Adelfa Properties v.

CA

FORMATION/PERFECTION OF CONTRACT OF SALE | Option Contract

FACTS:

Private respondents and their brothers Jose and Dominador Jimenez were registered owners of a parcel
of land in Las Piñas. Jose and Dominador sold their share (1/2 parcel of land) pursuant to “Kasulatan sa
Bilihan ng Lupa” to petitioner, Adelfa Properties. Eastern portion belonged to them while western
portion belonged to Rosario and Salud. Adelfa Properties (now owners of eastern portion) expressed
interest in buying the western portion by executing “Exclusive Option to Purchase” with ₱50,000.00 as
option money. Before petitioner could make payment, it received summons that the nephews and
nieces of private respondents filed an annulment of deed of sale. As a result, petitioner withheld
payment of full purchase price. Salud attributed the suspension of payment to “lack of word of honor.”
Francisca Jimenez was sent to see the counsel of petitioner to inform him that they were cancelling the
transactions. Subsequently, a Deed of Conditional Sale was executed in favor of Emylene Chua. Private
respondents’ counsel sent ₱25,000.00 refund of the option money. According to the RTC, agreement
entered into was merely an option contract and the suspension of payment by petitioner is a counter-
offer which is tantamount to a rejection of option. Thus, the sale to Chua was valid. CA ruled that failure
of petitioner to pay the purchase price in the period agreed upon was tantamount to election not to buy
such land.

ISSUE:

Is the agreement between Adelfa Properties and private respondents strictly an option contract?

HELD:

The contract between the parties is a contract to sell and not an option contract nor a contract of sale.
Two features which convince that parties never intended to transfer ownership except upon full
payment of purchase price: (1) the exclusive option to purchase does not mention that petitioner is
obliged to return possession or ownership of property as consequence of non-payment; and (2) no
delivery, actual or constructive, was made to petitioner; option to purchase was not included in a public
instrument which would have effect of delivery. Neither did petitioner take actual, physical possession
of the property at any given time. With this regard, there was an implied agreement that ownership
shall not pass to the purchaser until he had fully paid the price. Also, the alleged option money was
actually earnest money since the amount was not distinct from the cause or consideration for the sale of
the property, but was itself a part thereof.

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DIGESTAdelfa Properties vs. CA [G.R. No. 111238. January 25, 1995.]Second Division, Regalado (J): 3
concurPARTIES: Roasrio and Salud Jimenez – SellerAdelfa Properties – BuyerSubject:: western portion of
a parcel of land 8855 sq. ms. Covered by TCT 309773 situated in BarrioCulasi, Las Pinas, Metro Manila
Facts: Rosario Jimenez-Castaneda, Salud Jimenez and their brothers, Jose and Dominador Jimenez, were
the registered co-owners of a parcel of land consisting of 17,710 sq. ms (TCT 309773) situated in Barrio
Culasi, Las Piñas, Metro Manila. On 28 July 1988, Jose and Dominador Jimenez sold their share
consistingof 1/2 of said parcel of land, specifically the eastern portion thereof, to Adelfa Properties
pursuant to a “Kasulatan sa Bilihan ng Lupa.” Subsequently, a “Confirmatory Extrajudicial Partition
Agreement” was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area
of 8,855 sq. ms. was adjudicated to Jose and Dominador Jimenez, while the western portion was
allocated to Rosario and Salud Jimenez. Thereafter, Adelfa Properties expressed interest in buying the
western portion of the property from Rosario and Salud. Accordingly, on 25 November 1989, an
“Exclusive Option to Purchase” was executed between the parties, with the condition that the selling
price shall be P2,856,150, that the option money of P50,000 shall be credited as partial payment upon
the consummation of sale, that the balance is to be paid on or before 30 November 1989, and that in
case of default by Adelfa Properties to pay the balance, the option is cancelled and 50% of the option
money shall be forfeited and the other 50% refunded upon the sale of the property to a third
party.Before Adelfa Properties could make payment, it received summons on 29 November 1989,
together with acopy of a complaint filed by the nephews and nieces of Rosario and Salud against the
latter, Jose and Dominador Jimenez, and Adelfa Properties in the RTC Makati (Civil Case 89-5541), for
annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the
property covered by TCT 309773. As a consequence, in a letter dated 29 November 1989, Adelfa
Properties informed Rosario and Salud that it would hold payment of the full purchase price and
suggested that the latter settle the case with their nephews and nieces. . Salud Jimenez refused to heed
the suggestion of Adelfa Properties and attributed thesuspension of payment of the purchase price to
“lack of word of honor. On 14 December 1989, Rosario and Salud sent Francisca Jimenez to see Atty.
Bernardo, in his capacity asAdelfa Properties’ counsel, and to inform the latter that they were cancelling
the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be
deducted therefrom for the settlement of the civil case. This was rejected by Rosario and Salud. On 22
December 1989, Atty. Bernardowrote Rosario and Salud on the same matter but this time reducing the
amount from P500,000.00 to P300,000.00, and this was also rejected by the latter. On 23 February
1990, the RTC dismissed Civil Case 89-5541.On 16 April 1990, Atty. Bernardo wrote Rosario and Salud
informing the latter that in view of the dismissal of the case against them, Adelfa Properties was willing
to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed.
This was ignored by Rosario and Salud.

