cannot be deemed to be binding on Carmelo because of lack of
distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the option in the contract
of lease is not supported by a separate consideration. Without a consideration, the option is
therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to
the former. The option invoked by the plaintiff appears in the contracts of lease . . . in effect
there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code,
provides:
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce no effect whatsoever. Article 1324
provides:
When the offeror 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.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former
establishes the existence of a distinct consideration. In other words, the promisee has the
burden of proving the consideration. The consideration cannot be presumed as in Article
1354:
Although the cause is not stated in the contract, it is presumed that it exists
and is lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed particularly and more specifically by
Article 1479 whereby the promisee has the burden of proving the existence of consideration
distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the
Court said:
(1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to sales in particular, and, more
specifically, to an accepted unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the promissor,
Article 1479 requires the concurrence of a condition, namely, that the
promise be supported by a consideration distinct from the price.
Accordingly, the promisee cannot compel the promissor to comply with the
promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in
his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M.
Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent
Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the
amount of P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering
Equatorial Realty Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to
execute the deeds and documents necessary for the issuance and transfer of ownership to
Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged,
declaring the Deed of Absolute Sale between the defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the
parties. 8
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals
differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to
the facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a
fixed price for the purchase of the leased premises, which is an essential element for a contract of sale
to be perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It
explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second
paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept
within a certain period. Under this article, the offer may be withdrawn by the offeror before
the expiration of the period and while the offeree has not yet accepted the offer. However, the
offer cannot be withdrawn by the offeror within the period if a consideration has been
promised or given by the offeree in exchange for the privilege of being given that period
within which to accept the offer. The consideration is distinct from the price which is part of
the offer. The contract that arises is known as option. In the case of Beaumont vs. Prieto, 41
Phil. 670, the Supreme court, citing Bouvier, defined an option as follows: "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," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral
promise to buy or to sell a determinate thing for a price within (which) is binding upon the
promisee if the promise is supported by a consideration distinct from the price." That
"unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer.
An "offer", in laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217).
To constitute a legal offer, the proposal must be certain as to the object, the price and other
essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days
exclusive option to purchase" the leased premises is NOT AN OPTION in the context of Arts.
1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain as to
the object (the sale of the leased premises) the price for which the object is to be sold is not
stated in the provision Otherwise stated, the questioned stipulation is not by itself, an "option"
or the "offer to sell" because the clause does not specify the price for the subject property.
Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be
legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the
trial court failed to appreciate was the intention of the parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found in a contract of
lease. Even appellees have recognized that the stipulation was incorporated in the two
Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was
intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide,
during the term of the lease, to sell the leased property. This intention of the parties is
achieved in two ways in accordance with the stipulation. The first is by giving Mayfair "30-
days exclusive option to purchase" the leased property. The second is, in case Mayfair would
opt not to purchase the leased property, "that the purchaser (the new owner of the leased
property) shall recognize the lease and be bound by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving
Mayfair "30-days exclusive option to purchase the (leased premises)," was meant to provide
Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo
should decide to dispose of the property. In order to realize this intention, the implicit
obligation of Carmelo once it had decided to sell the leased property, was not only to notify
Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell
the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or
reject the offer, before offering to sell or selling the leased property to third parties. The right
vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should
have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if
Carmelo should receive any offer from third parties to purchase the leased premises, then
Carmelo must first give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he
made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made the
offer to Mr. Henry Yang by telephone?
 A I have an offer from another party to buy the property
and having the offer we decided to make an offer to
Henry Yang on a first-refusal basis. (TSN November 8,
1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you
remember exactly what you have told him in connection
with that matter, Mr. Pascal?
A More or less, I told him that I received an offer from
another party to buy the property and I was offering him
first choice of the enter property. (TSN, November 29,
1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual the intention of the
parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the
requirement of distinct consideration indispensable in an option contract, has no application,
respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo
that the option is valid and effective, it is impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the
entire property in question. The Court of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the
Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto
property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on
the information submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not
been controverted by the appellees, and which We, therefore, take judicial notice of the two
theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m
and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of
land covering the whole Recto property demonstrates the legal and physical possibility that
each parcel of land, together with the buildings and improvements thereof, could have been
sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the physical and structural
conditions of the buildings on which the theaters were to be constructed in relation to the
remainder of the whole Recto property. The peculiar language of the stipulation would tend to
limit Mayfair's right under paragraph 8 of the Contract of Lease to the acquisition of the
leased areas only. Indeed, what is being contemplated by the questioned stipulation is a
departure from the customary situation wherein the buildings and improvements are included
in and form part of the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the sale would be valid
and capable of being performed. A sale limited to the leased premises only, if hypothetically
assumed, would have brought into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased premises and at the same time
a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the
premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the
decision of respondent Court of Appeals on the basis of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION
CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST
REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE
CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR
STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS
ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN
(18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS
LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED
IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN
IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE
ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION
XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE
MERITS OF THE CASE IN THE "DECISION STAGE". 11
We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this
case in the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a
letter-complaint to this Court alleging certain irregularities and infractions committed by
certain lawyers, and Justices of the Court of Appeals and of this Court in connection with case
CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of the judiciary. While the letter-
complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the
disposition thereof should be separate and independent from Case G.R. No. 106063.
However, for purposes of receiving the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have control of the case. Upon
completion thereof, the same shall be referred to the Court En Banc for proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate subject for an administrative complaint based on
misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent
course of action not to pre-empt the administrative proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits
as to the real nature of the questioned procedures and the true intentions and motives of the players
therein.
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8
stipulated in the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings
by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo
and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto
property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8, which reads:
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 thereof that the purchaser shall recognize this lease and be bound by all the
terms and conditions thereof. 14
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.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an
option contract as one necessarily involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December
4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff
Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the
period of three months and for its assessed valuation, a grant which necessarily implied the
offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda
during the period and for the price mentioned . . . There was, therefore, a meeting of minds on
the part of the one and the other, with regard to the stipulations made in the said document.
But it is not shown that there was any cause or consideration for that agreement, and this
omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a
contract of option, for, . . . there can be no contract without the requisite, among others, of the
cause for the obligation to be established.
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.
(Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24
Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands
within a given time at a named price is neither a sale nor an agreement to
sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does not then agree
to sell it; but he does sell something; that is, the right or privilege to buy at
the election or option of the other party. The second party gets in praesenti,
not lands, nor an agreement that he shall have lands, but he does get
something of value; that is, the right to call for and receive lands if he
elects. The owner parts with his right to sell his lands, except to the second
party, for a limited period. The second party receives this right, or, rather,
from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the
same thing, to the case where there was cause or consideration for the obligation, the subject
of the agreement made by the parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
 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.
Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per
square meter upon failure to make the purchase within the time specified; 17 in one other case we freed the
landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks
because such option was not supported by a distinct consideration; 18 in the same vein in yet one other case, we
also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because
of lack of consideration; 19 and as an exception to the doctrine enumerated in the two preceding cases, in another
case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not
without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the
consideration for that of the other. 20 In all these cases, the selling price of the object thereof is always
predetermined and specified in the option clause in the contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the
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. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
the ownership of the thing sold in retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory force. . . .
An 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.
An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
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, and in
sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
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. (1451a).
Observe, however, that the option is not the contract of sale itself. The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments. Thus, at any time prior
to the perfection of the contract, either negotiating party may stop the negotiation. The offer,
at this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of the
withdrawal (Laudico vs. Arias, 43 Phil. 270). 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, the offeror is still
free and has the right to withdraw the offer before its acceptance, or if an acceptance has been
made, before the offeror's coming to know of such fact, by communicating that withdrawal to
the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying
the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
1319, Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code
which ordains that "every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself; and it is to be distinguished from the projected
main agreement (subject matter of the option) which is obviously yet to be concluded. 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 opinion. . .
