G.R. No. 134971 March 25, 2004
7 However, on August 8, 1996, the
HERMINIO TAYAG, petitioner,
vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO
LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA
and THE COURT OF APPEALS, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the
Decision1 and the Resolution2 of respondent Court of Appeals in
CA-G.R. SP No. 44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her
children Amancia, Antonio, Juan, and Teodosia, all surnamed
Lacson, were the registered owners of three parcels of land
located in Mabalacat, Pampanga, covered by Transfer
Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-
R, registered in the Register of Deeds of San Fernando,
Pampanga. The properties, which were tenanted agricultural
lands,4 were administered by Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely,
Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino,
Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana,
Ruben Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos, and another group,
namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun,
Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon,
Alberto Hernandez, Orlando Flores, and Aurelio
Flores,5 individually executed in favor of the petitioner separate
Deeds of Assignment6 in which the assignees assigned to the
petitioner their respective rights as tenants/tillers of the
landholdings possessed and tilled by them for and in
consideration of P50.00 per square meter. The said amount was
made payable "when the legal impediments to the sale of the
property to the petitioner no longer existed." The petitioner was
also granted the exclusive right to buy the property if and when
the respondents, with the concurrence of the defendants-
tenants, agreed to sell the property. In the interim, the petitioner
gave varied sums of money to the tenants as partial payments,
and the latter issued receipts for the said amounts.
On July 24, 1996, the petitioner called a meeting of the
defendants-tenants to work out the implementation of the terms
of their separate agreements.
defendants-tenants, through Joven Mariano, wrote the petitioner
stating that they were not attending the meeting and instead
gave notice of their collective decision to sell all their rights and
interests, as tenants/lessees, over the landholding to the
respondents.8 Explaining their reasons for their collective
decision, they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat
ng ating napagkasunduan, hindi tumanggap ng ibang buyer o
ahente, pero sinira ninyo ang aming pagtitiwala sa
pamamagitan ng demanda ninyo at pagbibigay ng problema sa
amin na hindi naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang
aming karapatan o ang aming lupang sinasaka sa landowner o
sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng
problema.
Kaya kung ang sasabihin ninyong ito’y katangahan, lalo
sigurong magiging katangahan kung ibebenta pa namin sa inyo
ang aming lupang sinasaka, kaya pasensya na lang Mister
Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the
Regional Trial Court of San Fernando, Pampanga, Branch 44,
against the defendants-tenants, as well as the respondents, for
the court to fix a period within which to pay the agreed purchase
price of P50.00 per square meter to the defendants, as provided
for in the Deeds of Assignment. The petitioner also prayed for a
writ of preliminary injunction against the defendants and the
respondents therein.10 The case was docketed as Civil Case
No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun,
Rosita Hernandez, Bienvenido Tongol, Alfonso Flores,
Norma Quiambao, Rosita Tolentino, Jose Sosa,
Francisco Tolentino, Sr., Emiliano Laxamana, Ruben
Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos are original
farmers or direct tillers of landholdings over parcels of
lands covered by Transfer Certificate of Title Nos.
35922-R, 35923-R and 35925-R which are registered
in the names of defendants LACSONS; while
defendants Felino G. Tolentino, Rica Gozun, Perla
Gozun, Benigno Tolentino, Rodolfo Quiambao,
Roman Laxamana, Eddie San Luis, Alfredo Gozun,
Jose Tiamson, Augusto Tolentino, Sixto Hernandez,
Alex Quiambao, Isidro Tolentino, Ceferino de Leon,
Alberto Hernandez, and Aurelio Flores are sub-
tenants over the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, Francisco 2 3 2
et al., entered into Deeds of Assignment with the Tolentino,
plaintiff by which the defendants assigned all their Sr.
rights and interests on their landholdings to the
plaintiff and that on the same date (March 17, 1996), 10.
the defendants received from the plaintiff partial Emiliano
P 10,000 ------ ------ ------
payments in the amounts corresponding to their Laxaman
names. Subsequent payments were also received: a--
11.
1st 2nd Ruben
CHEC
PAYME PAYME TOTAL Torres - -
K NO.
NT NT ---- P P
[Son of P 10,000 33,587.3 ------ 43,587.3
1.Julio P P Mariano 1 1
23128
Tiamson P 20,000 10,621.5 30,621.5 Torres
1
------ 4 4 (decease
2. Renato P 10,000 96,000 106,000. d)]
Gozun - - 00 12. P
---- 12,944.7 23126
Meliton P 10,000 22,944.7
[son of 7 9
Allanigue 7
Felix
Gozun 13.
(decease Dominga 22,269.0 23127 27,269.0
P 5,000
d)] Laxaman 2 5 2
a
3. Rosita P
14,374.2 23127
Hernande P 5,000 19,374.2 14.
4 4
z---- 4 Felicenci
10,000 ------ ------ ------
a de
4. P 10,000 14,465.9 23128 24,465.9 Leon
Bienvenid 0 5 0
o Tongol 15.
18,869.6 23128 23,869.6
--- Emiliano 5,000
0 0 0
[Son of Ramos
Abundio
Tongol 16. Felino
(decease G. 10,000 ------ ------ ------
d)] Tolentino

