MANILA METAL CONTAINER G.R. No.

166862 On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of
CORPORATION,
Petitioner, the real estate mortgage and sought to have the property sold at public auction
Present: for P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30,
REYNALDO C. TOLENTINO,
Intervenor, PANGANIBAN, C.J., Chairperson,* 1982,[6] plus interests and attorneys fees.
YNARES-
SANTIAGO,*
After due notice and publication, the property was sold at public auction
AUSTRIA-MARTINEZ, on September 28, 1982 where respondent PNB was declared the winning bidder
- versus - CALLEJO, SR., and
CHICO-NAZARIO, JJ. for P1,000,000.00. The Certificate of Sale[7] issued in its favor was registered with the Office
PHILIPPINE NATIONAL BANK, of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title
Respondent,
on February 17, 1983. Thus, the period to redeem the property was to expire on February 17,
DMCI-PROJECT DEVELOPERS, Promulgated:
INC., 1984.
Intervenor. December 20, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted
DECISION an extension of time to redeem/repurchase the property.[8] In its reply dated August 30, 1983,
CALLEJO, SR., J.: respondent PNB informed petitioner that the request had been referred to its Pasay City
Branch for appropriate action and recommendation.[9]

Before us is a petition for review on certiorari of the Decision[1] of the Court of

In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one year extension
Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial
from February 17, 1984 within which to redeem/repurchase the property on installment
Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution[3] denying
basis. It reiterated its request to repurchase the property on installment. [11] Meanwhile, some
the motion for reconsideration filed by petitioner Manila Metal Container Corporation
PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does
(MMCC).
not accept partial redemption.[12]

The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located
in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer
Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure
a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB),
petitioner executed a real estate mortgage over the lot. Respondent PNB later granted
petitioner a new credit accommodation of P1,000,000.00; and, on November 16,
1973, petitioner executed an Amendment[4] of Real Estate Mortgage over its property.
On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB,
payable in quarterly installments of P32,650.00, plus interests and other charges.[5]
Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT
No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB. [13]Petitioners
offers had not yet been acted upon by respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of
account, and as of June 25, 1984 petitioners obligation amounted to P1,574,560.47. This
included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances
on realty taxes, registration expenses, miscellaneous expenses and publication cost. [14] When
apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as
deposit to repurchase, and Official Receipt No. 978191 was issued to it.[15]

Page | 1
In the meantime, the SAMD recommended to the management of respondent PNB that
petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November
14, 1984, the PNB management informed petitioner that it was rejecting the offer and the
recommendation
the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its
minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on
the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be
sold to other interested buyers.[16]
Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote
another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB
replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner
purchase the property for P2,660,000.00. PNB again informed petitioner that it would return
the deposit should petitioner desire to withdraw its offer to purchase
property.[17] On February 25, 1985, petitioner, through counsel, requested that PNB reconsider
its letter dated December 28, 1984. Petitioner declared that it had already agreed to
the SAMDs offer to purchase the property for P1,574,560.47, and that was why it had
paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse
should PNB insist on the position.[18]
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of
Directors had accepted petitioners offer to purchase the property, but for P1,931,389.53 in
cash less the P725,000.00 already deposited with it.[19] On page two of the letter was a space
above the typewritten name of petitioners President, Pablo Gabriel, where he was to affix his
signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein
that he had received it.[20] Petitioner did not respond, so PNB requested petitioner in a letter
dated June 30, 1988 to submit an amended offer to repurchase.
Petitioner rejected respondents proposal in a letter dated July 14, 1988. It maintained
that respondent PNB had agreed to sell the property for P1,574,560.47, and that since
its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from
increasing the purchase price of the property.[21] Petitioner averred that it had a net balance
payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioners offer to
pay the balance of P643,452.34 in a letter dated August 1, 1989.[22]
On August 28, 1989, petitioner filed a complaint against respondent PNB for
Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance
of with Damages. To support its cause of action for specific performance, it alleged the
following:
34. As early as June 25, 1984, PNB had accepted the down payment from
Manila Metal in the substantial amount of P725,000.00 for the
redemption/repurchase price of P1,574,560.47 as approved by its
SMAD and considering the reliance made by Manila Metal and the
long time that has elapsed, the approval of the higher management of
the Bank to confirm the agreement of its SMAD is clearly
a potestative condition which cannot legally prejudice Manila Metal
which has acted and relied on the approval of SMAD. The Bank
cannot take advantage of a condition which is entirely dependent
upon its own will after accepting and benefiting from the substantial
payment made by Manila Metal.
the
35. PNB approved the repurchase price of P1,574,560.47 for which it
accepted P725,000.00 from Manila Metal. PNB cannot take
advantage of its own delay and long inaction in demanding a higher
amount based on unilateral computation of interest rate without the
consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim for damages
with the following arguments:
36. That in order to protect itself against the wrongful and malicious acts
of the defendant Bank, plaintiff is constrained to engage the services
of counsel at an agreed fee of P50,000.00 and to incur litigation
expenses of at least P30,000.00, which the defendant PNB should be
condemned to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of defendant
PNB, plaintiff Manila Metal suffered besmirched reputation for
which defendant PNB is liable for moral damages of at
least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which are
highly reprehensible, exemplary damages should be awarded in favor
of the plaintiff by way of example or correction for the public good
of at least P30,000.00.[23]
Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:
Page | 2
 3. Whether or not there is a perfected contract of sale between the
a) Declaring the Amended Real Estate Mortgage (Annex A) null and void parties.[26]
and without any legal force and effect.

b) Declaring defendants acts of extra-judicially foreclosing the

While the case was pending, respondent PNB demanded, on September 20, 1989,
mortgage over plaintiffs property and setting it for auction sale null
and void. that petitioner vacate the property within 15 days from notice,[27] but petitioners refused to do
so.
c) Ordering the defendant Register of Deeds to cancel the new title
issued in the name of PNB (TCT NO. 43792) covering the property
described in paragraph 4 of the Complaint, to reinstate TCT On March 18, 1993, petitioner offered to repurchase the property
No. 37025 in the name of Manila Metal and to cancel the annotation
of the mortgage in question at the back of the TCT for P3,500,000.00.[28] The offer was however rejected by respondent PNB, in a letter
No. 37025 described in paragraph 4 of this Complaint. dated April 13, 1993. According to it, the prevailing market value of the property was

d) Ordering the defendant PNB to return and/or deliver physical
possession of the TCT No. 37025 described in paragraph 4 of this
Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metals
actual damages, moral and exemplary damages in the aggregate
amount of not less than P80,000.00 as may be warranted by the
evidence and fixed by this Honorable Court in the exercise of its
sound discretion, and attorneys fees of P50,000.00 and litigation
expenses of at least P30,000.00 as may be proved during the trial, and
costs of suit.
Plaintiff likewise prays for such further reliefs which may be
deemed just and equitable in the premises.[24]
approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less
than its market value.[29] On June 21, 1993, petitioner offered to purchase the property
for P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB on September
13, 1993.[31]
On May 31, 1994, the trial court rendered judgment dismissing the amended
complaint and respondent PNBs counterclaim. It ordered respondent PNB to refund
theP725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no
perfected contract of sale between the parties; hence, petitioner had no cause of action for
specific performance against respondent. The trial court declared that respondent had rejected
petitioners offer to repurchase the property. Petitioner, in turn, rejected the terms and

In its Answer to the complaint, respondent PNB averred, as a special and affirmative conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to

defense, that it had acquired ownership over the property after the period to redeem had repurchase the property per its letter of

elapsed. It claimed that no contract of sale was perfected between it and petitioner after the July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which

period to redeem the property had expired. respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner
to respondent PNB on June 4, 1985 was a deposit, and not a downpayment or earnest money.

During pre-trial, the parties agreed to submit the case for decision, based on their
On appeal to the CA, petitioner made the following allegations:
stipulation of facts.[25] The parties agreed to limit the issues to the following:
I
1. Whether or not the June 4, 1985 letter of the defendant THE LOWER COURT ERRED IN RULING THAT DEFENDANT-
approving/accepting plaintiffs offer to purchase the property is still APPELLEES LETTER DATED 4 JUNE
valid and legally enforceable. 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANTS OFFER
TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND
2. Whether or not the plaintiff has waived its right to purchase the property ENFORCEABLE.
when it failed to conform with the conditions set forth by the
defendant in its letter dated June 4, 1985. II

Page | 3
 THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price
PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-
APPELLANT AND DEFENDANT-APPELLEE. should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds
between the parties as to the price or consideration of the sale.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT The CA ratiocinated that petitioners original offer to purchase the subject property
PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4,
SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4
JUNE 1985. 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and
the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT price within the sixty-day period set in the June 4, 1985 letter of respondent
IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract
DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO
to rescind.
COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

V According to the appellate court, the claim for damages and the counterclaim were
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT correctly dismissed by the court a quo for no evidence was presented to support
THERE WAS NO VALID RESCISSION OR CANCELLATION OF
SUBJECT CONTRACT OF REPURCHASE. it.Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations between
the parties. Respondent PNB merely asked petitioner to submit an amended offer to
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF repurchase. While petitioner reiterated its request for a lower selling price and that the balance
FAILED AND REFUSED TO SUBMIT THE AMENDED of the repurchase be reduced, however, respondent rejected the proposal in a letter
REPURCHASE OFFER.
dated August 1, 1989.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED
Petitioner filed a motion for reconsideration, which the CA likewise denied.
COMPLAINT OF PLAINTIFF-APPELLANT.

VIII
Thus, petitioner filed the instant petition for review on certiorari, alleging that:
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-
APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES,
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33]
WHEN IT RULED THAT THERE IS NO PERFECTED
Meanwhile, on June 17, 1993, petitioners Board of Directors approved Resolution CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.
No. 3-004, where it waived, assigned and transferred its rights over the property covered by
TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
Directors.[34] Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00
PAID BY THE PETITIONER IS NOT AN EARNEST
ownership and management of the property in favor of Reynaldo Tolentino, who later moved MONEY.
for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
granting the motion,[35] and likewise granted the motion of Reynaldo Tolentino substituting WHEN IT RULED THAT THE FAILURE OF THE
petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.[36] PETITIONER-APPELLANT TO SIGNIFY ITS
CONFORMITY TO THE TERMS CONTAINED IN PNBS
JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO
The CA rendered judgment on May 11, 2000 affirming the decision of the VALID AND LEGALLY ENFORCEABLE CONTRACT OF
RTC.[37] It declared that petitioner obviously never agreed to the selling price proposed by SALE BETWEEN THE PARTIES.

Page | 4
 earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
THAT NON-PAYMENT OF THE PETITIONER- rulings of this Court in Villonco v. Bormaheco[39] and Topacio v. Court of Appeals.[40]
APPELLANT OF THE BALANCE OF THE OFFERED PRICE
IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN
SIXTY (60) DAYS FROM NOTICE OF APPROVAL Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent
CONSTITUTES NO VALID AND LEGALLY and its failure to pay the balance of the price as fixed by respondent within the 60-day period
ENFORCEABLE CONTRACT OF SALE BETWEEN THE
PARTIES. from notice was to protest respondents breach of its obligation to petitioner. It did not amount
to a rejection of respondents offer to sell the property since respondent was merely seeking to
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD
THAT THE LETTERS OF PETITIONER-APPELLANT enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option
DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING either to accept the balance of the offered price or to cause the rescission of the contract.
TO BUY THE SUBJECT PROPERTY AT DIFFERENT
AMOUNT WERE PROOF THAT THERE IS NO
PERFECTED CONTRACT OF SALE.[38] Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency
of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute
separate offers to repurchase the property. Such offer to compromise should not be taken
The threshold issue is whether or not petitioner and respondent PNB had entered into a
against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court.
perfected contract for petitioner to repurchase the property from respondent.

For its part, respondent contends that the parties never graduated from the
Petitioner maintains that it had accepted respondents offer made through the SAMD,
negotiation stage as they could not agree on the amount of the repurchase price of the
to sell the property for P1,574,560.00. When the acceptance was made in its letter dated June
property.All that transpired was an exchange of proposals and counter-proposals, nothing
25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by
more. It insists that a definite agreement on the amount and manner of payment of the price
Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMDs acceptance
are essential elements in the formation of a binding and enforceable contract of sale. There
of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from
was no such agreement in this case. Primarily, the concept of suspensive condition signifies a
the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioners
future and uncertain event upon the fulfillment of which the obligation becomes effective. It
offer to purchase the property. It claims that this was the suspensive condition, the fulfillment
clearly presupposes the existence of a valid and binding agreement, the effectivity of which is
of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer
subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no
to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected
basis for the application of the principles governing suspensive conditions.
contract of sale; it was obliged to remit to respondent the balance of the original purchase
price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the
According to respondent, the Statement of Account prepared by SAMD as of June 25,
property to petitioner, conformably with Article 1159 of the New Civil Code.
1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims
against petitioner. Moreover, the amount stated therein could not likewise be considered as the
Petitioner posits that respondent was proscribed from increasing the interest rate
counter-offer since as admitted by petitioner, it was only recommendation which was subject
after it had accepted respondents offer to sell the property for P1,574,560.00.Consequently,
to approval of the PNB Board of Directors.
respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of
the property. It likewise maintains that, although the P725,000.00 was considered as deposit
Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected
for the repurchase of the property in the receipt issued by the SAMD, the amount constitutes
sale contract. As gleaned from the parties Stipulation of Facts during the proceedings in the
court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as

Page | 5
deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on
the condition that the purchase price would still be approved by its Board of
Directors. Respondent maintains that its acceptance of the amount was qualified by that
condition, thus not absolute. Pending such approval, it cannot be legally claimed that
respondent is already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to bind
respondent and that its authority is limited to administering, managing and preserving the
properties and other special assets of PNB. The SAMD does not have the power to sell,
encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate
from its Board of Directors. The SAMD was not authorized by respondents Board to enter into
contracts of sale with third persons involving corporate assets. There is absolutely nothing on
record that respondent authorized the SAMD, or made it appear to petitioner that it
represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been
approved by the Board subject to the condition, among others, that the selling price shall be
the total banks claim as of documentation date x x x payable in cash (P725,000.00 already
deposited)
within 60 days from notice of approval. A new Statement of Account was attached therein
indicating the total banks claim to be P1,931,389.53 less deposit of P725,000.00,
or P1,206,389.00. Furthermore, while respondents Board of Directors accepted petitioners
offer to repurchase the property, the acceptance was qualified, in that it required a higher sale
price and subject to specified terms and conditions enumerated therein. This qualified
acceptance was in effect a counter-offer, necessitating petitioners acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale between the
parties on June 4, 1985 is correct.
A contract 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. [41] Under Article 1318 of the
New Civil Code, there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. [42]Once
perfected, they bind other contracting parties and the obligations arising therefrom have the
form of law between the parties and should be complied with in good faith. The parties are
bound not only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.[43]
By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.[44] The absence of any of the essential elements will negate the
existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines
v. Manalo:[45]
A definite agreement as to the price is an essential element of a binding
agreement to sell personal or real property because it seriously affects the
rights and obligations of the parties. Price is an essential element in the
formation of a binding and enforceable contract of sale. The fixing of the
price can never be left to the decision of one of the contracting parties. But
a price fixed by one of the contracting parties, if accepted by the other,
gives rise to a perfected sale.[46]
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other, there is no
contract.[47] When the contract of sale is not perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation between the parties.[48]
In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the stages of a
contract of sale are as follows: (1) negotiation, covering the period from the time the
Page | 6

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.
A negotiation is formally initiated by an offer, which, however, must be certain.[50] At any
time prior to the perfection of the contract, either negotiating party may stop the
negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective
immediately after its manifestation. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v.
Court of Appeals,[51] the Court ruled that:
x x x The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must
be evidenced by some acts or conduct communicated to the offeror, it may
be shown by acts, conduct, or words of the accepting party that clearly
manifest a present intention or determination to accept the offer to buy or
sell. Thus, acceptance may be shown by the acts, conduct, or words of a
party recognizing the existence of the contract of sale.[52]
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a
rejection of the original offer. A counter-offer is considered in law, a rejection of the original
offer and an attempt to end the negotiation between the parties on a different
basis.[53] Consequently, when something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to guarantee consent because any modification or
variation from the terms of the offer annuls the offer.[54] The acceptance must be identical in
all respects with that of the offer so as to produce consent or meeting of the minds.
In this case, petitioner had until February 17, 1984 within which to redeem the
property. However, since it lacked the resources, it requested for more time to
redeem/repurchase the property under such terms and conditions agreed upon by the
parties.[55] The request, which was made through a letter dated August 25, 1983, was referred
to the respondents main branch for appropriate action.[56] Before respondent could act on the
request, petitioner again wrote respondent as follows:
1. Upon approval of our request, we will pay
your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS
(P150,000.00);
2. Within six months from date of approval of our request, we will pay
another FOUR HUNDRED FIFTY THOUSAND PESOS
(P450,000.00); and
3. The remaining balance together with the interest and other expenses that
will be incurred will be paid within the last six months of the one
year grave period requested for.[57]
When the petitioner was told that respondent did not allow partial redemption,[58] it sent a
letter to respondents President reiterating its offer to purchase the property. [59]There was no
response to petitioners letters dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim of
respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified
acceptance to petitioners offer to purchase the property. The statement is but a computation of
the amount which petitioner was obliged to pay in case respondent would later agree to sell the
property, including interests, advances on insurance premium, advances on realty taxes,
publication cost, registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondents Board of
Directors to accept petitioners offer and sell the property for P1,574,560.47. Any acceptance
by the SAMD of petitioners offer would not bind respondent. As this Court ruled in AF Realty
Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by
it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with the performance of
authorized duties of such director, are held not binding on the corporation.
Page | 7
 Thus, a corporation can only execute its powers and transact its business through its
Board of Directors and through its officers and agents when authorized by a board resolution
or its by-laws.[61]
It appears that the SAMD had prepared a recommendation for respondent to accept
petitioners offer to repurchase the property even beyond the one-year period; it recommended
that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase
price. Respondent later approved the recommendation that the property be sold to
petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which
petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In
fine, respondents acceptance of petitioners offer was qualified, hence can be at most
considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract
of sale would have arisen; as it turns out, however, petitioner merely sought to have the
counter-offer reconsidered. This request for reconsideration would later be rejected by
respondent.
We do not agree with petitioners contention that the P725,000.00 it had remitted to
respondent was earnest money which could be considered as proof of the perfection of a
contract of sale under Article 1482 of the New Civil Code. The provision reads:
ART. 1482. Whenever 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.
This contention is likewise negated by the stipulation of facts which the parties
entered into in the trial court:
8. On June 8, 1984, the Special Assets Management Department
(SAMD) of PNB prepared an updated Statement of Account
showing MMCCs total liability to PNB as of June 25, 1984 to be
P1,574,560.47 and recommended this amount as the repurchase price of
the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as
deposit to repurchase the property. The deposit of P725,000 was accepted
by PNB on the condition that the purchase price is still subject to the
approval of the PNB Board.[62]
Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase
price of the property, in the event that respondent would approve the recommendation of
SAMD for respondent to accept petitioners offer to purchase the property
for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no
perfected contract of sale would arise. Absent proof of the concurrence of all the essential
elements of a contract of sale, the giving of earnest money cannot establish the existence of a
perfected contract of sale.[63]
It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to
accept the offer to purchase the property for P1,931,389.53. However, this amounted to an
amendment of respondents qualified acceptance, or an amended counter-offer, because while
the respondent lowered the purchase price, it still declared that its acceptance was subject to
the following terms and conditions:
1. That the selling price shall be the total Banks claim as of
documentation date (pls. see attached statement of account as of 5-
31-85), payable in cash (P725,000.00 already deposited) within
sixty (60) days from notice of approval;
2. The Bank sells only whatever rights, interests and participation it
may have in the property and you are charged with full knowledge
of the nature and extent of said rights, interests and participation
and waive your right to warranty against eviction.
3. All taxes and other government imposts due or to become due on
the property, as well as expenses including costs of documents and
science stamps, transfer fees, etc., to be incurred in connection with
the execution and registration of all covering documents shall be
borne by you;
4. That you shall undertake at your own expense and account the
ejectment of the occupants of the property subject of the sale, if
there are any;
5. That upon your failure to pay the balance of the purchase price
within sixty (60) days from receipt of advice accepting your offer,
your deposit shall be forfeited and the Bank is thenceforth
authorized to sell the property to other interested parties.
Page | 8
 6. That the sale shall be subject to such other terms and conditions
that the Legal Department may impose to protect the interest of the
Bank.[64]

It appears that although respondent requested petitioner to conform to its amended

counter-offer, petitioner refused and instead requested respondent to reconsider its amended
counter-offer. Petitioners request was ultimately rejected and respondent offered to refund
its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and
respondent over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container
Corporation.

SO ORDERED.