In the light of the foregoing disquisition and in view of the wording of the questioned provision in the
two lease contracts involved in the instant case, we so hold that no option to purchase in contemplation
of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said
lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a
separate consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts
which would bring them into the ambit of the usual offer or option requiring an independent
consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined
price. It is a separate and distinct contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration. 22 In the instant case, the right of
first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by
Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in
effectual or "inutile" the provisions on right of first refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the
contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first
crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not
also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation
is part and parcel of the entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the
premises and to pay the price agreed upon provided the lessor also consents that, should it sell the
leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy
the property at that price. As stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph
8 to be that of a contractual grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and
Equatorial.
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu
Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have
the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo
did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in
1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair's
right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair
the full process to ripen to at least an interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial
was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the
Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason
of injury to third persons, like creditors. The status of creditors could be validly accorded the
Bonnevies for they had substantial interests that were prejudiced by the sale of the subject
property to the petitioner without recognizing their right of first priority under the Contract of
Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and
even to third persons, to secure reparation for damages caused to them by a contract, even if
this should be valid, by means of the restoration of things to their condition at the moment
prior to the celebration of said contract. It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may cause,
or to protect some incompatible and preferent right created by the contract. Rescission implies
a contract which, even if initially valid, produces a lesion or pecuniary damage to someone
that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith. However, this rule
is not applicable in the case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject property be regarded as
acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although the Contract of Lease
was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property and pays a full and fair
price for the same at the time of such purchase or before he has notice of the claim or interest
of some other person in the property. Good faith connotes an honest intention to abstain from
 taking unconscientious advantage of another. Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority granted by the Contract
of Lease. Assuming this to be true, we nevertheless agree with the observation of the
respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,
which includes Par. 20 on priority right given to the Bonnevies, it had only
itself to blame. Having known that the property it was buying was under
lease, it behooved it as a prudent person to have required Reynoso or the
broker to show to it the Contract of Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because the entire property is indivisible
property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common
sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should
be given effect by including the indivisible appurtenances in the sale of the dominant portion under the
right of first refusal. A valid and legal contract where the ascendant or the more important of the two
parties is the landowner should be given effect, if possible, instead of being nullified on a selfish
pretext posited by the owner. Following the arguments of petitioners and the participation of the owner
in the attempt to strip Mayfair of its rights, the right of first refusal should include not only the property
specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to
Equatorial without informing Mayfair, a clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned
the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be
authorized to exercise its right of first refusal under the contract to include the entirety of the
indivisible property. The boundaries of the property sold should be the boundaries of the offer under
the right of first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain
extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in
Ang Yu Asuncion vs. Court of Appeals should be modified, if not amplified under the peculiar facts of
this case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by
bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers
had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein
should have cautioned it to look further into the agreement to determine if it involved stipulations that
would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set
aside or rescinded. All of these matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate into endless litigation. The facts of
the case and considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to protect some incompatible and preferred right
by the contract. 26 The sale of the subject real property by Carmelo to Equatorial should now be
rescinded considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair
every opportunity to negotiate within the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all remedies according to the facts and
the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at
which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the
price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the
latter of the disputed property would be unjust and unkind to Mayfair because it is once more
compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this
case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being
thrown back into the river. Why should Carmelo be rewarded for and allowed to profit from, its
wrongdoing? Prices of real estate have skyrocketed. After having sold the property for P11,300,000.00,
why should it be given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to
execute because a contract over the right of first refusal belongs to a class of preparatory juridical
relations governed not by the law on contracts but by the codal provisions on human relations. This
may apply here if the contract is limited to the buying and selling of the real property. However, the
obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8
on the right of first refusal which created the obligation. It should be enforced according to the law on
contracts instead of the panoramic and indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with
its obligation to the property under the right of the first refusal according to the terms at which they
should have been offered then to Mayfair, at the price when that offer should have been made. Also,
Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory.
Paragraphs 8 of the two leases can be executed according to their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in
mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a
contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to
withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances
point to a calculated and contrived plan of non-compliance with the agreement of first refusal.
 On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice
and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo
and Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the
grant of interests. The vendor received as payment from the vendee what, at the time, was a full and
fair price for the property. It has used the P11,300,000.00 all these years earning income or interest
from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use
of the property turned over to it by Carmelo. In fact, during all the years that this controversy was
being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the
property. Mayfair is under no obligation to pay any interests arising from this judgment to either
Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in
CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded;
petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and documents necessary to return ownership
to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
G.R. No. 111538 February 26, 1997
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B.
PROTACIO, and DAVID A. RAYMUNDO, respondents.
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy the
properties subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled to be
offered the same terms and conditions as those given to a third party who eventually bought such properties? In
short, is such right of first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45
of the Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in
CA-G.R. CV No. 34987 entitled "Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which
affirmed the order 3 of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil
Case No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5
which is
reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of
the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Paraaque,
Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and
postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action
by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of
attorney. Defendant David A. Raymundo, is of legal age, single, with residence and postal
address at 1918 Kamias Street, Damarias Village, Makati, Metro Manila, where they (sic)
may be served with summons and other court processes. Xerox copy of the general power of
attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic)
Paraaque, Metro Manila with transfer certificate of title nos. S-19637, S-19638 and S-19643
to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes "B" to "I",
respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-described property from
defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. Xerox
copy of the lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation
in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the
conformity of defendant Santos, the said assignment was also registered. Xerox copy of the
deed of assignment is hereto attached as Annex "K".
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased
property to Paraaque Kings Enterprises, Incorporated by virtue of a deed of assignment and
with the conformity of defendant Santos, the same was duly registered, Xerox copy of the
deed of assignment is hereto attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
"9. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or
mortgagee thereof shall recognize and be bound by all the terms and
conditions of this lease agreement and shall respect this Contract of Lease
as if they are the LESSORS thereof and in case of sale, LESSEE shall have
the first option or priority to buy the properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease
to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00)
PESOS. The said sale was in contravention of the contract of lease, for the first option or
priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of
sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the
sale of the properties to defendant Raymundo, the said letter was personally handed by the
attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos,
requesting her to rectify the error and consequently realizing the error, she had it reconveyed
to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies
of the letter and the deed of reconveyance are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of
FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make
good of the offer, but therefore (sic) the said period expired another letter came from the
counsel of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies
of the letters are hereto attached as Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering the properties for sale
expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties
for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as
Annex "S".
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was
executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE
MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached
as Annex "T".
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a
second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's
offer to buy or two days after she sold her properties. In her reply she stated among others that
the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the
letter is hereto attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact
that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the
letter is hereto attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is
defendant Raymundo. Xerox copy of the letter is hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was simulated and that there was a
collusion between the defendants in the sales of the leased properties, on the ground that when
plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the
property reconveyed it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their exchange of
communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist
(sic) between the defendants.
19. When the property was still registered in the name of defendant Santos, her collector of
the rental of the leased properties was her brother-in-law David Santos and when it was
transferred to defendant Raymundo the collector was still David Santos up to the month of
June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes "X" to "HH",
respectively.
20. The purpose of this unholy alliance between defendants Santos and Raymundo is to
mislead the plaintiff and make it appear that the price of the leased property is much higher
than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would
purchase the properties at a higher price.
21. Plaintiff has made considerable investments in the said leased property by erecting a two
(2) storey, six (6) doors commercial building amounting to THREE MILLION
(P3,000,000.00) PESOS. This considerable improvement was made on the belief that
eventually the said premises shall be sold to the plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total
loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as
such defendants should be charged of the same amount for actual damages.
23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff
in the process suffered mental anguish, sleepless nights, bismirched (sic) reputation which
entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
and as a deterrent to the commission of similar acts, they should be made to answer for
exemplary damages, the amount left to the discretion of the Court.
25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed,
but defendants refused and failed to comply with plaintiffs just and valid and (sic) demands.
Xerox copies of the demand letters are hereto attached as Annexes "KK" to "LL",
respectively.