5. 17. Rica
5,000 ------ ------ ------
Alfonso 26,648.4 23127 56,648.4 Gozun
P 30,000
Flores - - 0 1 0 18. Perla
---- 10,000 ------ ------ ------
Gozun
6. Norma 19.
41,501.1 23127 51,501.1
Quiamba P 10,000 Benigno 10,000 ------ ------ ------
0 9 0
o---- Tolentino
7. Rosita 20.
22,126.0 23128 32,126.0
Tolentino P 10,000 Rodolfo
8 4 8 10,000 ------ ------ ------
----- Quiamba
8. Jose o
14,861.3 23129 24,861.3
Sosa - - - P 10,000 21.
1 1 1
------ Roman 10,000 ------ ------ ------
9. P 10,000 24,237.6 23128 34,237.6 Laxaman
a meeting regarding the negotiations/implementations of
the terms of their Deeds of Assignment;
22. Eddie
10,000 ------ ------ ------
San Luis 7. That on August 8, 1996, the defendants TIAMSON,
23. et al., through Joven Mariano, replied that they are no
Ricardo longer willing to pursue with the negotiations, and
10,000 ------ ------ ------ instead they gave notice to the plaintiff that they will
Hernande
z sell all their rights and interests to the registered
owners (defendants LACSONS).
24.
Nicencian A copy of the letter is hereto attached as Annex "A"
10,000 ------ ------ ------
a etc.;
Miranda
25. Jose 8. That the defendants TIAMSON, et. al., have no
10,000 ------ ------ ------ right to deal with the defendants LACSON or with any
Gozun
third persons while their contracts with the plaintiff are
26. subsisting; defendants LACSONS are inducing or
Alfredo 5,000 ------ ------ ------ have induced the defendants TIAMSON, et. al., to
Sosa violate their contracts with the plaintiff;
27. Jose
10,000 ------ ------ ------ 9. That by reason of the malicious acts of all the
Tiamson
defendants, plaintiff suffered moral damages in the
28. forms of mental anguish, mental torture and serious
Augusto 5,000 ------ ------ ------ anxiety which in the sum of P500,000.00 for which
Tolentino defendants should be held liable jointly and
severally.11
29. Sixto
Hernande 10,000 ------ ------ ------
In support of his plea for injunctive relief, the
z
petitioner, as plaintiff, also alleged the following in his
30. Alex complaint:
Quiamba 10,000 ------ ------ ------
o 11. That to maintain the status quo, the defendants
TIAMSON, et al., should be restrained from rescinding
31. Isidro
10,000 ------ ------ ------ their contracts with the plaintiff, and the defendants
Tolentino
LACSONS should also be restrained from accepting
32. any offer of sale or alienation with the defendants
11,378.7 23127 TIAMSON, et al., in whatever form, the latter’s rights
Ceferino ------ ------
0 0 and interests in the properties mentioned in paragraph
de Leon
4 hereof; further, the LACSONS should be restrained
33. from encumbering/alienating the subject properties
Alberto covered by TCT No. 35922-R, 35923-R and TCT No.
10,000 ------ ------ ------
Hernande 35925-R, Registry of Deeds of San Fernando,
z Pampanga;
34.
Orlando 10,000 ------ ------ ------ 12. That the defendants TIAMSON, et al., threaten to
Florez rescind their contracts with the plaintiff and are also
bent on selling/alienating their rights and interests
35. over the subject properties to their co-defendants
Aurelio 10,000 ------ ------ ------ (LACSONS) or any other persons to the damage and
Flores prejudice of the plaintiff who already invested much
money, efforts and time in the said transactions;
6. That on July 24, 1996, the plaintiff wrote the
defendants TIAMSON, et al., inviting them for a 13. That the plaintiff is entitled to the reliefs being
demanded in the complaint;
 14. That to prevent irreparable damages and prejudice
to the plaintiff, as the latter has no speedy and
adequate remedy under the ordinary course of law, it
is essential that a Writ of Preliminary Injunction be
issued enjoining and restraining the defendants
TIAMSON, et al., from rescinding their contracts with
the plaintiff and from selling/alienating their properties
to the LACSONS or other persons;
15. That the plaintiff is willing and able to put up a
reasonable bond to answer for the damages which the
defendants would suffer should the injunction prayed
for and granted be found without basis.12
The petitioner prayed, that after the proceedings, judgment be
rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction
be issued prohibiting, enjoining and restraining
defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores,
Norma Quiambao, Rosita Tolentino, Jose Sosa,
Francisco Tolentino Sr., Emiliano Laxamana, Ruben
Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos, Felino G.
Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana,
Eddie San Luis, Ricardo Hernandez, Nicenciana
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson,
Augusto Tolentino, Ceferino de Leon, Alberto
Hernandez, Orlando Flores, and Aurelio Flores from
rescinding their contracts with the plaintiff and from
alienating their rights and interest over the
aforementioned properties in favor of defendants
LACSONS or any other third persons; and prohibiting
the defendants LACSONS from
encumbering/alienating TCT Nos. 35922-R, 35923-R
and 35925-R of the Registry of Deeds of San
Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of
Preliminary Injunction, it is prayed that a restraining
order be issued restraining the aforementioned
defendants (TIAMSON, et al.) from rescinding their
contracts with the plaintiff and from alienating the
subject properties to the defendants LACSONS or any
third persons; further, restraining and enjoining the
defendants LACSONS from encumbering/selling the
properties covered by TCT Nos. 35922-R, 35923-R,
and 35925-R of the Registry of Deeds of San
Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the
balance of the purchase price to the defendants
TIAMSON, et al., after the lapse of legal impediment, if
any.
4. Making the Writ of Preliminary Injunction
permanent;
5. Ordering the defendants to pay the plaintiff the sum
of P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff
attorney’s fees in the sum of P100,000.00 plus
litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable
under the premises.13
In their answer to the complaint, the respondents as defendants
asserted that (a) the defendant Angelica Vda. de Lacson had
died on April 24, 1993; (b) twelve of the defendants were
tenants/lessees of respondents, but the tenancy status of the
rest of the defendants was uncertain; (c) they never induced the
defendants Tiamson to violate their contracts with the petitioner;
and, (d) being merely tenants-tillers, the defendants-tenants had
no right to enter into any transactions involving their properties
without their knowledge and consent. They also averred that the
transfers or assignments of leasehold rights made by the
defendants-tenants to the petitioner is contrary to Presidential
Decree (P.D.) No. 27 and Republic Act No. 6657, the
Comprehensive Agrarian Reform Program (CARP).14 The
respondents interposed counterclaims for damages against the
petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer
with counterclaim for damages, that the money each of them
received from the petitioner were in the form of loans, and that
they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are
hereby repleaded and incorporated in so far as they
are material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the
Deeds of Assignment are concern[ed] never knew that
what they did sign is a Deed of Assignment. What
they knew was that they were made to sign a
document that will serve as a receipt for the loan
granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through
the employment of fraud, deceit and false pretenses of
plaintiff and made the defendants believe that what
they sign[ed] was a mere receipt for amounts received
by way of loans;
 d) That the documents signed in blank were filled up
and completed after the defendants Tiamson, et al.,
signed the documents and their completion and
accomplishment was done in the absence of said
defendants and, worst of all, defendants were not
provided a copy thereof;
e) That as completed, the Deeds of Assignment
reflected that the defendants Tiamson, et al., did
assign all their rights and interests in the properties or
landholdings they were tilling in favor of the plaintiff.
That if this is so, assuming arguendo that the
documents were voluntarily executed, the defendants
Tiamson, et al., do not have any right to transfer their
interest in the landholdings they are tilling as they
have no right whatsoever in the landholdings, the
landholdings belong to their co-defendants, Lacson, et
al., and therefore, the contract is null and void;
f) That while it is admitted that the defendants
Tiamson, et al., received sums of money from
plaintiffs, the same were received as approved loans
granted by plaintiff to the defendants Tiamson, et al.,
and not as part consideration of the alleged Deeds of
Assignment; and by way of:…15
At the hearing of the petitioner’s plea for a writ of preliminary
injunction, the respondents’ counsel failed to appear. In support
of his plea for a writ of preliminary injunction, the petitioner
adduced in evidence the Deeds of Assignment,16 the
receipts17 issued by the defendants-tenants for the amounts
they received from him; and the letter18 the petitioner received
from the defendants-tenants. The petitioner then rested his
case.
The respondents, thereafter, filed a Comment/Motion to
dismiss/deny the petitioner’s plea for injunctive relief on the
following grounds: (a) the Deeds of Assignment executed by the
defendants-tenants were contrary to public policy and P.D. No.
27 and Rep. Act No. 6657; (b) the petitioner failed to prove that
the respondents induced the defendants-tenants to renege on
their obligations under the "Deeds of Assignment;" (c) not being
privy to the said deeds, the respondents are not bound by the
said deeds; and, (d) the respondents had the absolute right to
sell and dispose of their property and to encumber the same
and cannot be enjoined from doing so by the trial court.
The petitioner opposed the motion, contending that it was
premature for the trial court to resolve his plea for injunctive
relief, before the respondents and the defendants-tenants
adduced evidence in opposition thereto, to afford the petitioner a
chance to adduce rebuttal evidence and prove his entitlement to
a writ of preliminary injunction. The respondents replied that it
was the burden of the petitioner to establish the requisites of a
writ of preliminary injunction without any evidence on their part,
and that they were not bound to adduce any evidence in
opposition to the petitioner’s plea for a writ of preliminary
injunction.
On February 13, 1997, the court issued an Order19 denying the
motion of the respondents for being premature. It directed the
hearing to proceed for the respondents to adduce their
evidence. The court ruled that the petitioner, on the basis of the
material allegations of the complaint, was entitled to injunctive
relief. It also held that before the court could resolve the
petitioner’s plea for injunctive relief, there was need for a
hearing to enable the respondents and the defendants-tenants
to adduce evidence to controvert that of the petitioner. The
respondents filed a motion for reconsideration, which the court
denied in its Order dated April 16, 1997. The trial court ruled that
on the face of the averments of the complaint, the pleadings of
the parties and the evidence adduced by the petitioner, the latter
was entitled to injunctive relief unless the respondents and the
defendants-tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for
certiorari in the Court of Appeals for the nullification of the
February 13, 1997 and April 16, 1997 Orders of the trial court.
The case was docketed as CA-G.R. SP No. 44883. The
petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of
respondent court dated February 13, 1997 and April
16, 1997 as null and void;
2. An order be issued directing the respondent court to
issue an order denying the application of respondent
Herminio Tayag for the issuance of a Writ of
Preliminary Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be
issued against the respondent court, prohibiting it from
issuing its own writ of injunction against Petitioners,
and thereafter making said injunction to be issued by
this Court permanent.
Such other orders as may be deemed just & equitable under the
premises also prayed for.20
The respondents asserted that the Deeds of Assignment
executed by the assignees in favor of the petitioner were
contrary to paragraph 13 of P.D. No. 27 and the second
paragraph of Section 70 of Rep. Act No. 6657, and, as such,
could not be enforced by the petitioner for being null and void.
The respondents also claimed that the enforcement of the
deeds of assignment was subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee
shall be exercised only when no legal impediments exist to the
lot to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE.21
The respondents argued that until such condition took place, the
petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioner’s plea in his
complaint before the trial court, to fix a period within which to
pay the balance of the amounts due to the tenants under said
deeds after the "lapse" of any legal impediment, assumed that
the deeds were valid, when, in fact and in law, they were not.
According to the respondents, they were not parties to the
deeds of assignment; hence, they were not bound by the said
deeds. The issuance of a writ of preliminary injunction would
restrict and impede the exercise of their right to dispose of their
property, as provided for in Article 428 of the New Civil Code.
They asserted that the petitioner had no cause of action against
them and the defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision
against the petitioner, annulling and setting aside the assailed
orders of the trial court; and permanently enjoining the said trial
court from proceeding with Civil Case No. 10901. The decretal
portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive
relief he demands in the lower court still he could avail of other
course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against
TIAMSON, et al.
For all the foregoing considerations, the orders dated 13
February 1997 and 16 April 1997 are hereby NULLIFIED and
ordered SET ASIDE for having been issued with grave abuse of
discretion amounting to lack or excess of jurisdiction.
Accordingly, public respondent is permanently enjoined from
proceeding with the case designated as Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined from
alienating or even encumbering their property, especially so
since they were not privies to the deeds of assignment executed
by the defendants-tenants. The defendants-tenants were not yet
owners of the portions of the landholdings respectively tilled by
them; as such, they had nothing to assign to the petitioner.
Finally, the CA ruled that the deeds of assignment executed by
the defendants-tenants were contrary to P.D. No. 27 and Rep.
Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the
petitioner’s motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari
before this Court, contending as follows:
I a dismissal of the case. He argues that at that stage, it was
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS
COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY
CONCLUSION, AS THIS ALLEGATION, IS STILL THE
SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING
OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME
WHEN THE LOWER COURT (RTC) IS STILL RECEIVING
EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT
THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED
FOR BY TAYAG SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE
TENANTS ARE NOT YET "AWARDEES OF THE LAND
REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE
PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS
BELOW INCLUDING THE TRIAL ON THE MERITS OF THE
CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY
THE PROPRIETY OF MAINTAINING THE STATUS QUO.27
V
THE COURT OF APPEALS CANNOT INCLUDE IN ITS
DECISION THE CASE OF THE OTHER 35 TENANTS WHO
DO NOT QUESTION THE JURISDICTION OF THE LOWER
COURT (RTC) OVER THE CASE AND WHO ARE IN FACT
STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE
INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME
TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE
PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE
CASE FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER
ART. 1197 OF THE NEW CIVIL CODE AND FOR "DAMAGES"
AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME
CODE. THIS CASE CANNOT BE SUPPRESSED OR
RENDERED NUGATORY UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently
enjoining the trial court from proceeding with Civil Case No.
10910. He opines that the same was too drastic, tantamount to
premature for the appellate court to determine the merits of the
case since no evidentiary hearing thereon was conducted by the
trial court. This, the Court of Appeals cannot do, since neither
party moved for the dismissal of Civil Case No. 10910. The
petitioner points out that the Court of Appeals, in making its
findings, went beyond the issue raised by the private
respondents, namely, whether or not the trial court committed a
grave abuse of discretion amounting to excess or lack of
jurisdiction when it denied the respondent’s motion for the
denial/dismissal of the petitioner’s plea for a writ of preliminary
injunction. He, likewise, points out that the appellate court
erroneously presumed that the leaseholders were not DAR
awardees and that the deeds of assignment were contrary to
law. He contends that leasehold tenants are not prohibited from
conveying or waiving their leasehold rights in his favor. He
insists that there is nothing illegal with his contracts with the
leaseholders, since the same shall be effected only when there
are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was
premature for the appellate court to determine the merits of his
case since no evidentiary hearing on the merits of his complaint
had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the
respondents to dismiss/deny the petitioner’s plea for a writ of
preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case
on the incident, was proper and timely. It bears stressing that
the petitioner had the burden to prove his right to a writ of
preliminary injunction. He may rely solely on the material
allegations of his complaint or adduce evidence in support
thereof. The petitioner adduced his evidence to support his plea
for a writ of preliminary injunction against the respondents and
the defendants-tenants and rested his case on the said incident.
The respondents then had three options: (a) file a motion to
deny/dismiss the motion on the ground that the petitioner failed
to discharge his burden to prove the factual and legal basis for
his plea for a writ of preliminary injunction and, if the trial court
denies his motion, for them to adduce evidence in opposition to
the petitioner’s plea; (b) forgo their motion and adduce
testimonial and/or documentary evidence in opposition to the
petitioner’s plea for a writ of preliminary injunction; or, (c) waive
their right to adduce evidence and submit the incident for
consideration on the basis of the pleadings of the parties and
the evidence of the petitioner. The respondents opted not to
adduce any evidence, and instead filed a motion to deny or
dismiss the petitioner’s plea for a writ of preliminary injunction
against them, on their claim that the petitioner failed to prove his
entitlement thereto. The trial court cannot compel the
respondents to adduce evidence in opposition to the petitioner’s
plea if the respondents opt to waive their right to adduce such
evidence. Thus, the trial court should have resolved the
respondents’ motion even without the latter’s opposition and the
presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the
petitioner was entitled to a writ of preliminary injunction against
the respondents on the basis of the material averments of the
complaint. In its April 16, 1997 Order, the trial court denied the
respondents’ motion for reconsideration of the previous order,
on its finding that the petitioner was entitled to a writ of
preliminary injunction based on the material allegations of his
complaint, the evidence on record, the pleadings of the parties,
as well as the applicable laws:
… For the record, the Court denied the LACSONS’
COMMENT/MOTION on the basis of the facts culled from the
evidence presented, the pleadings and the law applicable
unswayed by the partisan or personal interests, public opinion or
fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended,
enumerates the grounds for the issuance of a writ of preliminary
injunction, thus:
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such relief
consists in restraining the commission or continuance
of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited
period or perpetually;
(b) That the commission, continuance or non-
performance of the act or acts complained of during
the litigation would probably work injustice to the
applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to
render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to
preserve or maintain the status quo of things ante litem and is
generally availed of to prevent actual or threatened acts, until
the merits of the case can be heard. Injunction is accepted as
the strong arm of equity or a transcendent remedy.31 While
generally the grant of a writ of preliminary injunction rests on the
sound discretion of the trial court taking cognizance of the case,
extreme caution must be observed in the exercise of such
discretion.32 Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise
of which is more delicate, which requires greater caution,
deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong
arm of equity that should never be extended unless to cases of
great injury, where courts of law cannot afford an adequate or
commensurate remedy in damages.
Every court should remember that an injunction is a limitation
upon the freedom of action of the defendant and should not be
granted lightly or precipitately. It should be granted only when
the court is fully satisfied that the law permits it and the
emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction
rests in the existence of a cause of action and in the probability
of irreparable injury, inadequacy of pecuniary compensation and
the prevention of the multiplicity of suits. Where facts are not
shown to bring the case within these conditions, the relief of
injunction should be refused.35
For the court to issue a writ of preliminary injunction, the
petitioner was burdened to establish the following: (1) a right in
esse or a clear and unmistakable right to be protected; (2) a
violation of that right; (3) that there is an urgent and permanent
act and urgent necessity for the writ to prevent serious
damage.36 Thus, in the absence of a clear legal right, the
issuance of the injunctive writ constitutes a grave abuse of
discretion. Where the complainant’s right is doubtful or disputed,
injunction is not proper. Injunction is a preservative remedy
aimed at protecting substantial rights and interests. It is not
designed to protect contingent or future rights. The possibility of
irreparable damage without proof of adequate existing rights is
not a ground for injunction.37
We have reviewed the pleadings of the parties and found that,
as contended by the respondents, the petitioner failed to
establish the essential requisites for the issuance of a writ of
preliminary injunction. Hence, the trial court committed a grave
abuse of its discretion amounting to excess or lack of jurisdiction
in denying the respondents’ comment/motion as well as their
motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the
instance of the petitioner, from selling, disposing of and
encumbering their property. As the registered owners of the
property, the respondents have the right to enjoy and dispose of
their property without any other limitations than those
established by law, in accordance with Article 428 of the Civil
Code. The right to dispose of the property is the power of the
owner to sell, encumber, transfer, and even destroy the
property. Ownership also includes the right to recover the
possession of the property from any other person to whom the
owner has not transmitted such property, by the appropriate
action for restitution, with the fruits, and for indemnification for
damages.38 The right of ownership of the respondents is not, of
course, absolute. It is limited by those set forth by law, such as
the agrarian reform laws. Under Article 1306 of the New Civil
Code, the respondents may enter into contracts covering their
property with another under such terms and conditions as they
may deem beneficial provided they are not contrary to law,
morals, good conduct, public order or public policy.
The respondents cannot be enjoined from selling or
encumbering their property simply and merely because they had
executed Deeds of Assignment in favor of the petitioner,
obliging themselves to assign and transfer their rights or
interests as agricultural farmers/laborers/sub-tenants over the
landholding, and granting the petitioner the exclusive right to
buy the property subject to the occurrence of certain conditions.
The respondents were not parties to the said deeds. There is no
evidence that the respondents agreed, expressly or impliedly, to
the said deeds or to the terms and conditions set forth therein.
Indeed, they assailed the validity of the said deeds on their
claim that the same were contrary to the letter and spirit of P.D.
No. 27 and Rep. Act No. 6657. The petitioner even admitted
when he testified that he did not know any of the respondents,
and that he had not met any of them before he filed his
complaint in the RTC. He did not even know that one of those
whom he had impleaded as defendant, Angelica Vda. de
Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are
residents of the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic)
Vda. de Lacson had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should
lie against petitioners. As owners of the lands being tilled by
TIAMSON, et al., petitioners, under the law, have the right to
enjoy and dispose of the same. Thus, they have the right to
possess the lands, as well as the right to encumber or alienate
them. This principle of law notwithstanding, private respondent
in the lower court sought to restrain the petitioners from
encumbering and/or alienating the properties covered by TCT
No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of
Deeds of San Fernando, Pampanga. This cannot be allowed to
prosper since it would constitute a limitation or restriction, not
otherwise established by law on their right of ownership, more
so considering that petitioners were not even privy to the alleged
transaction between private respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that
the petitioner clearly has no cause of action against the
respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the
defendants-tenants the balance of the P50.00 per square meter,
the consideration under the Deeds of Assignment executed by
the defendants-tenants. The respondents are not parties or
privies to the deeds of assignment. The matter of the period for
the petitioner to pay the balance of the said amount to each of
the defendants-tenants is an issue between them, the parties to
the deed.
Third. On the face of the complaint, the action of the petitioner
against the respondents and the defendants-tenants has no
legal basis. Under the Deeds of Assignment, the obligation of
the petitioner to pay to each of the defendants-tenants the
balance of the purchase price was conditioned on the
occurrence of the following events: (a) the respondents agree to
sell their property to the petitioner; (b) the legal impediments to
the sale of the landholding to the petitioner no longer exist; and,
(c) the petitioner decides to buy the property. When he testified,
the petitioner admitted that the legal impediments referred to in
the deeds were (a) the respondents’ refusal to sell their
property; and, (b) the lack of approval of the Department of
Agrarian Reform:
Q : There is no specific agreement prior to the
execution of those documents as when they will pay?
A : We agreed to that, that I will pay them when there
are no legal impediment, sir.
Q : Many of the documents are unlattered (sic) and
you want to convey to this Honorable Court that prior
to the execution of these documents you have those
tentative agreement for instance that the amount or
the cost of the price is to be paid when there are no
legal impediment, you are using the word "legal
impediment," do you know the meaning of that?
A : When there are (sic) no more legal impediment
exist, sir.
Q : Did you make how (sic) to the effect that the
meaning of that phrase that you used the unlettered
defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer
my question not to answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment
then especially if the Lacsons will not agree to sell
their shares to me or to us it would be hard to (sic) me
to pay them in full. And those covered by DAR. I
explain[ed] to them and it was clearly stated in the title
that there is [a] prohibited period of time before you
can sell the property. I explained every detail to
them.41
It is only upon the occurrence of the foregoing conditions that
the petitioner would be obliged to pay to the defendants-tenants
the balance of the P50.00 per square meter under the deeds of
assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will
mutually agree to sell the said lot to the ASSIGNEE,
who is given an exclusive and absolute right to buy
the lot, the ASSIGNOR shall receive the sum of FIFTY
PESOS (P50.00) per square meter as consideration of
the total area actually tilled and possessed by the
ASSIGNOR, less whatever amount received by the
ASSIGNOR including commissions, taxes and all
allowable deductions relative to the sale of the subject
properties.
 3. That this exclusive and absolute right given to the
ASSIGNEE shall be exercised only when no legal
impediments exist to the lot to effect the smooth
transfer of lawful ownership of the lot/property in the
name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful
possession over the said property and shall enjoy the
fruits/earnings and/or harvest of the said lot until such
time that full payment of the agreed purchase price
had been made by the ASSIGNEE.42
There is no showing in the petitioner’s complaint that the
respondents had agreed to sell their property, and that the legal
impediments to the agreement no longer existed. The petitioner
and the defendants-tenants had yet to submit the Deeds of
Assignment to the Department of Agrarian Reform which, in
turn, had to act on and approve or disapprove the same. In fact,
as alleged by the petitioner in his complaint, he was yet to meet
with the defendants-tenants to discuss the implementation of the
deeds of assignment. Unless and until the Department of
Agrarian Reform approved the said deeds, if at all, the petitioner
had no right to enforce the same in a court of law by asking the
trial court to fix a period within which to pay the balance of the
purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the
deeds of assignment executed by the defendants-tenants are
perfected option contracts.43 An option is a contract by which the
owner of the property agrees with another person that he shall
have the right to buy his property at a fixed price within a certain
time. It is a condition offered or contract by which the owner
stipulates with another that the latter shall have the right to buy
the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions, or which gives to
the owner of the property the right to sell or demand a sale. It
imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until accepted, it is
not, properly speaking, treated as a contract.44 The second party
gets in praesenti, not lands, not an agreement that he shall have
the lands, but the right to call for and receive lands if he
elects.45 An option contract is a separate and distinct contract
from which the parties may enter into upon the conjunction of
the option.46
In this case, the defendants-tenants-subtenants, under the
deeds of assignment, granted to the petitioner not only an option
but the exclusive right to buy the landholding. But the grantors
were merely the defendants-tenants, and not the respondents,
the registered owners of the property. Not being the registered
owners of the property, the defendants-tenants could not legally
grant to the petitioner the option, much less the "exclusive right"
to buy the property. As the Latin saying goes, "NEMO DAT
QUOD NON HABET."
Fourth. The petitioner impleaded the respondents as parties-
defendants solely on his allegation that the latter induced or are
inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the
New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting
party.
In So Ping Bun v. Court of Appeals,47 we held that for the said
law to apply, the pleader is burdened to prove the following: (1)
the existence of a valid contract; (2) knowledge by the third
person of the existence of the contract; and (3) interference by
the third person in the contractual relation without legal
justification.
Where there was no malice in the interference of a contract, and
the impulse behind one’s conduct lies in a proper business
interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially
interested, and such interest motivates his conduct, it cannot be
said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes
thereon is not necessarily an officious or malicious intermeddler.
The only evidence adduced by the petitioner to prove his claim
is the letter from the defendants-tenants informing him that they
had decided to sell their rights and interests over the
landholding to the respondents, instead of honoring their
obligation under the deeds of assignment because, according to
them, the petitioner harassed those tenants who did not want to
execute deeds of assignment in his favor, and because the said
defendants-tenants did not want to have any problem with the
respondents who could cause their eviction for executing with
the petitioner the deeds of assignment as the said deeds are in
violation of P.D. No. 27 and Rep. Act No. 6657.49 The
defendants-tenants did not allege therein that the respondents
induced them to breach their contracts with the petitioner. The
petitioner himself admitted when he testified that his claim that
the respondents induced the defendants-assignees to violate
contracts with him was based merely on what "he heard," thus:
Q: Going to your last statement that the Lacsons
induces (sic) the defendants, did you see that the
Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August,
sir, they went in the barrio (sic). As a matter of fact,
that is the reason why they sent me letter that they will
sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons
individually?
 A: No, sir, it was only Mr. Espinosa who I knew (sic)
personally, the alleged negotiator and has the
authority to sell the property.50
Even if the respondents received an offer from the defendants-
tenants to assign and transfer their rights and interests on the
landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be
expected to warn the defendants-tenants for executing the said
deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under
Section 22 of the latter law, beneficiaries under P.D. No. 27 who
have culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his
purpose in having the defendants-tenants execute the Deeds of
Assignment in his favor was to acquire the landholding without
any tenants thereon, in the event that the respondents agreed to
sell the property to him. The petitioner knew that under Section
11 of Rep. Act No. 3844, if the respondents agreed to sell the
property, the defendants-tenants shall have preferential right to
buy the same under reasonable terms and conditions:
SECTION 11. Lessee’s Right of Pre-emption. – In case the
agricultural lessor desires to sell the landholding, the agricultural
lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire
landholding offered for sale must be pre-empted by the Land
Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where
there are two or more agricultural lessees, each shall be entitled
to said preferential right only to the extent of the area actually
cultivated by him. …51
Under Section 12 of the law, if the property was sold to a third
person without the knowledge of the tenants thereon, the latter
shall have the right to redeem the same at a reasonable price
and consideration. By assigning their rights and interests on the
landholding under the deeds of assignment in favor of the
petitioner, the defendants-tenants thereby waived, in favor of the
petitioner, who is not a beneficiary under Section 22 of Rep. Act
No. 6657, their rights of preemption or redemption under Rep.
Act No. 3844. The defendants-tenants would then have to
vacate the property in favor of the petitioner upon full payment
of the purchase price. Instead of acquiring ownership of the
portions of the landholding respectively tilled by them, the
defendants-tenants would again become landless for a measly
sum of P50.00 per square meter. The petitioner’s scheme is
subversive, not only of public policy, but also of the letter and
spirit of the agrarian laws. That the scheme of the petitioner had
yet to take effect in the future or ten years hence is not a
justification. The respondents may well argue that the agrarian
laws had been violated by the defendants-tenants and the
petitioner by the mere execution of the deeds of assignment. In
fact, the petitioner has implemented the deeds by paying the
defendants-tenants amounts of money and even sought their
immediate implementation by setting a meeting with the
defendants-tenants. In fine, the petitioner would not wait for ten
years to evict the defendants-tenants. For him, time is of the
essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioner’s contention that the appellate court
erred when it permanently enjoined the RTC from continuing
with the proceedings in Civil Case No. 10910. The only issue
before the appellate court was whether or not the trial court
committed a grave abuse of discretion amounting to excess or
lack of jurisdiction in denying the respondents’ motion to deny or
dismiss the petitioner’s plea for a writ of preliminary injunction.
Not one of the parties prayed to permanently enjoin the trial
court from further proceeding with Civil Case No. 10910 or to
dismiss the complaint. It bears stressing that the petitioner may
still amend his complaint, and the respondents and the
defendants-tenants may file motions to dismiss the complaint.
By permanently enjoining the trial court from proceeding with
Civil Case No. 10910, the appellate court acted arbitrarily and
effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-
tenants. The defendants-tenants were even deprived of their
right to prove their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is
PARTIALLY GRANTED. The Decision of the Court of Appeals
nullifying the February 13, 1996 and April 16, 1997 Orders of the
RTC is AFFIRMED. The writ of injunction issued by the Court of
Appeals permanently enjoining the RTC from further proceeding
with Civil Case No. 10910 is hereby LIFTED and SET ASIDE.
The Regional Trial Court of Mabalacat, Pampanga, Branch 44,
is ORDERED to continue with the proceedings in Civil Case No.
10910 as provided for by the Rules of Court, as amended.
SO ORDERED.
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA
and SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for
review on certiorari of the judgment of respondent Court of
appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are (1)
whether of not the "Exclusive Option to Purchase" executed
between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castañeda and Salud Jimenez is
an option contract; and (2) whether or not there was a valid
suspension of payment of the purchase price by said petitioner,
and the legal effects thereof on the contractual relations of the
parties.
The records disclose the following antecedent facts which
culminated in the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and
Dominador Jimenez, were the registered co-owners of a parcel
of land consisting of 17,710 square meters, covered by Transfer
Certificate of Title (TCT) No. 309773,2situated in Barrio Culasi,
Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their
share consisting of one-half of said parcel of land, specifically
the eastern portion thereof, to herein petitioner pursuant to a
"Kasulatan sa Bilihan ng Lupa."3Subsequently, a "Confirmatory
Extrajudicial Partition Agreement"4 was executed by the
Jimenezes, wherein the eastern portion of the subject lot, with
an area of 8,855 square meters was adjudicated to Jose and
Dominador Jimenez, while the western portion was allocated to
herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the
western portion of the property from private respondents.
Accordingly, on November 25, 1989, an "Exclusive Option to
Purchase"5 was executed between petitioner and private
respondents, under the following terms and conditions:
1. The selling price of said 8,655 square
meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX
THOUSAND ONE HUNDRED FIFTY
PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we
received from ADELFA PROPERTIES, INC.
as an option money shall be credited as
partial payment upon the consummation of
the sale and the balance in the sum of TWO
MILLION EIGHT HUNDRED SIX
THOUSAND ONE HUNDRED FIFTY
PESOS (P2,806,150.00) to be paid on or
before November 30, 1989;
3. In case of default on the part of ADELFA
PROPERTIES, INC. to pay said balance in
accordance with paragraph 2 hereof, this
option shall be cancelled and 50% of the
option money to be forfeited in our favor and
we will refund the remaining 50% of said
money upon the sale of said property to a
third party;
4. All expenses including the corresponding
capital gains tax, cost of documentary
stamps are for the account of the
VENDORS, and expenses for the
registration of the deed of sale in the
Registry of Deeds are for the account of
ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of
title issued to respondent Salud Jimenez had been lost, a
petition for the re-issuance of a new owner's copy of said
certificate of title was filed in court through Atty. Bayani L.
Bernardo, who acted as private respondents' counsel.
Eventually, a new owner's copy of the certificate of title was
issued but it remained in the possession of Atty. Bernardo until
he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received
summons6 on November 29, 1989, together with a copy of a
complaint filed by the nephews and nieces of private
respondents against the latter, Jose and Dominador Jimenez,
and herein petitioner in the Regional Trial Court of Makati,
docketed as Civil Case No. 89-5541, for annulment of the deed
of sale in favor of Household Corporation and recovery of
ownership of the property covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989,
petitioner informed private respondents that it would hold
payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces,
adding that ". . . if possible, although November 30, 1989 is a
holiday, we will be waiting for you and said plaintiffs at our office
up to 7:00 p.m."8 Another letter of the same tenor and of even
date was sent by petitioner to Jose and Dominador
Jimenez.9 Respondent Salud Jimenez refused to heed the
suggestion of petitioner and attributed the suspension of
payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on
the title of the lot its option contract with private respondents,
and its contract of sale with Jose and Dominador Jimenez, as
Entry No. 1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca
Jimenez to see Atty. Bernardo, in his capacity as petitioner's
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 private
respondents. On December 22, 1989, Atty. Bernardo wrote
private respondents 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.
8. On February 23, 1990, the Regional Trial Court of Makati
dismissed Civil Case No. 89-5541. Thus, on February 28, 1990,
petitioner caused to be annotated anew on TCT No. 309773 the
exclusive option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents
executed a Deed of Conditional Sale 10 in favor of Emylene
Chua over the same parcel of land for P3,029,250, of which
P1,500,000.00 was paid to private respondents on said date,
with the balance to be paid upon the transfer of title to the
specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents
informing the latter that in view of the dismissal of the case
against them, petitioner was willing to pay the purchase price,
and he requested that the corresponding deed of absolute sale
be executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter
to petitioner enclosing therein a check for P25,000.00
representing the refund of fifty percent of the option money paid
under the exclusive option to purchase. Private respondents
then requested petitioner to return the owner's duplicate copy of
the certificate of title of respondent Salud Jimenez. 12 Petitioner
failed to surrender the certificate of title, hence private
respondents filed Civil Case No. 7532 in the Regional Trial
Court of 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 defendant, herein
petitioner, be ordered to return the owner's duplicate certificate
of title; and that the annotation of the option contract on TCT No.
309773 be cancelled. Emylene Chua, the subsequent purchaser
of the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5,
1991 holding that the agreement entered into by the parties was
merely an option contract, and declaring that the suspension of
payment by herein petitioner constituted a counter-offer which,
therefore, was tantamount to a rejection of the option. It likewise
ruled that herein petitioner could not validly suspend payment in
favor of private respondents 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 petitioner and
private respondents, but the eastern portion thereof which was
the subject of the sale between petitioner and the brothers Jose
and Dominador Jimenez. The trial court then directed the
cancellation of the exclusive option to purchase, declared the
sale to intervenor Emylene Chua as valid and binding, and
ordered petitioner to pay damages and attorney's fees to private
respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the
decision of the court a quo and held that the failure of petitioner
to pay the purchase price within the period agreed upon was
tantamount to an election by petitioner not to buy the property;
that the suspension of payment constituted an imposition of a
condition which was actually a counter-offer amounting to a
rejection of the option; and 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. Said
appellate court similarly upheld the validity of the deed of
conditional sale executed by private respondents in favor of
intervenor Emylene Chua.
In the present petition, the following assignment of errors are
raised:
1. Respondent court of appeals acted with grave abuse of
discretion in making its finding that the agreement entered into
by petitioner and private respondents was strictly an option
contract;
2. Granting arguendo that the agreement was an option
contract, respondent court of Appeals acted with grave abuse of
discretion in grievously failing to consider that while the option
period had not lapsed, private respondents could not unilaterally
and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of
discretion in failing to appreciate fully the attendant facts and
circumstances when it made the conclusion of law that Article
1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of
discretion in conforming with the sale in favor of appellee Ma.
Emylene Chua and the award of damages and attorney's fees
which are not only excessive, but also without in fact and in
law. 14
An analysis of the facts obtaining in this case, as well as the
evidence presented by the parties, irresistibly leads to the
conclusion that the agreement between the parties is a contract
to sell, and not an option contract or a contract of sale.
I deed of absolute sale."
1. In view of the extended disquisition thereon by respondent
court, it would be worthwhile at this juncture to briefly discourse
on the rationale behind our treatment of the alleged option
contract as 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, such payment being a
positive suspensive condition and failure of which is not a
breach but an event that prevents the obligation of the vendor to
convey title from becoming effective. 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. 15
There are two features which convince us that the parties never
intended to transfer ownership to petitioner except upon the full
payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the
contract and partial forfeiture of the amount already paid in case
of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of
non-payment. There is no stipulation anent reversion or
reconveyance of the property to herein private respondents in
the event that petitioner does not comply with its obligation. With
the absence of such a stipulation, although there is a provision
on the remedies available to the parties in case of breach, it
may legally be inferred that the parties never intended to
transfer ownership to the petitioner to completion of payment of
the purchase price.
In effect, there was an implied agreement that ownership shall
not pass to the purchaser until he had fully paid the price. Article
1478 of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that
effect is considered valid and, therefore, binding and
enforceable between the parties. It should be noted that under
the law and jurisprudence, a contract which contains this kind of
stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract
to sell, and not a contract of sale, is bolstered by the fact that
the deed of absolute sale would have been issued only upon the
payment of the balance of the purchase price, as may be
gleaned from petitioner's letter dated April 16, 1990 16 wherein it
informed private respondents that it "is now ready and willing to
pay you simultaneously with the execution of the corresponding
Secondly, it has not been shown there was delivery of the
property, actual or constructive, made to herein petitioner. The
exclusive option to purchase is not contained in a public
instrument the execution of which would have been considered
equivalent to delivery. 17 Neither did petitioner take actual,
physical possession of the property at any given time. It is true
that after the reconstitution of private respondents' certificate of
title, it remained in the possession of petitioner's counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the
vendee is to be understood as a delivery.18 However, private
respondents explained that there was really no intention on their
part to deliver the title to herein petitioner with the purpose of
transferring ownership to it. They claim that Atty. Bernardo had
possession of the title only because he was their counsel in the
petition for reconstitution. We have no reason not to believe this
explanation of private respondents, aside from the fact that such
contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be
considered as a perfected contract to sell. On this particular
point, therefore, we reject the position and ratiocination of
respondent Court of Appeals which, while awarding the correct
relief to private respondents, categorized the instrument as
"strictly an option contract."
The important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and that
task is, of course, to be discharged by looking to the words they
used to project that intention in their contract, all the words not
just a particular word or two, and words in context not words
standing alone. 19 Moreover, judging from the subsequent acts
of the parties which will hereinafter be discussed, it is
undeniable that the intention of the parties was to enter into a
contract to sell. 20 In addition, the title of a contract does not
necessarily determine its true nature. 21 Hence, the fact that the
document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it
is a contract to sell.
An option, as used in the law on sales, is a continuing offer or
contract by which the owner stipulates with another that the
latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain
terms and conditions, or which gives to the owner of the
property the right to sell or demand a sale. It is also sometimes
called an "unaccepted offer." An option is not of itself a
purchase, but merely secures the privilege to buy. 22 It is not a
sale of property but a sale of property but a sale of the right to
purchase. 23 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 it is, the right or privilege to buy at the
election or option of the other party. 24 Its distinguishing
characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the
offer. Until acceptance, it is not, properly speaking, a contract,
and does not vest, transfer, or agree to transfer, any title to, or
any interest or right in the subject matter, but is merely a
contract by which the owner of property gives the optionee the
right or privilege of accepting the offer and buying the property
on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a
meeting of minds two persons whereby one binds himself, with
respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere
consent, 27 which 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. 28
The distinction between an "option" and a contract of sale is that
an option is an unaccepted offer. It states the terms and
conditions on which the owner is willing to sell the land, if the
holder elects to accept them within the time limited. If the holder
does so elect, he must give notice to the other party, and the
accepted offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the owner is
no longer bound by his offer, and the option is at an end. A
contract of sale, on the other hand, fixes definitely the relative
rights and obligations of both parties at the time of its execution.
The offer and the acceptance are concurrent, since the minds of
the contracting parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and
documentary evidence presented by the parties, readily shows
that there is indeed a concurrence of petitioner's offer to buy and
private respondents' acceptance thereof. The rule is that except
where a formal acceptance is so required, although the
acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the
offeror, it may be made either in a formal or an informal manner,
and may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to
accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the
existence of the contract of sale. 30
The records also show that private respondents accepted the
offer of petitioner to buy their property under the terms of their
contract. At the time petitioner made its offer, private
respondents suggested that their transfer certificate of title be
first reconstituted, to which petitioner agreed. As a matter of
fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who
assisted private respondents in filing a petition for reconstitution.
After the title was reconstituted, the parties agreed that
petitioner would pay either in cash or manager's check the
amount of P2,856,150.00 for the lot. Petitioner was supposed to
pay the same on November 25, 1989, but it later offered to
make a down payment of P50,000.00, with the balance of
P2,806,150.00 to be paid on or before November 30, 1989.
Private respondents agreed to the counter-offer made by
petitioner. 31 As a result, the so-called exclusive option to
purchase was prepared by petitioner and was subsequently
signed by private respondents, thereby creating a perfected
contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land
was definite and certain, while the acceptance thereof was
absolute and without any condition or qualification. The
agreement as to the object, the price of the property, and the
terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were
meant to finalize and perfect the transaction. The parties even
went beyond the basic requirements of the law by stipulating
that "all expenses including the corresponding capital gains tax,
cost of documentary stamps are for the account of the vendors,
and expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of Adelfa properties, Inc."
Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which
was upheld by both the trial court and respondent court of
appeals, that the offer of petitioner to deduct P500,000.00, (later
reduced to P300,000.00) from the purchase price for the
settlement of the civil case was tantamount to a counter-offer. It
must be stressed that there already existed a perfected contract
between the parties at the time the alleged counter-offer was
made. Thus, any new offer by a party becomes binding only
when it is accepted by the other. In the case of private
respondents, they actually refused to concur in said offer of
petitioner, by reason of which the original terms of the contract
continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for
the simple reason that petitioner's sole purpose was to settle the
civil case in order that it could already comply with its obligation.
In fact, it was even indicative of a desire by petitioner to
immediately comply therewith, except that it was being
prevented from doing so because of the filing of the civil case
which, it believed in good faith, rendered compliance improbable
at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the
original contract.
More importantly, it will be noted that the failure of petitioner to
pay the balance of the purchase price within the agreed period
was attributed by private respondents to "lack of word of honor"
on the part of the former. The reason of "lack of word of honor"
is to us a clear indication that private respondents considered
petitioner already bound by its obligation to pay the balance of
the consideration. In effect, private respondents were
demanding or exacting fulfillment of the obligation from herein
petitioner. with the arrival of the period agreed upon by the
parties, petitioner was supposed to comply with the obligation
incumbent upon it to perform, not merely to exercise an option
or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of
an obligation to give something, that is, the payment of the
purchase price. The contract did not simply give petitioner the
discretion to pay for the property. 32 It will be noted that there is
nothing in the said contract to show that petitioner was merely
given a certain period within which to exercise its privilege to
buy. The agreed period was intended to give time to herein
petitioner within which to fulfill and comply with its obligation,
that is, to pay the balance of the purchase price. No evidence
was presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale
or purchase" or a mere "option" is whether or not the agreement
could be specifically enforced. 33 There is no doubt that the
obligation of petitioner to pay the purchase price is specific,
definite and certain, and consequently binding and enforceable.
Had private respondents chosen to enforce the contract, they
could have specifically compelled petitioner to pay the balance
of P2,806,150.00. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance with which
could legally and definitely be demanded from petitioner as a
consequence.
This is not a case where no right is as yet created nor an
obligation declared, as where something further remains to be
done before the buyer and seller obligate themselves. 34 An
agreement is only an "option" when no obligation rests on the
party to make any payment except such as may be agreed on
between the parties as consideration to support the option until
he has made up his mind within the time specified. 35 An option,
and not a contract to purchase, is effected by an agreement to
sell real estate for payments to be made within specified time
and providing forfeiture of money paid upon failure to make
payment, where the purchaser does not agree to purchase, to
make payment, or to bind himself in any way other than the
forfeiture of the payments made. 36 As hereinbefore discussed,
this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which
provides that the initial payment shall be totally forfeited in case
of default in payment is to be considered as an option
contract, 37 still we are not inclined to conform with the findings
of respondent court and the court a quo that the contract
executed between the parties is an option contract, for the
reason that the parties were already contemplating the payment
of the balance of the purchase price, and were not merely
quoting an agreed value for the property. The term "balance,"
connotes a remainder or something remaining from the original
total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was
actually earnest money which was intended to form part of the
purchase price. The amount of P50,000.00 was not distinct from
the cause or consideration for the sale of the property, but was
itself a part thereof. It is a statutory rule that whenever earnest
money is given in a contract of sale, it shall be considered as
part of the price and as proof of the perfection of the
contract. 38 It constitutes an advance payment and must,
therefore, be deducted from the total price. Also, earnest money
is given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option
money, viz.: (a) earnest money is part of the purchase price,
while option money ids the money given as a distinct
consideration for an option contract; (b) earnest money is given
only where there is already a sale, while option money applies
to a sale not yet perfected; and (c) when earnest money is
given, the buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent
in the so-called option contract under review, even though it was
called "option money" by the parties. In addition, private
respondents failed to show that the payment of the balance of
the purchase price was only a condition precedent to the
acceptance of the offer or to the exercise of the right to buy. On
the contrary, it has been sufficiently established that such
payment was but an element of the performance of petitioner's
obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there
was valid suspension of payment of the purchase price by
petitioner and the legal consequences thereof. To justify its
failure to pay the purchase price within the agreed period,
petitioner invokes Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed
in the possession or ownership of the thing
acquired, or should he have reasonable
grounds to fear such disturbance, by a
vindicatory action or a foreclosure of
mortgage, he may suspend the payment of
the price until the vendor has caused the
disturbance or danger to cease, unless the
latter gives security for the return of the price
 in a proper case, or it has been stipulated
that, notwithstanding any such contingency,
the vendee shall be bound to make the
payment. A mere act of trespass shall not
authorize the suspension of the payment of
the price.
Respondent court refused to apply the aforequoted provision of
law on the erroneous assumption that the true agreement
between the parties was a contract of option. As we have
hereinbefore discussed, it was not an option contract but a
perfected contract to sell. Verily, therefore, Article 1590 would
properly apply.
Both lower courts, however, are in accord that since Civil Case
No. 89-5541 filed against the parties herein involved only the
eastern half of the land subject of the deed of sale between
petitioner and the Jimenez brothers, it did not, therefore, have
any adverse effect on private respondents' title and ownership
over the western half of the land which is covered by the
contract subject of the present case. We have gone over the
complaint for recovery of ownership filed in said case 41 and we
are not persuaded by the factual findings made by said courts.
At a glance, it is easily discernible that, although the complaint
prayed for the annulment only of the contract of sale executed
between petitioner and the Jimenez brothers, the same likewise
prayed for the recovery of therein plaintiffs' share in that parcel
of land specifically covered by TCT No. 309773. In other words,
the plaintiffs therein were claiming to be co-owners of the entire
parcel of land described in TCT No. 309773, and not only of a
portion thereof nor, as incorrectly interpreted by the lower
courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending
payment of the balance of the purchase price by reason of the
aforesaid vindicatory action filed against it. The assurance made
by private respondents that petitioner did not have to worry
about the case because it was pure and simple harassment 42 is
not the kind of guaranty contemplated under the exceptive
clause in Article 1590 wherein the vendor is bound to make
payment even with the existence of a vindicatory action if the
vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of
payment notwithstanding, we find and hold that private
respondents may no longer be compelled to sell and deliver the
subject property to petitioner for two reasons, that is, petitioner's
failure to duly effect the consignation of the purchase price after
the disturbance had ceased; and, secondarily, the fact that the
contract to sell had been validly rescinded by private
respondents.
The records of this case reveal that as early as February 28,
1990 when petitioner caused its exclusive option to be
annotated anew on the certificate of title, it already knew of the
dismissal of civil Case No. 89-5541. However, it was only on
April 16, 1990 that petitioner, through its counsel, wrote private
respondents expressing its willingness to pay the balance of the
purchase price upon the execution of the corresponding deed of
absolute sale. At most, that was merely a notice to pay. There
was no proper tender of payment nor consignation in this case
as required by law.
The mere sending of a letter by the vendee expressing the
intention to
pay, without the accompanying payment, is not considered a
valid tender of payment. 43 Besides, a mere tender of payment is
not sufficient to compel private respondents to deliver the
property and execute the deed of absolute sale. It is
consignation which is essential in order to extinguish petitioner's
obligation to pay the balance of the purchase price. 44 The rule
is different in case of an option contract 45 or in legal redemption
or in a sale with right to repurchase, 46 wherein consignation is
not necessary because these cases involve an exercise of a
right or privilege (to buy, redeem or repurchase) rather than the
discharge of an obligation, hence tender of payment would be
sufficient to preserve the right or privilege. This is because the
provisions on consignation are not applicable when there is no
obligation to pay. 47 A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the
exercise of a privilege of a right. consequently, performance or
payment may be effected not by tender of payment alone but by
both tender and consignation.
Furthermore, petitioner no longer had the right to suspend
payment after the disturbance ceased with the dismissal of the
civil case filed against it. Necessarily, therefore, its obligation to
pay the balance again arose and resumed after it received
notice of such dismissal. Unfortunately, petitioner failed to
seasonably make payment, as in fact it has deposit the money
with the trial court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation,
private respondents elected to resort to and did announce the
rescission of the contract through its letter to petitioner dated
July 27, 1990. That written notice of rescission is deemed
sufficient under the circumstances. Article 1592 of the Civil
Code which requires rescission either by judicial action or
notarial act is not applicable to a contract to sell. 48 Furthermore,
judicial action for rescission of a contract is not necessary where
the contract provides for automatic rescission in case of
breach,49 as in the contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines
vs. De los Angeles, etc. 50 that the right to rescind is not
absolute, being ever subject to scrutiny and review by the
proper court. It is our considered view, however, that this rule
applies to a situation where the extrajudicial rescission is
contested by the defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially unless
successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial
determination51 otherwise, if said party does not oppose it, the
extrajudicial rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner
was duly furnished and did receive a written notice of rescission
which specified the grounds therefore, it failed to reply thereto or
protest against it. Its silence thereon suggests an admission of
the veracity and validity of private respondents'
claim. 53 Furthermore, the initiative of instituting suit was
transferred from the rescinder to the defaulter by virtue of the
automatic rescission clause in the contract. 54 But then, the
records bear out the fact that aside from the lackadaisical
manner with which petitioner treated private respondents' latter
of cancellation, it utterly failed to seriously seek redress from the
court for the enforcement of its alleged rights under the contract.
If private respondents had not taken the initiative of filing Civil
Case No. 7532, evidently petitioner had no intention to take any
legal action to compel specific performance from the former. By
such cavalier disregard, it has been effectively estopped from
seeking the affirmative relief it now desires but which it had
theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and
considering that the same result has been reached by
respondent Court of Appeals with respect to the relief awarded
to private respondents by the court a quo which we find to be
correct, its assailed judgment in CA-G.R. CV No. 34767 is
hereby AFFIRMED.
SO ORDERED.
G.R. No. 97332 October 10, 1991
SPOUSES JULIO D. VILLAMOR AND MARINA
VILLAMOR, petitioners,
vs.
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.:
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.
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:
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.
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
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
It is interesting to state that the agreement between
the parties are evidence by a writing, hence, the
controverting oral testimonies of the herein defendants
cannot be any better than the documentary evidence,
which, in this case, is the Deed of Option (Exh. "A"
and "A-a")
The law provides that when the terms of an
agreement have been reduced to writing it is to be
considered as containing all such terms, and
therefore, there can be, between the parties and their
successors in interest no evidence of their terms of
the agreement, other than the contents of the writing.
... (Section 7 Rule 130 Revised Rules of Court)
Likewise, it is a general and most inflexible rule that
wherever written instruments are appointed either by
the requirements of law, or by the contract of the
parties, to be the repositories and memorials of truth,
any other evidence is excluded from being used,
either as a substitute for such instruments, or to
contradict or alter them. This is a matter both of
principle and of policy; of principle because such
instruments are in their nature and origin entitled to a
much higher degree of credit than evidence of policy,
because it would be attended with great mischief if
those instruments upon which man's rights depended
were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are
reduced to writing, the document itself, being
constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in
respect of that agreement which the law will recognize
so long as it exists for the purpose of evidence.
(Starkie, EV, pp. 648, 655 cited in Kasheenath vs.
Chundy, W.R. 68, cited in Francisco's Rules of Court,
Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-
127, Records).
The respondent appellate court, however, ruled that the said
deed of option is void for lack of consideration. The appellate
court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per
square meter for the portion purchased by them
although the prevailing price at that time was only
P25.00 in consideration of the option to buy the
remainder of the land. This does not seem to be the
case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-
appellants testified that no copy of the deed of sale
had ever been given to them by the plaintiff-appellees.
In the second place, if this was really the condition of
the prior sale, we see no reason why it should be
reiterated in the Deed of Option. On the contrary, the
alleged overprice paid by the plaintiff-appellees is
given in the Deed as reason for the desire of the
Villamors to acquire the land rather than as a
consideration for the option given to them, although
one might wonder why they took nearly 13 years to
invoke their right if they really were in due need of the
lot.
At all events, the consideration needed to support a
unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per square
meter which is allegedly 'greatly higher than the actual
prevailing value of lands.' A sale must be for a price
certain (Art. 1458). For how much the portion
conveyed to the plaintiff-appellees was sold so that
the balance could be considered the consideration for
the promise to sell has not been shown, beyond a
mere allegation that it was very much below P70.00
per square meter.
The fact that plaintiff-appellees might have paid
P18.00 per square meter for another land at the time
of the sale to them of a portion of defendant-
appellant's lot does not necessarily prove that the
prevailing market price at the time of the sale was
P18.00 per square meter. (In fact they claim it was
P25.00). It is improbable that plaintiff-appellees should
pay P52.00 per square meter for the privilege of
buying when the value of the land itself was allegedly
P18.00 per square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682,
consideration is "the why of the contracts, the essential reason
which moves the contracting parties to enter into the contract."
The cause or the impelling reason on the part of private
respondent executing the deed of option as appearing in the
deed itself is the petitioner's having agreed to buy the 300
square meter portion of private respondents' land at P70.00 per
square meter "which was greatly higher than the actual
reasonable prevailing price." This cause or consideration is clear
from the deed which stated:
That the only reason why the spouses-vendees Julio
Villamor and Marina V. Villamor agreed to buy the said
one-half portion at the above stated price of about
P70.00 per square meter, is because I, and my
husband Roberto Reyes, have agreed to sell and
 convey to them the remaining one-half portion still
owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration
to petitioners' evidence which shows that in 1969 the Villamor
spouses bough an adjacent lot from the brother of Macaria
Labing-isa for only P18.00 per square meter which the private
respondents did not rebut. Thus, expressed in terms of money,
the consideration for the deed of option is the difference
between the purchase price of the 300 square meter portion of
the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable
price of the same lot in 1971. Whatever it is, (P25.00 or P18.00)
though not specifically stated in the deed of option, was
ascertainable. Petitioner's allegedly paying P52.00 per square
meter for the option may, as opined by the appellate court, be
improbable but improbabilities does not invalidate a contract
freely entered into by the parties.
The "deed of option" entered into by the parties in this case had
unique features. Ordinarily, an optional contract is a privilege
existing in one person, for which he had paid a consideration
and which gives him the right to buy, for example, certain
merchandise or certain specified property, from another person,
if he chooses, at any time within the agreed period at a fixed
price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look
closely at the "deed of option" signed by the parties, We will
notice that the first part covered the statement on the sale of the
300 square meter portion of the lot to Spouses Villamor at the
price of P70.00 per square meter "which was higher than the
actual reasonable prevailing value of the lands in that place at
that time (of sale)." The second part stated that the only reason
why the Villamor spouses agreed to buy the said lot at a much
higher price is because the vendor (Reyeses) also agreed to sell
to the Villamors the other half-portion of 300 square meters of
the land. Had the deed stopped there, there would be no dispute
that the deed is really an ordinary deed of option granting the
Villamors the option to buy the remaining 300 square meter-half
portion of the lot in consideration for their having agreed to buy
the other half of the land for a much higher price. But, the "deed
of option" went on and stated that the sale of the other half
would be made "whenever the need of such sale arises, either
on our (Reyeses) part or on the part of the Spouses Julio
Villamor and Marina V. Villamor. It appears that while the option
to buy was granted to the Villamors, the Reyeses were likewise
granted an option to sell. In other words, it was not only the
Villamors who were granted an option to buy for which they paid
a consideration. The Reyeses as well were granted an option to
sell should the need for such sale on their part arise.
In the instant case, the option offered by private respondents
had been accepted by the petitioner, the promise, in the same
document. The acceptance of an offer to sell for a price certain
created a bilateral contract to sell and buy and upon
acceptance, the offer, ipso facto assumes obligations of a
vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil.
948). Demandabilitiy may be exercised at any time after the
execution of the deed. In Sanchez v. Rigos, No. L-25494, June
14, 1972, 45 SCRA 368, 376, We held:
In other words, since there may be no valid contract without a
cause of consideration, the promisory is not bound by his
promise and may, accordingly withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the
nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code,
"perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand perform
of contracts." Since there was, between the parties, a meeting of
minds upon the object and the price, there was already a
perfected contract of sale. What was, however, left to be done
was for either party to demand from the other their respective
undertakings under the contract. It may be demanded at any
time either by the private respondents, who may compel the
petitioners to pay for the property or the petitioners, who may
compel the private respondents to deliver the property.
However, the Deed of Option did not provide for the period
within which the parties may demand the performance of their
respective undertakings in the instrument. The parties could not
have contemplated that the delivery of the property and the
payment thereof could be made indefinitely and render
uncertain the status of the land. The failure of either parties to
demand performance of the obligation of the other for an
unreasonable length of time renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written
contract must be brought within ten (10) years. The Deed of
Option was executed on November 11, 1971. The acceptance,
as already mentioned, was also accepted in the same
instrument. The complaint in this case was filed by the
petitioners on July 13, 1987, seventeen (17) years from the time
of the execution of the contract. Hence, the right of action had
prescribed. There were allegations by the petitioners that they
demanded from the private respondents as early as 1984 the
enforcement of their rights under the contract. Still, it was
beyond the ten (10) years period prescribed by the Civil Code.
In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court
affirming and subscribing to the observations of the court a
quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the
right based on the Agreement to Convey and Transfer as
contained in Exhibits '1' and '1-A', her failure or the
abandonment of her right to file an action against Pulmano
Molintas when he was still a co-owner of the on-half (1/2) portion
of the 10,000 square meters is now barred by laches and/or
prescribed by law because she failed to bring such action within
ten (10) years from the date of the written agreement in 1941,
pursuant to Art. 1144 of the New Civil Code, so that when she
filed the adverse claim through her counsel in 1959 she had
absolutely no more right whatsoever on the same, having been
barred by laches.
It is of judicial notice that the price of real estate in Metro Manila
is continuously on the rise. To allow the petitioner to demand the
delivery of the property subject of this case thirteen (13) years or
seventeen (17) years after the execution of the deed at the price
of only P70.00 per square meter is inequitous. For reasons also
of equity and in consideration of the fact that the private
respondents have no other decent place to live, this Court, in
the exercise of its equity jurisdiction is not inclined to grant
petitioners' prayer.
ACCORDINGLY, the petition is DENIED. The decision of
respondent appellate court is AFFIRMED for reasons cited in
this decision. Judgement is rendered dismissing the complaint in
Civil Case No. C-12942 on the ground of prescription and
laches.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva
Ecija to the Court of Appeals, which certified the case to Us,
upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas
Sanchez and defendant Severina Rigos executed an instrument
entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed ... to sell" to Sanchez the sum of
P1,510.00, a parcel of land situated in the barrios of Abar and
Sibot, municipality of San Jose, province of Nueva Ecija, and
more particularly described in Transfer Certificate of Title No.
NT-12528 of said province, within two (2) years from said date
with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his
right to buy the property" within the stipulated period. Inasmuch
as several tenders of payment of the sum of Pl,510.00, made by
Sanchez within said period, were rejected by Mrs. Rigos, on
March 12, 1963, the former deposited said amount with the
Court of First Instance of Nueva Ecija and commenced against
the latter the present action, for specific performance and
damages.
After the filing of defendant's answer — admitting some
allegations of the complaint, denying other allegations thereof,
and alleging, as special defense, that the contract between the
parties "is a unilateral promise to sell, and the same being
unsupported by any valuable consideration, by force of the New
Civil Code, is null and void" — on February 11, 1964, both
parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964,
the lower court rendered judgment for Sanchez, ordering Mrs.
Rigos to accept the sum judicially consigned by him and to
execute, in his favor, the requisite deed of conveyance. Mrs.
Rigos was, likewise, sentenced to pay P200.00, as attorney's
fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article
1479 of our Civil Code, which provides:
 ART. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option
under consideration, "defendant agreed and committed to sell"
and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said
pleading as Annex A thereof and is quoted on the
margin.1 Hence, plaintiff maintains that the promise contained in
the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the
plaintiff, it is not true that the latter had, in turn, "agreed and
committed himself " to buy said property. Said Annex A does not
bear out plaintiff's allegation to this effect. What is more, since
Annex A has been made "an integral part" of his complaint, the
provisions of said instrument form part "and parcel"2 of said
pleading.
The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy
and sell." It merely granted plaintiff an "option" to buy. And both
parties so understood it, as indicated by the caption, "Option to
Purchase," given by them to said instrument. Under the
provisions thereof, the defendant "agreed, promised and
committed" herself to sell the land therein described to the
plaintiff for P1,510.00, but there is nothing in the contract to
indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower
court presumed the existence of said consideration, and this
would seem to be the main factor that influenced its decision in
plaintiff's favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the
second paragraph of Article 1479 refers to "sales" in particular,
and, more specifically, to "an accepted unilateral promise to buy
or to sell." In other words, Article 1479 is controlling in the case
at bar.
(2) In order that said unilateral promise may be "binding upon
the promisor, Article 1479 requires the concurrence of a
condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee
can not compel the promisor to comply with the promise, unless
the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her
answer, and pleaded as a special defense, the absence of said
consideration for her promise to sell and, by joining in the
petition for a judgment on the pleadings, plaintiff has impliedly
admitted the truth of said averment in defendant's answer.
Indeed as early as March 14, 1908, it had been held,
in Bauermann v. Casas,3 that:
One who prays for judgment on the pleadings without
offering proof as to the truth of his own allegations, and
without giving the opposing party an opportunity to
introduce evidence, must be understood to admit the
truth of all the material and relevant allegations of the
opposing party, and to rest his motion for judgment on
those allegations taken together with such of his own as
are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la
Rosa4 and Mercy's Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co.,6 from which We quote:
The main contention of appellant is that the option granted
to appellee to sell to it barge No. 10 for the sum of P30,000
under the terms stated above has no legal effect because it
is not supported by any consideration and in support thereof
it invokes article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate
thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the
price."
On the other hand, Appellee contends that, even granting
that the "offer of option" is not supported by any
consideration, that option became binding on appellant
when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the offer
can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee
invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such withdrawal,
 except when the option is founded upon consideration as
something paid or promised."
There is no question that under article 1479 of the new Civil
Code "an option to sell," or "a promise to buy or to sell," as
used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred
from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported
by consideration. In other words, "an accepted unilateral
promise can only have a binding effect if supported by a
consideration which means that the option can still be
withdrawn, even if accepted, if the same is not supported by
any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding
the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the
general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before acceptance"
except when the option is founded upon consideration, but
this general rule must be interpreted as modified by the
provision of article 1479 above referred to, which applies to
"a promise to buy and sell" specifically. As already stated,
this rule requires that a promise to sell to be valid must be
supported by a consideration distinct from the price.
We are not oblivious of the existence of American
authorities which hold that an offer, once accepted, cannot
be withdrawn, regardless of whether it is supported or not by
a consideration (12 Am. Jur. 528). These authorities, we
note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific
provision embodied in article 1479. While under the "offer of
option" in question appellant has assumed a clear obligation
to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to
be no valid or justifiable reason for appellant to withdraw its
offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to
apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co.,
Inc. v. Cua Hian Tek,8 decided later that Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no distinction
between Articles 1324 and 1479 of the Civil Code and applied
the former where a unilateral promise to sell similar to the one
sued upon here was involved, treating such promise as an
option which, although not binding as a contract in itself for lack
of a separate consideration, nevertheless generated a bilateral
contract of purchase and sale upon acceptance. Speaking
through Associate Justice, later Chief Justice, Cesar Bengzon,
this Court said:
Furthermore, an option is unilateral: a
promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified
time. After accepting the promise and before he exercises
his option, the holder of the option is not bound to buy. He is
free either to buy or not to buy later. In this case, however,
upon accepting herein petitioner's offer a bilateral promise to
sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not just
get the right subsequently to buy or not to buy. It was not a
mere option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted
an option which is not binding for lack of consideration, the
authorities hold that:
"If the option is given without a
consideration, it is a mere offer of a contract of sale, which is
not binding until accepted. If, however, acceptance is made
before a withdrawal, it constitutes a binding contract of sale,
even though the option was not supported by a sufficient
consideration. ... . (77 Corpus Juris Secundum, p. 652. See
also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended
by the defendant, that the option contract was not valid for
lack of consideration. But it was, at least, an offer to sell,
which was accepted by letter, and of the acceptance the
offerer had knowledge before said offer was withdrawn. The
concurrence of both acts — the offer and the acceptance —
could at all events have generated a contract, if none there
was before (arts. 1254 and 1262 of the Civil Code)." (Zayco
vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a
cause or consideration, the promisor is not bound by his
promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the
nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
This view has the advantage of avoiding a conflict between
Articles 1324 — on the general principles on contracts — and
1479 — on sales — of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different
provisions of one and the same law or code, such interpretation
should be favored as will reconcile or harmonize said provisions
and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has
maintained a consistent philosophy or position. Moreover, the
decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf
& Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479
of the Civil Code, in effect, considers the latter as
an exception to the former, and exceptions are not favored,
unless the intention to the contrary is clear, and it is not so,
insofar as said two (2) articles are concerned. What is more, the G.R. No. L-51824 February 7, 1992
reference, in both the second paragraph of Art. 1479 and Art.
1324, to an option or promise supported by or founded upon a PERCELINO DIAMANTE, petitioner,
consideration, strongly suggests that the two (2) provisions vs.
intended to enforce or implement the same principle. HON. COURT OF APPEALS and GERARDO
DEYPALUBUS, respondents.
Upon mature deliberation, the Court is of the considered opinion
that it should, as it hereby reiterates the doctrine laid down in Hernandez, Velicaria, Vibar & Santiago for petitioner.
the Atkins, Kroll & Co. case, and that, insofar as inconsistent
therewith, the view adhered to in the Southwestern Sugar &
Amancio B. Sorongon for private respondent.
Molasses Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed,