Page | 9
[G.R. No. 124791. February 10, 1999]
JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS and STATE
INVESTMENT HOUSES, INC., respondents.
DECISION
SYNOPSIS
Private respondent State Investment House, Inc. (SIHI), the registered owner of two (2)
parcels of land located at Bulacao, Cebu City, entered into a lease contract with option to
purchase with petitioner for a period of eighteen (18) months, beginning on August 1, 1984
until January 30, 1986. On January 7, 1986, SIHI notified petitioner of the short period of
time left within which he could still validly exercise the option. On January 15, 1986,
petitioner requested for a six-month extension of the lease contract, alleging that he needs
ample time to raise sufficient funds. However, on February 14, 1986, SIHI notified petitioner
that his request was disapproved. Consequently, on February 18, 1986, petitioner notified
SIHI of his decision to exercise the option to purchase the property. Again, on February 20,
1986, SIHI reiterated its previous stand on the latters offer, stressing that the period within
which the option should have been exercised had already lapsed. Further, SIHI asked
petitioner to vacate the property. Thus, on February 28, 1986, a complaint for specific
performance and damages was filed by petitioner against SIHI before the Regional Trial Court
of Cebu City. After trial, the court rendered judgment ordering SIHI to execute a deed of sale
in favor of the plaintiff in accordance with the lease contract. On appeal, the Court of Appeals
affirmed the trial courts judgment with a modification that the purchase price must be based
on the prevailing market price of real property in Bulacao, Cebu City.
Hence, this petition for review.
Petitioner could not insist on buying the said property based on the price agreed upon in
the lease agreement, even if his option to purchase it is recognized. On the other hand, SIHI
could not take advantage of the situation to increase the selling price of said property by nearly
90% of the original price. If the courts were to allow SIHI to take advantage of the situation,
the result would have been an injustice to petitioner, because SIHI would be unjustly enriched
at his expense. Courts of law, being also courts of equity, may not countenance such grossly
unfair results without doing violence to its solemn obligation to administer fair and equal
justice for all.
The appealed decision of respondent court, insofar as it affirms the judgment of the trial
court in granting petitioner the option to purchase the property was AFFIRMED. However the
purchase price should be based on the fair market value of real property in Bulacao, Cebu
City, as of February 1986, when the contract would have been consummated.
SYLLABUS
1. CIVIL LAW; CONTRACTS; OPTION; DEFINED. -- An option is a preparatory
contract in which one party grants to the other, for a fixed period and under specified
conditions, the power to decide, whether or not to enter into a principal contract. 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. It is separate agreement distinct from the contract which the parties may
enter into upon the consummation of the option.
2. ID.; ID.; CONSTRUCTION; NOT LIMITED TO THE WORDS USED. -- Analysis
and construction, however, should not be limited to the words used in the contract, as
they may not accurately reflect the parties' true intent. The reasonableness of the result
obtained, after said analysis, ought likewise to be carefully considered. x x x Further, it
is well-settled that in construing a written agreement, the reason behind and the
circumstances surrounding its execution are of paramount importance. Sound
construction requires one to be placed mentally in the situation occupied by the parties
concerned at the time the writing was executed. Thereby, the intention of the
contracting parties could be made to prevail, because their agreement has the force of
law between them.
3. ID.; ID.; CONSIDERING THE LAW BETWEEN THE CONTRACTING PARTIES.
-- It is well-settled in both law and jurisprudence, that contracts are the law between the
contracting parties and should be fulfilled, if their terms are clear and leave no room for
doubt as to the intention of the contracting parties.
4. ID.; ID.; VARIOUS STIPULATIONS MUST BE CONSTRUED TOGETHER. --
Moreover, to ascertain the intent of the parties in a contractual relationship, it is
imperative that the various stipulations provided for in the contract be construed
together, consistent with the parties' contemporaneous and subsequent acts as regards
the execution of the contract. And once the intention of the parties has been ascertained,
that element is deemed as an integral part of the contract as though it has been originally
expressed in unequivocal terms.
5. REMEDIAL LAW; COURTS; MUST ADMINISTER FAIR AND EQUAL JUSTICE
FOR ALL; CASE AT BAR. -- Petitioner herein could not insist on buying the said
property based on the price agreed upon in the lease agreement, even if his option to
purchase it is recognized. On the other hand, SIHI could not take advantage of the
situation to increase the selling price of said property by nearly 90% of the original
price. Such leap in the price quoted would show an opportunistic intent to exploit the
situation as SIHI knew for a fact that petitioner badly needed the property for his
business and that he could afford to pay such higher amount after having secured an P8
Million loan from the TRC. If the courts were to allow SIHI to take advantage of the
situation, the result would have been an injustice to petitioner, because SIHI would be
unjustly enriched at his expense. Courts of law, being also courts of equity, may not
countenance such grossly unfair results without doing violence to its solemn obligation
to administer fair and equal justice for all.
QUISUMBING, J.:
Before us is a petition for review of the Decision[1] dated September 21, 1995 of the
Court of Appeals[2]in CA - G. R. CV No. 37520, as well as its Resolution [3] dated April 25,
1996, denying both parties motion for partial reconsideration or clarification. The assailed
decision affirmed with modification the judgment[4] of the Regional Trial Court of Cebu City,
Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:
Page | 10
However, We do not find it just that the appellee, in exercising his option to buy, should pay
appellant SIHI only P1,800,000.00. In fairness to appellant SIHI, the purchase price must be
based on the prevailing market price of real property in Bulacao, Cebu City. (Emphasis
supplied)
The factual background of this case is quite simple.
Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two
(2) parcels of land with a total area of 9,774 square meters, including all the improvements
thereon, located at Bulacao, Cebu City, covered by Transfer Certificate of Titles Nos. T-89152
and T-89153 of the Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI entered into a lease contract with option to
purchase[5] over said two parcels of land, at a monthly rental of Ten Thousand (P10,000.00)
pesos for a period of eighteen (18) months, beginning on August 1, 1984 until January 30,
1986. The pertinent portion of the lease contract subject of the dispute reads in part:
4. As part of the consideration of this agreement, the LESSOR hereby grants unto the LESSEE
the exclusive right, option and privilege to purchase, within the lease period, the leased
premises thereon for the aggregate amount of P1,800,000.00 payable as follows:
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.00.
b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over sixty
(60) consecutive months computed with interest at 24% per annum on the diminishing
balance; Provided, that the LESSEE shall have the right to accelerate payments at anytime in
which event the stipulated interest for the remaining installments shall no longer be imposed.
x . . The option shall be exercised by a written notice to the LESSOR at anytime within the
option period and the document of sale over the afore-described properties has to be
consummated within the month immediately following the month when the LESSEE
exercised his option under this contract.[6]
On January 7, 1986, or approximately three (3) weeks before the expiration of the lease
contract, SIHI notified petitioner of the impending termination of the lease agreement, and of
the short period of time left within which he could still validly exercise the option. It likewise
requested petitioner to advise them of his decision on the option, on or before January 20,
1986.[7]
In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986,
petitioner requested for a six-month extension of the lease contract, alleging that he needs
ample time to raise sufficient funds in order to exercise the option. To support his request,
petitioner averred that he had already made a substantial investment on the property, and had
been punctual in paying his monthly rentals.[8]
On February 14, 1986, SIHI notified petitioner that his request was disapproved.
Nevertheless, it offered to lease the same property to petitioner at the rate of Thirty Thousand
(P30,000.00) pesos a month, for a period of one (1) year. It further informed the petitioner of
its decision to offer for sale said leased property to the general public.[9]
On February 18, 1986, petitioner notified SIHI of his decision to exercise the option to
purchase the property and at the same time he made arrangements for the payment of the
downpayment thereon in the amount of Three Hundred Sixty Thousand (P360,000.00)
pesos.[10]
On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous
stand on the latters offer, stressing that the period within which the option should have been
exercised had already lapsed. SIHI asked petitioner to vacate the property within ten (10) days
from notice, and to pay rental and penalty due.[11]
Hence, on February 28, 1986, a complaint for specific performance and damages [12] was
filed by petitioner against SIHI before the Regional Trial Court of Cebu City, to compel the
latter to honor its commitment and execute the corresponding deed of sale.
After trial, the court a quo promulgated its decision dated April 1, 1991, the dispositive
portion of which reads:
In the light of the foregoing considerations, the Court hereby renders judgment in Civil Case
No. CEB 4700, ordering the defendant to execute a deed of sale in favor of the plaintiff,
covering the parcels of land together with all the improvements thereon, covered by Transfer
Certificates of Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu City, in
accordance with the lease contract executed on January 10, 1984 between the plaintiff and the
defendant, but the purchase price may be by one shot payment of P1,800,000.00; and the
defendant to pay attorneys fee of P20,000.00.
No damages awarded.[13]
Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by way
of a petition for review.
On September 21, 1995, respondent court rendered its decision, affirming the trial courts
judgment, but modified the basis for assessing the purchase price. While respondent court
affirmed appellees option to buy the property, it added that, the purchase price must be based
on the prevailing market price of real property in Bulacao, Cebu City. [14]
Baffled by the modification made by respondent court, both parties filed a motion for
reconsideration and/or clarification, with petitioner, on one hand, praying that the prevailing
market price be the value of the property in February 1986, the time when the sale would have
been consummated. SIHI, on the other hand, prayed that the market price of the property be
based on the prevailing price index at least 10 years later, that is, 1996.
Respondent court conducted further hearings to clarify the matter, but no agreement was
reached by the parties. Thus, on April 25, 1996, respondent court promulgated the assailed
resolution, which denied both parties motions, and directed the trial court to conduct further
hearings to ascertain the prevailing market value of real properties in Bulacao, Cebu City and
fix the value of the property subject of the controversy. 14a
Hence, the instant petition for review.
The fundamental issue to be resolved is, should petitioner be allowed to exercise the
option to purchase the leased property, despite the alleged delay in giving the required notice
to private respondent?
Page | 11
 An option is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to enter into a
principal contract. 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.[15] It is a separate agreement distinct from the contract which the parties may
enter into upon the consummation of the option.[16]
Considering the circumstances in this case, we find no reason to disturb the findings of
respondent court, that petitioners letter to SIHI, dated January 15, 1986, was fair notice to the
latter of the formers intent to exercise the option, despite the request for the extension of the
lease contract. As stated in said letter to SIHI, petitioner was requesting for an extension (of
the contract) for six months to allow us to generate sufficient funds in order to exercise our
option to buy the subject property.[17] The analysis by the Court of Appeals of the evidence on
record and the process by which it arrived at its findings on the basis thereof, impel this Courts
assent to said findings. They are consistent with the parties primary intent, as hereafter
discussed, when they executed the lease contract. As respondent court ruled:
We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily, We are
in accord with the trial court that he should be allowed to exercise his option to purchase the
lease property. In fact, SIHI will not be prejudiced. A contrary ruling, however, will definitely
cause damage to the appellee, it appearing that he has introduced considerable improvements
on the property and has borrowed huge loan from the Technology Resources Center. 17a
The contracting parties primary intent in entering into said lease contract with option to
purchase confirms, in our view, the correctness of respondent courts ruling. Analysis and
construction, however, should not be limited to the words used in the contract, as they may not
accurately reflect the parties true intent. The reasonableness of the result obtained, after said
analysis, ought likewise to be carefully considered.
It is well-settled in both law and jurisprudence, that contracts are the law between the
contracting parties and should be fulfilled, if their terms are clear and leave no room for doubt
as to the intention of the contracting parties.[18] Further, it is well-settled that in construing a
written agreement, the reason behind and the circumstances surrounding its execution are of
paramount importance. Sound construction requires one to be placed mentally in the situation
occupied by the parties concerned at the time the writing was executed. Thereby, the intention
of the contracting parties could be made to prevail, because their agreement has the force of
law between them.[19]
Moreover, to ascertain the intent of the parties in a contractual relationship, it is
imperative that the various stipulations provided for in the contract be construed together,
consistent with the parties contemporaneous and subsequent acts as regards the execution of
the contract.[20] And once the intention of the parties has been ascertained, that element is
deemed as an integral part of the contract as though it has been originally expressed in
unequivocal terms.
As sufficiently established during the trial, SIHI, prior to its negotiation with petitioner,
was already beset with financial problems. SIHI was experiencing difficulty in meeting the
claims of its creditors.Thus, in order to reprogram the companys financial investment plan and
facilitate its rehabilitation and viability, SIHI, being a quasi-banking financial institution, had
been placed under the supervision and control of the Central Bank (CB). It was in dire need of
liquidating its assets, so to speak, in order to stay afloat financially.
Thus, SIHI was compelled to dispose some of its assets, among which is the subject
leased property, to generate sufficient funds to augment its badly-depleted financial
resources. This then brought about the execution of the lease contract with option to purchase
between SIHI and the petitioner.
The lease contract provided that to exercise the option, petitioner had to send a letter to
SIHI, manifesting his intent to exercise said option within the lease period ending January 30,
1986. However, what petitioner did was to request on January 15, 1986, for a six-month
extension of the lease contract, for the alleged purpose of raising funds intended to purchase
the property subject of the option. It was only after the request was denied on February 14,
1986, that petitioner notified SIHI of his desire to exercise the option formally. This was by
letter dated February 18, 1986. In private respondents view, there was already a delay of 18
days, fatal to petitioners cause. But respondent court found the delay neither substantial nor
fundamental and did not amount to a breach that would defeat the intention of the parties when
they executed the lease contract with option to purchase.20a
In allowing petitioner to exercise the option, however, both lower courts are in accord in
their decision, rationalizing that a contrary ruling would definitely cause damage to the
petitioner, as he had the whole place renovated to make the same suitable and conducive for
the business he established there. Moreover, judging from the subsequent acts of the parties, it
is undeniable that SIHI really intended to dispose of said leased property, which petitioner
indubitably intended to buy.
SIHIs agreement to enter first into a lease contract with option to purchase with herein
petitioner, is a clear proof of its intent to promptly dispose said property although the full
financial returns may materialize only in a years time. Furthermore, its letter dated January 7,
1986, reminding the petitioner of the short period of time left within which to consummate
their agreement, clearly showed its desire to sell that property. Also, SIHIs letter dated
February 14, 1986 supported the conclusion that it was bent on disposing said property. For
this letter made mention of the fact that, said property is now for sale to the general public.
Petitioners determination to purchase said property is equally indubitable. He introduced
permanent improvements on the leased property, demonstrating his intent to acquire dominion
in a years time. To increase his chances of acquiring the property, he secured an P8 Million
loan from the Technology Resources Center (TRC), thereby augmenting his capital. He
averred that he applied for a loan since he planned to pay the purchase price in one single
payment, instead of paying in installment, which would entail the payment of additional
interest at the rate of 24% per annum, compared to 7% per annum interest for the TRC
loan. His letter earlier requesting extension was premised, in fact, on his need for time to
secure the needed financing through a TRC loan.
In contractual relations, the law allows the parties reasonable leeway on the terms of
their agreement, which is the law between them.[21] Note that by contract SIHI had given
petitioner 4 periods: (a) the option to purchase the property for P1,800,000.00 within the lease
period, that is, until January 30, 1986; (b) the option to be exercised within the option period
by written notice at anytime; (c) the document of sale...to be consummated within the month
immediately following the month when petitioner exercises the option; and (d) the payment in
equal installments of the purchase price over a period of 60 months. In our view, petitioners
letter of January 15, 1986 and his formal exercise of the option on February 18, 1986 were
Page | 12
within a reasonable time-frame consistent with periods given and the known intent of the
parties to the agreement dated January 10, 1985. A contrary view would be harsh and
inequituous indeed.
In Tuason, Jr., etc. vs. De Asis,[22] this Court opined that in a contract of lease, if the
lessor makes an offer to the lessee to purchase the property on or before the termination of the
lease, and the lessee fails to accept or make the purchase on time, the lessee losses the right to
buy the property later on the terms and conditions set in the offer. Thus, on one hand,
petitioner herein could not insist on buying the said property based on the price agreed upon in
the lease agreement, even if his option to purchase it is recognized. On the other hand, SIHI
could not take advantage of the situation to increase the selling price of said property by nearly
90% of the original price. Such leap in the price quoted would show an opportunistic intent to
exploit the situation as SIHI knew for a fact that petitioner badly needed the property for his
business and that he could afford to pay such higher amount after having secured an P8
Million loan from the TRC. If the courts were to allow SIHI to take advantage of the situation,
the result would have been an injustice to petitioner, because SIHI would be unjustly enriched
at his expense. Courts of law, being also courts of equity, may not countenance such grossly
unfair results without doing violence to its solemn obligation to administer fair and equal
justice for all.
WHEREFORE, the appealed decision of respondent court, insofar as it affirms the
judgment of the trial court in granting petitioner the opportunity to exercise the option to
purchase the subject property, is hereby AFFIRMED. However the purchase price should be
based on the fair market value of real property in Bulacao, Cebu City, as of February 1986,
when the contract would have been consummated.Further, petitioner is hereby ordered to pay
private respondent SIHI legal interest on the said purchase price beginning February 1986 up
to the time it is actually paid, as well as the taxes due on said property, considering that
petitioner have enjoyed the beneficial use of said property. The case is hereby remanded to
Regional Trial Court of Cebu, Branch 5, for further proceedings to determine promptly the fair
market value of said real property as of February 1986, in Bulacao, Cebu City.
Costs against private respondent.
SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

Page | 13
G.R. No. 134971. March 25, 2004] Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan,
hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa
pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman
nagbenta ng lupa.
HERMINIO TAYAG, petitioner, vs. AMANCIA LACSON, ROSENDO LACSON,
ANTONIO LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA and Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming
THE COURT OF APPEALS, respondents. lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng
problema.
DECISION
Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong magiging katangahan kung
CALLEJO, SR., J.: ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag.
Dahil sinira ninyo ang aming pagtitiwala at katapatan.[9]
Before us is a petition for review on certiorari of the Decision[1] and the Resolution[2] of
respondent Court of Appeals in CA-G.R. SP No. 44883. On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of
San Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the
respondents, for the court to fix a period within which to pay the agreed purchase price
of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. The
The Case for the Petitioner petitioner also prayed for a writ of preliminary injunction against the defendants and the
respondents therein.[10] The case was docketed as Civil Case No. 10910.

