G.R. No. 134971 March 25, 2004 of their separate agreements.

7 However, on August 8, 1996, the

defendants-tenants, through Joven Mariano, wrote the petitioner
HERMINIO TAYAG, petitioner, stating that they were not attending the meeting and instead
vs. gave notice of their collective decision to sell all their rights and
AMANCIA LACSON, ROSENDO LACSON, ANTONIO interests, as tenants/lessees, over the landholding to the
LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA respondents.8 Explaining their reasons for their collective
and THE COURT OF APPEALS, respondents. decision, they wrote as follows:

DECISION 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
CALLEJO, SR., J.:
pamamagitan ng demanda ninyo at pagbibigay ng problema sa
amin na hindi naman nagbenta ng lupa.
Before us is a petition for review on certiorari of the
Decision1 and the Resolution2 of respondent Court of Appeals in
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang
CA-G.R. SP No. 44883.
aming karapatan o ang aming lupang sinasaka sa landowner o
sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng
The Case for the Petitioner problema.

Respondents Angelica Tiotuyco Vda. de Lacson,3 and her Kaya kung ang sasabihin ninyong ito’y katangahan, lalo
children Amancia, Antonio, Juan, and Teodosia, all surnamed sigurong magiging katangahan kung ibebenta pa namin sa inyo
Lacson, were the registered owners of three parcels of land ang aming lupang sinasaka, kaya pasensya na lang Mister
located in Mabalacat, Pampanga, covered by Transfer Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.9
Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-
R, registered in the Register of Deeds of San Fernando,
On August 19, 1996, the petitioner filed a complaint with the
Pampanga. The properties, which were tenanted agricultural
Regional Trial Court of San Fernando, Pampanga, Branch 44,
lands,4 were administered by Renato Espinosa for the owner.
against the defendants-tenants, as well as the respondents, for
the court to fix a period within which to pay the agreed purchase
On March 17, 1996, a group of original farmers/tillers, namely, price of P50.00 per square meter to the defendants, as provided
Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido for in the Deeds of Assignment. The petitioner also prayed for a
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, writ of preliminary injunction against the defendants and the
Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, respondents therein.10 The case was docketed as Civil Case
Ruben Torres, Meliton Allanigue, Dominga Laxamana, No. 10910.
Felicencia de Leon, Emiliano Ramos, and another group,
namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
In his complaint, the petitioner alleged, inter alia, the following:
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun,
Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto 4. That defendants Julio Tiamson, Renato Gozun,
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores,
Alberto Hernandez, Orlando Flores, and Aurelio Norma Quiambao, Rosita Tolentino, Jose Sosa,
Flores,5 individually executed in favor of the petitioner separate Francisco Tolentino, Sr., Emiliano Laxamana, Ruben
Deeds of Assignment6 in which the assignees assigned to the Torres, Meliton Allanigue, Dominga Laxamana,
petitioner their respective rights as tenants/tillers of the Felicencia de Leon, Emiliano Ramos are original
landholdings possessed and tilled by them for and in farmers or direct tillers of landholdings over parcels of
consideration of P50.00 per square meter. The said amount was lands covered by Transfer Certificate of Title Nos.
made payable "when the legal impediments to the sale of the 35922-R, 35923-R and 35925-R which are registered
property to the petitioner no longer existed." The petitioner was in the names of defendants LACSONS; while
also granted the exclusive right to buy the property if and when defendants Felino G. Tolentino, Rica Gozun, Perla
the respondents, with the concurrence of the defendants- Gozun, Benigno Tolentino, Rodolfo Quiambao,
tenants, agreed to sell the property. In the interim, the petitioner Roman Laxamana, Eddie San Luis, Alfredo Gozun,
gave varied sums of money to the tenants as partial payments, Jose Tiamson, Augusto Tolentino, Sixto Hernandez,
and the latter issued receipts for the said amounts. Alex Quiambao, Isidro Tolentino, Ceferino de Leon,
Alberto Hernandez, and Aurelio Flores are sub-
tenants over the same parcel of land.
On July 24, 1996, the petitioner called a meeting of the
defendants-tenants to work out the implementation of the terms
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 TIAMSON, et al., after the lapse of legal impediment, if
to the plaintiff, as the latter has no speedy and any.
adequate remedy under the ordinary course of law, it
is essential that a Writ of Preliminary Injunction be 4. Making the Writ of Preliminary Injunction
issued enjoining and restraining the defendants permanent;
TIAMSON, et al., from rescinding their contracts with
the plaintiff and from selling/alienating their properties
5. Ordering the defendants to pay the plaintiff the sum
to the LACSONS or other persons;
of P500,000.00 as moral damages;