with costs against defendant-appellant Severina Rigos. It is so
ordered. DAVIDE, JR., J.:

Assailed in this petition for review is the Resolution of the

respondent Court of Appeals dated 21 March 1979 in C.A.-G.R.
No. SP-04866 setting aside its earlier decision therein,
promulgated on 6 December 1978, which reversed the decision
of the then Court of First Instance (now Regional Trial Court) of
Iloilo City. The latter nullified the Orders of the Secretary of the
Department of Agriculture and Natural Resources (DANR) dated
29 August 1969, 20 November 1969 and 21 April 1970,
declared binding the Fishpond Lease Agreement (FLA) issued
to private respondent and disallowed petitioner from
repurchasing from private respondent a portion of the fishery lot
located at Dumangas, Iloilo, covered by the FLA.

The pleadings of the parties and the decision of the respondent

Court disclose the factual antecedents of this case.

A fishery lot, encompassing an area of 9.4 hectares and

designated as Lot No. 518-A of the Cadastral Survey of
Dumangas, Iloilo, was previously covered by Fishpond Permit
No. F-2021 issued in the name of Anecita Dionio. Upon
Anecita's death, her heirs, petitioner Diamante and Primitivo
Dafeliz, inherited the property which they later divided between
themselves; petitioner got 4.4. hectares while Dafeliz got 5
hectares. It is the petitioner's share that is the subject of the
present controversy. Primitivo Dafeliz later sold his share to
private respondent.

On 21 May 1959, petitioner sold to private respondent his

leasehold rights over the property in question for P8,000.00 with
the right to repurchase the same within three (3) years from said
date.

