1

THIRD DIVISION
G.R. No. L-53820 June 15, 1992
YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,
vs.
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented by its President-Chairman,
CONSTANCIO B. MALAGNA, respondents.

DAVIDE, JR., J.:
Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072-R,
1
promulgated on 21
December 1979, reversing the decision
2
of the then Court of First Instance (now Regional Trial Court) of Leyte dated 20 November
1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation."
The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Board of private
respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS,
which describes itself as "a business concern of single proprietorship,"
3
and is represented by its manager, Mr. Henry Yao; the letter
reads as follows:
PRIME WHITE CEMENT CORPORATION
602 Cardinal Life Building
Herran Street, Manila
Yao Ka Sin
Tacloban City
Gentlemen:
We have the pleasure to submit hereby our firm offer to you under the following quotations, terms, and conditions, to wit:
1). Commodity Prime White Cement
2). Price At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City; and b) P23.30 per 94 lbs. bag net, FOB Asturias Cebu.
3). Quality As fully specified in certificate No. 224-73 by Bureau of Public Works, Republic of the Philippines.
4). Quantity Forty-five Thousand (45,000) bags at 94 lbs. net per bag withdrawable in guaranteed monthly quantity of Fifteen
Thousand (15,000) bags minimum effective from June, 1973 to August 1973.
5). Delivery Schedule Shipment be made within four (4) days upon receipt of your shipping instruction.
6). Bag/Container a) All be made of Standard Kraft (water resistant paper, 4 ply, with bursting strength of 220 pounds, and b)
Breakage allowance additional four percent (4%) over the quantity of each shipment.
7). Terms of Payment Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND (P243,000.00) payable on the
signing of this contract and the balance to be paid upon presentation of corresponding shipping documents.
It is understood that in the event of a delay in our shipment, you hold the option to discount any price differential resulting from a lower
market price vis-a-vis the contract price. In addition, grant (sic) you the option to extend this contract until the complete delivery of Forty
2

Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the option to renew this contract under the
same price, terms and conditions.
Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction. Thank You.
Very truly yours,
PRIME WHITE CEMENT CORPORATION
BY: (SGD) CONSTANCIO B. MAGLANA
President & Chairman
CONFORME:
YAO KA SIN TRADING
BY: (SGD) HENRY YAO
WITNESSES:
(SGD) T. CATINDIG (SGD) ERNESTO LIM
RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the sum of Pesos: TWO HUNDRED FORTY
THREE THOUSAND ONLY (P243,000.00) in the form of Producers' Bank of the Philippines Check No. C-153576 dated June 7, 1973.
PRIME WHITE CEMENT CORPORATION
BY:
(SGD) CONSTANCIO B. MAGLANA
President & Chairman
4

This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the office of Mr. Teodoro
Catindig, Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid Bank).
5

The principal issue raised in this case is whether or not the aforesaid letter-offer, as accepted by YKS, is a contract that binds the
PWCC. The trial court rule in favor of the petitioner, but the respondent Court held otherwise.
The records disclose the following material operative facts:
In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the Board of Directors of PWCC
disapproved the same; the rejection is evidenced by the following Minutes (Exhibit "10"):
the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alledged letter-contract adhered to by them, but
must be understood as a new and separate contract, and has in no way to do with the letter-offer which they (sic) as consummated is
by this resolution totally disapproved and is unacceptable to the corporation.
On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A". Pursuant, however, to its
decision with respect to the 10,000 bags of cement, it is issued the corresponding Delivery Order (Exhibit "4") and Official Receipt No.
0394 (Exhibit "5") for the payment of the same in the amount of P243,000.00 This is the same amount received and acknowledged by
Maglana in Exhibit "A".
YKS accepted without protest both the Delivery and Official Receipts.
3

While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown to Mr. Henry Yao; since
no one would sign a receipt for it, the original was left at the latter's office and this fact was duly noted in Exhibit "1" (Exhibit "l-A").
On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing
or taking delivery of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias, Cebu, thru M/V Taurus." In said reply,
PWCC reminded YKS of its (PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to you and which
you correspondingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973.
6

Unfortunately, no copy of the said 4 August 1973 letter of YKS was presented in evidence.
On 21 August 1973, PWCC wrote another letter (Exhibit "3")
7
to YKS in reply to the latter's letter of 15 August 1973. Enclosed in the
reply was a copy of Exhibit "2". While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still
denied having received it. Likewise, no copy of the so-called 15 August 1973 letter was presented in evidence.
On 10 September 1973, YKS, through Henry Yao, wrote a letter
9
to PWCC as a follow-up to the letter of 15 August 1973; YKS insisted
on the delivery of 45,030 bags of white cement.
10

On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the statement of delivery dated
24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB Asturias, Cebu.
11

On 2 November 1973, YKS sent a telegram (Exhibit "C")
12
to PWCC insisting on the full compliance with the terms of Exhibit "A" and
informing the latter that it is exercising the option therein stipulated.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973 telegram, but this was returned
to sender as unclaimed.
13

As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement.
On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the latter with its obligation
under
Exhibit "A".
14

On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974; PWCC reiterated the
unenforceability of Exhibit "A".
15

On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against
PWCC. The complaint
16
was based on Exhibit "A" and was docketed as Civil Case No. 5064.
In its Answer with Counterclaim
17
filed on 1 July 1974, PWCC denied under oath the material averments in the complaint and alleged
that: (a) YKS "has no legal personality to sue having no legal personality even by fiction to represent itself;" (b) Mr. Maglana, its
President and Chairman, was lured into signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit "A" be approved
by the Board of Directors of PWCC, as corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was
never consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under Exhibit "A", but
under a separate contract prepared by the Board; (f) the rejection by the Board of Exhibit "A" was made known to YKS through various
letters sent to it, copies of which were attached to the Answer as Annexes 1, 2 and 3;
18
(g) YKS knew, per Delivery Order
19
and
Official Receipt
20
issued by PWCC, that only 10;000 bags were sold to it without any terms or conditions, at P24.30 per bag FOB
Asturias, Cebu; (h) YKS is solely to blame for the failure to take complete delivery of 10,000 bags for it did not send its boat or truck to
PWCC's plant; and (i) YKS has, therefore, no cause of action.
In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary damages in the sum of
P500,000.00 and attorney's fees in the sum of P10,000.00.
4

On 24 July 1974, YKS filed its Answer to the Counterclaim.
21

Issues having been joined, the trial court conducted a pre-trial.
22
On that occasion, the parties admitted that according to the By-Laws
of PWCC, the Chairman of the Board, who is also the President of the corporation, "has the power to execute and sign, for and in
behalf of the corporation, all contracts or agreements which the corporation enters into," subject to the qualification that "all the
president's actuations, prior to and after he had signed and executed said contracts, shall be given to the board of directors of
defendant Corporation." Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government
because of the NIDC participation in the same, and that all contracts of the corporation should meet the approval of the NIDC and/or
the PNB Board because of an exposure and financial involvement of around P10 million therein.
23

During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. Maglana was not authorized to
make the offer and sign the contract in behalf of the corporation. Per its By-Laws (Exhibit "8"), only the Board of Directors has the
power . . . (7) To enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation
through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law.
24
Among
the powers of the President is "to operate and conduct the business of the corporation according to his own judgment and discretion,
whenever the same is not expressly limited by such orders, directives or resolutions."
25
Per standard practice of the corporation,
contracts should first pass through the marketing and intelligence unit before they are finalized. Because of its interest in the PWCC,
the NIDC, through its comptroller, goes over contracts involving funds of and white cement produced by the PWCC. Finally, among the
duties of its legal counsel is to review proposed contracts before they are submitted to the Board. While the president. may be tasked
with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the corporation.
26

On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner, the dispositive portion
of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
(1) Ordering defendant: to complete the delivery of 45,000 bags of prime white cement at 94 lbs. net per bag at the price agreed, with a
breakage allowance of empty bags at 4% over the quantity agreed;
(2) Ordering defendant to pay P50,000.00, as moral damages; P5,000.00 as exemplary damages; P3,000.00 as attorney's fees; and
the costs of these proceedings.
SO ORDERED.
27

In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws granting its Board of Directors the power to
enter into an agreement or contract of any kind with any person through the President, to mean that the latter may enter into such
contract or agreement at any time and that the same is not subject to the ratification of the board of directors but "subject only to the
declared objects and purpose of the corporation and existing laws." It then concluded:
It is obvious therefore, that it is not the whole membership of the board of directors who actually enters into any contract with any
person in the name and for and in behalf of the corporation, but only its president. It is likewise crystal clear that this automatic
representation of the board by the president is limited only by the "declared objects and purpose of the corporation and existing
provisions of law."
28

It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to
the orders, directives or resolutions of the board of directors and according to his own judgment and discretion whenever the same is
not expressly limited by such orders, directives and resolutions," to mean that the president can operate and conduct the business of
the corporation according to his own judgment and discretion as long as it is not expressly limited by the orders, directives or
resolutions of the board of directors.
29
The trial court found no evidence that the board had set a prior limitation upon the exercise of
such judgment and discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved by the Board of Directors.
5

Finally, in the light of the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which
the corporation may enter into" (Exhibit "I-1"), it concluded that Mr. Maglana merely followed the By-Laws "presumably both as
president and chairman of the board thereof."
30
Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation.
The trial court, however, ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price;
it was exercised before compliance with the original contract by PWCC; and the repudiation of the original contract by PWCC was
deemed a withdrawal of the option before acceptance by the petitioner.
Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner presented the following
Assignment of Errors:
I
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE
BECAUSE THE OPTION WAS MADE EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT
AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE.
II
THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY DAMAGES
AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL."
31

while the private respondent cited the following errors:
I
THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE
PROPOSED LETTER-CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED
PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE
DEFENDANTS BOARD OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE
DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO
PLAINTIFF.
II
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE
AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT.
III
THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND
REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR 10,000
BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT
FROM THOSE WHICH APPEAR IN EXHIBIT "A".
IV
THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY
CLEAR AND INDUBITABLE EVIDENCE.
32

In its decision
33
promulgated on 21 December 1979, the respondent Court reversed the decision of the trial court, thus:
6

WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's complaint is dismissed with costs. Plaintiff is
ordered to pay defendant corporation P25,000.00 exemplary damages, and P10,000.00 attorney's fees.
SO ORDERED.
Such conclusion is based on its findings, to wit:
Before resolving the issue, it is helpful to bring out some preliminary facts. First, the defendant corporation is supervised and principally
financed by the National Investment and Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank
(PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial institution whose Board is chairmaned
(sic) by the Minister of National Defense. This fact is very material to the issue of whether defendant corporations president can bind
the corporation with his own act.
Second, for failure to deny under oath the following actionable documents in support of defendant's counterclaim:
1. The resolution contained in defendant's letter to plaintiff dated July 5, 1973, on the 10,000 bags of white cement delivered to plaintiff
was not by reason of the letter contract, Exhibit "A", which was totally disapproved by defendant corporation's board of directors, clearly
stating that "If within ten (10) days from date hereof, we will not hear from you but you will withdraw cement at P24.30 per bag from our
plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per
instruction of the Board." (Annex "I" to defendant's Answer).
2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only committed to you and which you accordingly paid 10,000
bags of white cement of which 4,150 bags were already delivered to you as of August 1, 1973" (Annex "2" of defendant's Answer).
3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of August 4, 1973 (Annex "3" to defendant's Answer).
4. Letter to stores dated August 21, 1973,
5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of white cement at P24.30 per bag (Annex "5", to defendant's
Answer).
plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said documents, (Rule 8 Sec. 8, Rules of Court)
but also the allegations therein (Rule 9, Sec. 1, Rules of Court). All of the foregoing documents tend to prove that the letter-offer,
Exhibit "A", was rejected by defendant corporation's Board of Directors and plaintiff was duly notified thereof and that the P243,000.00
check was considered by both parties as payment of the 10,000 bags of cement under a separate transaction. As proof of which
plaintiff did not complain nor protest until February 9, 1974, when he threatened legal action.
Third, Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly upon the condition that it was subject to the
approval of the board of directors of defendant corporation. We find consistency herein because according to the Corporation Law, and
the By-Laws of defendant corporation, all corporate commitments and business are conducted by, and contracts entered into through,
the express authority of the Board of Directors (Sec. 28. Corp. Law, Exh "I" or "8").
Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as defendant corporation is concerned, was an
unauthorized contract (Arts. 1317 and 1403 (1), Civil Code). And because Maglana was not authorized by the Board of Directors of
defendant corporation nor was his, actuation ratified by the Board, the agreement is unenforceable (Art. 1403 (1), Civil Code; Raquiza
et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of Manila, 43 O-G. 3224).
While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the By-Laws of
said corporation was he empowered to enter into any contract all by himself and bind the corporation without first securing the authority
and consent of the Board of Directors. Whatever authority Maglana may have must be derived from the Board of Directors of defendant
7

corporation. A corporate officers power as an agent must be sought from the law, the articles of incorporation and the By-Laws or from
a resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw, 20 SCRA 987).
It clearly results from the foregoing that the judgment appealed from is untenable. Having no cause of action against defendant
corporation, plaintiff is not entitled to any relief. We see no justification, therefore, for the court a quo's awards in its favor. . . .
34

Its motion for reconsideration having been denied by the respondent Court in its resolution
35
dated 15 April 1980, petitioner filed the
instant petition based on the following grounds:
1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Directors Constancio B. Maglana in behalf of
the respondent corporation binds the said corporation.
2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent contract.
3. That the option to renew the contract as contained in Exhibit "A" is enforceable.
4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic) to be a party to the instrument but not to
one who is not a party to the instrument and Sec. 1, Rule 9 of the said Rules with regards (sic) to denying under oath refers only to
allegations of
usury.
36

We gave due course
37
to the petition after private respondent filed its Comment
38
and required the parties to submit simultaneously
their Memoranda, which the parties subsequently complied with.
39

Before going any further, this Court must first resolve an issue which, although raised in the Answer of private respondent, was neither
pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this case. It also eluded the attention of the
trial court and the respondent Court. The issue, which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to
sue. In the caption of both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is:
YAO KA SIN TRADING,
owned and operated by
YAO KA SIN.
40

and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin."
41
In the body
of the petition, it is described as "a single proprietorship business concern."
42
It also appears that, as gathered from the decision of the
trial court, no Yao Ka Sin testified. Instead, one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin
Trading" and "it was in representation of the plaintiff" that he signed Exhibit "A"
43
Under Section 1, Rule 3 of the Rules of Court, only
natural or juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza,
44
this Court
held that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity
authorized by law to bring suit in court:
The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single
individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pair taxes to
the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an
action in court.
45

Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN.
46

The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading. However, it is
now too late in the history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the
respondent Court on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not pursue this
8

issue before the respondent Court and this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an
amendment to cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in
the designation of the parties may be summarily corrected at any stage of the action provided no prejudice is caused thereby to the
adverse party;" and that "[a] sole proprietorship does not, of coarse, possess any juridical personality separate and apart from the
personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship,"
47
We hold and
declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As this Court
stated nearly eighty (80) years ago in Alonso vs. Villamor:
48

No one has been misled by the error in the name of the party plaintiff. If we should by reason of this error send this case back for
amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense, the same interests,
the same witnesses, and the same evidence. The name of the plaintiff would constitute the only difference between the old trial and the
new. In our judgment there is not enough in a name to justify such action.
And now to the merits of the petition.
The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana, its President and
Chairman, was not empowered to execute it. Petitioner, on the other hand, maintains that it is a valid contract because the Maglana
has the power to enter into contracts for the corporation as implied from the following provisions of the By-Laws of private respondent:
a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any kind with any person in the name and for and
in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing
provisions of law. (Exhibit "8-A"); and
b) The power of the Chairman of the Board of Directors to "execute and sign, for and in behalf of the corporation, all contracts or
agreements which the corporation may enter into" (Exhibit "I-1").
And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the private respondent,
pursuant to the doctrine laid down by this Court in Francisco vs. Government Service Insurance
System
49
and Board of Liquidators vs. Kalaw,
50
is still bound by his act for clothing him with apparent authority.
We are not persuaded.
Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said
corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special
charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person
govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents
when once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of
individuals and private persons."
51
Moreover, " . . . a corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.
52

While there can be no question that Mr. Maglana was an officer the President and Chairman of private respondent corporation at
the time he signed Exhibit "A", the above provisions of said private respondent's By-Laws do not in any way confer upon the President
the authority to enter into contracts for the corporation independently, of the Board of Directors. That power is exclusively lodged in the
latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President and not all the members of the Board,
or so much thereof as are required for the act shall sign it for the corporation. This is the import of the words through the president in
Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and
agreements which the corporation may enter into" in Exhibit "I-1". Both powers presuppose a prior act of the corporation exercised
9

through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be
logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president and chairman
of the corporation.
Although there is authority "that if the president is given general control and supervision over the affairs of the corporation, it will be
presumed that he has authority to make contract and do acts within the course of its ordinary business,"
53
We find such inapplicable in
this case. We note that the private corporation has a general manager who, under its By-Laws has, inter alia, the following powers: "(a)
to have the active and direct management of the business and operation of the corporation, conducting the same accordingly to the
order, directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have
a direct and active and in the management of the business and operations of the corporation. Besides, no evidence was adduced to
show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other
parties.
Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent
power to act for it and had caused persons dealing with it to believe that he was conferred with such power. The rule is of course
settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent
authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the
corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an
officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for
a considerable time."
54
Also, "if a private corporation intentionally or negligently clothes its officers or agents with apparent power to
perform acts for it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons dealing in
good faith with such officers or agents."
55
This "apparent authority may result from (1) the general manner, by which the corporation
holds out an officer or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general
or (2) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope
of his ordinary powers.
56

It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to
execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or
in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly
shows that no contract can be signed by the president without first being approved by the Board of Directors; such approval may only
be given after the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel.
The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the petitioner. In said cases, this
Court found sufficient evidence, based on the conduct and actuations of the corporations concerned, of apparent authority conferred
upon the officer involved which bound the corporations on the basis of ratification. In the first case, it was established that the offer of
compromise made by plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and
over the signature of defendant's general manager Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been
accepted. It was sent by the GSIS Board Secretary and defendant did not disown the same. Moreover, in a letter remitting the payment
of P30,000 advanced by her father, plaintiff quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of
the terms of the allegedly unauthorized telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the
telegram. This Court then ruled that:
This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff, constitutes in itself
a binding ratification of the original agreement (Civil Code, Art. 1393).
Art. 1393. Ratification may be effected expressly or tactly it is understood that there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his right
In the second case, this Court found:
10

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra
trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should
give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid
aside the by-laws requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts.
The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as
follows:
Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it, has been execrated,
before it is revoked by the other contracting party.
The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A" is a valid contract
binding upon the private respondent. It was effectively disapproved and rejected by the Board of Directors which, at the same time,
considered the amount of P243,000.00 received Mr. Maglana as payment for 10,000 bags of white cement, treated as an entirely
different contract, and forthwith notified petitioner of its decision that "If within ten (10) days from date hereof we will not hear from you
but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973
issued by the Producers Bank of the Philippines, per instruction of the Board."
57
Petitioner received the copy of this notification and
thereafter accepted without any protest the Delivery Receipt covering the 10,000 bags and the Official Receipt for the P243,000.00.
The respondent Court thus correctly ruled that petitioner had in fact agreed to a new transaction involving only 10,000 bags of white
cement.
The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river
cannot rise higher than its source. In any event, the option granted in. this case is without any consideration Article 1324 of the Civil
Code expressly provides that:
When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.
while Article 1749 of the same Code provides:
A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
Accordingly, even if it were accepted, it can not validly bind the private respondent.
58

The fourth ground is, however, meritorious.
Section 8, Rule 8 of the Rules of Court provides:
Sec. 8. How to contest genuineness of such documents When an action or defense is founded upon a written instrument, copied in
or attached in the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument
shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts;
but this provision does not apply when the adverse party does not appear, to be a party to the instrument or when compliance with an
order for an inspection of the original instrument is refused.
11

It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer. Thus, the above quoted
rule is not applicable.
59
While the respondent Court, erred in holding otherwise, the challenged decision must, nevertheless, stand in
view of the above disquisitions on the first to the third grounds of the petition.
WHEREFORE, judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C.A. G.R. No. 61072-R
promulgated on 21 December 1979.
Cost against the petitioner.
Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur.


EN BANC
[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.
D E C I S I O N
VITUG, J p:
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 Ann 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
12

defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus
the dispositive portion of the decision states:
"'WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint
subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need
not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos.
"'SO ORDERED.'
"Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court
affirmed with modification the lower court's judgment, holding:
"'In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the
claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists
no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment
when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs.
Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable.
'WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold
for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy
today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for
a price in excess of Eleven Million pesos. No pronouncement as to costs.
'SO ORDERED.'
"The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal
on May 6, 1991 'for insufficiency in form and substances' (Annex H, Petition).
"On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a
Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation,
subject to the following terms and conditions:
"'1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators
or assigns, the above-described property with all the improvements found therein including all the rights and interest in the said
property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding;
'2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes.'
"As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT
No. 195816 was issued in the name of petitioner on December 3, 1990.
"On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the
premises.
"On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens
regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
13

"The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals in CA-G.R. CV No. 21123.
"On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
"'Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu
Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution.
'The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in
CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was
an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final
and executory.
'It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to
offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy
today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of
Eleven Million pesos or more.
'WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and
that a new Transfer Certificate of Title be issued in favor of the buyer.
'All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is
hereby set aside as having been executed in bad faith.
'SO ORDERED.'
"On September 22, 1991 respondent Judge issue 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. prcd
We affirm the decision of the appellate court.
14

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase
option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this
discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the
various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes
various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period
from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The
perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the
cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law,
such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential
element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof. cdrep
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. . . . .
15

"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 withdrawal
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." LLjur
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract
to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished
from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal
on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract
of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a
perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept,
per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object
and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential el ements to
establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct. LexLib
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
16

disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for
damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners.
The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on
the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in
good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in
Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted
from the ownership and possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of
the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:
Cdpr
"Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already stated,
there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees,
or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885)."
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of any
deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27
September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

THIRD DIVISION
[G.R. No. 167884. January 20, 2009.]
ENRICO S. EULOGIO, petitioner, vs. SPOUSES CLEMENTE APELES 1 and LUZ APELES, respondents.
DECISION
CHICO-NAZARIO, J p:
Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
assailing the Decision 2 dated 20 December 2004 of the Court of Appeals in CA-G.R. CV No. 76933 which reversed the Decision 3
dated 8 October 2002 of the Regional Trial Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-36834. The RTC directed
17

respondents, spouses Clemente and Luz Apeles (spouses Apeles) to execute a Deed of Sale over a piece of real property in favor of
Enrico after the latter's payment of full consideration therefor. ETDSAc
The factual and procedural antecedents of the present case are as follows:
The real property in question consists of a house and lot situated at No. 87 Timog Avenue, Quezon City (subject property). The lot has
an area of 360.60 square meters, covered by Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of Quezon City in
the names of the spouses Apeles. 4
In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enrico's father. Upon Arturo's death, his son Enrico
succeeded as lessor of the subject property. Enrico used the subject property as his residence and place of business. Enrico was
engaged in the business of buying and selling imported cars. 5 ITaCEc
On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of Lease 6 with Option to Purchase involving the
subject property. According to the said lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her
husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the former on 24 January 1979. The
contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property
for a price not exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are reproduced below:
3. That this Contract shall be effective commencing from January 26, 1987 and shall remain valid and binding for THREE (3)
YEARS from the said date. The LESSOR hereby gives the LESSEE under this Contract of Lease the right and option to buy the
subject house and lot within the said 3-year lease period. 2009jur
4. That the purchase price or total consideration of the house and lot subject of this Contract of Lease shall, should the LESSEE
exercise his option to buy it on or before the expiration of the 3-year lease period, be fixed or agreed upon by the LESSOR and the
LESSEE, Provided, that the said purchase price, as it is hereby agreed, shall not be more than ONE MILLION FIVE HUNDRED
THOUSAND PESOS (P1,500,000.00) and, provided further, that the monthly rentals paid by the LESSEE to the LESSOR during the 3-
year lease period shall form part of or be deducted from the purchase price or total consideration as may hereafter be mutually fixed or
agreed upon by the LESSOR and the LESSEE. DISHEA
5. That if the LESSEE shall give oral or written notice to the LESSOR on or before the expiry date of the 3-year lease period
stipulated herein of his desire to exercise his option to buy or purchase the house and lot herein leased, the LESSOR upon receipt of
the purchase price/total consideration as fixed or agreed upon less the total amount of monthly rentals paid the LESSEE during the 3-
year lease period shall execute the appropriate Deed to SELL, TRANSFER and CONVEY the house and lot subject of this Contract in
favor of the LESSEE, his heirs, successors and assigns, together with all the fixtures and accessories therein, free from all liens and
encumbrances.
Before the expiration of the three-year lease period provided in the lease contract, Enrico exercised his option to purchase the subject
property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles
supposedly ignored Enrico's manifestation. This prompted Enrico to seek recourse from the barangay for the enforcement of his right to
purchase the subject property, but despite several notices, the spouses Apeles failed to appear before the barangay for settlement
proceedings. Hence, the barangay issued to Enrico a Certificate to File Action. 7 AIECSD
In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that he pay his rental arrears from January 1991 to
December 1996 and he vacate the subject property since it would be needed by the spouses Apeles themselves.
Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February 1999 a Complaint for Specific Performance with
Damages against the spouses Apeles before the RTC, docketed as Civil Case No. Q-99-36834. Enrico's cause of action is founded on
paragraph 5 of the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership of the subject property
after paying the agreed amount of consideration.
18

Following the pre-trial conference, trial on the merits ensued before the RTC. IAEcaH
Enrico himself testified as the sole witness for his side. He narrated that he and Luz entered into the Contract of Lease with Option to
Purchase on 26 January 1987, with Luz signing the said Contract at Enrico's office in Timog Avenue, Quezon City. The Contract was
notarized on the same day as evidenced by the Certification on the Notary Public's Report issued by the Clerk of Court of the RTC of
Manila. 8
On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease with Option to Purchase, and posited that Luz's
signature thereon was a forgery. To buttress their contention, the spouses Apeles offered as evidence Luz's Philippine Passport which
showed that on 26 January 1987, the date when Luz allegedly signed the said Contract, she was in the United States of America. The
spouses Apeles likewise presented several official documents bearing her genuine signatures to reveal their remarkable discrepancy
from the signature appearing in the disputed lease contract. The spouses Apeles maintained that they did not intend to sell the subject
property. 9 aSCDcH
After the spouses Apeles established by documentary evidence that Luz was not in the country at the time the Contract of Lease with
Option to Purchase was executed, Enrico, in rebuttal, retracted his prior declaration that the said Contract was signed by Luz on 26
January 1996. Instead, Enrico averred that Luz signed the Contract after she arrived in the Philippines on 30 May 1987. Enrico further
related that after Luz signed the lease contract, she took it with her for notarization, and by the time the document was returned to him,
it was already notarized. 10
On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in favor of Enrico. Since none of the parties presented
a handwriting expert, the RTC relied on its own examination of the specimen signatures submitted to resolve the issue of forgery. The
RTC found striking similarity between Luz's genuine signatures in the documents presented by the spouses Apeles themselves and her
purportedly forged signature in the Contract of Lease with Option to Purchase. Absent any finding of forgery, the RTC bound the
parties to the clear and unequivocal stipulations they made in the lease contract. Accordingly, the RTC ordered the spouses Apeles to
execute a Deed of Sale in favor of Enrico upon the latter's payment of the agreed amount of consideration. The fallo of the RTC
Decision reads: THADEI
WHEREFORE, this Court finds [Enrico's] complaint to be substantiated by preponderance of evidence and accordingly orders
(1) [The spouses Apeles] to comply with the provisions of the Contract of Lease with Option to Purchase; and upon payment of
total consideration as stipulated in the said CONTRACT for [the spouses Apeles] to execute a Deed of Absolute Sale in favor of
[Enrico], over the parcel of land and the improvements existing thereon located at No. 87 Timog Avenue, Quezon City.
(2) [The spouses Apeles] to pay [Enrico] moral and exemplary damages in the respective amounts of P100,000.00 and
P50,000.00.
(3) [The spouses Apeles] to pay attorney's fees of P50,000.00 and costs of the suit. 11
The spouses Apeles challenged the adverse RTC Decision before the Court of Appeals and urged the appellate court to nullify the
assailed Contract of Lease with Option to Purchase since Luz's signature thereon was clearly a forgery. The spouses Apeles argued
that it was physically impossible for Luz to sign the said Contract on 26 January 1987 since she was not in the Philippines on that date
and returned five months thereafter. The spouses Apeles called attention to Enrico's inconsistent declarations as to material details
involving the execution of the lease contract, thereby casting doubt on Enrico's credibility, as well as on the presumed regularity of the
contract as a notarized document. caCTHI
On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No. 76933 granting the appeal of the spouses Apeles
and overturning the judgment of the RTC. In arriving at its assailed decision, the appellate court noted that the Notary Public did not
observe utmost care in certifying the due execution of the Contract of Lease with Option to Purchase. The Court of Appeals chose not
to accord the disputed Contract full faith and credence. The Court of Appeals held, thus: 2009jur
19