15. That the plaintiff is willing and able to put up a

6. Ordering the defendants to pay the plaintiff
reasonable bond to answer for the damages which the
attorney’s fees in the sum of P100,000.00 plus
defendants would suffer should the injunction prayed
litigation expenses of P50,000.00;
for and granted be found without basis.12
Plaintiff prays for such other relief as may be just and equitable
The petitioner prayed, that after the proceedings, judgment be
under the premises.13
rendered as follows:
In their answer to the complaint, the respondents as defendants
1. Pending the hearing, a Writ of Preliminary Injunction
asserted that (a) the defendant Angelica Vda. de Lacson had
be issued prohibiting, enjoining and restraining
died on April 24, 1993; (b) twelve of the defendants were
defendants Julio Tiamson, Renato Gozun, Rosita
tenants/lessees of respondents, but the tenancy status of the
Hernandez, Bienvenido Tongol, Alfonso Flores,
rest of the defendants was uncertain; (c) they never induced the
Norma Quiambao, Rosita Tolentino, Jose Sosa,
defendants Tiamson to violate their contracts with the petitioner;
Francisco Tolentino Sr., Emiliano Laxamana, Ruben
and, (d) being merely tenants-tillers, the defendants-tenants had
Torres, Meliton Allanigue, Dominga Laxamana,
no right to enter into any transactions involving their properties
Felicencia de Leon, Emiliano Ramos, Felino G.
without their knowledge and consent. They also averred that the
Tolentino, Rica Gozun, Perla Gozun, Benigno
transfers or assignments of leasehold rights made by the
Tolentino, Rodolfo Quiambao, Roman Laxamana,
defendants-tenants to the petitioner is contrary to Presidential
Eddie San Luis, Ricardo Hernandez, Nicenciana
Decree (P.D.) No. 27 and Republic Act No. 6657, the
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson,
Comprehensive Agrarian Reform Program (CARP).14 The
Augusto Tolentino, Ceferino de Leon, Alberto
respondents interposed counterclaims for damages against the
Hernandez, Orlando Flores, and Aurelio Flores from
petitioner as plaintiff.
rescinding their contracts with the plaintiff and from
alienating their rights and interest over the
aforementioned properties in favor of defendants The defendants-tenants Tiamson, et al., alleged in their answer
LACSONS or any other third persons; and prohibiting with counterclaim for damages, that the money each of them
the defendants LACSONS from received from the petitioner were in the form of loans, and that
encumbering/alienating TCT Nos. 35922-R, 35923-R they were deceived into signing the deeds of assignment:
and 35925-R of the Registry of Deeds of San
Fernando, Pampanga. a) That all the foregoing allegations in the Answer are
hereby repleaded and incorporated in so far as they
2. And pending the hearing of the Prayer for a Writ of are material and relevant herein;
Preliminary Injunction, it is prayed that a restraining
order be issued restraining the aforementioned b) That the defendants Tiamson, et al., in so far as the
defendants (TIAMSON, et al.) from rescinding their Deeds of Assignment are concern[ed] never knew that
contracts with the plaintiff and from alienating the what they did sign is a Deed of Assignment. What
subject properties to the defendants LACSONS or any they knew was that they were made to sign a
third persons; further, restraining and enjoining the document that will serve as a receipt for the loan
defendants LACSONS from encumbering/selling the granted [to] them by the plaintiff;
properties covered by TCT Nos. 35922-R, 35923-R,
and 35925-R of the Registry of Deeds of San c) That the Deeds of Assignment were signed through
Fernando, Pampanga. the employment of fraud, deceit and false pretenses of
plaintiff and made the defendants believe that what
3. Fixing the period within which plaintiff shall pay the they sign[ed] was a mere receipt for amounts received
balance of the purchase price to the defendants by way of loans;
 d) That the documents signed in blank were filled up and that they were not bound to adduce any evidence in
and completed after the defendants Tiamson, et al., opposition to the petitioner’s plea for a writ of preliminary
signed the documents and their completion and injunction.
accomplishment was done in the absence of said
defendants and, worst of all, defendants were not On February 13, 1997, the court issued an Order19 denying the
provided a copy thereof; motion of the respondents for being premature. It directed the
hearing to proceed for the respondents to adduce their
e) That as completed, the Deeds of Assignment evidence. The court ruled that the petitioner, on the basis of the
reflected that the defendants Tiamson, et al., did material allegations of the complaint, was entitled to injunctive
assign all their rights and interests in the properties or relief. It also held that before the court could resolve the
landholdings they were tilling in favor of the plaintiff. petitioner’s plea for injunctive relief, there was need for a
That if this is so, assuming arguendo that the hearing to enable the respondents and the defendants-tenants
documents were voluntarily executed, the defendants to adduce evidence to controvert that of the petitioner. The
Tiamson, et al., do not have any right to transfer their respondents filed a motion for reconsideration, which the court
interest in the landholdings they are tilling as they denied in its Order dated April 16, 1997. The trial court ruled that
have no right whatsoever in the landholdings, the on the face of the averments of the complaint, the pleadings of
landholdings belong to their co-defendants, Lacson, et the parties and the evidence adduced by the petitioner, the latter
al., and therefore, the contract is null and void; was entitled to injunctive relief unless the respondents and the
defendants-tenants adduced controverting evidence.
f) That while it is admitted that the defendants
Tiamson, et al., received sums of money from The respondents, the petitioners therein, filed a petition for
plaintiffs, the same were received as approved loans certiorari in the Court of Appeals for the nullification of the
granted by plaintiff to the defendants Tiamson, et al., February 13, 1997 and April 16, 1997 Orders of the trial court.
and not as part consideration of the alleged Deeds of The case was docketed as CA-G.R. SP No. 44883. The
Assignment; and by way of:…15 petitioners therein prayed in their petition that:

At the hearing of the petitioner’s plea for a writ of preliminary 1. An order be issued declaring the orders of
injunction, the respondents’ counsel failed to appear. In support respondent court dated February 13, 1997 and April
of his plea for a writ of preliminary injunction, the petitioner 16, 1997 as null and void;
adduced in evidence the Deeds of Assignment,16 the
receipts17 issued by the defendants-tenants for the amounts 2. An order be issued directing the respondent court to
they received from him; and the letter18 the petitioner received issue an order denying the application of respondent
from the defendants-tenants. The petitioner then rested his Herminio Tayag for the issuance of a Writ of
case. Preliminary Injunction and/or restraining order.

The respondents, thereafter, filed a Comment/Motion to 3. In the meantime, a Writ of Preliminary Injunction be
dismiss/deny the petitioner’s plea for injunctive relief on the issued against the respondent court, prohibiting it from
following grounds: (a) the Deeds of Assignment executed by the issuing its own writ of injunction against Petitioners,
defendants-tenants were contrary to public policy and P.D. No. and thereafter making said injunction to be issued by
27 and Rep. Act No. 6657; (b) the petitioner failed to prove that this Court permanent.
the respondents induced the defendants-tenants to renege on
their obligations under the "Deeds of Assignment;" (c) not being
Such other orders as may be deemed just & equitable under the
privy to the said deeds, the respondents are not bound by the
premises also prayed for.20
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 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
The petitioner opposed the motion, contending that it was
paragraph of Section 70 of Rep. Act No. 6657, and, as such,
premature for the trial court to resolve his plea for injunctive
could not be enforced by the petitioner for being null and void.
relief, before the respondents and the defendants-tenants
The respondents also claimed that the enforcement of the
adduced evidence in opposition thereto, to afford the petitioner a
deeds of assignment was subject to a supervening condition:
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 3. That this exclusive and absolute right given to the assignee
writ of preliminary injunction without any evidence on their part, shall be exercised only when no legal impediments exist to the
lot to effect the smooth transfer of lawful ownership of the A MERE ALLEGATION IN THE ANSWER OF THE TENANTS
lot/property in the name of the ASSIGNEE.21 COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY
CONCLUSION, AS THIS ALLEGATION, IS STILL THE
The respondents argued that until such condition took place, the SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24
petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioner’s plea in his II
complaint before the trial court, to fix a period within which to
pay the balance of the amounts due to the tenants under said THE COURT OF APPEALS CANNOT ENJOIN THE HEARING
deeds after the "lapse" of any legal impediment, assumed that OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME
the deeds were valid, when, in fact and in law, they were not. WHEN THE LOWER COURT (RTC) IS STILL RECEIVING
According to the respondents, they were not parties to the EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT
deeds of assignment; hence, they were not bound by the said THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED
deeds. The issuance of a writ of preliminary injunction would FOR BY TAYAG SHOULD BE GRANTED OR NOT.25
restrict and impede the exercise of their right to dispose of their
property, as provided for in Article 428 of the New Civil Code.
III
They asserted that the petitioner had no cause of action against
them and the defendants-tenants.
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE
On April 17, 1998, the Court of Appeals rendered its decision
TENANTS ARE NOT YET "AWARDEES OF THE LAND
against the petitioner, annulling and setting aside the assailed
REFORM.26
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: IV