On 16 August 1960, private respondent filed an application with

the Bureau of Fisheries, dated 12 July 1960, for a fishpond
permit and a fishpond lease agreement over the entire lot,
submitting therewith the deeds of sale executed by Dafeliz and
the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October
1960, sold all his remaining rights over the property in question
to the private respondent for P4,000.00.
On 25 October 1960, private respondent, with his wife's
consent, executed in favor of the petitioner an Option to
Repurchase the property in question within ten (10) years from
said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the
definite deed of sale; he did not, however, submit the Option to
Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to
private respondent Fishpond Permit No. 4953-Q; on 17
December 1962, it approved FLA No. 1372 in the latter's favor.
On 11 December 1963, petitioner, contending that he has a
valid twenty-year option to repurchase the subject property,
requested the Bureau of Fisheries to nullify FLA No. 1372
insofar as the said property is concerned. On 18 December
1964, his letter-complaint was dismissed. Petitioner then sought
a reconsideration of the dismissal; the same was denied on 29
April 1965. His appeal to the Secretary of the DANR was
likewise dismissed on 30 October 1968. Again, on 20 November
1968, petitioner sought for a reconsideration; this time, however,
he was successful. On 29 August 1969, the DANR Secretary
granted his motion in an Order cancelling FLA No. 1372 and
stating, inter alia, that:
Evidently, the application as originally filed,
could not be favorably acted upon by reason
of the existing right of a third party over a
portion thereof. It was only the submission of
the deed of absolute sale which could
eliminate the stumbling block to the approval
of the transfer and the issuance of a permit
or lease agreement. It was on the basis of
this deed of sale, in fact, the one entitled
"option to repurchase" executed barely a
week from the execution of the deed of
absolute sale, (which) reverted, in effect, the
status of the land in question to what it was
after the execution of the deed of sale with
right to repurchase; that is, the land was
again placed under an encumbrance in
favor of a third party. Circumstantially, there
is a ground (sic) to believe that the deed of
absolute sale was executed merely with the
end in view of circumventing the
requirements for the approval of the transfer
of leasehold rights of Diamante in favor of
Deypalubos; and the subsequent execution
of the "Option to Repurchase" was made to
assure the maintenance of a vendor a
retro's rights in favor of Diamante. There
was, therefore, a misrepresentation of an
essential or material fact committed by the
lessee-appellee (Deypalubos) in his
application for the permit and the lease
agreement, without which the same could
not have been issued. 1
The Secretary based his action on Section 20 of Fisheries
Administrative Order No. 60, the second paragraph of which
reads:
Any and all of the statements made in the
corresponding application shall be
considered as essential conditions and parts
of the permit or lease granted. Any false
statements in the application of facts or any
alteration, change or modification of any or
all terms and conditions made therein
shall ipso facto cause the cancellation of the
permit or lease.
Private respondent moved for a reconsideration of this last
Order arguing that the DANR Secretary's previous Order of 30
October 1968 dismissing petitioner's letter-complaint had
already become final on the ground that he (private respondent)
was not served a copy of petitioner's 20 November 1968 motion
for reconsideration. On 20 November 1969, private respondent's
motion for reconsideration was denied; a second motion for
reconsideration was likewise denied on 20 April 1970.
On 5 May 1970, private respondent filed with the Court of First
Instance of Iloilo City a special civil action for certiorari with
preliminary injunction (docketed as Civil Case No. 8209),
seeking to annul the Secretary's Orders of 20 April 1970, 20
November 1969 and 29 August 1969 on the ground that the
Secretary: (1) gravely abused his discretion in not giving him the
opportunity to be heard on the question of whether or not the
Option to Repurchase was forged; and (2) has no jurisdiction to
set aside FLA No. 1372 as the Order of the Bureau of Fisheries
dismissing petitioner's 11 December 1963 letter-complaint had
already become final.
After issuing a temporary restraining order and a writ of
preliminary injunction, the lower court tried the case jointly with
Criminal Case No. 520 wherein both the petitioner and a certain
Atty. Agustin Dioquino, the Notary Public who notarized the 25
October 1960 Option to Repurchase, were charged with
falsification of a public document.
After due trial, the lower court acquitted the accused in the
criminal case and decided in favor of the private respondent in
Civil Case No. 8209; the court ruled that: (1) the DANR
Secretary abused his discretion in issuing the questioned
Orders, (2) petitioner cannot repurchase the property in question
as the Option to Repurchase is of doubtful validity, and (3) FLA
No. 1372 in the name of private respondent is valid and binding.
Petitioner appealed to the respondent Court which, on 6
December 1978, reversed the decision of the trial court 2 on the
ground that no grave abuse of discretion was committed by
respondent Secretary inasmuch as private respondent was
given the opportunity to be heard on his claim that the Option to
Repurchase is spurious, and that the trial court merely indulged
in conjectures in not upholding its validity. Said the respondent
Court:
With all the foregoing arguments appellee
had exhaustively adduced to show the
spuriousness of the deed of "Option to
Repurchase", appellee can hardly complain
of not having been given an opportunity to
be heard, which is all that is necessary in
relation to the requirement of notice and
hearing in administrative proceedings.
Moreover, appellee never asked for a formal
hearing at the first opportunity that he had to
do so, as when he filed his first motion for
reconsideration. He asked for a formal
hearing only in his second motion for
reconsideration evidently as a mere
afterthought, upon realizing that his
arguments were futile without proofs to
support them.
The only remaining question, therefore, is
whether the Secretary acted with grave
abuse of discretion in giving weight to the
alleged execution by appellee of the deed of
Option to Repurchase, on the basis of the
xerox copy of said deed as certified by the
Notary Public, Agustin Dioquino.
With such documentary evidence duly
certified by the Notary Public, which is in
effect an affirmation of the existence of the
deed of "Option of Repurchase" (sic) and its
due execution, the Secretary may not be
said to have gravely abused his discretion in
giving the document enough evidentiary
weight to justify his action in applying the
aforequoted provisions of Fisheries Adm.
Order No. 60. This piece of evidence may
be considered substantial enough to support
the conclusion reached by the respondent
Secretary, which is all that is necessary to
sustain an administrative finding of fact
(Ortua vs. Encarnacion, 59 Phil. 635; Ang
Tibay vs. CIR, 69 Phil. 635; Ramos vs. The
Sec. of Agriculture and Natural Resources,
et al. L-29097, Jan. 28, 1974, 55 SCRA
330). Reviewing courts do not re-examine
the sufficiency of the evidence in an
administrative case, if originally instituted as
such, nor are they authorized to receive
additional evidence that was not submitted
to the administrative agency concerned. For
common sense dictates that the question of
whether the administrative agency abused
its discretion in weighing evidence should be
resolved solely on the basis of the proof that
the administrative authorities had before
them and no other (Timbancaya vs. Vicente,
L-19100, Dec. 27, 1963, 9 SCRA 852). In
the instant case the evidence presented for
the first time before the court a quo could be
considered only for the criminal case heard
jointly with this case.
The lower court's action of acquitting the
notary public, Agustin Dioquino, and
appellant Diamante in Criminal Case No.
520 for falsification of public document is in
itself a finding that the alleged forgery has
not been conclusively established. This
finding is quite correct considering the
admission of the NBI handwriting expert that
admission of the NBI handwriting expert that
he cannot make any finding on the question
of whether appellee's signature on the deed
of "Option to Repurchase" is forged or not,
because of the lack of (sic) specimen
signature of appellee for comparative
examination. The Secretary may have such
signature in the application papers of
appellee on file with the former's office upon
which to satisfy himself of (sic) the
genuineness of appellee's signature. It
would be strange, indeed, that appellee had
not provided the NBI expert with a specimen
of his signature when his purpose was to
have an expert opinion that his signature on
the questioned document is forged.
On the other hand, as to the signature of his
wife, the latter herself admitted the same to
be her own. Thus —
Q There is a signature below the typewritten words "with my
marital consent" and above the name Edelina Duyo, whose
signature is this?
A That is my signature. (T.s.n., Crim. Case No. 520, April 5,
1971, p. 14).
In not finding in favor of the perfect validity
of the "Option to Repurchase," the court a
quo merely indulged in conjectures. Thus,
believing the testimony of appellee that the
later (sic) could not have executed the deed
of option to repurchase after spending
allegedly P12,000.00, and that if there was
really a verbal agreement upon the
execution of the deed of absolute sale, as
alleged by appellant, that appellant's right to
repurchase, as was stipulated in the earlier
deed of sale, shall be preserved, such
agreement should have been embodied in
the deed of sale of October 17, 1960 (Exh.
D), the court doubted the genuineness of
the deed of Option to Repurchase (sic).
It is highly doubtful if appellee had spent
P12,000.00 during the period from October
17, 1960 to October 25, 1960 when the
deed of option was executed. Likewise, the
right to repurchase could not have been
embodied in the deed of absolute sale
since, as the Secretary of DANR found, the
purpose of the deed of absolute sale is to
circumvent the law and insure the approval
of appellee's application, as with his right to
4.4 hectares appearing to be subject to an
encumbrance, his application would not
have been given favorable action.
Above all, the speculation and conjectures
as indulged in by the court a quo cannot
outweigh the probative effect of the
document itself, a certified xerox copy
thereof as issued by the Notary Public, the
non-presentation of the original having been
explained by its loss, as was the testimony
of the same Notary Public, who justly won
acquittal when charged with falsification of
public document at the instance of appellee.
The fact that the spaces for the document
number, page and book numbers were not
filled up in the photostatic copy presented by
the representative of the Bureau of Records
Management does not militate against the
genuineness of the document. It simply
means that the copy sent to the said Bureau
happens to have those spaces unfilled up
(sic). But the sending of a copy of the
document to the Bureau of Records
Management attests strongly to the
existence of such document, the original of
which was duly executed, complete with the
aforesaid data duly indicated thereon, as
shown by the xerox copy certified true by the
Notary Public.
Indeed, in the absence of positive and
convincing proof of forgery, a public
instrument executed with the intervention of
a Notary Public must be held in high respect
and accorded full integrity, if only upon the
presumption of the regularity of official
functions as in the nature of those upon the
presumption of the regularity of official
functions as in the nature of those of a
notary public (Bautista vs. Dy Bun Chin, 49
OG 179; El Hogar Filipino vs. Olviga, 60
Phil. 17).
Subsequently, the respondent Court, acting on private
respondent's motion for reconsideration, promulgated on 21
March 1979 the challenged Resolution 3 setting aside the earlier
decision and affirmed, in toto, the ruling of the trial court, thus:
. . . the respondent (DANR) Secretary had gone beyond
his statutory authority and had clearly acted in abuse of
discretion in giving due weight to the alleged option to
repurchase whose (sic) genuiness (sic) and due
execution had been impugned and denied by petitioner-
appellee (Deypalubos). While the certified true copy of
the option to repurchase may have been the basis of the
respondent Secretary in resolving the motion for
reconsideration, the Court believes that he should have
first ordered the presentation of evidence to resolve this
factual issue considering the conflicting claims of the
parties. As earlier pointed out, all that was submitted to
the Bureau of Fisheries and consequently to the
respondent Secretary, was a xerox copy of the
questioned document which was certified to by a notary
public to be a copy of a deed found in his notarial file
which did not bear any specimen of the signatures of the
contracting parties. And assuming that a certification
made by a notary public as to the existence of a
document should be deemed an affirmation that such
document actually exists. Nevertheless, (sic) when such
claim is impugned, the one who assails the existence of
a document should be afforded the opportunity to prove
such claim, because, at most, the presumption of
regularity in the performance of official duties is merely
disputable and can be rebutted by convincing and
positive evidence to the contrary.
His motion for reconsideration having been denied, the
petitioner filed the instant petition for review.
Petitioner contends that the Rules of Court should not be strictly
applied to administrative proceedings and that the findings of
fact of administrative bodies, absent a showing of arbitrariness,
should be accorded respect.
While the petition has merit, petitioner's victory is hollow and
illusory for, as shall hereafter be shown, even as We reverse the
assailed resolution of the respondent Court of Appeals, the
questioned decision of the Secretary must, nevertheless, be set
aside on the basis of an erroneous conclusion of law with
respect to the Option to Repurchase.
The respondent Court correctly held in its decision of 6
December 1978 that the respondent Secretary provided the
private respondent sufficient opportunity to question the
authenticity of the Option to Repurchase and committed no
grave abuse of discretion in holding that the same was in fact
executed by private respondent. We thus find no sufficient legal
and factual moorings for respondent Court's sudden turnabout in
its resolution of 21 March 1979. That private respondent and his
wife executed the Option to Repurchase in favor of petitioner on
25 October 1960 is beyond dispute. As determined by the
respondent Court in its decision of 6 December 1978, private
respondent's wife, Edelina Duyo, admitted having affixed her
signature to the said document. Besides, the trial court itself in
Criminal Case No. 520 which was jointly tried with the civil case,
acquitted both the petitioners and the notary public, before
whom the Option to Repurchase was acknowledged, of the
crime of falsification of said document.
We hold, however, that the respondent Secretary gravely erred
in holding that private respondent's non-disclosure and
suppression of the fact that 4.4 hectares of the area subject of
the application is burdened with or encumbered by the Option to
Repurchase constituted a falsehood or a misrepresentation of
an essential or material fact which, under the second paragraph
of Section 29 of Fisheries Administrative Order No. 60 earlier
quoted, "shall ipso facto cause the cancellation of the permit or
lease." In short, the Secretary was of the opinion that the Option
to Repurchase was an encumbrance on the property which
affected the absolute and exclusive character of private
respondent's ownership over the 4.4 hectares sold to him by
petitioner. This is a clear case of a misapplication of the law on
conventional redemption and a misunderstanding of the effects
of a right to repurchase granted subsequently in an instrument
different from the original document of sale.
Article 1601 of the Civil Code provides:
Conventional redemption shall take place
when the vendor reserves the right to
repurchase the thing sold, with the
obligation to comply with the provisions of
article 1616 and other stipulations which
may have been agreed upon.
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29
November 1968, or barely seven (7) days before the respondent
Court promulgated its decision in this case, this Court,
interpreting the above Article, held:
The right of repurchase is not a right granted the vendor
by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale
as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a
separate instrument cannot be a right of repurchase but
some other right like the option to buy in the instant
case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided
in 1927, this Court had already ruled that "an agreement to
repurchase becomes a promise to sell when made after the
sale, because when the sale is made without such an
agreement, the purchaser acquires the thing sold absolutely,
and if he afterwards grants the vendor the right to repurchase, it
is a new contract entered into by the purchaser, as absolute
owner already of the object. In that case the vendor has not
reserved to himself the right to repurchase."
In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found
another occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private
respondent in the present case, was merely a promise to sell,
which must be governed by Article 1479 of the Civil Code which
reads as follows:
Art. 1479. — A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
A copy of the so-called Option to Repurchase is neither
attached to the records nor quoted in any of the pleadings of the
parties. This Court cannot, therefore, properly rule on whether
the promise was accepted and a consideration distinct from the
price, supports the option. Undoubtedly, in the absence of either
or both acceptance and separate consideration, the promise to
sell is not binding upon the promissor (private respondent).
A unilateral promise to buy or sell is a mere offer, which
is not converted into a contract except at the moment it
is accepted. Acceptance is the act that gives life to a
juridical obligation, because, before the promise is
 accepted, the promissor may withdraw it at any time.
Upon acceptance, however, a bilateral contract to sell
and to buy is created, and the offeree ipso
facto assumes the obligations of a purchaser; the
offeror, on the other hand, would be liable for damages if
he fails to deliver the thing he had offered for sale.
xxx xxx xxx
. . . The contract of option is a separate and distinct
contract from the contract which the parties may enter
into upon the consummation of the option, and a
consideration for an optional contract is just as important
as the consideration for any other kind of contract. Thus,
a distinction should be drawn between the consideration
for the option to repurchase, and the consideration for
the contract of repurchase itself.7
Even if the promise was accepted, private respondent was not
bound thereby in the absence of a distinct consideration. 8
It may be true that the foregoing issues were not squarely raised
by the parties. Being, however, intertwined with the issue of the
correctness of the decision of the respondent Secretary and,
considering further that the determination of said issues is
essential and indispensable for the rendition of a just decision in
this case, this Court does not hesitate to rule on them.
In Hernandez vs. Andal, 9 this Court held:
If the appellants' assignment of error be not considered
a direct challenge to the decision of the court below, we
still believe that the objection takes a narrow view of
practice and procedure contrary to the liberal spirit which
pervades the Rules of Court. The first injunction of the
new Rules (Rule 1, section 2) is that they "shall be
liberally construed in order to promote their object and to
assist the parties in obtaining just, speedy, and
inexpensive determination of every action and
proceeding." In line with the modern trends of
procedure, we are told that, "while an assignment of
error which is required by law or rule of court has been
held essential to appellate review, and only those
assigned will be considered, there are a number of
cases which appear to accord to the appellate court a
broad discretionary power to waive the lack of proper
assignment of errors and consider errors not assigned.
And an unassigned error closely related to an error
properly assigned, or upon which the determination of
the question raised by the error properly assigned is
dependent, will be considered by the appellate court
notwithstanding the failure to assign it as error." (4
C.J.S., 1734; 3 C.J., 1341, footnote 77). At the least, the
assignment of error, viewed in this light, authorizes us to
examine and pass upon the decision of the court below.
In Insular Life Assurance Co., Ltd. Employees Association-
NATU vs. Insular Life Assurance Co., Ltd., 10 this Court ruled:
. . . (t)he Supreme Court has ample authority to review
and resolve matter not assigned and specified as errors
by either of the parties in the appeal if it finds the
consideration and determination of the same essential
and indispensable in order to arrive at a just decision in
the case. 11 This Court, thus, has the authority to waive
the lack of proper assignment of errors if the unassigned
errors closely relate to errors properly pinpointed out or
if the unassigned errors refer to matters upon which the
determination of the questions raised by the errors
properly assigned depend. 12
The same also applies to issues not specifically raised
by the parties. The Supreme Court, likewise, has broad
discretionary power, in the resolution of a controversy, to
take into consideration matters on record which the
parties fail to submit to the Court as specific questions
for determination. 13 Where the issues already raised
also rest on other issues not specifically presented, as
long as the latter issues bear relevance and close
relation to the former and as long as they arise from
matters on record, the Court has the authority to include
them in its discussion of the controversy as well as to
pass upon them. In brief, in those cases wherein
questions not particularly raised by the parties surface
as necessary for the complete adjudication of the rights
and obligations of the parties and such questions fall
within the issues already framed by the parties, the
interests of justice dictate that the Court consider and
resolve them.
WHEREFORE, the instant petition is GRANTED. The
Resolution of respondent Court of Appeals of 21 March 1979 in
C.A.-G.R. No. SP-04866 and the Decision of the trial court in
Civil Case No. 8209, insofar as they declare, for the reasons
therein given, Fishpond Lease Agreement No. 1372, valid and
binding, are hereby REVERSED and SET ASIDE. The
challenged Orders of the respondent Secretary of Agriculture
and Natural Resources of 29 August 1969, 20 November 1969
and 21 April 1970 are likewise REVERSED and SET ASIDE and
Fishpond Lease Agreement No. 1372 is ordered REINSTATED.
No pronouncement as to costs.
IT IS SO ORDERED.
 [G.R. No. 126454. November 26, 2004]
BIBLE BAPTIST CHURCH and PASTOR REUBEN
BELMONTE, petitioners, vs. COURT OF APPEALS
and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA, respondents.
DECISION
AZCUNA, J.:
This petition for review on certiorari seeks to annul the
Decision[1] dated August 7, 1996, of the Court of Appeals in CA-
G.R. CV No. 45956, and its Resolution[2] dated September 12,
1996, denying reconsideration of the decision. In the questioned
issuances, the Court of Appeals affirmed the Decision [3] dated
June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in
Civil Case No. 90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner
Baptist Church) entered into a contract of lease[4] with Mr. & Mrs.
Elmer Tito Medina Villanueva (respondent spouses Villanueva).
The latter are the registered owners of a property located at No.
2436 (formerly 2424) Leon Guinto St., Malate, Manila. The
pertinent stipulations in the lease contract were:
1. That the LESSOR lets and leases to the LESSEE
a store space known as 2424 Leon Guinto Sr.
St., Malate, Manila, of which property the
LESSOR is the registered owner in accordance
with the Land Registration Act.
subject of the present controversy.
2. That the lease shall take effect on June 7, 1985
and shall be for the period of Fifteen (15) years.
cases[6] filed between the same parties herein, petitioner
3. That LESSEE shall pay the LESSOR within five
submits, for this Courts review, only the following errors
(5) days of each calendar month, beginning
allegedly committed by the Court of Appeals:
Twelve (12) months from the date of this
agreement, a monthly rental of Ten Thousand
Pesos (P10,000.00) Philippine Currency, plus
10% escalation clause per year starting on June
7, 1988.
4. That upon signing of the LEASE
AGREEMENT, the LESSEE shall pay the sum
of Eighty Four Thousand Pesos (P84,000.00)
Philippine Currency. Said sum is to be paid
directly to the Rural Bank, Valenzuela,
Bulacan for the purpose of redemption of
said property which is mortgaged by the
LESSOR.
5. That the title will remain in the safe keeping of the
Bible Baptist Church, Malate, Metro Manila until
or not the option to buy given to the Baptist Church is founded
the expiration of the lease agreement or the
leased premises be purchased by the LESSEE,
whichever comes first. In the event that the said
title will be lost or destroyed while in the
possession of the LESSEE, the LESSEE agrees
to pay all costs involved for the re-issuance of
the title.
6. That the leased premises may be renovated by
the LESSEE, to the satisfaction of the LESSEE
to be fit and usable as a Church.
7. That the LESSOR will remove all other tenants
from the leased premises no later than March
15, 1986. It is further agreed that if those
tenants are not vacated by June 1, 1986, the
rental will be lowered by the sum of Three
Thousand Pesos (P3,000.00) per month until
said tenants have left the leased premises.
8. That the LESSEE has the option to buy the
leased premises during the Fifteen (15) years
of the lease. If the LESSEE decides to
purchase the premises the terms will be: A)
A selling Price of One Million Eight Hundred
Thousand Pesos (P1.8 million), Philippine
Currency. B) A down payment agreed upon
by both parties. C) The balance of the selling
price may be paid at the rate of One Hundred
Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
x x x.[5]
The foregoing stipulations of the lease contract are the
Although the same lease contract resulted in several
a) Respondent Court of Appeals erred in finding that
the option to buy granted the petitioner Baptist
Church under its contract of lease with the
Villanuevas did not have a consideration and,
therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that
the option to buy did not have a fixed price
agreed upon by the parties for the purchase of
the property; and
c) [F]inally, respondent court erred in not awarding
petitioners Baptist Church and its pastor
attorneys fees.[7]
In sum, this Court has three issues to resolve: 1) Whether
upon a consideration; 2) Whether or not by the terms of the
lease agreement, a price certain for the purchase of the land
had been fixed; and 3) Whether or not the Baptist Church is
entitled to an award for attorneys fees.
The stipulation in the lease contract which purportedly
gives the lessee an option to buy the leased premises at any
time within the duration of the lease, is found in paragraph 8 of
the lease contract, viz:
8. That the LESSEE has the option to buy the leased premises
during the Fifteen (15) years of the lease. If the LESSEE
decides to purchase the premises the terms will be: A) A selling
Price of One Million Eight Hundred Thousand Pesos (P1.8
million), Philippine Currency. B) A down payment agreed upon
by both parties. C) The balance of the selling price may be paid
at the rate of One Hundred Twenty Thousand Pesos
(P120,000.00), Philippine Currency, per year.
Under Article 1479 of the Civil Code, it is provided:
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.
In this case, petitioner Baptist Church seeks to buy the
leased premises from the spouses Villanueva, under the option
given to them. Petitioners claim that the Baptist Church agreed
to advance the large amount needed for the rescue of the
property but, in exchange, it asked the Villanuevas to grant it a
long term lease and an option to buy the property for P1.8
million.[8] They argue that the consideration supporting the
option was their agreement to pay off the Villanuevas P84,000
loan with the bank, thereby freeing the subject property from the
mortgage encumbrance. They state further that the Baptist
Church would not have agreed to advance such a large amount
as it did to rescue the property from bank foreclosure had it not
been given an enforceable option to buy that went with the lease
agreement.
In the petition, the Baptist Church states that [t]rue, the
Baptist Church did not pay a separate and specific sum of
money to cover the option alone. But the P84,000 it paid the
Villanuevas in advance should be deemed consideration for the
one contract they entered into the lease with option to
buy.[9] They rely on the case of Teodoro v. Court of Appeals[10] to
support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid
in order to release the Villanuevas property from the mortgage
should be deemed the separate consideration to support the
contract of option. It must be pointed out that said amount was
in fact apportioned into monthly rentals spread over a period of
one year, at P7,000 per month. Thus, for the entire period of
June 1985 to May 1986, petitioner Baptist Churchs monthly rent
had already been paid for, such that it only again commenced
paying the rentals in June 1986. This is shown by the testimony
of petitioner Pastor Belmonte where he states that the P84,000
was advance rental equivalent to monthly rent of P7,000 for one
year, such that for the entire year from 1985 to 1986 the Baptist
Church did not pay monthly rent.[11]
This Court agrees with respondents that the amount
of P84,000 has been fully exhausted and utilized by their
occupation of the premises and there is no separate
consideration to speak of which could support the option.[12]
Second, petitioners reliance on the case of Teodoro v.
Court of Appeals[13] is misplaced. The facts of the Teodoro case
reveal that therein respondent Ariola was the registered lessee
of a property owned by the Manila Railroad Co. She entered into
an agreement whereby she allowed Teodoro to occupy a portion
of the rented property and gave Teodoro an option to buy the
same, should Manila Railroad Co. decide to sell the property to
Ariola. In addition, Teodoro, who was occupying only a portion
of the subject rented property, also undertook to pay the Manila
Railroad Co., the full amount of the rent supposed to be paid by
the registered lessor Ariola. Consequently, unlike this case,
Teodoro paid over and above the amount due for her own
occupation of a portion of the property. That amount, which
should have been paid by Ariola as lessor, and for her own
occupation of the property, was deemed by the Court as
sufficient consideration for the option to buy which Ariola gave to
Teodoro upon Ariolas acquiring the property.
Hence, in Teodoro, this Court was able to find that a
separate consideration supported the option contract and thus,
its enforcement may be demanded. Petitioners, therefore,
cannot rely on Teodoro, for the case even supports the
respondents stand that a consideration that is separate and
distinct from the purchase price is required to support an option
contract.
Petitioners further insist that a consideration need not be a
separate sum of money. They posit that their act of advancing
the money to rescue the property from mortgage and impending
foreclosure, should be enough consideration to support the
option.
In Villamor v. Court of Appeals,[14] this Court defined
consideration as the why of the contracts, the essential reason
which moves the contracting parties to enter into the
contract.[15] 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.
Specifically, in Villamor v. Court of Appeals,[16] half of a
parcel of land was sold to the spouses Villamor for P70 per
square meter, an amount much higher than the reasonable
prevailing price. Thereafter, a deed of option was executed
whereby the sellers undertook to sell the other half to the same
spouses. It was stated in the deed that the only reason the
spouses bought the first half of the parcel of land at a much
higher price, was the undertaking of the sellers to sell the
second half of the land, also at the same price. This Court held
that the cause or consideration for the option, on the part of the
spouses-buyers, was the undertaking of the sellers to sell the
other half of the property. On the part of the sellers, the
consideration supporting the option was the much higher
amount at which the buyers agreed to buy the property. It
was explicit from the deed therein that for the parties, this was
the consideration for their entering into the contract.
It can be seen that the Court found that the buyer/optionee
had parted with something of value, which was the amount he
paid over and above the actual prevailing price of the land. Such
amount, different from the price of the land subject of the option,
was deemed sufficient and distinct consideration supporting the
option contract. Moreover, the parties stated the same in their
contract.
Villamor is distinct from the present case because, First,
this Court cannot find that petitioner Baptist Church parted with
anything of value, aside from the amount of P84,000 which was
in fact eventually utilized as rental payments. Second, there is
no document that contains an agreement between the parties
that petitioner Baptist Churchs supposed rescue of the
mortgaged property was the consideration which the parties
contemplated in support of the option clause in the contract. As
previously stated, the amount advanced had been fully utilized
as rental payments over a period of one year. While the
Villanuevas may have them to thank for extending the payment
at a time of need, this is not the separate consideration
contemplated by law.
Noting that the option clause was part of a lease contract,
this Court looked into its previous ruling in the early case of Vda.
De Quirino v. Palarca,[17] where the Court did say that in
reciprocal contracts, like the one in question,[18] the obligation or
promise of each party is the consideration for that of the
other.[19] However, it must be noted that in that case, it was also
expressly stated in the deed that should there be failure to
exercise the option to buy the property, the optionee undertakes
to sell the building and/or improvements he has made on the
premises. In addition, the optionee had also been paying an
amount of rent that was quite high and in fact turned out to be
too burdensome that there was a subsequent agreement to
reduce said rentals. The Court found that the amount of rentals
agreed upon x x x which amount turned out to be so
burdensome upon the lessee, that the lessor agreed, five years
later, to reduce it as well as the building and/or improvements
contemplated to be constructed and/or introduced by the lessee,
were, undoubtedly, part of the consideration for his option to
purchase the leased premises.[20]
Again, this Court notes that the parties therein clearly
stipulated in their contract that there was an undertaking on the
part of the optionee to sell the improvements made on the
property if the option was not exercised. Such is a valuable
consideration that could support the option contract. Moreover,
there was the excessive rental payments that the optionee paid
for five years, which the Court also took into account in deciding
that there was a separate consideration supporting the option.
To summarize the rules, 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 contract of option. 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.
This Court also notes that in the present case both the
Regional Trial Court and the Court of Appeals agree that the
option was not founded upon a separate and distinct
consideration and that, hence, respondents Villanuevas cannot
be compelled to sell their property to petitioner Baptist Church.
The Regional Trial Court found that [a]ll payments made
under the contract of lease were for rentals. No money [was]
ever exchanged for and in consideration of the option. Hence,
the Regional Trial Court found the action of the Baptist Church
to be premature and without basis to compel the defendant to
sell the leased premises. The Regional Trial Court consequently
ruled:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs application for writ of injunction;
2) That defendant cannot be compelled to sell to
plaintiffs the leased premises in accordance with
par. 8 of the contract of lease;
3) Defendant is hereby ordered to reimburse
plaintiffs the sum of P15, 919.75 plus 12%
interest representing real estate taxes, plaintiffs
paid the City Treasurers Office of Manila;
4) Declaring that plaintiff made a valid and legal
consignation to the Court of the initial amount
of P18,634.00 for the month of November and
December 1990 and every month thereafter.
 All other claims of the plaintiffs are hereby dismissed for lack
of merit.
No pronouncement as to costs.
SO ORDERED. [21]
On appeal, the Court of Appeals agreed with the Regional
Trial Court and found that the option to buy the leased premises
was not binding upon the Villanuevas for non-compliance with
Article 1479. It found that said option was not supported by a
consideration as no money was ever really exchanged for and in
consideration of the option. In addition, the appellate court
determined that in the instant case, the price for the object is not
yet certain. Thus, the Court of Appeals affirmed the Regional
Trial Court decision and dismissed the appeal for lack of
merit.[22]
Having found that the option to buy granted to the
petitioner Baptist Church was not founded upon a separate
consideration, and hence, not enforceable against respondents,
this Court finds no need to discuss whether a price certain had
been fixed as the purchase price.
Anent the claim for attorneys fees, it is stipulated in
paragraph 13 of the lease agreement that in the event of failure
of either of the parties to comply with any of the conditions of the
agreement, the aggrieved party can collect reasonable attorneys
fees.[23]
In view of this Courts finding that the option contract is not
enforceable for being without consideration, the respondents
Villanueva spouses refusal to comply with it cannot be the basis
of a claim for attorneys fees.
Hence, this Court agrees with as the Court of Appeals,
which affirmed the findings of the Regional Trial Court, that such
claim is to be dismissed for lack of factual and legal basis.
WHEREFORE, the Decision and Resolution of the Court
of Appeals subject of the petition are hereby AFFIRMED.
No costs.
SO ORDERED.
G.R. No. 202050, July 25, 2016
PHILIPPINE NATIONAL OIL COMPANY AND PNOC
DOCKYARD & ENGINEERING
CORPORATION, Petitioners, v. KEPPEL PHILIPPINES
HOLDINGS, INC., Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under
Rule 45 of the Rules of Court, appealing the decision dated 19
December 20111 and resolution dated 14 May 20122 of the
Court of Appeals (CA) in CA-G.R. CV No. 86830. These
assailed CA rulings affirmed in toto the decision dated 12
January 20063of the Regional Trial Court (RTQ of Batangas
City, Branch 84, in Civil Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent
Keppel Philippines Holdings, Inc.4 (Keppel) entered into a lease
agreement5 (the agreement) with Luzon Stevedoring
Corporation (Lusteveco) covering 11 hectares of land located in
Bauan, Batangas. The lease was for a period of 25 years for a
consideration of P2.1 million.6 At the option of Lusteveco, the
rental fee could be totally or partially converted into equity
shares in Keppel.7chanrobleslaw
At the end of the 25-year Jease period, Keppel was given
the "firm and absolute option to purchase8the land for P4.09
million, provided that it had acquired the necessary
qualification to own land under Philippine laws at the time
the option is exercised.9 Apparently, when the lease
agreement was executed, less than 60% of Keppel's
shareholding was Filipino-owned, hence, it was not
constitutionally qualified to acquire private lands in the
country.10chanrobleslaw
If, at the end of the 25-year lease period (or in 2001), Keppel
remained unqualified to own private lands, the agreement
provided that the lease would be automatically renewed for
another 25 years.11 Keppel was further allowed to exercise the
option to purchase the land up to the 30th year of the lease (or
in 2006), also on the condition that, by then, it would have
acquired the requisite qualification to own land in the
Philippines.12chanrobleslaw
Together with Keppel's lease rights and option to purchase,
Lusteveco warranted not to sell the land or assign its rights to
the land for the duration of the lease unless with the prior written
consent of Keppel.13Accordingly, when the petitioner Philippine
National Oil Corporation14 (PNOC) acquired the land from
Lusteveco and took over the rights and obligations under the
agreement, Keppel did not object to the assignment so long as
the agreement was annotated on PNOC's title.15 With PNOC's
consent and cooperation, the agreement was recorded as Entry
No. 65340 on PNOC's Transfer of Certificate of Title No. T-
50724.16chanrobleslaw
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter
that at least 60% of its shares were now owned by
Filipinos17 Consequently, Keppel expressed its readiness to
exercise its option to purchase the land. Keppel reiterated its
demand to purchase the land several times, but on every
occasion, PNOC did not favourably respond.18chanrobleslaw
To compel PNOC to comply with the Agreement, Keppel
instituted a complaint for specific performance with the RTC
on 26 September 2003 against PNOC.19 PNOC countered
Keppel's claims by contending that the agreement was illegal for
circumventing the constitutional prohibition against aliens
holding lands in the Philippines.20 It further asserted that the
option contract was void, as it was unsupported by a separate
valuable consideration.21 It also claimed that it was not privy to
the agreement.22chanrobleslaw
After due proceedings, the RTC rendered a decision23in
favour of Keppel and ordered PNOC to execute a deed of
absolute sale upon payment by Keppel of the purchase price of
P4.09 million.24chanrobleslaw
PNOC elevated the case to the CA to appeal the RTC
decision.25cralawred Affirming the RTC decision in toto, the CA
upheld Keppel's right to acquire the land.26 It found that since
the option contract was embodied in the agreement - a
reciprocal contract - the consideration was the obligation that
each of the contracting party assumed.27 Since Keppel was
already a Filipino-owned corporation, it satisfied the condition
that entitled it to purchase the land.28chanrobleslaw
Failing to secure a reconsideration of the CA decision,29 PNOC
filed the present Rule 45 petition before this Court to assail the
CA rulings.
THE PARTIES' ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality
of the agreement. It contends that the terms of the agreement
amounted to a virtual sale of the land to Keppel who, at the time
of the agreement's enactment, was a foreign corporation and,
thus, violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease
that was automatically renewable for another 25 years30; (b) the
option to purchase the land for a nominal consideration of
P100.00 if the option is exercised anytime between the 25th and
the 30th year of the lease31; and (c) the prohibition imposed on
Lusteveco to sell the land or assign its rights therein during the
lifetime of the lease.32 Taken together, PNOC submits that these
provisions amounted to a virtual transfer of ownership of the
land to an alien which act the 1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease
contract in Philippine Banking Corporation v. Lui She,33 which
the Court struck down as unconstitutional. In Lui She, the lease
contract allowed the gradual divestment of ownership rights by
the Filipino owner-lessor in favour of the foreigner-lessee.34The
arrangement in Lui She was declared as a scheme designed to
enable the parties to circumvent the constitutional
prohibition.35 PNOC posits that a similar intent is apparent from
the terms of the agreement with Keppel and accordingly should
also be nullified.36chanrobleslaw
PNOC additionally contends the illegality of the option contract
for lack of a separate consideration, as required by Article 1479
of the Civil Code.37 It claims that the option contract is distinct
from the main contract of lease and must be supported by a
consideration other than the rental fees provided in the
agreement.38chanrobleslaw
On the other hand, Keppel maintains the validity of both the
agreement and the option contract it contains. It opposes the
claim that there was "virtual sale" of the land, noting that the
option is subject to the condition that Keppel becomes qualified
to own private lands in the Philippines.39 This condition ripened
in 2000, when at least 60% of Keppel's equity became Filipino-
owned.
Keppel contends that the agreement is not a scheme designed
to circumvent the constitutional prohibition. Lusteveco was not
proscribed from alienating its ownership rights over the land but
was simply required to secure Keppel's prior written
consent.40 Indeed, Lusteveco was able to transfer its interest to
PNOC without any objection from Keppel.41chanrobleslaw
Keppel also posits that the requirement of a separate
consideration for an option to purchase applies only when the
option is granted in a separate contract.42 In the present case,
the option is embodied in a reciprocal contract and, following the
Court's ruling in Vda. De Quirino v. Palarca,43 the option is
supported by the same consideration supporting the main
contract.
From the parties' arguments, the following ISSUES emerge:
chanRoblesvirtualLawlibraryFirst, the constitutionality of the
Agreement, i.e., whether the terms of the Agreement amounted
to a virtual sale of the land to Keppel that was designed to
circumvent the constitutional prohibition on aliens owning lands
in the Philippines.
Second, the validity of the option contract, i.e., whether the
option to purchase the land given to Keppel is supported by a
separate valuable consideration.
If these issues are resolved in favour of Keppel, a third issue
emerges - one that was not considered by the lower courts, but
is critical in terms of determining Keppel's right to own and
acquire full title to the land, i.e., whether Keppel's equity
ownership meets the 60% Filipino-owned capital requirement of
trie Constitution, in accordance with the Court's ruling
in Gamboa v. Teves.44chanrobleslaw
THE COURT'S RULING
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or private, in
Filipino hands is the policy consistently adopted in all three of
our constitutions.45 Under the 1935,46 1973,47 and
198748 Constitutions, no private land shall be transferred,
assigned, or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public
domain. Consequently, only Filipino citizens, or corporations or
associations whose capital is 60% owned by Filipinos citizens,
are constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided not
only outright conveyances of land to foreigners,49: but also
arrangements where the rights of ownership were gradually
transferred to foreigners.50 In Lui Shui,51 we considered a 99-
year lease agreement, which gave the foreigner-lessee the
option to buy the land and prohibited the Filipino owner-lessor
from selling or otherwise disposing the land, amounted to -
a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land (Jus
possidendi, jus utendi, jus fruendi, and jus abutendi) but also of
the right to dispose of it (jus disponendi) � rights the sum total
of which make up ownership.52 [Emphasis supplied]
In the present case, PNOC submits that a similar scheme is
apparent from the agreement's terms, but a review of the overall
circumstances leads us to reject PNOC's claim.
The agreement was executed to enable Keppel to use the land
for its shipbuilding and ship repair business.53 The
industrial/commercial purpose behind the agreement
differentiates the present case from Lui She where the leased
property was primarily devoted to residential
use.54 Undoubtedly, the establishment and operation of a
shipyard business involve significant investments. Keppel's
uncontested testimony showed that it incurred P60 million costs
solely for preliminary activities to make the land suitable as a
shipyard, and subsequently introduced improvements worth
P177 million.55 Taking these investments into account and the
nature of the business that Keppel conducts on the land, we find
it reasonable that the agreement's terms provided for an
extended duration of the lease and a restriction on the rights of
Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not
completely denied its ownership rights during the course of the
lease. It could dispose of the lands or assign its rights thereto,
provided it secured Keppel's prior written consent.57 That
Lusteveco was able to convey the land in favour of PNOC
during the pendency of the lease58 should negate a finding that
the agreement's terms amounted to a virtual transfer of
ownership of the land to Keppel.
II. The validity of the option contract
II.A An option contract must be supported by a separate
consideration that is either clearly specified as such
in the contract or duly proven by the
offeree/promisee.
An option contract is defined in the second paragraph of Article
1479 of the Civil Code:ChanRoblesVirtualawlibrary
Article 14791 x x x An accepted 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.
An option contract is a contract where one person (the
offeror/promissor) grants to another person (the
offeree/promisee) the right or privilege to buy (or to sell) a
determinate thing at a fixed price, if he or she chooses to do so
within an agreed period.59chanrobleslaw
As a contract, it must necessarily have the essential elements of
subject matter, consent, and consideration.60 Although an option
contract is deemed a preparatory contract to the principal
contract of sale,61 it is separate and distinct therefrom,62 thus, its
essential elements should be distinguished from those of a
sale.63chanrobleslaw
In an option contract, the subject matter is the right or
privilege to buy (or to sell) a determinate thing for a price
certain,64 while in a sales contract, the subject matter is the
determinate thing itself.65 The consent in an option contract is
the acceptance by the offeree of the offerer's promise to sell (or
to buy)the determinate thing, i.e., the offeree agrees to hold
the right or privilege to buy (or to sell) within a specified period.
This acceptance is different from the acceptance of the offer
itself whereby the offeree asserts his or her right or privilege to
buy (or to sell), which constitutes as his or her consent to the
sales contract. The consideration in an option contract may be
anything of value, unlike in a sale where the purchase price
must be in money or its equivalent.66 There is sufficient
consideration for a promise if there is any benefit to the offeree
or any detriment to the offeror.67chanrobleslaw
In the present case, PNOC claims the option contract is void for
want of consideration distinct from the purchase price for the
land.68 The option is incorporated as paragraph 5 of the
Agreement and reads as
5. If within the period of the first [25] years [Keppel] becomes
qualified to own land under the laws of the Philippines, it has the
firm and absolute option to purchase the above property for a
total price of [P-4,090,000.00] at the end of the 25th year,
discounted at 16% annual for every year before the end of the
25th year, which amount may be converted into equity of
[Keppel] at book value prevailing at the time of sale, or paid in
cash at Lusteveco's option.
However, if after the first [25] years, [Keppel] is still not qualified
to own land under the laws of the Republic of the Philippines,
[Keppel's] lease of the above stated property shall be
automatically renewed for another [25] years, under the same
terms and conditions save for the rental price which shall be for
the sum of P4,090,000.00... and which sum may be totally
converted into equity of [Keppel] at book value prevailing at the
time of conversion, or paid in cash at Lusteveco's option.
If anytime within the second [25] years up to the [30th] year from
the date of this agreement, [Keppel] becomes qualified to own
land under the laws of the Republic of the Philippines, [Keppel]
has the firm and absolute option to buy and Lusteveco hereby
undertakes to sell the above stated property for the nominal
consideration of [P100.00.00]...69
Keppel counters that a separate consideration is not necessary
to support its option to buy because the option is one of the
stipulations of the lease contract. It claims that a separate
consideration is required only when an option to buy is
embodied in an independent contract.70 It relies on Vda. de
Quirino v. Palarca,71 where the Court declared that the option to
buy the leased property is supported by the same consideration
as that of the lease itself: "in reciprocal contracts [such as
lease], the obligation or promise of each party is the
consideration for that of the other.72chanrobleslaw
In considering Keppel's submission, we note that the Court's
ruling in 1969 in Vda. de Quirino v. Palarcahas been taken out
of context and erroneously applied in subsequent cases. In
2004, through Bible Baptist Church v. CA73 we revisited Vda. de
Quirino v. Palarca and observed that the option to buy given to
the lessee Palarca by the lessor Quirino was in fact supported
by a separate consideration: Palarca paid a higher amount of
rent and, in the event that he does not exercise the option to buy
the leased property, gave Quirino the option to buy the
improvements he introduced thereon. These additional
concessions were separate from the purchase price and
deemed by the Court as sufficient consideration to support the
option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as
authority that the mere inclusion of an option contract in a
reciprocal lease contract provides it with the requisite separate
consideration for its validity. The reciprocal contract should
be closely scrutinized and assessed whether it contains