WHEREFORE, the foregoing premises considered, the appealed decision dated October 8, 2002 of the Regional Trial Court of Quezon
City, Branch 215 in Civil Case No. Q-99-36834 for specific performance with damages is hereby REVERSED and a new is one entered
dismissing [Enrico's] complaint. 12
Enrico's Motion for Reconsideration was denied by the Court of Appeals in a Resolution 13 dated 25 April 2005. cDTACE
Enrico is presently before this Court seeking the reversal of the unfavorable judgment of the Court of Appeals, assigning the following
errors thereto:
I.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN IT BRUSHED ASIDE THE RULING OF THE COURT A
QUO UPHOLDING THE VALIDITY OF THE CONTRACT OF LEASE WITH OPTION TO PURCHASE AND IN LIEU THEREOF RULED
THAT THE SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL AND VOID.
II.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN CONTRARY TO THE FINDINGS OF THE COURT A
QUO IT RULED THAT THE DEFENSE OF FORGERY WAS SUBSTANTIALLY AND CONVINCINGLY PROVEN BY COMPETENT
EVIDENCE. caTIDE
Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the RTC in disregard of the legal aphorism that the
factual findings of the trial court should be accorded great weight and respect on appeal.
We do not agree.
Enrico's insistence on the infallibility of the findings of the RTC seriously impairs the discretion of the appellate tribunal to make
independent determination of the merits of the case appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and
sinker the factual conclusions of the trial court without crippling the very office of review. Although we have indeed held that the factual
findings of the trial courts are to be accorded great weight and respect, they are not absolutely conclusive upon the appellate court. 14
The reliance of appellate tribunals on the factual findings of the trial court is based on the postulate that the latter had firsthand
opportunity to hear the witnesses and to observe their conduct and demeanor during the proceedings. However, when such findings
are not anchored on their credibility and their testimonies, but on the assessment of documents that are available to appellate
magistrates and subject to their scrutiny, reliance on the trial court finds no application. 15 DcCITS
Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the Revised Rules of Court, the parties may raise both
questions of fact and/or of law. In fact, it is imperative for the Court of Appeals to review the findings of fact made by the trial court. The
Court of Appeals even has the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary to
resolve factual issues raised in cases falling within its original and appellate jurisdiction. 16
Enrico assiduously prays before this Court to sustain the validity of the Contract of Lease with Option to Purchase. Enrico asserts that
the said Contract was voluntarily entered into and signed by Luz who had it notarized herself. The spouses Apeles should be obliged to
respect the terms of the agreement, and not be allowed to renege on their commitment thereunder and frustrate the sanctity of
contracts. aSIETH
Again, we are not persuaded. We agree with the Court of Appeals that in ruling out forgery, the RTC heavily relied on the testimony
proffered by Enrico during the trial, ignoring blatant contradictions that destroy his credibility and the veracity of his cl aims. On direct
examination, Enrico testified that Luz signed the Contract of Lease with Option to Purchase on 26 January 1987 in his presence, 17 but
he recanted his testimony on the matter after the spouses Apeles established by clear and convincing evidence that Luz was not in the
Philippines on that date. 18 In rebuttal, Enrico made a complete turnabout and claimed that Luz signed the Contract in question on 30
20

May 1987 after her arrival in the country. 19 The inconsistencies in Enrico's version of events have seriously impaired the probative
value of his testimony and cast serious doubt on his credibility. His contradictory statements on important details simply eroded the
integrity of his testimony. 2009jur
While it is true that a notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and has in
its favor the presumption of regularity, this presumption, however, is not absolute. It may be rebutted by clear and convincing evidence
to the contrary. 20 Enrico himself admitted that Luz took the document and had it notarized without his presence. Such fact alone
overcomes the presumption of regularity since a notary public is enjoined not to notarize a document unless the persons who signed
the same are the very same persons who executed and personally appeared before the said notary public to attest to the contents and
truth of what are stated therein. SIDEaA
Although there is no direct evidence to prove forgery, preponderance of evidence inarguably favors the spouses Apeles. In civil cases,
the party having the burden of proof must establish his case by a preponderance of evidence. Preponderance of evidence is the
weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater
weight of the evidence" or "greater weight of the credible evidence". Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in
opposition thereto. 21 In the case at bar, the spouses Apeles were able to overcome the burden of proof and prove by preponderant
evidence in disputing the authenticity and due execution of the Contract of Lease with Option to Purchase. In contrast, Enrico seemed
to rely only on his own self-serving declarations, without asserting any proof of corroborating testimony or circumstantial evidence to
buttress his claim. TaISEH
Even assuming for the sake of argument that we agree with Enrico that Luz voluntarily entered into the Contract of Lease with Option
to Purchase and personally affixed her signature to the said document, the provision on the option to purchase the subject property
incorporated in said Contract still remains unenforceable. 2009jur
There is no dispute that what Enrico sought to enforce in Civil Case No. Q-99-36834 was his purported right to acquire ownership of
the subject property in the exercise of his option to purchase the same under the Contract of Lease with Option to Purchase. He
ultimately wants to compel the spouses Apeles to already execute the Deed of Sale over the subject property in his favor.
An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the
former's 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. 22 An option is not of itself a purchase,
but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply 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.
He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or
option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside
from the consideration for the offer. 23 aIAHcE
It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil Code:
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.
The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an
option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.
24 cEAHSC
21

In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co., 25 we declared that for an option
contract to bind the promissor, it must be supported by consideration: 2009jur
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 a 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. Here it is not disputed that the option is without consideration. It
can therefore be withdrawn notwithstanding the acceptance made of it by appellee. (Emphasis supplied.) HSIDTE
The doctrine requiring the payment of consideration in an option contract enunciated in Southwestern Sugar is resonated in
subsequent cases and remains controlling to this day. Without consideration that is separate and distinct from the purchase price, an
option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee.
The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract". This
definition illustrates that the consideration contemplated to support an option contract need not be monetary. Actual cash need not be
exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous
contract for which the consideration must be something of value, although its kind may vary. 26
We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and
their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option
contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase
price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for
the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a
consideration separate and distinct from the price. EScIAa
In Bible Baptist Church v. Court of Appeals, 27 we stressed that an option contract needs to be supported by a separate consideration.
The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value, in view of the onerous nature of the option contract. Furthermore, when a
consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or
clause. 2009jur
In the present case, it is indubitable that no consideration was given by Enrico to the spouses Apeles for the option contract. The
absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.
WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Decision dated 20 December 2004 and Resolution dated
25 April 2005 of the Court of Appeals in CA-G.R. CV No. 76933 are hereby AFFIRMED. No costs. cDCaTS
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Azcuna * and Nachura, JJ., concur.

G.R. No. 97332 October 10, 1991

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,
vs.
22

THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES AND ROBERTO REYES, respondents.

Tranquilino F. Meris for petitioners.

Agripino G. Morga for private respondents.



MEDIALDEA, J.:p

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor
and Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants-Appellants,"
which reversed the decision of the Regional Trial Court (Branch 121) at Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City, as evidenced by Transfer
Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.

In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and Marina and Villamor for the total amount
of P21,000.00. Earlier, Macaria borrowed P2,000.00 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 while the remaining portion
which is still in the name of Macaria Labing-isa is covered by 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 document reads:

DEED OF OPTION

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 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. Villamor, also of age and residing at No. 552 Reparo St., corner Baesa
Road, Baesa, Caloocan City.

23

WITNESSETH

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. (18431) 18938 of the Office of the Register of Deeds for the province of Rizal, issued in may name, I
having inherited the same from my deceased parents, for which reason it is my paraphernal property;

That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid spouses Julio Villamor and
Marina V. Villamor at the price 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;

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 and now covered by TCT No. 39935 of the Register of Deeds for the City of
Caloocan, 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 meter, excluding whatever improvement may be found the thereon;

That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon the property covered thereby,
upon payment of the corresponding fees; and

That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of this Deed of Option.

IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the persons concerned, this 11th day of
November, 1971.

JULIO VILLAMOR MACARIA LABINGISA

With My Conformity:

MARINA VILLAMOR ROBERTO REYES

Signed in the Presence Of:

24

MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO

ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)
CITY OF MANILA ) S.S.

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-Villamor, known to me as the same persons who executed the foregoing Deed of 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 notarial seal, and said parties acknowledged to me that
the same is their free act and deed. The Residence Certificates of the parties were exhibited to me as follows: Roberto Reyes, A-
22494, issued at Manila on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and
B-1266104, 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, issued at Manila on March 1, 1971; and Marina Ventura-Villamor, A-803, issued at
Manila on Jan. 14, 1971, their joint Tax Acct. Number being 608-202-6.

ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

Doc. No. 1526;
Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to 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 remaining portion of the lot.
25


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 July 13, 1987, after conciliation proceedings in the barangay level failed, they
filed a complaint for specific performance against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the dispositive portion of which states:

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.

The counterclaim is hereby DISMISSED, for LACK OF MERIT.

SO ORDERED. (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on the following assignment of
errors:

1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM
THE EXECUTION OF THE CONTRACT;

2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND STIPULATIONS WHICH SHOULD
BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND PREPARED THE SAME;

3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND PURPOSE OF THE PARTIES DESPITE
ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-APPELLEES;

4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;

5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE DEFENDANT-APPELLANTS; and
26


6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY
WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)

On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court and dismissing the complaint.
The reversal of the trial court's decision was premised on the finding of respondent court that the Deed of Option is void for lack of
consideration.

The Villamor spouses brought the instant petition for review on certiorari on the following grounds:

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;

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

27

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)

28

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)

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:

29

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.
30


SO ORDERED.

Narvasa (Chairman) and Cruz, JJ., concur.

Grio-Aquino, J., took no part.

[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.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OPTION TO BUY; MANNER OF VALIDLY AND EFFECTIVELY
EXERCISING OPTION. 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. ID.; ID.; ID.; ID.; OPTION IN INSTANT CASE EFFECTIVELY EXERCISED. Where the parties entered into a "Contract of
Lease with Option to Buy", the lessee being given the right to exercise the option, "within the period of the contract of lease" which
began in June 1960 and ended in June 1965, and on September 4, 1961, well within the period of the contract of lease and after the
lessee had substantially complied with the terms of the lease, the lessor, upon receiving the sum of P3,300 from the lessee, issued a
receipt which stated that such sum was "as per advance pay for the school, the contract of lease being paid", and subsequently when
the lessee paid the additional sum of P2,200, the lessor again issued a receipt stating that he was accepting said amount "as partial
payment on the purchase price of the property as specified on the original contract", the lessee-owner of the option should be
considered as having validly and effectively exercised his option to buy the property involved. The effective exercise of the option is
further confirmed by the lessee's letter which says that he "is ready to pay the balance of the purchase price in accordance with the
contract" and requests the counsel of the lessor to inform or advice 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 days . . . we shall take the corresponding action to
enforce the agreement."
3. ID.; ID.; ID.; ID.; NOTICE OF DECISION TO EXERCISE OPTION NEED NOT BE COUPLED WITH ACTUAL PAYMENT.
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.
D E C I S I O N
CONCEPCION, J p:
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
31

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)
32

March 13, 1961 700.00 (Exh. J)
August 4, 1961 100.00 (Exh. K)

TOTAL P24,757.00
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.
33

"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,
(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:
34

"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 the 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
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 against him. Hence, the present petition of Nietes for review on 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 could be exercised," because "there was no need
nor sense in providing that 'the unused payment for the Contract of Lease will be considered as part payment for the sale of the land
and school"' inasmuch as "otherwise there is no 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," indicates that he did not consider the receipts, Exhibits B and C. 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
35

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.
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. E)
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,
36

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 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.
37

Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.
Castro, J., took no part.
Footnotes
1. Last Paragraph of Art. 1169, New Civil Code.
2. Abesamis v. Woodcraft Works, Ltd., L-18916, Nov. 28, 1969; Causing v. Bencer, 37 Phil. 417, 419-420.

G.R. No. 168325 December 8, 2010
ROBERTO D. TUAZON, Petitioner,
vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE LEON, MIGUEL LUIS S. DE LEON,
ROMMEL LEE S. DE LEON, and GUILLERMA L. SANDICO-SILVA, as attorney-in-fact of the defendants, except Lourdes Q. Del
Rosario-Suarez, Respondents.
D E C I S I O N
DEL CASTILLO, J.:
In a situation where the lessor makes an offer to sell to the lessee a certain property at a fixed price within a certain period, and the
lessee fails to accept the offer or to purchase on time, then the lessee loses his right to buy the property and the owner can validly offer
it to another.
This Petition for Review on Certiorari
1
assails the Decision
2
dated May 30, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.
78870, which affirmed the Decision
3
dated November 18, 2002 of the Regional Trial Court (RTC), Branch 101, Quezon City in Civil
Case No. Q-00-42338.
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land, containing more or less an area of 1,211
square meters located along Tandang Sora Street, Barangay Old Balara, Quezon City and previously covered by Transfer Certificate
of Title (TCT) No. RT-56118
4
issued by the Registry of Deeds of Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a Contract of Lease
5
over the abovementioned
parcel of land for a period of three years. The lease commenced in March 1994 and ended in February 1997. During the effectivity of
the lease, Lourdes sent a letter
6
dated January 2, 1995 to Roberto where she offered to sell to the latter subject parcel of land. She
pegged the price at P37,541,000.00 and gave him two years from January 2, 1995 to decide on the said offer.
On June 19, 1997, or more than four months after the expiration of the Contract of Lease, Lourdes sold subject parcel of land to her
only child, Catalina Suarez-De Leon, her son-in-law Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and Rommel S.
De Leon (the De Leons), for a total consideration of only P2,750,000.00 as evidenced by a Deed of Absolute Sale
7
executed by the
parties. TCT No. 177986
8
was then issued by the Registry of Deeds of Quezon City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to vacate the premises. Roberto refused hence, the
De Leons filed a complaint for Unlawful Detainer before the Metropolitan Trial Court (MeTC) of Quezon City against him. On August 30,
2000, the MeTC rendered a Decision
9
ordering Roberto to vacate the property for non-payment of rentals and expiration of the
contract.
38

Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the RTC of Quezon City a Complaint
10
for
Annulment of Deed of Absolute Sale, Reconveyance, Damages and Application for Preliminary Injunction against Lourdes and the De
Leons. On November 13, 2000, Roberto filed a Notice of Lis Pendens
11
with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with Counterclaim
12
praying that the Complaint be dismissed for lack of cause of
action. They claimed that the filing of such case was a mere leverage of Roberto against them because of the favorable Decision
issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order
13
declaring Lourdes and the De Leons in default for their failure to appear before the
court for the second time despite notice. Upon a Motion for Reconsideration,
14
the trial court in an Order
15
dated October 19, 2001 set
aside its Order of default.
After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made by Lourdes in favor of the De Leons as valid
and binding. The offer made by Lourdes to Roberto did not ripen into a contract to sell because the price offered by the former was not
acceptable to the latter. The offer made by Lourdes is no longer binding and effective at the time she decided to sell the subject lot to
the De Leons because the same was not accepted by Roberto. Thus, in a Decision dated November 18, 2002, the trial court dismissed
the complaint. Its dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled Complaint for lack of merit, and
ordering the Plaintiff to pay the Defendants, the following:
1. the amount of P30,000.00 as moral damages;
2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorneys fees; and
4. cost of the litigation.
SO ORDERED.
16

Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and affirming the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto advancing the following arguments:
I.
The Trial Court and the Court of Appeals had decided that the "Right of First Refusal" exists only within the parameters of an "Option to
Buy", and did not exist when the property was sold later to a third person, under favorable terms and conditions which the former buyer
can meet.
II.
What is the status or sanctions of an appellee in the Court of Appeals who has not filed or failed to file an appellees brief?
17

Petitioners Arguments
Roberto claims that Lourdes violated his right to buy subject property under
39

the principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the property under the same terms and
conditions or specifically based on the much lower price paid by the De Leons.
Roberto further contends that he is enforcing his "right of first refusal" based on Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.
18
which is the leading case on the "right of first refusal."
Respondents Arguments
On the other hand, respondents posit that this case is not covered by the principle of "right of first refusal" but an unaccepted unilateral
promise to sell or, at best, a contract of option which was not perfected. The letter of Lourdes to Roberto clearly embodies an option
contract as it grants the latter only two years to exercise the option to buy the subject property at a price certain of P37,541,000.00. As
an option contract, the said letter would have been binding upon Lourdes without need of any consideration, had Roberto accepted the
offer. But in this case there was no acceptance made neither was there a distinct consideration for the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of a right of first refusal
In Beaumont v. Prieto,
19
the nature of an option contract is explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling
to, B certain securities or properties within a limited time at a specified price. (Story vs. Salamon, 71 N. Y., 420.)
From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep.,
17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right
to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands,
nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he
elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this
right, or rather, from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was
cause or consideration for the obligation x x x. (Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals,
20
an elucidation on the "right of first refusal" was made thus:
In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out, it cannot be deemed a
perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept,
per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 1319 of the same Code. An option or an offer would require, among other things,

a clear certainty on both the object and
the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it
can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the
essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil Code on human conduct.
40

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. It is
not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard
thereof, given, for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages.
(Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is entirely different and distinct from a right of first refusal in that in the former,
the option granted to the offeree is for a fixed period and at a determined price. Lacking these two essential requisites, what is
involved is only a right of first refusal.
In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2, 1995 involved an option contract or a contract
of a right of first refusal. In its entirety, the said letter-offer reads:
206 Valdes Street
Josefa Subd. Balibago
Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet grapes and ham, fit for a kings party. Thanks very much.
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only family. I need money to buy a house and lot and
a farm with a little cash to start.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in dollars in the name of my daughter. I never
offered it to anyone. Please shoulder the expenses for the transfer. I wish the Lord God will help you buy my lot easily and you will be
very lucky forever in this place. You have all the time to decide when you can, but not for 2 years or more.
I wish you long life, happiness, health, wealth and great fortune always!
I hope the Lord God will help you be the recipient of multi-billion projects aid from other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option contract as it grants Roberto a fixed period of only two years to buy the subject
property at a price certain of P37,541,000.00. It being an option contract, the rules applicable are found in Articles 1324 and 1479 of
the Civil Code which provide:
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or
promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
41

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.
It is clear from the provision of Article 1324 that there is a great difference between the effect of an option which is without a
consideration from one which is founded upon a consideration. If the option is without any consideration, the offeror may withdraw his
offer by communicating such withdrawal to the offeree at anytime before acceptance; if it is founded upon a consideration, the offeror
cannot withdraw his offer before the lapse of the period agreed upon.
The second paragraph of Article 1479 declares that "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." Sanchez v. Rigos
21

provided an interpretation of the said second paragraph of Article 1479 in relation to Article 1324. Thus:
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. Hence, it is not disputed that the option is without consideration. It
can therefore be withdrawn notwithstanding the acceptance made 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.
In Diamante v. Court of Appeals,
22
this Court further declared that:
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is accepted.
Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted, the promissor may
withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and the offeree ipso facto
assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for damages if he fails to deliver the thing he
had offered for sale.
x x x x
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct consideration.
(Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes as he negotiated for a much lower
price. Robertos act of negotiating for a much lower price was a counter-offer and is therefore not an acceptance of the offer of
Lourdes. Article 1319 of the Civil Code provides:
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. (Emphasis
supplied.)
The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is therefore no contract that was perfected
between them with regard to the sale of subject property. Roberto, thus, does not have any right to demand that the property be sold to
him at the price for which it was sold to the De Leons neither does he have the right to demand that said sale to the De Leons be
annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here
42

It is the position of Roberto that the facts of this case and that of Equatorial are similar in nearly all aspects. Roberto is a lessee of the
property like Mayfair Theater in Equatorial. There was an offer made to Roberto by Lourdes during the effectivity of the contract of
lease which was also the case in Equatorial. There were negotiations as to the price which did not bear fruit because Lourdes sold the
property to the De Leons which was also the case in Equatorial wherein Carmelo and Bauermann sold the property to Equatorial. The
existence of the lease of the property is known to the De Leons as they are related to Lourdes while in Equatorial, the lawyers of
Equatorial studied the lease contract of Mayfair over the property. The property in this case was sold by Lourdes to the De Leons at a
much lower price which is also the case in Equatorial where Carmelo and Bauerman sold to Equatorial at a lesser price. It is Robertos
conclusion that as in the case of Equatorial, there was a violation of his right of first refusal and hence annulment or rescission of the
Deed of Absolute Sale is the proper remedy.
Robertos reliance in Equatorial is misplaced. Despite his claims, the facts in Equatorial radically differ from the facts of this case.
Roberto overlooked the fact that in Equatorial, there was an express provision in the Contract of Lease that
(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-days exclusive option to purchase the same.
There is no such similar provision in the Contract of Lease between Roberto and Lourdes. What is involved here is a separate and
distinct offer made by Lourdes through a letter dated January 2, 1995 wherein she is selling the leased property to Roberto for a
definite price and which gave the latter a definite period for acceptance. Roberto was not given a right of first refusal. The letter-offer of
Lourdes did not form part of the Lease Contract because it was made more than six months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In this case, the subject property was sold not only
after the expiration of the period provided in the letter-offer of Lourdes but also after the effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound thereby because of the absence of a
consideration distinct and separate from the price. The argument of Roberto that the separate consideration was the liberality on the
part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes would show that what drove her to offer the property to Roberto
was her immediate need for funds as she was already very old. Offering the property to Roberto was not an act of liberality on the part
of Lourdes but was a simple matter of convenience and practicality as he was the one most likely to buy the property at that time as he
was then leasing the same.
All told, the facts of the case, as found by the RTC and the CA, do not support Robertos claims that the letter of Lourdes gave him a
right of first refusal which is similar to the one given to Mayfair Theater in the case of Equatorial. Therefore, there is no justification to
annul the deed of sale validly entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file her appellees brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her appellees brief before the CA.
Certainly, the appellees failure to file her brief would not mean that the case would be automatically decided against her. Under the
circumstances, the prudent action on the part of the CA would be to deem Lourdes to have waived her right to file her appellees brief.
De Leon v. Court of Appeals,
23
is instructive when this Court decreed:
On the second issue, we hold that the Court of Appeals did not commit grave abuse of discretion in considering the appeal submitted
for decision. The proper remedy in case of denial of the motion to dismiss is to file the appellees brief and proceed with the appeal.
Instead, petitioner opted to file a motion for reconsideration which, unfortunately, was pro forma. All the grounds raised therein have
been discussed in the first resolution of the respondent Court of Appeals. There is no new ground raised that might warrant reversal of
the resolution. A cursory perusal of the motion would readily show that it was a near verbatim repetition of the grounds stated in the
motion to dismiss; hence, the filing of the motion for reconsideration did not suspend the period for filing the appellees brief. Petitioner
was therefore properly deemed to have waived his right to file appellees brief. (Emphasis supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in the RTC. He obtained a favorable judgment
and so defendant went to the CA. The appeal of defendant-appellant was taken cognizance of by the CA but De Leon filed a Motion to
Dismiss the Appeal with Motion to Suspend Period to file Appellees Brief. The CA denied the Motion to Dismiss. De Leon filed a
43

Motion for Reconsideration which actually did not suspend the period to file the appellees brief. De Leon therefore failed to file his brief
within the period specified by the rules and hence he was deemed by the CA to have waived his right to file appellees brief.
The failure of the appellee to file his brief would not result to the rendition of a decision favorable to the appellant. The former is
considered only to have waived his right to file the Appellees Brief. The CA has the jurisdiction to resolve the case based on the
Appellants Brief and the records of the case forwarded by the RTC. The appeal is therefore considered submitted for decision and the
CA properly acted on it.
WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV No.
78870, which affirmed the Decision dated November 18, 2002 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No.
Q-00-42338 is AFFIRMED.
SO ORDERED.
FIRST DIVISION
[G.R. No. 183612. March 15, 2010.]
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner, vs. GOLDEN HORIZON REALTY CORPORATION, respondent.
[G.R. No. 184260. March 15, 2010.]
NATIONAL DEVELOPMENT COMPANY, petitioner, vs. GOLDEN HORIZON REALTY CORPORATION, respondent.
DECISION
VILLARAMA, JR., J p:
The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seek to reverse the
Decision 1 dated June 25, 2008 and Resolution dated August 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 84399 which
affirmed the Decision 2 dated November 25, 2004 of the Regional Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-
2238. DcCHTa
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a government-owned and controlled corporation, created under Commonwealth
Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the
Philippines (PUP) is a public, non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was
popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty Corporation (GHRC) over a
portion of the property, with an area of 2,407 square meters for a period of ten (10) years, renewable for another ten (10) years with
mutual consent of the parties. 3
On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering 3,222.80 square meters, also
renewable upon mutual consent after the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted the
"option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised." 4
cDECIA
Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less than the
stipulated cost, and other improvements which shall automatically belong to the NDC as lessor upon the expiration of the lease period.
44

Accordingly, GHRC introduced permanent improvements and structures as required by the terms of the contract. After the completion
of the industrial complex project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other
businessmen thereby generating hundreds of jobs. 5
On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC
indicating its exercise of the option to renew the lease for another ten (10) years. As no response was received from NDC, GHRC sent
another letter on August 12, 1988, reiterating its desire to renew the contract and also requesting for priority to negotiate for its
purchase should NDC opt to sell the leased premises. 6 NDC still did not reply but continued to accept rental payments from GHRC
and allowed the latter to remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third party. On October
21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with preliminary injunction and temporary restraining
order. 7
In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989, ordering the transfer
of the whole NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at acquisition
cost. The memorandum order cited the serious need of PUP, considered the "Poor Man's University," to expand its campus, which
adjoins the NDC Compound, to accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its
property. The order of conveyance of the 10.31-hectare property would automatically result in the cancellation of NDC's total obligation
in favor of the National Government in the amount of P57,193,201.64. 8 ECcaDT
On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, representatives, agents and any
other persons assisting it from proceeding with the sale and disposition of the leased premises. 9
On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser pendente lite of a property
subject of litigation it is entitled to intervene in the proceedings. The RTC granted the said motion and directed PUP to file its Answer-
in-Intervention. 10
PUP also demanded that GHRC vacate the premises, insisting that the latter's lease contract had already expired. Its demand l etter
unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the Metropolitan Trial Court (MeTC) of Manila on
January 14, 1991. 11
Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional defendants PUP, Honorable
Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-mentioned defendants
from prosecuting Civil Case No. 134416 for ejectment. A temporary restraining order was subsequently issued by the RTC enjoining
PUP from prosecuting and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case. 12 IcHTED
In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a nullity, for being violative
of the writ of injunction issued by the trial court, apart from being an infringement of the Constitutional prohibition against impairment of
obligation of contracts, an encroachment on legislative functions and a bill of attainder. In the alternative, should the trial court adjudge
the memorandum order as valid, GHRC contended that its existing right must still be respected by allowing it to purchase the leased
premises. 13
Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case involving NDC, PUP
and another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the RTC of Pasay City. 14
On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the Philippines v. Court of
Appeals) and 143590 (National Development Corporation v. Firestone Ceramics, Inc.), 15 which declared that the sale to PUP by NDC
of the portion leased by Firestone pursuant to Memorandum Order No. 214 violated the right of first refusal granted to Firestone under
its third lease contract with NDC. We thus decreed: IHCDAS
45

WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first contract of lease fixed the
area of the leased premises at 2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground survey of the leased
premises be immediately conducted by a duly licensed, registered surveyor at the expense of private respondent FIRESTONE
CERAMICS, INC., within two (2) months from the finality of the judgment in this case. Thereafter, private respondent FIRESTONE
CERAMICS, INC., shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the
leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the Philippines is ordered to reconvey the
property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon payment of the purchase price thereof.
SO ORDERED. 16
The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on the merits ensued. 17
On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC under its lease contract with
NDC and ordering PUP to reconvey the said portion of the property in favor of GHRC. The dispositive portion reads: ISCaTE
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the
plaintiff to cause immediate ground survey of the premises subject of the leased contract under Lease Contract No. C-33-77 and C-12-
78 measuring 2,407 and 3,222.8 square meters respectively, by a duly licensed and registered surveyor at the expense of the plaintiff
within two months from receipt of this Decision and thereafter, the plaintiff shall have six (6) months from receipt of the approved survey
within which to exercise its right to purchase the leased property at P554.74 per square meter. And finally, the defendant PUP, in
whose name the property is titled, is hereby ordered to reconvey the aforesaid property to the plaintiff in the exercise of its right of its
option to buy or first refusal upon payment of the purchase price thereof.
The defendant NDC is hereby further ordered to pay the plaintiff attorney's fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed and this decision shall bind defendant Metropolitan Trial Court, Branch
20 of Manila.
With costs against defendants NDC and PUP.
SO ORDERED. 18 aScIAC
NDC and PUP separately appealed the decision to the CA. 19 By Decision of June 25, 2008, the CA affirmed in toto the decision of the
RTC. 20
Both the RTC and the CA applied this Court's ruling in Polytechnic University of the Philippines v. Court of Appeals (supra), considering
that GHRC is similarly situated as a lessee of NDC whose right of first refusal under the lease contract was violated by the sale of the
property to PUP without NDC having first offered to sell the same to GHRC despite the latter's request for the renewal of the lease
and/or to purchase the leased premises prior to the expiration of the second lease contract. The CA further agreed with the RTC's
finding that there was an implied renewal of the lease upon the failure of NDC to act on GHRC's repeated requests for renewal of the
lease contract, both verbal and written, and continuing to accept monthly rental payments from GHRC which was allowed to continue in
possession of the leased premises.
The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first refusal, said right pertained
only to the second lease contract, C-12-78 covering 3,222.80 square meters, and not to the first lease contract, C-33-77 covering 2,407
square meters, which had already expired. It sustained the RTC's finding that the two (2) lease contracts were interrelated because
each formed part of GHRC's industrial complex, such that business operations would be rendered useless and inoperative if the first
contract were to be detached from the other, as similarly held in the afore-mentioned case of Polytechnic University of the Philippines
v. Court of Appeals. DTIaCS
46

Petitioner PUP argues that respondent's right to exercise the option to purchase had expired with the termination of the original
contract of lease and was not carried over to the subsequent implied new lease between respondent and petitioner NDC. As testified to
by their witnesses Leticia Cabantog and Atty. Rhoel Mabazza, there was no agreement or document to the effect that respondent's
request for extension or renewal of the subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent
can no longer exercise the option to purchase the leased premises when the same were conveyed to PUP pursuant to Memorandum
Order No. 214 dated January 6, 1989, long after the expiration of C-33-77 and C-12-78 in September 1988. 21
Petitioner PUP further contends that while it is conceded that there was an implied new lease between respondent and petitioner NDC
after the expiration of the lease contracts, the same did not include the right of first refusal originally granted to respondent. The CA
should have applied the ruling in Dizon v. Magsaysay 22 that the lessee cannot any more exercise its option to purchase after the
lapse of the one (1)-year period of the lease contract. With the implicit renewal of the lease on a monthly basis, the other terms of the
original contract of lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms which are
germane to the lessee's right of continued enjoyment of the property leased. The provision entitling the lessee the option to purchase
the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee.
Consequently, as in this case, respondent's right of option to purchase the leased premises was not violated despite the impliedly
renewed contract of lease with NDC. Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 (Polytechnic
University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases, the contracts of lease
of respondent with NDC were not mutually extended or renewed for another ten (10) years. Thus, when the leased premises were
conveyed to PUP, respondent did not any more have any right of first refusal, which incidentally appears only in the second lease
contract and not in the first lease contract. 23 DaHcAS
On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for another ten (10)-year
period. The provisions of C-33-77 and C-12-78 clearly state that the lessee is granted the option "to renew for another ten (10) years
with the mutual consent of both parties." As regards the continued receipt of rentals by NDC and possession by the respondent of the
leased premises, the impliedly renewed lease was only month-to-month and not ten (10) years since the rentals are being paid on a
monthly basis, as held in Dizon v. Magsaysay. 24
Petitioner NDC further faults the CA in sustaining the RTC's decision which erroneously granted respondent the option to purchase the
leased premises at the rate of P554.74 per square meter, the same rate for which NDC sold the property to petitioner PUP and/or the
National Government, which is the mere acquisition cost thereof. It must be noted that such consideration or rate was imposed by
Memorandum Order No. 214 under the premise that it shall, in effect, be a sale and/or purchase from one (1) government agency to
another. It was intended merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this
case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting books. It does not in
any way reflect the true and fair market value of the property, nor was it a price a "willing seller" would demand and accept for parting
with his real property. Such benefit, therefore, cannot be extended to respondent as a private entity, as the latter does not share the
same pocket, so to speak, with the National Government. 25 DHaECI
The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies in this case
involving another lessee of NDC who claimed that the option to purchase the portion leased to it was similarly violated by the sale of
the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of ten (10) years
counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of Article I, with option to renew for another
ten (10) years with the mutual consent of both parties. In no case should the rentals be increased by more than 100% of the original
amount fixed.
47

Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time the option to
purchase is exercised. [EMPHASIS SUPPLIED]
An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the
former's property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms
and conditions; or which gives to the owner of the property the right to sell or demand a sale. 26 It binds the party, who has given the
option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into
such contract with the one to whom the option was granted, if the latter should decide to use the option. 27 IDTSEH
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property
in the event the owner sells the same. 28 As distinguished from an option contract, in a right of first refusal, while the object might be
made determinate, the exercise of the right of first refusal would be dependent not only on the owner's eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. 29
As the option to purchase clause in the second lease contract has no definite period within which the leased premises will be offered
for sale to respondent lessee and the price is made subject to negotiation and determined only at the time the option to buy is
exercised, it is obviously a mere right of refusal, usually inserted in lease contracts to give the lessee the first crack to buy the property
in case the lessor decides to sell the same. That respondent was granted a right of first refusal under the second lease contract
appears not to have been disputed by petitioners. What petitioners assail is the CA's erroneous conclusion that such right of refusal
subsisted even after the expiration of the original lease period, when respondent was allowed to continue staying in the leased
premises under an implied renewal of the lease and without the right of refusal carried over to such month-to-month lease. Petitioners
thus maintain that no right of refusal was violated by the sale of the property in favor of PUP pursuant to Memorandum Order No. 214.
Petitioners' position is untenable. ACcDEa
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to
anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Only
after the lessee has failed to exercise his right of first priority could the lessor sell the property to other buyers under the same terms
and conditions offered to the lessee, or under terms and conditions more favorable to the lessor. 30
Records showed that during the hearing on the application for a writ of preliminary injunction, respondent adduced in evidence a letter
of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive Secretary
Catalino Macaraeg, reviewing a proposed memorandum order submitted to President Corazon C. Aquino transferring the whole NDC
Compound, including the premises leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent
to prove the existence of documents as of that date and even prior to the expiration of the second lease contract or the lapse of the ten
(10)-year period counted from the effectivity of the rental payment that is, one hundred and fifty (150) days from the signing of the
contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or on October 1, 1988.
Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC had been negotiating
through the National Government for the sale of the property in favor of PUP as early as July 15, 1988 without first offering to sell it to
respondent and even when respondent communicated its desire to exercise the option to purchase granted to it under the lease
contract, it is clear that NDC violated respondent's right of first refusal. Under the premises, the matter of the right of refusal not having
been carried over to the impliedly renewed month-to-month lease after the expiration of the second lease contract on October 21, 1988
becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP, respondent's right of first refusal was
still subsisting. SIacTE
Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic University of the Philippi nes v.
Court of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is different because the lease contract therein had not
yet expired while in this case respondent's lease contracts have already expired and never renewed. The date of the expiration of the
48

lease contract in said case is December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In
contrast, respondent's lease contracts had already expired (September 1988) at the time said memorandum order was issued. 31
Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third party was not the
issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such negotiations as early as July 1988 when
respondent's right of first refusal was still subsisting and the lease contracts still in force. Petitioner NDC did not bother to respond to
respondent's letter of June 13, 1988 informing it of respondent's exercise of the option to renew and requesting to discuss further the
matter with NDC, nor to the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another ten (10)
years and also the exercise of the option to purchase under the lease contract. Petitioner NDC had dismissed these letters as "mere
informative in nature, and a request at its best." 32 SHaATC
Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely informative, thus:
August 12, 1988
HON. ANTONIO HENSON
General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our intention to exercise our option for
another ten (10) years. Should the National Development Company opt to sell the property covered by said leases, we also request for
priority to negotiate for its purchase at terms and/or conditions mutually acceptable.
As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property by constructing bodega-
type buildings which presently house all legitimate trading and manufacturing concerns. These business are substantial taxpayers,
employ not less than 300 employees and contribute even foreign earnings. DTAHEC
It is in this context that we are requesting for the extension of the lease contract to prevent serious economic disruption and dislocation
of the business concerns, as well as provide ourselves, the lessee, an opportunity to recoup our investments and obtain a fair return
thereof.
Your favorable consideration on our request will be very much appreciated.
Very truly yours,
TIU HAN TENG
President 33
As to petitioners' argument that respondent's right of first refusal can be invoked only with respect to the second lease contract which
expressly provided for the option to purchase by the lessee, and not in the first lease contract which contained no such clause, we
49

sustain the RTC and CA in finding that the second contract, covering an area of 3,222.80 square meters, is interrelated to and
inseparable from the first contract over 2,407 square meters. The structures built on the leased premises, which are adjacent to each
other, form part of an integrated system of a commercial complex leased out to manufacturers, fabricators and other businesses.
Petitioners submitted a sketch plan and pictures taken of the driveways, in an effort to show that the leased premises can be used
separately by respondent, and that the two (2) lease contracts are distinct from each other. 34 Such was a desperate attempt to
downplay the commercial purpose of respondent's substantial improvements which greatly contributed to the increased value of the
leased premises. To prove that petitioner NDC had considered the leased premises as a single unit, respondent submitted evidence
showing that NDC issued only one (1) receipt for the rental payments for the two portions. 35 Respondent further presented the
blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the structures on the leased
premises, to show the building concept as a one-stop industrial site and integrated commercial complex. 36 THacES
In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in Polytechnic University of
the Philippines v. Court of Appeals in the case of respondent who was similarly prejudiced by petitioner NDC's sale of the property to
PUP, as to entitle the respondent to exercise its option to purchase until October 1988 inasmuch as the May 4, 1978 contract
embodied the option to renew the lease for another ten (10) years upon mutual consent and giving respondent the option to purchase
the leased premises for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be noted
that Memorandum Order No. 214 itself declared that the transfer is "subject to such liens/leases existing [on the subject property]."
Thus:
. . . we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal over the property. Such
right was expressly stated by NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22
December 1978 which, as found by the courts a quo, was interrelated to and inseparable from their first contract denominated as C-30-
65 executed on 24 August 1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension thereof, the LESSOR shall
first give to the LESSEE, which shall have the right of first option to purchase the leased premises subject to mutual agreement of both
parties. TCaEAD
In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole
contract. The consideration for the right is built into the reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist
that there was no consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and
parcel of the contract of lease making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee
not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to
accept it. The lessee has a right that the lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE which, in view of the total
amount of its investments in the property, wanted to be assured that it would be given the first opportunity to buy the property at a price
for which it would be offered. Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of
2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC
lawfully sell the property to petitioner PUP. 37 [EMPHASIS SUPPLIED] cDCaTS
As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and following an earlier ruling in
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 38 the execution of such right consists in directing the grantor to comply
with his obligation according to the terms at which he should have offered the property in favor of the grantee and at that price when
the offer should have been made. We then determined the proper rate at which the leased portion should be reconveyed to respondent
by PUP, to whom the lessor NDC sold it in violation of respondent lessee's right of first refusal, as follows:
50

It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the sale at P1,500.00 per
square meter. In contracts of sale, the basis of the right of first refusal must be the current offer of the seller to sell or the offer to
purchase of the prospective buyer. Only after the lessee-grantee fails to exercise its right under the same terms and within the period
contemplated can the owner validly offer to sell the property to a third person, again, under the same terms as offered to the grantee. It
appearing that the whole NDC compound was sold to PUP for P554.74 per square meter, it would have been more proper for the
courts below to have ordered the sale of the property also at the same price. However, since FIRESTONE never raised this as an
issue, while on the other hand it admitted that the value of the property stood at P1,500.00 per square meter, then we see no
compelling reason to modify the holdings of the courts a quo that the leased premises be sold at that price. 39 [EMPHASIS SUPPLIED]
IcESDA
In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC, and neither disputed the
P1,500.00 per square meter actual value of NDC's property at that time it was sold to PUP at P554.74 per square meter, as duly
considered by this Court in the Firestone case, should be bound by such determination. Accordingly, the price at which the leased
premises should be sold to respondent in the exercise of its right of first refusal under the lease contract with petitioner NDC, which
was pegged by the RTC at P554.74 per square meter, should be adjusted to P1,500.00 per square meter, which more accurately
reflects its true value at that time of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable
consideration. 40 We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first
refusal if such grant is embodied in the same contract of lease. Since the stipulation forms part of the entire lease contract, the
consideration for the lease includes the consideration for the grant of the right of first refusal. In entering into the contract, the lessee is
in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it
sell the leased property, then, the lessee shall be given the right to match the offered purchase price and to buy the property at that
price. 41 DCIAST
We have further stressed that not even the avowed public welfare or the constitutional priority accorded to education, invoked by
petitioner PUP in the Firestone case, would serve as license for us, and any party for that matter, to destroy the sanctity of binding
obligations. While education may be prioritized for legislative and budgetary purposes, it is doubtful if such importance can be used to
confiscate private property such as the right of first refusal granted to a lessee of petitioner NDC. 42 Clearly, no reversible error was
committed by the CA in sustaining respondent's contractual right of first refusal and ordering the reconveyance of the leased portion of
petitioner NDC's property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial Court of Makati City, Branch
144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is
hereby AFFIRMED with MODIFICATION in that the price to be paid by respondent Golden Horizon Realty Corporation for the leased
portion of the NDC Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter.
No pronouncement as to costs. HDTcEI
SO ORDERED.
Puno, C.J., Carpio Morales, Leonardo-de Castro and Bersamin, JJ., concur.