Respondents Angelica Tiotuyco Vda. de Lacson,[3] and her children Amancia, Antonio, In his complaint, the petitioner alleged, inter alia, the following:
Juan, and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land
located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922- 4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino,
The properties, which were tenanted agricultural lands,[4] were administered by Renato Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de
Espinosa for the owner. Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of
On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato lands covered by Transfer Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are
Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica
Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman
Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto
namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Aurelio Flores are sub-tenantsover the same parcel of land.
Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao,
Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio 5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of
Flores,[5] individually executed in favor of the petitioner separate Deeds of Assignment [6] in Assignment with the plaintiff by which the defendants assigned all their rights and interests on
which the assignees assigned to the petitioner their respective rights as tenants/tillers of the their landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants
landholdings possessed and tilled by them for and in consideration of P50.00 per square received from the plaintiff partial payments in the amounts corresponding to their
meter. The said amount was made payable when the legal impediments to the sale of the names. Subsequent payments were also received:
property to the petitioner no longer existed. The petitioner was also granted the exclusive right
to buy the property if and when the respondents, with the concurrence of the defendants-
tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to 1st PAYMENT 2nd PAYMENT CHECK NO.
the tenants as partial payments, and the latter issued receipts for the said amounts.
On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out 1.Julio Tiamson - - - - - - P 20,000 P 10,621.54 231281
the implementation of the terms of their separate agreements.[7] However, on August 8, 1996,
the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not 2. Renato Gozun - - - - - - P 10,000 96,000
attending the meeting and instead gave notice of their collective decision to sell all their rights
and interests, as tenants/lessees, over the landholding to the respondents.[8] Explaining their [son of Felix Gozun (deceased)]
reasons for their collective decision, they wrote as follows:

Page | 14
3. Rosita Hernandez - - - - P 5,000 14,374.24 231274 22. Eddie
P 19,374.24
San Luis 10,000 ------ ------

4. Bienvenido Tongol - - - P 10,000 14,465.90 231285 23. Ricardo

24,465.90
Hernandez 10,000 ------ ------
[Son of Abundio Tongol (deceased)]
24. Nicenciana Miranda 10,000 ------ ------
5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271 56,648.40
25. Jose Gozun 10,000 ------ ------
6. Norma Quiambao - - - - P 10,000 41,501.10 231279 51,501.10
26. Alfredo Sosa 5,000 ------ ------
7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284 32,126.08
27. Jose Tiamson 10,000 ------ ------
8. Jose Sosa - - - - - - - - - P 10,000 14,861.31 231291 24,861.31
28. Augusto Tolentino 5,000 ------ ------
9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283 34,237.62
29. Sixto Hernandez 10,000 ------ ------
10. Emiliano Laxamana - - P 10,000 ------ ------ ------
30. Alex Quiambao 10,000 ------ ------
11. Ruben Torres - - - - - - P 10,000 P 33,587.31 ------ P 43,587.31
31. Isidro Tolentino 10,000 ------ ------
[Son of Mariano Torres (deceased)]
32. Ceferino de Leon ------ 11,378.70 231270
12. Meliton Allanigue P 10,000 12,944.77 231269 P 22,944.77
33. Alberto Hernandez 10,000 ------ ------
13. Dominga Laxamana P 5,000 22,269.02 231275 27,269.02
34. Orlando Florez 10,000 ------ ------
14. Felicencia de Leon 10,000 ------ ------ ------
35. Aurelio Flores 10,000 ------ ------
15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60

16. Felino G. Tolentino 10,000 ------ ------ 6. That ------

on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them
for a meeting regarding the negotiations/implementations of the terms of their Deeds of
Assignment;
17. Rica Gozun 5,000 ------ ------ ------
7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied
18. Perla Gozun 10,000 ------ ------ that they------
are no longer willing to pursue with the negotiations, and instead they gave notice to
the plaintiff that they will sell all their rights and interests to the registered owners (defendants
19. Benigno Tolentino 10,000 ------ ------ LACSONS).------

20. Rodolfo Quiambao 10,000 ------ ------ A copy ------

of the letter is hereto attached as Annex A etc.;

21. Roman Laxamana 10,000 ------ ------ 8. That ------

the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON
or with any third persons while their contracts with the plaintiff are subsisting; defendants

Page | 15
LACSONS are inducing or have induced the defendants TIAMSON, et. al., to violate their
contracts with the plaintiff;
9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages
in the forms of mental anguish, mental torture and serious anxiety which in the sum of
P500,000.00 for which defendants should be held liable jointly and severally. [11]
In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the
following in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained
from rescinding their contracts with the plaintiff, and the defendants LACSONS should also
be restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et
al., in whatever form, the latters rights and interests in the properties mentioned in paragraph 4
hereof; further, the LACSONS should be restrained from encumbering/alienating the subject
properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds
of San Fernando, Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff
and are also bent on selling/alienating their rights and interests over the subject properties to
their co-defendants (LACSONS) or any other persons to the damage and prejudice of the
plaintiff who already invested much money, efforts and time in the said transactions;
13. That the plaintiff is entitled to the reliefs being demanded in the complaint;
14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no
speedy and adequate remedy under the ordinary course of law, it is essential that a Writ of
Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al.,
from rescinding their contracts with the plaintiff and from selling/alienating their properties to
the LACSONS or other persons;
15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages
which the defendants would suffer should the injunction prayed for and granted be found
without basis.[12]
The petitioner prayed, that after the proceedings, judgment be rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and
restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol,
Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de
Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino,
Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon,
Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with
the plaintiff and from alienating their rights and interest over the aforementioned properties in
favor of defendants LACSONS or any other third persons; and prohibiting the defendants
LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the
Registry of Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that
a restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.)
from rescinding their contracts with the plaintiff and from alienating the subject properties to
the defendants LACSONS or any third persons; further, restraining and enjoining the
defendants LACSONS from encumbering/selling the properties covered by TCT Nos. 35922-
R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the
defendants TIAMSON, et al., after the lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorneys fees in the sum of P100,000.00 plus
litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the premises. [13]
In their answer to the complaint, the respondents as defendants asserted that (a) the
defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants
were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was
uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the
petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had no right to enter
into any transactions involving their properties without their knowledge and consent. They
also averred that the transfers or assignments of leasehold rights made by the defendants-
tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No.
6657, the Comprehensive Agrarian Reform Program (CARP).[14] The respondents interposed
counterclaims for damages against the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for
damages, that the money each of them received from the petitioner were in the form of loans,
and that they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby repleaded and
incorporated in so far as they are material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are
concern[ed] never knew that what they did sign is a Deed of
Assignment. What they knew was that they were made to sign a document that
will serve as a receipt for the loan granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the employment of fraud,
deceit and false pretenses of plaintiff and made the defendants believe that
what they sign[ed] was a mere receipt for amounts received by way of loans;
Page | 16
 d) That the documents signed in blank were filled up and completed after the
defendants Tiamson, et al., signed the documents and their completion and
accomplishment was done in the absence of said defendants and, worst of all,
defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the defendants
Tiamson, et al., did assign all their rights and interests in the properties or
landholdings they were tilling in favor of the plaintiff. That if this is so,
assuming arguendo that the documents were voluntarily executed, the
defendants Tiamson, et al., do not have any right to transfer their interest in
the landholdings they are tilling as they have no right whatsoever in the
landholdings, the landholdings belong to their co-defendants, Lacson, et al.,
and therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al., received sums of
money from plaintiffs, the same were received as approved loans granted by
plaintiff to the defendants Tiamson, et al., and not as part consideration of the
alleged Deeds of Assignment; and by way of:[15]
At the hearing of the petitioners plea for a writ of preliminary injunction, the
respondents counsel failed to appear. In support of his plea for a writ of preliminary
injunction, the petitioner adduced in evidence the Deeds of Assignment, [16] the
receipts[17] issued by the defendants-tenants for the amounts they received from him; and the
letter[18] the petitioner received from the defendants-tenants. The petitioner then rested his
case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioners
plea for injunctive relief on the following grounds: (a) the Deeds of Assignment executed by
the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657;
(b) the petitioner failed to prove that the respondents induced the defendants-tenants to renege
on their obligations under the Deeds of Assignment; (c) not being privy to the said deeds, the
respondents are not bound by the said deeds; and, (d) the respondents had the absolute right to
sell and dispose of their property and to encumber the same and cannot be enjoined from
doing so by the trial court.
The petitioner opposed the motion, contending that it was premature for the trial court to
resolve his plea for injunctive relief, before the respondents and the defendants-tenants
adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal
evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied
that it was the burden of the petitioner to establish the requisites of a writ of preliminary
injunction without any evidence on their part, and that they were not bound to adduce any
evidence in opposition to the petitioners plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order[19] denying the motion of the
respondents for being premature. It directed the hearing to proceed for the respondents to
adduce their evidence. The court ruled that the petitioner, on the basis of the material
allegations of the complaint, was entitled to injunctive relief. It also held that before the court
could resolve the petitioners plea for injunctive relief, there was need for a hearing to enable
the respondents and the defendants-tenants to adduce evidence to controvert that of the
petitioner. The respondents filed a motion for reconsideration, which the court denied in its
Order dated April 16, 1997. The trial court ruled that on the face of the averments of the
complaint, the pleadings of the parties and the evidence adduced by the petitioner, the latter
was entitled to injunctive relief unless the respondents and the defendants-tenants adduced
controverting evidence.
The respondents, the petitioners therein, filed a petition for certiorari in the Court of
Appeals for the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial
court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in
their petition that:
1. An order be issued declaring the orders of respondent court dated February 13,
1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an order denying the
application of respondent Herminio Tayag for the issuance of a Writ of
Preliminary Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued against the
respondent court, prohibiting it from issuing its own writ of injunction against
Petitioners, and thereafter making said injunction to be issued by this Court
permanent.
Such other orders as may be deemed just & equitable under the premises also prayed for. [20]
The respondents asserted that the Deeds of Assignment executed by the assignees in
favor of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph
of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for
being null and void. The respondents also claimed that the enforcement of the deeds of
assignment was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee shall be exercised only when no
legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE.[21]
The respondents argued that until such condition took place, the petitioner would not
acquire any right to enforce the deeds by injunctive relief. Furthermore, the petitioners plea in
his complaint before the trial court, to fix a period within which to pay the balance of the
amounts due to the tenants under said deeds after the lapse of any legal impediment, assumed
that the deeds were valid, when, in fact and in law, they were not. According to the
respondents, they were not parties to the deeds of assignment; hence, they were not bound by
the said deeds.The issuance of a writ of preliminary injunction would restrict and impede the
exercise of their right to dispose of their property, as provided for in Article 428 of the New
Civil Code. They asserted that the petitioner had no cause of action against them and the
defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision against the petitioner,
annulling and setting aside the assailed orders of the trial court; and permanently enjoining the
said trial court from proceeding with Civil Case No. 10901. The decretal portion of the
decision reads as follows:
Page | 17
However, even if private respondent is denied of the injunctive relief he demands in the lower
court still he could avail of other course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are
hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of
discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is
permanently enjoined from proceeding with the case designated as Civil Case No. 10901.[22]
The CA ruled that the respondents could not be enjoined from alienating or even
encumbering their property, especially so since they were not privies to the deeds of
assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of
the portions of the landholdings respectively tilled by them; as such, they had nothing to
assign to the petitioner. Finally, the CA ruled that the deeds of assignment executed by the
defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioners motion for
reconsideration.[23]
Hence, the petitioner filed his petition for review on certiorari before this Court,
contending as follows:
I findings, went beyond the issue raised by the private respondents, namely, whether or not the
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS
COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY
CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF
TRIAL IN THE LOWER COURT (RTC).[24]
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING
OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN
THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE
PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG
SHOULD BE GRANTED OR NOT.[25]
III
THE COURT OF APPEALS CANNOT USE FACTS NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS
ARE NOT YET AWARDEES OF THE LAND REFORM.[26]
IV
THE COURT OF APPEALS CANNOT CAUSE THE
PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW
INCLUDING THE TRIAL ON THE MERITS OF THE CASE
CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY
OF MAINTAINING THE STATUS QUO.[27]
V deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to
THE COURT OF APPEALS CANNOT INCLUDE IN ITS
DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT
QUESTION THE JURISDICTION OF THE LOWER COURT (RTC) OVER
THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR
EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO
PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.[28]
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE
CASE FILED BY TAYAG FOR FIXING OF PERIOD UNDER ART. 1197
OF THE NEW CIVIL CODE AND FOR DAMAGES AGAINST THE
LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE
CANNOT BE SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.[29]
The petitioner faults the Court of Appeals for permanently enjoining the trial court from
proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to
a dismissal of the case. He argues that at that stage, it was premature for the appellate court to
determine the merits of the case since no evidentiary hearing thereon was conducted by the
trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal
of Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its
trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction
when it denied the respondents motion for the denial/dismissal of the petitioners plea for a writ
of preliminary injunction. He, likewise, points out that the appellate court erroneously
presumed that the leaseholders were not DAR awardees and that the deeds of assignment were
contrary to law. He contends that leasehold tenants are not prohibited from conveying or
waiving their leasehold rights in his favor. He insists that there is nothing illegal with his
contracts with the leaseholders, since the same shall be effected only when there are no more
legal impediments.
At bottom, the petitioner contends that, at that stage, it was premature for the appellate
court to determine the merits of his case since no evidentiary hearing on the merits of his
complaint had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny
the petitioners plea for a writ of preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case on the incident, was proper
and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of
preliminary injunction. He may rely solely on the material allegations of his complaint or
adduce evidence in support thereof. The petitioner adduced his evidence to support his plea for
a writ of preliminary injunction against the respondents and the defendants-tenants and rested
his case on the said incident. The respondents then had three options: (a) file a motion to
Page | 18
prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the
trial court denies his motion, for them to adduce evidence in opposition to the petitioners plea;
(b) forgo their motion and adduce testimonial and/or documentary evidence in opposition to
the petitioners plea for a writ of preliminary injunction; or, (c) waive their right to adduce
evidence and submit the incident for consideration on the basis of the pleadings of the parties
and the evidence of the petitioner. The respondents opted not to adduce any evidence, and
instead filed a motion to deny or dismiss the petitioners plea for a writ of preliminary
injunction against them, on their claim that the petitioner failed to prove his entitlement
thereto. The trial court cannot compel the respondents to adduce evidence in opposition to the
petitioners plea if the respondents opt to waive their right to adduce such evidence. Thus, the
trial court should have resolved the respondents motion even without the latters opposition and
the presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a
writ of preliminary injunction against the respondents on the basis of the material averments of
the complaint. In its April 16, 1997 Order, the trial court denied the respondents motion for
reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of
preliminary injunction based on the material allegations of his complaint, the evidence on
record, the pleadings of the parties, as well as the applicable laws:
For the record, the Court denied the LACSONS COMMENT/MOTION on the basis of the
facts culled from the evidence presented, the pleadings and the law applicable unswayed by
the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code
of Judicial Ethics).[30]
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the
issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the act or
acts complained of, or in requiring the performance of an act or acts, either for
a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to
do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or maintain
the status quo of things ante litem and is generally availed of to prevent actual or threatened
acts, until the merits of the case can be heard. Injunction is accepted as the strong arm of
equity or a transcendent remedy.[31] While generally the grant of a writ of preliminary
injunction rests on the sound discretion of the trial court taking cognizance of the case,
extreme caution must be observed in the exercise of such discretion.[32] Indeed, in Olalia v.
Hizon,[33] we held:
It has been consistently held that there is no power the exercise of which is more delicate,
which requires greater caution, deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong arm of equity that should
never be extended unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom of action of
the defendant and should not be granted lightly or precipitately. It should be granted only
when the court is fully satisfied that the law permits it and the emergency demands it.[34]
The very foundation of the jurisdiction to issue writ of injunction rests in the existence
of a cause of action and in the probability of irreparable injury, inadequacy of pecuniary
compensation and the prevention of the multiplicity of suits. Where facts are not shown to
bring the case within these conditions, the relief of injunction should be refused. [35]
For the court to issue a writ of preliminary injunction, the petitioner was burdened to
establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2)
a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for
the writ to prevent serious damage.[36] Thus, in the absence of a clear legal right, the issuance
of the injunctive writ constitutes a grave abuse of discretion. Where the complainants right is
doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at
protecting substantial rights and interests. It is not designed to protect contingent or future
rights. The possibility of irreparable damage without proof of adequate existing rights is not a
ground for injunction.[37]
We have reviewed the pleadings of the parties and found that, as contended by the
respondents, the petitioner failed to establish the essential requisites for the issuance of a writ
of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in denying the respondents comment/motion as
well as their motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from
selling, disposing of and encumbering their property. As the registered owners of the property,
the respondents have the right to enjoy and dispose of their property without any other
limitations than those established by law, in accordance with Article 428 of the Civil
Code. The right to dispose of the property is the power of the owner to sell, encumber,
transfer, and even destroy the property. Ownership also includes the right to recover the
possession of the property from any other person to whom the owner has not transmitted such
property, by the appropriate action for restitution, with the fruits, and for indemnification for
damages.[38] The right of ownership of the respondents is not, of course, absolute. It is limited
by those set forth by law, such as the agrarian reform laws. Under Article 1306 of the New
Civil Code, the respondents may enter into contracts covering their property with another
under such terms and conditions as they may deem beneficial provided they are not contrary to
law, morals, good conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their property simply
and merely because they had executed Deeds of Assignment in favor of the petitioner,
Page | 19
obliging themselves to assign and transfer their rights or interests as agricultural
farmers/laborers/sub-tenants over the landholding, and granting the petitioner the exclusive
right to buy the property subject to the occurrence of certain conditions. The respondents were
not parties to the said deeds. There is no evidence that the respondents agreed, expressly or
impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed, they
assailed the validity of the said deeds on their claim that the same were contrary to the letter
and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he
testified that he did not know any of the respondents, and that he had not met any of them
before he filed his complaint in the RTC. He did not even know that one of those whom he
had impleaded as defendant, Angelica Vda. de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already
been dead?
A: I am aware of that, sir.[39]
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against petitioners. As
owners of the lands being tilled by TIAMSON, et al., petitioners, under the law, have the right
to enjoy and dispose of the same. Thus, they have the right to possess the lands, as well as the
right to encumber or alienate them. This principle of law notwithstanding, private respondent
in the lower court sought to restrain the petitioners from encumbering and/or alienating the
properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of
Deeds of San Fernando, Pampanga. This cannot be allowed to prosper since it would
constitute a limitation or restriction, not otherwise established by law on their right of
ownership, more so considering that petitioners were not even privy to the alleged transaction
between private respondent and TIAMSON, et al.[40]
Second. A reading the averments of the complaint will show that the petitioner clearly
has no cause of action against the respondents for the principal relief prayed for therein, for
the trial court to fix a period within which to pay to each of the defendants-tenants the balance
of the P50.00 per square meter, the consideration under the Deeds of Assignment executed by
the defendants-tenants. The respondents are not parties or privies to the deeds of
assignment. The matter of the period for the petitioner to pay the balance of the said amount to
each of the defendants-tenants is an issue between them, the parties to the deed.
Third. On the face of the complaint, the action of the petitioner against the respondents
and the defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation
of the petitioner to pay to each of the defendants-tenants the balance of the purchase price was
conditioned on the occurrence of the following events: (a) the respondents agree to sell their
property to the petitioner; (b) the legal impediments to the sale of the landholding to the
petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he
testified, the petitioner admitted that the legal impediments referred to in the deeds were (a)
the respondents refusal to sell their property; and, (b) the lack of approval of the Department
of Agrarian Reform:
Q : There is no specific agreement prior to the execution of those documents as
when they will pay?
A : We agreed to that, that I will pay them when there are no legal impediment,
sir.
Q : Many of the documents are unlattered (sic) and you want to convey to this
Honorable Court that prior to the execution of these documents you have
those tentative agreement for instance that the amount or the cost of the
price is to be paid when there are no legal impediment, you are using the
word legal impediment, do you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that phrase that you
used the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my question not to
answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then especially if the
Lacsons will not agree to sell their shares to me or to us it would be hard to
(sic) me to pay them in full. And those covered by DAR. I explain[ed] to
them and it was clearly stated in the title that there is [a] prohibited period of
time before you can sell the property. I explained every detail to them.[41]
It is only upon the occurrence of the foregoing conditions that the petitioner would be
obliged to pay to the defendants-tenants the balance of the P50.00 per square meter under the
deeds of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to
the ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR
shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total
Page | 20
area actually tilled and possessed by the ASSIGNOR, less whatever amount received by the
ASSIGNOR including commissions, taxes and all allowable deductions relative to the sale of
the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when
no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over the said property and shall
enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the
agreed purchase price had been made by the ASSIGNEE.[42]
There is no showing in the petitioners complaint that the respondents had agreed to sell
their property, and that the legal impediments to the agreement no longer existed. The
petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the
Department of Agrarian Reform which, in turn, had to act on and approve or disapprove the
same. In fact, as alleged by the petitioner in his complaint, he was yet to meet with the
defendants-tenants to discuss the implementation of the deeds of assignment. Unless and until
the Department of Agrarian Reform approved the said deeds, if at all, the petitioner had no
right to enforce the same in a court of law by asking the trial court to fix a period within which
to pay the balance of the purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the deeds of assignment
executed by the defendants-tenants are perfected option contracts.[43] An option is a contract
by which the owner of the property agrees with another person that he shall have the right to
buy his 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. It
imposes no binding obligation on the person holding the option, aside from the consideration
for the offer. Until accepted, it is not, properly speaking, treated as a contract.[44] The second
party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to
call for and receive lands if he elects.[45] An option contract is a separate and distinct contract
from which the parties may enter into upon the conjunction of the option.[46]
In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted
to the petitioner not only an option but the exclusive right to buy the landholding. But the
grantors were merely the defendants-tenants, and not the respondents, the registered owners of
the property. Not being the registered owners of the property, the defendants-tenants could not
legally grant to the petitioner the option, much less the exclusive right to buy the property. As
the Latin saying goes, NEMO DAT QUOD NON HABET.
Fourth. The petitioner impleaded the respondents as parties-defendants solely on his
allegation that the latter induced or are inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.
In So Ping Bun v. Court of Appeals,[47] we held that for the said law to apply, the pleader
is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the
third person of the existence of the contract; and (3) interference by the third person in the
contractual relation without legal justification.
Where there was no malice in the interference of a contract, and the impulse behind ones
conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. [48]
In fine, one who is not a party to a contract and who interferes thereon is not necessarily
an officious or malicious intermeddler. The only evidence adduced by the petitioner to prove
his claim is the letter from the defendants-tenants informing him that they had decided to sell
their rights and interests over the landholding to the respondents, instead of honoring their
obligation under the deeds of assignment because, according to them, the petitioner harassed
those tenants who did not want to execute deeds of assignment in his favor, and because the
said defendants-tenants did not want to have any problem with the respondents who could
cause their eviction for executing with the petitioner the deeds of assignment as the said deeds
are in violation of P.D. No. 27 and Rep. Act No. 6657.[49] The defendants-tenants did not
allege therein that the respondents induced them to breach their contracts with the
petitioner. The petitioner himself admitted when he testified that his claim that the respondents
induced the defendants-assignees to violate contracts with him was based merely on what he
heard, thus:
Q: Going to your last statement that the Lacsons induces (sic) the defendants, did
you see that the Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir, they went in the barrio
(sic). As a matter of fact, that is the reason why they sent me letter that they
will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged
negotiator and has the authority to sell the property.[50]
Even if the respondents received an offer from the defendants-tenants to assign and
transfer their rights and interests on the landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the defendants-tenants. The respondents
could not even be expected to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law,
beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land,
are disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in having the
defendants-tenants execute the Deeds of Assignment in his favor was to acquire the
landholding without any tenants thereon, in the event that the respondents agreed to sell the
property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the
respondents agreed to sell the property, the defendants-tenants shall have preferential right to
buy the same under reasonable terms and conditions:
Page | 21
SECTION 11. Lessees Right of Pre-emption. In case the agricultural lessor desires to sell the
landholding, the agricultural lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire landholding offered for sale must
be pre-empted by the Land Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where there are two or more
agricultural lessees, each shall be entitled to said preferential right only to the extent of the
area actually cultivated by him. [51]
Appeals permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is
hereby LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch
44, is ORDERED to continue with the proceedings in Civil Case No. 10910 as provided for by
the Rules of Court, as amended.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