additional concessions that the parties intended to
constitute as a consideration for the option contract,
separate from that of the purchase price.
In the present case, paragraph 5 of the agreement provided that
should Keppel exercise its option to buy, Lusteveco could opt to
convert the purchase price into equity in Keppel. May
Lusteveco's option to convert the price for shares be deemed as
a sufficient separate consideration for Keppel's option to buy?
As earlier mentioned, the consideration for an option contract
does not need to be monetary and may be anything of
value.74 However, when the consideration is not monetary,
the consideration must be clearly specified as such in the
option contract or clause.75chanrobleslaw
In Villamor v. CA,76 the parties executed a deed expressly
acknowledging that the purchase price of P70.00 per square
meter "was greatly higher than the actual reasonable prevailing
value of lands in that place at that time."77 The difference
between the purchase price and the prevailing value constituted
as the consideration for the option contract. Although the actual
amount of the consideration was not stated, it was ascertainable
from the contract whose terms evinced the parties' intent to
constitute this amount as consideration for the option
contract.78 Thus, the Court upheld the validity of the option
contract.79 In the light of the offeree's acceptance of the option,
the Court further declared that a bilateral contract to sell and buy
was created and that the parties' respective obligations became
reciprocally demandable.80chanrobleslaw
When the written agreement itself does not state the
consideration for the option contract, the offeree or
promisee bears the burden of proving the existence of a
separate consideration for the option.81 The offeree cannot
rely on Article 1354 of the Civil Code,82 which presumes the
existence of consideration, since Article 1479 of the Civil Code
is a specific provision on option contracts that explicitly requires
the existence of a consideration distinct from the purchase
price.83chanrobleslaw
In the present case, none of the above rules were observed. We
find nothing in paragraph 5 of the Agreement indicating that the
grant to Lusteveco of the option to convert the purchase price
for Keppel shares was intended by the parties as the
consideration for Keppel's option to buy the land; Keppel itself
as the offeree presented no evidence to support this finding. On
the contrary, the option to convert the purchase price for shares
should be deemed part of the consideration for the contract of
sale itself, since the shares are merely an alternative to the
actual cash price.
There are, however cases where, despite the absence of an
express intent in the parties' agreements, the Court considered
the additional concessions stipulated in an agreement to
constitute a sufficient separate consideration for the option
contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the
option to buy the land assumed .the obligation to pay not only
her rent as sub-lessee, but also the rent of the sub-lessor
(Ariola) to the primary lessor (Manila Railroad Company).85 In
other words, Teodoro paid an amount over and above the
amount due for her own occupation of the property, and this
amount was found by the Court as sufficient consideration for
the option contract.86chanrobleslaw
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan
with the bank, allowing the latter to foreclose the
mortgage.88 Since the spouses Dijamco did not exercise their
right to redeem, the bank consolidated its ownership over the
mortgaged property.89 The spouses Dijamco later proposed to
purchase the same property by paying a purchase price of
P622,095.00 (equivalent to their principal loan) and a monthly
amount of P13,478.00 payable for 12 months (equivalent to the
interest on their principal loan). They further stated that should
they fail to make a monthly payment, the proposal should be
automatically revoked and all payments be treated as rentals for
their continued use of the property.90The Court treated the
spouses Dijamco's proposal to purchase the property as an
option contract, and the consideration for which was the monthly
interest payments.91 Interestingly, this ruling was made despite
the categorical stipulation that the monthly interest payments
should be treated as rent for the spouses Dijamco's continued
possession and use of the foreclosed property.
At the other end of the jurisprudential spectrum are cases where
the Court refused to consider the additional concessions
stipulated in agreements as separate consideration for the
option contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist
Church) paid in advance P84,000.00 to the lessor in order to
free the property from an encumbrance. The lessee claimed that
the advance payment constituted as the separate consideration
for its option to buy the property.93 The Court, however,
disagreed noting that the P84,000.00 paid in advance was
eventually offset against the rent due for the first year of the
lease, "such that for the entire year from 1985 to 1986 the [Bible
Baptist Church] did not pay monthly rent."94 Hence, the Court
refused to recognize the existence of a valid option
contract.95chanrobleslaw
What Teodoro, Dijamco, and Bible Baptist Church show is that
the determination of whether the additional concessions in
agreements are sufficient to support an option contract, is
fraught with danger; in ascertaining the parties' intent on this
matter, a court may read too much or too little from the facts
before it.
For uniformity and consistency in contract interpretation, the
better rule to follow is that the consideration for the option
contract should be clearly specified as such in the option
contract or clause. Otherwise, the offeree must bear the
burden of proving that a separate consideration for the
option contract exists.
Given our finding that the Agreement did not categorically refer
to any consideration to support Keppel's option to buy and for
Keppel's failure to present evidence in this regard, we cannot
uphold the existence of an option contract in this case.
II. An option, though unsupported by a separate
B. consideration, remains an offer that, if duly accepted,
generates into a contract to sell where the parties'
respective obligations become reciprocally
demandable
The absence of a consideration supporting the option contract,
however, does not invalidate an offer to buy (or to sell). An
option unsupported by a separate consideration stands as
an unaccepted offer to buy (or to sell) which, when properly
accepted, ripens into a contract to sell. This is the rule
established by the Court en banc as early as 1958 in Atkins v.
Cua Hian Tek,96 and upheld in 1972 in Sanchez v.
Rigos.97chanrobleslaw
Sanchez v. Rigos reconciled the apparent conflict between
Articles 1324 and 1479 of the Civil Code, which are quoted
below:ChanRoblesVirtualawlibrary
Article 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.
Article 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, [emphases supplied]
The Court en banc declared that there is no distinction between
these two provisions because the scenario contemplated in the
second paragraph of
Article 1479 is the same as that in the last clause of Article
1324.98 Instead of finding a conflict, Sanchez v.
Rigos harmonised the two provisions, consistent with the
established rules of statutory construction.99chanrobleslaw
Thus, when an offer is supported by a separate consideration, a
valid option contract exists, i.e., there is a contracted
offer100 which the offerer cannot withdraw from without incurring
liability in damages.
On the other hand, when the offer is not supported by a
separate consideration, the offer stands but, in the absence of a
binding contract, the offeror may withdraw it any time.101 In
either case, once the acceptance of the offer is duly
communicated before the withdrawal of the offer, a bilateral
contract to buy and sell is generated which, in accordance with
the first paragraph of Article 1479 of the Civil Code, becomes
reciprocally demandable.102chanrobleslaw
Sanchez v. Rigos expressly overturned the 1955 case of
Southwestern Sugar v. AGPC,103 which declared 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.104 [Emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning
that Article 1479 of the Civil Code is distinct from Article 1324 of
the Civil Code and is a provision that specifically governs
options to buy (or to sell).105 As mentioned, Sanchez v. Rigos
found no conflict between these two provisions and accordingly
abandoned the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning
the Sanchez ruling, subsequent cases reverted back to
the Southwestern Sugar doctrine.106 In 2009, Eulogio v
Apeles107 referred to Southwestern Sugar v. AGPC as the
controlling doctrine108 and, due to the lack of a separate
consideration, refused to recognize the option to buy as an offer
that would have resulted in a sale given its timely acceptance by
the offeree. In 2010, Tuazon v. Del Rosario-Suarez109 referred
to Sanchez v. Rigos but erroneously cited as part of its ratio
decidendi that portion of the Southwestern Sugar doctrine that
Sanchez had expressly abandoned.110chanrobleslaw
Given that! the issue raised in the present case involves the
application of Article 1324 and 1479 of the Civil Code, it
becomes imperative for the Court [en banc] to clarify and
declare here which between Sanchez and Southwestern
Sugar is the controlling doctrine.
The Constitution itself declares that "no doctrine or principle of
law laid down by the court in a decision rendered en banc or in
division may be modified or reversed except by the court
sitting en banc.111Sanchez v. Rigos was an en banc decision
which was affirmed in 1994 in Asuncion v. CA,112 also an en
banc decision, while the decisions citing the Southwestern
Sugar doctrine are all division cases.113Based on the
constitutional rule (as well as the inherent logic in reconciling
Civil Code provisions), there should be no doubt that Sanchez
v. Rigos remains as the controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by
a consideration separate from the purchase price, the option
constitutes as an offer to buy or to sell, which may be withdrawn
by the offeror at any time prior to the communication of the
offeree's acceptance. When the offer is duly accepted, a mutual
promise to buy and to sell under the first paragraph of Article
1479 of the Civil Code ensues and the parties' respective
obligations become reciprocally demandable.
Applied to the present case, we find that the offer to buy the
land was timely accepted by Keppel.
As early as 1994, Keppel expressed its desire to exercise its
option to buy the land. Instead of rejecting outright Keppel's
acceptance, PNOC referred the matter to the Office of the
Government Corporate Counsel (OGCC). In its Opinion No. 160,
series of 1994, the OGCC opined that Keppel "did not yet have
the right to purchase the Bauan lands."114 On account of the
OGCC opinion, the PNOC did not agree with Keppel's attempt
to buy the land;115 nonetheless, the PNOC made no categorical
withdrawal of the offer to sell provided under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion
and duly communicated its acceptance of the offer to buy to
PNOC.116 Keppel met with the board of directors and officials of
PNOC who interposed no objection to the sale.117 It was only
when the amount of purchase price was raised that the conflict
between the parties arose,118 with PNOC backtracking in its
position and questioning the validity of the
option.119chanrobleslaw
Thus, when Keppel communicated its acceptance, the offer to
purchase the Bauan land stood, not having been withdrawn by
PNOC. The offer having been duly accepted, a contract to
sell the land ensued which Keppel can rightfully demand
PNOC to comply with.
III. Keppel's constitutional right to acquire full title to the
land
Filipinization is the spirit that pervades the constitutional
provisions on national patrimony and economy. The Constitution
has reserved the ownership of public and private lands,120 the
ownership and operation of public utilities,121 and certain areas
of investment122 to Filipino citizens, associations, and
corporations. To qualify, sixty per cent (60%) of the association
or corporation's capital must be owned by Filipino citizens.
Although the 60% Filipino equity proportion has been adopted in
our Constitution since 1935, it was only in 2011 that the Court
interpreted what the term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and
beneficial ownership of 60 percent of the outstanding capital
stock must rest in the hands of Filipino nationals." 124 Clarifying
the ruling, the Court decreed that the 60% Filipino ownership
requirement applies separately to each class of shares,
whether with or without voting
rights,125 thus:ChanRoblesVirtualawlibrary
Applying uniformly the 60-40 ownership requirement in favour of
Filipino citizens to each class of shares, regardless of
differences in voting rights, privileges and restrictions,
guarantees effective Filipino control of public utilities, as POLYTECHNIC UNIVERSITY G.R. No. 183612
mandated by the Constitution.126 OF THE PHILIPPINES,
Although the ruling was made in the context of ownership and Petitioner,
operation of public utilities, the same should be applied to the
ownership of public and private lands, since the same proportion - versus -
of Filipino ownership is required and the same nationalist policy
pervades. GOLDEN HORIZON REALTY
CORPORATION,
The uncontested fact is that, as of November 2000, Keppel's Respondent.
capital is 60% Filipino-owned.127 However, there is nothing in
the records showing the nature and composition of Keppel's x-----------------------------------------
shareholdings, i.e.,whether its shareholdings are divided into -x
different classes, and 60% of each share class is legally and G.R. No. 184260
beneficially owned by Filipinos - understandably because when NATIONAL DEVELOPMENT
Keppel exercised its option to buy the land in 2000, COMPANY, Present:
the Gamboa ruling had not yet been promulgated. The Court Petitioner,
cannot deny Keppel its option to buy the land by retroactively PUNO, C.J., Chairperson,
applying the Gamboa ruling without violating Keppel's vested - versus - CARPIO MORALES,
right. Thus, Keppel's failure to prove the nature and composition LEONARDO-DE CASTRO,
of its shareholdings in 2000 could not prevent it from validly GOLDEN HORIZON REALTY BERSAMIN, and
exercising its option to buy the land. CORPORATION, VILLARAMA, JR., JJ.
Respondent.
Nonetheless, the Court cannot completely disregard the effect of Promulgated:
the Gamboa ruling; the 60% Filipino equity proportion is a
continuing requirement to hold land in the Philippines. Even March 15, 2010
in Gamboa, the Court prospectively applied its ruling, thus x------------------------------------------------------------------------------------
enabling the public utilities to meet the nationality requirement -----x
before the Securities and Exchange Commission commences
administrative investigation and cases, and imposes sanctions DECISION
for noncompliance on erring corporations.128 In this case, Keppel
must be allowed to prove whether it meets the required Filipino VILLARAMA, JR., J.:
equity ownership and proportion in accordance with
the Gamboa ruling before it can acquire full title to the land.
The above-titled consolidated petitions filed under Rule 45 of
In view of the foregoing, the Court AFFIRMS the decision dated
the 1997 Rules of Civil Procedure, as amended, seek to reverse
19 December 2011 and the resolution dated 14 May 2012 of the
CA in CA-G.R. CV No. 86830 insofar as these rulings uphold the the Decision[1] dated June 25, 2008 and Resolution dated
respondent Keppel Philippines Holdings, Inc.'s option to buy the August 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV
land, and REMANDS the case to the Regional Trial Court of No. 84399 which affirmed the Decision[2] dated November 25,
Batangas City, Branch 84, for the determination of whether the
2004 of the Regional Trial Court (RTC) of Makati City, Branch
respondent Keppel Philippines Holdings, Inc. meets the required
Filipino equity ownership and proportion in accordance with the 144 in Civil Case No. 88-2238.
Court's ruling in Gamboa v. Teves, to allow it to acquire full title
to the land.
The undisputed facts are as follows:
SO ORDERED.chanRoblesvirtualLawlibrary
Petitioner National Development Company (NDC) is a
government- owned and controlled corporation, created under
Commonwealth Act No. 182, as amended by Com. Act No. 311
and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic
University of the Philippines (PUP) is a public, non-sectarian,
non-profit educational institution created in 1978 by virtue of
P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare
property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC Compound and
covered by Transfer Certificate of Title Nos. 92885, 110301 and
145470.
On September 7, 1977, NDC entered into a Contract of Lease
(C-33-77) with Golden Horizon Realty Corporation (GHRC) over
a portion of the property, with an area of 2,407 square meters
for a period of ten (10) years, renewable for another ten (10)
years with mutual consent of the parties.[3]
On May 4, 1978, a second Contract of Lease (C-12-78) was
executed between NDC and GHRC covering 3,222.80
square meters, also renewable upon mutual consent after
the expiration of the ten (10)-year lease period. In addition,
GHRC as lessee was granted the option to purchase the
area leased, the price to be negotiated and determined at
the time the option to purchase is exercised.[4]
Under the lease agreements, GHRC was obliged to construct at
its own expense buildings of strong material at no less than the
stipulated cost, and other improvements which shall
automatically belong to the NDC as lessor upon the expiration of
the lease period. Accordingly, GHRC introduced permanent
improvements and structures as required by the terms of the
contract. After the completion of the industrial complex project,
for which GHRC spent P5 million, it was leased to various
manufacturers, industrialists and other businessmen thereby
generating hundreds of jobs.[5]
On June 13, 1988, before the expiration of the ten (10)-year
period under the second lease contract, GHRC wrote a letter to
NDC indicating its exercise of the option to renew the lease for
another ten (10) years. As no response was received from NDC,
GHRC sent another letter on August 12, 1988, reiterating its
desire to renew the contract and also requesting for priority to
negotiate for its purchase should NDC opt to sell the leased
premises.[6] NDC still did not reply but continued to accept rental
payments from GHRC and allowed the latter to remain in
possession of the property.
Sometime after September 1988, GHRC discovered that NDC
had decided to secretly dispose the property to a third party. On
October 21, 1988, GHRC filed in the RTC a complaint for
specific performance, damages with preliminary injunction and
temporary restraining order.[7]
In the meantime, then President Corazon C. Aquino issued
Memorandum Order No. 214 dated January 6, 1989, ordering the
transfer of the whole NDC Compound to the National
Government, which in turn would convey the said property in favor
of PUP at acquisition cost. The memorandum order cited the
serious need of PUP, considered the Poor Mans University, to
expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness
of PUP to buy and of NDC to sell its property. The order of
conveyance of the 10.31-hectare property would automatically
result in the cancellation of NDCs total obligation in favor of the
National Government in the amount of P57,193,201.64.[8]
On February 20, 1989, the RTC issued a writ of preliminary
injunction enjoining NDC and its attorneys, representatives,
agents and any other persons assisting it from proceeding with
the sale and disposition of the leased premises.[9]
On February 23, 1989, PUP filed a motion to intervene as party
defendant, claiming that as a
purchaser pendente lite of a property subject of litigation it is
entitled to intervene in the proceedings. The RTC granted the
said motion and directed PUP to file its Answer-in-
Intervention.[10]
PUP also demanded that GHRC vacate the premises, insisting
that the latters lease contract had already expired. Its demand
letter unheeded by GHRC, PUP filed an ejectment case (Civil
Case No. 134416) before the Metropolitan Trial Court (MeTC) of
Manila on January 14, 1991.[11]
Due to this development, GHRC filed an Amended and/or
Supplemental Complaint to include as additional defendants
PUP, Honorable Executive Secretary Oscar Orbos and Judge
Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-
mentioned defendants from prosecuting Civil Case No. 134416
for ejectment. A temporary restraining order was subsequently
issued by the RTC enjoining PUP from prosecuting and Judge
Francisco Brillantes, Jr. from proceeding
the ejectment case.[12]
In its Second Amended and/or Supplemental Complaint, GHRC
argued that Memorandum Order No. 214 is a nullity, for
being violative of the writ of injunction issued by the trial court,
apart from being an infringement of the Constitutional prohibition
against impairment of obligation of contracts, an encroachment
on legislative functions and a bill of attainder. In the alternative,
should the trial court adjudge the memorandum order as valid,
GHRC contended that its existing right must still be respected
by allowing it to purchase the leased premises.[13]
Pre-trial was set but was suspended upon agreement of the
parties to await the final resolution of a similar case involving
NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc.
(Firestone), then pending before the RTC of Pasay City.[14]
On November 14, 2001, this Court rendered a decision in G.R.
Nos. 143513 (Polytechnic University of the Philippines v. Court
of Appeals) and 143590 (National Development Corporation v.
Firestone Ceramics, Inc.),[15] which declared that the sale to
PUP by NDC of the portion leased by Firestone pursuant to
Memorandum Order No. 214 violated the right of first refusal
granted to Firestone under its third lease contract with NDC. We
thus decreed:
WHEREFORE, the petitions in
G.R. No. 143513 and G.R. No. 143590 are
DENIED. Inasmuch as the first contract of
lease fixed the area of the leased premises
at 2.90118 hectares while the second
contract placed it at 2.60 hectares, let a
ground survey of the leased premises be
immediately conducted by a duly licensed,
registered surveyor at the expense of private
respondent FIRESTONE CERAMICS, INC.,
within two (2) months from the finality of the
judgment in this case. Thereafter, private
respondent FIRESTONE CERAMICS, INC.,
shall have six (6) months from receipt of the
approved survey within which to exercise its
right to purchase the leased property at
P1,500.00 per square meter, and petitioner
Polytechnic University of the Philippines is
ordered to reconvey the property to
FIRESTONE CERAMICS, INC., in the
exercise of its right of first refusal upon
payment of the purchase price thereof.
with
SO ORDERED.[16]
The RTC resumed the proceedings and when mediation and
pre-trial failed to settle the case amicably, trial on the merits
ensued.[17]
On November 25, 2004, the RTC rendered its decision
upholding the right of first refusal granted to GHRC under its
lease contract with NDC and ordering PUP to reconvey the said
portion of the property in favor of GHRC. The dispositive portion
reads:
WHEREFORE, premises
considered, judgment is hereby rendered in
favor of the plaintiff and against the
defendants ordering the plaintiff to cause
immediate ground survey of the premises
subject of the leased contract under Lease
Contract No. C-33-77 and C-12-78
measuring 2,407 and 3,222.8 square meters
respectively, by a duly licensed and
registered surveyor at the expense of the
plaintiff within two months from receipt of
this Decision and thereafter, the plaintiff
shall have six (6) months from receipt of the
approved survey within which to exercise its
right to purchase the leased property at
P554.74 per square meter. And finally, the
defendant PUP, in whose name the property
is titled, is hereby ordered to reconvey the
aforesaid property to the plaintiff in the
exercise of its right of its option to buy or first
refusal upon payment of the purchase price
thereof.
The defendant NDC is hereby
further ordered to pay the plaintiff attorneys
fees in the amount of P100,000.00.
The case against defendant
Executive Secretary is dismissed and this
decision shall bind defendant Metropolitan
Trial Court, Branch 20 of Manila.
With costs against defendants
NDC and PUP.
SO ORDERED.[18]
NDC and PUP separately appealed the decision to the
CA.[19] By Decision of June 25, 2008, the CA affirmed in toto the
decision of the RTC.[20]
Both the RTC and the CA applied this Courts ruling
in Polytechnic University of the Philippines v. Court of Appeals
(supra), considering that GHRC is similarly situated as a lessee
of NDC whose right of first refusal under the lease contract was
violated by the sale of the property to PUP without NDC having
first offered to sell the same to GHRC despite the latters request
for the renewal of the lease and/or to purchase the
leased premises prior to the expiration of the second lease
contract. The CA further agreed with the RTCs finding that there
was an implied renewal of the lease upon the failure of NDC to
act on GHRCs repeated requests for renewal of the lease
contract, both verbal and written, and continuing to accept
monthly rental payments from GHRC which was allowed to
continue in possession of the leased premises.
The CA also rejected the argument of NDC and PUP that even
assuming that GHRC had the right of first refusal, said right
pertained only to the second lease contract, C-12-78 covering
3,222.80 square meters, and not to the first lease contract, C-
33-77 covering 2,407 square meters, which had already
expired. It sustained the RTCs finding that the two (2) lease
contracts were interrelated because each formed part of GHRCs
industrial complex, such that business operations would be
rendered useless and inoperative if the first contract were to be
detached from the other, as similarly held in the afore-
mentioned case of Polytechnic University of the Philippines v.
Court of Appeals.
Petitioner PUP argues that respondents right to exercise the
option to purchase had expired with the termination of the
original contract of lease and was not carried over to the
subsequent implied new lease between respondent and
petitioner NDC. As testified to by their witnesses
Leticia Cabantog and Atty. Rhoel Mabazza, there was no
agreement or document to the effect that respondents request
for extension or renewal of the subject contracts of lease for
another ten (10) years was approved by NDC. Hence,
respondent can no longer exercise the option to purchase the
leased premises when the same were conveyed to
PUP pursuant to Memorandum Order No. 214 dated January 6,
1989, long after the expiration of C-33-77 and C-12-78 in
September 1988.[21]
Petitioner PUP further contends that while it is conceded that
there was an implied new lease between respondent and
petitioner NDC after the expiration of the lease contracts, the
same did not include the right of first refusal originally granted to
respondent. The CA should have applied the ruling in Dizon v.
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
lessees right of continued enjoyment of the property leased. The
provision entitling the lessee the option to purchase the leased
premises is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the lessee.
Consequently, as in this case, respondents right of option to
purchase the leased premises was not violated despite the
impliedly renewed contract of lease with NDC. Respondent
cannot favorably invoke the decision in G.R. Nos. 143513 and
143590 (Polytechnic University of the Philippines v. Court of
Appeals) for the simple reason, among others, that unlike in said
cases, the contracts of lease of respondent with NDC were not
mutually extended or renewed for another ten (10) years. Thus,
when the leased premises were conveyed to PUP, respondent
did not any more have any right of first refusal, which
incidentally appears only in the second lease contract and not in
the first lease contract.[23]
On its part, petitioner NDC assails the CA in holding that the
contracts of lease were impliedly renewed for another ten (10)-
year period. The provisions of C-33-77 and C-12-78 clearly state
that the lessee is granted the option to renew for another ten
(10) years with the mutual consent of both parties. As regards
the continued receipt of rentals by NDC and possession by the
respondent of the leased premises, the impliedly renewed lease
was only month-to-month and not ten (10) years since the
rentals are being paid on a monthly basis, as held in Dizon v.
Magsaysay.[24]
Petitioner NDC further faults the CA in sustaining the RTCs
decision which erroneously granted respondent the option to
purchase the leased premises at the rate of P554.74 per square
meter, the same rate for which NDC sold the property to
petitioner PUP and/or the National Government, which is the
mere acquisition cost thereof. It must be noted that such
consideration or rate was imposed by Memorandum Order No.
214 under the premise that it shall, in effect, be a sale and/or
purchase from one (1) government agency to another. It was
intended merely as a transfer of one (1) user of the National
Government to another, with the beneficiary, PUP in this case,
merely returning to the petitioner/transferor the cost of
acquisition thereof, as appearing on its accounting books. It
does not in any way reflect the true and fair market value of the
property, nor was it a price a willing seller would demand and
accept for parting with his real property. Such benefit, therefore,
cannot be extended to respondent as a private entity, as the
latter does not share the same pocket, so to speak, with the
National Government.[25]
The issue to be resolved is whether or not our ruling
in Polytechnic University of the Philippines v. Court of
Appeals applies in this case involving another lessee of NDC
who claimed that the option to purchase the portion leased to it
was similarly violated by the sale of the NDC Compound in favor
of PUP pursuant to Memorandum Order No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the
parties that this Contract of Lease shall be in
full force and effect for a period of ten (10)
years counted from the effectivity of the
payment of rental as provided under sub-
paragraph (b) of Article I, with option to
renew for another ten (10) years with the
mutual consent of both parties. In no case
should the rentals be increased by more
than 100% of the original amount fixed.
Lessee shall also have the
option to purchase the area leased, the
price to be negotiated and determined at
the time the option to purchase is
exercised. [EMPHASIS SUPPLIED]
An option is a contract by which the owner of the property
agrees with another person that the latter shall have the right to
buy the formers property at a fixed price within a certain time. It
is a condition offered or contract by which the owner stipulates
with another that the latter shall have the right to buy the
property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions; or which gives to
the owner of the property the right to sell or demand a sale.[26] It
binds the party, who has given the option, not to enter into the
principal contract with any other person during the period
designated, and, within that period, to enter into such contract
with the one to whom the option was granted, if the latter should
decide to use the option.[27]
Upon the other hand, a right of first refusal is a contractual
grant, not of the sale of a property, but of the first priority to buy
the property in the event the owner sells the same.[28] As
distinguished from an option contract, in a right of first refusal,
while the object might be made determinate, the exercise of
the right of first refusal would be dependent not only on the
owners eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that are yet
to be firmed up.[29]
As the option to purchase clause in the second lease contract
has no definite period within which the leased premises will be
offered for sale to respondent lessee and the price is made
subject to negotiation and determined only at the time the option
to buy is exercised, it is obviously a mere right of refusal, usually
inserted in lease contracts to give the lessee the first crack to
buy the property in case the lessor decides to sell the
same. That respondent was granted a right of first refusal under
the second lease contract appears not to have been disputed by
petitioners. What petitioners assail is the CAs erroneous
conclusion that such right of refusal subsisted even after the
expiration of the original lease period, when respondent was
allowed to continue staying in the leased premises under an
implied renewal of the lease and without the right of refusal
carried over to such month-to-month lease. Petitioners thus
maintain that no right of refusal was violated by the sale of the
property in favor of PUP pursuant to Memorandum Order No.
214.
Petitioners position is untenable.
When a lease contract contains a right of first refusal,
the lessor has the legal duty to the lessee not to sell the leased
property to anyone at any price until after the lessor has made
an offer to sell the property to the lessee and the lessee has
failed to accept it. Only after the lessee has failed to exercise
his right of first priority could the lessor sell the property to other
buyers under the same terms and conditions offered to the
lessee, or under terms and conditions more favorable to
the lessor.[30]
Records showed that during the hearing on the application for a
writ of preliminary injunction, respondent adduced in evidence a
letter of Antonio A. Henson dated 15 July 1988 addressed to Mr.
Jake C. Lagonera, Director and Special Assistant to Executive
Secretary Catalino Macaraeg, reviewing a proposed
memorandum order submitted to President Corazon C. Aquino
transferring the whole NDC Compound, including the premises
leased by respondent, in favor of petitioner PUP. This letter was
offered in evidence by respondent to prove the existence of
documents as of that date and even prior to the expiration of the
second lease contract or the lapse of the ten (10)-year period
counted from the effectivity of the rental payment -- that is, one
hundred and fifty (150) days from the signing of the contract
(May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or
on October 1, 1988.
Respondent thus timely exercised its option to purchase on
August 12, 1988. However, considering that NDC had been
negotiating through the National Government for the sale of the
property in favor of PUP as early as July 15, 1988 without first
offering to sell it to respondent and even when respondent
communicated its desire to exercise the option to purchase
granted to it under the lease contract, it is clear that NDC
violated respondents right of first refusal. Under the premises,
the matter of the right of refusal not having been carried over to
the impliedly renewed month-to-month lease after the expiration
of the second lease contract on October 21, 1988 becomes
irrelevant since at the time of the negotiations of the sale to a
third party, petitioner PUP, respondents right of first refusal was
still subsisting.
Petitioner NDC in its memorandum contended that the CA erred
in applying the ruling in Polytechnic University of the Philippines
v. Court of Appeals pointing out that the case of lessee
Firestone Ceramics, Inc. is different because the lease contract
therein had not yet expired while in this case respondents lease
contracts have already expired and never renewed. The date of
the expiration of the lease contract in said case is December 31,
1989 which is prior to the issuance of Memorandum Order No.
214 on January 6, 1989. In contrast, respondents lease
contracts had already expired (September 1988) at the time said
memorandum order was issued.[31]
Such contention does not hold water. As already mentioned, the
reckoning point of the offer of sale to a third party was not the
issuance of Memorandum Order No. 214 on January 6, 1989
but the commencement of such negotiations as early as July
1988 when respondents right of first refusal was still subsisting
and the lease contracts still in force. Petitioner NDC did not
bother to respond to respondents letter of June 13, 1988
informing it of respondents exercise of the option to renew and
requesting to discuss further the matter with NDC, nor to the
subsequent letter of August 12, 1988 reiterating the request for
renewing the lease for another ten (10) years and also the
exercise of the option to purchase under the lease
contract. Petitioner NDC had dismissed these letters as mere
informative in nature, and a request at its best.[32]
Perusal of the letter dated August 12, 1988, however, belies
such claim of petitioner NDC that it was merely informative,
thus:
August 12, 1988
HON. ANTONIO HENSON
General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease
Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated
June 13, 1988 formally advising
your goodselves of our intention to
exercise our option for another ten (10)
years. Should the National Development
Company opt to sell the property
covered by said leases, we also request
 for priority to negotiate for its purchase
at terms and/or conditions mutually
acceptable.
As a backgrounder, we wish to inform you
that since the start of our lease, we have
improved on the property by constructing
bodega-type buildings which presently
house all legitimate trading and
manufacturing concerns. These business
are substantial taxpayers, employ not less
than 300 employees and contribute even
foreign earnings.
It is in this context that we are requesting
for the extension of the lease contract to
prevent serious economic disruption and
dislocation of the business concerns, as
well as provide ourselves, the lessee, an
opportunity to recoup our investments
and obtain a fair return thereof.
Your favorable consideration on our request
will be very much appreciated.
very truly yours,
TIU HAN TENG
President[33]
As to petitioners argument that respondents right of first refusal
can be invoked only with respect to the second lease contract
which expressly provided for the option to purchase by the
lessee, and not in the first lease contract which contained no
such clause, we sustain the RTC and CA in finding that the
second contract, covering an area of 3,222.80 square meters, is
interrelated to and inseparable from the first contract over 2,407
square meters. The structures built on the leased premises,
which are adjacent to each other, form part of an integrated
system of a commercial complex leased out to manufacturers,
fabricators and other businesses. Petitioners submitted a sketch
plan and pictures taken of the driveways, in an effort to show
that the leased premises can be used separately by respondent,
and that the two (2) lease contracts are distinct from each
other.[34] Such was a desperate attempt to downplay the
commercial purpose of respondents substantial improvements
which greatly contributed to the increased value of the leased
premises. To prove that petitioner NDC had considered the
leased premises as a single unit, respondent submitted
evidence showing that NDC issued only one (1) receipt for the
rental payments for the two portions.[35] Respondent further
presented the blueprint plan prepared by its witness, Engr.
Alejandro E. Tinio, who supervised the construction of the
structures on the leased premises, to show the building concept
as a one-stop industrial site and integrated commercial
complex.[36]
In fine, the CA was correct in declaring that there exists no
justifiable reason not to apply the same rationale in Polytechnic
University of the Philippines v. Court of Appeals in the case of
respondent who was similarly prejudiced by petitioner NDCs
sale of the property to PUP, as to entitle the respondent to
exercise its option to purchase until October 1988 inasmuch as
the May 4, 1978 contract embodied the option to renew the
lease for another ten (10) years upon mutual consent and giving
respondent the option to purchase the leased premises for a
price to be negotiated and determined at the time such option
was exercised by respondent. It is to be noted
that Memorandum Order No. 214 itself declared that the transfer
is subject to such liens/leases existing [on the subject
property].Thus:
...we now proceed to determine
whether FIRESTONE should be allowed to
exercise its right of first refusal over the
property. Such right was expressly stated
by NDC and FIRESTONE in par. XV of
their third contract denominated as A-10-
78 executed on 22 December 1978 which,
as found by the courts a quo, was
interrelated to and inseparable from their
first contract denominated as C-30-65
executed on 24 August 1965 and their
second contract denominated as C-26-68
executed on 8 January 1969. Thus -
Should the
LESSOR desire to sell
the leased premises
during the term of this
Agreement, or any
extension thereof, the
LESSOR shall first give
to the LESSEE, which
shall have the right of
first option to
purchase the leased
premises subject to
mutual agreement of
both parties.
 In the instant case, the right of first
refusal is an integral and indivisible part of
the contract of lease and is inseparable from
the whole contract. The consideration for
the right is built into the reciprocal
obligations of the parties. Thus, it is not
correct for petitioners to insist that there was
no consideration paid by FIRESTONE to
entitle it to the exercise of the right,
inasmuch as the stipulation is part and
parcel of the contract of lease making the
consideration for the lease the same as that
for the option.
It is a settled principle in civil law
that when a lease contract contains a right
of first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody at
any price until after he has made an offer to
sell to the latter at a certain price and the
lessee has failed to accept it. The lessee
has a right that the lessors first offer shall be
in his favor.
The option in this case was
incorporated in the contracts of lease by
NDC for the benefit of FIRESTONE which,
in view of the total amount of its
investments in the property, wanted to be
assured that it would be given the first
opportunity to buy the property at a price
for which it would be offered. Consistent
with their agreement, it was then implicit
for NDC to have first offered the leased
premises of 2.60 hectares to FIRESTONE
prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of
first priority could NDC lawfully sell the
property to petitioner PUP.[37] [EMPHASIS
SUPPLIED]
As we further ruled in the afore-cited case, the contractual grant
of a right of first refusal is enforceable, and following an earlier
ruling in Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.,[38] the execution of such right consists in directing the
grantor to comply with his obligation according to the terms at
which he should have offered the property in favor of the
grantee and at that price when the offer should have been
made. We then determined the proper rate at which the leased
portion should be reconveyed to respondent by PUP, to whom
the lessor NDC sold it in violation of respondent lessees right of
first refusal, as follows:
It now becomes apropos to ask
whether the courts a quo were correct in
fixing the proper consideration of the sale
at P1,500.00 per square meter. In contracts
of sale, the basis of the right of first refusal
must be the current offer of the seller to sell
or the offer to purchase of the prospective
buyer. Only after the lessee-grantee fails to
exercise its right under the same terms and
within the period contemplated can the
owner validly offer to sell the property to a
third person, again, under the same terms
as offered to the grantee. It appearing that
the whole NDC compound was sold to PUP
for P554.74 per square meter, it would have
been more proper for the courts below to
have ordered the sale of the property also at
the same price. However, since
FIRESTONE never raised this as an
issue, while on the other hand it admitted
that the value of the property stood
at P1,500.00 per square meter, then we
see no compelling reason to modify the
holdings of the courts a quo that the
leased premises be sold at that
price.[39] [EMPHASIS SUPPLIED]
In the light of the foregoing, we hold that respondent, which did
not offer any amount to petitioner NDC, and neither disputed
the P1,500.00 per square meter actual value of NDCs
property at that time it was sold to PUP at P554.74 per square
meter, as duly considered by this Court in
the Firestone case, should be bound by such
determination. Accordingly, the price at which the leased
premises should be sold to respondent in the exercise of its right
of first refusal under the lease contract with petitioner NDC,
which was pegged by the RTC at P554.74 per square meter,
should be adjusted toP1,500.00 per square meter, which more
accurately reflects its true value at that time of the sale in favor
of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot
unilaterally withdraw a right of first refusal that stands upon
valuable consideration.[40] We have categorically ruled that it is
not correct to say that there is no consideration for the grant of
the right of first refusal if such grant is embodied in the same
contract of lease. Since the stipulation forms part of the entire
lease contract, the consideration for the lease includes the
consideration for the grant of the right of first refusal. In entering
into the contract, the lessee is in effect stating that it consents to
lease the premises and to pay the price agreed upon provided
the lessor also consents that, should it sell the leased property,
then, the lessee shall be given the right to match the offered
purchase price and to buy the property at that price.[41]
We have further stressed that not even the avowed public
welfare or the constitutional priority accorded to education,
invoked by petitioner PUP in the Firestone case, would serve as
license for us, and any party for that matter, to destroy the
sanctity of binding obligations. While education may be
prioritized for legislative and budgetary purposes, it is doubtful if
such importance can be used to confiscate private property
such as the right of first refusal granted to a lessee of petitioner
NDC.[42] Clearly, no reversible error was committed by the CA in
sustaining respondents contractual right of first refusal and
ordering the reconveyance of the leased portion of petitioner
NDCs property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated
November 25, 2004 of the Regional Trial Court of Makati City,
Branch 144 in Civil Case No. 88-2238, as affirmed by the Court
of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV
No. 84399, is hereby AFFIRMED with MODIFICATION in that
the price to be paid by respondent Golden Horizon Realty
Corporation for the leased portion of the NDC Compound under
Lease Contract Nos. C-33-77 and C-12-78 is hereby increased
to P1,500.00 per square meter.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH
TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court
of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345
setting aside and declaring without force and effect the orders of
execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court
thusly:
On July 29, 1987 a Second Amended
Complaint for Specific Performance was
filed by Ang Yu Asuncion and Keh Tiong, et
al., against Bobby Cu Unjieng, Rose Cu
Unjieng and Jose Tan before the Regional
Trial Court, Branch 31, Manila in Civil Case
No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential
and commercial spaces owned by
defendants described as Nos. 630-638
Ongpin Street, Binondo, Manila; that they
have occupied said spaces since 1935 and
have been religiously paying the rental and
complying with all the conditions of the lease
contract; that on several occasions before
October 9, 1986, defendants informed
plaintiffs that they are offering to sell the
premises and are giving them priority to
acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a
price of P6-million while plaintiffs made a
counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their
offer in writing to which request defendants
acceded; that in reply to defendant's letter,
plaintiffs wrote them on October 24, 1986
asking that they specify the terms and
conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with Aggrieved by the decision, plaintiffs
the same request; that since defendants appealed to this Court in
failed to specify the terms and conditions of CA-G.R. CV No. 21123. In a decision
the offer to sell and because of information promulgated on September 21, 1990
received that defendants were about to sell (penned by Justice Segundino G. Chua and
the property, plaintiffs were compelled to file concurred in by Justices Vicente V.
the complaint to compel defendants to sell Mendoza and Fernando A. Santiago), this
the property to them. Court affirmed with modification the lower
court's judgment, holding:
Defendants filed their answer denying the
material allegations of the complaint and In resume, there was no
interposing a special defense of lack of meeting of the minds
cause of action. between the parties
concerning the sale of
After the issues were joined, defendants the property. Absent
filed a motion for summary judgment which such requirement, the
was granted by the lower court. The trial claim for specific
court found that defendants' offer to sell was performance will not lie.
never accepted by the plaintiffs for the Appellants' demand for
reason that the parties did not agree upon actual, moral and
the terms and conditions of the proposed exemplary damages will
sale, hence, there was no contract of sale at likewise fail as there
all. Nonetheless, the lower court ruled that exists no justifiable
should the defendants subsequently offer ground for its award.
their property for sale at a price of P11- Summary judgment for
million or below, plaintiffs will have the right defendants was properly
of first refusal. Thus the dispositive portion granted. Courts may
of the decision states: render summary
judgment when there is
no genuine issue as to
WHEREFORE,
any material fact and the
judgment is hereby
moving party is entitled
rendered in favor of the
to a judgment as a
defendants and against
matter of law (Garcia vs.
the plaintiffs summarily
Court of Appeals, 176
dismissing the complaint
SCRA 815). All
subject to the
requisites obtaining, the
aforementioned
decision of the court a
condition that if the
quo is legally justifiable.
defendants
subsequently decide to
offer their property for WHEREFORE, finding
sale for a purchase price the appeal
of Eleven Million Pesos unmeritorious, the
or lower, then the judgment appealed from
plaintiffs has the option is hereby AFFIRMED,
to purchase the property but subject to the
or of first refusal, following modification:
otherwise, defendants The court a quo in the
need not offer the aforestated decision
property to the plaintiffs gave the plaintiffs-
if the purchase price is appellants the right of
higher than Eleven first refusal only if the
Million Pesos. property is sold for a
purchase price of Eleven
Million pesos or lower;
SO ORDERED.
however, considering
 the mercurial and
uncertain forces in our
market economy today.
We find no reason not to
grant the same right of
first refusal to herein
appellants in the event
that the subject property
is sold for a price in
excess of Eleven Million
pesos. No
pronouncement as to
costs.
SO ORDERED.
The decision of this Court was brought to
the Supreme Court by petition for review
on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in
form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV
No. 21123 was pending consideration by
this Court, the Cu Unjieng spouses executed
a Deed of Sale (Annex D, Petition)
transferring the property in question to
herein petitioner Buen Realty and
Development Corporation, subject to the
following terms and conditions:
1. That for and in
consideration of the sum
of FIFTEEN MILLION
PESOS
(P15,000,000.00),
receipt of which in full is
hereby acknowledged,
the VENDORS hereby
sells, transfers and
conveys for and in favor
of the VENDEE, his
heirs, executors,
administrators or
assigns, the above-
described property with
all the improvements
found therein including
all the rights and interest
in the said property free
from all liens and
encumbrances of
whatever nature, except
the pending ejectment
proceeding;
2. That the VENDEE
shall pay the
Documentary Stamp
Tax, registration fees for
the transfer of title in his
favor and other
expenses incidental to
the sale of above-
described property
including capital gains
tax and accrued real
estate taxes.
As a consequence of the sale, TCT No.
105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof,
TCT No. 195816 was issued in the name of
petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner
of the subject property wrote a letter to the
lessees demanding that the latter vacate the
premises.
On July 16, 1991, the lessees wrote a reply
to petitioner stating that petitioner brought
the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the
name of the Cu Unjiengs.
The lessees filed a Motion for Execution
dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the
Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge
issued an order (Annex A, Petition) quoted
as follows:
Presented before the
Court is a Motion for
Execution filed by
plaintiff represented by
Atty. Antonio Albano.
Both defendants Bobby
Cu Unjieng and Rose
Cu Unjieng represented
by Atty. Vicente Sison
and Atty. Anacleto
Magno respectively
were duly notified in
today's consideration of
the motion as evidenced
by the rubber stamp and
signatures upon the WHEREFORE,
copy of the Motion for defendants are hereby
Execution. ordered to execute the
necessary Deed of Sale
The gist of the motion is of the property in
that the Decision of the litigation in favor of
Court dated September plaintiffs Ang Yu
21, 1990 as modified by Asuncion, Keh Tiong
the Court of Appeals in and Arthur Go for the
its decision in CA G.R. consideration of P15
CV-21123, and elevated Million pesos in
to the Supreme Court recognition of plaintiffs'
upon the petition for right of first refusal and
review and that the that a new Transfer
same was denied by the Certificate of Title be
highest tribunal in its issued in favor of the
resolution dated May 6, buyer.
1991 in G.R. No.
L-97276, had now All previous transactions
become final and involving the same
executory. As a property notwithstanding
consequence, there was the issuance of another
an Entry of Judgment by title to Buen Realty
the Supreme Court as of Corporation, is hereby
June 6, 1991, stating set aside as having
that the aforesaid been executed in bad
modified decision had faith.
already become final
and executory. SO ORDERED.