26. Despite repeated demands, defendants failed and refused without justifiable cause to
satisfy plaintiff's claim, and was constrained to engaged (sic) the services of undersigned
 counsel to institute this action at a contract fee of P200,000.00, as and for attorney's fees, This is indeed one instance where a Complaint, after barely commencing to create a cause of
exclusive of cost and expenses of litigation. action, neutralized itself by its subsequent averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently, absent any actionable wrong in the very
PRAYER face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. . . . .
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff
and against defendants and ordering that: The inescapable result of the foregoing considerations point to no other conclusion than that
the Complaint actually does not contain any valid cause of action and should therefore be as it
is hereby ordered DISMISSED. The Court finds no further need to consider the other grounds
a. The Deed of Sale between defendants dated May 15,
of estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. 6
1989, be annulled and the leased properties be sold to the
plaintiff in the amount of P5,000,000.00;
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further
b. Dependants (sic) pay plaintiff the sum of reasoned that:
P3,000,000.00 as actual damages;
. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was
reduced to P9 million when she later resold the leased properties to Raymundo has no valid
c. Defendants pay the sum of P5,000,000.00 as moral
damages; legal moorings because appellant, as a prospective buyer, cannot dictate its own price and
forcibly ram it against appellee Santos, as owner, to buy off her leased properties considering
the total absence of any stipulation or agreement as to the price or as to how the price should
d. Defendants pay exemplary damages left to the be computed under paragraph 9 of the lease contract, . . . . 7
discretion of the Court;
8
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.
e. Defendants pay the sum of not less than P200,000.00 as
attorney's fees.
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order
and/or Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9
Plaintiff further prays for other just and equitable reliefs The motion sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed
plus cost of suit. before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment
complaint or of any similar action that may have been filed; and to require respondent Raymundo to explain
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack why he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent
of cause of action, estoppel and laches. Raymundo against petitioner arose from the expiration of the lease contract covering the property subject of this
case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of renders the said motion moot and academic.
action. It ratiocinated thus:
Issue
Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the
defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging
offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were breach of the contractual right of "first option or priority to buy" states a valid cause of action.
plainly rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was
therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because
For in acquiring the said properties back to her name, and in so making the offers to sell both it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right
by herself (attorney-in-fact) and through her counsel, defendant Santos was indeed of first refusal founded in law, and (3) damages.
conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. . . .
.
Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not
raising a question of law as the issue involved is purely factual whether respondent Santos complied with
xxx xxx xxx paragraph 9 of the lease agreement and for not having complied with Section 2, Rule 45 of the Rules of
Court, requiring the filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed
by petitioner before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed
to substantiate its claim that the lower courts decided the same "in a way not in accord with law and applicable
decisions of the Supreme Court"; or that the Court of Appeals has "sanctioned departure by a trial court from
the accepted and usual course of judicial proceedings" so as to merit the exercise by this Court of the power of
review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for
dismissal, claiming that petitioner's payment of rentals of the leased property to respondent Raymundo from
June 15, 1989, to June 30, 1990, was an acknowledgment of the latter's status as new owner-lessor of said
property, by virtue of which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract
of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.
The Court's Ruling
Preliminary Issue: Failure to File
Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file twelve (12)
copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did
not result in prejudice to the adverse party, dismissal of appeal on mere technicalities in cases where appeal
is a matter of right may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not appear that
respondents were unduly prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was
intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents' contention that the issue involved is purely factual. The principal legal
question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid
cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the
determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged facts. 11
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such
ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the
facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts
alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court
could render a valid judgment upon the same in accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to
respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right
of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may
maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in
mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at
the outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack
of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has
been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is
regarded as having hypothetically admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on
the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and
petitioner, the latter was granted the "first option or priority" to purchase the leased properties in case Santos
decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of
such "right." But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first
offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner
complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner,
however, rejected because of the "ridiculous" price. But Santos again appeared to have violated the same
provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9
million without first offering them to petitioner at such price. Whether there was actual breach which entitled
petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial
on the merits where each party can present evidence to prove their respective allegations and defenses. 15
The trial and appellate courts based their decision to sustain respondents' motion to dismiss on the allegations of
Paraaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the
final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer,
Santos had verily complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting petitioner the first
option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally
sold to respondent Raymundo, should have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first
refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees
(Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in
cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and
accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was
to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it
at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under
more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell
the subject property to others, and only under the same terms and conditions previously offered to the
Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first
priority, "all things and conditions being equal." This Court interpreted this proviso to mean that there should be
identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the
Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso
if the right of first refusal (or the first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or offer
to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the
same terms and within the period contemplated, could the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the optionee.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was
decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the
property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest
over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire
to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo
initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest
in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo.
Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for
P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in
bad faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for purchasing
the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its
right of first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its
structures" since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would
have occupied the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this
Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal
to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, . .
. . certain prerequisites must be complied with by anyone who wishes to avail himself of the benefits of the
decree." 19 There being no allegation in its complaint that the prerequisites were complied with, it is clear that
the complaint did fail to state a cause of action on this ground.
Deed of Assignment included
the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to
petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to
matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching
Bing as assignee, it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all
his rights, interest and participation over said premises afore-described, . . . . 20 (emphasis
supplied)
And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner,
represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
participation over said leased premises, . . . . 21 (emphasis supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's
right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the
assigned lease contract. The deed of assignment need not be very specific as to which rights and obligations
were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and
obligations contained in the contract of lease are those referred to as being assigned. Needless to state,
respondent Santos gave her unqualified conformity to both assignments of rights.
Respondent Raymundo privy
to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he
assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of
rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the
exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first
option to buy.
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first
refusal and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon
the question of whether the complaint states a cause of action for damages or whether the complaint is barred by
estoppel or laches. As these matters require presentation and/or determination of facts, they can be best resolved
after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their
day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are
theoretically admitted, such admission is merely hypothetical and only for the purpose of resolving the motion.
In case of denial, the movant is not to be deprived of the right to submit its own case and to submit evidence to
rebut the allegations in the complaint. Neither will the grant of the motion by a trial court and the ultimate
reversal thereof by an appellate court have the effect of stifling such right. 23 So too, the trial court should be
given the opportunity to evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand
the instant case to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are
hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for
further proceedings.
SO ORDERED.
G.R. No. 183612 March 15, 2010
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner,
vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 184260
NATIONAL DEVELOPMENT COMPANY, Petitioner,
vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
seek to reverse the Decision1 dated June 25, 2008 and Resolution dated August 22, 2008 of the Court of
Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the Decision2 dated November 25, 2004 of the
Regional Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created
under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668.
Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational
institution created in 1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa,
Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title
Nos. 92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty
Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten (10)
years, renewable for another ten (10) years with mutual consent of the parties.3
On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering
3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease
period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price to be
negotiated and determined at the time the option to purchase is exercised." 4
Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at
no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor
upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures
as required by the terms of the contract. After the completion of the industrial complex project, for which
GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby
generating hundreds of jobs.5
On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC
wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten (10) years. As no
response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew
the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased
premises.6 NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to
remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a
third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with
preliminary injunction and temporary restraining order. 7
In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989,
ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey
the said property in favor of PUP at acquisition cost. The memorandum order cited the serious need of PUP,
considered the "Poor Mans University," to expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its
property. The order of conveyance of the 10.31-hectare property would automatically result in the cancellation
of NDCs total obligation in favor of the National Government in the amount of P57,193,201.64.8
On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys,
representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the
leased premises.9
On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser
pendente lite of a property subject of litigation it is entitled to intervene in the proceedings. The RTC granted
the said motion and directed PUP to file its Answer-in-Intervention.10
PUP also demanded that GHRC vacate the premises, insisting that the latters lease contract had already
expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the
Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.11
Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional
defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC,
and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for ejectment. A
temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting and Judge
Francisco Brillantes, Jr. from proceeding with the ejectment case. 12
In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a
nullity, for being violative of the writ of injunction issued by the trial court, apart from being an infringement of
the Constitutional prohibition against impairment of obligation of contracts, an encroachment on legislative
functions and a bill of attainder. In the alternative, should the trial court adjudge the memorandum order as
valid, GHRC contended that its existing right must still be respected by allowing it to purchase the leased
premises.13
Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case
involving NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the
RTC of Pasay City.14
On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the
Philippines v. Court of Appeals) and 143590 (National Development Corporation v. Firestone Ceramics,
Inc.),15 which declared that the sale to PUP by NDC of the portion leased by Firestone pursuant to
Memorandum Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract
with NDC. We thus decreed:
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first
contract of lease fixed the area of the leased premises at 2.90118 hectares while the second contract placed it at
2.60 hectares, let a ground survey of the leased premises be immediately conducted by a duly licensed,
registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2)
months from the finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS,
INC., shall have six (6) months from receipt of the approved survey within which to exercise its right to
purchase the leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the
Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right
of first refusal upon payment of the purchase price thereof.