Under Section 12 of the law, if the property was sold to a third person without the
knowledge of the tenants thereon, the latter shall have the right to redeem the same at a
reasonable price and consideration. By assigning their rights and interests on the landholding
under the deeds of assignment in favor of the petitioner, the defendants-tenants thereby
waived, in favor of the petitioner, who is not a beneficiary under Section 22 of Rep. Act No.
6657, their rights of preemption or redemption under Rep. Act No. 3844. The defendants-
tenants would then have to vacate the property in favor of the petitioner upon full payment of
the purchase price. Instead of acquiring ownership of the portions of the landholding
respectively tilled by them, the defendants-tenants would again become landless for a measly
sum of P50.00 per square meter. The petitioners scheme is subversive, not only of public
policy, but also of the letter and spirit of the agrarian laws. That the scheme of the petitioner
had yet to take effect in the future or ten years hence is not a justification. The respondents
may well argue that the agrarian laws had been violated by the defendants-tenants and the
petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has
implemented the deeds by paying the defendants-tenants amounts of money and even sought
their immediate implementation by setting a meeting with the defendants-tenants. In fine, the
petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the
essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case
No. 10910.
We agree with the petitioners contention that the appellate court erred when it
permanently enjoined the RTC from continuing with the proceedings in Civil Case No.
10910. The only issue before the appellate court was whether or not the trial court committed
a grave abuse of discretion amounting to excess or lack of jurisdiction in denying the
respondents motion to deny or dismiss the petitioners plea for a writ of preliminary
injunction. Not one of the parties prayed to permanently enjoin the trial court from further
proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the
petitioner may still amend his complaint, and the respondents and the defendants-tenants may
file motions to dismiss the complaint.By permanently enjoining the trial court from
proceeding with Civil Case No. 10910, the appellate court acted arbitrarily and effectively
dismissed the complaint motu proprio, including the counterclaims of the respondents and that
of the defendants-tenants. The defendants-tenants were even deprived of their right to prove
their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996 and April
16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of

Page | 22
G.R. No. 97332 October 10, 1991 That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an
area of 600 square meters, more or less, more particularly described in TCT No.
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners, (18431) 18938 of the Office of the Register of Deeds for the province of Rizal,
vs. issued in may name, I having inherited the same from my deceased parents, for
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES which reason it is my paraphernal property;
AND ROBERTO REYES,respondents.
That I, with the conformity of my husband, Roberto Reyes, have sold one-half
Tranquilino F. Meris for petitioners. thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the price
Agripino G. Morga for private respondents. of P70.00 per sq. meter, which was greatly higher than the actual reasonable
prevailing value of lands in that place at the time, which portion, after segregation, is
now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
issued on August 17, 1971 in the name of the aforementioned spouses vendees;
MEDIALDEA, J.:
That the only reason why the Spouses-vendees Julio Villamor and Marina V.
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. Villamor, agreed to buy the said one-half portion at the above-stated price of about
No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed
Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants-Appellants," which to sell and convey to them the remaining one-half portion still owned by me and
reversed the decision of the Regional Trial Court (Branch 121) at Caloocan City in Civil Case now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
No. C-12942. whenever the need of such sale arises, either on our part or on the part of the spouses
(Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square
The facts of the case are as follows: meter, excluding whatever improvement may be found the thereon;

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan That I am willing to have this contract to sell inscribed on my aforesaid title as an
City, as evidenced by Transfer Certificate of Title No. (18431) 18938, of the Register of encumbrance upon the property covered thereby, upon payment of the
Deeds of Rizal. corresponding fees; and

In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the
Marina and Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 above provisions of this Deed of Option.
from the spouses which amount was deducted from the total purchase price of the 300 square
meter lot sold. The portion sold to the Villamor spouses is now covered by TCT No. 39935 IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,
while the remaining portion which is still in the name of Macaria Labing-isa is covered by Philippines, by all the persons concerned, this 11th day of November, 1971.
TCT No. 39934 (pars. 5 and 7, Complaint). On November 11, 1971, Macaria executed a
"Deed of Option" in favor of Villamor in which the remaining 300 square meter portion (TCT
No. 39934) of the lot would be sold to Villamor under the conditions stated therein. The JULIO VILLAMOR MACARIA LABINGISA
document reads:
With My Conformity:
DEED OF OPTION
MARINA VILLAMOR ROBERTO REYES
This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of
November, 1971, by and between Macaria Labing-isa, of age, married to Roberto Signed in the Presence Of:
Reyes, likewise of age, and both resideing on Reparo St., Baesa, Caloocan City, on
the one hand, and on the other hand the spouses Julio Villamor and Marina V. MARIANO Z. SUNIGA
Villamor, also of age and residing at No. 552 Reparo St., corner Baesa Road, Baesa, ROSALINDA S. EUGENIO
Caloocan City.
ACKNOWLEDGMENT
WITNESSETH

Page | 23
 REPUBLIC OF THE PHILIPPINES) The counterclaim is hereby DISMISSED, for LACK OF MERIT.
CITY OF MANILA ) S.S.
SO ORDERED. (pp. 24-25, Rollo)
At the City of Manila, on the 11th day of November, 1971, personally appeared
before me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura- Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of
Villamor, known to me as the same persons who executed the foregoing Deed of Appeals on the following assignment of errors:
Option, which consists of two (2) pages including the page whereon this
acknowledgement is written, and signed at the left margin of the first page and at the
bottom of the instrument by the parties and their witnesses, and sealed with my 1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11,
notarial seal, and said parties acknowledged to me that the same is their free act and 1971 BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT-
deed. The Residence Certificates of the parties were exhibited to me as follows: APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF
Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971, and B-502025, issued MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE
at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-1266104, CONTRACT;
both issued at Caloocan City on April 15, 1971, their joint Tax Acct. Number being
3028-767-6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971, and B-138, 2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS
issued at Manila on March 1, 1971; and Marina Ventura-Villamor, A-803, issued at OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED
Manila on Jan. 14, 1971, their joint Tax Acct. Number being 608-202-6. AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED
AND PREPARED THE SAME;
ARTEMIO M. MALUBAY
Notary Public 3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE
Until December 31, 1972 INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
PTR No. 338203, Manila CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-
January 15, 1971 APPELLEES;

Doc. No. 1526; 4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT

Page No. 24; OF THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE
Book No. 38; DEED OF OPTION;
Series of 1971. (pp. 25-29, Rollo)
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to FAVOR OF THE DEFENDANT-APPELLANTS; and
repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and
reminded them instead that the Deed of Option in fact gave them the option to purchase the 6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-
remaining portion of the lot. APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF
ATTORNEY'S FEES. (pp. 31-32, Rollo)
The Villamors, on the other hand, claimed that they had expressed their desire to purchase the
remaining 300 square meter portion of the lot but the Reyeses had been ignoring them. Thus, On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the
on July 13, 1987, after conciliation proceedings in the barangay level failed, they filed a trial court and dismissing the complaint. The reversal of the trial court's decision was premised
complaint for specific performance against the Reyeses. on the finding of respondent court that the Deed of Option is void for lack of consideration.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, The Villamor spouses brought the instant petition for review on certiorari on the following
the dispositive portion of which states: grounds:

WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in
favor of the plaintiffs and against the defendants ordering the defendant MACARIA
LABING-ISA REYES and ROBERTO REYES, to sell unto the plaintiffs the land
covered by T.C.T No. 39934 of the Register of Deeds of Caloocan City, to pay the
plaintiffs the sum of P3,000.00 as and for attorney's fees and to pay the cost of suit.
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR
(PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES
JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE
DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;

Page | 24
 II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED
PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
NOT FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN
FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED
PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS
OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF
OPTION IS VOID FOR LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT
CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION
DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED
THEREIN. (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the
private respondents agreed to sell their lot to petitioners "whenever the need of such sale
arises, either on our part (private respondents) or on the part of Julio Villamor and Marina
Villamor (petitioners)." The court a quo, rule that the Deed of Option was a
valid written agreement between the parties and made the following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are evidence by a
writing, hence, the controverting oral testimonies of the herein defendants cannot be
any better than the documentary evidence, which, in this case, is the Deed of
Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced to writing
it is to be considered as containing all such terms, and therefore, there can be,
between the parties and their successors in interest no evidence of their terms of the
agreement, other than the contents of the writing. ... (Section 7 Rule 130 Revised
Rules of Court) Likewise, it is a general and most inflexible rule that wherever
written instruments are appointed either by the requirements of law, or by the
contract of the parties, to be the repositories and memorials of truth, any other
evidence is excluded from being used, either as a substitute for such instruments, or
to contradict or alter them. This is a matter both of principle and of policy; of
principle because such instruments are in their nature and origin entitled to a much
higher degree of credit than evidence of policy, because it would be attended with
great mischief if those instruments upon which man's rights depended were liable to
be impeached by loose collateral evidence. Where the terms of an agreement are
reduced to writing, the document itself, being constituted by the parties as the
expositor of their intentions, it is the only instrument of evidence in respect of that
agreement which the law will recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited
in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-
127, Records).
The respondent appellate court, however, ruled that the said deed of option is void for lack of
consideration. The appellate court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion
purchased by them although the prevailing price at that time was only P25.00 in
consideration of the option to buy the remainder of the land. This does not seem to
be the case. In the first place, the deed of sale was never produced by them to prove
their claim. Defendant-appellants testified that no copy of the deed of sale had ever
been given to them by the plaintiff-appellees. In the second place, if this was really
the condition of the prior sale, we see no reason why it should be reiterated in the
Deed of Option. On the contrary, the alleged overprice paid by the plaintiff-
appellees is given in the Deed as reason for the desire of the Villamors to acquire the
land rather than as a consideration for the option given to them, although one might
wonder why they took nearly 13 years to invoke their right if they really were in due
need of the lot.
At all events, the consideration needed to support a unilateral promise to sell is a
dinstinct one, not something that is as uncertain as P70.00 per square meter which is
allegedly 'greatly higher than the actual prevailing value of lands.' A sale must be for
a price certain (Art. 1458). For how much the portion conveyed to the plaintiff-
appellees was sold so that the balance could be considered the consideration for the
promise to sell has not been shown, beyond a mere allegation that it was very much
below P70.00 per square meter.
The fact that plaintiff-appellees might have paid P18.00 per square meter for another
land at the time of the sale to them of a portion of defendant-appellant's lot does not
necessarily prove that the prevailing market price at the time of the sale was P18.00
per square meter. (In fact they claim it was P25.00). It is improbable that plaintiff-
appellees should pay P52.00 per square meter for the privilege of buying when the
value of the land itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts,
the essential reason which moves the contracting parties to enter into the contract." The cause
or the impelling reason on the part of private respondent executing the deed of option as
appearing in the deed itself is the petitioner's having agreed to buy the 300 square meter
portion of private respondents' land at P70.00 per square meter "which was greatly higher than
the actual reasonable prevailing price." This cause or consideration is clear from the deed
which stated:
That the only reason why the spouses-vendees Julio Villamor and Marina V.
Villamor agreed to buy the said one-half portion at the above stated price of about
P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed
to sell and convey to them the remaining one-half portion still owned by me ... (p.
26, Rollo)
Page | 25
The respondent appellate court failed to give due consideration to petitioners' evidence which
shows that in 1969 the Villamor spouses bough an adjacent lot from the brother of Macaria
Labing-isa for only P18.00 per square meter which the private respondents did not rebut.
Thus, expressed in terms of money, the consideration for the deed of option is the difference
between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per
sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or
P18.00) though not specifically stated in the deed of option, was ascertainable. Petitioner's
allegedly paying P52.00 per square meter for the option may, as opined by the appellate court,
be improbable but improbabilities does not invalidate a contract freely entered into by the
parties.
The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an
optional contract is a privilege existing in one person, for which he had paid a consideration
and which gives him the right to buy, for example, certain merchandise or certain specified
property, from another person, if he chooses, at any time within the agreed period at a fixed
price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option"
signed by the parties, We will notice that the first part covered the statement on the sale of the
300 square meter portion of the lot to Spouses Villamor at the price of P70.00 per square
meter "which was higher than the actual reasonable prevailing value of the lands in that place
at that time (of sale)." The second part stated that the only reason why the Villamor spouses
agreed to buy the said lot at a much higher price is because the vendor (Reyeses) also agreed
to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed
stopped there, there would be no dispute that the deed is really an ordinary deed of option
granting the Villamors the option to buy the remaining 300 square meter-half portion of the lot
in consideration for their having agreed to buy the other half of the land for a much higher
price. But, the "deed of option" went on and stated that the sale of the other half would be
made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of the
Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was
granted to the Villamors, the Reyeses were likewise granted an option to sell. In other words,
it was not only the Villamors who were granted an option to buy for which they paid a
consideration. The Reyeses as well were granted an option to sell should the need for such sale
on their part arise.
In the instant case, the option offered by private respondents had been accepted by the
petitioner, the promise, in the same document. The acceptance of an offer to sell for a price
certain created a bilateral contract to sell and buy and upon acceptance, the offer, ipso
facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil.
948). Demandabilitiy may be exercised at any time after the execution of the deed. In Sanchez
v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We held:
In other words, since there may be no valid contract without a cause of
consideration, the promisory is not bound by his promise and may, accordingly
withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected
contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From
that moment, the parties may reciprocally demand perform of contracts." Since there was,
between the parties, a meeting of minds upon the object and the price, there was already a
perfected contract of sale. What was, however, left to be done was for either party to demand
from the other their respective undertakings under the contract. It may be demanded at any
time either by the private respondents, who may compel the petitioners to pay for the property
or the petitioners, who may compel the private respondents to deliver the property.
However, the Deed of Option did not provide for the period within which the parties may
demand the performance of their respective undertakings in the instrument. The parties could
not have contemplated that the delivery of the property and the payment thereof could be
made indefinitely and render uncertain the status of the land. The failure of either parties to
demand performance of the obligation of the other for an unreasonable length of time renders
the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought
within ten (10) years. The Deed of Option was executed on November 11, 1971. The
acceptance, as already mentioned, was also accepted in the same instrument. The complaint in
this case was filed by the petitioners on July 13, 1987, seventeen (17) years from the time of
the execution of the contract. Hence, the right of action had prescribed. There were allegations
by the petitioners that they demanded from the private respondents as early as 1984 the
enforcement of their rights under the contract. Still, it was beyond the ten (10) years period
prescribed by the Civil Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the
observations of the court a quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the
Agreement to Convey and Transfer as contained in Exhibits '1' and '1-A', her failure
or the abandonment of her right to file an action against Pulmano Molintas when he
was still a co-owner of the on-half (1/2) portion of the 10,000 square meters is now
barred by laches and/or prescribed by law because she failed to bring such action
within ten (10) years from the date of the written agreement in 1941, pursuant to
Art. 1144 of the New Civil Code, so that when she filed the adverse claim through
her counsel in 1959 she had absolutely no more right whatsoever on the same,
having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise.
To allow the petitioner to demand the delivery of the property subject of this case thirteen (13)
years or seventeen (17) years after the execution of the deed at the price of only P70.00 per
square meter is inequitous. For reasons also of equity and in consideration of the fact that the
private respondents have no other decent place to live, this Court, in the exercise of its equity
jurisdiction is not inclined to grant petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is
AFFIRMED for reasons cited in this decision. Judgement is rendered dismissing the complaint
in Civil Case No. C-12942 on the ground of prescription and laches.
SO ORDERED.
Page | 26
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals,
which certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina
Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated
in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
particularly described in Transfer Certificate of Title No. NT-12528 of said province, within
two (2) years from said date with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property"
within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00,
made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the
former deposited said amount with the Court of First Instance of Nueva Ecija and commenced
against the latter the present action, for specific performance and damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying
other allegations thereof, and alleging, as special defense, that the contract between the parties
"is a unilateral promise to sell, and the same being unsupported by any valuable consideration,
by force of the New Civil Code, is null and void" on February 11, 1964, both parties,
assisted by their respective counsel, jointly moved for a judgment on the pleadings.
Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering
Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the
requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as
attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides:
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.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said pleading as Annex A thereof and is
quoted on the margin.1 Hence, plaintiff maintains that the promise contained in the contract is
"reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although
defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff,
it is not true that the latter had, in turn, "agreed and committed himself " to buy said property.
Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex
A has been made "an integral part" of his complaint, the provisions of said instrument form
part "and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property.
Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And
both parties so understood it, as indicated by the caption, "Option to Purchase," given by them
to said instrument. Under the provisions thereof, the defendant "agreed, promised and
committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is
nothing in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated for the sale of
the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in
plaintiff's favor. It should be noted, however, that:
(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 promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the promisor
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.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special
defense, the absence of said consideration for her promise to sell and, by joining in the petition
for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in
defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v.
Casas,3 that:
One who prays for judgment on the pleadings without offering proof as to
the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth
Page | 27
 of all the material and relevant allegations of the opposing party, and to
rest his motion for judgment on those allegations taken together with such
of his own as are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia
Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,6 from
which We quote:
The main contention of appellant is that the option granted to appellee to
sell to it barge No. 10 for the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article
provides:
"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 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."
On the other hand, Appellee contends that, even granting that the "offer of
option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and that
having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this
contention, appellee invokes article 1324 of the Civil Code which
provides:
"ART. 1324. When the offerer has allowed the offeree
a certain period to accept, the offer may be withdrawn
any time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an
option to sell," or "a promise to buy or to sell," as used in said article, to be
valid must be "supported by a consideration distinct from the price." This
is 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 binding effect if supported by a consideration which means that the
option can still be withdrawn, even if accepted, if the same is not
supported by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the
offeree a certain period to accept, "the offer may be withdrawn at any time
before 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" 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.
We are not oblivious of the existence of American authorities which hold
that an offer, once accepted, cannot be withdrawn, regardless of whether it
is supported or not by a consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from
applying them in view of the specific provision embodied in article 1479.
While under the "offer of option" in question appellant has assumed a
clear obligation to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to be no valid or
justifiable reason for appellant to withdraw its offer, this Court cannot
adopt a different attitude because the law on the matter is clear. Our
imperative duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,8 decided
later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no
distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a
unilateral promise to sell similar to the one sued upon here was involved, treating such
promise as an option which, although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court
said:
Furthermore, an option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to
buy or not to buy later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not
just get the right subsequently to buy or not to buy. It was not a mere
option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding
for lack of consideration, the authorities hold that:
Page | 28
 "If the option is given without a consideration, it is a Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
mere offer of a contract of sale, which is not binding
until accepted. If, however, acceptance is made before Castro, J., took no part.
a withdrawal, it constitutes a binding contract of sale,
even though the option was not supported by a
sufficient consideration. ... . (77 Corpus Juris
Secundum, p. 652. See also 27 Ruling Case Law 339
and cases cited.)

"It can be taken for granted, as contended by the

defendant, that the option contract was not valid for
lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of the
acceptance the offerer had knowledge before said
offer was withdrawn. The concurrence of both acts
the offer and the acceptance could at all events
have generated a contract, if none there was before
(arts. 1254 and 1262 of the Civil Code)." (Zayco vs.
Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 on the general
principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different provisions of one and the same law
or code, such interpretation should be favored as will reconcile or harmonize said provisions
and avoid a conflict between the same. Indeed, the presumption is that, in the process of
drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the
decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that
Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as
an exception to the former, and exceptions are not favored, unless the intention to the contrary
is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the
reference, in both the second paragraph of Art.1479 and Art. 1324, to an option or promise
supported by or founded upon a consideration, strongly suggests that the two (2) provisions
intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as
inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case
should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-
appellant Severina Rigos. It is so ordered.