[G.R. No. 106063. November 21, 1996.]
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC.,
respondent.
Romulo, Mabanta, Buenaventura Sayoc & De los Angeles for Equatorial Realty Development, Inc.
51

Emiliano S. Samson, E. Balderama for Samson and Mary Anne B. Samson and Carmelo & Bauermann, Inc.
De Borja, Medialdea, Ata Bello, Guevarra & Serapio for respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OPTION CONTRACT; PARAGRAPH 8 OF THE LEASE CONTRACT
GRANTS TO MAYFAIR THE RIGHT OF FIRST REFUSAL, NOT AN OPTION. 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. 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. 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 ineffectual 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, in reciprocal contract, the obligation or promise of each party is the consideration for that of the other. cdasia
2. ID.; ID.; SINCE PETITIONER IS A BUYER IN BAD FAITH, THE SALE TO IT OF THE PROPERTY IN QUESTION IS
RESCISSIBLE. 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. 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 but also the appurtenant portions sold to Equatorial which are claimed by
petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of letters evidencing the offer and counter-offers between the
parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period.
3. ID.; ID.; THE RIGHT OF FIRST REFUSAL SHOULD BE ENFORCED ACCORDING TO THE LAW ON CONTRACTS
INSTEAD OF THE CODAL PROVISIONS ON HUMAN RELATIONS. 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.
52

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. Paragraph 8 of the two leases
can be executed according to their terms. HATEDC
PADILLA, J., separate opinion:
CIVIL LAW; OBLIGATIONS AND CONTRACTS; DAMAGES; WHILE MAYFAIR'S RIGHT OF FIRST REFUSAL SHOULD BE UPHELD,
IT SHOULD NOT BE REQUIRED TO PAY A COMPOUNDED INTEREST OF 12% PER ANNUM UNDER ITS CONTRACT OF LEASE.
I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically recognize Mayfair's
right of first refusal under its contract of lease with Carmelo and Bauermann, Inc. (hereafter, Carmelo) and, because of Carmelo's and
Equatorial's bad faith in riding "roughshod" over Mayfair's right of first refusal, the Court should order the rescission of the sale of the
Claro M. Recto property by the latter to Equatorial (Arts. 1380-1381[3], Civil Code). I do not agree with the proposition that, in addition
to the aforesaid purchase price, Mayfair should be required to pay a compounded interest of 12% per annum of said amount computed
from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as indemnity for damages in the following
instances: "Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum. Art. 2210. Interest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract." There appears to be no basis in law for adding 12% per annum compounded interest to the purchase
price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing between the parties (Mayfair and
Carmelo) but, more importantly, because Mayfair neither incurred in delay in the performance of its obligation nor committed any
breach of contract. Indeed, why should Mayfair be penalized by way of making it pay 12% per annum compounded interest when it was
Carmelo which violated Mayfair's right of first refusal under the contract? HCEcAa
PANGANIBAN, J., separate concurring opinion:
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSION OF CONTRACT; SALE OF AN IMMOVABLE IN BREACH OF
A RIGHT OF FIRST REFUSAL; MAYFAIR, NOT BEING A PARTY TO THE SALE OF THE PROPERTY, HAD NO PERSONALITY TO
SUE FOR ITS ANNULMENT; BUT THE FACTS IN THIS CASE MAKE OUT A CASE FOR RESCISSION UNDER ART. 1177, IN
RELATION TO ART. 1381(3), OF THE CIVIL CODE. With respect to the sale of the property, Mayfair was not a party. It therefore
had no personality to sue for its annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action for the annulment of
contracts may be instituted by all who are thereby obliged principally or subsidiarily." But the facts as alleged and proved clearly in the
case at bar make out a case for rescission under Art. 1177, in relation to Art 1381(3), of the Civil Code, which pertinently reads as
follows: "Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also
impugn the acts which the debtor may have done to defraud them." "Art. 1381. The following contracts are rescissible: . . . (3) Those
undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; . . . " The term "creditors" as
used in these provisions of the Civil Code is broad enough to include the obligee under an option contract as well as under a right of
first refusal, sometimes known as a right of first priority. Thus, in Nietes, the Supreme Court, speaking through then Mr. Chief Justice
Roberto Concepcion, repeatedly referred to the grantee or optionee as "the creditor" and to the grantor or optioner as "the debtor." In
any case, the personal elements of an obligation are the active and passive subjects thereof, the former being known as creditors or
obligees and the latter as debtors or obligors. Insofar as the right of first refusal is concerned, Mayfair is the obligee or creditor.
2. ID.; SPECIFIC PERFORMANCE; A PROPER REMEDY TO ENFORCE A RIGHT OF FIRST REFUSAL; THE PRINCIPLE OF
CONSENSUALITY OF A CONTRACT OF SALE SHOULD BE DEEMED SATISFIED IN THE CASE AT BAR; REASON. The
inescapable conclusion from all of the foregoing is not only that rescission is the proper remedy but also and more importantly
that specific performance was actually used and given free rein as an effective remedy to enforce a right of first refusal in the wake of
its violation, in the cited case of Guzman. The consensuality required for a contract of sale is distinct from, and should not be confused
with, the consensuality attendant to the right of first refusal itself. While indeed, prior to the actual sale of the property to Equatorial and
53

the filing of Mayfair's complaint for specific performance, no perfected contract of sale involving the property ever existed between
Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a perfected contract between them which established a
right of first refusal, or of first priority. Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to sell
the property be sent to it by Carmelo, and not to anybody else. This was violated when the offer was made to Equatorial. Under its
covenant with Carmelo, Mayfair had the right, at that point, to sue for either specific performance or rescission, with damages in either
case, pursuant to Arts. 1165 and 1191, Civil Code. An action for specific performance and damages seasonably filed, fortified by a writ
of preliminary injunction, would have enabled Mayfair to prevent the sale to Equatorial from taking place and to compel Carmelo to sell
the property to Mayfair for the same terms and price, for the reason that the filing of the action for specific performance may juridically
be considered as a solemn, formal, and unqualified acceptance by Mayfair of the specific terms of the offer of sale. Note that by that
time, the price and other terms of the proposed sale by Carmelo had already been determined, being set forth in the offer of sale that
had wrongfully been directed to Equatorial. The act of promptly filing this suit, coupled with the fact that it is one for specific
performance, indicates beyond cavil or doubt Mayfair's unqualified acceptance of the misdirected offer of sale, giving rise, thereby, to a
demandable obligation on the part of Carmelo to execute the corresponding document of sale upon the payment of the price of
P11,300,000.00. In other words, the principle of consensuality of a contract of sale should be deemed satisfied. The aggrieved party's
consent to, or acceptance of, the misdirected offer of sale should be legally presumed in the context of the proven facts. To say,
therefore, that the wrongful breach of a right of first refusal does not sanction an action for specific performance simply because,
factually, there was no meeting of the minds as to the particulars of the sale since ostensibly no offer was ever made to, let alone
accepted by, Mayfair, is to ignore the proven fact of presumed consent. To repeat, that consent was deemed given by Mayfair when it
sued for invalidation of the sale and for specific performance of Carmelo's obligation to Mayfair. Nothing in the law as it now stands will
be violated, or even simply emasculated, by this holding. AEITDH
ROMERO, J., concurring and dissenting opinion:
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LEASE; RIGHT OF FIRST REFUSAL; OPTION; THE RIGHT OF FIRST
REFUSAL IS UNLIKE AN OPTION WHICH REQUIRES A CERTAINTY AS TO THE OBJECT AND CONSIDERATION OF THE
ANTICIPATED CONTRACT. An option is a privilege granted to buy a determinate thing at a price certain within a specified time and
is usually supported by a consideration which is why, it may be regarded as a contract in itself. The option results in a perfected
contract of sale once the person to whom it is granted decides to exercise it. The right of first refusal is unlike an option which requires
a certainty as to the object and consideration of the anticipated contract. When the right of the first refusal is exercised, there is no
perfected contract of sale because the other terms of the sale have yet to be determined. Hence, in case the offeror reneges on his
promise to negotiate with offeree, the latter may only recover damages in the belief that a contract could have been perfected under
Article 19 of the New Civil Code. CTDHSE
2. ID.; RESCISSION OF CONTRACT; THE CONTRACT OF SALE ENTERED INTO BY CARMELO AND BAUERMANN, INC.
AND EQUATORIAL REALTY, INC. SHOULD NOT BE RESCINDED; REASON. I beg to disagree, however, with the majority opinion
that the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty, Inc., should be rescinded. Justice
Hermosisima, in citing Art. 1381 (3) as ground for rescission apparently relied on the case of Guzman, Bocaling and Co. v. Bonnevie
(206 SCRA 668 [1992]) where the offeree was likened to the status of a creditor. The case, in citing Tolentino, stated that rescission is
a remedy granted by law to 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 restoration of things to their condition prior to celebration of the contract. It is my
opinion that "third persons" should be construed to refer to the wards, creditors, absentees, heirs and others enumerated under the law
who are prejudiced by the contract sought to be rescinded. It should be borne in mind that rescission is an extreme remedy which may
be exercised only in the specific instances provided by law. Article 1381 (3) specifically refers to contracts undertaken in fraud of
creditors when the latter cannot in any manner collect the claims due them. If rescission were allowed for analogous cases, the law
would have so stated. While Article 1381 (5) itself says that rescission may be granted to all other contracts specially declared by law to
be subject to rescission, there is nothing in the law that states that an offeree who failed to exercise his right of refusal because of bad
faith on the part of the offeror may rescind the subsequent contract entered into by the offeror and a third person. Hence, there is no
legal justification to rescind the contract between Carmelo and Bauermann, Inc. and Equatorial Realty. DHITcS
54

VITUG, J., dissenting opinion:
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSION OF CONTRACT; RIGHT OF FIRST REFUSAL; A "BREACH"
OF THE RIGHT OF FIRST REFUSAL CAN ONLY GIVE RISE TO AN ACTION FOR DAMAGES BUT NOT TO AN ACTION FOR
SPECIFIC PERFORMANCE. The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the
Civil Code's title on "Human Relations," is not altered by the fact alone that it might be among the stipulated items in a separate
document or even in another contract. A "breach" of the right of first refusal can only give rise to an action for damages primarily under
Article 19 of the Civil Code, as well as its related provisions, but not to an action for specific performance set out under Book IV of the
Code on "Obligations and Contracts." That right, standing by itself, is far distant from being the obligation referred to in Article 1159 of
the Code which would have the force of law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor
relation between the parties. If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option,
certainly, and with much greater reason, it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract.
It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602), the indispensable
element of consensuality in the perfection of contracts. It is basic that without mutual consent on the object and on the cause, a
contract cannot exist (Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract against
his will or compelled to perform thereunder.
2. ID.; A RIGHT OF FIRST REFUSAL CANNOT BE DEEMED A PERFECTED CONTRACT OF SALE UNDER ART. 1458 OF
THE CIVIL CODE; REASON. It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations
as contracts, options, and rights of first refusal since they differ, substantially enough, in their concepts, consequences and legal
implications. Very briefly, in the area on sales particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc,
which held: "In the law on sales, the so-called 'right of first refusal' is an innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319 of the same Code. An option or an offer would require, among other things, a clear certainty on both the object
and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct." An obligation, and so a conditional obligation as well (albeit subject to the
occurrence of the condition), in its context under Book IV of the Civil Code, can only be "a juridical necessity to give, to do or not to do"
(Art. 1156, Civil Code), and one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code)
which all have their respective legal significance rather well settled in law. The law certainly must have meant to provide congruous,
albeit contextual, consequences to its provisions. Interpretare et concordore legibus est optimus interpretendi. As a valid source of an
obligation, a contract must have the concurrence of (a) consent of the contracting parties, (b) object certain (subject matter of the
contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are essential. The consent contemplated by the
law is that which is manifested by the meeting of the offer and of the acceptance upon the object and the cause of the obligation. The
offer must be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot have the effect of
a contract because, by its very essence, certain basic terms would have yet to be determined and fixed. How its "breach" be also its
perfection escapes me. It is only when the elements concur that the juridical act would have the force of law between the contracting
parties that must be complied with in good faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case of
its breach, would allow the creditor or obligee (the passive subject) to invoke the remedy that specifically appertains to it. AaDSEC
D E C I S I O N
HERMOSISIMA, JR., J p:
55

Before us is a petition for review of the decision 1 of the Court of Appeals 2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted particular provisions of our laws on contracts and sales. In its assailed decision,
the respondent court reversed the trial court 3 which, in dismissing the complaint for specific performance with damages and
annulment of contract, 4 found the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported
by a consideration and the subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim the basis of the
statement of facts as rendered by the petitioners in their pleadings:
"Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M Recto Avenue, Manila,
and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion of Carmelo's property
particularly described, to wit:
'A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150
square meters,
for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair hereafter 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 thereof 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.
56

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair replied through a letter stating as
follows:
'It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr. Henry Yang through the telephone that your
company desires to sell your above-mentioned C.M Recto Avenue property.
Under your company's two lease contracts with our client, it is uniformly provided:
'8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to
purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound
and obligated, as it is (sic) herebinds (sic) and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize
this lease and be bound by and the terms and conditions hereof (sic).'
Carmelo did no 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 considertion (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 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
57

9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings erected
thereon.'
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorneyss 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 attorneys fees;
(4) Dismissing defendant Equatorials 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 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 promisor 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:
58

'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 exist. 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 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 cannot 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.' 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
59

'unilateral promise to buy or to sell a determinate thing for a price certain' is called an offer. An 'offer', in law, is a proposal to enter into
a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain as to the object, the price and
other essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting Mayfair '30-days exclusive option to purchase' the leased
premises is NOT AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the Civil Code. Although the provision is
certain as to the object (the sale of the leased premises) the price for which the object is to be sold is not stated in the provision.
Otherwise stated, the questioned stipulation is not, by itself, an 'option' or the 'offer to sell' because the clause does not specify the
price for the subject property.
Although the provision giving Mayfair '30-days exclusive option to purchase' cannot be legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. What the trial court failed to appreciate was the intention of the parties behind the
questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found in a contract of lease. Even appellees have recognized that the
stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intended
to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased
property. This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by giving Mayfair '30-days
exclusive option to purchase' the leased property. The second is, in case Mayfair would opt not to purchase the leased property, 'that
the purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the terms and conditions thereof.
In other words, paragraph 8 of the two Contracts of Lease, particularly the stipulation giving Mayfair '30 days exclusive option to
purchase the (leased premises),' was meant to provide Mayfair the opportunity to purchase and acquire the leased property in the
event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it
had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property, but, more importantly, to
make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer,
before offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right of first refusal,
which means that Carmelo should have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if
Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must first give Mayfair the
opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the telephone call to Mr. Yang in
1974. Mr. Pascal thus testified:
'Q: Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone?
A: I have an offer from another party to buy the property and having the offer we decided to make an offer to Henry Yang on a
first-refusal basis.' (TSN November 8, 1983, p. 12.).
and on cross-examination:
'Q. When you called Mr. Yang on August 1974 can you remember exactly what you have told him in connection with that matter,
Mr. Pascal?
A. More or less, I told him that I received an offer from another party to buy the property and I was offering him first choice of the
entire property.' (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties. " 9
60