It is the observation of On September 22, 1991 respondent Judge

the Court that this issued another order, the dispositive portion
property in dispute was of which reads:
the subject of the Notice
of Lis Pendens and that
WHEREFORE, let there
the modified decision of
be Writ of Execution
this Court promulgated
issue in the above-
by the Court of Appeals
entitled case directing
which had become final
the Deputy Sheriff
to the effect that should
Ramon Enriquez of this
the defendants decide to
Court to implement said
offer the property for
Writ of Execution
sale for a price of P11
ordering the defendants
Million or lower, and
among others to comply
considering the
with the aforesaid Order
mercurial and uncertain
of this Court within a
forces in our market
period of one (1) week
economy today, the
from receipt of this
same right of first refusal
Order and for
to herein
defendants to execute
plaintiffs/appellants in
the necessary Deed of
the event that the
Sale of the property in
subject property is sold
litigation in favor of the
for a price in excess of
plaintiffs Ang Yu
Eleven Million pesos or
Asuncion, Keh Tiong
more.
 and Arthur Go for the
consideration of
P15,000,000.00 and
ordering the Register of
Deeds of the City of
Manila, to cancel and
set aside the title
already issued in favor
of Buen Realty
Corporation which was
previously executed
between the latter and
defendants and to
register the new title in
favor of the aforesaid
plaintiffs Ang Yu
Asuncion, Keh Tiong
and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the
corresponding writ of execution (Annex C,
Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by
private respondent, set aside and declared without force and
effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that
Buen Realty can be held bound by the writ of execution by virtue
of the notice of lis pendens, carried over on TCT No. 195816
issued in the name of Buen Realty, at the time of the latter's
purchase of the property on 15 November 1991 from the Cu
Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the
adoption of such arrangements as the right of first refusal, a
purchase option and a contract to sell. For ready reference, we
might point out some fundamental precepts that may find some
relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do
(Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts,
quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do
or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil
Code), which is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence
of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance,
on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of
the agreement, as in a pledge or commodatum, is commonly
referred to as a real contract. In a solemn contract, compliance
with certain formalities prescribed by law, such as in a donation
of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The
stage of consummation begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation. In
sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called
the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to
transfer the ownership of and to deliver a
determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or
conditional.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force.2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g.,
until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery
(e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such
perfection.3 If the condition is imposed on the obligation of a
party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil
Code).4
An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be
sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from
the price. (1451a)6
Observe, however, that the option is not the contract of sale
itself.7 The optionee has the right, but not the obligation, to buy.
Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings.8
Let us elucidate a little. A negotiation is formally initiated by an
offer. An imperfect promise (policitacion) is merely an offer.
Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the
withdrawal is effective immediately after its manifestation, such
as by its mailing and not necessarily when the offeree learns of
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period
is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art.
1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil.
948, holding that this rule is applicable to a unilateral promise to
sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado,
135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person
must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe
honesty and good faith."
(2) If the period has a separate consideration, a contract of
"option" is deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself, and it is to
be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If,
in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the option. In these
cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be
part of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract could
be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art.
1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an
innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its
normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted,
or possibly of an offer under Article 13199 of the same Code. An
option or an offer would require, among other things,10 a clear
certainty on both the object and the cause or consideration of
the envisioned contract. In a right of first refusal, while the object
might be made determinate, the exercise of the right, however,
would be dependent not only on the grantor's eventual intention
to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive) but
by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach cannot
justify correspondingly an issuance of a writ of execution under
a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the
perfection of contracts.11 It is not to say, however, that the right
of first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 1912 of the Civil
Code, can warrant a recovery for damages.
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.

The final judgment in Civil Case No. 87-41058, it must be

stressed, has merely accorded a "right of first refusal" in favor of
petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here
so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy
is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the
purpose.

Furthermore, whether private respondent Buen Realty

Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not
it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil
Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from
the ownership and possession of the property, without first being
duly afforded its day in court.