SO ORDERED.16
The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on
the merits ensued.17
On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC
under its lease contract with NDC and ordering PUP to reconvey the said portion of the property in favor of
GHRC. The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants ordering the plaintiff to cause immediate ground survey of the premises subject of the leased
contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407 and 3,222.8 square meters
respectively, by a duly licensed and registered surveyor at the expense of the plaintiff within two months from
receipt of this Decision and thereafter, the plaintiff shall have six (6) months from receipt of the approved
survey within which to exercise its right to purchase the leased property at P554.74 per square meter. And
finally, the defendant PUP, in whose name the property is titled, is hereby ordered to reconvey the aforesaid
property to the plaintiff in the exercise of its right of its option to buy or first refusal upon payment of the
purchase price thereof.
The defendant NDC is hereby further ordered to pay the plaintiff attorneys fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed and this decision shall bind defendant Metropolitan
Trial Court, Branch 20 of Manila.
With costs against defendants NDC and PUP.
SO ORDERED.18
NDC and PUP separately appealed the decision to the CA. 19 By Decision of June 25, 2008, the CA affirmed in
toto the decision of the RTC.20
Both the RTC and the CA applied this Courts ruling in Polytechnic University of the Philippines v. Court of
Appeals (supra), considering that GHRC is similarly situated as a lessee of NDC whose right of first refusal
under the lease contract was violated by the sale of the property to PUP without NDC having first offered to sell
the same to GHRC despite the latters request for the renewal of the lease and/or to purchase the leased
premises prior to the expiration of the second lease contract. The CA further agreed with the RTCs finding that
there was an implied renewal of the lease upon the failure of NDC to act on GHRCs repeated requests for
renewal of the lease contract, both verbal and written, and continuing to accept monthly rental payments from
GHRC which was allowed to continue in possession of the leased premises.
The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first
refusal, said right pertained only to the second lease contract, C-12-78 covering 3,222.80 square meters, and not
to the first lease contract, C-33-77 covering 2,407 square meters, which had already expired. It sustained the
RTCs finding that the two (2) lease contracts were interrelated because each formed part of GHRCs industrial
complex, such that business operations would be rendered useless and inoperative if the first contract were to be
detached from the other, as similarly held in the afore-mentioned case of Polytechnic University of the
Philippines v. Court of Appeals.
Petitioner PUP argues that respondents right to exercise the option to purchase had expired with the
termination of the original contract of lease and was not carried over to the subsequent implied new lease
between respondent and petitioner NDC. As testified to by their witnesses Leticia Cabantog and Atty. Rhoel
Mabazza, there was no agreement or document to the effect that respondents request for extension or renewal
of the subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent can no
longer exercise the option to purchase the leased premises when the same were conveyed to PUP pursuant to
Memorandum Order No. 214 dated January 6, 1989, long after the expiration of C-33-77 and C-12-78 in
September 1988.21
Petitioner PUP further contends that while it is conceded that there was an implied new lease between
respondent and petitioner NDC after the expiration of the lease contracts, the same did not include the right of
first refusal originally granted to respondent. The CA should have applied the ruling in Dizon v. Magsaysay22
that the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of the
lease contract. With the implicit renewal of the lease on a monthly basis, the other terms of the original contract
of lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms
which are germane to the lessees right of continued enjoyment of the property leased. The provision entitling
the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the lessee. Consequently, as in this case, respondents right of
option to purchase the leased premises was not violated despite the impliedly renewed contract of lease with
NDC. Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 (Polytechnic
University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases,
the contracts of lease of respondent with NDC were not mutually extended or renewed for another ten (10)
years. Thus, when the leased premises were conveyed to PUP, respondent did not any more have any right of
first refusal, which incidentally appears only in the second lease contract and not in the first lease contract. 23
On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for
another ten (10)-year period. The provisions of C-33-77 and C-12-78 clearly state that the lessee is granted the
option "to renew for another ten (10) years with the mutual consent of both parties." As regards the continued
receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed lease
was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as held in
Dizon v. Magsaysay.24
Petitioner NDC further faults the CA in sustaining the RTCs decision which erroneously granted respondent
the option to purchase the leased premises at the rate of P554.74 per square meter, the same rate for which NDC
sold the property to petitioner PUP and/or the National Government, which is the mere acquisition cost thereof.
It must be noted that such consideration or rate was imposed by Memorandum Order No. 214 under the premise
that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended
merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this
case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting
books. It does not in any way reflect the true and fair market value of the property, nor was it a price a "willing
seller" would demand and accept for parting with his real property. Such benefit, therefore, cannot be extended
to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National
Government.25
The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of
Appeals applies in this case involving another lessee of NDC who claimed that the option to purchase the
portion leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to
Memorandum Order No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of
ten (10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of
Article I, with option to renew for another ten (10) years with the mutual consent of both parties. In no case
should the rentals be increased by more than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at
the time the option to purchase is exercised. [emphasis supplied]
An option is a contract by which the owner of the property agrees with another person that the latter shall have
the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract
by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner
of the property the right to sell or demand a sale.26 It binds the party, who has given the option, not to enter into
the principal contract with any other person during the period designated, and, within that period, to enter into
such contract with the one to whom the option was granted, if the latter should decide to use the
option.271avvphi1
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first
priority to buy the property in the event the owner sells the same. 28 As distinguished from an option contract, in
a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal
would be dependent not only on the owners eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that are yet to be firmed up. 29
As the option to purchase clause in the second lease contract has no definite period within which the leased
premises will be offered for sale to respondent lessee and the price is made subject to negotiation and
determined only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually
inserted in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell
the same. That respondent was granted a right of first refusal under the second lease contract appears not to
have been disputed by petitioners. What petitioners assail is the CAs erroneous conclusion that such right of
refusal subsisted even after the expiration of the original lease period, when respondent was allowed to continue
staying in the leased premises under an implied renewal of the lease and without the right of refusal carried over
to such month-to-month lease. Petitioners thus maintain that no right of refusal was violated by the sale of the
property in favor of PUP pursuant to Memorandum Order No. 214.
Petitioners position is untenable.
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the
leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee
and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could
the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under
terms and conditions more favorable to the lessor.30
Records showed that during the hearing on the application for a writ of preliminary injunction, respondent
adduced in evidence a letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera,
Director and Special Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum
order submitted to President Corazon C. Aquino transferring the whole NDC Compound, including the
premises leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent to
prove the existence of documents as of that date and even prior to the expiration of the second lease contract or
the lapse of the ten (10)-year period counted from the effectivity of the rental payment -- that is, one hundred
and fifty (150) days from the signing of the contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-
78, or on October 1, 1988.
Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC
had been negotiating through the National Government for the sale of the property in favor of PUP as early as
July 15, 1988 without first offering to sell it to respondent and even when respondent communicated its desire
to exercise the option to purchase granted to it under the lease contract, it is clear that NDC violated
respondents right of first refusal. Under the premises, the matter of the right of refusal not having been carried
over to the impliedly renewed month-to-month lease after the expiration of the second lease contract on October
21, 1988 becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP,
respondents right of first refusal was still subsisting.
Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic
University of the Philippines v. Court of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is
different because the lease contract therein had not yet expired while in this case respondents lease contracts
have already expired and never renewed. The date of the expiration of the lease contract in said case is
December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In
contrast, respondents lease contracts had already expired (September 1988) at the time said memorandum order
was issued.31
Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third
party was not the issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such
negotiations as early as July 1988 when respondents right of first refusal was still subsisting and the lease
contracts still in force. Petitioner NDC did not bother to respond to respondents letter of June 13, 1988
informing it of respondents exercise of the option to renew and requesting to discuss further the matter with
NDC, nor to the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another
ten (10) years and also the exercise of the option to purchase under the lease contract. Petitioner NDC had
dismissed these letters as "mere informative in nature, and a request at its best." 32
Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely
informative, thus:
August 12, 1988
HON. ANTONIO HENSON
General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our intention
to exercise our option for another ten (10) years. Should the National Development Company opt to sell
the property covered by said leases, we also request for priority to negotiate for its purchase at terms
and/or conditions mutually acceptable.
As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property
by constructing bodega-type buildings which presently house all legitimate trading and manufacturing concerns.
These business are substantial taxpayers, employ not less than 300 employees and contribute even foreign
earnings.
It is in this context that we are requesting for the extension of the lease contract to prevent serious
economic disruption and dislocation of the business concerns, as well as provide ourselves, the lessee, an
opportunity to recoup our investments and obtain a fair return thereof.
Your favorable consideration on our request will be very much appreciated.
very truly yours,
TIU HAN TENG
President33
As to petitioners argument that respondents right of first refusal can be invoked only with respect to the
second lease contract which expressly provided for the option to purchase by the lessee, and not in the first lease
contract which contained no such clause, we sustain the RTC and CA in finding that the second contract,
covering an area of 3,222.80 square meters, is interrelated to and inseparable from the first contract over 2,407
square meters. The structures built on the leased premises, which are adjacent to each other, form part of an
integrated system of a commercial complex leased out to manufacturers, fabricators and other businesses.
Petitioners submitted a sketch plan and pictures taken of the driveways, in an effort to show that the leased
premises can be used separately by respondent, and that the two (2) lease contracts are distinct from each
other.34 Such was a desperate attempt to downplay the commercial purpose of respondents substantial
improvements which greatly contributed to the increased value of the leased premises. To prove that petitioner
NDC had considered the leased premises as a single unit, respondent submitted evidence showing that NDC
issued only one (1) receipt for the rental payments for the two portions.35 Respondent further presented the
blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the
structures on the leased premises, to show the building concept as a one-stop industrial site and integrated
commercial complex.36
In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in
Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who was similarly
prejudiced by petitioner NDCs sale of the property to PUP, as to entitle the respondent to exercise its option to
purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the lease for
another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises
for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be noted
that Memorandum Order No. 214 itself declared that the transfer is "subject to such liens/leases existing [on the
subject property]." Thus:
...we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal
over the property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their third
contract denominated as A-10-78 executed on 22 December 1978 which, as found by the courts a quo, was
interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August
1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension
thereof, the LESSOR shall first give to the LESSEE, which shall have the right of first option to purchase the
leased premises subject to mutual agreement of both parties.
In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is
inseparable from the whole contract. The consideration for the right is built into the reciprocal obligations of the
parties. Thus, it is not correct for petitioners to insist that there was no consideration paid by FIRESTONE to
entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease
making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a
legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a
certain price and the lessee has failed to accept it. The lessee has a right that the lessors first offer shall be in his
favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE
which, in view of the total amount of its investments in the property, wanted to be assured that it would
be given the first opportunity to buy the property at a price for which it would be offered. Consistent
with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60
hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its
right of first priority could NDC lawfully sell the property to petitioner PUP.37 [emphasis supplied]
As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and
following an earlier ruling in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 38 the execution of
such right consists in directing the grantor to comply with his obligation according to the terms at which he
should have offered the property in favor of the grantee and at that price when the offer should have been made.
We then determined the proper rate at which the leased portion should be reconveyed to respondent by PUP, to
whom the lessor NDC sold it in violation of respondent lessees right of first refusal, as follows:
It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the
sale at P1,500.00 per square meter. In contracts of sale, the basis of the right of first refusal must be the current
offer of the seller to sell or the offer to purchase of the prospective buyer. Only after the lessee-grantee fails to
exercise its right under the same terms and within the period contemplated can the owner validly offer to sell
the property to a third person, again, under the same terms as offered to the grantee. It appearing that the whole
NDC compound was sold to PUP for P554.74 per square meter, it would have been more proper for the courts
below to have ordered the sale of the property also at the same price. However, since FIRESTONE never
raised this as an issue, while on the other hand it admitted that the value of the property stood at
P1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts a quo
that the leased premises be sold at that price.39 [emphasis supplied]
In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC, and
neither disputed the P1,500.00 per square meter actual value of NDCs property at that time it was sold to PUP
at P554.74 per square meter, as duly considered by this Court in the Firestone case, should be bound by such
determination. Accordingly, the price at which the leased premises should be sold to respondent in the exercise
of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at
P554.74 per square meter, should be adjusted to P1,500.00 per square meter, which more accurately reflects its
true value at that time of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands
upon valuable consideration.40 We have categorically ruled that it is not correct to say that there is no
consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease.
Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the
consideration for the grant of the right of first refusal. In entering into the contract, the lessee is in effect stating
that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that,
should it sell the leased property, then, the lessee shall be given the right to match the offered purchase price
and to buy the property at that price.41
We have further stressed that not even the avowed public welfare or the constitutional priority accorded to
education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and any party for that
matter, to destroy the sanctity of binding obligations. While education may be prioritized for legislative and
budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the right
of first refusal granted to a lessee of petitioner NDC.42 Clearly, no reversible error was committed by the CA in
sustaining respondents contractual right of first refusal and ordering the reconveyance of the leased portion of
petitioner NDCs property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial
Court of Makati City, Branch 144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its
Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED with MODIFICATION in
that the price to be paid by respondent Golden Horizon Realty Corporation for the leased portion of the NDC
Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-36083 September 5, 1975
Spouses RAMON DOROMAL, SR., and ROSARIO SALAS, and Spouses RAMON DOROMAL, JR.,
and GAUDELIA VEGA, petitioners,
vs.
HON. COURT OF APPEALS and FILOMENA JAVELLANA, respondents.
Salonga, Ordonez, Yap, Parlade and Associates and Marvin J. Mirasol for petitioners. Arturo H. Villanueva,
Jr. for private respondent.
BARREDO, J.:
Petition for review of the decision of the Court of Appeals in CA-G.R. No.
47945-R entitled Filomena Javellana vs. Spouses Ramon Doromal, Sr., et al. which reversed the decision of the
Court of First Instance of Iloilo that had in turn dismissed herein private respondent Filomena Javellana's action
for redemption of a certain property sold by her co-owners to herein petitioners for having been made out of
time.