However, even if private respondent is denied of the injunctive THE COURT OF APPEALS CANNOT CAUSE THE
relief he demands in the lower court still he could avail of other PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS
course of action in order to protect his interest such as the BELOW INCLUDING THE TRIAL ON THE MERITS OF THE
institution of a simple civil case of collection of money against CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY
TIAMSON, et al. THE PROPRIETY OF MAINTAINING THE STATUS QUO.27

For all the foregoing considerations, the orders dated 13 V

February 1997 and 16 April 1997 are hereby NULLIFIED and
ordered SET ASIDE for having been issued with grave abuse of THE COURT OF APPEALS CANNOT INCLUDE IN ITS
discretion amounting to lack or excess of jurisdiction. DECISION THE CASE OF THE OTHER 35 TENANTS WHO
Accordingly, public respondent is permanently enjoined from DO NOT QUESTION THE JURISDICTION OF THE LOWER
proceeding with the case designated as Civil Case No. 10901.22 COURT (RTC) OVER THE CASE AND WHO ARE IN FACT
STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE
The CA ruled that the respondents could not be enjoined from INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME
alienating or even encumbering their property, especially so TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE
since they were not privies to the deeds of assignment executed PETITIONER.28
by the defendants-tenants. The defendants-tenants were not yet
owners of the portions of the landholdings respectively tilled by VI
them; as such, they had nothing to assign to the petitioner.
Finally, the CA ruled that the deeds of assignment executed by THE LOWER COURT (RTC) HAS JURISDICTION OVER THE
the defendants-tenants were contrary to P.D. No. 27 and Rep. CASE FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER
Act No. 6657. ART. 1197 OF THE NEW CIVIL CODE AND FOR "DAMAGES"
AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME
On August 4, 1998, the CA issued a Resolution denying the CODE. THIS CASE CANNOT BE SUPPRESSED OR
petitioner’s motion for reconsideration.23 RENDERED NUGATORY UNCEREMONIOUSLY.29

Hence, the petitioner filed his petition for review on certiorari The petitioner faults the Court of Appeals for permanently
before this Court, contending as follows: enjoining the trial court from proceeding with Civil Case No.
10910. He opines that the same was too drastic, tantamount to
I a dismissal of the case. He argues that at that stage, it was
premature for the appellate court to determine the merits of the
case since no evidentiary hearing thereon was conducted by the respondents to adduce evidence in opposition to the petitioner’s
trial court. This, the Court of Appeals cannot do, since neither plea if the respondents opt to waive their right to adduce such
party moved for the dismissal of Civil Case No. 10910. The evidence. Thus, the trial court should have resolved the
petitioner points out that the Court of Appeals, in making its respondents’ motion even without the latter’s opposition and the
findings, went beyond the issue raised by the private presentation of evidence thereon.
respondents, namely, whether or not the trial court committed a
grave abuse of discretion amounting to excess or lack of The RTC Committed a Grave
jurisdiction when it denied the respondent’s motion for the Abuse of Discretion Amounting
denial/dismissal of the petitioner’s plea for a writ of preliminary to Excess or Lack of Jurisdiction
injunction. He, likewise, points out that the appellate court in Issuing its February 13, 1997
erroneously presumed that the leaseholders were not DAR and April 16, 1997 Orders
awardees and that the deeds of assignment were contrary to
law. He contends that leasehold tenants are not prohibited from
In its February 13, 1997 Order, the trial court ruled that the
conveying or waiving their leasehold rights in his favor. He
petitioner was entitled to a writ of preliminary injunction against
insists that there is nothing illegal with his contracts with the
the respondents on the basis of the material averments of the
leaseholders, since the same shall be effected only when there
complaint. In its April 16, 1997 Order, the trial court denied the
are no more "legal impediments."
respondents’ motion for reconsideration of the previous order,
on its finding that the petitioner was entitled to a writ of
At bottom, the petitioner contends that, at that stage, it was preliminary injunction based on the material allegations of his
premature for the appellate court to determine the merits of his complaint, the evidence on record, the pleadings of the parties,
case since no evidentiary hearing on the merits of his complaint as well as the applicable laws:
had yet been conducted by the trial court.
… For the record, the Court denied the LACSONS’
The Comment/Motion of the COMMENT/MOTION on the basis of the facts culled from the
Respondents to Dismiss/Deny evidence presented, the pleadings and the law applicable
Petitioner’s Plea for a Writ unswayed by the partisan or personal interests, public opinion or
of Preliminary Injunction fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30
Was Not Premature.
Section 3, Rule 58 of the Rules of Court, as amended,
Contrary to the ruling of the trial court, the motion of the enumerates the grounds for the issuance of a writ of preliminary
respondents to dismiss/deny the petitioner’s plea for a writ of injunction, thus:
preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case
(a) That the applicant is entitled to the relief
on the incident, was proper and timely. It bears stressing that
demanded, and the whole or part of such relief
the petitioner had the burden to prove his right to a writ of
consists in restraining the commission or continuance
preliminary injunction. He may rely solely on the material
of the act or acts complained of, or in requiring the
allegations of his complaint or adduce evidence in support
performance of an act or acts, either for a limited
thereof. The petitioner adduced his evidence to support his plea
period or perpetually;
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 (b) That the commission, continuance or non-
deny/dismiss the motion on the ground that the petitioner failed performance of the act or acts complained of during
to discharge his burden to prove the factual and legal basis for the litigation would probably work injustice to the
his plea for a writ of preliminary injunction and, if the trial court applicant; or
denies his motion, for them to adduce evidence in opposition to
the petitioner’s plea; (b) forgo their motion and adduce (c) That a party, court, agency or a person is doing,
testimonial and/or documentary evidence in opposition to the threatening, or is attempting to do, or is procuring or
petitioner’s plea for a writ of preliminary injunction; or, (c) waive suffering to be done, some act or acts probably in
their right to adduce evidence and submit the incident for violation of the rights of the applicant respecting the
consideration on the basis of the pleadings of the parties and subject of the action or proceeding, and tending to
the evidence of the petitioner. The respondents opted not to render the judgment ineffectual.
adduce any evidence, and instead filed a motion to deny or
dismiss the petitioner’s plea for a writ of preliminary injunction A preliminary injunction is an extraordinary event calculated to
against them, on their claim that the petitioner failed to prove his preserve or maintain the status quo of things ante litem and is
entitlement thereto. The trial court cannot compel the generally availed of to prevent actual or threatened acts, until
the merits of the case can be heard. Injunction is accepted as established by law, in accordance with Article 428 of the Civil
the strong arm of equity or a transcendent remedy.31 While Code. The right to dispose of the property is the power of the
generally the grant of a writ of preliminary injunction rests on the owner to sell, encumber, transfer, and even destroy the
sound discretion of the trial court taking cognizance of the case, property. Ownership also includes the right to recover the
extreme caution must be observed in the exercise of such possession of the property from any other person to whom the
discretion.32 Indeed, in Olalia v. Hizon,33 we held: owner has not transmitted such property, by the appropriate
action for restitution, with the fruits, and for indemnification for
It has been consistently held that there is no power the exercise damages.38 The right of ownership of the respondents is not, of
of which is more delicate, which requires greater caution, course, absolute. It is limited by those set forth by law, such as
deliberation and sound discretion, or more dangerous in a the agrarian reform laws. Under Article 1306 of the New Civil
doubtful case, than the issuance of an injunction. It is the strong Code, the respondents may enter into contracts covering their
arm of equity that should never be extended unless to cases of property with another under such terms and conditions as they
great injury, where courts of law cannot afford an adequate or may deem beneficial provided they are not contrary to law,
commensurate remedy in damages. morals, good conduct, public order or public policy.