Page | 29
G.R. No. 83759 July 12, 1991
SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS and SPOUSES MARTIN VALLEJERA and
APOLONIA OLEA,respondents.
Dionisio C. Isidto for petitioners.
Raymundo Lozada, Jr. for private respondents.
GUTIERREZ, JR., J.:
This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier
decision of the Regional Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros
Occidental in Civil Case No. 839 (for specific performance and damages) ordering the
petitioners (defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey of
Himamaylan, Negros Occidental to the respondents (plaintiffs in the civil case) upon payment
by the latter of the amount of P24,000.00 as well as the appellate court's resolution denying a
motion for reconsideration. In addition, the appellate court ordered the petitioners to pay the
amount of P5,000.00 as necessary and useful expenses in accordance with Article 1616 of the
Civil Code.
The facts of the case are not in dispute. They are summarized by the appellate court as
follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action
against the defendants-spouses (petitioners herein) seeking to redeem Lot No. 1860
of the Himamaylan Cadastre which was previously sold by plaintiffs to defendants
on September 21, 1964.
The said lot was registered in the name of plaintiffs. On October 1959, the same was
leased by plaintiffs to the defendants up to crop year 1966-67, which was extended
to crop year 1968-69. After the execution of the lease, defendants took possession of
the lot, up to now and devoted the same to the cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of
Sale for the amount of P9,000.00. The Deed of Sale was duly ratified and notarized.
On the same day and along with the execution of the Deed of Sale, a separate
instrument, denominated as Right to Repurchase (Exh. E), was executed by the
parties granting plaintiffs the right to repurchase the lot for P12,000.00, said Exh. E
likewise duly ratified and notarized. By virtue of the sale, defendants secured TCT
No. T-58898 in their name. On January 2, 1969, plaintiffs sold the same lot to
Benito Derrama, Jr., after securing the defendants' title, for the sum of P12,000.00.
Upon the protestations of defendant, assisted by counsel, the said second sale was
cancelled after the payment of P12,000.00 by the defendants to Derrama.
Defendants resisted this action for redemption on the premise that Exh. E is just an
option to buy since it is not embodied in the same document of sale but in a separate
document, and since such option is not supported by a consideration distinct from
the price, said deed for right to repurchase is not binding upon them.
After trial, the court below rendered judgment against the defendants, ordering them
to resell lot No. 1860 of the Himamaylan Cadastre to the plaintiffs for the
repurchase price of P24,000.00, which amount combines the price paid for the first
sale and the price paid by defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration. Excepting thereto,
defendants-appealed, . . . (Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan
Cadastre. They contend that the nature of the sale over the said lot between them and the
private respondents was that of an absolute deed of sale and that the right thereafter granted by
them to the private respondents (Right to Repurchase, Exhibit "E") can only be either an
option to buy or a mere promise on their part to resell the property. They opine that since the
"RIGHT TO REPURCHASE" was not supported by any consideration distinct from the
purchase price it is not valid and binding on the petitioners pursuant to Article 1479 of the
Civil Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and
Apolonia Olea, their heirs and assigns, the right to repurchase said Lot No. 1860 for
the sum of TWELVE THOUSAND PESOS (P12,000.00), Philippine Currency,
within the period TEN (10) YEARS from the agricultural year 1969-1970 when my
contract of lease over the property shall expire and until the agricultural year 1979-
1980.
IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros
Occidental, this 21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
Page | 30
The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45
SCRA 368 [1972] decided in favor of the private respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino
Rigos executed a document entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed . . . to sell" to Sanchez for the sum of P1,510.00, a registered parcel
of land within 2 years from execution of the document with the condition that said option shall
be deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right to buy the
property" within the stipulated period. In the same document, Sanchez" . . . hereby agree and
conform with all the conditions set forth in the option to purchase executed in my favor, that I
bind myself with all the terms and conditions." (Emphasis supplied) The notarized document
was signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the
stipulated period were rejected by Rigos, the former deposited said amount with the Court of
First Instance of Nueva Ecija and filed an action for specific performance and damages against
Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum
judicially consigned and to execute in Sanchez' favor the requisite deed of conveyance. Rigos
appealed the case to the Court of Appeals which certified to this Court on the ground that it
involves a pure question of law.
This Court after deliberating on two conflicting principles laid down in the cases of
Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955])
and Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 102 Phil. 948 [1958]) arrived at the conclusion
that Article 1479 of the Civil Code which provides:
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 promissory if the promise is supported by a consideration
distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer 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.
should be reconciled and harmonized to avoid a conflict between the two provisions. In effect,
the Court abandoned the ruling in the Southwestern Sugar and Molasses Co. case and
reiterated the ruling in the Atkins, Kroll and Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian
Tek, (102 Phil. 948, 951-952) decided later than Southwestern Sugar & Molasses
Co. v. Atlantic Gulf & Pacific Co., (supra) saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former where a unilateral promise to sell
similar to the one sued upon here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of separate consideration,
nevertheless generated a bilateral contract of purchase and sale upon acceptance.
Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court
said:
Furthermore, an option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to
buy or not to buy later. In this case however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not
just get the right subsequently to buy or not to buy. It was not a mere
option then; it was bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding
for lack of consideration, the authorities hold that
If the option is given without a consideration, it is a mere offer of a
contract of sale, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract
of sale, even though the option was not supported by a sufficient
consideration . . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling
Case Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to sell was not supported
by a consideration distinct from the price. It was obvious that Sanchez, the promisee, accepted
the option to buy before Rigos, the promisor, withdrew the same. Under such circumstances,
the option to purchase was converted into a bilateral contract of sale which bound both parties.
In the instant case and contrary to the appellate court's finding, it is clear that the right to
repurchase was not supported by a consideration distinct from the price. The rule is that the
promisee has the burden of proving such consideration. Unfortunately, the private
respondents, promisees in the right to repurchase failed to prove such consideration. They did
not even allege the existence thereof in their complaint. (See Sanchez v. Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must show that the
private respondents accepted the right to repurchase.
The record, however, does not show that the private respondents accepted the "Right to
Repurchase" the land in question. We disagree with the appellate court's finding that the
private respondents accepted the "right to repurchase" under the following circumstances: . . as
evidenced by the annotation and registration of the same on the back of the transfer of
Page | 31
certificate of title in the name of appellants. As vividly appearing therein, it was signed by
appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez
spouses are estopped from disregarding its obvious purpose and intention."
The annotation and registration of the right to repurchase at the back of the certificate of title
of the petitioners can not be considered as acceptance of the right to repurchase. Annotation at
the back of the certificate of title of registered land is for the purpose of binding purchasers of
such registered land. Thus, we ruled in the case of Bel Air Village Association, Inc. v.
Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]),
and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are
bound by the annotations found at the back of the certificate of title covering the subject parcel
of land. In effect, the annotation of the right to repurchase found at the back of the certificate
of title over the subject parcel of land of the private respondents only served as notice of the
existence of such unilateral promise of the petitioners to resell the same to the private
respondents. This, however, can not be equated with acceptance of such right to repurchase by
the private respondent.
Neither can the signature of the petitioners in the document called "right to repurchase" signify
acceptance of the right to repurchase. The respondents did not sign the offer. Acceptance
should be made by the promisee, in this case, the private respondents and not the promisors,
the petitioners herein. It would be absurd to require the promisor of an option to buy to accept
his own offer instead of the promisee to whom the option to buy is given.
Furthermore, the actions of the private respondents (a) filing a complaint to compel re-sale
and their demands for resale prior to filing of the complaint cannot be considered acceptance.
As stated in Vda. de Zulueta v. Octaviano (121 SCRA 314 [1983]):
And even granting, arguendo that the sale was a pacto de retro sale, the evidence
shows that Olimpia, through her lawyer, opted to repurchase the land only on 16
February 1962, approximately two years beyond the stipulated period, that is not
later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based on her allegation
that the contract between her was one of sale with right to repurchase, neither,
however, did she tender the redemption price to private respondent Isauro, but
merely wrote him letters expressing her readiness to repurchase the property.
It is clear that the mere sending of letters by the vendor expressing his desire to
repurchase the property without accompanying tender of the redemption price fell
short of the requirements of law. (Lee v. Court of Appeals, 68 SCRA 197 [1972])
Neither did petitioner make a judicial consignation of the repurchase price within the
agreed period.
In a contract of sale with a right of repurchase, the redemptioner who may offer to
make the repurchase on the option date of redemption should deposit the full amount
in court . . . (Rumbaoa v. Arzaga, 84 Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro must make an
actual and simultaneous tender of payment or consignation. (Catangcatang v.
Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy validated the petitioner's
refusal to sell the parcel which can be considered as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25,
1952 (Emphasis supplied) Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5
hectare riceland sold the lot to private respondent Aurelio B. Octaviano for P8,600.00 subject
to certain terms and conditions. The contract was an absolute and definite sale. On the same
day, November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed another document
giving the vendor Zulueta the "option to repurchase" the property at anytime after May 1958
but not later than May 1960. When however, Zulueta tried to exercise her "option to buy" the
property, Aurelio resisted the same prompting Zulueta to commence suit for recovery of
ownership and possession of the property with the then Court of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed
the trial court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from the context of
Exhibit "E" is not a sale with right to repurchase. Conventional redemption takes
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. (Article 1601, Civil Code).
In this case, there was no reservation made by the vendor, Olimpia, in the document
Exhibit "E" the "option to repurchase" was contained in a subsequent document and
was made by the vendee, Aurelio. Thus, it was more of an option to buy or a mere
promise on the part of the vendee, Aurelio, to resell the property to the vendor,
Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil Code Annotated, Vol. V, 1974
ed., p. 467) As held in Villarica v. Court of Appeals (26 SCRA 189 [1968]):
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. . . (Emphasis
supplied)
The appellate court rejected the application of the Zulueta case by stating:
Page | 32
 . . . [A]s found by the trial court from which we quote with approval below, the said Fernan, C.J., Feliciano, Bidin and Davide, Jr., JJ., concur.
cases involve the lapse of several days for the execution of separate instruments
after the execution of the deed of sale, while the instant case involves the execution
of an instrument, separate as it is, but executed on the same day, and notarized by
the same notary public, to wit:

A close examination of Exh. "E" reveals that although it is a separate document in

itself, it is far different from the document which was pronounced as an option by
the Supreme Court in the Villarica case. The option in the Villarica case was
executed several days after the execution of the deed of sale. In the present case,
Exh. "E" was executed and ratified by the same notary public and the Deed of Sale
of Lot No. 1860 by the plaintiffs to the defendants were notarized by the same
notary public and entered in the same page of the same notarial register . . .

The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the
execution of the separate document after an intervention of several days and the
question of laches was decided therein, which is not present in the instant case. That
distinction is therefore crucial and We are of the opinion that the appellee's right to
repurchase has been adequately provided for and reserved in conformity with Article
1601 of the Civil Code, which states:

Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provision of Article
1616 and other stipulations which may have been agreed upon. (Rollo, pp. 46-47)

Obviously, the appellate court's findings are not reflected in the cited decision.1wphi1 As in
the instant case, the option to repurchase involved in the Zulueta case was executed in a
separate document but on the same date that the deed of definite sale was executed.

While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this,
however, was not the primary reason why this Court disallowed the redemption of the
property by Zulueta. It is clear from the decision that the ruling in the Zulueta case was based
mainly on the finding that the transaction between Zulueta and Octaviano was not a sale with
right to repurchase and that the "option to repurchase was but an option to buy or a mere
promise on the part of Octaviano to resell the property to Zulueta.

In the instant case, since the transaction between the petitioners and private respondents was
not a sale with right to repurchase, the private respondents cannot avail of Article 1601 of the
Civil Code which provides for conventional redemption.

WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the
Court of Appeals are hereby REVERSED and SET ASIDE. The complaint in Civil Case No.
839 of the then Court of First Instance of Negros Occidental 12th Judicial District Branch 6 is
DISMISSED. No costs.

SO ORDERED.

Page | 33
G.R. No. L-32873 August 18, 1972
AQUILINO NIETES, petitioner,
vs.
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.
Conrado V. del Rosario for petitioner.
Romeo D. Magat for private respondent.
CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia
entered into a "Contract of Lease with Option to Buy," pursuant to the terms and conditions
set forth in the deed Exhibits A and A-1, (also, marked as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES EDUCATIONAL
INSTITUTE situated at Angeles, Pampanga, a school which is duly
recognized by the Government;
That the lessor agrees to lease the above stated school to the LESSEE
under the following terms and conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per
year payable in the following manners:
a. That the amount of FIVE THOUSAND FIVE
HUNDRED PESOS (P5,500) will be paid upon the
execution of this Contract of Lease;
b. That the amount of FOUR THOUSAND FIVE
HUNDRED PESOS (P4,500) is payable on or before
the 30th day of October, 1959;
c. That the remaining balance of FIFTEEN
THOUSAND PESOS (P15,000) will be paid on or
before March 30, 1960;
3. That all improvements made during the lease by the LESSEE will be
owned by the LESSOR after the expiration of the term of this Contract of
Lease;
4. That the LESSOR agrees to give the LESSEE an option to buy the land
and the school building, for a price of ONE HUNDRED THOUSAND
PESOS (P100,000) within the period of the Contract of Lease;
5. That should the LESSEE buy the lot, land and the school building
within the stipulated period, the unused payment for the Contract of Lease
will be considered as part payment for the sale of the land and school;
6. That an inventory of all properties in the school will be made on March
31, 1960;
6A. That the term of this Contract will commence in June 1960 and will
terminate in June 1965;
7. That the LESSEE will be given full control and responsibilities over all
the properties of the school and over all the supervisions and
administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the back
accounts of students incurred before the execution of this contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had,
as of August 4, 1961, made payments as follows:
October 6,1960 ....................................... P18,957.00 (Exh. D)
November 23, 1960 ................................. 300.00 (Exh. E)
December 21, 1960 ................................. 200.00 (Exh. F)
January 14, 1961 ..................................... 500.00 (Exh. G)
February 16, 1961 ...................................3,000.00 (Exh. H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
March 13, 1961 ....................................... 700.00 (Exh. J)
August 4, 1961 ........................................ 100.00 (Exh. K) _________
TOTAL ..................................... P24,757.00
Page | 34
Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid
Garcia the additional sums of P3,000 and P2,200, respectively, for which Garcia issued
receipts Exhibit B and C, reading:
Received the amount of (P3,000.00) Three Thousand Pesos from Mrs.
Nietes as per advance pay for the school, the contract of lease being paid.
(Sgd.) PABLO GARCIA (Exh. B)
To Whom it May Concern:
This is to certify that I received the sum of Two Thousand Two Hundred
Pesos, Philippine Currency, from Mrs. Catherine R. Nietes as the partial
payment on the purchase of the property as specified on the original
contract of "Contract of Lease with the First Option to Buy" originally
contracted and duly signed.
(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also
Exhibit V) stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind
your contract, dated 19 October 1959 because of the following:
1. That you had not maintained the building, subject of the lease contract
in good condition.
2. That you had not been using the original name of the school Angeles
Institute, thereby extinguishing its existence in the eyes of the public and
injuring its prestige.
3. That through your fault, no inventory has been made of all properties of
the school.
4. That up to this time, you had not collected or much less helped in the
collection of back accounts of former students.
This is to remind you that the foregoing obligations had been one, if not,
the principal moving factors which had induced the lessor in agreeing with
the terms embodied in your contract of lease, without which fulfillment,
said contract could not have come into existence. It is not simply one of
those reminders that we make mention, that our client under the
circumstances, is not only entitled to a rescission of the contract. He is
likewise entitled to damages actual, compensatory and exemplary.
In view of the serious nature of the breach which warrant and sanction
drastic legal remedies against you, we earnestly request you to please see
the undersigned at the above-named address two days from receipt hereof.
Otherwise, if we shall not hear from you, the foregoing will serve notice
on your part to vacate the premises within five (5) days to be counted from
date of notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City
Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the Director of the
Philippine Institute of Electronics, Angeles City, has been referred to me
and in reply, please, be informed that my client has not violated any
provision of the CONTRACT OF LEASE WITH OPTION TO BUY,
executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For this
reason, there is no basis for rescission of the contract nor of the demands
contained in your letter.
In this connection, I am also serving this formal notice upon your client
Dr. Pablo Garcia, thru you, that my client Mr. AQUILINO T. NIETES
will exercise his OPTION to buy the land and building subject matter of
the lease and that my said client is ready to pay the balance of the
purchase price in accordance with the contract. Please, inform Dr. Pablo
Garcia to make available the land title and execute the corresponding
Deed of Sale pursuant to this notice, and that if he fails to do so within
fifteen (15) days from the receipt of this letter, we shall take the
corresponding action to enforce the agreement.
Truly yours,
Page | 35
 (Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in
Angeles City checks amounting to P84,860.50, as balance of the purchase price of the
property, but he withdrew said sum of P84,860.50 on August 12, 1965, after the checks had
been cleared. On August 2, 1965, he commenced the present action, in the Court of First
Instance of Pampanga, for specific performance of Dr. Garcia's alleged obligation to execute
in his (Nietes') favor a deed of absolute sale of the leased property, free from any lien or
encumbrance whatsoever, he having meanwhile mortgaged it to the People's Bank and Trust
Company, and to compel him (Garcia) to accept whatever balance of the purchase price is due
him, as well as to recover from him the aggregate sum of P90,000 by way of damages, apart
from attorney's fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other
allegations thereof, as well as setting up a counterclaim for damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the preponderance of evidence in favor of the
plaintiff and against the defendant, judgment is hereby rendered ordering
the latter to execute the Deed of Absolute Sale of property originally
leased together with the school building and other improvements thereon
which are covered by the contract, Annex "A", upon payment of the
former of the balance (whatever be the amount) of the stipulated purchase
price; to free the said property from any mortgage or encumbrance and
deliver the title thereto to the plaintiff free from any lien or encumbrance,
and should said defendant fail to do so, the proceeds from the purchase
price be applied to the payment of the encumbrance so that the title may
be conveyed to the plaintiff; to pay the plaintiff the sum of P1,000.00 as
attorney's fees, and the cost of this suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither
dismissed the complaint nor upheld his counterclaim and failed to order Nietes to vacate the
property in question, and Nietes insofar as the trial court had granted him no more than
nominal damages in the sum of P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals rendered its decision, on
October 18, 1969, affirming, in effect, that of the trial court, except as regards said attorney's
fees, which were eliminated. The dispositive part of said decision of the Court of Appeals
reads:
WHEREFORE, with the modification that the attorney's fees awarded by the trial court in
favor of the plaintiff is eliminated, the appealed judgment is hereby affirmed in all other
respects, and the defendant is ordered to execute the corresponding deed of sale for the school
building and lot in question in favor of the plaintiff upon the latter's full payment of the
balance of the purchase price. The costs of this proceedings shall be taxed against the
defendant-appellant.
On motion for reconsideration of defendant Garcia, said special division set aside its
aforementioned decision and rendered another one, promulgated on March 10, 1970 reversing
the appealed decision of the court of first instance, and dismissing the complaint of Nietes,
with costs again him. Hence, the present petition of Nietes for review certiorari of the second
decision of the Court of Appeals, dated March 10, 1970, to which petition We gave due
course.
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly
predicated upon the theory that, under the contract between the parties, "the full purchase price
must be paid before the option counsel be exercised," because "there was no need nor sense
providing that "the unused payment for the Contract Lease will be considered as part payment
for the sale the land and school'" inasmuch as "otherwise there is substantial amount from
which such unused rental could be deducted"; that the statement in the letter, Exhibit L, of
Nietes, dated August 7, 1964, to the effect that he "will exercise his OPTION to buy the land
and building," indication that he did not consider the receipts, Exhibits B and for P3,000 and
P2,200, respectively, "as an effective exercise of his option to buy"; that the checks for
P84,860.50 deposited by Nietes with the Agro-Industrial Development Bank, did not
constitute a proper tender of payment, which, at any rate, was "made beyond the stipulated 5-
year period"; that such deposit "was not seriously made, because on August 12, 1965, the
same was withdrawn from the Bank and ostensibly remains in the lessee's hand"; and that "the
fact that such deposit was made by the lessee shows that he himself believed that he should
have paid the entire amount of the purchase price before he could avail of the option to buy,
otherwise, the deposit was a senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the
price of the contract of lease between the parties which were paid late and not within the
periods and/or schedules fixed by the contract (Annex A.)." What is more, on the witness
stand, Garcia claimed that he did "not know" whether the signatures on Exhibits B and C
the receipt for P3,000 and P2,200, respectively were his, and even said that he was
"doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence a Doctor of Medicine
and the owner of an educational institution could not possibly "not know" or entertain
doubts as to whether or not the aforementioned signatures are his and the payments therein
acknowledged had been received by him. His dubious veracity becomes even more apparent
when we consider the allegations in paragraph (4) of his answer referring to paragraphs 5
and 6 of the complaint alleging, inter alia, the aforementioned partial payments of P3,000 and
P2,200, on account of the stipulated sale price to the effect that said sums " paid to the
herein defendant were part of the price of the contract of lease." In other words, payment of
said sums of P3,000 and P2,200 is admitted in said answer. Besides, the rentals for the whole
period of the lease aggregated P25,000 only, whereas said sums of P3,000 and P2,200, when
added to the payments previously made by Nietes, give a grand total of P29,957.00, or P4,957
in excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less
than truthful when he tried to cast doubt upon the fact of payment of said sums of P3,000 and
P2,200, as well as when he claimed that the same were part of the rentals collectible by him.
Page | 36
We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither
the tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia
as reflected in the receipts Exhibits B and C justifies such view. The contract does not
say that Nietes had to pay the stipulated price of P100,000 before exercising his option to buy
the property in question. Accordingly, said option is governed by the general principles on
obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.1
In the case of an option to buy, the creditor may validly and effectively exercise his right by
merely advising the debtor of the former's decision to buy and expressing his readiness to pay
the stipulated price, provided that the same is available and actually delivered to the debtor
upon execution and delivery by him of the corresponding deed of sale. Unless and until the
debtor shall have done this the creditor is not and cannot be in default in the discharge of his
obligation to pay.2 In other words, notice of the creditor's decision to exercise his option to
buy need not be coupled with actual payment of the price, so long as this is delivered to the
owner of the property upon performance of his part of the agreement. Nietes need not have
deposited, therefore, with the Agro-Industrial Bank checks amounting altogether to
P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does not and cannot affect
his cause of action in the present case. In making such deposit, he may have had the intent to
show his ability to pay the balance of the sum due to Dr. Garcia as the sale price of his
property. In short, said deposit and its subsequent withdrawal cannot affect the result of the
present case.
Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease,"
which pursuant to paragraph 6-A of said contract commenced "in June 1960" and was to
"terminate in June 1965." As early as September 4, 1961, or well "within the period of the
Contract of Lease," Nietes had paid Dr. Garcia the following sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 .......................200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 .............................1,000.00 (Exh. I)
March 13, 1961 .............................700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh.B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500
on or before October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of
P25,000, from October 19, 1959 to March 30, 1960, whereas his first payment was not made
until October 10, 1960, when he delivered the sum of P18,957 to Dr. Garcia, and the latter had
by August 4, 1961, received from the former the aggregate sum of P24,757. This is, however,
P243.00 only less than the P25,000 due as of March 30, 1960, so that Nietes may be
considered as having complied substantially with the terms agreed upon. Indeed, Dr. Garcia
seems to have either agreed thereto or not considered that Nietes had thereby violated the
contract, because the letter of the former, dated July 31, 1964, demanding rescission of the
contract, did not mention said acts or omissions of Nietes among his alleged violations thereof
enumerated in said communication. In fact, when, on September 4, 1961, Mrs. Nietes turned
over the sum of P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said
payment had been made "as per advance pay for the school, the Contract of Lease being paid"
in other words, in accordance or conformity with said contract. Besides, when, on
December 13, 1962, Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia issued a
receipt accepting said amount "as the partial payment on the purchase price of the property as
specified on the original contract," thus further indicating that the payment, in his
opinion, conformed with said contract, and that, accordingly, the same was in full force and
effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total
sum of P27,757, or P2,757 in excess of the P25,000 representing the rentals for the entire
period of the lease, and over P21,200 in excess of the rentals for the unexpired portion of the
lease, from September 4, 1961 to June 1965. This circumstance indicates clearly that Nietes
had, on September 4, 1961, chosen to exercise and did exercise then his option to buy. What is
more, this is borne out by the receipt issued by Dr. Garcia for the payment of P2,200, on
December 13, 1962, to which he referred therein as a "partial payment on the purchase of the
property as specified on the original contract of 'Contract of Lease with the First Option to
Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 also,
within the period of the lease stating that he "will exercise his OPTION to buy the land and
building subject matter of the lease." It is not correct to construe this expression as did the
appealed decision as implying that the option had not been or was not yet being exercised,
or as a mere announcement of the intent to avail of it at some future time. This interpretation
takes said expression out of the context of Exhibit L, which positively states, also, that Nietes
"is ready to pay the balance of the purchase price in accordance with the contract," and
requests counsel for Dr. Garcia to inform or advise him "to make available the land title and
execute the corresponding Deed of Sale pursuant to this notice, and that if he fails to do so
within fifteen (15) days ... we shall take the corresponding action to enforce the agreement."
Such demand and said readiness to pay the balance of the purchase price leave no room for
doubt that, as stated in Exhibit L, the same is "a formal notice" that Nietes had exercised his
option, and expected Dr. Garcia to comply, within fifteen (15) days, with his part of the
Page | 37
bargain. Surely, there would have been no point for said demand and readiness to pay, if
Nietes had not yet exercised his option to buy.
The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to
make use of his option to buy "the unused payment for the Contract of Lease will be
considered as payment for the sale of the land and school, "simply means that the rental paid
for the unused portion of the lease shall be applied to and deducted from the sale price of
P100,000 to be paid by Nietes at the proper time in other words, simultaneously with the
delivery to him of the corresponding deed of sale, duly executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and effectively exercised
his option to buy the property of Dr. Garcia, at least, on December 13, 1962, when he
acknowledged receipt from Mrs. Nietes of the sum of P2,200 then delivered by her "in partial
payment on the purchase of the property" described in the "Contract of Lease with Option to
Buy"; that from the aggregate sum of P29,957.00 paid to him up to that time, the sum of
P12,708.33 should be deducted as rental for the period from June 1960 to December 13, 1962,
or roughly thirty (30) months and a half, thereby leaving a balance of P17,248.67, consisting
of P12,291.67, representing the rentals for the unused period of the lease, plus P4,957.00 paid
in excess of said rental and advanced solely on account of the purchase price; that deducting
said sum of P17,248.67 from the agreed price of P100,000.00, there results a balance of
P82,751.33 which should be paid by Nietes to Dr. Garcia, upon execution by the latter of the
corresponding deed of absolute sale of the property in question, free from any lien or
encumbrance whatsoever, in favor of Nietes, and the delivery to him of said deed of sale, as
well as of the owner's duplicate of the certificate of title to said property; and that Dr. Garcia
should indemnify Nietes in the sum of P2,500 as and for attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in
all other respects, and that of the Court of Appeals reversed, with costs against respondent
herein, Dr. Pablo C. Garcia. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio and
Esguerra, JJ., concur.
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
Page | 38
 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.
Page | 39
 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
Page | 40
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
Page | 41
grantor's eventual intention to enter into a binding juridical relation with another but also on WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against
best be so described as merely belonging to a class of preparatory juridical relations governed petitioners.
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 SO ORDERED.
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 1912 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.