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 appellants 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 thereon, 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 Mayfairs 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 Mayfairs interest over the premises sold to it." 10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
"I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE
CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE
PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO
EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO
30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS
FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT
ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE
'COMPLETION PROCESS' AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE 'DECISION STAGE.' " 11
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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 connecting 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
is 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 contact. 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
invoking the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at
a predetermined fixed price.
"It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda,
during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of
the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned, . . . There was, therefore, a
meeting of minds on the part of the one and the other, with regard to the stipulations made in the said document. But it is not shown
that there was any cause or consideration for that agreement, and this omission is a bar which precludes our holding that the
stipulations contained in Exhibit E is a contract of option, for, . . . there can be no contract without the requisite, among others, of the
cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:
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'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 (Italics ours.)
The rule so early established in this jurisdiction is that the deed of option or option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square meter upon failure
to make the purchase within the time specified; 17 in one other case we freed the landowner from her promise to sell her land if the
prospective buyer could raise P4,500.00 in three weeks because such option was not supported by a distinct consideration; 18 in the
same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an exception to the doctrine enumerated in the two preceding cases, in another
case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for that of the other. 20
In all these cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract or in
the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that:
". . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer,
over which the latter agrees. Article 1458 of the Civil Code provides:
'Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.'
When the sale is not absolute but conditional, such as in a 'Contract to Sell' where invariably the ownership of the thing sold 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. . .
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:
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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 institutions 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 it 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 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 on Article 1479 on promise to buy and sell would render ineffectual or "inutile" the provisions on right of first refusal so commonly
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inserted in leases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the
contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the
property at the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an agreement of
right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match
the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to be that of a contractual
grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile."
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its
intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both
parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair's right of first refusal,
Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a
definite offer and a possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to
Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
". . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise 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 preferential 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
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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 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 but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible.
Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of Mayfair's rights.
While there was a series of exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned the
negotiations without giving Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be authorized to exercise its right of
first refusal under the contract to include the entirety of the indivisible property. The boundaries of the property sold should be the
boundaries of the offer under the right of first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent
with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals
should be modified, if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein should
have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into
endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the
contract may cause or to protect some incompatible and preferred right by the contract. 26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within
the 30-day stipulated period. 27
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This Court has always been against multiplicity of suits where all remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair could have purchased the property is, therefore,
fixed. It can neither be more nor less. There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and
lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to
accept or reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property
would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. It is not proper to give it an
empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown
back into the river. Why should Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for P11,300,000.00, why should it be given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over
the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal
provisions on human relations. This may apply here if the contract is limited to the buying and selling of the real property. However, the
obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which
created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human
relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its
obligation to the property under the right of the first refusal according to the terms at which they should have been offered then to
Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not
amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It sold the property to
Equatorial with purpose and intend to withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair
had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of interests. The vendor
received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the P11,300,000.00 all
these years earning income or interest from the amount. Equatorial, on the other hand, has received rents and otherwise profited from
the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests
arising from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is
HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann,
Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & 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.
Padilla and Panganiban, JJ ., concur in separate opinion.
Romero, J ., concurs and dissents in a separate opinion.
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Vitug and Torres, Jr., JJ ., dissent in separate opinion.
Narvasa, C .J ., took no part.
Separate Opinions
PADILLA, J ., concurring:
I am of the considered view (like Mr Justice Jose A. R Melo) that the Court in this case should categorically recognize Mayfair's right of
first refusal under its contract of lease with Carmelo and Bauermann, Inc (hereafter, Carmelo) and, because of Carmelo's and
Equatorial's bad faith in riding "roughshod" over Mayfair's right of first refusal, the Court should order the rescission of the sale of the
Claro M Recto property by the latter to Equatorial (Art. 1380-1381[3] Civil Code). The Court should, in this same case, to avoid
multiplicity of suits, likewise allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of P11,300,000
00 for the entire subject property, without any need of instituting a separate action for damages against Carmelo and/or Equatorial.
I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair should be required to pay a compounded
interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil Code, a party to a contract may recover
interest as indemnity for damages in the following instances:
"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract."
There appears to be no basis in law for adding 12% per annum compounded interest to the purchase price of P11,300,000.00 payable
by Mayfair to Carmelo since there was no such stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly,
because Mayfair neither incurred in delay in the performance of its obligation nor committed any breach of contract Indeed, why should
Mayfair be penalized by way of making it pay 12% per annum compounded interest when it was Carmelo which violated Mayfair's right
of first refusal under the contract?
The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date,
Equatorial (after acquiring the C.M Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental
income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale,
investment-wise and/or operation-wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this opinion, because the price of
P11,300,000.00 which it has to pay Carmelo in the exercise of its right of first refusal, has been subjected to the inroads of inflation so
that its purchasing power today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot be
overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented Mayfair from paying the price of
P11,300,000.00 to Carmelo at about the same time the amount was paid by Equatorial to Carmelo Moreover, it cannot be ignored that
Mayfair had also incurred consequential or "opportunity" losses by reason of its failure to acquire and use the property under its right of
first refusal. In fine, any loss in purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on account of its bad
faith in breaching Mayfair's contractual right of first refusal to the subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale between Carmelo and Equatorial of the Claro M. Recto property
in question, so that within thirty (30) days from the finality of the Court's decision, the property should be retransfered and delivered by
Equatorial to Carmelo with the latter simultaneously returning to Equatorial the sum of P11,300,000.00.
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I also vote to allow Mayfair to exercise its right of first refusal, by paying to Carmelo the sum of P11,300,000.00 without interest for the
entire subject property, within thirty (30) days from re-acquisition by Carmelo of the titles to the property, with the corresponding
obligation of Carmelo to sell and transfer the property to Mayfair within the same period of thirty (30) days.
PANGANIBAN, J., separate concurring:
In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice Regino C. Hermosisima, Jr., especially with the following
doctrinal pronouncements:
1. That while no option to purchase within the meaning of the second paragraph of Article 1479 of the Civil Code was given to
Mayfair Theater, Inc. ("Mayfair"), under the two lease contracts a right of first refusal was in fact granted, for which no separate
consideration is required by law to be paid or given so as to make it binding upon Carmelo & Bauermann, Inc. ("Carmelo");
2. That such right was violated by the latter when it sold the entire property to Equatorial Realty Development, Inc. ("Equatorial")
on July 30, 1978, for the sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease contracts, its own lawyers having studied said contracts
prior to the sale;
4. That, consequently, the contract of sale is rescissible; and
5. That, finally, under the proven facts, the right of first refusal may be enforced by an action for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are concerned. It is in items 4 and 5 that there is a
marked divergence of opinion. Hence, I shall limit the discussion in this Separate Concurring Opinion to such issues, namely: Is the
contract of sale between Carmelo and Equatorial rescissible, and corollarily may the right of first refusal granted to Mayfair be enforced
by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the legal proposition espoused by two equally well-respected
colleagues, Mme. Justice Flerida Ruth P. Romero and Mr. Justice Jose C. Vitug who are both acknowledged authorities on Civil
Law that a breach of the covenanted right of first refusal, while warranting a suit for damages under Article 19 of the Civil Code,
cannot sanction an action for specific performance without thereby negating the indispensable element of consensuality in the
perfection of contracts.
Ang Yu Asuncion Not In Point
Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, 1 which was penned by Mr. Justice Vitug himself. I
respectfully submit, however, that that case turned largely on the issue of whether or not the sale of an immovable in breach of a right
of first refusal that had been decreed in a final judgment would justify the issuance of certain orders of execution in the same case. The
validity of said orders was the subject of the attack before this Court. These orders had not only directed the defendants to execute a
deed of sale in favor of the plaintiffs, when there was nothing in the judgment itself decreeing it, but had also set aside the sale made in
breach of said right of first refusal and even canceled the title that had been issued to the buyer, who was not a party to the suit and
had obviously not been given its day in court. It was thus aptly held:
"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
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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." 2
In other words, the question of whether specific performance of one's right of first refusal is available as a remedy in case of breach
thereof was not before the Supreme Court at all in Ang Yu Asuncion. Consequently, the pronouncements there made bearing on such
unlitigated question were mere obiter. Moreover, as will be shown later, the pronouncement that a breach of the right of first refusal
would not sanction an action for specific performance but only an action for damages (at p. 615) is at best debatable (and in my humble
view, imprecise or incorrect), on top of its being contradicted by extant jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both contractual, are involved in the instant case: (1) the deed of sale
between the petitioners dated July 30, 1978, and (2) the contract clause establishing Mayfair's right of first refusal which was violated
by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore had no personality to sue for its annulment, since Art. 1397
of the Civil Code provides, inter alia, that "(t)he action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case for rescission under Art. 1177, in relation to Art. 1381(3),
of the Civil Code, which pertinently read as follows:
"Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also
impugn the acts which the debtor may have done to defraud them."
"Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
xxx xxx xxx (italics supplied)
The term "creditors" as used in these provisions of the Civil Code is broad enough to include the obligee under an option contract 3 as
well as under a right of first refusal, sometimes known as a right of first priority. 4 Thus, in Nietes, the Supreme Court, speaking through
then Mr. Chief Justice Roberto Concepcion, repeatedly referred to the grantee or optionee as "the creditor" and to the grantor or
optioner as "the debtor". 5 In any case, the personal elements of an obligation are the active and passive subjects thereof, the former
being known as creditors or obligees and the latter as debtors or obligors. 6 Insofar as the right of first refusal is concerned, Mayfair is
the obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in question by way of accion pauliana under the last clause of Art.
1177, aforequoted, because the sale was an act done by the debtor to defraud him of his right to acquire the property. 7 Rescission
was also available under par. 3, Art. 1381, abovequoted, as was expressly held in Guzman, Bocaling & Co., a case closely analogous
to this one as it was also an action brought by the lessee to enforce his "right of first priority" which is just another name for the right
of first refusal and to annul a sale made by the lessor in violation of such right. In said case, this Court, speaking through Mr. Justice
Isagani A. Cruz, affirmed the invalidation of the sale and the enforcement of the lessee's right of first priority this wise: 8
"The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action to annul it
pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to that agreement and therefore have no
personality to seek its annulment.
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The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article(s) 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." (italics supplied)
By the same token, the status of a defrauded creditor can, and should be granted to Mayfair, for it certainly had substantial interests
that were prejudiced by the sale of the subject property to petitioner Equatorial in open violation of Mayfair's right of first refusal under
its existing contracts with Carmelo.
In fact, the parity between that case and the present one does not stop there but extends to the crucial and critical fact that there was
manifest bad faith on the part of the buyer. Thus, in Guzman, this Court affirmed in toto the appealed judgment of the Court of Appeals
which, in turn, had affirmed the trial court's decision insofar as it invalidated the deed of sale in favor of the petitioner-buyer, cancelled
its TCT, and ordered the lessor to execute a deed of sale over the leased property in favor of the lessee for the same price and "under
the same terms and conditions," aside from affirming as well the damages awarded, but at a reduced amount. 9 In other words, the
aggrieved party was allowed to acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that rescission is the proper remedy but also and more importantly
that specific performance was actually used and given free rein as an effective remedy to enforce a right of first refusal in the wake
of its violation, in the cited case of Guzman.
On the other hand, and as already commented on above, the pronouncement in Ang Yu Asuncion to the effect that specific
performance is unavailable to enforce a violated right of first refusal is at best a debatable legal proposition, aside from being
contradicted by extant jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should not be confused with, the consensuality attendant to the
right of first refusal itself. While indeed, prior to the actual sale of the property to Equatorial and the filing of Mayfair's complaint for
specific performance, no perfected contract of sale involving the property ever existed between Carmelo as seller and Mayfair as
buyer, there already was, in law and in fact, a perfected contract between them which established a right of first refusal, or of first
priority.
Specific Performance Is Viable Remedy
The question is: Can this right (of first refusal) be enforced by an action for specific performance upon a showing of its breach by an
actual sale of the property under circumstances showing palpable bad faith on the part of both seller and buyer?
The answer, I respectfully submit, should be 'yes.'
As already noted, Mayfair's right of first refusal in the case before us is embodied in an express covenant in the lease contracts
between it as lessee and Carmelo as lessor, hence the right created is one springing from contract. 10 Indubitably, this had the force of
law between the parties, who should thus comply with it in good faith. 11 Such right also established a correlative obligation on the part
of Carmelo to give or deliver to Mayfair a formal offer of sale of the property in the event Carmelo decides to sell it. The decision to sell
was eventually made. But instead of giving or tendering to Mayfair the proper offer to sell, Carmelo gave it to its now co-petitioner,
Equatorial, with whom it eventually perfected and consummated, on July 30, 1978, an absolute sale of the property, doing so within the
period of effectivity of Mayfair's right, of first refusal. Less than two months later, or in September 1978, with the lease still in full force,
Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to sell the property be sent to it by Carmelo,
and not to anybody else. This was violated when the offer was made to Equatorial. Under its covenant with Carmelo, Mayfair had the
right, at that point, to sue for either specific performance or rescission, with damages in either case, pursuant to Arts. 1165 and 1191,
Civil Code. 12 An action for specific performance and damages seasonably filed, fortified by a writ of preliminary injunction, would have
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enabled Mayfair to prevent the sale to Equatorial from taking place and to compel Carmelo to sell the property to Mayfair for the same
terms and price, for the reason that the filing of the action for specific performance may juridically be considered as a solemn, formal,
and unqualified acceptance by Mayfair of the specific terms of the offer of sale. Note that by that time, the price and other terms of the
proposed sale by Carmelo had already been determined, being set forth in the offer of sale that had wrongfully been directed to
Equatorial.
As it turned out, however, Mayfair did not have a chance. to file such suit, for it learned of the sale to Equatorial only after it had taken
place. But it did file the present action for specific performance and for invalidation of the wrongful sale immediately after learning about
the latter act. The act of promptly filing this suit, coupled with the fact that it is one for specific performance, indicates beyond cavil or
doubt Mayfair's unqualified acceptance of the misdirected offer of sale, giving rise, thereby, to a demandable obligation on the part of
Carmelo to execute the corresponding document of sale upon the payment of the price of P11,300,000.00. In other words, the principle
of consensuality of a contract of sale should be deemed satisfied. The aggrieved party's consent to, or acceptance of, the misdirected
offer of sale should be legally presumed in the context of the proven facts.
To say, therefore, that the wrongful breach of a right of first refusal does not sanction an action for specific performance simply
because, factually, there was no meeting of the minds as to the particulars of the sale since ostensibly no offer was ever made to, let
alone accepted by, Mayfair, is to ignore the proven fact of presumed consent. To repeat, that consent was deemed given by Mayfair
when it sued for invalidation of the sale and for specific performance of Carmelo's obligation to Mayfair: Nothing in the law as it now
stands will be violated, or even simply emasculated, by this holding. On the contrary, the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of obligations, 13 Mayfair's right of first refusal may be
classified as one subject to a suspensive condition namely, if Carmelo should decide to sell the leased premises during the life of
the lease contracts, then it should make an offer of sale to Mayfair. Futurity and uncertainty, which are the essential characteristics of a
condition, 14 were distinctly present. Before the decision to sell was made, Carmelo had absolutely no obligation to sell the property to
Mayfair, nor even to make an offer to sell, because in conditional obligations, where the condition is suspensive, the acquisition of
rights depends upon the happening of the event which constitutes the condition. 15 Had the decision to sell not been made at all, or
had it been made after the expiry of the lease, the parties would have stood as if the conditional obligation had never existed. 16 But
the decision to sell was in fact made. And it was made during the life and efficacy of the lease. Undoubtedly, the condition was duly
fulfilled; the right of first refusal effectively accrued and became enforceable; and correlatively, Carmelo's obligation to make and send
the offer to Mayfair became immediately due and demandable. 17 That obligation was to deliver to Mayfair an offer to sell a
determinate thing for a determinate price. As things turned out, a definite and specific offer to sell the entire property for the price of
P11,300,000.00 was actually made by Carmelo but to the wrong party. It was that particular offer, and no other, which Carmelo
should have delivered to Mayfair, but failed to deliver. Hence, by the time the obligation of Carmelo accrued through the fulfillment of
the suspensive condition, the offer to sell had become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies available to the creditor against the debtor, when it
provides that "(w)hen what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170,
may compel the debtor to make the delivery," clearly authorizing not only the recovery of damages under Art. 1170 but also an action
for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a determinate offer but only a generic one, the second
paragraph of Art. 1165 explicitly gives to the creditor the right "to ask that the obligation be complied with at the expense of the debtor."
The availability of an action for specific performance is thus clear and beyond doubt. And the correctness of Guzman becomes all the
more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact that the jurisprudence upon which it supposedly
rests namely, the cases of Madrigal Co. vs. Stevenson & Co. 18 and Salonga vs. Farrales 19 did NOT involve a right of first
refusal or of first priority. Nor did those two cases, involve an option to buy. In Madrigal, plaintiff sued defendants for damages claiming
wrongful breach of an alleged contract of sale of 2,000 tons of coal. The case was dismissed because "the minds of the parties never
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met upon a contract of sale by defendant to plaintiff", 20 each party having signed the broker's memorandum as buyer, erroneously
thinking that the other party was the seller! In Salonga, a lessee, who was one of several lessees ordered by final judgment to vacate
the leased premises to him, but his suit was not founded upon any right of first refusal and was therefore dismissed on the ground that
there was no perfected sale in his favor. He just thought that because the lessor had decided to sell and in fact sold portions of the
property to her other lessees, she was likewise obligated to sell to him even in the absence of a perfected contract of sale. In fine,
neither of the two cases cited in support of the legal position that a breach of the right of first refusal does not sanction an action for
specific performance but, at best, only one for damages, provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire property, not just the portions leased to Mayfair, is no reason
to deprive the latter of its right to receive a formal and specific offer. The offer of a larger property might have led Mayfair to reject the
offer, but until and unless such rejection was actually made, its right of first refusal still stood. Upon the other hand, an acceptance by
Mayfair would have saved all concerned the time, trouble, and expense of this protracted litigation. In any case, the disquisition by the
Court of Appeals on this point can hardly be faulted; in fact, it amply justifies the conclusions reached in its decision, as well as the
dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the assailed Decision.
ROMERO, J ., concurring and dissenting:
I share the opinion that the right granted to Mayfair Theater under the identical par 8 of the June 1, 1967 and March 31, 1969 contracts
constitute a right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain within a specified time and is usually supported by a
consideration which is why, it may be regarded as a contract in itself The option results in a perfected contract of sale once the person
to whom it is granted decides to exercise it. The right of first refusal is unlike an option which requires a certainty as to the object and
consideration of the anticipated contract. When the right of the first refusal is exercised, there is no perfected contract of sale because
the other terms of the sale have yet to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree, the
latter may only recover damages in the belief that a contract would have been perfected under Article 19 of the New Civil Code.
I beg to disagree, however, with the majority opinion that the contract of sale entered into by Carmelo and Bauermann, Inc. and
Equatorial Realty Inc., should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground for rescission apparently relied on
the case of Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened to the status of a creditor.
The case, in citing Tolentino, stated that rescission is a remedy granted by law to 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 restoration of things to their
condition prior to celebration of the contract. It is my opinion that "third persons" should be construed to refer to the wards, creditors,
absentees, heirs and others enumerated under the law who are prejudiced by the contract sought to be rescinded.
It should be borne in mind that rescission is an extreme remedy which may be exercised only in the specific instances provided by law.
Article 1381 (3) specifically refers to contracts undertaken in fraud of creditors when the latter cannot in any manner collect the claims
due them. If rescission were allowed for analogous cases, the law would have so stated. While Article 1381 (5) itself says that
rescission may be granted to all other contracts specially declared by law to be subject to rescission, there is nothing in the law that
states that an offeree who failed to exercise his right of refusal because of bad faith on the part of the offeror may rescind the
subsequent contract entered into by the offeror and a third person. Hence, there is no legal justification to rescind the contract between
Carmelo and Bauermann, Inc. and Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and Bauermann, Inc. the amount of P11,300,000.00 plus
compounded interest of 12% p.a. Justice Melo rationalized that had Carmelo and Bauermann sold the property to Mayfair, the latter
would have paid the property for the same price that Equatorial bought it. It bears emphasis that Carmelo and Bauermann, Inc. and
Mayfair never reached an agreement as to the price of the property in dispute because the negotiations between the two parties were
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not pursued to its very end. We cannot, even for reasons of equity, compel Carmelo to sell the entire property to Mayfair at
P11,300,000.00 without violating the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Development
Corp.
VITUG, J., dissenting:
I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer nor an option but merely a right of first refusal as
has been so well and amply essayed in the ponencia of our distinguished colleague Mr. Justice Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code invoked to be the statutory authority for the rescission of
the contract of sale between Carmelo & Bauermann, Inc., and Equatorial Realty Development, Inc., has been misapplied. The action
for rescission under that provision of the law, unlike in the resolution of reciprocal obligations under Article 1191 of the Code, is merely
subsidiary and relates to the specific instance when a debtor, in an attempt to defraud his creditor, enters into a contract with another
that deprives the creditor to recover his just claim and leaves him with no other legal means, than by rescission, to obtain reparation.
Thus, the rescission is only to the extent necessary to cover the damages caused (Article 1384, Civil Code) and, consistent with its
subsidiary nature, would require the debtor to be an indispensable party in the action (see Gigante vs. Republic Savings Bank, 135
Phil. 359).
The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the Civil Code's title on "Human
Relations," is not altered by the fact alone that it might be among the stipulated items in a separate document or even in another
contract. A "breach" of the right of first refusal can only give rise to an action for damages primarily under Article 19 of the Civil Code,
as well as its related provisions, but not to an action for specific performance set out under Book IV of the Code on "Obligations and
Contracts." That right, standing by itself, is far distant from being the obligation referred to in Article 1159 of the Code which would have
the force of law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor relation between the parties.
If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option, certainly, and with much greater
reason, it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract. It is not possible to cross out,
such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602), the indispensable element of consensuality in the
perfection of contracts. It is basic that without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305, Civil
Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract against his will or compelled to perform
thereunder.
It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and Mayfair, neither the rescission of the contract
between Carmelo and Equatorial nor the directive to Carmelo to sell the property to Mayfair would be legally appropriate.
My brief disquisition should have ended here except for some personal impressions expressed by my esteemed colleague, Mr. Justice
Artemio V. Panganiban, on the Ang Yu decision which perhaps need to be addressed.
The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter dictum. Justice Panganiban states: The
case "turned largely on the issue of whether or not the sale of an immovable in breach of a right of first refusal that had been decreed in
a final judgment would justify the issuance of certain orders of execution in the same case. . . . In other words, the question of whether
specific performance of one's right of first refusal is available as a remedy in case of breach thereof was not before the Supreme Court
at all in Ang Yu Asuncion."
Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not binding as
precedent." (Black's Law Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as found by the Court of Appeals
and as later quoted by this Court would readily disclose that the "right of first refusal" was a major point in the controversy. Indeed, the
trial and the appellate courts had to rule on it. With due respect, I would not deem it "entirely unnecessary" for this Court to itself
discuss the legal connotation and significance of the decreed (confirmatory) right of first refusal. I should add that when the ponencia
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recognized that, in the case of Buen Realty Development Corporation (the alleged purchaser of the property), the latter could not be
held subject of the writ of execution and be ousted from the ownership and possession of the disputed property without first affording it
due process, the Court decided to simply put a cap in the final disposition of the case but it could not have intended to thereby mitigate
the import of its basic ratio decidendi.
Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right of first refusal does not sanction an action
for specific performance but only an action for damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being
contradicted by extant jurisprudence." He then comes up with the novel proposition that "Mayfair's right of first refusal may be classified
as one subject to a suspensive condition namely, if Carmelo should decide to sell the leased premises during the life of the lease
contracts, then it should make an offer of sale to Mayfair," presumably enforceable by action for specific performance.
It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations as contracts, options, and rights of
first refusal since they differ, substantially enough, in their concepts, consequences and legal implications. Very briefly, in the area on
sales particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc, which held:
"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 bought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under
Article 1319 of the same Code. An option or an offer would require, among other things, a clear certainty on both the object and the
cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of
the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct."
An obligation, and so a conditional obligation as well (albeit subject to the occurrence of the condition), in its context under Book IV of
the Civil Code, can only be "a juridical necessity to give, to do or not to do" (Art. 1156, Civil Code), and one that is constituted by law,
contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code) which all have their respective legal significance rather well
settled in law. The law certainly must have meant to provide congruous, albeit contextual, consequences to its provisions. Interpretare
et concordore legibus est optimus interpretendi. As a valid source of an obligation, a contract must have the concurrence of (a) consent
of the contracting parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code). These requirements,
clearly defined, are essential. The consent contemplated by the law is that which is manifested by the meeting of the offer and of the
acceptance upon the object and the cause of the obligation. The offer must be certain and the acceptance absolute (Article 1319 of the
Civil Code). Thus, a right of first refusal cannot have the effect of a contract because, by its very essence, certain basic terms would
have yet to be determined and fixed. How its "breach" be also its perfection escapes me. It is only when the elements concur that the
juridical act would have the force of law between the contracting parties that must be complied with in good faith (Article 1159 of the
Civil Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or obligee (the passive subject)
to invoke the remedy that specifically appertains to it.
The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of specific performance in obligations to give
specific things (Articles 1165 and 1167 of the Civil Code), substitute performance in an obligation to do or to deliver generic things
(Article 1165 of the Civil Code) and equivalent performance for damages (Articles 1168 and 1 170 of the Civil Code); and (ii) of
rescission or resolution of reciprocal obligations; and (b) the subsidiary remedies that may be availed of when the principal remedies
are unavailable or ineffective such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also Articles
1729 and 1893 of the Civil Code); and (ii) accion pauliana or rescissory action (Articles 1177 and 1381 of the Civil Code). And, in order
to secure the integrity of final judgments, such ancillary remedies as attachments, replevin, garnishments, receivership, examination of
the debtor, and similar remedies, are additionally provided for in procedural law.
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Might it be possible, however, that Justice Panganiban was referring to how Ang Yu could relate to the instant case for, verily, his
remark, earlier quoted, was followed by an extensive discussion on the factual and case milieu of the present petition? If it were, then I
guess it was the applicability of the Ang Yu decision to the instant case that he questioned, but that would not make Ang Yu "imprecise"
or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman, Bocaling & Co. vs. Bonnevie (206 SCRA 668). I
would not be too hasty in concluding similarly. In Guzman, the stipulation involved, although loosely termed a "right of first priority,"
was, in fact, a contract of option. The provision in the agreement there stated:
"20. In case the LESSOR desires or decides to sell the leased property, the LESSEES shall be given a first priority to purchase the
same, all things and considerations being equal." (At page 670; italics supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had been adequately, albeit briefly, spelled out with the lease
consideration being deemed likewise to be the essential cause for the option. The situation undoubtedly was not the same that
prevailed in Ang Yu or, for that matter, in the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo & Bauermann,
Inc., merely read:
"That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the
same."
The provision was too indefinite to allow it to even come close to within the area of the Guzman ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs. Stevenson & Co and Salonga vs. Farrales (cited in Ang
Yu) did NOT involve a right of first refusal or of first priority. Nor did those two cases involve an option to buy." The two cases, to set the
record straight, were cited, not because they were thought to involve a right of first refusal or an option to buy but to emphasize the
indispensability of consensuality over the object and cause of contracts in their perfection which would explain why, parallel therewith,
Articles 1315 and 1318 of the Civil Code were also mentioned.
One final note: A right of first refusal, in its proper usage, is not a contract; when parties instead make certain the object and the cause
thereof and support their understanding with an adequate consideration, that juridical relation is not to be taken as just a right of first
refusal but as a contract in itself (termed an "option"). There is, unfortunately, in law a limit to an unabated use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not for all the reasons it has advanced, should be
REINSTATED.