Every court should remember that an injunction is a limitation The respondents cannot be enjoined from selling or
upon the freedom of action of the defendant and should not be encumbering their property simply and merely because they had
granted lightly or precipitately. It should be granted only when executed Deeds of Assignment in favor of the petitioner,
the court is fully satisfied that the law permits it and the obliging themselves to assign and transfer their rights or
emergency demands it.34 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 very foundation of the jurisdiction to issue writ of injunction
The respondents were not parties to the said deeds. There is no
rests in the existence of a cause of action and in the probability
evidence that the respondents agreed, expressly or impliedly, to
of irreparable injury, inadequacy of pecuniary compensation and
the said deeds or to the terms and conditions set forth therein.
the prevention of the multiplicity of suits. Where facts are not
Indeed, they assailed the validity of the said deeds on their
shown to bring the case within these conditions, the relief of
claim that the same were contrary to the letter and spirit of P.D.
injunction should be refused.35
No. 27 and Rep. Act No. 6657. The petitioner even admitted
when he testified that he did not know any of the respondents,
For the court to issue a writ of preliminary injunction, the and that he had not met any of them before he filed his
petitioner was burdened to establish the following: (1) a right in complaint in the RTC. He did not even know that one of those
esse or a clear and unmistakable right to be protected; (2) a whom he had impleaded as defendant, Angelica Vda. de
violation of that right; (3) that there is an urgent and permanent Lacson, was already dead.
act and urgent necessity for the writ to prevent serious
damage.36 Thus, in the absence of a clear legal right, the
Q: But you have not met any of these Lacsons?
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 A: Not yet, sir.
aimed at protecting substantial rights and interests. It is not
designed to protect contingent or future rights. The possibility of Q: Do you know that two (2) of the defendants are
irreparable damage without proof of adequate existing rights is residents of the United States?
not a ground for injunction.37
A: I do not know, sir.
We have reviewed the pleadings of the parties and found that,
as contended by the respondents, the petitioner failed to Q: You do not know also that Angela Tiotuvie (sic)
establish the essential requisites for the issuance of a writ of Vda. de Lacson had already been dead?
preliminary injunction. Hence, the trial court committed a grave
abuse of its discretion amounting to excess or lack of jurisdiction
A: I am aware of that, sir.39
in denying the respondents’ comment/motion as well as their
motion for reconsideration.
We are one with the Court of Appeals in its ruling that:
First. The trial court cannot enjoin the respondents, at the
instance of the petitioner, from selling, disposing of and We cannot see our way clear on how or why injunction should
encumbering their property. As the registered owners of the lie against petitioners. As owners of the lands being tilled by
property, the respondents have the right to enjoy and dispose of TIAMSON, et al., petitioners, under the law, have the right to
their property without any other limitations than those enjoy and dispose of the same. Thus, they have the right to
possess the lands, as well as the right to encumber or alienate Q : Did you make how (sic) to the effect that the
them. This principle of law notwithstanding, private respondent meaning of that phrase that you used the unlettered
in the lower court sought to restrain the petitioners from defendants?
encumbering and/or alienating the properties covered by TCT
No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of A : We have agreed to that, sir.
Deeds of San Fernando, Pampanga. This cannot be allowed to
prosper since it would constitute a limitation or restriction, not
ATTY. OCAMPO:
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 May I ask, Your Honor, that the witness please answer
my question not to answer in the way he wanted it.
Second. A reading the averments of the complaint will show that
the petitioner clearly has no cause of action against the COURT:
respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the Just answer the question, Mr. Tayag.
defendants-tenants the balance of the P50.00 per square meter,
the consideration under the Deeds of Assignment executed by WITNESS:
the defendants-tenants. The respondents are not parties or
privies to the deeds of assignment. The matter of the period for Yes, Your Honor.
the petitioner to pay the balance of the said amount to each of
the defendants-tenants is an issue between them, the parties to
ATTY. OCAMPO:
the deed.

Q : Did you explain to them?

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 A : Yes, sir.
the petitioner to pay to each of the defendants-tenants the
balance of the purchase price was conditioned on the Q : What did you tell them?
occurrence of the following events: (a) the respondents agree to
sell their property to the petitioner; (b) the legal impediments to A : I explain[ed] to them, sir, that the legal impediment
the sale of the landholding to the petitioner no longer exist; and, then especially if the Lacsons will not agree to sell
(c) the petitioner decides to buy the property. When he testified, their shares to me or to us it would be hard to (sic) me
the petitioner admitted that the legal impediments referred to in to pay them in full. And those covered by DAR. I
the deeds were (a) the respondents’ refusal to sell their explain[ed] to them and it was clearly stated in the title
property; and, (b) the lack of approval of the Department of that there is [a] prohibited period of time before you
Agrarian Reform: can sell the property. I explained every detail to
them.41
Q : There is no specific agreement prior to the
execution of those documents as when they will pay? It is only upon the occurrence of the foregoing conditions that
the petitioner would be obliged to pay to the defendants-tenants
A : We agreed to that, that I will pay them when there the balance of the P50.00 per square meter under the deeds of
are no legal impediment, sir. assignment. Thus:

Q : Many of the documents are unlattered (sic) and 2. That in case the ASSIGNOR and LANDOWNER will
you want to convey to this Honorable Court that prior mutually agree to sell the said lot to the ASSIGNEE,
to the execution of these documents you have those who is given an exclusive and absolute right to buy
tentative agreement for instance that the amount or the lot, the ASSIGNOR shall receive the sum of FIFTY
the cost of the price is to be paid when there are no PESOS (P50.00) per square meter as consideration of
legal impediment, you are using the word "legal the total area actually tilled and possessed by the
impediment," do you know the meaning of that? ASSIGNOR, less whatever amount received by the
ASSIGNOR including commissions, taxes and all
A : When there are (sic) no more legal impediment allowable deductions relative to the sale of the subject
exist, sir. properties.
 3. That this exclusive and absolute right given to the Fourth. The petitioner impleaded the respondents as parties-
ASSIGNEE shall be exercised only when no legal defendants solely on his allegation that the latter induced or are
impediments exist to the lot to effect the smooth inducing the defendants-tenants to violate the deeds of
transfer of lawful ownership of the lot/property in the assignment, contrary to the provisions of Article 1314 of the
name of the ASSIGNEE; New Civil Code which reads:

4. That the ASSIGNOR will remain in peaceful Art. 1314. Any third person who induces another to violate his
possession over the said property and shall enjoy the contract shall be liable for damages to the other contracting
fruits/earnings and/or harvest of the said lot until such party.
time that full payment of the agreed purchase price
had been made by the ASSIGNEE.42 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)
There is no showing in the petitioner’s complaint that the the existence of a valid contract; (2) knowledge by the third
respondents had agreed to sell their property, and that the legal person of the existence of the contract; and (3) interference by
impediments to the agreement no longer existed. The petitioner the third person in the contractual relation without legal
and the defendants-tenants had yet to submit the Deeds of justification.
Assignment to the Department of Agrarian Reform which, in
turn, had to act on and approve or disapprove the same. In fact, Where there was no malice in the interference of a contract, and
as alleged by the petitioner in his complaint, he was yet to meet the impulse behind one’s conduct lies in a proper business
with the defendants-tenants to discuss the implementation of the interest rather than in wrongful motives, a party cannot be a
deeds of assignment. Unless and until the Department of malicious interferer. Where the alleged interferer is financially
Agrarian Reform approved the said deeds, if at all, the petitioner interested, and such interest motivates his conduct, it cannot be
had no right to enforce the same in a court of law by asking the said that he is an officious or malicious intermeddler.48
trial court to fix a period within which to pay the balance of the
purchase price and praying for injunctive relief.
In fine, one who is not a party to a contract and who interferes
thereon is not necessarily an officious or malicious intermeddler.
We do not agree with the contention of the petitioner that the The only evidence adduced by the petitioner to prove his claim
deeds of assignment executed by the defendants-tenants are is the letter from the defendants-tenants informing him that they
perfected option contracts.43 An option is a contract by which the had decided to sell their rights and interests over the
owner of the property agrees with another person that he shall landholding to the respondents, instead of honoring their
have the right to buy his property at a fixed price within a certain obligation under the deeds of assignment because, according to
time. It is a condition offered or contract by which the owner them, the petitioner harassed those tenants who did not want to
stipulates with another that the latter shall have the right to buy execute deeds of assignment in his favor, and because the said
the property at a fixed price within a certain time, or under, or in defendants-tenants did not want to have any problem with the
compliance with certain terms and conditions, or which gives to respondents who could cause their eviction for executing with
the owner of the property the right to sell or demand a sale. It the petitioner the deeds of assignment as the said deeds are in
imposes no binding obligation on the person holding the option, violation of P.D. No. 27 and Rep. Act No. 6657.49 The
aside from the consideration for the offer. Until accepted, it is defendants-tenants did not allege therein that the respondents
not, properly speaking, treated as a contract.44 The second party induced them to breach their contracts with the petitioner. The
gets in praesenti, not lands, not an agreement that he shall have petitioner himself admitted when he testified that his claim that
the lands, but the right to call for and receive lands if he the respondents induced the defendants-assignees to violate
elects.45 An option contract is a separate and distinct contract contracts with him was based merely on what "he heard," thus:
from which the parties may enter into upon the conjunction of
the option.46
Q: Going to your last statement that the Lacsons
induces (sic) the defendants, did you see that the
In this case, the defendants-tenants-subtenants, under the Lacsons were inducing the defendants?
deeds of assignment, granted to the petitioner not only an option
but the exclusive right to buy the landholding. But the grantors
A: I heard and sometime in [the] first week of August,
were merely the defendants-tenants, and not the respondents,
sir, they went in the barrio (sic). As a matter of fact,
the registered owners of the property. Not being the registered
that is the reason why they sent me letter that they will
owners of the property, the defendants-tenants could not legally
sell it to the Lacsons.
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." Q: Incidentally, do you knew (sic) these Lacsons
individually?
 A: No, sir, it was only Mr. Espinosa who I knew (sic) fact, the petitioner has implemented the deeds by paying the
personally, the alleged negotiator and has the defendants-tenants amounts of money and even sought their
authority to sell the property.50 immediate implementation by setting a meeting with the
defendants-tenants. In fine, the petitioner would not wait for ten
Even if the respondents received an offer from the defendants- years to evict the defendants-tenants. For him, time is of the
tenants to assign and transfer their rights and interests on the essence.
landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the The Appellate Court Erred
defendants-tenants. The respondents could not even be In Permanently Enjoining
expected to warn the defendants-tenants for executing the said The Regional Trial Court
deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under From Continuing with the
Section 22 of the latter law, beneficiaries under P.D. No. 27 who Proceedings in Civil Case No. 10910.
have culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries. We agree with the petitioner’s contention that the appellate court
erred when it permanently enjoined the RTC from continuing
From the pleadings of the petitioner, it is quite evident that his with the proceedings in Civil Case No. 10910. The only issue
purpose in having the defendants-tenants execute the Deeds of before the appellate court was whether or not the trial court
Assignment in his favor was to acquire the landholding without committed a grave abuse of discretion amounting to excess or
any tenants thereon, in the event that the respondents agreed to lack of jurisdiction in denying the respondents’ motion to deny or
sell the property to him. The petitioner knew that under Section dismiss the petitioner’s plea for a writ of preliminary injunction.
11 of Rep. Act No. 3844, if the respondents agreed to sell the Not one of the parties prayed to permanently enjoin the trial
property, the defendants-tenants shall have preferential right to court from further proceeding with Civil Case No. 10910 or to
buy the same under reasonable terms and conditions: dismiss the complaint. It bears stressing that the petitioner may
still amend his complaint, and the respondents and the
SECTION 11. Lessee’s Right of Pre-emption. – In case the defendants-tenants may file motions to dismiss the complaint.
agricultural lessor desires to sell the landholding, the agricultural By permanently enjoining the trial court from proceeding with
lessee shall have the preferential right to buy the same under Civil Case No. 10910, the appellate court acted arbitrarily and
reasonable terms and conditions: Provided, That the entire effectively dismissed the complaint motu proprio, including the
landholding offered for sale must be pre-empted by the Land counterclaims of the respondents and that of the defendants-
Authority if the landowner so desires, unless the majority of the tenants. The defendants-tenants were even deprived of their
lessees object to such acquisition: Provided, further, That where right to prove their special and affirmative defenses.
there are two or more agricultural lessees, each shall be entitled
to said preferential right only to the extent of the area actually IN LIGHT OF ALL THE FOREGOING, the petition is
cultivated by him. …51 PARTIALLY GRANTED. The Decision of the Court of Appeals
nullifying the February 13, 1996 and April 16, 1997 Orders of the
Under Section 12 of the law, if the property was sold to a third RTC is AFFIRMED. The writ of injunction issued by the Court of
person without the knowledge of the tenants thereon, the latter Appeals permanently enjoining the RTC from further proceeding
shall have the right to redeem the same at a reasonable price with Civil Case No. 10910 is hereby LIFTED and SET ASIDE.