Page | 42
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
Appeals2 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 court3 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.
Page | 43
 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;
Page | 44
 (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.
Page | 45
 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."
Page | 46
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
Page | 47
 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
Page | 48
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 Appeals21 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:
Page | 49
 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.
Page | 50
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
Page | 51
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 &
Page | 52
 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.

SO ORDERED.

Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur.

Page | 53
[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.
DECISION
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 plaintiffs 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
Page | 54
(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, plaintiffs 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
plaintiffs 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 plaintiffs 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 plaintiffs 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 attorneys fees, exclusive of cost and expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the
plaintiff and against defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the
leased properties be sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as moral damages;
Page | 55
 d. Defendants pay exemplary damages left to the discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00 as attorneys fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss anchored
on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack
of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears that the
defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for P15 M. The said offers, however, were
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. For in acquiring the said properties back to her name, and in so making the offers to
sell both by herself (attorney-in-fact) and through her counsel, defendant Santos was indeed
conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. x x
x
xxxxxxxxx
This is indeed one instance where a Complaint, after barely commencing to create a cause of
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
face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. x x x
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
of estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. [6]
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial
court, and further reasoned that:
x x x Appellants 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
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
be computed under paragraph 9 of the lease contract, x x x[7]
Petitioner moved for reconsideration but was denied in an order dated August 20,
1993.[8]
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] The motion sought to enjoin respondent Raymundo and
his counsel from pursuing the ejectment complaint filed 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 why
he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by
respondent 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 renders the said motion moot
and academic.
Issue
The principal legal issue presented before us for resolution is whether the aforequoted
complaint alleging breach of the contractual right of first option or priority to buy states a
valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in
dismissing the complaint because 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 of first refusal founded in law, and (3)
damages.
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 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 petitioners 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
petitioners payment of rentals of the leased property to respondent Raymundo from June 15,
1989, to June 30, 1990, was an acknowledgment of the latters 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 Courts Ruling
Page | 56
Preliminary Issue: Failure to File Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioners
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 courts equity jurisdiction.[10] It does not appear that respondents were
unduly prejudiced by petitioners 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 P600,000.00 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 the first refusal* must be the current offer to
sell of the seller or offer to purchase of any prospective buyer. Only after the grantee** 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 grantee***.
Page | 57
 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 (underscoring 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
refusal* 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 lessees right of first refusal to purchase
shall be determined by the Urban Zone Expropriation and Land Management
Committee. Hence, x x x 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:
x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein
ASSIGNEE, all his rights, interest and participation over said premises afore-described, x x
x[20] (underscoring 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:
x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
participation over said leased premises, x x x[21] (underscoring supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of
rights was the lessees 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
Page | 58
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.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

Page | 59
[G.R. No. 149734. November 19, 2004] The parties are agreed that the development plan referred to in paragraph 5.7 is not
Conduits development plan, but Ayalas amended development plan which was still to be
formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered
for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala
plan which was formulated a year later, it was in the third phase, or Phase II-c.
DR. DANIEL VAZQUEZ and MA.LUIZA M. VAZQUEZ, petitioners vs. AYALA
CORPORATION, respondent.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
DECISION
3.1. The SELLERS shall deliver to the BUYER:
TINGA, J.:
xxx
The rise in value of four lots in one of the countrys prime residential developments,
Ayala Alabang Village in Muntinlupa City, over a period of six (6) years only, represents big
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company
money. The huge price difference lies at the heart of the present controversy. Petitioners insist
showing:
that the lots should be sold to them at 1984 prices while respondent maintains that the
prevailing market price in 1990 should be the selling price.
xxx
Dr. Daniel Vazquez and Ma. Luisa Vazquez[1] filed this Petition for Review on
Certiorari[2] dated October 11, 2001 assailing the Decision[3] of the Court of Appeals dated
D. A list of all persons and/or entities with whom the Company has pending contracts, if any.
September 6, 2001 which reversed the Decision[4] of the Regional Trial Court (RTC) and
dismissed their complaint for specific performance and damages against Ayala Corporation.
xxx
Despite their disparate rulings, the RTC and the appellate court agree on the following
antecedents:[5]
3.1.5. Audited financial statements of the Company as at Closing date.

On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez
4. Conditions Precedent
spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation
(hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latters shares
of stock in Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the
49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by Closing, of the following conditions:
Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the
Don Vicente Village. The development was then being undertaken for Conduit by G.P. 4.1. The representations and warranties by the SELLERS contained in this Agreement
Construction and Development Corp. (hereafter, GP Construction). shall be true and correct at the time of Closing as though such representations and
warranties were made at such time; and
Under the MOA, Ayala was to develop the entire property, less what was defined as the
Retained Area consisting of 18,736 square meters. This Retained Area was to be retained by xxx
the Vazquez spouses. The area to be developed by Ayala was called the Remaining Area. In
this Remaining Area were 4 lots adjacent to the Retained Area and Ayala agreed to offer these
6. Representation and Warranties by the SELLERS
lots for sale to the Vazquez spouses at the prevailing price at the time of purchase. The
relevant provisions of the MOA on this point are:
The SELLERS jointly and severally represent and warrant to the BUYER that at the time of
the execution of this Agreement and at the Closing:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first
class residential subdivision of the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended development plan within three (3) xxx
years from the date of this Agreement. x x x
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed SELLERS, threatened against or affecting the SELLERS with respect to the Shares or the
lots next to the Retained Area at the prevailing market price at the time of the purchase. Property; and