We are also unable to agree with petitioners that the Court of

Appeals has erred in holding that the writ of execution varies the
terms of the judgment in Civil Case No. 87-41058, later affirmed
in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:

Finally, the questioned writ of execution is in

variance with the decision of the trial court
as modified by this Court. As already stated,
there was nothing in said decision 13 that
decreed the execution of a deed of sale
between the Cu Unjiengs and respondent
lessees, or the fixing of the price of the sale,
or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516;
Pamantasan ng Lungsod ng Maynila vs.
IAC, 143 SCRA 311; De Guzman vs. CA,
137 SCRA 730; Pastor vs. CA, 122 SCRA
885).
 [G.R. No. 111538. February 26, 1997]
PARAAQUE KINGS ENTERPRISES,
INCORPORATED, petitioner, vs. COURT OF
APPEALS, CATALINA L. SANTOS, represented by
her attorney-in-fact, LUZ B. PROTACIO, and DAVID
A. RAYMUNDO, respondents.
DECISION
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a
contractual right of first option or priority to buy the properties
subject of the lease constitute a valid cause of action? Is the
grantee of such right entitled to be offered the same terms and
conditions as those given to a third party who eventually bought
such properties? In short, is such right of first refusal
enforceable by an action for specific performance?
These questions are answered in the affirmative by this
Court in resolving this petition for review under Rule 45 of the
Rules of Court challenging the Decision[1] of the Court of
Appeals[2] promulgated on March 29, 1993, in CA-G.R. CV No.
34987 entitled Paraaque Kings Enterprises, Inc. vs. Catalina L.
Santos, et al., which affirmed the order[3] of September 2, 1991,
of the Regional Trial Court of Makati, Branch 57, [4]dismissing
Civil Case No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the
Regional Trial Court of Makati a complaint,[5] which is
reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and
existing under and by virtue of the laws of the
Philippines, with principal place of business of (sic)
Dr. A. Santos Avenue, Paraaque, Metro Manila,
while defendant Catalina L. Santos, is of legal age,
widow, with residence and postal address at 444
Plato Street, Ct., Stockton, California, USA,
represented in this action by her attorney-in-fact,
Luz B. Protacio, with residence and postal address
at No, 12, San Antonio Street, Magallanes Village,
Makati, Metro Manila, by virtue of a general power
of attorney. Defendant David A. Raymundo, is of
legal age, single, with residence and postal address
at 1918 Kamias Street, Damarias Village, Makati,
Metro Manila, where they (sic) may be served with
summons and other court processes. Xerox copy of
the general power of attorney is hereto attached as
Annex A.
2. Defendant Catalina L. Santos is the owner of
eight (8) parcels of land located at (sic) Paraaque,
Metro Manila with transfer certificate of title nos. S-
19637, S-19638 and S-19643 to S-19648. Xerox
copies of the said title (sic) are hereto attached as
Annexes B to I, respectively.
3. On November 28, 1977, a certain Frederick Chua
leased the above-described property from
defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of
the lease is hereto attached as Annex J.
4. On February 12, 1979, Frederick Chua assigned
all his rights and interest and participation in the
leased property to Lee Ching Bing, by virtue of a
deed of assignment and with the conformity of
defendant Santos, the said assignment was also
registered. Xerox copy of the deed of assignment is
hereto attached as Annex K.
5. On August 6, 1979, Lee Ching Bing also assigned
all his rights and interest in the leased property to
Paraaque Kings Enterprises, Incorporated by virtue
of a deed of assignment and with the conformity of
defendant Santos, the same was duly registered,
Xerox copy of the deed of assignment is hereto
attached as Annex L.
6. Paragraph 9 of the assigned leased (sic) contract provides
among others that:
9. That in case the properties subject of the
lease agreement are sold or encumbered,
Lessors shall impose as a condition that the
buyer or mortgagee thereof shall recognize
and be bound by all the terms and conditions
of this lease agreement and shall respect this
Contract of Lease as if they are the
LESSORS thereof and in case of sale,
LESSEE shall have the first option or priority
to buy the properties subject of the lease;
7. On September 21, 1988, defendant Santos sold
the eight parcels of land subject of the lease to
defendant David Raymundo for a consideration of
FIVE MILLION (P5,000,000.00) PESOS. The said
sale was in contravention of the contract of lease,
for the first option or priority to buy was not offered
by defendant Santos to the plaintiff. Xerox copy of
the deed of sale is hereto attached as Annex M.
8. On March 5, 1989, defendant Santos wrote a
letter to the plaintiff informing the same of the sale
of the properties to defendant Raymundo, the said
letter was personally handed by the attorney-in-fact
of defendant Santos, Xerox copy of the letter is
hereto attached as Annex N.
9. Upon learning of this fact plaintiffs representative
wrote a letter to defendant Santos, requesting her to
rectify the error and consequently realizing the
error, she had it reconveyed to her for the same
consideration of FIVE MILLION (P5,000,000.00)
PESOS. Xerox copies of the letter and the deed of
reconveyance are hereto attached as Annexes O
and P.
10. Subsequently the property was offered for sale
to plaintiff by the defendant for the sum of FIFTEEN
MILLION (P15,000,000.00) PESOS. Plaintiff was
given ten (10) days to make good of the offer, but
therefore (sic) the said period expired another letter
came from the counsel of defendant Santos,
containing the same tenor of (sic) the former
letter. Xerox copies of the letters are hereto
attached as Annexes Q and R.
11. On May 8, 1989, before the period given in the
letter offering the properties for sale expired,
plaintiffs counsel wrote counsel of defendant Santos
offering to buy the properties for FIVE MILLION
(P5,000,000.00) PESOS.Xerox copy of the letter is
hereto attached as Annex S.
12. On May 15, 1989, before they replied to the offer
to purchase, another deed of sale was executed by
defendant Santos (in favor of) defendant Raymundo
for a consideration of NINE MILLION
(P9,000,000.00) PESOS.Xerox copy of the second
deed of sale is hereto attached as Annex T.
13. Defendant Santos violated again paragraph 9 of
the contract of lease by executing a second deed of
sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant
Santos replied to the letter of the plaintiffs offer to
buy or two days after she sold her properties. In her
reply she stated among others that the period has
lapsed and the plaintiff is not a privy (sic) to the
contract. Xerox copy of the letter is hereto attached
as Annex U.
15. On June 28, 1989, counsel for plaintiff informed
counsel of defendant Santos of the fact that plaintiff
is the assignee of all rights and interest of the
former lessor. Xerox copy of the letter is hereto
attached as Annex V.
16. On July 6, 1989, counsel for defendant Santos
informed the plaintiff that the new owner is
defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex W.
17. From the preceding facts it is clear that the sale
was simulated and that there was a collusion
between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a
letter to defendant Santos to rectify the error, she
immediately have (sic) the property reconveyed it
(sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who
represented both of them in their exchange of
communication with plaintiffs counsel, a fact that led
to the conclusion that a collusion exist (sic) between
the defendants.
19. When the property was still registered in the
name of defendant Santos, her collector of the
rental of the leased properties was her brother-in-
law David Santos and when it was transferred to
defendant Raymundo the collector was still David
Santos up to the month of June, 1990. Xerox copies
of cash vouchers are hereto attached as Annexes X
to HH, respectively.
20. The purpose of this unholy alliance between
defendants Santos and Raymundo is to mislead the
plaintiff and make it appear that the price of the
leased property is much higher than its actual value
of FIVE MILLION (P5,000,000.00) PESOS, so that
plaintiff would purchase the properties at a higher
price.
21. Plaintiff has made considerable investments in
the said leased property by erecting a two (2)
storey, six (6) doors commercial building amounting
to THREE MILLION (P3,000,000.00) PESOS. This
considerable improvement was made on the belief
that eventually the said premises shall be sold to
the plaintiff.
22. As a consequence of this unlawful act of the
defendants, plaintiff will incurr (sic) total loss of
THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants
 should be charged of the same amount for actual
damages.
23. As a consequence of the collusion, evil design
and illegal acts of the defendants, plaintiff in the
process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to
moral damages in the amount of FIVE MILLION
(P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner and as
a deterrent to the commission of similar acts, they
should be made to answer for exemplary damages,
the amount left to the discretion of the Court.
25. Plaintiff demanded from the defendants to rectify
their unlawful acts that they committed, but
defendants refused and failed to comply with
plaintiffs just and valid and (sic) demands. Xerox
copies of the demand letters are hereto attached as
Annexes KK to LL, respectively.
26. Despite repeated demands, defendants failed
and refused without justifiable cause to satisfy
plaintiffs claim, and was constrained to engaged
(sic) the services of undersigned counsel to institute
this action at a contract fee of P200,000.00, as and
for attorneys fees, exclusive of cost and expenses
of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be
rendered in favor of the plaintiff and against defendants
and ordering that:
a. The Deed of Sale between defendants dated May
15, 1989, be annulled and the leased properties be
sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum
of P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as
moral damages;
d. Defendants pay exemplary damages left to the
discretion of the Court;
e. Defendants pay the sum of not less
than P200,000.00 as attorneys fees.
Plaintiff further prays for other just and equitable reliefs plus cost
of suit.
Instead of filing their respective answers, respondents
filed motions to dismiss anchored on the grounds of lack of
cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order
dismissing the complaint for lack of a valid cause of action. It
ratiocinated thus:
Upon the very face of the plaintiffs Complaint itself, it therefore
indubitably appears that the defendant Santos had verily
complied with paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for P15 M. The said
offers, however, were plainly rejected by the plaintiff which
scorned the said offer as RIDICULOUS. There was therefore a
definite refusal on the part of the plaintiff to accept the offer of
defendant Santos. For in acquiring the said properties back to
her name, and in so making the offers to sell both by herself
(attorney-in-fact) and through her counsel, defendant Santos
was indeed conscientiously complying with her obligation under
paragraph 9 of the Lease Agreement. x x x
xxxxxxxxx
This is indeed one instance where a Complaint, after barely
commencing to create a cause of action, neutralized itself by its
subsequent averments which erased or extinguished its earlier
allegations of an impending wrong.Consequently, absent any
actionable wrong in the very face of the Complaint itself, the
plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. x x x
The inescapable result of the foregoing considerations point to
no other conclusion than that the Complaint actually does not
contain any valid cause of action and should therefore be as it is
hereby ordered DISMISSED. The Court finds no further need to
consider the other grounds of estoppel and laches inasmuch as
this resolution is sufficient to dispose the matter.[6]
Petitioners appealed to the Court of Appeals which
affirmed in toto the ruling of the trial court, and further reasoned
that:
x x x Appellants protestations that the P15 million price quoted
by appellee Santos was reduced to P9 million when she later
resold the leased properties to Raymundo has no valid legal
moorings because appellant, as a prospective buyer, cannot
dictate its own price and forcibly ram it against appellee Santos,
as owner, to buy off her leased properties considering the total
absence of any stipulation or agreement as to the price or as to
how the price should be computed under paragraph 9 of the
lease contract, x x x[7]
 Petitioner moved for reconsideration but was denied in an
order dated August 20, 1993.[8]
Hence this petition. Subsequently, petitioner filed an
Urgent Motion for the Issuance of Restraining Order and/or Writ
of Preliminary Injunction and to Hold Respondent David A.
Raymundo in Contempt of Court.[9] The motion sought to enjoin
respondent Raymundo and his counsel from pursuing the
ejectment complaint filed before the barangay captain of San
Isidro, Paraaque, Metro Manila; to direct the dismissal of said
ejectment complaint or of any similar action that may have been
filed; and to require respondent Raymundo to explain why he
should not be held in contempt of court for forum-shopping. The
ejectment suit initiated by respondent Raymundo against
petitioner arose from the expiration of the lease contract
covering the property subject of this case. The ejectment suit
was decided in favor of Raymundo, and the entry of final
judgment in respect thereof renders the said motion moot and
academic.
Issue
The principal legal issue presented before us for
resolution is whether the aforequoted complaint alleging breach
of the contractual right of first option or priority to buy states a
valid cause of action.
Petitioner contends that the trial court as well as the
appellate tribunal erred in dismissing the complaint because it in
fact had not just one but at least three (3) valid causes of action,
to wit: (1) breach of contract, (2) its right of first refusal founded
in law, and (3) damages.
Respondents Santos and Raymundo, in their separate
comments, aver that the petition should be denied for not raising
a question of law as the issue involved is purely factual --
whether respondent Santos complied with paragraph 9 of the
lease agreement -- and for not having complied with Section 2,
Rule 45 of the Rules of Court, requiring the filing of twelve (12)
copies of the petitioners brief. Both maintain that the complaint
filed by petitioner before the Regional Trial Court of Makati
stated no valid cause of action and that petitioner failed to
substantiate its claim that the lower courts decided the same in
a way not in accord with law and applicable decisions of the
Supreme Court; or that the Court of Appeals has sanctioned
departure by a trial court from the accepted and usual course of
judicial proceedings so as to merit the exercise by this Court of
the power of review under Rule 45 of the Rules of Court.
Furthermore, they reiterate estoppel and laches as grounds for
dismissal, claiming that petitioners payment of rentals of the
leased property to respondent Raymundo from June 15, 1989,
to June 30, 1990, was an acknowledgment of the latters status
as new owner-lessor of said property, by virtue of which
petitioner is deemed to have waived or abandoned its first
option to purchase.
Private respondents likewise contend that the deed of
assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent Raymundo
further avers that he was not privy to the contract of lease, being
neither the lessor nor lessee adverted to therein, hence he could
not be held liable for violation thereof.
The Courts Ruling
Preliminary Issue: Failure to File Sufficient Copies of Brief
We first dispose of the procedural issue raised by
respondents, particularly petitioners failure to file twelve (12)
copies of its brief. We have ruled that when non-compliance with
the Rules was not intended for delay or did not result in
prejudice to the adverse party, dismissal of appeal on mere
technicalities in cases where appeal is a matter of right -- may
be stayed, in the exercise of the courts equity jurisdiction.[10] It
does not appear that respondents were unduly prejudiced by
petitioners nonfeasance. Neither has it been shown that such
failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents contention that the
issue involved is purely factual. The principal legal question, as
stated earlier, is whether the complaint filed by herein petitioner
in the lower court states a valid cause of action. Since such
question assumes the facts alleged in the complaint as true, it
follows that the determination thereof is one of law, and not of
facts. There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of
facts, and there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged
facts.[11]
At the outset, petitioner concedes that when the ground
for a motion to dismiss is lack of cause of action, such ground
must appear on the face of the complaint; that to determine the
sufficiency of a cause of action, only the facts alleged in the
complaint and no others should be considered; and that the test
of sufficiency of the facts alleged in a petition or complaint to
constitute a cause of action is whether, admitting the facts
alleged, the court could render a valid judgment upon the same
in accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are
present: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation
on the part of the named defendant to respect or not to violate
such right, and (3) an act or omission on the part of such
defendant violative of the right of plaintiff or constituting a
breach of the obligation of defendant to the plaintiff for which the
latter may maintain an action for recovery of damages.[12]
In determining whether allegations of a complaint are
sufficient to support a cause of action, it must be borne in mind
that the complaint does not have to establish or allege facts
proving the existence of a cause of action at the outset; this will
have to be done at the trial on the merits of the case. To sustain
a motion to dismiss for lack of cause of action, the complaint
must show that the claim for relief does not exist, rather than
that a claim has been defectively stated, or is ambiguous,
indefinite or uncertain.[13]
Equally important, a defendant moving to dismiss a
complaint on the ground of lack of cause of action is regarded
as having hypothetically admitted all the averments thereof.[14]
A careful examination of the complaint reveals that it
sufficiently alleges an actionable contractual breach on the part
of private respondents. Under paragraph 9 of the contract of
lease between respondent Santos and petitioner, the latter was
granted the first option or priority to purchase the leased
properties in case Santos decided to sell. If Santos never
decided to sell at all, there can never be a breach, much less an
enforcement of such right. But on September 21, 1988, Santos
sold said properties to Respondent Raymundo without first
offering these to petitioner. Santos indeed realized her error,
since she repurchased the properties after petitioner
complained. Thereafter, she offered to sell the properties to
petitioner for P15 million, which petitioner, however, rejected
because of the ridiculous price. But Santos again appeared to
have violated the same provision of the lease contract when she
finally resold the properties to respondent Raymundo for only P9
million without first offering them to petitioner at such
price. Whether there was actual breach which entitled petitioner
to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each
party can present evidence to prove their respective allegations
and defenses.[15]
The trial and appellate courts based their decision to
sustain respondents motion to dismiss on the allegations of
Paraaque Kings Enterprises that Santos had actually offered the
subject properties for sale to it prior to the final sale in favor of
Raymundo, but that the offer was rejected. According to said
courts, with such offer, Santos had verily complied with her
obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance
with the contractual right granting petitioner the first option to
purchase, the sale of the properties for the amount of P9 million,
the price for which they were finally sold to respondent
Raymundo, should have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse
on the concept of, and obligations under, a right of first refusal in
the case of Guzman, Bocaling & Co. vs. Bonnevie.[16] In that
case, under a contract of lease, the lessees (Raul and
Christopher Bonnevie) were given a right of first priority to
purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies
was P600,000.00 to be fully paid in cash, less a mortgage lien
of P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00 of
which P137,500.00 was to be paid in cash while the balance
was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it
at the price quoted (P600,000.00), nonetheless, Reynoso could
not sell it to another for a lower price and under more favorable
terms and conditions without first offering said favorable terms
and price to the Bonnevies as well. Only if the Bonnevies failed
to exercise their right of first priority could Reynoso thereafter
lawfully sell the subject property to others, and only under the
same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated
that the Bonnevies could exercise the right of first priority, all
things and conditions being equal. This Court interpreted
this proviso to mean that there should be identity of terms and
conditions to be offered to the Bonnevies and all other
prospective buyers, with the Bonnevies to enjoy the right of first
priority. We hold that the same rule applies even without the
same proviso if the right of first refusal (or the first option to buy)
is not to be rendered illusory.
From the foregoing, the basis of the right of the first
refusal* must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. Only after the grantee** fails
to exercise its right of first priority under the same terms and
within the period contemplated, could the owner validly offer to
sell the property to a third person, again, under the same terms
as offered to the grantee***.
This principle was reiterated in the very recent case
of Equatorial Realty vs. Mayfair Theater, Inc.[17] which was
decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by the
lessor Carmelo to Equatorial Realty considering that Mayfair,
which had substantial interest over the subject property, was
prejudiced by its sale to Equatorial without Carmelo conferring
to Mayfair every opportunity to negotiate within the 30-day
stipulated period (underscoring supplied).
In that case, two contracts of lease between Carmelo and
Mayfair provided that if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30 days exclusive
option to purchase the same. Carmelo initially offered to sell the
leased property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked
the 30-day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire Recto Avenue
property, including the leased premises, to Equatorial
for P11,300,000.00 without priorly informing Mayfair. The Court
held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first refusal* of
Mayfair, and Equatorial for purchasing the property despite
being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow
Mayfair to buy the subject property at the same price
of P11,300,000.00.
No cause of action under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or
the Urban Land Reform Law, as another source of its right of
first refusal. It claims to be covered under said law, being the
rightful occupant of the land and its structures since it is the
lawful lessee thereof by reason of contract. Under the lease
contract, petitioner would have occupied the property for
fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a
beneficiary under said law, suffice it to say that this Court has
previously ruled that under Section 6[18] of P.D. 1517, the terms
and conditions of the sale in the exercise of the lessees right of
first refusal to purchase shall be determined by the Urban Zone
Expropriation and Land Management Committee. Hence, x x x
certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree.[19] There
being no allegation in its complaint that the prerequisites were
complied with, it is clear that the complaint did fail to state a
cause of action on this ground.
Deed of Assignment included the option to purchase
Neither do we find merit in the contention of respondent
Santos that the assignment of the lease contract to petitioner did
not include the option to purchase. The provisions of the deeds
of assignment with regard to matters assigned were very
clear. Under the first assignment between Frederick Chua as
assignor and Lee Ching Bing as assignee, it was expressly
stated that:
x x x the ASSIGNOR hereby CEDES, TRANSFERS and
ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, x x
x[20] (underscoring supplied)
And under the subsequent assignment executed between
Lee Ching Bing as assignor and the petitioner, represented by
its Vice President Vicenta Lo Chiong, as assignee, it was
likewise expressly stipulated that:
x x x the ASSIGNOR hereby sells, transfers and assigns all his
rights, interest and participation over said leased premises, x x
x[21] (underscoring supplied)
One of such rights included in the contract of lease and,
therefore, in the assignments of rights was the lessees right of
first option or priority to buy the properties subject of the lease,
as provided in paragraph 9 of the assigned lease contract. The
deed of assignment need not be very specific as to which rights
and obligations were passed on to the assignee. It is understood
in the general provision aforequoted that all specific rights and
obligations contained in the contract of lease are those referred
to as being assigned. Needless to state, respondent Santos
gave her unqualified conformity to both assignments of rights.
Respondent Raymundo privy to the Contract of Lease
With respect to the contention of respondent Raymundo
that he is not privy to the lease contract, not being the lessor nor
the lessee referred to therein, he could thus not have violated its
provisions, but he is nevertheless a proper party. Clearly, he
stepped into the shoes of the owner-lessor of the land as, by
virtue of his purchase, he assumed all the obligations of the
lessor under the lease contract. Moreover, he received benefits
in the form of rental payments. Furthermore, the complaint, as
well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by
petitioner of its right of first refusal.
In order then to accord complete relief to petitioner,
respondent Raymundo was a necessary, if not indispensable,
party to the case.[22] A favorable judgment for the petitioner will
necessarily affect the rights of respondent Raymundo as the
buyer of the property over which petitioner would like to assert
its right of first option to buy.
Having come to the conclusion that the complaint states a
valid cause of action for breach of the right of first refusal and
that the trial court should thus not have dismissed the complaint,
we find no more need to pass upon the question of whether the
complaint states a cause of action for damages or whether the
complaint is barred by estoppel or laches. As these matters
require presentation and/or determination of facts, they can be
best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint,
private respondents, however, cannot be denied their day in
court. While, in the resolution of a motion to dismiss, the truth of
the facts alleged in the complaint are theoretically admitted,
such admission is merely hypothetical and only for the purpose
of resolving the motion. In case of denial, the movant is not to
be deprived of the right to submit its own case and to submit
evidence to rebut the allegations in the complaint. Neither will
the grant of the motion by a trial court and the ultimate reversal [G.R. No. 140479. March 8, 2001]
thereof by an appellate court have the effect of stifling such
right.[23] So too, the trial court should be given the opportunity to
evaluate the evidence, apply the law and decree the proper
remedy. Hence, we remand the instant case to the trial court to ROSENCOR DEVELOPMENT CORPORATION and RENE
allow private respondents to have their day in court. JOAQUIN, petitioners, vs. PATERNO INQUING,
IRENE GUILLERMO, FEDERICO BANTUGAN,
WHEREFORE, the petition is GRANTED. The assailed
FERNANDO MAGBANUA and LIZZA
decisions of the trial court and Court of Appeals are
TIANGCO, respondents.
hereby REVERSED and SET ASIDE. The case
is REMANDED to the Regional Trial Court of Makati for further
proceedings. DECISION

SO ORDERED. GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of

the Rules of Court seeking reversal of the Decision[1] of the
Court of Appeals dated June 25, 1999 in CA-G.R. CV No.
53963. The Court of Appeals decision reversed and set aside
the Decision[2]dated May 13, 1996 of Branch 217 of the
Regional Trial Court of Quezon City in Civil Case No. Q-93-
18582.
The case was originally filed on December 10, 1993 by
Paterno Inquing, Irene Guillermo and Federico Bantugan, herein
respondents, against Rosencor Development Corporation
(hereinafter Rosencor), Rene Joaquin, and Eufrocina de
Leon. Originally, the complaint was one for annulment of
absolute deed of sale but was later amended to one for
rescission of absolute deed of sale. A complaint-for intervention
was thereafter filed by respondents Fernando Magbanua and
Danna Lizza Tiangco. The complaint-in-intervention was
admitted by the trial court in an Order dated May 4, 1994.[3]
The facts of the case, as stated by the trial court and
adopted by the appellate court, are as follows:

This action was originally for the annulment of the Deed of

Absolute Sale dated September 4, 1990 between defendants
Rosencor and Eufrocina de Leon but later amended (sic)
praying for the rescission of the deed of sale.

Plaintiffs and plaintiffs-intervenors averred that they are the

lessees since 1971 of a two-story residential apartment located
at No. 150 Tomas Morato Ave., Quezon City covered by TCT
No. 96161 and owned by spouses Faustino and Cresencia
Tiangco. The lease was not covered by any contract. The
lessees were renting the premises then for P150.00 a month
and were allegedly verbally granted by the lessors the pre-
emptive right to purchase the property if ever they decide to sell
the same.

