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Digest for Obligations & Contracts – Extinguishment of Obligations supervened resulting in the unusual decrease in the purchasing power of

Time of Performance the currency rendering the terms of the contract unenforceable, inequitable
Jade A. Lapinig SBC-COL, 1B and to the undue enrichment of RCBC. He also alleges that the rental of
P700 has become unrealistic and unreasonable, that justice and equity
FEDERICO SERRA will require its adjustment.
vs. Initially, the trial court dismissed the complaint. Although it found
COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION the contract to be valid, the court ruled that the option to buy is
unenforceable because it lacked a consideration distinct from the price and
G.R. No. 103338. January 4, 1994 that RCBC did not exercise its option within reasonable time. But upon motion
for reconsideration of RCBC, the court reversed its decision and ordered Serra
NOCON, J.: to transfer the ownership of the property to RCBC. The Court of Appeals
affirmed the trial court’s decision and held that: the contract is valid; the
Facts: Serra is the owner of a 374 square meter parcel of land located at option is supported by a distinct and separate consideration as embodied in
Quezon St., Masbate, Masbate. In 1975, RCBC, in its desire to put up a branch the agreement; and there is no basis in granting an adjustment in rental.
in Masbate, Masbate, negotiated with Serra for the purchase of the then
unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO Issues & Ruling:
BUY was instead forged by the parties. The contract provides that:
- RCBC shall occupy the land for 25 years from June 1, 1975 to June 1, 2000. (1) Is the contract of lease with option to buy among the parties is valid? Or
- RCBC shall have the option to purchase said parcel of land within a period of is the disputed contract a contract of adhesion?
10 years from the date of the signing of the contract at a price not greater - There is no dispute that the contract is valid and existing between the
than P210.00 per square meter. For this purpose, Serra should, within such parties, as found by both the trial court and the appellate court.
ten-year period, register said parcel of land under the TORRENS SYSTEM and A contract of adhesion is one wherein a party, usually a corporation,
all expenses appurtenant thereto shall be for his sole account. prepares the stipulations in the contract, while the other party merely affixes
- If, for any reason, the land is not registered under the TORRENS SYSTEM his signature or his "adhesion" thereto. These types of contracts are as
within the ten-year period, RCBC shall have the right, upon termination of the binding as ordinary contracts. Because in reality, the party who adheres
lease to be paid by Serra the market value of the building and improvements to the contract is free to reject it entirely. Although, the SC will not hesitate to
constructed on the land. rule out blind adherence to terms where facts and circumstances will show
- RCBC shall pay Serra a monthly rental of P700.00. that it is basically one-sided.
- RCBC is authorized to construct at its sole expense a building and such The SC did not find the situation in the present case to be inequitable.
other improvements on the land, which it may need in the pursuance of its Serra is a highly educated man, who, at the time of the trial was already a
business and/or operations; but if RCBC shall fail to exercise its option in case CPA-Lawyer, and when he entered into the contract, was already a CPA,
the parcel of land is registered under the TORRENS SYSTEM within the ten- holding a respectable position with the Metropolitan Manila Commission. It is
year period mentioned therein, said building and/or improvements, shall evident that a man of his stature should have been more cautious in
become the property of Serra after the expiration of the 25-year lease period transactions he enters into, particularly where it concerns valuable properties.
without right of reimbursement on the part of the RCBC.
Pursuant to said contract, a building and other improvements were (2) Whether there was no consideration to support the option, distinct from
constructed on the land which housed the branch office of RCBC in Masbate, the price, hence the option cannot be exercised.
Masbate. Within three years from the signing of the contract, Serra complied - Jurisprudence has taught us that an optional contract is a privilege
with his part of the agreement by having the property registered and placed existing only in one party — the buyer. For a separate consideration paid,
under the TORRENS SYSTEM. he is given the right to decide to purchase or not, a certain merchandise or
Serra alleges that as soon as he had the property registered, he kept on property, at any time within the agreed period, at a fixed price. This being his
pursuing the manager of the branch to effect the sale of the lot as per their prerogative, he may not be compelled to exercise the option to buy before
agreement. It was not until September 4, 1984, however, when the RCBC the time expires.
decided to exercise its option and informed Serra, through a letter, of its On the other hand, what may be regarded as a consideration separate
intention to buy the property at the agreed price of not greater than P210 per from the price is discussed in the case of Vda. de Quirino v. Palarca wherein
square meter or a total of P78,430. But much to the surprise of RCBC, Serra the facts are almost on all fours with the case at bar. The said case also
replied that he is no longer selling the property. A complaint for specific involved a lease contract with option to buy where we had occasion to say
performance and damages was filed by RCBC against Serra. Serra contended that "the consideration for the lessor's obligation to sell the leased premises
that: (1) RCBC took undue advantage on him when it set in lopsided terms on to the lessee, should he choose to exercise his option to purchase the same,
the contract which was prepared & drawn by RCBC,(2) the option was not is the obligation of the lessee to sell to the lessor the building and/or
supported by any consideration distinct from the price and hence not binding improvements constructed and/or made by the former, if he fails to exercise
upon him, (3) as a condition for the validity and/or efficacy of the option, it his option to buy said premises."
should have been exercised within the reasonable time after the registration of In the present case, the consideration is even more onerous on the
the land under the Torrens System and its delayed action on the option has part of the lessee since it entails transferring of the building and/or
forfeited whatever its claim to the same, and (4) extraordinary inflation
improvements on the property to petitioner, should respondent bank fail to
exercise its option within the period stipulated.

(3) Whether extraordinary inflation supervened resulting in the unusual


decrease in the purchasing power of the currency making the rental of P700
unrealistic and unreasonable, that justice and equity will require its adjustment.
- There is no basis, legal or factual, in adjusting the amount of the rent.
The contract is the law between the parties and if there is indeed
reason to adjust the rent, the parties could by themselves negotiate
for the amendment of the contract. Neither could we consider the decline
of the purchasing power of the Philippine peso from 1983 to the time of the
commencement of the present case in 1985, to be so great as to result in an
extraordinary inflation. Extraordinary inflation exists when there is an
unimaginable increase or decrease of the purchasing power of the Philippine
currency, or fluctuation in the value of pesos manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.

Premises considered, the SC finds that the contract of "LEASE WITH OPTION
TO BUY" between petitioner and respondent bank is valid, effective
and enforceable, the price being certain and that there was
consideration distinct from the price to support the option given to the
lessee.

WHEREFORE, the petition was DISMISSED, and the decision of the appellate
court was AFFIRMED.