On 27 July 1990, Jimenez’ counsel sent a letter to Adelfa Properties enclosing therein a check for
P25,000.00 representing the refund of 50% of the option money paid under the exclusive option to
purchase. Rosario and Salud then requested Adelfa Properties to return the owner’s duplicate copy of
the certificate of title of Salud Jimenez. Adelfa Properties failed to surrender the certificate of
title.Rosario and Salud Jimenez filed Civil Case 7532 in the RTC Pasay City (Branch 113) for annulment of
contract with damages, praying, among others, that the exclusive option to purchase be declared null
and void; that Adelfa Properties be ordered to return the owner’s duplicate certificate of title; and that
the annotation of the option contract on TCT 309773 be cancelled. RTC: On 5 September 1991, the trial
court rendered judgment holding that the agreement entered into by the parties was merely an option
contract, and declaring that the suspension of payment by Adelfa Properties constituted a counter-offer
which, therefore, was tantamount to a rejection of the option. It likewise ruled that Adelfa Properties
could not validly suspend payment in favor of Rosario and Salud on the ground that the vindicatory
action filed by the latter’s kin did not involve the western portion of the land covered by the contract
between the parties, but the eastern portion thereof which was the subject of the sale between Adelfa
Properties and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation
of the exclusive option to purchase.On appeal, RTC: the Court of appeals affirmed in toto the decision of
the court a quo. That Article 1590 of the Civil Code on suspension of payments applies only to a contract
of sale or a contract to sell, but not to an option contract which it opined was the nature of the
document subject of the case at bar. Hence, the petition for review on certiorari.Adelfa properties posits
that the contract is a Contract of Sale and not an Option Contract or Contract to Sell, making the
suspension of payment applicable in the case.ISSUE: Whether or not the contract is a Contract of Sale ,
Option Contract or Contract to Sell.SC: The Supreme Court affirmed the assailed judgment of the Court
of Appeals in CA-GR CV 34767, withmodificatory premises.Agreement between parties a contract to sell
and not an option contract or a contract of saleThe alleged option contract is a contract to sell, rather
than a contract of sale. The distinction between the two is important for in contract of sale, the title
passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of
sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price
Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that
title to the property sold is reserved in the seller until the full payment of the price, nor one giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.That the parties really intended to execute a contract to sell is bolstered by the fact that the deed
of absolutesale would have been issued only upon the payment of the balance of the purchase price, as
may be gleanedfrom Adelfa Properties’ letter dated 16 April 1990 wherein it informed the vendors that
it “is now ready and willing to pay you simultaneously with the execution of the corresponding deed of
absolute sale.”