Upon the death of the spouses Tiangcos in 1975, the

management of the property was adjudicated to their heirs who
were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of
Tiangcos since the latter had knowledge that this right was
extended to the former by the late spouses Tiangcos. The
lessees continued to stay in the premises and allegedly spent
their own money amounting from P50,000.00 to P100,000.00 for
its upkeep. These expenses were never deducted from the
rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda
Aguila demanding that they vacate the premises so that the
demolition of the building be undertaken. They refused to leave
the premises. In that same month, de Leon refused to accept
the lessees rental payment claiming that they have run out of
receipts and that a new collector has been assigned to receive
the payments. Thereafter, they received a letter from Eufrocina
de Leon offering to sell to them the property they were leasing
for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the
amount of P1,000,000.00. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer
was given by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came to the leased
premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from
Atty. Aguila demanding that they vacate the premises. A month
thereafter, the lessees received a letter from de Leon advising
them that the heirs of the late spouses Tiangcos have already
sold the property to Rosencor. The following month Atty. Aguila
wrote them another letter demanding the rental payment and
introducing herself as counsel for Rosencor/Rene Joaquin, the
new owners of the premises.
The lessees requested from de Leon why she had disregarded
the pre-emptive right she and the late Tiangcos have promised
them. They also asked for a copy of the deed of sale between
her and the new owners thereof but she refused to heed their
request. In the same manner, when they asked Rene Joaquin a
copy of the deed of sale, the latter turned down their request
and instead Atty. Aguila wrote them several letters demanding
that they vacate the premises. The lessees offered to tender
their rental payment to de Leon but she refused to accept the
same.
In April 1992 before the demolition can be undertaken by the
Buiding Official, the barangay interceded between the parties
herein after which Rosencor raised the issue as to the rental
payment of the premises. It was also at this instance that the
lessees were furnished with a copy of the Deed of Sale and
discovered that they were deceived by de Leon since the sale
between her and Rene Joaquin/Rosencor took place in
September 4, 1990 while de Leon made the offer to them only in
October 1990 or after the sale with Rosencor had been
consummated. The lessees also noted that the property was
sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete their
P1,000.000.00 earlier offer. When their offer was refused, they
filed the present action praying for the following: a) rescission of
the Deed of Absolute Sale between de Leon and Rosencor
dated September 4, 1990; b) the defendants Rosencor/Rene
Joaquin be ordered to reconvey the property to de Leon; and c)
de Leon be ordered to reimburse the plaintiffs for the repairs of
the property, or apply the said amount as part of the price for the
purchase of the property in the sum of P100,000.00.[4]
After trial on the merits, the Regional Trial Court rendered
a Decision[5] dated May 13, 1996 dismissing the complaint. The
trial court held that the right of redemption on which the
complaint was based was merely an oral one and as such, is
unenforceable under the law. The dispositive portion of the May
13, 1996 Decision is as follows:
WHEREFORE, in view of the foregoing, the Court DISMISSES
the instant action. Plaintiffs and plaintiffs-intervenors are hereby
ordered to pay their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time they leave the
premises. No costs.
SO ORDERED.[6]
Not satisfied with the decision of the trial court,
respondents herein filed a Notice of Appeal dated June 3,
1996. On the same date, the trial court issued an Order for the
elevation of the records of the case to the Court of Appeals.On
August 8, 1997, respondents filed their appellate brief before the
Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its
decision[7] reversing the decision of the trial court. The
dispositive portion of the June 25, 1999 decision is as follows:
WHEREFORE, premises considered, the appealed decision
(dated May 13, 1996) of the Regional Trial Court (Branch 217)
in Quezon City in Case No. Q-93-18582 is hereby REVERSED
and SET ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale
executed between the appellees on September
4, 1990;
(2) The reconveyance of the subject premises to
appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco,
thru appellee Eufrocina de Leon, to afford the
appellants thirty days within which to exercise
their right of first refusal by paying the amount of
ONE MILLION PESOS (P1,000,000.00) for the
subject property; and
 (4) The appellants to, in turn, pay the appellees back
rentals from May 1990 up to the time this
decision is promulgated.
No pronouncement as to costs.
SO ORDERED.[8]
Petitioners herein filed a Motion for Reconsideration of the
decision of the Court of Appeals but the same was denied in a
Resolution dated October 15, 1999.[9]
Hence, this petition for review on certiorari where
petitioners Rosencor Development Corporation and Rene
Joaquin raise the following assignment of errors[10]:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE
DEED OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMITTED MANIFEST
ERROR IN MANDATING THAT EUFROCINA DE LEON
AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN
CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the
spouses Faustino and Crescencia Tiangco, did not appeal the
decision of the Court of Appeals.
At the onset, we note that both the Court of Appeals and
the Regional Trial Court relied on Article 1403 of the New Civil
Code, more specifically the provisions on the statute of frauds,
in coming out with their respective decisions. The trial court, in
denying the petition for reconveyance, held that right of first
refusal relied upon by petitioners was not reduced to writing and
as such, is unenforceable by virtue of the said article. The Court
of Appeals, on the other hand, also held that the statute of
frauds governs the right of first refusal claimed by
respondents. However, the appellate court ruled that
respondents had duly proven the same by reason of petitioners
waiver of the protection of the statute by reason of their failure to
object to the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to
discuss, however, the threshold issue of whether or not a right
of first refusal is indeed covered by the provisions of the New
Civil Code on the statute of frauds. The resolution of the issue
on the applicability of the statute of frauds is important as it will
determine the type of evidence which may be considered by the
trial court as proof of the alleged right of first refusal.
The term statute of frauds is descriptive of statutes which
require certain classes of contracts to be in writing. This statute
does not deprive the parties of the right to contract with respect
to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it
enforceable. Thus, they are included in the provisions of the
New Civil Code regarding unenforceable contracts, more
particularly Art. 1403, paragraph 2. Said article provides, as
follows:
Art. 1403. The following contracts are unenforceable, unless
they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a
year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage, other than
a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at
the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of purchasers and
person on whose account the sale is made, it is a sufficient
memorandum;
e) An agreement for the leasing of a longer period than one
year, or for the sale of real property or of an interest therein;
f) A representation to the credit of a third person.
The purpose of the statute is to prevent fraud and perjury
in the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged.[11] Moreover, the
statute of frauds refers to specific kinds of transactions and
cannot apply to any other transaction that is not enumerated
therein.[12] The application of such statute presupposes the
existence of a perfected contract.[13]
The question now is whether a right of first refusal is
among those enumerated in the list of contracts covered by the
Statute of Frauds. More specifically, is a right of first refusal akin
to an agreement for the leasing of a longer period than one
year, or for the sale of real property or of an interest therein as
contemplated by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements affecting
land must be put into writing to attain enforceability[14]. Thus, we
have held that the setting up of boundaries,[15] the oral partition
of real property[16], and an agreement creating a right of
way[17] are not covered by the provisions of the statute of
frauds. The reason simply is that these agreements are not
among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as
unenforceable under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten,
contract of sale.[18] A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual grant,
not of the sale of the real property involved, but of the right of
first refusal over the property sought to be sold[19]
It is thus evident that the statute of frauds does not
contemplate cases involving a right of first refusal. As such, a
right of first refusal need not be written to be enforceable and
may be proven by oral evidence.
The next question to be ascertained is whether or not
respondents have satisfactorily proven their right of first refusal
over the property subject of the Deed of Absolute Sale dated
September 4, 1990 between petitioner Rosencor and Eufrocina
de Leon.
On this point, we agree with the factual findings of the
Court of Appeals that respondents have adequately proven the
existence of their right of first refusal. Federico Bantugan, Irene
Guillermo, and Paterno Inquing uniformly testified that they were
promised by the late spouses Faustino and Crescencia Tiangco
and, later on, by their heirs a right of first refusal over the
property they were currently leasing should they decide to sell
the same. Moreover, respondents presented a letter[20] dated
October 9, 1990 where Eufrocina de Leon, the representative of
the heirs of the spouses Tiangco, informed them that they had
received an offer to buy the disputed property for P2,000,000.00
and offered to sell the same to the respondents at the same
price if they were interested. Verily, if Eufrocina de Leon did not
recognize respondents right of first refusal over the property
they were leasing, then she would not have bothered to offer the
property for sale to the respondents.
It must be noted that petitioners did not present evidence
before the trial court contradicting the existence of the right of
first refusal of respondents over the disputed property. They
only presented petitioner Rene Joaquin, the vice-president of
petitioner Rosencor, who admitted having no personal
knowledge of the details of the sales transaction between
Rosencor and the heirs of the spouses Tiangco[21] They also
dispensed with the testimony of Eufrocina de Leon[22] who could
have denied the existence or knowledge of the right of first
refusal. As such, there being no evidence to the contrary, the
right of first refusal claimed by respondents was substantially
proven by respondents before the lower court.
Having ruled upon the question as to the existence of
respondents right of first refusal, the next issue to be answered
is whether or not the Court of Appeals erred in ordering the
rescission of the Deed of Absolute Sale dated September 4,
1990 between Rosencor and Eufrocina de Leon and in
decreeing that the heirs of the spouses Tiangco should afford
respondents the exercise of their right of first refusal. In other
words, may a contract of sale entered into in violation of a third
partys right of first refusal be rescinded in order that such third
party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the
Court upheld the decision of a lower court ordering the
rescission of a deed of sale which violated a right of first refusal
granted to one of the parties therein. The Court held:
xxx Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise
valid may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property
to the petitioner without recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to
the contracting parties and even to third persons, to secure
reparations for damages caused to them by a contract, even if
this should be valid, by means of the restoration of things to
their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some
incompatible and preferent right created by the
contract. Rescission implies a contract which, even if initially
valid, produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act
in bad faith. However, this rule is not applicable in the case
before us because the petitioner is not considered a third party
in relation to the Contract of Sale nor may its possession of the
subject property be regarded as acquired lawfully and in good
faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the
Contract of Sale. Moreover, the petitioner cannot be deemed a
purchaser in good faith for the record shows that it categorically
admitted that it was aware of the lease in favor of the
Bonnevies, who were actually occupying the subject property at
the time it was sold to it. Although the Contract of Lease was not
annotated on the transfer certificate of title in the name of the
late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property without 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.
Subsequently[24] in Equatorial Realty and Development,
Inc. vs. Mayfair Theater, Inc.[25], the Court, en banc, with three
justices dissenting,[26] ordered the rescission of a contract
entered into in violation of a right of first refusal.Using the ruling
in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court
decreed that since respondent therein had a right of first refusal
over the said property, it could only exercise the said right if the
fraudulent sale is first set aside or rescinded. Thus:
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
Mayfairs 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 that to be a purchaser in
good faith, and, therefore, rescission lies.
XXX
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. Equatorials 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 had 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. The sale of the subject real property 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
stipulate period.[27]
In Paranaque Kings Enterprises, Inc. vs. Court of
Appeals,[28] the Court held that the 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 enforceable by an action for specific
performance. Summarizing the rulings in the two previously
cited cases, the Court affirmed the nature of and concomitant
rights and obligations of parties under a right of first
refusal. Thus:
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 P9,000,000.00, the
price for which they were finally sold to respondent Raymundo,
should have likewise been 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. In that case,
under a contract of lease, the lessees (Raul and Christopher
Bonnevie) were given a "right of first priority" to purchase the
leased property in case the lessor (Reynoso) decided to
sell. The selling price quoted to the Bonnevies was 600,000.00
to be fully paid in cash, less a mortgage lien of P100,000.00. On
the other hand, the selling price offered by Reynoso to and
accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was to be
paid only when the property was cleared of occupants. We held
that even if the Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not sell it to another
for a lower price and under more favorable terms and conditions
without first offering said favorable terms and price to the
Bonnevies as well. Only if the Bonnevies failed to exercise their
right of first priority could Reynoso thereafter lawfully sell the
subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case
of Equatorial Realty vs. Mayfair Theater, Inc. 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"
In that case, two contracts of lease between Carmelo and
Mayfair provided "that if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30 days exclusive
option to purchase the same." Carmelo initially offered to sell the
leased property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked
the 30-day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire Recto Avenue
property, including the leased premises, to Equatorial for
P11,300,000.00 without priorly informing Mayfair. The Court
held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first option of
Mayfair, and Equatorial for purchasing the property despite
being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow
Mayfair to buy the subject property at the same price of
P11,300,000.00.
In the recent case of Litonjua vs. L&R Corporation,[29] the
Court, also citing the case of Guzman, Bocaling & Co. vs.
Bonnevie, held that the sale made therein in violation of a right
of first refusal embodied in a mortgage contract, was
rescissible. Thus:
While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as paragraph
9 thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property
in the event the mortgagor decides to sell the same. We see
nothing wrong in this provision. The right of first refusal has long
been recognized as valid in our jurisdiction. The consideration
for the loan mortgage includes the consideration for the right of
first refusal. L&R Corporation is in effect stating that it consents
to lend out money to the spouses Litonjua provided that in case
they decide to sell the property mortgaged to it, then L&R
Corporation shall be given the right to match the offered
purchase price and to buy the property at that price. Thus, while
the spouses Litonjua had every right to sell their mortgaged
property to PWHAS without securing the prior written consent of
L&R Corporation, they had the obligation under paragraph 9,
which is a perfectly valid provision, to notify the latter of their
intention to sell the property and give it priority over other
buyers. It is only upon the failure of L&R Corporation to exercise
its right of first refusal could the spouses Litonjua validly sell the
subject properties to the others, under the same terms and
conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation
of L & R Corporation's contractual right of first refusal? On this
score, we agree with the Amended Decision of the Court of
Appeals that the sale made to PWHAS is rescissible. The case
of Guzman, Bocaling & Co. v. Bonnevie is instructive on this
point.
XXX
It was then held that the Contract of Sale there, which violated
the right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right
of first refusal granted to L & R Corporation over the subject
properties since the Deed of Real Estate Mortgage containing
such a provision was duly registered with the Register of
Deeds. As such, PWHAS is presumed to have been notified
thereof by registration, which equates to notice to the whole
world.
XXX
All things considered, what then are the relative rights and
obligations of the parties? To recapitulate: the sale between the
spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation's prior written consent
thereto. Inasmuch as the sale to PWHAS was valid, its offer to
redeem and its tender of the redemption price, as successor-in-
interest of the spouses Litonjua, within the one-year period
should have been accepted as valid by the L & R
Corporation. However, while the sale is, indeed, valid, the same
is rescissible because it ignored L & R Corporation's right of first
refusal.
Thus, the prevailing doctrine, as enunciated in the cited
cases, is that a contract of sale entered into in violation of a right
of first refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the cases
cited above, the Court ordered the rescission of sales made in
violation of a right of first refusal precisely because the vendees
therein could not have acted in good faith as they were aware or
should have been aware of the right of first refusal granted to
another person by the vendors therein. The rationale for this is
found in the provisions of the New Civil Code on rescissible
contracts. Under Article 1381 of the New Civil Code, paragraph
3, a contract validly agreed upon may be rescinded if it is
undertaken in fraud of creditors when the latter cannot in any
manner collect the claim due them. Moreover, under Article
1385, rescission shall not take place when the things which are
the object of the contract are legally in the possession of third
persons who did not act in bad faith.[30]
It must be borne in mind that, unlike the cases cited
above, the right of first refusal involved in the instant case was
an oral one given to respondents by the deceased spouses
Tiangco and subsequently recognized by their heirs. As such, in
order to hold that petitioners were in bad faith, there must be
clear and convincing proof that petitioners were made aware of
the said right of first refusal either by the respondents or by the
heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless
contrary evidence is adduced.[31] A purchaser in good faith is
one who buys the property of another without notice that some
other person has a right or interest in such a property and pays
a full and fair price at the time of the purchase or before he has
notice of the claim or interest of some other person in the
property.[32] In this regard, the rule on constructive notice would
be inapplicable as it is undisputed that the right of first refusal
was an oral one and that the same was never reduced to
writing, much less registered with the Registry of Deeds. In fact,
even the lease contract by which respondents derive their right
to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to
show that petitioners acted in bad faith in entering into the deed
of sale over the disputed property with the heirs of the spouses
Tiangco. Respondents failed to present any evidence that prior
to the sale of the property on September 4, 1990, petitioners
were aware or had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 1990[33] as
indicative of petitioners knowledge of the said right. In this letter,
a certain Atty. Erlinda Aguila demanded that respondent Irene
Guillermo vacate the structure they were occupying to make
way for its demolition.
We fail to see how the letter could give rise to bad faith on
the part of the petitioner. No mention is made of the right of first
refusal granted to respondents. The name of petitioner
Rosencor or any of it officers did not appear on the letter and
the letter did not state that Atty. Aguila was writing in behalf of
petitioner. In fact, Atty. Aguila stated during trial that she wrote
the letter in behalf of the heirs of the spouses
Tiangco. Moreover, even assuming that Atty. Aguila was indeed
writing in behalf of petitioner Rosencor, there is no showing that
Rosencor was aware at that time that such a right of first refusal
existed.
Neither was there any showing that after receipt of this
June 1, 1990 letter, respondents notified Rosencor or Atty.
Aguila of their right of first refusal over the
property. Respondents did not try to communicate with Atty.
Aguila and inform her about their preferential right over the
disputed property. There is even no showing that they contacted
the heirs of the spouses Tiangco after they received this letter to
remind them of their right over the property.
Respondents likewise point to the letter dated October 9,
1990 of Eufrocina de Leon, where she recognized the right of
first refusal of respondents, as indicative of the bad faith of
petitioners. We do not agree. Eufrocina de Leon wrote the letter
on her own behalf and not on behalf of petitioners and, as such,
it only shows that Eufrocina de Leon was aware of the existence
of the oral right of first refusal. It does not show that petitioners
were likewise aware of the existence of the said right. Moreover,
the letter was made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said Deed,
petitioners were put on notice of the existence of the right of first
refusal.
Clearly, if there was any indication of bad faith based on
respondents evidence, it would only be on the part of Eufrocina
de Leon as she was aware of the right of first refusal of
respondents yet she still sold the disputed property to
Rosencor. However, bad faith on the part of Eufrocina de Leon
does not mean that petitioner Rosencor likewise acted in bad
faith. There is no showing that prior to the execution of the Deed
of Absolute Sale, petitioners were made aware or put on notice
of the existence of the oral right of first refusal. Thus, absent
clear and convincing evidence to the contrary, petitioner
Rosencor will be presumed to have acted in good faith in
entering into the Deed of Absolute Sale over the disputed
property.
Considering that there is no showing of bad faith on the
part of the petitioners, the Court of Appeals thus erred in
ordering the rescission of the Deed of Absolute Sale dated
September 4, 1990 between petitioner Rosencor and the heirs
of the spouses Tiangco. The acquisition by Rosencor of the
property subject of the right of first refusal is an obstacle to the
action for its rescission where, as in this case, it was shown that
Rosencor is in lawful possession of the subject of the contract
and that it did not act in bad faith.[34]
This does not mean however that respondents are left
without any remedy for the unjustified violation of their right of
first refusal. Their remedy however is not an action for the
rescission of the Deed of Absolute Sale but an action for
damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal[35].
WHEREFORE, premises considered, the decision of the
Court of Appeals dated June 25, 1999 is REVERSED and SET
ASIDE. The Decision dated May 13, 1996 of the Quezon City
Regional Trial Court, Branch 217 is hereby REINSTATED
insofar as it dismisses the action for rescission of the Deed of
Absolute Sale dated September 4, 1990 and orders the
payment of monthly rentals of P1,000.00 per month reckoned
from May 1990 up to the time respondents leave the premises.
SO ORDERED.
[G.R. No. 149734. November 19, 2004]
DR. DANIEL VAZQUEZ and MA. LUIZA M.
VAZQUEZ, petitioners vs. AYALA
CORPORATION, respondent.
DECISION
TINGA, J.:
The rise in value of four lots in one of the countrys prime
residential developments, Ayala Alabang Village in Muntinlupa
City, over a period of six (6) years only, represents big money.
The huge price difference lies at the heart of the present
controversy. Petitioners insist that the lots should be sold to
them at 1984 prices while respondent maintains that the
prevailing market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez[1] filed
this Petition for Review on Certiorari[2] dated October 11, 2001
assailing the Decision[3] of the Court of Appeals dated
September 6, 2001 which reversed the Decision[4] of the
Regional Trial Court (RTC) and dismissed their complaint for
specific performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate
court agree on the following antecedents:[5]
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M.
Vasquez (hereafter, Vasquez spouses) entered into a
Memorandum of Agreement (MOA) with Ayala Corporation
(hereafter, AYALA) with AYALA buying from the Vazquez
spouses, all of the latters shares of stock in Conduit
Development, Inc. (hereafter, Conduit). The main asset of
Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under
a development plan where the land was divided into Villages 1,
2 and 3 of the Don Vicente Village. The development was then
being undertaken for Conduit by G.P. Construction and
Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less
what was defined as the Retained Area consisting of 18,736
square meters. This Retained Area was to be retained by the
Vazquez spouses. The area to be developed by Ayala was
called the Remaining Area. In this Remaining Area were 4 lots
adjacent to the Retained Area and Ayala agreed to offer these
lots for sale to the Vazquez spouses at the prevailing price at
the time of purchase. The relevant provisions of the MOA on this
point are:
5.7. The BUYER hereby commits that it will develop the
Remaining Property into a first class residential subdivision
of the same class as its New Alabang Subdivision, and that
it intends to complete the first phase under its amended
development plan within three (3) years from the date of
this Agreement. x x x
5.15. The BUYER agrees to give the SELLERS a first option
to purchase four developed lots next to the Retained Area
at the prevailing market price at the time of the purchase.
The parties are agreed that the development plan referred
to in paragraph 5.7 is not Conduits development plan, but
Ayalas amended development plan which was still to be
formulated as of the time of the MOA. While in the Conduit
plan, the 4 lots to be offered for sale to the Vasquez
Spouses were in the first phase thereof or Village 1, in the
Ayala plan which was formulated a year later, it was in
the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express
warranties, as follows:
3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and
Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company
has pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at
Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject
to fulfillment prior to or at the Closing, of the following
conditions:
4.1. The representations and warranties by the SELLERS
contained in this Agreement shall be true and correct at the
time of Closing as though such representations and
warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the
BUYER that at the time of the execution of this Agreement and
at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to
the knowledge of the SELLERS, threatened against or affecting
the SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required
to be submitted at Closing in accordance with Par. 3.1.5 above,
the SELLER jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on
the day of Closing, the Company shall own the Remaining
Property, free from all liens and encumbrances and that the
Company shall have no obligation to any party except for
billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for
which BUYER shall be responsible in accordance with Par.
2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the
Audited Financial Statements of the Company as of
Closing, and those disclosed to BUYER, the Company as of
the date thereof, has no liabilities of any nature whether
accrued, absolute, contingent or otherwise, including,
without limitation, tax liabilities due or to become due and
whether incurred in respect of or measured in respect of the
Companys income prior to Closing or arising out of transactions
or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to
know of any basis for any assertion against the Company
as at closing or any liability of any nature and in any
amount not fully reflected or reserved against such Audited
Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing
on or before the Closing, the Company is not engaged in or
a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings
before any court or administrative body, nor do the
SELLERS know or have reasonable grounds to know of any
basis for any such action or proceeding or of any governmental
investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach
exists in the due performance and observance by the
Company of any term, covenant or condition of any
instrument or agreement to which the company is a party or
by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default
or breach.
After the execution of the MOA, Ayala caused the suspension of
work on Village 1 of the Don Vicente Project. Ayala then
received a letter from one Maximo Del Rosario of Lancer
General Builder Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as the subcontractor of
G.P. Construction...
G.P. Construction not being able to reach an amicable
settlement with Lancer, on March 22, 1982, Lancer sued G.P.
Construction, Conduit and Ayala in the then Court of First
Instance of Manila in Civil Case No. 82-8598. G.P. Construction
in turn filed a cross-claim against Ayala. G.P. Construction and
Lancer both tried to enjoin Ayala from undertaking the
development of the property. The suit was terminated only on
February 19, 1987, when it was dismissed with prejudice after
Ayala paid both Lancer and GP Construction the total of
P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots
adjacent to the Retained Area within 3 years from the date of
the MOA, the Vasquez spouses sent several reminder letters of
the approaching so-called deadline. However, no demand after
April 23, 1984, was ever made by the Vasquez spouses for
Ayala to sell the 4 lots. On the contrary, one of the letters signed
by their authorized agent, Engr. Eduardo Turla, categorically
stated that they expected development of Phase 1 to be
completed by February 19, 1990, three years from the
settlement of the legal problems with the previous contractor.
By early 1990 Ayala finished the development of the vicinity of
the 4 lots to be offered for sale. The four lots were then offered
to be sold to the Vasquez spouses at the prevailing price in
1990. This was rejected by the Vasquez spouses who wanted to
pay at 1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive
portion of which states:
THEREFORE, judgment is hereby rendered in favor of plaintiffs
and against defendant, ordering defendant to sell to plaintiffs the
relevant lots described in the Complaint in the Ayala Alabang
Village at the price of P460.00 per square meter amounting
to P1,349,540.00; ordering defendant to reimburse to plaintiffs
attorneys fees in the sum of P200,000.00 and to pay the cost of
the suit.
In its decision, the court a quo concluded that the Vasquez
spouses were not obligated to disclose the potential claims of
GP Construction, Lancer and Del Rosario; Ayalas accountants
should have opened the records of Conduit to find out all claims;
the warranty against suit is with respect to the shares of the
Property and the Lancer suit does not affect the shares of stock
sold to Ayala; Ayala was obligated to develop within 3 years; to
say that Ayala was under no obligation to follow a time frame
was to put the Vasquezes at Ayalas mercy; Ayala did not
develop because of a slump in the real estate market; the MOA
was drafted and prepared by the AYALA who should suffer its
ambiguities; the option to purchase the 4 lots is valid because it
was supported by consideration as the option is incorporated in
the MOA where the parties had prestations to each other.
[Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial
court erred in holding that petitioners did not breach their
warranties under the MOA[6] dated April 23, 1981; that it was
obliged to develop the land where the four (4) lots subject of the
option to purchase are located within three (3) years from the
date of the MOA; that it was in delay; and that the option to
purchase was valid because it was incorporated in the MOA and
the consideration therefor was the commitment by Ayala
Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed
the RTC Decision. According to the appellate court, Ayala
Corporation was never informed beforehand of the existence of
the Lancer claim. In fact, Ayala Corporation got a copy of the
Lancer subcontract only on May 29, 1981 from G.P.
Constructions lawyers. The Court of Appeals thus held that
petitioners violated their warranties under the MOA when they
failed to disclose Lancers claims. Hence, even conceding that
Ayala Corporation was obliged to develop and sell the four (4)
lots in question within three (3) years from the date of the MOA,
the obligation was suspended during the pendency of the case
filed by Lancer.
Interpreting the MOAs paragraph 5.7 above-quoted, the
appellate court held that Ayala Corporation committed to
develop the first phase of its own amended development plan
and not Conduits development plan. Nowhere does the MOA
provide that Ayala Corporation shall follow Conduits
development plan nor is Ayala Corporation prohibited from
changing the sequence of the phases of the property it will
develop.
Anent the question of delay, the Court of Appeals ruled
that there was no delay as petitioners never made a demand for
Ayala Corporation to sell the subject lots to them. According to
the appellate court, what petitioners sent were mere reminder
letters the last of which was dated prior to April 23, 1984 when
the obligation was not yet demandable. At any rate, the Court of
Appeals found that petitioners in fact waived the three (3)-year
period when they sent a letter through their agent, Engr.
Eduardo Turla, stating that they expect that the development of
Phase I will be completed by 19 February 1990, three years
from the settlement of the legal problems with the previous
contractor.[7]
The appellate court likewise ruled that paragraph 5.15
above-quoted is not an option contract but a right of first refusal
there being no separate consideration therefor. Since petitioners
refused Ayala Corporations offer to sell the subject lots at the
reduced 1990 price of P5,000.00 per square meter, they have
effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate
court erred in ruling that they violated their warranties under the
MOA; that Ayala Corporation was not obliged to develop the
Remaining Property within three (3) years from the execution of
the MOA; that Ayala was not in delay; and that paragraph 5.15
of the MOA is a mere right of first refusal. Additionally,
petitioners insist that the Court should review the factual findings
of the Court of Appeals as they are in conflict with those of the
trial court.
Ayala Corporation filed a Comment on the Petition[8] dated
March 26, 2002, contending that the petition raises questions of
fact and seeks a review of evidence which is within the domain
of the Court of Appeals. Ayala Corporation maintains that the
subcontract between GP Construction, with whom Conduit
contracted for the development of the property under a
Construction Contract dated October 10, 1980, and Lancer was
not disclosed by petitioners during the negotiations. Neither was
the liability for Lancers claim included in the Audited Financial
Statements submitted by petitioners after the signing of the
MOA. These justify the conclusion that petitioners breached
their warranties under the afore-quoted paragraphs of the MOA.
Since the Lancer suit ended only in February 1989, the three
(3)-year period within which Ayala Corporation committed to
develop the property should only be counted thence. Thus,
when it offered the subject lots to petitioners in 1990, Ayala
Corporation was not yet in delay.
In response to petitioners contention that there was no
action or proceeding against them at the time of the execution of
the MOA on April 23, 1981, Ayala Corporation avers that the
facts and circumstances which gave rise to the Lancer claim
were already extant then. Petitioners warranted that their
representations under the MOA shall be true and correct at the
time of Closing which shall take place within four (4) weeks from
the signing of the MOA.[9] Since the MOA was signed on April
23, 1981, Closing was approximately the third week of May
1981. Hence, Lancers claims, articulated in a letter which Ayala
Corporation received on May 4, 1981, are among the liabilities
warranted against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties
under the MOA are not just against suits but against all kinds of
liabilities not reflected in the Audited Financial Statements. It
cannot be faulted for relying on the express warranty that except
for billings payable to GP Construction and advances made by
petitioner Daniel Vazquez in the amount of P38,766.04, Conduit
has no other liabilities. Hence, petitioners cannot claim that
Ayala Corporation should have examined and investigated the
Audited Financial Statements of Conduit and should now
assume all its obligations and liabilities including the Lancer suit
and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a
commitment to complete the development of the first phase of
the property within three (3) years from the execution of the
MOA. The provision refers to a mere declaration of intent to
develop the first phase of its (Ayala Corporations) own
development plan and not Conduits. True to its intention, Ayala
Corporation did complete the development of the first phase
(Phase II-A) of its amended development plan within three (3)
years from the execution of the MOA. However, it is not obliged
to develop the third phase (Phase II-C) where the subject lots
are located within the same time frame because there is no
contractual stipulation in the MOA therefor. It is free to decide on
its own the period for the development of Phase II-C. If
petitioners wanted to impose the same three (3)-year timetable
upon the third phase of the amended development plan, they
should have filed a suit to fix the time table in accordance with
Article 1197[10] of the Civil Code. Having failed to do so, Ayala
Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was
made on it for the performance of its alleged obligation. The
letter dated October 4, 1983 sent when petitioners were already
aware of the Lancer suit did not demand the delivery of the
subject lots by April 23, 1984. Instead, it requested Ayala
Corporation to keep petitioners posted on the status of the case.
Likewise, the letter dated March 4, 1984 was merely an inquiry
as to the date when the development of Phase 1 will be
completed. More importantly, their letter dated June 27, 1988
through Engr. Eduardo Turla expressed petitioners expectation
that Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of
the MOA is a right of first refusal and not an option contract.
Petitioners filed their Reply[11] dated August 15, 2002
reiterating the arguments in their Petition and contending further
that they did not violate their warranties under the MOA because
the case was filed by Lancer only on April 1, 1982, eleven (11)
months and eight (8) days after the signing of the MOA on April
23, 1981. Ayala Corporation admitted that it received Lancers
claim before the Closing date. It therefore had all the time to
rescind the MOA. Not having done so, it can be concluded that
Ayala Corporation itself did not consider the matter a violation of
petitioners warranty.
Moreover, petitioners submitted the Audited Financial
Statements of Conduit and allowed an acquisition audit to be
conducted by Ayala Corporation. Thus, the latter bought Conduit
with open eyes.
Petitioners also maintain that they had no knowledge of
the impending case against Conduit at the time of the execution
of the MOA. Further, the MOA makes Ayala Corporation liable
for the payment of all billings of GP Construction. Since Lancers
claim was actually a claim against GP Construction being its
sub-contractor, it is Ayala Corporation and not petitioners which
is liable.
Likewise, petitioners aver that although Ayala Corporation
may change the sequence of its development plan, it is obliged
under the MOA to develop the entire area where the subject lots
are located in three (3) years.
They also assert that demand was made on Ayala
Corporation to comply with their obligation under the MOA.
Apart from their reminder letters dated January 24, February 18
and March 5, 1984, they also sent a letter dated March 4, 1984
which they claim is a categorical demand for Ayala Corporation
to comply with the provisions of the MOA.
The parties were required to submit their respective
memoranda in the Resolution[12] dated November 18, 2002. In
compliance with this directive, petitioners submitted
their Memorandum[13] dated February 14, 2003 on even date,
while Ayala Corporation filed its Memorandum[14] dated February
14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by
the instant petition.
It is well-settled that the jurisdiction of this Court in cases
brought to it from the Court of Appeals by way of petition for
review under Rule 45 is limited to reviewing or revising errors of
law imputed to it, its findings of fact being conclusive on this
Court as a matter of general principle. However, since in the
instant case there is a conflict between the factual findings of
the trial court and the appellate court, particularly as regards the
issues of breach of warranty, obligation to develop and
incurrence of delay, we have to consider the evidence on record
and resolve such factual issues as an exception to the general
rule.[15] In any event, the submitted issue relating to the
categorization of the right to purchase granted to petitioners
under the MOA is legal in character.
The next issue that presents itself is whether petitioners
breached their warranties under the MOA when they failed to
disclose the Lancer claim. The trial court declared they did not;
the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA
which petitioners allegedly breached when they failed to
disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone
except to GP Construction for P38,766.04, and for advances
made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial
statements Conduit had no other liabilities whether accrued,
absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against
Conduit of any liability of any value not reflected or reserved in
the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any legal
action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term,
condition, or covenant of any instrument or agreement to which
it is a party or by which it is bound.[16]
The Court is convinced that petitioners did not violate the
foregoing warranties.
The exchanges of communication between the parties
indicate that petitioners substantially apprised Ayala Corporation
of the Lancer claim or the possibility thereof during the period of
negotiations for the sale of Conduit.
In a letter[17] dated March 5, 1984, petitioner Daniel
Vazquez reminded Ayala Corporations Mr. Adolfo Duarte (Mr.
Duarte) that prior to the completion of the sale of Conduit, Ayala
Corporation asked for and was given information that GP
Construction sub-contracted, presumably to Lancer, a greater
percentage of the project than it was allowed. Petitioners gave
this information to Ayala Corporation because the latter
intimated a desire to break the contract of Conduit with GP.
Ayala Corporation did not deny this. In fact, Mr. Duartes
letter[18] dated March 6, 1984 indicates that Ayala Corporation
had knowledge of the Lancer subcontract prior to its acquisition
of Conduit. Ayala Corporation even admitted that it tried to
explorelegal basis to discontinue the contract of Conduit with
GP but found this not feasible when information surfaced about
the tacit consent of Conduit to the sub-contracts of GP with
Lancer.
At the latest, Ayala Corporation came to know of the
Lancer claim before the date of Closing of the MOA. Lancers
letter[19] dated April 30, 1981 informing Ayala Corporation of its
unsettled claim with GP Construction was received by Ayala
Corporation on May 4, 1981, well before the Closing[20] which
occurred four (4) weeks after the date of signing of the MOA on
April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted
hereunder likewise indicate that certain matters pertaining to the
liabilities of Conduit were disclosed by petitioners to Ayala
Corporation although the specifics thereof were no longer
included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on
the day of Closing, the Company shall own the Remaining
Property, free from all liens and encumbrances and that the
Company shall have no obligation to any party except for billings
payable to GP Construction & Development Corporation and
advances made by Daniel Vazquez for which BUYER shall be
responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the
Audited Financial Statements of the Company as of
Closing, and those disclosed to BUYER, the Company as of
the date hereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without limitation,
tax liabilities due or to become due and whether incurred in
respect of or measured in respect of the Companys income prior
to Closing or arising out of transactions or state of facts existing
prior thereto.
7.2 SELLERS do not know or have no reasonable ground to
know of any basis for any assertion against the Company as at
Closing of any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements
referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing
on or before the Closing, the Company is not engaged in or a
party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before
any court or administrative body, nor do the SELLERS know or
have reasonable grounds to know of any basis for any such
action or proceeding or of any governmental investigation
relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach
exists in the due performance and observance by the Company
of any term, covenant or condition of any instrument or
agreement to which the Company is a party or by which it is
bound, and no condition exists which, with notice or lapse of
time or both, will constitute such default or breach.[21] [Emphasis
supplied]
Hence, petitioners warranty that Conduit is not engaged
in, a party to, or threatened with any legal action or proceeding
is qualified by Ayala Corporations actual knowledge of the
Lancer claim which was disclosed to Ayala Corporation before
the Closing.
At any rate, Ayala Corporation bound itself to pay all
billings payable to GP Construction and the advances made by
petitioner Daniel Vazquez. Specifically, under paragraph 2 of the
MOA referred to in paragraph 7.1.1, Ayala Corporation
undertook responsibility for the payment of all billings of the
contractor GP Construction & Development Corporation after
the first billing and any payments made by the company and/or
SELLERS shall be reimbursed by BUYER on closing which
advances to date is P1,159,012.87.[22]
The billings knowingly assumed by Ayala Corporation
necessarily include the Lancer claim for which GP Construction
is liable. Proof of this is Ayala Corporations letter[23] to GP
Construction dated before Closing on May 4, 1981, informing
the latter of Ayala Corporations receipt of the Lancer claim
embodied in the letter dated April 30, 1981, acknowledging that
it is taking over the contractual responsibilities of Conduit, and
requesting copies of all sub-contracts affecting the Conduit
property. The pertinent excerpts of the letter read:
In this connection, we wish to inform you that this morning we
received a letter from Mr. Maximo D. Del Rosario, President of
Lancer General Builders Corporation apprising us of the
existence of subcontracts that they have with your corporation.
They have also furnished us with a copy of their letter to you
dated 30 April 1981.
Since we are taking over the contractual responsibilities of
Conduit Development, Inc., we believe that it is necessary, at
this point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with
Lancer General Builders Corporation, but all subcontracts with
other parties as well[24]
Quite tellingly, Ayala Corporation even attached to its Pre-
Trial Brief[25] dated July 9, 1992 a copy of the letter[26] dated May
28, 1981 of GP Constructions counsel addressed to Conduit
furnishing the latter with copies of all sub-contract agreements
entered into by GP Construction. Since it was addressed to
Conduit, it can be presumed that it was the latter which gave
Ayala Corporation a copy of the letter thereby disclosing to the
latter the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not
violate their warranties under the MOA. The Lancer sub-contract
and claim were substantially disclosed to Ayala Corporation
before the Closing date of the MOA. Ayala Corporation cannot
disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners,
Ayala Corporation did mention the filing of the Lancer suit as an
obstacle to its development of the property, it never actually
brought up nor sought redress for petitioners alleged breach of
warranty for failure to disclose the Lancer claim until it filed
its Answer[27] dated February 17, 1992.
We now come to the correct interpretation of paragraph
5.7 of the MOA. Does this paragraph express a commitment or
a mere intent on the part of Ayala Corporation to develop the
property within three (3) years from date thereof? Paragraph 5.7
provides:
5.7. The BUYER hereby commits that it will develop the
Remaining Property into a first class residential subdivision of
the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended
development plan within three (3) years from the date of this
Agreement.[28]
Notably, while the first phrase of the paragraph uses the
word commits in reference to the development of the Remaining
Property into a first class residential subdivision, the second
phrase uses the word intends in relation to the development of
the first phase of the property within three (3) years from the
date of the MOA. The variance in wording is significant. While
commit[29] connotes a pledge to do something, intend[30] merely
signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala
Corporations legal division who assisted in drafting the MOA,
testified:
COURT
You only ask what do you mean by that intent.
Just answer on that point.
ATTY. BLANCO
Dont talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used
to emphasize the tentative character of the
period of development because it will be noted
that the sentence refers to and I quote to
complete the first phase under its amended
development plan within three (3) years from
the date of this agreement, at the time of the
execution of this agreement, your Honor. That
amended development plan was not yet in
existence because the buyer had manifested
to the seller that the buyer could amend the
subdivision plan originally belonging to the
seller to conform with its own standard of
development and second, your Honor,
(interrupted)[31]
It is thus unmistakable that this paragraph merely
expresses an intention on Ayala Corporations part to complete
the first phase under its amended development plan within three
(3) years from the execution of the MOA. Indeed, this paragraph
is so plainly worded that to misunderstand its import is
deplorable.
More focal to the resolution of the instant case is
paragraph 5.7s clear reference to the first phase of Ayala
Corporations amended development plan as the subject of the
three (3)-year intended timeframe for development. Even
petitioner Daniel Vazquez admitted on cross-examination that
the paragraph refers not to Conduits but to Ayala Corporations
development plan which was yet to be formulated when the
MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum
of Agreement, it is stated as follows: The
Buyer hereby commits that to develop the
remaining property into a first class residential
subdivision of the same class as New Alabang
Subdivision, and that they intend to complete
the first phase under its amended
development plan within three years from the
date of this agreement.
Now, my question to you, Dr. Vasquez is that
there is no dispute that the amended
development plan here is the amended
development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit D-5 which is the
original plan of Conduit?
A: No, it is not.
Q: This Exhibit D-5 was the plan that was being
followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination
as of the date of the agreement, this amended
development plan was still to be formulated by
Ayala?
A: Yes, sir.[32]
As correctly held by the appellate court, this admission is
crucial because while the subject lots to be sold to petitioners
were in the first phase of the Conduit development plan, they
were in the third or last phase of the Ayala Corporation
development plan. Hence, even assuming that paragraph 5.7
expresses a commitment on the part of Ayala Corporation to
develop the first phase of its amended development plan within
three (3) years from the execution of the MOA, there was no
parallel commitment made as to the timeframe for the
development of the third phase where the subject lots are
located.
Lest it be forgotten, the point of this petition is the alleged
failure of Ayala Corporation to offer the subject lots for sale to
petitioners within three (3) years from the execution of the MOA.
It is not that Ayala Corporation committed or intended to develop
the first phase of its amended development plan within three (3)
years. Whether it did or did not is actually beside the point since
the subject lots are not located in the first phase anyway.
We now come to the issue of default or delay in the
fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary
that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance
judicially or extrajudicially.[33]
Under Article 1193 of the Civil Code, obligations for whose
fulfillment a day certain has been fixed shall be demandable
only when that day comes. However, no such day certain was
fixed in the MOA. Petitioners, therefore, cannot demand
performance after the three (3) year period fixed by the MOA for
the development of the first phase of the property since this is
not the same period contemplated for the development of the
subject lots. Since the MOA does not specify a period for the
development of the subject lots, petitioners should have
petitioned the court to fix the period in accordance with Article
1197[34] of the Civil Code. As no such action was filed by
petitioners, their complaint for specific performance was
premature, the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be said to have
delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on
Ayala Corporation to develop the subject lots within three (3)
years from date thereof, Ayala Corporation could still not be held
to have been in delay since no demand was made by petitioners
for the performance of its obligation.
As found by the appellate court, petitioners letters which
dealt with the three (3)-year timetable were all dated prior to
April 23, 1984, the date when the period was supposed to
expire. In other words, the letters were sent before the obligation
could become legally demandable. Moreover, the letters were
mere reminders and not categorical demands to perform. More
importantly, petitioners waived the three (3)-year period as
evidenced by their agent, Engr. Eduardo Turlas letter to the
effect that petitioners agreed that the three (3)-year period
should be counted from the termination of the case filed by
Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23,
1981, it was undertaken by your goodselves to complete the
development of Phase I within three (3) years. Dr. & Mrs.
Vazquez were made to understand that you were unable to
accomplish this because of legal problems with the previous
contractor. These legal problems were resolved as of February
19, 1987, and Dr. & Mrs. Vazquez therefore expect that the
development of Phase I will be completed by February 19, 1990,
three years from the settlement of the legal problems with the
previous contractor. The reason for this is, as you know, that
security-wise, Dr. & Mrs. Vazquez have been advised not to
construct their residence till the surrounding area (which is
Phase I) is developed and occupied. They have been anxious to
build their residence for quite some time now, and would like to
receive assurance from your goodselves regarding this, in
compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention
of Dr. & Mrs. Vazquez to exercise their option to purchase the
two lots on each side (a total of 4 lots) adjacent to their Retained
Area. They are concerned that although over a year has
elapsed since the settlement of the legal problems, you have not
presented them with the size, configuration, etc. of these lots.
They would appreciate being provided with these at your earliest
convenience.[35]
Manifestly, this letter expresses not only petitioners
acknowledgement that the delay in the development of Phase I
was due to the legal problems with GP Construction, but also
their acquiescence to the completion of the development of
Phase I at the much later date of February 19, 1990. More
importantly, by no stretch of semantic interpretation can it be
construed as a categorical demand on Ayala Corporation to
offer the subject lots for sale to petitioners as the letter merely
articulates petitioners desire to exercise their option to purchase
the subject lots and concern over the fact that they have not
been provided with the specifications of these lots.
The letters of petitioners children, Juan Miguel and
Victoria Vazquez, dated January 23, 1984[36] and February 18,
1984[37] can also not be considered categorical demands on
Ayala Corporation to develop the first phase of the property
within the three (3)-year period much less to offer the subject
lots for sale to petitioners. The letter dated January 23, 1984
reads in part:
You will understand our interest in the completion of the roads to
our property, since we cannot develop it till you have
constructed the same. Allow us to remind you of our
Memorandum of Agreement, as per which you committed to
develop the roads to our property as per the original plans of the
company, and that
1. The back portion should have been developed before the
front portion which has not been the case.
2. The whole project front and back portions be completed by
1984.[38]
The letter dated February 18, 1984 is similarly worded. It
states:
In this regard, we would like to remind you of Articles 5.7 and
5.9 of our Memorandum of Agreement which states
respectively:[39]
Even petitioner Daniel Vazquez letter[40] dated March 5,
1984 does not make out a categorical demand for Ayala
Corporation to offer the subject lots for sale on or before April
23, 1984. The letter reads in part:
and that we expect from your goodselves compliance with our
Memorandum of Agreement, and a definite date as to when the
road to our property and the development of Phase I will be
completed.[41]
At best, petitioners letters can only be construed as mere
reminders which cannot be considered demands for
performance because it must appear that the tolerance or
benevolence of the creditor must have ended.[42]
The petition finally asks us to determine whether
paragraph 5.15 of the MOA can properly be construed as an
option contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to
purchase four developed lots next to the Retained Area at the
prevailing market price at the time of the purchase.[43]
The Court has clearly distinguished between an option
contract and a right of first refusal. An option is a preparatory
contract in which one party grants to another, for a fixed period
and at a determined price, the privilege to buy or sell, or to
decide whether or not to enter into a principal contract. It binds
the party who has given the option not to enter into the principal
contract with any other person during the period designated,
and within that period, to enter into such contract with the one to
whom the option was granted, if the latter should decide to use
the option. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option.
It must be supported by consideration.[44]
In a right of first refusal, on the other hand, while the
object might be made determinate, the exercise of the right
would be dependent not only on the grantors eventual intention
to enter into a binding juridical relation with another but also on
terms, including the price, that are yet to be firmed up.[45]
Applied to the instant case, paragraph 5.15 is obviously a
mere right of first refusal and not an option contract. Although
the paragraph has a definite object, i.e., the sale of subject lots,
the period within which they will be offered for sale to petitioners
and, necessarily, the price for which the subject lots will be sold
are not specified. The phrase at the prevailing market price at
the time of the purchase connotes that there is no definite period
within which Ayala Corporation is bound to reserve the subject
lots for petitioners to exercise their privilege to purchase. Neither
is there a fixed or determinable price at which the subject lots
will be offered for sale. The price is considered certain if it may
be determined with reference to another thing certain or if the
determination thereof is left to the judgment of a specified
person or persons.[46]
Further, paragraph 5.15 was inserted into the MOA to give
petitioners the first crack to buy the subject lots at the price
which Ayala Corporation would be willing to accept when it
offers the subject lots for sale. It is not supported by an
independent consideration. As such it is not governed by
Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid
or promised.
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
Consequently, the offer may be withdrawn anytime by
communicating the withdrawal to the other party.[47]
In this case, Ayala Corporation offered the subject lots for
sale to petitioners at the price of P6,500.00/square meter, the
prevailing market price for the property when the offer was made
on June 18, 1990.[48]Insisting on paying for the lots at the
prevailing market price in 1984 of P460.00/square meter,
petitioners rejected the offer. Ayala Corporation reduced the
price to P5,000.00/square meter but again, petitioners rejected
the offer and instead made a counter-offer in the amount
of P2,000.00/square meter.[49] Ayala Corporation rejected
petitioners counter-offer. With this rejection, petitioners lost their
right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation
breached petitioners right of first refusal and should be
compelled by an action for specific performance to sell the
subject lots to petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No
pronouncement as to costs.SO ORDERED.
 [G.R. No. 140182. April 12, 2005]
TANAY RECREATION CENTER AND DEVELOPMENT
CORP., petitioner, vs. CATALINA MATIENZO
FAUSTO+ and ANUNCIACION FAUSTO
PACUNAYEN, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Petitioner Tanay Recreation Center and Development
Corp. (TRCDC) is the lessee of a 3,090-square meter property
located in Sitio Gayas, Tanay, Rizal, owned by Catalina
Matienzo Fausto,[1] under a Contract of Lease executed on
August 1, 1971. On this property stands the Tanay Coliseum
Cockpit operated by petitioner. The lease contract provided for a
20-year term, subject to renewal within sixty days prior to its
expiration. The contract also provided that should Fausto decide
to sell the property, petitioner shall have the priority right to
purchase the same.[2]
On June 17, 1991, petitioner wrote Fausto informing her of
its intention to renew the lease.[3] However, it was Faustos
daughter, respondent Anunciacion F. Pacunayen, who replied,
asking that petitioner remove the improvements built thereon, as
she is now the absolute owner of the property.[4] It appears that
Fausto had earlier sold the property to Pacunayen on August 8,
1990, for the sum of P10,000.00 under a Kasulatan ng Bilihan
Patuluyan ng Lupa,[5] and title has already been transferred in
her name under Transfer Certificate of Title (TCT) No. M-
35468.[6]
Despite efforts, the matter was not resolved. Hence, on
September 4, 1991, petitioner filed an Amended Complaint for
Annulment of Deed of Sale, Specific Performance with
Damages, and Injunction, docketed as Civil Case No. 372-M.[7]
In her Answer, respondent claimed that petitioner is
estopped from assailing the validity of the deed of sale as the
latter acknowledged her ownership when it merely asked for a
renewal of the lease. According to respondent, when they met to
discuss the matter, petitioner did not demand for the exercise of
its option to purchase the property, and it even asked for grace
period to vacate the premises.[8]
After trial on the merits, the Regional Trial Court of
Morong, Rizal (Branch 78), rendered judgment extending the
period of the lease for another seven years from August 1, 1991
at a monthly rental of P10,000.00, and dismissed petitioners
claim for damages.[9]
On appeal, docketed as CA-G.R. CV No. 43770, the Court
of Appeals (CA) affirmed with modifications the trial courts
judgment per its Decision dated June 14, 1999.[10] The
dispositive portion of the decision reads:
WHEREFORE, the appealed decision is AFFIRMED AND
ACCORDINGLY MODIFIED AS DISCUSSED.
Furthermore, we resolved:
1.0. That TRCDC VACATE the leased premises immediately;
2.0. To GRANT the motion of Pacunayen to allow her to
withdraw the amount of P320,000.00, deposited according to
records, with this court.
3.0. To order TRCDC to MAKE THE NECESSARY
ACCOUNTING regarding the amounts it had already deposited
(for unpaid rentals for the extended period of seven [7] years of
the contract of lease). In case it had not yet completed its
deposit, to immediately pay the remaining balance to
Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00 as
monthly rental, with regard to its continued stay in the leased
premises even after the expiration of the extended period of
seven (7) years, computed from August 1, 1998, until it finally
vacates therefrom.
SO ORDERED.[11]
In arriving at the assailed decision, the CA acknowledged
the priority right of TRCDC to purchase the property in question.
However, the CA interpreted such right to mean that it shall be
applicable only in case the property is sold to strangers and not
to Faustos relative. The CA stated that (T)o interpret it otherwise
as to comprehend all sales including those made to relatives
and to the compulsory heirs of the seller at that would be an
absurdity, and her (Faustos) only motive for such transfer was
precisely one of preserving the property within her bloodline and
that someone administer the property.[12] The CA also ruled that
petitioner already acknowledged the transfer of ownership and
is deemed to have waived its right to purchase the
property.[13] The CA even further went on to rule that even if the
sale is annulled, petitioner could not achieve anything because
the property will be eventually transferred to Pacunayen after
Faustos death.[14]
Petitioner filed a motion for reconsideration but it was
denied per Resolution dated September 14, 1999.[15]
Dissatisfied, petitioner elevated the case to this Court on
petition for review on certiorari, raising the following grounds:
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS REVERSIBLE ERROR IN HOLDING THAT THE
CONTRACTUAL STIPULATION GIVING PETITIONER THE
PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES
SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL
THE SAME TO STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS REVERSIBLE ERROR IN HOLDING THAT
PETITIONERS PRIORITY RIGHT TO PURCHASE THE
LEASED PREMISES IS INCONSEQUENTIAL. [16]
The principal bone of contention in this case refers to
petitioners priority right to purchase, also referred to as the right
of first refusal.
Petitioners right of first refusal in this case is expressly
provided for in the notarized Contract of Lease dated August 1,
1971, between Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased premises,
the LESSEE shall have the priority right to purchase the
same;[17]
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.[18] Petitioners 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 lease includes the
consideration for the right of first refusal[19] and is built into the
reciprocal obligations of the parties.
It was erroneous for the CA to rule that the right of first
refusal does not apply when the property is sold to Faustos
relative.[20] When the terms of an agreement have been reduced
to writing, it is considered as containing all the terms agreed
upon. As such, there can be, between the parties and their
successors in interest, no evidence of such terms other than the
contents of the written agreement, except when it fails to
express the true intent and agreement of the parties.[21] In this
case, the wording of the stipulation giving petitioner the right of
first refusal is plain and unambiguous, and leaves no room for
interpretation. It simply means that should Fausto decide to sell
the leased property during the term of the lease, such sale
should first be offered to petitioner. The stipulation does not
provide for the qualification that such right may be exercised
only when the sale is made to strangers or persons other than
Faustos kin. Thus, under the terms of petitioners right of first
refusal, Fausto has the legal duty to petitioner not to sell the
property to anybody, even her relatives, at any price until after
she has made an offer to sell to petitioner at a certain price and
said offer was rejected by petitioner. Pursuant to their contract, it
was essential that Fausto should have first offered the property
to petitioner before she sold it to respondent. It was only after
petitioner failed to exercise its right of first priority could Fausto
then lawfully sell the property to respondent.
The rule is that a sale made in violation of a right of first
refusal is valid. However, it may be rescinded, or, as in this
case, may be the subject of an action for specific
performance.[22] In Riviera Filipina, Inc. vs. Court of
Appeals,[23] the Court discussed the concept and interpretation
of the right of first refusal and the consequences of a breach
thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v.
Bonnevie where the Court held that a lease with a proviso
granting the lessee the right of first priority all things and
conditions being equal meant that there should be identity of the
terms and conditions to be offered to the lessee and all other
prospective buyers, with the lessee to enjoy the right of first
priority. A deed of sale executed in favor of a third party who
cannot be deemed a purchaser in good faith, and which is in
violation of a right of first refusal granted to the lessee is not
voidable under the Statute of Frauds but rescissible under
Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v.
Court of Appeals, the Court en banc departed from the doctrine
laid down in Guzman, Bocaling & Co. v. Bonnevie and
refused to rescind a contract of sale which violated the right of
first refusal. The Court held that the so-called right of first refusal
cannot be deemed a perfected contract of sale under Article
1458 of the New Civil Code and, as such, a breach thereof
decreed under a final judgment does not entitle the aggrieved
party to a writ of execution of the judgment but to an action for
damages in a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc., the Court en banc reverted back to the
doctrine in Guzman Bocaling & Co. v. Bonnevie stating that
rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible
and preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v.
Court of Appeals, the Court affirmed the nature of and the
concomitant rights and obligations of parties under a right of first
refusal. The Court, summarizing the rulings in Guzman,
Bocaling & Co. v. Bonnevie and Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc., held that in order
to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties
for the price for which they were finally sold to a third person
should have likewise been first offered to the former. Further,
there should be identity of terms and conditions to be offered to
the buyer holding a right of first refusal if such right is not to be
rendered illusory. Lastly, the basis of the right of first refusal
must be the current offer to sell of the seller or offer to purchase
of any prospective buyer.
The prevailing doctrine therefore, is that a right of first
refusal means identity of terms and conditions to be offered to
the lessee and all other prospective buyers and a contract of
sale entered into in violation of a right of first refusal of another
person, while valid, is rescissible.[24]
It was also incorrect for the CA to rule that it would be
useless to annul the sale between Fausto and respondent
because the property would still remain with respondent after
the death of her mother by virtue of succession, as in fact,
Fausto died in March 1996, and the property now belongs to
respondent, being Faustos heir.[25]
For one, Fausto was bound by the terms and conditions of
the lease contract. Under the right of first refusal clause, she
was obligated to offer the property first to petitioner before
selling it to anybody else. When she sold the property to
respondent without offering it to petitioner, the sale while valid is
rescissible so that petitioner may exercise its option under the
contract.
With the death of Fausto, whatever rights and obligations
she had over the property, including her obligation under the
lease contract, were transmitted to her heirs by way of
succession, a mode of acquiring the property, rights and
obligation of the decedent to the extent of the value of the
inheritance of the heirs. Article 1311 of the Civil Code provides:
ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the
decedent.
A lease contract is not essentially personal in
character.[26] Thus, the rights and obligations therein are
transmissible to the heirs. The general rule is that heirs are
bound by contracts entered into by their predecessors-in-
interest except when the rights and obligations arising therefrom
are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law.[27]
In this case, the nature of the rights and obligations are,
by their nature, transmissible. There is also neither contractual
stipulation nor provision of law that makes the rights and
obligations under the lease contract intransmissible. The lease
contract between petitioner and Fausto is a property right, which
is a right that passed on to respondent and the other heirs, if
any, upon the death of Fausto.
In DKC Holdings Corporation vs. Court of Appeals,[28] the
Court held that the Contract of Lease with Option to Buy entered
into by the late Encarnacion Bartolome with DKC Holdings
Corporation was binding upon her sole heir, Victor, even after
her demise and it subsists even after her death. The Court ruled
that:
. . . Indeed, being an heir of Encarnacion, there is privity of
interest between him and his deceased mother. He only
succeeds to what rights his mother had and what is valid
and binding against her is also valid and binding as against
him. This is clear from Paraaque Kings Enterprises vs. Court of
Appeals, where this Court rejected a similar defense-
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. 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.[29] (Emphasis supplied)
Likewise in this case, the contract of lease, with all its
concomitant provisions, continues even after Faustos death and
her heirs merely stepped into her shoes.[30] Respondent, as an
heir of Fausto, is therefore bound to fulfill all its terms and
conditions.
There is no personal act required from Fausto such that
respondent cannot perform it. Faustos obligation to deliver
possession of the property to petitioner upon the exercise by the
latter of its right of first refusal may be performed by respondent
and the other heirs, if any. Similarly, nonperformance is not
excused by the death of the party when the other party has a
property interest in the subject matter of the contract.[31]
The CA likewise found that petitioner acknowledged the
legitimacy of the sale to respondent and it is now barred from
exercising its right of first refusal. According to the appellate
court:
Second, when TRCDC, in a letter to Fausto, signified its
intention to renew the lease contract, it was Pacunayen who
answered the letter on June 19, 1991. In that letter Pacunayen
demanded that TRCDC vacate the leased premises within sixty
(60) days and informed it of her ownership of the leased
premises. The pertinent portion of the letter reads:
Furtherly, please be advised that the land is no longer under the
absolute ownership of my mother and the undersigned is now
the real and absolute owner of the land.
Instead of raising a howl over the contents of the letter, as would
be its expected and natural reaction under the circumstances,
TRCDC surprisingly kept silent about the whole thing. As we
mentioned in the factual antecedents of this case, it even invited
Pacunayen to its special board meeting particularly to discuss
with her the renewal of the lease contract. Again, during that
meeting, TRCDC did not mention anything that could be
construed as challenging Pacunayens ownership of the leased
premises. Neither did TRCDC assert its priority right to purchase
the same against Pacunayen.[32]
The essential elements of estoppel are: (1) conduct of a
party amounting to false representation or concealment of
material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2) intent, or at
least expectation, that this conduct shall be acted upon by, or at
least influence, the other party; and (3) knowledge, actual or
constructive, of the real facts.[33]
The records are bereft of any proposition that petitioner
waived its right of first refusal under the contract such that it is
now estopped from exercising the same. In a letter dated June
17, 1991, petitioner wrote to Fausto asking for a renewal of the
term of lease.[34] Petitioner cannot be faulted for merely seeking
a renewal of the lease contract because obviously, it was
working on the assumption that title to the property is still in
Faustos name and the latter has the sole authority to decide on
the fate of the property. Instead, it was respondent who replied,
advising petitioner to remove all the improvements on the
property, as the lease is to expire on the 1st of August 1991.
Respondent also informed petitioner that her mother has
already sold the property to her.[35] In order to resolve the
matter, a meeting was called among petitioners stockholders,
including respondent, on July 27, 1991, where petitioner, again,
proposed that the lease be renewed. Respondent, however,
declined. While petitioner may have sought the renewal of the
lease, it cannot be construed as a relinquishment of its right of
first refusal. Estoppel must be intentional and unequivocal.[36]
Also, in the excerpts from the minutes of the special
meeting, it was further stated that the possibility of a sale was
likewise considered.[37] But respondent also refused to sell the
land, while the improvements, if for sale shall be subject for
appraisal.[38] After respondent refused to sell the land, it was
then that petitioner filed the complaint for annulment of sale,
specific performance and damages.[39] Petitioners acts of
seeking all possible avenues for the amenable resolution of the
conflict do not amount to an intentional and unequivocal
abandonment of its right of first refusal.
Respondent was well aware of petitioners right to priority
of sale, and that the sale made to her by her mother was merely
for her to be able to take charge of the latters affairs. As
admitted by respondent in her Appellees Brief filed before the
CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to meeting with
the officers of the corporation. . . . In the same meeting,
Pacunayens attention was called to the provision of the
Contract of Lease had by her mother with TRCDC,
particularly paragraph 7 thereof, which states:
7. That should the lessor decide to sell the leased premises, the
LESSEE shall have the priority right to purchase the same.
Of course, in the meeting she had with the officers of TRCDC,
Pacunayen explained that the sale made in her favor by her
mother was just a formality so that she may have the proper
representation with TRCDC in the absence of her parents, more
so that her father had already passed away, and there was no
malice in her mine (sic) and that of her mother, or any intention
on their part to deceive TRCDC. All these notwithstanding, and
for her to show their good faith in dealing with TRCDC,
Pacunayen started the ground work to reconvey ownership over
the whole land, now covered by Transfer Certificare (sic) of Title
No. M-259, to and in the name of her mother (Fausto), but the
latter was becoming sickly, old and weak, and they found no
time to do it as early as they wanted to.[40] (Emphasis supplied)
Given the foregoing, the Kasulatan ng Bilihan Patuluyan
ng Lupa dated August 8, 1990 between Fausto and respondent
must be rescinded. Considering, however, that Fausto
already died on March 16, 1996, during the pendency of this
case with the CA, her heirs should have been substituted as
respondents in this case. Considering further that the Court
cannot declare respondent Pacunayen as the sole heir, as it is
not the proper forum for that purpose, the right of petitioner may
only be enforced against the heirs of the deceased Catalina
Matienzo Fausto, represented by respondent Pacunayen.
In Paraaque Kings Enterprises, Inc. vs. Court of
Appeals,[41] it was ruled that 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. It is 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. The circumstances of this case,
however, dictate the application of a different ruling. An offer of
the property to petitioner under identical terms and conditions of
the offer previously given to respondent Pacunayen would be
inequitable. The subject property was sold in 1990 to
respondent Pacunayen for a measly sum of P10,000.00.
Obviously, the value is in a small amount because the sale was
between a mother and daughter. As admitted by said
respondent, the sale made in her favor by her mother was just a
formality so that she may have the proper representation with
TRCDC in the absence of her parents[42] Consequently, the offer
to be made to petitioner in this case should be under reasonable
terms and conditions, taking into account the fair market value
of the property at the time it was sold to respondent.
In its complaint, petitioner prayed for the cancellation of
TCT No. M-35468 in the name of respondent
Pacunayen,[43] which was issued by the Register of Deeds of
Morong on February 7, 1991.[44] Under ordinary circumstances,
this would be the logical effect of the rescission of the Kasulatan
ng Bilihan Patuluyan ng Lupa between the deceased Fausto
and respondent Pacunayen. However, the circumstances in this
case are not ordinary. The buyer of the subject property is the
sellers own daughter. If and when the title (TCT No. M-35468) in
respondent Pacunayens name is cancelled and reinstated in
Faustos name, and thereafter negotiations between petitioner
and respondent Pacunayen for the purchase of the subject
property break down, then the subject property will again revert
to respondent Pacunayen as she appears to be one of Faustos
heirs. This would certainly be a winding route to traverse. Sound
reason therefore dictates that title should remain in the name of
respondent Pacunayen, for and in behalf of the other heirs, if
any, to be cancelled only when petitioner successfully exercises
its right of first refusal and purchases the subject property.
Petitioner further seeks the award of the following
damages in its favor: (1) P100,000.00 as actual damages;
(2) P1,100,000.00 as compensation for lost goodwill or
reputation; (3) P100,000.00 as moral damages; (4) P100,000.00
as exemplary damages; (5) P50,000.00 as attorneys fees;
(6) P1,000.00 appearance fee per hearing; and (7) the costs of
suit.[45]
According to petitioner, respondents act in fencing the
property led to the closure of the Tanay Coliseum Cockpit and
petitioner was unable to conduct cockfights and generate
income of not less than P100,000.00 until the end of September
1991, aside from the expected rentals from the cockpit space
lessees in the amount of P11,000.00.[46]
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is
referred to as actual or compensatory damages. (Emphasis
supplied)
The rule is that actual or compensatory damages cannot
be presumed, but must be proved with reasonable degree of
certainty. A court cannot rely on speculations, conjectures, or
guesswork as to the fact and amount of damages, but must
depend upon competent proof that they have been suffered by
the injured party and on the best obtainable evidence of the
actual amount thereof. It must point out specific facts, which
could afford a basis for measuring whatever compensatory or
actual damages are borne.[47]
In the present case, there is no question that the Tanay
Coliseum Cockpit was closed for two months and TRCDC did
not gain any income during said period. But there is nothing on
record to substantiate petitioners claim that it was bound to lose
some P111,000.00 from such closure. TRCDCs president,
Ambrosio Sacramento, testified that they suffered income losses
with the closure of the cockpit from August 2, 1991 until it re-
opened on October 20, 1991.[48] Mr. Sacramento, however,
cannot state with certainty the amount of such unrealized
income.[49] Meanwhile, TRCDCs accountant, Merle Cruz, stated
that based on the corporations financial statement for the years
1990 and 1991,[50] they derived the amount of P120,000.00 as
annual income from rent.[51] From said financial statement, it is
safe to presume that TRCDC generated a monthly income
of P10,000.00 a month (P120,000.00 annual income divided by
12 months). At best therefore, whatever actual damages that
petitioner suffered from the cockpits closure for a period of two
months can be reasonably summed up only to P20,000.00.
Such award of damages shall earn interest at the legal
rate of six percent (6%) per annum, which shall be computed
from the time of the filing of the Complaint on August 22, 1991,
until the finality of this decision. After the present decision
becomes final and executory, the rate of interest shall increase
to twelve percent (12%) per annum from such finality until its
satisfaction, this interim period being deemed to be equivalent to
a forbearance of credit.[52] This is in accord with the guidelines
laid down by the Court in Eastern Shipping Lines, Inc. vs. Court
of Appeals,[53] regarding the manner of computing legal
interest, viz.:
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.[54]
Petitioner also claims the amount of P1,100,000.00 as
compensation for lost goodwill or reputation. It alleged that with
the unjust and wrongful conduct of the defendants as above-
described, plaintiff stands to lose its goodwill and reputation
established for the past 20 years.[55]
An award of damages for loss of goodwill or reputation
falls under actual or compensatory damages as provided in
Article 2205 of the Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of
temporary or permanent personal injury;
(2) For injury to the plaintiffs business standing or commercial
credit.
Even if it is not recoverable as compensatory damages, it
may still be awarded in the concept of temperate or moderate
damages.[56] In arriving at a reasonable level of temperate
damages to be awarded, trial courts are guided by the ruling
that:
. . . There are cases where from the nature of the case, definite
proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to
one's commercial credit or to the goodwill of a business firm is
often hard to show certainty in terms of money. Should
damages be denied for that reason? The judge should be
empowered to calculate moderate damages in such cases,
rather than that the plaintiff should suffer, without redress from
the defendant's wrongful act. (Araneta v. Bank of America, 40
SCRA 144, 145)[57]
In this case, aside from the nebulous allegation of
petitioner in its amended complaint, there is no evidence on
record, whether testimonial or documentary, to adequately
support such claim. Hence, it must be denied.
Petitioners claim for moral damages must likewise be
denied. The award of moral damages cannot be granted in favor
of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by
one having a nervous system.[58] Petitioner being a
corporation,[59] the claim for moral damages must be denied.
With regard to the claim for exemplary damages, it is a
requisite in the grant thereof that the act of the offender must be
accompanied by bad faith or done in wanton, fraudulent or
malevolent manner.[60]Moreover, where a party is not entitled to
actual or moral damages, an award of exemplary damages is
likewise baseless.[61] In this case, petitioner failed to show that
respondent acted in bad faith, or in wanton, fraudulent or
malevolent manner.
Petitioner likewise claims the amount of P50,000.00 as
attorneys fees, the sum of P1,000.00 for every appearance of its
counsel, plus costs of suit. It is well settled that no premium
should be placed on the right to litigate and not every winning
party is entitled to an automatic grant of attorney's fees. The
party must show that he falls under one of the instances
enumerated in Article 2208 of the Civil Code. In this case, since
petitioner was compelled to engage the services of a lawyer and
incurred expenses to protect its interest and right over the
subject property, the award of attorneys fees is proper. However
there are certain standards in fixing attorney's fees, to wit: (1)
the amount and the character of the services rendered; (2)
labor, time and trouble involved; (3) the nature and importance
of the litigation and business in which the services were
rendered; (4) the responsibility imposed; (5) the amount of
money and the value of the property affected by the controversy
or involved in the employment; (6) the skill and the experience
called for in the performance of the services; (7) the professional
character and the social standing of the attorney; and (8) the
results secured, it being a recognized rule that an attorney may
properly charge a much larger fee when it is contingent than
when it is not.[62] Considering the foregoing, the award
of P10,000.00 as attorneys fees, including the costs of suit, is
reasonable under the circumstances.
WHEREFORE, the instant Petition for Review is
PARTIALLY GRANTED. The Court of Appeals Decision dated
June 14, 1999 in CA-G.R. CV No. 43770 is MODIFIED as
follows:
(1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8,
1990 between Catalina Matienzo Fausto and respondent
Anunciacion Fausto Pacunayen is hereby deemed rescinded;
(2) The Heirs of the deceased Catalina Matienzo Fausto who
are hereby deemed substituted as respondents, represented by
respondent Anunciacion Fausto Pacunayen, are ORDERED to
recognize the obligation of Catalina Matienzo Fausto under the
Contract of Lease with respect to the priority right of petitioner
Tanay Recreation Center and Development Corp. to purchase
the subject property under reasonable terms and conditions;
(3) Transfer Certificate of Title No. M-35468 shall remain in the
name of respondent Anunciacion Fausto Pacunayen, which
shall be cancelled in the event petitioner successfully purchases
the subject property;
(4) Respondent is ORDERED to pay petitioner Tanay
Recreation Center and Development Corporation the amount of
Twenty Thousand Pesos (P20,000.00) as actual damages, plus
interest thereon at the legal rate of six percent (6%) per annum
from the filing of the Complaint until the finality of this Decision.
After this Decision becomes final and executory, the applicable
rate shall be twelve percent (12%) per annum until its
satisfaction; and,
(5) Respondent is ORDERED to pay petitioner the amount of
Ten Thousand Pesos (P10,000.00) as attorneys fees, and to
pay the costs of suit.
(6) Let the case be remanded to the Regional Trial Court,
Morong, Rizal (Branch 78) for further proceedings on the
determination of the reasonable terms and conditions of the
offer to sell by respondents to petitioner, without prejudice to
possible mediation between the parties.
The rest of the unaffected dispositive portion of the Court
of Appeals Decision is AFFIRMED.
SO ORDERED.
G.R. No. 168325 December 8, 2010
ROBERTO D. TUAZON, Petitioner,
vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R.
SUAREZ-DE LEON, WILFREDO DE LEON, MIGUEL LUIS S.
DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L.
SANDICO-SILVA, as attorney-in-fact of the defendants,
except Lourdes Q. Del Rosario-Suarez, Respondents.
DECISION
DEL CASTILLO, J.:
In a situation where the lessor makes an offer to sell to the
lessee a certain property at a fixed price within a certain period,
and the lessee fails to accept the offer or to purchase on time,
then the lessee loses his right to buy the property and the owner
can validly offer it to another.
This Petition for Review on Certiorari1 assails the
Decision2 dated May 30, 2005 of the Court of Appeals (CA) in
CA-G.R. CV No. 78870, which affirmed the Decision3 dated
November 18, 2002 of the Regional Trial Court (RTC), Branch
101, Quezon City in Civil Case No. Q-00-42338.
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the
owner of a parcel of land, containing more or less an area of
1,211 square meters located along Tandang Sora Street,
Barangay Old Balara, Quezon City and previously covered by
Transfer Certificate of Title (TCT) No. RT-561184 issued by the
Registry of Deeds of Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and
Lourdes executed a Contract of Lease5 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 letter6 dated
January 2, 1995 to Roberto where she offered to sell to the
latter subject parcel of land. She pegged the price at
₱37,541,000.00 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 ₱2,750,000.00 as evidenced by a Deed of Absolute
Sale7 executed by the parties. TCT No. 1779868 was then
issued by the Registry of Deeds of Quezon City in the name of
the De Leons.
The new owners through their attorney-in-fact, Guillerma S.
Silva, notified Roberto to vacate the premises. Roberto refused
hence, the De Leons filed a complaint for Unlawful Detainer
before the Metropolitan Trial Court (MeTC) of Quezon City
against him. On August 30, 2000, the MeTC rendered a
Decision9 ordering Roberto to vacate the property for non-
payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal,
Roberto filed with the RTC of Quezon City a Complaint10 for
Annulment of Deed of Absolute Sale, Reconveyance, Damages
and Application for Preliminary Injunction against Lourdes and
the De Leons. On November 13, 2000, Roberto filed a Notice
of Lis Pendens11 with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with
Counterclaim12 praying that the Complaint be dismissed for lack
of cause of action. They claimed that the filing of such case was
a mere leverage of Roberto against them because of the
favorable Decision issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order13 declaring
Lourdes and the De Leons in default for their failure to appear
before the court for the second time despite notice. Upon a
Motion for Reconsideration,14 the trial court in an Order15 dated
October 19, 2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the
Deed of Absolute Sale made by Lourdes in favor of the De
Leons as valid and binding. The offer made by Lourdes to
Roberto did not ripen into a contract to sell because the price
offered by the former was not acceptable to the latter. The offer
made by Lourdes is no longer binding and effective at the time
she decided to sell the subject lot to the De Leons because the
same was not accepted by Roberto. Thus, in a Decision dated
November 18, 2002, the trial court dismissed the complaint. Its
dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the above-entitled Complaint for lack of
merit, and ordering the Plaintiff to pay the Defendants, the
following:
1. the amount of ₱30,000.00 as moral damages;
2. the amount of ₱30,000.00 as exemplary damages;
3. the amount of ₱30,000.00 as attorney’s 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
Roberto’s 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 appellee’s brief?17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right to buy subject
property under
the principle of "right of first refusal" by not giving him "notice"
and the opportunity to buy the property under the same terms
and conditions or specifically based on the much lower price
paid by the De Leons.
Roberto further contends that he is enforcing his "right of first
refusal" based on Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc.18 which is the leading case on the "right of
first refusal."
Respondents’ Arguments
On the other hand, respondents posit that this case is not
covered by the principle of "right of first refusal" but an
unaccepted unilateral promise to sell or, at best, a contract of
option which was not perfected. The letter of Lourdes to Roberto
clearly embodies an option contract as it grants the latter only
two years to exercise the option to buy the subject property at a
price certain of ₱37,541,000.00. 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.
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 king’s 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 ₱37,541,000.00 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 ₱37,541,000.00. 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.
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.
Rigos21 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.
xxxx
Even if the promise was accepted, private respondent was
not bound thereby in the absence of a distinct
consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the
terms stated in the letter of Lourdes as he negotiated for a much
lower price. Roberto’s 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 acceptanceconstitutes a
counter-offer. (Emphasis supplied.)
The counter-offer of Roberto for a much lower price was not
accepted by Lourdes. There is therefore no contract that was
perfected between them with regard to the sale of subject
property. Roberto, thus, does not have any right to demand that
the property be sold to him at the price for which it was sold to
the De Leons neither does he have the right to demand that said
sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is
not applicable here
It is the position of Roberto that the facts of this case and that
of Equatorial are similar in nearly all aspects. Roberto is a
lessee of the property like Mayfair Theater in Equatorial. There
was an offer made to Roberto by Lourdes during the effectivity
of the contract of lease which was also the case in Equatorial.
There were negotiations as to the price which did not bear fruit
because Lourdes sold the property to the De Leons which was
also the case in Equatorial wherein Carmelo and Bauermann
sold the property to Equatorial. The existence of the lease of the
property is known to the De Leons as they are related to
Lourdes while in Equatorial, the lawyers of Equatorial studied
the lease contract of Mayfair over the property. The property in
this case was sold by Lourdes to the De Leons at a much lower
price which is also the case in Equatorial where Carmelo and
Bauerman sold to Equatorial at a lesser price. It is Roberto’s
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.
Roberto’s 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 Roberto’s 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 appellee’s
brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for
her failure to file her appellee’s brief before the CA.
Certainly, the appellee’s 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
appellee’s 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 appellee’s 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 appellee’s brief. Petitioner
was therefore properly deemed to have waived his right to
file appellee’s 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 Appellee’s Brief. The CA denied the
Motion to Dismiss. De Leon filed a Motion for Reconsideration
which actually did not suspend the period to file the appellee’s
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 appellee’s 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 Appellee’s
Brief. The CA has the jurisdiction to resolve the case based on
the Appellant’s 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.