[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.
D E C I S I O N
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?
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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 Decisioni[1] of the Court of Appealsii[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 orderiii[3] of September 2, 1991, of the Regional Trial Court of
Makati, Branch 57,iv[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,v[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
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(P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance are hereto attached as Annexes O and
P.
10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION
(P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore (sic) the said period
expired another letter came from the counsel of defendant Santos, containing the same tenor of (sic) the former letter.
Xerox copies of the letters are hereto attached as Annexes Q and R.
11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, 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.
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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;
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
x x x x x x x x x
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
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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.vi[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 xvii[7]
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.viii[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.ix[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 appli cable
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
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
80

equity jurisdiction.x[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.xi[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.xii[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 clai m for relief
does not exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or uncertain.xiii[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.xiv[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.xv[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.xvi[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
81

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***.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc.xvii[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 6xviii[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.xix[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:
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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 xxx[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
xxxi[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.xxii[22] A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the
property over which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal and that the trial
court should thus not have dismissed the complaint, we find no more need to pass upon the question of whether the complaint states a
cause of action for damages or whether the complaint is barred by estoppel or laches. As these matters require presentation and/or
determination of facts, they can be best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their day in court. While, in
the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such admission is merely
hypothetical and only for the purpose of resolving the motion. In case of denial, the movant is not to be deprived of the right to submit
its own case and to submit evidence to rebut the allegations in the complaint. Neither will the grant of the motion by a trial court and
the ultimate reversal thereof by an appellate court have the effect of stifling such right.xxiii[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.



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