EQUATORIAL vs. MAYFAIRG.R. No. 106063November 21, 1996

FACTS

Petitioners are Carmelo & Bauermann, Inc (owner/seller/lessor) Equatorial Realty Development,
Inc(buyer)-Respondent is Mayfair Theater, Inc (lessee)-Carmelo owned a parcel of land with two 2-
storey buildings (covered by 4 land titles) at Recto. In 1967, 2 portions of the property (covered by 2
titles) was leased to Mayfair for 20 years. In 1978, Carmelo sold the entire Recto property to Equatorial
for P11,300,000 Mayfair petitioned for annulment of the sale on the ground that it was violative of
Paragraph 8 of theContract of lease between respondent and Carmelo, 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.”

The Trial court ruled in favor of herein petitioners on the ground that Paragraph 8 was interpreted as
anoption contract. Mayfair appealed and the CA reversed the decision of the Trial court saying that
Paragraph 8 should be interpreted as a “right of first refusal” and not an option contract

ISSUES:

1.Whether Paragraph 8 constitutes an option contract clause or a right of first refusal2.

WON sale of property to Equatorial is valid

HELD:

SC ruled in favor of Mayfair ordering recission of the deed of sale and granting him right of first refusal
to buy theproperty at P11,300,000. The issues were held as follows:

1. RIGHT OF FIRST REFUSAL

. The SC agreed with the CA’s ruling that Paragraph 8 cannot constitute an option clause (covered in
Article 1324 & 1479 of the Civil Code) for the lack of definite purchasing price in the agreement.
Furthermore, the SC ruled that the stipulation in question was created to manifest a reciprocal
obligation to guard the interest of Mayfair in case of sale of the property: (1)to give him theoption to
purchase the property or (2)to ensure that purchaser of the property shall recognize the lease
agreement earlier made. As such, Paragraph 8 is considered a “right of first refusal”.

2.NO

Both Carmelo and Equatorial acted in bad faith for entering into Contract of Sale knowing thatParagraph
8 (right of first refusal) was agreed upon in the Contract of Lease and that Mayfair (anotherparty) was
interested in the property in question

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

G.R. No. 106063 November 21, 1996

FACTS:

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

The contract is set for the next 20 years.

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

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

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

Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the respondent that it is
contemplating to sell the said property and that a certain Jose Araneta is willing to buy the same for
US$1,200,000. It also asked the respondent if it’s willing to the property for six to seven million pesos.
Respondent through Mr. Yang told the petitioner that it would respond once a decision was made.
Respondent in its reply mentioned a stipulated part of the contract as to when Carmelo would decide to sell
the property. Carmelo did not reply.

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

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

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

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

Trial Court rendered decision in favor of Carmelo and Equitorial.

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

HELD:

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

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

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

Sanchez v. RigosNo. L-25494, June 14, 1972C.J. Concepcion

Nicolas Sanchez, plaintiff-appelleevs.Severina Rigos, defendant-appelland.

Facts:

Nicolas Sanchez and Severina Rigos executed an instrument entitled “Option toPurchase” wherein Mrs.
Rigos agreed, promised and committed to sell to Mr. Sancheza parcel of land for the amount of P1,510
within two years from the date of theinstrument, with the understanding that the said option shall be
deemed terminatedand elapsed if Mr. Sanchez shall fail to exercise his right to buy the property
withinthe stipulated period.Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and
committed to buy. But there is nothing in the contract to indicate that her agreement, promise
andundertaking is supported by a consideration distinct from the price stipulated for thesale of the
land.Mr. Sanchez has made several tenders of payment in the said amount within the period before any
withdrawal from the contract has been made by Mrs. Rigos, butwere rejected nevertheless.

Issue:

Can an accepted unilateral promise to sell without consideration distinct from the price be withdrawn
arbitrarily?

Held:

No. An accepted promise to sell is an offer to sell when accepted becomes a contractof sale.