The factual background found by the Court of Appeals and which is binding on this Court, the same not being
assailed by petitioners as being capricious, is as follows:
IT RESULTING: That the facts are quite simple; Lot 3504 of the cadastral survey of Iloilo,
situated in the poblacion of La Paz, one of its districts, with an area of a little more than 2-
hectares was originally decreed in the name of the late Justice Antonio Horilleno, in 1916,
under Original Certificate of Title No. 1314, Exh. A; but before he died, on a date not
particularized in the record, he executed a last will and testament attesting to the fact that it
was a co-ownership between himself and his brothers and sisters, Exh. C; so that the truth was
that the owners or better stated, the co-owners were; beside Justice Horilleno,
"Luis, Soledad, Fe, Rosita, Carlos and Esperanza,"
all surnamed Horilleno, and since Esperanza had already died, she was succeeded by her only
daughter and heir herein plaintiff. Filomena Javellana, in the proportion of 1/7 undivided
ownership each; now then, even though their right had not as yet been annotated in the title,
the co-owners led by Carlos, and as to deceased Justice Antonio Horilleno, his daughter Mary,
sometime since early 1967, had wanted to sell their shares, or if possible if Filomena
Javellana were agreeable, to sell the entire property, and they hired an acquaintance Cresencia
Harder, to look for buyers, and the latter came to interest defendants, the father and son,
named Ramon Doromal, Sr. and Jr., and in preparation for the execution of the sale, since the
brothers and sisters Horilleno were scattered in various parts of the country, Carlos in Ilocos
Sur, Mary in Baguio, Soledad and Fe, in Mandaluyong, Rizal, and Rosita in Basilan City,
they all executed various powers of attorney in favor of their niece, Mary H. Jimenez Exh. 1-
8, they also caused preparation of a power of attorney of identical tenor for signature by
plaintiff, Filomena Javellana, Exh. M, and sent it with a letter of Carlos, Exh. 7 dated 18
January, 1968 unto her thru Mrs. Harder, and here, Carlos informed her that the price was
P4.00 a square meter, although it now turns out according to Exh. 3 that as early as 22
October, 1967, Carlos had received in check as earnest money from defendant Ramon
Doromal, Jr., the sum of P5,000.00 and the price therein agreed upon was five (P5.00) pesos a
square meter as indeed in another letter also of Carlos to Plaintiff in 5 November, 1967, Exh.
6, he had told her that the Doromals had given the earnest money of P5,000.00 at P5.00 a
square meter, at any rate, plaintiff not being agreeable, did not sign the power of attorney,
and the rest of the co-owners went ahead with their sale of their 6/7, Carlos first seeing to it
that the deed of sale by their common attorney in fact, Mary H. Jimenez be signed and ratified
as it was signed and ratified in Candon, Ilocos Sur, on 15 January, 1968, Exh. 2, then brought
to Iloilo by Carlos in the same month, and because the Register of Deeds of Iloilo refused to
register right away, since the original registered owner, Justice Antonio Horilleno was already
dead, Carlos had to ask as he did, hire Atty. Teotimo Arandela to file a petition within the
cadastral case, on 26 February, 1968, for the purpose, Exh. C, after which Carlos returned to
Luzon, and after compliance with the requisites of publication, hearing and notice, the petition
was approved, and we now see that on 29 April, 1968, Carlos already back in Iloilo went to
the Register of Deeds and caused the registration of the order of the cadastral court approving
the issuance of a new title in the name of the co-owners, as well as of the deed of sale to the
Doromals, as a result of which on that same date, a new title was issued TCT No. 23152, in
the name of the Horillenos to 6/7 and plaintiff Filomena Javellana to 1/7, Exh. D, only to be
cancelled on the same day under TCT No. 23153, Exh. 2, already in the names of the vendees
Doromals for 6/7 and to herein plaintiff, Filomena Javellana, 1/7, and the next day 30 April,
1968, the Doromals paid unto Carlos by check, the sum of P97,000.00 Exh. 1, of Chartered
Bank which was later substituted by check of Phil. National Bank, because there was no
Chartered Bank Branch in Ilocos Sur, but besides this amount paid in check, the Doromals
according to their evidence still paid an additional amount in cash of P18,250.00 since the
agreed price was P5.00 a square meter; and thus was consummated the transaction, but it is
here where complications set in,
On 10 June, 1968, there came to the residence of the Doromals in Dumangas, Iloilo, plaintiff's lawyer, Atty.
Arturo H. Villanueva, bringing with him her letter of that date, reading,
Mr. & Mrs. Ramon Doromal, Sr.
and Mr. and Mrs. Ramon Doromal, Jr.
"Dumangas Iloilo
Dear Mr. and Mrs. Doromal:
The bearer of this letter is my nephew, Atty. Arturo H. Villanueva, Jr., of
this City. Through him, I am making a formal offer to repurchase or redeem
from you the 6/7 undivided share in Lot No. 3504, of the Iloilo Cadastre,
which you bought from my erstwhile co-owners, the Horillenos, for the sum
of P30,000.00, Atty. Villanueva has with him the sum of P30,000.00 in
cash, which he will deliver to you as soon as you execute the contract of
sale in my favor.
Thank you very much for whatever favorable consideration you can give this request.
Very truly yours,
p. 26, Exh. "J", Manual of Exhibits.
and then and there said lawyer manifested to the Doromals that he had the P30,000.00 with
him in cash, and tendered it to them, for the exercise of the legal redemption, the Doromals
were aghast, and refused. and the very next day as has been said. 11 June, 1968, plaintiff filed
this case, and in the trial, thru oral and documentary proofs sought to show that as co-owner,
she had the right to redeem at the price stated in the deed of sale, Exh. 2, namely P30,000.00
of the but defendants in answer, and in their evidence, oral and documentary sought to show
that plaintiff had no more right to redeem and that if ever she should have, that it should be at
the true and real price by them paid, namely, the total sum of P115,250.00, and trial judge,
after hearing the evidence, believed defendants, that plaintiff had no more right, to redeem,
because,
"Plaintiff was informed of the intended sale of the 6/7 share belonging to
the Horillenos."
and that,
"The plaintiff have every reason to be grateful to Atty. Carlos Horilleno because in the
petition for declaration of heirs of her late uncle Antonio Horilleno in whose name only the
Original Certificate of Title covering the Lot in question was issued, her uncle Atty. Carlos
Horilleno included her as one of the heirs of said Antonio Horilleno. Instead, she filed this
case to redeem the 6/7 share sold to the Doromals for the simple reason that the consideration
in the deed of sale is the sum of P30,000.00 only instead of P115,250.00 approximately which
was actually paid by the defendants to her co-owners, thus she wants to enrich herself at the
expense of her own blood relatives who are her aunts, uncles and cousins. The consideration
of P30,000.00 only was placed in the deed of sale to minimize the payment of the registration
fees, stamps, and sales tax. pp. 77-78, R.A.,
and dismiss and further condemned plaintiff to pay attorney's fees, and moral and exemplary
damages as set forth in few pages back, it is because of this that plaintiff has come here and
contends, that Lower Court erred:
"I. ... in denying plaintiff-appellant, as a co-owner of Lot No. 3504, of the Iloilo Cadastre, the
right of legal redemption under Art. 1620, of the Civil Code:
"II. ... as a consequence of the above error, in refusing to order the defendants-appellees, the
vendees of a portion of the aforesaid Lot No. 3504 which they bought from the co-owners of
the plaintiff-appellant, to reconvey the portion they purchased to the herein plaintiff-
appellant..
"III. ... in admitting extrinsic evidence in the determination of the consideration of the sale,
instead of simply adhering to the purchase price of P30,000.00, set forth in the pertinent Deed
of Sale executed by the vendors and owners of the plaintiff-appellant in favor of the
defendants-appellees.
"IV. ... in dismissing the complaint filed in this case." pp. 1-3, Appellant's Brief,.
which can be reduced to the simple question of whether or not on tile basis of the evidence
and the law, the judgment appealed from should be maintained; (Pp. 16-22, Record.) .
Upon these facts, the Court of Appeals reversed the trial court's decision and held that although respondent
Javellana was informed of her co-owners' proposal to sell the land in question to petitioners she was, however,
"never notified ... least of all, in writing", of the actual execution and registration of the corresponding deed of
sale, hence, said respondent's right to redeem had not yet expired at the time she made her offer for that purpose
thru her letter of June 10, 1968 delivered to petitioners on even date. The intermediate court further held that the
redemption price to be paid by respondent should be that stated in the deed of sale which is P30,000
notwithstanding that the preponderance of the evidence proves that the actual price paid by petitioners was
P115,250. Thus, in their brief, petitioners assign the following alleged errors:
I
IT IS ERROR FOR THE COURT OF APPEALS TO HOLD THAT THE NOTICE IN
WRITING OF THE SALE CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL CODE
REFERS TO A NOTICE IN WRITING AFTER THE EXECUTION AND REGISTRATION
OF THE INSTRUMENT OF SALE, HENCE, OF THE DOCUMENT OF SALE.