and consideration. By assigning their rights and interests on the The Regional Trial Court of Mabalacat, Pampanga, Branch 44,
landholding under the deeds of assignment in favor of the is ORDERED to continue with the proceedings in Civil Case No.
petitioner, the defendants-tenants thereby waived, in favor of the 10910 as provided for by the Rules of Court, as amended.
petitioner, who is not a beneficiary under Section 22 of Rep. Act
No. 6657, their rights of preemption or redemption under Rep. SO ORDERED.
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
G.R. No. 111238 January 25, 1995 2. The sum of P50,000.00 which we
received from ADELFA PROPERTIES, INC.
ADELFA PROPERTIES, INC., petitioner, as an option money shall be credited as
vs. partial payment upon the consummation of
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA the sale and the balance in the sum of TWO
and SALUD JIMENEZ, respondents. MILLION EIGHT HUNDRED SIX
THOUSAND ONE HUNDRED FIFTY
PESOS (P2,806,150.00) to be paid on or
before November 30, 1989;
REGALADO, J.:
3. In case of default on the part of ADELFA
PROPERTIES, INC. to pay said balance in
The main issues presented for resolution in this petition for accordance with paragraph 2 hereof, this
review on certiorari of the judgment of respondent Court of option shall be cancelled and 50% of the
appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are (1) option money to be forfeited in our favor and
whether of not the "Exclusive Option to Purchase" executed we will refund the remaining 50% of said
between petitioner Adelfa Properties, Inc. and private money upon the sale of said property to a
respondents Rosario Jimenez-Castañeda and Salud Jimenez is third party;
an option contract; and (2) whether or not there was a valid
suspension of payment of the purchase price by said petitioner,
4. All expenses including the corresponding
and the legal effects thereof on the contractual relations of the
capital gains tax, cost of documentary
parties.
stamps are for the account of the
VENDORS, and expenses for the
The records disclose the following antecedent facts which registration of the deed of sale in the
culminated in the present appellate review, to wit: Registry of Deeds are for the account of
ADELFA PROPERTIES, INC.
1. Herein private respondents and their brothers, Jose and
Dominador Jimenez, were the registered co-owners of a parcel Considering, however, that the owner's copy of the certificate of
of land consisting of 17,710 square meters, covered by Transfer title issued to respondent Salud Jimenez had been lost, a
Certificate of Title (TCT) No. 309773,2situated in Barrio Culasi, petition for the re-issuance of a new owner's copy of said
Las Piñas, Metro Manila. certificate of title was filed in court through Atty. Bayani L.
Bernardo, who acted as private respondents' counsel.
2. On July 28, 1988, Jose and Dominador Jimenez sold their Eventually, a new owner's copy of the certificate of title was
share consisting of one-half of said parcel of land, specifically issued but it remained in the possession of Atty. Bernardo until
the eastern portion thereof, to herein petitioner pursuant to a he turned it over to petitioner Adelfa Properties, Inc.
"Kasulatan sa Bilihan ng Lupa."3Subsequently, a "Confirmatory
Extrajudicial Partition Agreement"4 was executed by the 4. Before petitioner could make payment, it received
Jimenezes, wherein the eastern portion of the subject lot, with summons6 on November 29, 1989, together with a copy of a
an area of 8,855 square meters was adjudicated to Jose and complaint filed by the nephews and nieces of private
Dominador Jimenez, while the western portion was allocated to respondents against the latter, Jose and Dominador Jimenez,
herein private respondents. and herein petitioner in the Regional Trial Court of Makati,
docketed as Civil Case No. 89-5541, for annulment of the deed
3. Thereafter, herein petitioner expressed interest in buying the of sale in favor of Household Corporation and recovery of
western portion of the property from private respondents. ownership of the property covered by TCT No. 309773.7
Accordingly, on November 25, 1989, an "Exclusive Option to
Purchase"5 was executed between petitioner and private 5. As a consequence, in a letter dated November 29, 1989,
respondents, under the following terms and conditions: petitioner informed private respondents that it would hold
payment of the full purchase price and suggested that private
1. The selling price of said 8,655 square respondents settle the case with their nephews and nieces,
meters of the subject property is TWO adding that ". . . if possible, although November 30, 1989 is a
MILLION EIGHT HUNDRED FIFTY SIX holiday, we will be waiting for you and said plaintiffs at our office
THOUSAND ONE HUNDRED FIFTY up to 7:00 p.m."8 Another letter of the same tenor and of even
PESOS ONLY (P2,856,150.00) 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 12. The trial court rendered judgment 13 therein on September 5,
payment of the purchase price to "lack of word of honor." 1991 holding that the agreement entered into by the parties was
merely an option contract, and declaring that the suspension of
6. On December 7, 1989, petitioner caused to be annotated on payment by herein petitioner constituted a counter-offer which,
the title of the lot its option contract with private respondents, therefore, was tantamount to a rejection of the option. It likewise
and its contract of sale with Jose and Dominador Jimenez, as ruled that herein petitioner could not validly suspend payment in
Entry No. 1437-4 and entry No. 1438-4, respectively. 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
7. On December 14, 1989, private respondents sent Francisca
private respondents, but the eastern portion thereof which was
Jimenez to see Atty. Bernardo, in his capacity as petitioner's
the subject of the sale between petitioner and the brothers Jose
counsel, and to inform the latter that they were cancelling the
and Dominador Jimenez. The trial court then directed the
transaction. In turn, Atty. Bernardo offered to pay the purchase
cancellation of the exclusive option to purchase, declared the
price provided that P500,000.00 be deducted therefrom for the
sale to intervenor Emylene Chua as valid and binding, and
settlement of the civil case. This was rejected by private
ordered petitioner to pay damages and attorney's fees to private
respondents. On December 22, 1989, Atty. Bernardo wrote
respondents, with costs.
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. 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
8. On February 23, 1990, the Regional Trial Court of Makati
tantamount to an election by petitioner not to buy the property;
dismissed Civil Case No. 89-5541. Thus, on February 28, 1990,
that the suspension of payment constituted an imposition of a
petitioner caused to be annotated anew on TCT No. 309773 the
condition which was actually a counter-offer amounting to a
exclusive option to purchase as Entry No. 4442-4.
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
9. On the same day, February 28, 1990, private respondents contract to sell, but not to an option contract which it opined was
executed a Deed of Conditional Sale 10 in favor of Emylene the nature of the document subject of the case at bar. Said
Chua over the same parcel of land for P3,029,250, of which appellate court similarly upheld the validity of the deed of
P1,500,000.00 was paid to private respondents on said date, conditional sale executed by private respondents in favor of
with the balance to be paid upon the transfer of title to the intervenor Emylene Chua.
specified one-half portion.
In the present petition, the following assignment of errors are
10. On April 16, 1990, Atty. Bernardo wrote private respondents raised:
informing the latter that in view of the dismissal of the case
against them, petitioner was willing to pay the purchase price,
1. Respondent court of appeals acted with grave abuse of
and he requested that the corresponding deed of absolute sale
discretion in making its finding that the agreement entered into
be executed. 11 This was ignored by private respondents.
by petitioner and private respondents was strictly an option
contract;
11. On July 27, 1990, private respondents' counsel sent a letter
to petitioner enclosing therein a check for P25,000.00
2. Granting arguendo that the agreement was an option
representing the refund of fifty percent of the option money paid
contract, respondent court of Appeals acted with grave abuse of
under the exclusive option to purchase. Private respondents
discretion in grievously failing to consider that while the option
then requested petitioner to return the owner's duplicate copy of
period had not lapsed, private respondents could not unilaterally
the certificate of title of respondent Salud Jimenez. 12 Petitioner
and prematurely terminate the option period;
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 3. Respondent Court of Appeals acted with grave abuse of
damages, praying, among others, that the exclusive option to discretion in failing to appreciate fully the attendant facts and
purchase be declared null and void; that defendant, herein circumstances when it made the conclusion of law that Article
petitioner, be ordered to return the owner's duplicate certificate 1590 does not apply; and
of title; and that the annotation of the option contract on TCT No.
309773 be cancelled. Emylene Chua, the subsequent purchaser 4. Respondent Court of Appeals acted with grave abuse of
of the lot, filed a complaint in intervention. 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 the deed of absolute sale would have been issued only upon the
evidence presented by the parties, irresistibly leads to the payment of the balance of the purchase price, as may be
conclusion that the agreement between the parties is a contract gleaned from petitioner's letter dated April 16, 1990 16 wherein it
to sell, and not an option contract or a contract of sale. informed private respondents that it "is now ready and willing to
pay you simultaneously with the execution of the corresponding
I deed of absolute sale."