Page | 60
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing in
accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER
that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the
Company shall own the Remaining Property, free from all liens and encumbrances and
that the Company shall have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by Daniel Vazquez for
which BUYER shall be responsible in accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of
the Company as of Closing, and those disclosed to BUYER, the Company as of the date
thereof, has no liabilities of any nature whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the Companys income prior to Closing or
arising out of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any
assertion against the Company as at closing or any liability of any nature and in any
amount not fully reflected or reserved against such Audited Financial Statements
referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the
SELLERS, threatened with, any legal action or other proceedings before any court or
administrative body, nor do the SELLERS know or have reasonable grounds to know of any
basis for any such action or proceeding or of any governmental investigation relative to the
Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due
performance and observance by the Company of any term, covenant or condition of any
instrument or agreement to which the company is a party or by which it is bound, and
no condition exists which, with notice or lapse of time or both, will constitute such
default or breach.
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don
Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General
Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22,
1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of
Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala.
G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of
the property. The suit was terminated only on February 19, 1987, when it was dismissed with
prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the Retained Area
within 3 years from the date of the MOA, the Vasquez spouses sent several reminder letters of
the approaching so-called deadline. However, no demand after April 23, 1984, was ever made
by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed
by their authorized agent, Engr. Eduardo Turla, categorically stated that they expected
development of Phase 1 to be completed by February 19, 1990, three years from the settlement
of the legal problems with the previous contractor.
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for
sale. The four lots were then offered to be sold to the Vasquez spouses at the prevailing price
in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby
leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant,
ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala
Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00;
ordering defendant to reimburse to plaintiffs attorneys fees in the sum of P200,000.00 and to
pay the cost of the suit.
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to
disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayalas accountants
should have opened the records of Conduit to find out all claims; the warranty against suit is
with respect to the shares of the Property and the Lancer suit does not affect the shares of
stock sold to Ayala; Ayala was obligated to develop within 3 years; to say that Ayala was
under no obligation to follow a time frame was to put the Vasquezes at Ayalas mercy; Ayala
did not develop because of a slump in the real estate market; the MOA was drafted and
prepared by the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is
valid because it was supported by consideration as the option is incorporated in the MOA
where the parties had prestations to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that
petitioners did not breach their warranties under the MOA[6] dated April 23, 1981; that it was
obliged to develop the land where the four (4) lots subject of the option to purchase are located
within three (3) years from the date of the MOA; that it was in delay; and that the option to
purchase was valid because it was incorporated in the MOA and the consideration therefor
was the commitment by Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According
to the appellate court, Ayala Corporation was never informed beforehand of the existence of
the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May
29, 1981 from G.P. Constructions lawyers. The Court of Appeals thus held that petitioners
violated their warranties under the MOA when they failed to disclose Lancers claims. Hence,
even conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in
Page | 61
question within three (3) years from the date of the MOA, the obligation was suspended
during the pendency of the case filed by Lancer.
Interpreting the MOAs paragraph 5.7 above-quoted, the appellate court held that Ayala
Corporation committed to develop the first phase of its own amended development plan and
not Conduits development plan. Nowhere does the MOA provide that Ayala Corporation shall
follow Conduits development plan nor is Ayala Corporation prohibited from changing the
sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as
petitioners never made a demand for Ayala Corporation to sell the subject lots to them.
According to the appellate court, what petitioners sent were mere reminder letters the last of
which was dated prior to April 23, 1984 when the obligation was not yet demandable. At any
rate, the Court of Appeals found that petitioners in fact waived the three (3)-year period when
they sent a letter through their agent, Engr. Eduardo Turla, stating that they expect that the
development of Phase I will be completed by 19 February 1990, three years from the
settlement of the legal problems with the previous contractor.[7]
The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option
contract but a right of first refusal there being no separate consideration therefor. Since
petitioners refused Ayala Corporations offer to sell the subject lots at the reduced 1990 price
of P5,000.00 per square meter, they have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they
violated their warranties under the MOA; that Ayala Corporation was not obliged to develop
the Remaining Property within three (3) years from the execution of the MOA; that Ayala was
not in delay; and that paragraph 5.15 of the MOA is a mere right of first refusal. Additionally,
petitioners insist that the Court should review the factual findings of the Court of Appeals as
they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition[8] dated March 26, 2002, contending
that the petition raises questions of fact and seeks a review of evidence which is within the
domain of the Court of Appeals. Ayala Corporation maintains that the subcontract between GP
Construction, with whom Conduit contracted for the development of the property under a
Construction Contract dated October 10, 1980, and Lancer was not disclosed by petitioners
during the negotiations. Neither was the liability for Lancers claim included in the Audited
Financial Statements submitted by petitioners after the signing of the MOA. These justify the
conclusion that petitioners breached their warranties under the afore-quoted paragraphs of the
MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within
which Ayala Corporation committed to develop the property should only be counted thence.
Thus, when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in
delay.
In response to petitioners contention that there was no action or proceeding against them
at the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers that the
facts and circumstances which gave rise to the Lancer claim were already extant then.
Petitioners warranted that their representations under the MOA shall be true and correct at the
time of Closing which shall take place within four (4) weeks from the signing of the
MOA.[9] Since the MOA was signed on April 23, 1981, Closing was approximately the third
week of May 1981. Hence, Lancers claims, articulated in a letter which Ayala Corporation
received on May 4, 1981, are among the liabilities warranted against under paragraph 7.1.2 of
the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just
against suits but against all kinds of liabilities not reflected in the Audited Financial
Statements. It cannot be faulted for relying on the express warranty that except for billings
payable to GP Construction and advances made by petitioner Daniel Vazquez in the amount
of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala
Corporation should have examined and investigated the Audited Financial Statements of
Conduit and should now assume all its obligations and liabilities including the Lancer suit and
the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the
development of the first phase of the property within three (3) years from the execution of the
MOA. The provision refers to a mere declaration of intent to develop the first phase of its
(Ayala Corporations) own development plan and not Conduits. True to its intention, Ayala
Corporation did complete the development of the first phase (Phase II-A) of its amended
development plan within three (3) years from the execution of the MOA. However, it is not
obliged to develop the third phase (Phase II-C) where the subject lots are located within the
same time frame because there is no contractual stipulation in the MOA therefor. It is free to
decide on its own the period for the development of Phase II-C. If petitioners wanted to
impose the same three (3)-year timetable upon the third phase of the amended development
plan, they should have filed a suit to fix the time table in accordance with Article 1197 [10] of
the Civil Code. Having failed to do so, Ayala Corporation cannot be declared to have been in
delay.
Ayala Corporation further contends that no demand was made on it for the performance
of its alleged obligation. The letter dated October 4, 1983 sent when petitioners were already
aware of the Lancer suit did not demand the delivery of the subject lots by April 23, 1984.
Instead, it requested Ayala Corporation to keep petitioners posted on the status of the case.
Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date when the
development of Phase 1 will be completed. More importantly, their letter dated June 27, 1988
through Engr. Eduardo Turla expressed petitioners expectation that Phase 1 will be completed
by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first
refusal and not an option contract.
Petitioners filed their Reply[11] dated August 15, 2002 reiterating the arguments in
their Petition and contending further that they did not violate their warranties under the MOA
because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8)
days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that it
received Lancers claim before the Closing date. It therefore had all the time to rescind the
MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider
the matter a violation of petitioners warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and
allowed an acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought
Conduit with open eyes.
Petitioners also maintain that they had no knowledge of the impending case against
Conduit at the time of the execution of the MOA. Further, the MOA makes Ayala Corporation
liable for the payment of all billings of GP Construction. Since Lancers claim was actually a
claim against GP Construction being its sub-contractor, it is Ayala Corporation and not
petitioners which is liable.
Page | 62
 Likewise, petitioners aver that although Ayala Corporation may change the sequence of
its development plan, it is obliged under the MOA to develop the entire area where the subject
lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their
obligation under the MOA. Apart from their reminder letters dated January 24, February 18
and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a
categorical demand for Ayala Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in
the Resolution[12] dated November 18, 2002. In compliance with this directive, petitioners
submitted their Memorandum[13] dated February 14, 2003 on even date, while Ayala
Corporation filed its Memorandum[14] dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court
of Appeals by way of petition for review under Rule 45 is limited to reviewing or revising
errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of
general principle. However, since in the instant case there is a conflict between the factual
findings of the trial court and the appellate court, particularly as regards the issues of breach of
warranty, obligation to develop and incurrence of delay, we have to consider the evidence on
record and resolve such factual issues as an exception to the general rule.[15] In any event, the
submitted issue relating to the categorization of the right to purchase granted to petitioners
under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their warranties under
the MOA when they failed to disclose the Lancer claim. The trial court declared they did not;
the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly
breached when they failed to disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for
P38,766.04, and for advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no
other liabilities whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any
value not reflected or reserved in the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any
instrument or agreement to which it is a party or by which it is bound.[16]
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners
substantially apprised Ayala Corporation of the Lancer claim or the possibility thereof during
the period of negotiations for the sale of Conduit.
In a letter[17] dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala
Corporations Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of
Conduit, Ayala Corporation asked for and was given information that GP Construction sub-
contracted, presumably to Lancer, a greater percentage of the project than it was allowed.
Petitioners gave this information to Ayala Corporation because the latter intimated a desire to
break the contract of Conduit with GP. Ayala Corporation did not deny this. In fact, Mr.
Duartes letter[18] dated March 6, 1984 indicates that Ayala Corporation had knowledge of the
Lancer subcontract prior to its acquisition of Conduit. Ayala Corporation even admitted that it
tried to explorelegal basis to discontinue the contract of Conduit with GP but found this not
feasible when information surfaced about the tacit consent of Conduit to the sub-contracts of
GP with Lancer.
At the latest, Ayala Corporation came to know of the Lancer claim before the date of
Closing of the MOA. Lancers letter[19] dated April 30, 1981 informing Ayala Corporation of
its unsettled claim with GP Construction was received by Ayala Corporation on May 4, 1981,
well before the Closing[20] which occurred four (4) weeks after the date of signing of the MOA
on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that
certain matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala
Corporation although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the
Company shall own the Remaining Property, free from all liens and encumbrances and that
the Company shall have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by Daniel Vazquez for which
BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of
the Company as of Closing, and those disclosed to BUYER, the Company as of the date
hereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise,
including, without limitation, tax liabilities due or to become due and whether incurred in
respect of or measured in respect of the Companys income prior to Closing or arising out of
transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any
assertion against the Company as at Closing of any liability of any nature and in any amount
not fully reflected or reserved against such Audited Financial Statements referred to
above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative body,
Page | 63
nor do the SELLERS know or have reasonable grounds to know of any basis for any such
action or proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance
and observance by the Company of any term, covenant or condition of any instrument or
agreement to which the Company is a party or by which it is bound, and no condition exists
which, with notice or lapse of time or both, will constitute such default or
breach.[21] [Emphasis supplied]
Hence, petitioners warranty that Conduit is not engaged in, a party to, or threatened with
any legal action or proceeding is qualified by Ayala Corporations actual knowledge of the
Lancer claim which was disclosed to Ayala Corporation before the Closing.
At any rate, Ayala Corporation bound itself to pay all billings payable to GP
Construction and the advances made by petitioner Daniel Vazquez. Specifically, under
paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook
responsibility for the payment of all billings of the contractor GP Construction &
Development Corporation after the first billing and any payments made by the company
and/or SELLERS shall be reimbursed by BUYER on closing which advances to date
is P1,159,012.87.[22]
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer
claim for which GP Construction is liable. Proof of this is Ayala Corporations letter [23] to GP
Construction dated before Closing on May 4, 1981, informing the latter of Ayala Corporations
receipt of the Lancer claim embodied in the letter dated April 30, 1981, acknowledging that it
is taking over the contractual responsibilities of Conduit, and requesting copies of all sub-
contracts affecting the Conduit property. The pertinent excerpts of the letter read:
In this connection, we wish to inform you that this morning we received a letter from Mr.
Maximo D. Del Rosario, President of Lancer General Builders Corporation apprising us of the
existence of subcontracts that they have with your corporation. They have also furnished us
with a copy of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc., we
believe that it is necessary, at this point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with Lancer General Builders
Corporation, but all subcontracts with other parties as well[24]
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief[25] dated July 9,
1992 a copy of the letter[26] dated May 28, 1981 of GP Constructions counsel addressed to
Conduit furnishing the latter with copies of all sub-contract agreements entered into by GP
Construction. Since it was addressed to Conduit, it can be presumed that it was the latter
which gave Ayala Corporation a copy of the letter thereby disclosing to the latter the existence
of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the
MOA. The Lancer sub-contract and claim were substantially disclosed to Ayala Corporation
before the Closing date of the MOA. Ayala Corporation cannot disavow knowledge of the
claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention
the filing of the Lancer suit as an obstacle to its development of the property, it never actually
brought up nor sought redress for petitioners alleged breach of warranty for failure to disclose
the Lancer claim until it filed its Answer[27] dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this
paragraph express a commitment or a mere intent on the part of Ayala Corporation to develop
the property within three (3) years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the
date of this Agreement.[28]
Notably, while the first phrase of the paragraph uses the word commits in reference to
the development of the Remaining Property into a first class residential subdivision, the
second phrase uses the word intends in relation to the development of the first phase of the
property within three (3) years from the date of the MOA. The variance in wording is
significant. While commit[29] connotes a pledge to do something, intend[30] merely signifies a
design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporations legal division
who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Dont talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative
character of the period of development because it will be noted that the
sentence refers to and I quote to complete the first phase under its amended
development plan within three (3) years from the date of this agreement, at
the time of the execution of this agreement, your Honor. That amended
development plan was not yet in existence because the buyer had manifested
to the seller that the buyer could amend the subdivision plan originally
belonging to the seller to conform with its own standard of development and
second, your Honor, (interrupted)[31]
It is thus unmistakable that this paragraph merely expresses an intention on Ayala
Corporations part to complete the first phase under its amended development plan within three
(3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to
misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7s clear reference to the
first phase of Ayala Corporations amended development plan as the subject of the three (3)-
year intended timeframe for development. Even petitioner Daniel Vazquez admitted on cross-
Page | 64
examination that the paragraph refers not to Conduits but to Ayala Corporations development
plan which was yet to be formulated when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as
follows: The Buyer hereby commits that to develop the remaining property
into a first class residential subdivision of the same class as New Alabang
Subdivision, and that they intend to complete the first phase under its
amended development plan within three years from the date of this
agreement.
Now, my question to you, Dr. Vasquez is that there is no dispute that the
amended development plan here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit D-5 which is the original plan of Conduit?
A: No, it is not.
Q: This Exhibit D-5 was the plan that was being followed by GP Construction in
1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the
agreement, this amended development plan was still to be formulated by
Ayala?
A: Yes, sir.[32]
As correctly held by the appellate court, this admission is crucial because while the
subject lots to be sold to petitioners were in the first phase of the Conduit development plan,
they were in the third or last phase of the Ayala Corporation development plan. Hence, even
assuming that paragraph 5.7 expresses a commitment on the part of Ayala Corporation to
develop the first phase of its amended development plan within three (3) years from the
execution of the MOA, there was no parallel commitment made as to the timeframe for the
development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation
to offer the subject lots for sale to petitioners within three (3) years from the execution of the
MOA. It is not that Ayala Corporation committed or intended to develop the first phase of its
amended development plan within three (3) years. Whether it did or did not is actually beside
the point since the subject lots are not located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.[33]
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has
been fixed shall be demandable only when that day comes. However, no such day certain was
fixed in the MOA. Petitioners, therefore, cannot demand performance after the three (3) year
period fixed by the MOA for the development of the first phase of the property since this is
not the same period contemplated for the development of the subject lots. Since the MOA does
not specify a period for the development of the subject lots, petitioners should have petitioned
the court to fix the period in accordance with Article 1197[34] of the Civil Code. As no such
action was filed by petitioners, their complaint for specific performance was premature, the
obligation not being demandable at that point. Accordingly, Ayala Corporation cannot
likewise be said to have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop
the subject lots within three (3) years from date thereof, Ayala Corporation could still not be
held to have been in delay since no demand was made by petitioners for the performance of its
obligation.
As found by the appellate court, petitioners letters which dealt with the three (3)-year
timetable were all dated prior to April 23, 1984, the date when the period was supposed to
expire. In other words, the letters were sent before the obligation could become legally
demandable. Moreover, the letters were mere reminders and not categorical demands to
perform. More importantly, petitioners waived the three (3)-year period as evidenced by their
agent, Engr. Eduardo Turlas letter to the effect that petitioners agreed that the three (3)-year
period should be counted from the termination of the case filed by Lancer. The letter reads in
part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your
goodselves to complete the development of Phase I within three (3) years. Dr. & Mrs.
Vazquez were made to understand that you were unable to accomplish this because of legal
problems with the previous contractor. These legal problems were resolved as of February 19,
Page | 65
1987, and Dr. & Mrs. Vazquez therefore expect that the development of Phase I will be
completed by February 19, 1990, three years from the settlement of the legal problems with
the previous contractor. The reason for this is, as you know, that security-wise, Dr. & Mrs.
Vazquez have been advised not to construct their residence till the surrounding area (which is
Phase I) is developed and occupied. They have been anxious to build their residence for quite
some time now, and would like to receive assurance from your goodselves regarding this, in
compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to
exercise their option to purchase the two lots on each side (a total of 4 lots) adjacent to their
Retained Area. They are concerned that although over a year has elapsed since the settlement
of the legal problems, you have not presented them with the size, configuration, etc. of these
lots. They would appreciate being provided with these at your earliest convenience. [35]
Manifestly, this letter expresses not only petitioners acknowledgement that the delay in
the development of Phase I was due to the legal problems with GP Construction, but also their
acquiescence to the completion of the development of Phase I at the much later date of
February 19, 1990. More importantly, by no stretch of semantic interpretation can it be
construed as a categorical demand on Ayala Corporation to offer the subject lots for sale to
petitioners as the letter merely articulates petitioners desire to exercise their option to purchase
the subject lots and concern over the fact that they have not been provided with the
specifications of these lots.
The letters of petitioners children, Juan Miguel and Victoria Vazquez, dated January 23,
1984[36] and February 18, 1984[37] can also not be considered categorical demands on Ayala
Corporation to develop the first phase of the property within the three (3)-year period much
less to offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in
part:
You will understand our interest in the completion of the roads to our property, since we
cannot develop it till you have constructed the same. Allow us to remind you of our
Memorandum of Agreement, as per which you committed to develop the roads to our property
as per the original plans of the company, and that
1. The back portion should have been developed before the front portion which has not been
the case.
2. The whole project front and back portions be completed by 1984. [38]
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of
Agreement which states respectively:[39]
Even petitioner Daniel Vazquez letter[40] dated March 5, 1984 does not make out a
categorical demand for Ayala Corporation to offer the subject lots for sale on or before April
23, 1984. The letter reads in part:
and that we expect from your goodselves compliance with our Memorandum of Agreement,
and a definite date as to when the road to our property and the development of Phase I will be
completed.[41]
At best, petitioners letters can only be construed as mere reminders which cannot be
considered demands for performance because it must appear that the tolerance or benevolence
of the creditor must have ended.[42]
The petition finally asks us to determine whether paragraph 5.15 of the MOA can
properly be construed as an option contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots
next to the Retained Area at the prevailing market price at the time of the purchase. [43]
The Court has clearly distinguished between an option contract and a right of first
refusal. An option is a preparatory contract in which one party grants to another, for a fixed
period and at a determined price, the privilege to buy or sell, or to decide whether or not to
enter into a principal contract. 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. 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. [44]
In a right of first refusal, on the other hand, while the object might be made determinate,
the exercise of the right would be dependent not only on the grantors 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.[45]
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and
not an option contract. Although the paragraph has a definite object, i.e., the sale of subject
lots, the period within which they will be offered for sale to petitioners and, necessarily, the
price for which the subject lots will be sold are not specified. The phrase at the prevailing
market price at the time of the purchase connotes that there is no definite period within which
Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege
to purchase. Neither is there a fixed or determinable price at which the subject lots will be
offered for sale. The price is considered certain if it may be determined with reference to
another thing certain or if the determination thereof is left to the judgment of a specified
person or persons.[46]
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to
buy the subject lots at the price which Ayala Corporation would be willing to accept when it
offers the subject lots for sale. It is not supported by an independent consideration. As such it
is not governed by Articles 1324 and 1479 of the Civil Code, viz:
Page | 66
Art. 1324. 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 a consideration, as something paid or promised.

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.