II
 THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INSCRIPTION OF
THE SALE IN THE REGISTRY OF PROPERTY TAKES EFFECT AS AGAINST THIRD
PERSONS INCLUDING CLAIMS OF POSSIBLE REDEMPTIONERS.
ASSUMING, ARGUENDO THAT PRIVATE RESPONDENT HAS THE RIGHT TO
REDEEM, THE COURT OF APPEALS ERRED IN HOLDING THAT THE REDEMPTION
PRICE SHOULD BE THAT STATED IN THE DEED OF SALE. (Pp. 1-2, Brief for
Petitioner, page 74-Rec.)
We cannot agree with petitioners.
Petitioners do not question respondent's right to redeem, she being admittedly a 1/7 co-owner of the property in
dispute. The thrust of their first assignment of error is that for purposes of Article 1623 of the Civil Code which
provides that:
ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
the letters sent by Carlos Horilleno to respondent and dated January 18, 1968, Exhibit 7, and November 5, 1967,
Exhibit 6, constituted the required notice in writing from which the 30-day period fixed in said provision should
be computed. But to start with, there is no showing that said letters were in fact received by respondent and
when they were actually received. Besides, petitioners do not pinpoint which of these two letters, their dates
being more than two months apart, is the required notice. In any event, as found by the appellate court, neither
of said letters referred to a consummated sale. As may be observed, it was Carlos Horilleno alone who signed
them, and as of January 18, 1968, powers of attorney from the various co-owners were still to be secured.
Indeed, the later letter of January 18, 1968 mentioned that the price was P4.00 per square meter whereas in the
earlier letter of November 5, 1967 it was P5.00, as in fact, on that basis, as early as October 27, 1967, Carlos
had already received P5,000 from petitioners supposedly as earnest money, of which, however, mention was
made by him to his niece only in the later letter of January 18, 1968, the explanation being that "at later
negotiation it was increased to P5.00 per square meter." (p. 4 of petitioners' brief as appellees in the Court of
Appeals quoting from the decision of the trial court.) In other words, while the letters relied upon by petitioners
could convey the idea that more or less some kind of consensus had been arrived at among the other co-owners
to sell the property in dispute to petitioners, it cannot be said definitely that such a sale had even been actually
perfected. The fact alone that in the later letter of January 18, 1968 the price indicated was P4.00 per square
meter while in that of November 5, 1967, what was stated was P5.00 per square meter negatives the possibility
that a "price definite" had already been agreed upon. While P5,000 might have indeed been paid to Carlos in
October, 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in
Article 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the
backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said P5,000
were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a
guarantee that the buyer would not back out, considering that it is not clear that there was already a definite
agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should
respondent Javellana refuse to agree to part with her 1/7 share.
In the light of these considerations, it cannot be said that the Court of Appeals erred in holding that the letters
aforementioned sufficed to comply with the requirement of notice of a sale by co-owners under Article 1623 of
the Civil Code. We are of the considered opinion and so hold that for purposes of the co-owner's right of
redemption granted by Article 1620 of the Civil Code, the notice in writing which Article 1623 requires to be
made to the other co-owners and from receipt of which the 30-day period to redeem should be counted is a
notice not only of a perfected sale but of the actual execution and delivery of the deed of sale. This is implied
from the latter portion of Article 1623 which requires that before a register of deeds can record a sale by a co-
owner, there must be presented to him, an affidavit to the effect that the notice of the sale had been sent in
writing to the other co-owners. A sale may not be presented to the register of deeds for registration unless it be
in the form of a duly executed public instrument. Moreover, the law prefers that all the terms and conditions of
the sale should be definite and in writing. As aptly observed by Justice Gatmaitan in the decision under review,
Article 1619 of the Civil Code bestows unto a co-owner the right to redeem and "to be subrogated under the
same terms and conditions stipulated in the contract", and to avoid any controversy as to the terms and
conditions under which the right to redeem may be exercised, it is best that the period therefor should not be
deemed to have commenced unless the notice of the disposition is made after the formal deed of disposal has
been duly executed. And it being beyond dispute that respondent herein has never been notified in writing of the
execution of the deed of sale by which petitioners acquired the subject property, it necessarily follows that her
tender to redeem the same made on June 10, 1968 was well within the period prescribed by law. Indeed, it is
immaterial when she might have actually come to know about said deed, it appearing she has never been shown
a copy thereof through a written communication by either any of the petitioners-purchasers or any of her co-
owners-vendees. (Cornejo et al. vs. CA et al., 16 SCRA 775.)
The only other pivotal issue raised by petitioners relates to the price which respondent offered for the
redemption in question. In this connection, from the decision of the Court of Appeals, We gather that there is
"decisive preponderance of evidence" establishing "that the price paid by defendants was not that stated in the
document, Exhibit 2, of P30,000 but much more, at least P97,000, according to the check, Exhibit 1, if not a
total of P115,250.00 because another amount in cash of P18,250 was paid afterwards."
It is, therefore, the contention of petitioners here that considering said finding of fact of the intermediate court,
it erred in holding nevertheless that "the redemption price should be that stated in the deed of sale."
Again, petitioners' contention cannot be sustained. As stated in the decision under review, the trial court found
that "the consideration of P30,000 only was placed in the deed of sale to minimize the payment of the
registration fees, stamps and sales tax." With this undisputed fact in mind, it is impossible for the Supreme
Court to sanction petitioners' pragmatic but immoral posture. Being patently violative of public policy and
injurious to public interest, the seemingly wide practice of understating considerations of transactions for the
purpose of evading taxes and fees due to the government must be condemned and all parties guilty thereof must
be made to suffer the consequences of their ill-advised agreement to defraud the state. Verily, the trial court fell
short of its devotion and loyalty to the Republic in officially giving its stamp of approval to the stand of
petitioners and even berating respondent Javellana as wanting to enrich herself "at the expense of her own blood
relatives who are her aunts, uncles and cousins." On the contrary, said "blood relatives" should have been
sternly told, as We here hold, that they are in pari-delicto with petitioners in committing tax evasion and should
not receive any consideration from any court in respect to the money paid for the sale in dispute. Their situation
is similar to that of parties to an illegal contract. 1
Of course, the Court of Appeals was also eminently correct in its considerations supporting the conclusion that
the redemption in controversy should be only for the price stipulated in the deed, regardless of what might have
been actually paid by petitioners that style inimitable and all his own, Justice Gatmaitan states those
considerations thus:
CONSIDERING: As to this that the evidence has established with decisive preponderance
that the price paid by defendants was not that stated in the document, Exh. 2 of P30,000.00
but much more, at least P97,000.00 according to the check, Exh. 1 if not a total of
P115,250.00 because another amount in cash of P18,250.00 was paid afterwards, perhaps it
would be neither correct nor just that plaintiff should be permitted to redeem at only
P30,000.00, that at first glance would practically enrich her by the difference, on the other
hand, after some reflection, this Court can not but have to bear in mind certain definite points.
1st According to Art. 1619
"Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by purchase or dation in
payment, or by any other transaction whereby ownership is transmitted by onerous title." pp.
471-472, New Civil Code,
and note that redemptioner right is to be subrogated
"upon the same terms and conditions stipulated in the contract."
and here, the stipulation in the public evidence of the contract, made public by both vendors
and vendees is that the price was P30,000.00;
2nd According to Art. 1620,
"A co-owner of a thing may exercise the right of redemption in case the share of all the other co-owners or any
of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay
only a reasonable one. p. 472, New Civil Code, .
from which it is seen that if the price paid is 'grossly excessive' redemptioner is required to
pay only a reasonable one; not that actually paid by the vendee, going to show that the law
seeks to protect redemptioner and converts his position into one not that of a contractually but
of a legally subrogated creditor as to the right of redemption, if the price is not 'grossly
excessive', what the law had intended redemptioner to pay can be read in Art. 1623.