1. In view of the extended disquisition thereon by respondent Secondly, it has not been shown there was delivery of the
court, it would be worthwhile at this juncture to briefly discourse property, actual or constructive, made to herein petitioner. The
on the rationale behind our treatment of the alleged option exclusive option to purchase is not contained in a public
contract as a contract to sell, rather than a contract of sale. The instrument the execution of which would have been considered
distinction between the two is important for in contract of sale, equivalent to delivery. 17 Neither did petitioner take actual,
the title passes to the vendee upon the delivery of the thing sold; physical possession of the property at any given time. It is true
whereas in a contract to sell, by agreement the ownership is that after the reconstitution of private respondents' certificate of
reserved in the vendor and is not to pass until the full payment title, it remained in the possession of petitioner's counsel, Atty.
of the price. In a contract of sale, the vendor has lost and cannot Bayani L. Bernardo, who thereafter delivered the same to herein
recover ownership until and unless the contract is resolved or petitioner. Normally, under the law, such possession by the
rescinded; whereas in a contract to sell, title is retained by the vendee is to be understood as a delivery.18 However, private
vendor until the full payment of the price, such payment being a respondents explained that there was really no intention on their
positive suspensive condition and failure of which is not a part to deliver the title to herein petitioner with the purpose of
breach but an event that prevents the obligation of the vendor to transferring ownership to it. They claim that Atty. Bernardo had
convey title from becoming effective. Thus, a deed of sale is possession of the title only because he was their counsel in the
considered absolute in nature where there is neither a petition for reconstitution. We have no reason not to believe this
stipulation in the deed that title to the property sold is reserved explanation of private respondents, aside from the fact that such
in the seller until the full payment of the price, nor one giving the contention was never refuted or contradicted by petitioner.
vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period. 15 2. Irrefragably, the controverted document should legally be
considered as a perfected contract to sell. On this particular
There are two features which convince us that the parties never point, therefore, we reject the position and ratiocination of
intended to transfer ownership to petitioner except upon the full respondent Court of Appeals which, while awarding the correct
payment of the purchase price. Firstly, the exclusive option to relief to private respondents, categorized the instrument as
purchase, although it provided for automatic rescission of the "strictly an option contract."
contract and partial forfeiture of the amount already paid in case
of default, does not mention that petitioner is obliged to return The important task in contract interpretation is always the
possession or ownership of the property as a consequence of ascertainment of the intention of the contracting parties and that
non-payment. There is no stipulation anent reversion or task is, of course, to be discharged by looking to the words they
reconveyance of the property to herein private respondents in used to project that intention in their contract, all the words not
the event that petitioner does not comply with its obligation. With just a particular word or two, and words in context not words
the absence of such a stipulation, although there is a provision standing alone. 19 Moreover, judging from the subsequent acts
on the remedies available to the parties in case of breach, it of the parties which will hereinafter be discussed, it is
may legally be inferred that the parties never intended to undeniable that the intention of the parties was to enter into a
transfer ownership to the petitioner to completion of payment of contract to sell. 20 In addition, the title of a contract does not
the purchase price. necessarily determine its true nature. 21 Hence, the fact that the
document under discussion is entitled "Exclusive Option to
In effect, there was an implied agreement that ownership shall Purchase" is not controlling where the text thereof shows that it
not pass to the purchaser until he had fully paid the price. Article is a contract to sell.
1478 of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that An option, as used in the law on sales, is a continuing offer or
effect is considered valid and, therefore, binding and contract by which the owner stipulates with another that the
enforceable between the parties. It should be noted that under latter shall have the right to buy the property at a fixed price
the law and jurisprudence, a contract which contains this kind of within a certain time, or under, or in compliance with, certain
stipulation is considered a contract to sell. terms and conditions, or which gives to the owner of the
property the right to sell or demand a sale. It is also sometimes
Moreover, that the parties really intended to execute a contract called an "unaccepted offer." An option is not of itself a
to sell, and not a contract of sale, is bolstered by the fact that 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 respondents suggested that their transfer certificate of title be
purchase. 23 It is simply a contract by which the owner of first reconstituted, to which petitioner agreed. As a matter of
property agrees with another person that he shall have the right fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who
to buy his property at a fixed price within a certain time. He does assisted private respondents in filing a petition for reconstitution.
not sell his land; he does not then agree to sell it; but he does After the title was reconstituted, the parties agreed that
sell something, that it is, the right or privilege to buy at the petitioner would pay either in cash or manager's check the
election or option of the other party. 24 Its distinguishing amount of P2,856,150.00 for the lot. Petitioner was supposed to
characteristic is that it imposes no binding obligation on the pay the same on November 25, 1989, but it later offered to
person holding the option, aside from the consideration for the make a down payment of P50,000.00, with the balance of
offer. Until acceptance, it is not, properly speaking, a contract, P2,806,150.00 to be paid on or before November 30, 1989.
and does not vest, transfer, or agree to transfer, any title to, or Private respondents agreed to the counter-offer made by
any interest or right in the subject matter, but is merely a petitioner. 31 As a result, the so-called exclusive option to
contract by which the owner of property gives the optionee the purchase was prepared by petitioner and was subsequently
right or privilege of accepting the offer and buying the property signed by private respondents, thereby creating a perfected
on certain terms. 25 contract to sell between them.