Consequently, the offer may be withdrawn anytime by communicating the withdrawal to the
other party.[47]
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price
of P6,500.00/square meter, the prevailing market price for the property when the offer was
made on June 18, 1990.[48] Insisting on paying for the lots at the prevailing market price in
1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the
price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a
counter-offer in the amount of P2,000.00/square meter.[49] Ayala Corporation rejected
petitioners counter-offer. With this rejection, petitioners lost their right to purchase the subject
lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners right of first
refusal and should be compelled by an action for specific performance to sell the subject lots
to petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Page | 67
[G.R. No. 117355. April 5, 2002]
RIVIERA FILIPINA, INC., petitioner, vs. COURT OF APPEALS, JUAN L. REYES,
(now deceased), substituted by his heirs, namely, Estefania B. Reyes, Juanita R.
de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes, PHILIPPINE CYPRESS
CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL
TRADING CORPORATION AND URBAN DEVELOPMENT
BANK, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] of the Court of
Appeals[2] dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision [3] dated
March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case
No. Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on
August 31, 1989[4] to compel the defendants therein Juan L. Reyes, now deceased, Philippine
Cypress Construction & Development Corporation (Cypress), Cornhill Trading Corporation
(Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square meter
parcel of land located along EDSA, Quezon City for alleged violation of Rivieras right of first
refusal.
It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity)
executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera,
which started on August 1, 1982, involved a 1,018 square meter parcel of land located along
Edsa, Quezon City, covered and described in Transfer Certificate of Title No. 186326 of the
Registry of Deeds of Quezon City in the name of Juan L. Reyes. [5]
The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in
favor of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity,
the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public auction
sale, the mortgagee bank emerged as the highest bidder. The redemption period was set to
expire on March 7, 1989. Realizing that he could not possibly raise in time the money needed
to redeem the subject property, Reyes decided to sell the same. [6]
Since paragraph 11 of the lease contract expressly provided that the LESSEE shall have
the right of first refusal should the LESSOR decide to sell the property during the term of the
lease,[7] Reyes offered to sell the subject property to Riviera, through its President Vicente C.
Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained
for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not
amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter,
Angeles requested Reyes to allow him to consult the other members of the Board of Directors
of Riviera.[8]
Seven (7) months later, or sometime in October 1988, Angeles communicated with
Reyes Rivieras offer to purchase the subject property for Four Thousand Pesos (P4,000.00)
per square meter. However, Reyes did not accept the offer. This time he asked for Six
Thousand Pesos (P6,000.00) per square meter since the value of the property in the area had
appreciated in view of the plans of Araneta to develop the vicinity.[9]
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes,
informed Riviera that Reyes was selling the subject property for Six Thousand Pesos
(P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees, notarial
fees and all other attendant charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your
CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the
Notarial Registry of Notary Public Leovillo S. Agustin), notice is served upon your
goodselves for you to exercise the right of first refusal in the sale of said property, for which
purpose you are hereby given a period of ten (10) days from your receipt hereof within which
to thus purchase the same under the terms and conditions aforestated, and failing which you
shall be deemed to have thereby waived such pre-emptive right and my client shall thereafter
be absolutely free to sell the subject property to interested buyers.[10]
To answer the foregoing letter and confirm their telephone conversation on the matter,
Riviera sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes, expressing
Rivieras interest to purchase the subject property and that Riviera is already negotiating with
Reyes which will take a couple of days to formalize.[11] Riviera increased its offer to Five
Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was
still lower than his quoted price of Six Thousand Pesos (P6,000.00) per square
meter.[12] Angeles asked Reyes to give him until the end of November 1988 for Rivieras final
decision.
In a letter dated December 2, 1988, Angeles wrote Reyes confirming Rivieras intent to
purchase the subject property for the fixed and final[13] price of Five Thousand Pesos
(P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days
which offer is what we feel should be the market price of your property. Angeles asked that the
decision of Reyes and his written reply to the offer be given within fifteen (15) days since
there are also other properties being offered to them at the moment. [14]
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5,
1988 informing Riviera that Rivieras offer is not acceptable to his client. He further
expressed, let it be made clear that, much as it is the earnest desire of my client to really give
you the preference to purchase the subject property, you have unfortunately failed to take
advantage of such opportunity and thus lost your right of first refusal in sale of said
property.[15]
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close
family friend and President of Cypress, his predicament about the nearing expiry date of the
redemption period of the foreclosed mortgaged property with Prudential Bank, the money for
which he could not raise on time thereby offering the subject property to him for Six Thousand
Pesos (P6,000.00) per square meter.Traballo expressed interest in buying the said property,
told Reyes that he will study the matter and suggested for them to meet the next day.[16]
They met the next day, December 5, 1988, at which time Traballo bargained for Five
Thousand Three Hundred Pesos (P5,300.00) per square meter. After considering the reasons
cited by Traballo for his quoted price, Reyes accepted the same. However, since Traballo did
Page | 68
not have the amount with which to pay Reyes, he told the latter that he will look for a partner
for that purpose.[17] Reyes told Traballo that he had already afforded Riviera its right of first
refusal but they cannot agree because Rivieras final offer was for Five Thousand Pesos
(P5,000.00) per square meter.[18]
Sometime in January 1989, apprehensive of the impending expiration in March 1989 of
the redemption period of the foreclosed mortgaged property with Prudential Bank and the deal
between Reyes and Traballo was not yet formally concluded, Reyes decided to approach anew
Riviera. For this purpose, he requested his nephew, Atty. Estanislao Alinea, to approach
Angeles and find out if the latter was still interested in buying the subject property and ask
him to raise his offer for the purchase of the said property a little higher. As instructed, Atty.
Alinea met with Angeles and asked the latter to increase his offer of Five Thousand Pesos
(P5,000.00) per square meter but Angeles said that his offer is Five Thousand Pesos
(P5,000.00) per square meter.[19]
Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through
Atty. Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter payment of
which would be fifty percent (50%) down within thirty (30) days upon submission of certain
documents in three (3) days, the balance payable in five (5) years in equal monthly
installments at twelve percent (12%) interest in diminishing balance.[20] With the terms of this
second offer, Angeles admittedly downgraded the previous offer of Riviera on December 2,
1988.[21]
Atty. Alinea conveyed to Reyes Rivieras offer of Five Thousand Pesos (P5,000.00) per
square meter but Reyes did not agree. Consequently, Atty. Alinea contacted again Angeles and
asked him if he can increase his price. Angeles, however, said he cannot add
anymore.[22] Reyes did not expressly offer his subject property to Riviera at the price of Five
Thousand Three Hundred Pesos (P5,300.00) per square meter.[23]
Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading
Corporation, were able to come up with the amount sufficient to cover the redemption money,
with which Reyes paid to the Prudential Bank to redeem the subject property.[24] On May 1,
1989, a Deed of Absolute Sale covering the subject property was executed by Reyes in favor
of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety Five
Thousand Four Hundred Pesos (P5,395,400.00).[25] On the same date, Cypress and Cornhill
mortgaged the subject property to Urban Development Bank for Three Million Pesos
(P3,000,000.00).[26]
Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject
property to it claiming that its right of first refusal under the lease contract was violated. After
several unsuccessful attempts,[27] Riviera filed the suit to compel Reyes, Cypress, Cornhill and
Urban Development Bank to transfer the disputed title to the land in favor of Riviera upon its
payment of the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court dismissed the complaint of Riviera as well
as the counterclaims and cross-claims of the other parties.[28] It ruled that the defendants
therein did not violate Rivieras right of first refusal, ratiocinating in this wise:
Resolving the first issue, this Court takes note that since the beginning of the negotiation
between the plaintiff and defendant Reyes for the purchase of the property, in question, the
plaintiff was firm and steadfast in its position, expressed in writing by its President Vicente
Angeles, that it was not willing to buy the said property higher than P5,000.00, per square
meter, which was far lower than the asking price of defendant Reyes for P6,000.00, per square
meter, undoubtedly, because, in its perception, it would be difficult for other parties to buy the
property, at a higher price than what it was offering, since it is in occupation of the property,
as lessee, the term of which was to expire after about four (4) years more.
On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes,
thru his nephew, Atty. Alinea, to have the plaintiff buy the property, in question, that he was
willing to sell the said property at a price less than P6,000.00 and a little higher
than P5,000.00, per square meter, precisely, because Atty. Alinea, in behalf of his uncle,
defendant Reyes, sought plaintiffs Angeles and asked him to raise his price a little higher,
indicating thereby the willingness of defendant Reyes to sell said property at less than his offer
of P6,000.00, per square meter.
This being the case, it can hardly be validly said by the plaintiff that he was deprived of his
right of first refusal to buy the subject property at a price of P5,300.00, per square meter which
is the amount defendants Cypress/Cornhill bought the said property from defendant
Reyes. For, it was again given such an opportunity to exercise its right of first refusal by
defendant Reyes had it only signified its willingness to increase a little higher its purchase
price above P5,000.00, per square meter, when its President, Angeles, was asked by Atty.
Alinea to do so, instead of adamantly sticking to its offer of only P5,000.00 per square meter,
by reason of which, therefore, the plaintiff had lost, for the second time, its right of first
refusal, even if defendant Reyes did not expressly offer to sell to it the subject land
at P5,300.00, per square meter, considering that by the plea of Atty. Alinea, in behalf of
defendant Reyes, for it to increase its price a little, the plaintiff is to be considered as having
forfeited again its right of first refusal, it having refused to budged from its regid (sic) offer to
buy the subject property at no more than P5,000.00, per square meter.
As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly
and categorically offer to the plaintiff the subject property at P5,300.00, per square meter, in
order that he can comply with his obligation to give first refusal to the plaintiff as stipulated in
the Contract of Lease, the plaintiff having had already lost its right of first refusal, at the first
instance, by refusing to buy the said property at P6,000.00, per square meter, which was the
asking price of defendant Reyes, since to do so would be a useless ceremony and would only
be an exercise in futility, considering the firm and unbending position of the plaintiff, which
defendant Reyes already knew, that the plaintiff, at any event, was not amenable to increasing
its price at over P5,000.00, per square meter.
Dissatisfied with the decision of the trial court, both parties appealed to the Court of
Appeals.[29] However, the appellate court, through its Special Seventh Division, rendered a
Decision dated June 6, 1994 which affirmed the decision of the trial court in its entirety. [30] In
sustaining the decision of the trial court, the Court of Appeals adopted the above-quoted
ratiocination of the trial court and further added:
To put things in its proper perspective in accordance with the peculiar attendant circumstances
herein, particular stress should be given to RIVIERAs uncompromising counter offer of
only P5,000.00 per square meter on all the occasions when REYES offered the subject
property to it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit D, p. 68,
Rollo) justified its rigid offer by saying that the above offer is what we feel should be the
market price of your property. If that be the case, We are convinced, the same manner that
Page | 69
REYES was, that RIVIERA was unwilling to increase its counter offer at any present or future
time. RIVIERAs unilateral valuation of the subject property thus binds him, it cannot now be
heard to claim that it could have upped its offer had it been informed of CYPRESS and
CORNHILLS offer of P5,000.00 (sic) per square meter. Defendants CYPRESS and
CORNHILL were therefore right in saying that:
On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES
could not be faulted for believing that RIVIERA was definitely NOT WILLING TO PAY
MORE THAN P5,000.00 PER SQUARE METER ON HIS PROPERTY. The fault lies with
the deceptive and insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA must be
deemed in estoppel in now belatedly asserting that it would have been willing to pay a price
higher than P5,000.00 x x x. (Defendants-Appellees Cypress and Cornhills Brief, p. 8)
For this reason, no adverse inference can be drawn from REYES failure to disclose to
RIVIERA the intervening counter-offer of CYPRESS and CORNHILL.
It would have been far different had REYES non-disclosure of CYPRESS and CORNHILLs
counter-offer to RIVIERA resulted in the sale of the subject property at equal or less than
RIVIERAs offer; in which case, REYES would have been rightly accused of cunningly
circumventing RIVIERAs right of first refusal. But the incontrovertible antecedents obtaining
here clearly reveal REYES earnest efforts in respecting RIVIERAs contractual right to
initially purchase the subject property. Not only once but twice did REYES approach
RIVIERA, the last one being the most telling indication of REYES sincerest intention in
RIVIERA eventually purchasing the subject property if only the latter would increase a little
its offer of P5,000.00 per square meter. And to this REYES was desperately willing to accede
to despite the financial quandary he was then in as the expiration of the redemption period
drew closer and closer, and despite the better offer of CYPRESS and CORNHILL. REYES
unquestionably had displayed good faith. Can the same be said of RIVIERA? We do not think
so. It appears that RIVIERA all along was trying to push REYES back against the wall, for
RIVIERA was well-aware of REYES precarious financial needs at that time, and by clinging
to its offer, REYES might eventually succumb to its offer out of sheer desperation. RIVIERA
was, to be frank, whimsically exercising its contractual right to the prejudice of REYES who
had commendably given RIVIERA extra leeway in exercising it. And to this We say that no
amount of jurisprudence RIVIERA might avail of for the purpose of construing the right of
first refusal, however enlightening and persuasive they may be, will cover-up for its arrogant
exercise of its right as can be gleaned from the factual premises. Equity in this case tilts in
favor of defendants REYES, CYPRESS and CORNHILL that the consummated sale between
them concerning the subject property be given this Courts imprimatur, for if RIVIERA lost its
opportunity to acquire it, it has only itself to blame. For after all, REYES fundamental and
intrinsic right of ownership which necessarily carries with it the exclusive right to dispose of it
to whoever he pleases, must ultimately prevail over RIVIERAs right of first refusal which it
unscrupulously tried to exercise.
From this decision, Riviera filed a motion for reconsideration,[31] but the appellate court
denied the same in a Resolution dated September 22, 1994. [32]
Hence, Riviera interposed the instant petition anchored on the following errors: [33]
I In the petition at bar, Riviera posits the view that its right of first refusal was totally
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN
RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT
OF FIRST REFUSAL.
II
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN
NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN L.
REYES, WHICH HAD BEEN THOROUGHLY DECEIVED BY THE LATTER OUT
OF ITS RIGHTS TO ITS CONTINUING PREJUDICE.
III
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN
DENYING RECONSIDERATION.
IV
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN
DECIDING PETITIONERS APPEAL AT A TIME WHEN THE PRINCIPAL
APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE
ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF
THE COURT OF APPEALS AND ITS RESOLUTION DENYING
RECONSIDERATION, IS NULL AND VOID.
At the outset, we note that, while Riviera alleges that the Court of Appeals committed
grave abuse of discretion amounting to lack or excess of jurisdiction, the instant petition is, as
it should be, treated as a petition for review under Rule 45 and not as a special civil action for
certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil
Procedure.
The distinctions between Rule 45 and 65 are far and wide, the most notable of which is
that errors of jurisdiction are best reviewed in a special civil action for certiorari under Rule
65, while errors of judgment are correctible only by appeal in a petition for review under Rule
45.[34] The rationale for the distinction is simple. When a court exercises its jurisdiction an
error committed while so engaged does not deprive it of the jurisdiction being exercised when
the error is committed. If it did, every error committed by a court would deprive it of its
jurisdiction and every erroneous judgment would be a void judgment. This cannot be
allowed. The administration of justice would not countenance such a rule. Thus, an error of
judgment that the court may commit in the exercise of its jurisdiction is not correctible
through the original special civil action of certiorari.[35] Appeal from a final disposition of the
Court of Appeals, as in the case at bar, is by way of a petition for review under Rule 45.[36]
disregarded or violated by Reyes by the latters sale of the subject property to Cypress and
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Cornhill. It contends that the right of first refusal principally amounts to a right to match in the
sense that it needs another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the consequences of a
breach thereof evolved in Philippine juristic sphere only within the last decade. It all started in
1992 with Guzman, Bocaling & Co. v. Bonnevie[37] where the Court held that a lease with a
proviso granting the lessee the right of first priority all things and conditions being equal
meant that there should be identity of the terms and conditions to be offered to the lessee and
all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale
executed in favor of a third party who cannot be deemed a purchaser in good faith, and which
is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of
Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,[38] the
Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v.
Bonnevie and refused to rescind a contract of sale which violated the right of first refusal. The
Court held that the so-called right of first refusal cannot be deemed a perfected contract of sale
under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final
judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an
action for damages in a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.,[39] the Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v.
Bonnevie stating that 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.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals,[40] the
Court affirmed the nature of and the concomitant rights and obligations of parties under a right
of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v.
Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held 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 price for which they were finally sold to a third
person should have likewise been first offered to the former. Further, there should be identity
of terms and conditions to be offered to the buyer holding a right of first refusal if such right is
not to be rendered illusory. Lastly, 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.
Thus, the prevailing doctrine is that a right of first refusal means identity of terms and
conditions to be offered to the lessee and all other prospective buyers and a contract of sale
entered into in violation of a right of first refusal of another person, while valid, is rescissible.
However, we must remember that general propositions do not decide specific
cases. Rather, laws are interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of
isolated clinical classroom principles.[41] Analysis and construction should not be limited to
the words used in the contract, as they may not accurately reflect the parties true intent. [42] The
court must read a contract as the average person would read it and should not give it a strained
or forced construction.[43]
In the case at bar, the Court finds relevant and significant the cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and in case of doubt, their contemporaneous and subsequent acts shall be
principally considered.[44] Where the parties to a contract have given it a practical construction
by their conduct as by acts in partial performance, such construction may be considered by the
court in construing the contract, determining its meaning and ascertaining the mutual intention
of the parties at the time for contracting. The parties practical construction of their contract has
been characterized as a clue or index to, or as evidence of, their intention or meaning and as an
important, significant, convincing, persuasive, or influential factor in determining the proper
construction of the contract.[45]
An examination of the attendant particulars of the case do not persuade us to uphold
Rivieras view. As clearly shown by the records and transcripts of the case, the actions of the
parties to the contract of lease, Reyes and Riviera, shaped their understanding and
interpretation of the lease provision right of first refusal to mean simply that should the lessor
Reyes decide to sell the leased property during the term of the lease, such sale should first be
offered to the lessee Riviera. And that is what exactly ensued between Reyes and Riviera, a
series of negotiations on the price per square meter of the subject property with neither party,
especially Riviera, unwilling to budge from his offer, as evidenced by the exchange of letters
between the two contenders.
It can clearly be discerned from Rivieras letters dated December 2, 1988 and February 4,
1989 that Riviera was so intractable in its position and took obvious advantage of the
knowledge of the time element in its negotiations with Reyes as the redemption period of the
subject foreclosed property drew near. Riviera strongly exhibited a take-it or leave-it attitude
in its negotiations with Reyes. It quoted its fixed and final price as Five Thousand Pesos
(P5,000.00) and not any peso more. It voiced out that it had other properties to consider so
Reyes should decide and make known its decision within fifteen days. Riviera, in its letter
dated February 4, 1989, admittedly, even downgraded its offer when Reyes offered anew the
property to it, such that whatever amount Reyes initially receives from Riviera would
absolutely be insufficient to pay off the redemption price of the subject property. Naturally,
Reyes had to disagree with Rivieras highly disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Rivieras lips, as it were,
but a seemingly whimper of acceptance when the counsel of Reyes strongly expressed in a
letter dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera cannot now
be heard that had it been informed of the offer of Five Thousand Three Hundred Pesos
(P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach
in its negotiations with Reyes showed crystal-clear that there was never any need to disclose
such information and doing so would be just a futile effort on the part of Reyes. Reyes was
under no obligation to disclose the same. Pursuant to Article 1339[46] of the New Civil Code,
silence or concealment, by itself, does not constitute fraud, unless there is a special duty to
disclose certain facts, or unless according to good faith and the usages of commerce the
communication should be made.[47] We apply the general rule in the case at bar since Riviera
failed to convincingly show that either of the exceptions are relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal as understood
by the parties herein, the question as to what is to be included therein or what is meant by the
same, as in all other provisions of the contract, is for the parties and not for the court to
determine, and this question may not be resolved by what the parties might have provided had
they thought about it, which is evident from Riviera claims, or by what the court might
conclude regarding abstract fairness.[48]
The Court would be rewriting the contract of Reyes and Riviera under the guise of
construction were we to interpret the right of first refusal as Riviera propounds it, despite a
Page | 71
contrary construction as exhibited by its actions. A court, even the Supreme Court, has no
right to make new contracts for the parties or ignore those already made by them, simply to
avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies
the creation of a contract for the parties which they did not make themselves or the imposition
upon one party to a contract of an obligation not assumed.[49]
On the last error attributed to the Court of Appeals which is the effect on the jurisdiction
of the appellate court of the non-substitution of Reyes, who died during the pendency of the
appeal, the Court notes that when Riviera filed its petition with this Court and assigned this
error, it later filed on October 27, 1994 a Manifestation[50] with the Court of Appeals stating
that it has discovered that Reyes is already dead, in view of which the appellate court issued a
Resolution dated December 16, 1994 which noted the manifestation of Riviera and directed
the counsel of Reyes to submit a copy of the latters death certificate and to file the proper
motion for substitution of party.[51] Complying therewith, the necessary motion for substitution
of deceased Reyes, who died on January 7, 1994, was filed by the heirs, namely, Estefania B.
Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes.[52] Acting on the motion
for substitution, the Court of Appeals granted the same.[53]
Notwithstanding the foregoing, Section 16[54] and 17[55] of Rule 3 of the Revised Rules
of Court, upon which Riviera anchors its argument, has already been amended by the 1997
Rules of Civil Procedure.[56] Even applying the old Rules, the failure of a counsel to comply
with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court of
the death of his client and no substitution of such is effected, will not invalidate the
proceedings and the judgment thereon if the action survives the death of such party, [57] as this
case does, since the death of Reyes did not extinguish his civil personality. The appellate court
was well within its jurisdiction to proceed as it did with the case since the death of a party is
not subject to its judicial notice. Needless to stress, the purpose behind the rule on substitution
of parties is the protection of the right of every party to due process. This purpose has been
adequately met in this case since both parties argued their respective positions through their
pleadings in the trial court and the appellate court. Besides, the Court has already acquired
jurisdiction over the heirs of Reyes by voluntarily submitting themselves to our jurisdiction. [58]
In view of all the foregoing, the Court is convinced that the appellate court committed
no reversible error in its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court
of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement
as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and Quisumbing, JJ., concur.

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G.R. No. 106837 August 4, 1993
HENRY MACION and ANGELES MACION, petitioners,
vs.
HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the Regional Trial
Court Branch 14, Cotabato City and DELA VIDA INSTITUTE represented by MS.
JOSEPHINE LANZADERAS, respondents.
Leonardo J. Rendon for petitioners.
Mama Dalandag for private respondent Dela Vida Institute.
ROMERO, J.:
The subject of this litigation revolves around two (2) parcels of adjoining lots owned by
petitioners which are the proposed extension sites of De La Vida Institute, an educational
institution located in Cotabato City.
On April 26, 1991, the petitioners and private respondent entered into a contract to sell under
which terms, private respondent, as president of De la Vida Institute, assured petitioners that
they would buy the said properties on or before July 31, 1991 in the amount of P1,750,000.00.
In the meantime, petitioners surrendered the physical possession of the two lots to private
respondent who promptly built an edifice worth P800,000.00. 1
But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint
for unlawful detainer against private respondent (MTCC Civil Case No. 2739). In retaliation,
private respondent filed a complaint for reformation of the contract to sell executed on April
26, 1991 (Civil Case 592).2 Afterwards, the parties met to settle their differences.
On February 6, 1992, the parties entered into a compromise agreement which stipulated
among others that petitioners would give private respondent five (5) months to raise the
amount of P2,060,000.00;3 that in the event of failure to raise the said amount within the
designated period, private respondent would vacate the premises immediately. The
compromise agreement, inter alia, provided:
6. that upon the execution of this agreement, the defendant will furnish the
plaintiff with xerox copy of the land title for each lot which the latter may
use for the purpose of providing information in securing a loan from any
financing or banking institution of their choice.
7. that if within the period of five (5) months from and after February 6,
1992, the plaintiff succeeds in obtaining funds for the purpose of settling
their obligations with defendants in the total sum of P2,060,000.00 the
latter shall oblige themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the subject of this
case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos.
T-22004 and T-22005 of the Registry of Deeds for the City of Cotabato.
In affirmation of the compromise agreement, the Board of Trustees of De La Vida College
passed thereafter a resolution expressing full support to the said agreement entered into
between the parties.4
On March 10, 1992, private respondent wrote petitioners that "the compromise agreement we
have had in the presence of Judge Guiani is not the same as per attached xerox copy you gave
us." In that letter, which essentially was a counter proposal, private respondent said that the
price of P2,060,000.00 was higher than they were willing to pay in the amount of
P2,000,000.00 only.5 Other matters taken up in the letter were: De la Vida Institute would
admit students and hold classes until July 6, 1992 but in case they (private respondent) fail to
deliver the said amount, they would voluntarily vacate the premises and that "in the event that
the bank and other lending institutions give its nod and approval to our loan and require the
submission of other documents, you will give to us the Deed of Sale and Owner's copies of the
Titles of the two (2) to t expedite release of the amount concerned."6
On March 25, 1992, the trial court approved the compromise agreement dated February 6,
1992.
Two (2) months after, private respondents, alleging that they had negotiated a loan from the
Bank of the Philippine Islands, wrote letters dated May 19, 20 and 26 requesting petitioners to
execute with them a contract to sell in their favor. On May 28, 1992, private respondent filed
with the trial court an urgent motion for an order directing petitioners to execute a contract to
sell in private respondent's favor in accordance with paragraph 7 of the compromise
agreement.7
On July 8, 1992, petitioners filed a motion for execution of judgement alleging that after a
lapse of five (5) months from February 6, 1992, private respondent have failed to settle their
obligations with petitioners.8
In its order dated August 6, 1992, respondent judge denied the motion for execution and
directed petitioners to execute the required contract to sell in favor of private respondent.
Respondent judge opined that the proximate cause of private respondent's failure to comply
with the compromise agreement was the refusal of petitioners to execute a contract to sell as
required under the agreement. Respondent judge added that petitioners should have executed
the contract to sell because anyway they would not be prejudiced since there was no transfer
of ownership involved in a contract to sell.9
Hence this instant petition for certiorari, with prayer for a temporary restraining order
enjoining respondent judge from enforcing its August 6, 1992 order.
On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that private
respondent be ordered to consign with the court below P135,000.00 representing rentals from
May 1991 to January 1992. In our resolution dated November 18, 1992, we granted said
prayer. On March 9, 1992, private respondent consigned with the Office of the Clerk of Court
the sum of P135,000.00. On March 29, 1993, petitioners filed with the lower court a motion to
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withdraw the consigned amount and on April 5, 1993, the trial court released the consigned
amount to petitioners. 10
The issue in the case at bar is whether or not respondent judge committed grave abuse of
discretion in ordering petitioner to execute a contract to sell in favor of private respondent.
We dismiss the petition.
The resolution of this case hinges on whether the compromise agreement gives private
respondent-buyer the right to demand from petitioner-sellers the execution of a contract to sell
in favor of the former.
Apparently, paragraph 7 of the compromise agreement does not give such right to private
respondent-buyer. To wit:
7. that if within the period of five (5) months from and after February 6,
1992, the plaintiff succeeds in obtaining funds for the purpose of settling
their obligations with defendants in the total sum of P2,060,000.00 the
latter shall oblige themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the subject of this
case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos.
T-22004 and T-22005 of the Registry of Deeds for the City of Cotabato.
(Italics provided).
From the aforecited paragraph, it is clear that the seller is obliged to execute a Deed of Sale
and not a Contract to Sell upon payment of the full price of P2.06 million. Thereafter, the
sellers would turn over to the buyers, respondents herein, the owner's duplicate copy of
Transfer Certificate of Title Nos. T-22004 and T-22005.
However, in the interpretation of the compromise agreement, we must delve in the
contemporaneous and subsequent acts of the parties to fathom the real intention of the
parties. 11 A review of the facts reveal that even prior to the signing of the compromise
agreement and the filing of Civil Case No. 592 before the trial court, the parties had already
entered into a contract to sell. Thereafter, when the transaction failed to materialize, the parties
filed suits against each other; petitioners, their unlawful detainer case, and private respondent
a complaint for reformation of contract, alleging that petitioners in fact had caused the
preparation of the contract to sell dated April 26, 1991 with the understanding that the land
would be used as a collateral in obtaining a loan with DBP.
Said contract to sell was superseded by the compromise agreement entered into on February 6,
1992 containing the abovequoted paragraph. It must be recalled that private respondent was
given five (5) months from February 6, 1992, i. e., on or before July 6, 1992 to secure the
purchase price of the two (2) lots. We note that within the time frame agreed upon by the
parties, private respondents wrote three (3) letters dated may 19, 20 and 26 requesting
petitioners to execute a contract to sell in its favor.
Under these factual circumstances, we opine that the compromise agreement must be
interpreted as bestowing upon private respondent-buyer the power to demand a contract to sell
from petitioner-sellers. Where the seller promised to execute a deed of absolute sale upon
completing payment of the price, it is a contract to sell. 12 In the case at bar, the sale is still in
the executory stage since the passing of title is subject to a suspensive condition, namely, that
if private respondent is able to secure the needed funds to be used in the purchased of the two
(2) lots owned by petitioners. A mere executory sale, one where the sellers merely promise to
transfer the property at some future date, or where some conditions have to be fulfilled before
the contract is converted from an executory to an executed one, does not pass ownership over
the real estate being sold. 13
In our jurisdiction, it has been that an accepted bilateral promise to buy and sell is in a sense
similar to, but not exactly the same, as a perfected contract of sale because there is already a
meeting of minds upon the thing which is the object of the contract and upon the price. 14 But
a contract of sale is consummated only upon the delivery and payment. It cannot be denied
that the compromise agreement, having been signed by both parties, is tantamount to a
bilateral promise to buy and sell a certain thing for a price certain. Hence, this gives the
contracting parties rights in personam, such that each has the right to demand from the other
the fulfillment of their respective undertakings. 15 Demandability may be exercised at any time
after the execution of the Deed. 16
The order of respondent judge directing petitioners to issue a contract to sell does not place
petitioners in any danger of losing their property without consideration, for, to repeat, in a
contract to sell there is no immediate transfer of ownership. In contracts to sell, payment is a
positive suspensive condition, failure of which does not constitute a breach but an event that
prevents the obligation of the vendor to convey title from materializing, in accordance with
Article 1184 of the Civil Code. 17 Petitioners as promisors were never obliged to convey title
before the happening of the suspensive condition. In fact, nothing stood in the way of their
selling the property to another after a unsuccessful demand for said price upon the expiration
of the time agreed upon.
Since the period given by the petitioners under the compromise agreement has already lapsed,
we order the trial court to fix anew a period within which private respondents could secure the
needed funds for the purchase of the
land. 18 Moreover, considering that private respondents have only consigned rentals from May
1991 to January 1992 and have since accepted students for the present school year, it is only
proper that they be ordered to deposit the monthly rentals collected thereafter with the trial
court.
WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby ordered to
EXECUTE a contract to sell in favor of private respondents. On the other hand, private
respondent is ordered to DEPOSIT with the trial court current rentals pending consummation
of the transaction between the parties. The trial court is ordered to FIX anew the period within
which private respondents may be given the opportunity to raise funds for the purchase of the
two (2) adjoining lots owned by petitioners.
SO ORDERED.
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