Rationale:

Since there may be no valid contract without a cause or consideration, the promisor isnot bound by his
promise and may, accordingly, withdraw it. Pending notice of itswithdrawal, his accepted promise
partakes, however, of the nature of an offer to sellwhich, if accepted, results in a perfected contract of
sale.This view has the advantage of avoiding a conflict between Articles 1324 – on thegeneral principles
on contracts – and 1479 – on sales – of the Civil Code.Article 1324. When the offeror has allowed the
offeree a certain period toaccept, the offer may be withdrawn at any time before acceptance
bycommunicating such withdrawal, except when the option is founded uponconsideration, as
something paid or promised.

Article 1479. A promise to buy and sell a determinate thing for a price certainis reciprocally
demandable.An accepted unilateral promise to buy or to sell a determinate thing for a pricecertain is
binding upon the promissory if the promise is supported by aconsideration distinct from the price.The
Court is of the considered opinion that it should, as it hereby reiterates thedoctrine laid down in the
Atkins, Kroll and Co. case, and that, insofar as inconsistenttherewith, the view adhered to in the
Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified.

J. Antonio concurring

I fully agree with the abandonment of the view previously adhered to in SouthwesternSugar & Molasses
Co. vs. Atlantic Gulf and Pacific Co. (97 Phil 249) which hold thatan option to sell can still be withdrawn,
even if accepted, if the same is not supported by any consideration, and the reaffirmance of the
doctrine in Atkins, Kroll & Co., Inc.v. Cua Hian Tek (102 Phil 948), holding that “an option implies xxx the
legalobligation to keep the offer (to sell) open for the time specified;” that it could bewithdrawn before
acceptance, if there was no consideration for the option, but oncethe “offer to sell” is accepted, a
bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a
purchaser. In other words, if the optionis given without a consideration, it is a mere offer to sell, which is
not binding untilaccepted. If, however, acceptance is made before a withdrawal, it constitutes a binding
contract of sale. The concurrence of both acts – the offer and the acceptance – could in such event
generate a contract.While the law permits the offerror to withdraw the offer at any time before
acceptance even before the period has expired, some writers hold the view, that the offeror cannot
exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an
obligation on the part of the offeror to maintain it for such length of time as to permit the offeree to
decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable
for damages which the offeree may suffer. A contrary view would remove the stability and security of
business transactions.

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Santos Vs. Rigos

Facts:

In 1961, Rigos and Sanchez executed a document titled ‘Option to Purchase’ whereby Rigos bound
herself to sell a parcel of land to Sanchez for 1.5k pesos within two years from the execution of the
contract. This option contract had no distinct consideration.

Sanchez made several tenders of the purchase price to Rigos, but Rigos ignored them. Sanchez
consigned the payment in court less than 2 months before the expiration of the period to exercise his
right.

In other words, Sanchez accepted the optino before Rigos could withdraw the offer.

The RTC ruled in favor of Sanchez, ordering Rigos to accept the payment of the price.

On appeal, Rigos claims that she could validly withdraw the option given to Sanchez, even if Sanchez has
opted to exercise his right, since the contract was not supported by a separate and distinct
consideration (ruling in Southwestern Sugar v Altantic Gulf).

Issue: WON Rigos is bound by Sanchez’ acceptance even though the option is not supported by a
separate consideration. YES

Held:

Ruling in Southwestern abandoned; acceptance of option before withdrawal creates a binding obligation
to buy and sell even if not supported by consideration

Even if the "offer of option" is not supported by any consideration, theoption became binding on the
promissor when the promisee gave notice to it of its acceptance, and that having accepted it within the
period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective.

Article 1479 must be read in relation to Article 1324

ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn any time before acceptance by communicating such withdrawal, except when the option is
founded upon consideration as something paid or promised.

In Southwestern, the Court said while 1324 was applicable to contracts in general, Article 1479
specifically states that in unilateral contracts to sell, there is a need for the separate consideration
before the obligation to buy and sell arises.

However, this ruling was abandoned in the case of Atkins v Cua Hian Tek, where the Court decided there
was no distinction between the two articles. Both articles produced the same effect: the promise is
treated as an option which, although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance.

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