The right of a legal pre-emption or redemption shall not be exercised except
within thirty (30) days from the notice in writing by the prospective vendor,
or by the vendor as the case may be. The deed of sale shall not be recorded
in the Registry of Property, unless accompanied by an affidavit of the
vendor that he has given written notice thereof of all possible
redemptioners.' p. 473, New Civil Code,
if that be so that affidavit must have been intended by the lawmakers for a definite purpose, to
argue that this affidavit has no purpose is to go against all canons of statutory construction, no
law mandatory in character and worse, prohibitive should be understood to have no purpose at
all, that would be an absurdity, that purpose could not but have been to give a clear and
unmistakable guide to redemptioner, on how much he should pay and when he should
redeem; from this must follow that that notice must have been intended to state the truth and if
vendor and vendee should have instead, decided to state an untruth therein, it is they who
should bear the consequences of having thereby misled the redemptioner who had the right to
rely and act thereon and on nothing else; stated otherwise, all the elements of equitable
estoppel are here since the requirement of the law is to submit the affidavit of notice to all
possible redemptioners, that affidavit to be a condition precedent to registration of the sale
therefore, the law must have intended that it be by the parties understood that they were there
asking a solemn representation to all possible redemptioners, who upon faith of that are thus
induced to act, and here worse for the parties to the sale, they sought to avoid compliance with
the law and certainly refusal to comply cannot be rewarded with exception and acceptance of
the plea that they cannot be now estopped by their own representation, and this Court notes
that in the trial and to this appeal, plaintiff earnestly insisted and insists on their estoppel;
3rd If therefore, here vendors had only attempted to comply with the law, they would have
been obligated to send a copy of the deed of sale unto Filomena Javellana and from that copy,
Filomena would have been notified that she should if she had wanted to redeem, offered no
more, no less, that P30,000.00, within 30 days, it would have been impossible for vendors and
vendees to have inserted in the affidavit that the price was truly P97,000.00 plus P18,250.00
or a total of P115,250.00; in other words, if defendants had only complied with the law, they
would have been obligated to accept the redemption money of only P30,000.00;
4th If it be argued that foregoing solution would mean unjust enrichment for plaintiff, it
need only be remembered that plaintiff's right is not contractual, but a mere legal one, the
exercise of a right granted by the law, and the law is definite that she can subrogate herself in
place of the buyer,
"upon the same terms and conditions stipulated in the contract,"
in the words of Art. 1619, and here the price
"stipulated in the contract"
was P30,000.00, in other words, if this be possible enrichment on the part of Filomena, it was
not unjust but just enrichment because permitted by the law; if it still be argued that plaintiff
would thus be enabled to abuse her right, the answer simply is that what she is seeking to
 enforce is not an abuse but a mere exercise of a right; if it be stated that just the same, the
effect of sustaining plaintiff would be to promote not justice but injustice, the answer again
simply is that this solution is not unjust because it only binds the parties to make good their
solemn representation to possible redemptioners on the price of the sale, to what they had
solemnly averred in a public document required by the law to be the only basis for that
exercise of redemption; (Pp. 24-27, Record.)
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against petitioners..
G.R. No. 137290 July 31, 2000
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,
vs.
SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which reversed the
decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents
against petitioner for enforcement of a contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of
real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of
Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-
82395 and PT-82396 of the Register of Deeds of Pasig City.
On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was made to
Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter 2 dated March
24, 1994, Atty. Dauz signified her clients interest in purchasing the properties for the amount for which they
were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money
and the balance would be paid in eight equal monthly installments from May to December, 1994. However,
petitioner refused the counter-offer.
3
On March 29, 1994, Atty. Dauz wrote another letter proposing the following terms for the purchase of the
properties, viz:
This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this
purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnest-deposit money, subject to the
following conditions.
1. We will be given the exclusive option to purchase the property within the 30 days from date of your
acceptance of this offer.
2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will
secure the necessary Management and Board approvals; and we initiate the documentation if there is
mutual agreement between us.
3. In the event that we do not come to an agreement on this transaction, the said amount of
P1,000,000.00 shall be refundable to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate, indicated his
conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million.
Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the
properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey
informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz
countered with an offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not
yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within
which to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize
[our] agreement on the matter."4 Her request was granted.
On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty.
Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the
extension granted by petitioner, the latter was returning the amount of P1 million given as "earnest-deposit."5
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five
days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but
petitioner refused on the ground that respondents option to purchase had already expired.
On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the
Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging
that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from
the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because
there was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale. The
motion was opposed by respondents.
On December 12, 1994, the trial court granted petitioners motion and dismissed the action. Respondents filed a
motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals
which, on April 8, 1997, rendered a decision6 reversing the judgment of the trial court. The appellate court held
that all the requisites of a perfected contract of sale had been complied with as the offer made on March 29,
1994, in connection with which the earnest money in the amount of P1 million was tendered by respondents,
had already been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that
"[w]henever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof
of the perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect the
contract as such is not an essential element for its validity. In addition, the court found that Sobrecarey had
authority to act in behalf of petitioner for the sale of the properties.7
Petitioner moved for reconsideration of the trial courts decision, but its motion was denied. Hence, this
petition.
Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between
the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an
option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the
absence of agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner
also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority to sell the subject real
properties.8
Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions
totalling 142 days which the Court had given to them, respondents failed to file their comment. They were thus
considered to have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1)
earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and
operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was
a perfected contract of sale.
With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not
give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount
merely as a deposit of what would eventually become the earnest money or downpayment should a contract of
sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale.
Respondents in fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,9
it was held:
. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the
same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by
petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the
record, We are more inclined to believe that the said P5,000.00 were paid in the concept of earnest money as the
term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out,
considering that it is not clear that there was already a definite agreement as to the price then and that petitioners
were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7
share.10
In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as
contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents offer of
March 29, 1994, their contract had not yet been perfected. This is evident from the following conditions
attached by respondents to their letter, to wit: (1) that they be given the exclusive option to purchase the
property within 30 days from acceptance of the offer; (2) that during the option period, the parties would
negotiate the terms and conditions of the purchase; and (3) petitioner would secure the necessary approvals
while respondents would handle the documentation.
The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1wphi1
As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to
an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30
days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the
properties within the period agreed upon is separate and distinct from the contract of sale which the parties may
enter.11 All that respondents had was just the option to buy the properties which privilege was not, however,
exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be
enforced by respondents.
Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second
paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is
binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an
option contract may be anything of value, unlike in sale where it must be the price certain in money or its
equivalent. There is no showing here of any consideration for the option. Lacking any proof of such
consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option
period, the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are
as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the
object of the contract and upon the price; and (3) consummation, which begins when the parties perform their
respective undertakings under the contract of sale, culminating in the extinguishment thereof. 12 In the present
case, the parties never got past the negotiation stage. The alleged "indubitable evidence"13 of a perfected sale
cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final
arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real
properties which were the objects of the sale and on the purchase price, the fact remains that they failed to
arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the
sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In
Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that the manner
of payment of the purchase price is an essential element before a valid and binding contract of sale can exist.
Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or
manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
Court of Appeals,15 agreement on the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price.16 In Velasco v. Court of Appeals,17 the
parties to a proposed sale had already agreed on the object of sale and on the purchase price. By the buyers
own admission, however, the parties still had to agree on how and when the downpayment and the installments
were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the formation of a binding
and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of
P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the
perfection of any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil
Code, as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be
mutually covenanted.18

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the
contract of sale which establishes the existence of a perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to
enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents complaint is
DISMISSED.