On the other hand, a contract, like a contract to sell, involves a It cannot be gainsaid that the offer to buy a specific piece of land
meeting of minds two persons whereby one binds himself, with was definite and certain, while the acceptance thereof was
respect to the other, to give something or to render some absolute and without any condition or qualification. The
service. 26 Contracts, in general, are perfected by mere agreement as to the object, the price of the property, and the
consent, 27 which is manifested by the meeting of the offer and terms of payment was clear and well-defined. No other
the acceptance upon the thing and the cause which are to significance could be given to such acts that than they were
constitute the contract. The offer must be certain and the meant to finalize and perfect the transaction. The parties even
acceptance absolute. 28 went beyond the basic requirements of the law by stipulating
that "all expenses including the corresponding capital gains tax,
The distinction between an "option" and a contract of sale is that cost of documentary stamps are for the account of the vendors,
an option is an unaccepted offer. It states the terms and and expenses for the registration of the deed of sale in the
conditions on which the owner is willing to sell the land, if the Registry of Deeds are for the account of Adelfa properties, Inc."
holder elects to accept them within the time limited. If the holder Hence, there was nothing left to be done except the
does so elect, he must give notice to the other party, and the performance of the respective obligations of the parties.
accepted offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the owner is We do not subscribe to private respondents' submission, which
no longer bound by his offer, and the option is at an end. A was upheld by both the trial court and respondent court of
contract of sale, on the other hand, fixes definitely the relative appeals, that the offer of petitioner to deduct P500,000.00, (later
rights and obligations of both parties at the time of its execution. reduced to P300,000.00) from the purchase price for the
The offer and the acceptance are concurrent, since the minds of settlement of the civil case was tantamount to a counter-offer. It
the contracting parties meet in the terms of the agreement. 29 must be stressed that there already existed a perfected contract
between the parties at the time the alleged counter-offer was
A perusal of the contract in this case, as well as the oral and made. Thus, any new offer by a party becomes binding only
documentary evidence presented by the parties, readily shows when it is accepted by the other. In the case of private
that there is indeed a concurrence of petitioner's offer to buy and respondents, they actually refused to concur in said offer of
private respondents' acceptance thereof. The rule is that except petitioner, by reason of which the original terms of the contract
where a formal acceptance is so required, although the continued to be enforceable.
acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the At any rate, the same cannot be considered a counter-offer for
offeror, it may be made either in a formal or an informal manner, the simple reason that petitioner's sole purpose was to settle the
and may be shown by acts, conduct, or words of the accepting civil case in order that it could already comply with its obligation.
party that clearly manifest a present intention or determination to In fact, it was even indicative of a desire by petitioner to
accept the offer to buy or sell. Thus, acceptance may be shown immediately comply therewith, except that it was being
by the acts, conduct, or words of a party recognizing the prevented from doing so because of the filing of the civil case
existence of the contract of sale. 30 which, it believed in good faith, rendered compliance improbable
at that time. In addition, no inference can be drawn from that
The records also show that private respondents accepted the suggestion given by petitioner that it was totally abandoning the
offer of petitioner to buy their property under the terms of their original contract.
contract. At the time petitioner made its offer, private
More importantly, it will be noted that the failure of petitioner to of respondent court and the court a quo that the contract
pay the balance of the purchase price within the agreed period executed between the parties is an option contract, for the
was attributed by private respondents to "lack of word of honor" reason that the parties were already contemplating the payment
on the part of the former. The reason of "lack of word of honor" of the balance of the purchase price, and were not merely
is to us a clear indication that private respondents considered quoting an agreed value for the property. The term "balance,"
petitioner already bound by its obligation to pay the balance of connotes a remainder or something remaining from the original
the consideration. In effect, private respondents were total sum already agreed upon.
demanding or exacting fulfillment of the obligation from herein
petitioner. with the arrival of the period agreed upon by the In other words, the alleged option money of P50,000.00 was
parties, petitioner was supposed to comply with the obligation actually earnest money which was intended to form part of the
incumbent upon it to perform, not merely to exercise an option purchase price. The amount of P50,000.00 was not distinct from
or a right to buy the property. the cause or consideration for the sale of the property, but was
itself a part thereof. It is a statutory rule that whenever earnest
The obligation of petitioner on November 30, 1993 consisted of money is given in a contract of sale, it shall be considered as
an obligation to give something, that is, the payment of the part of the price and as proof of the perfection of the
purchase price. The contract did not simply give petitioner the contract. 38 It constitutes an advance payment and must,
discretion to pay for the property. 32 It will be noted that there is therefore, be deducted from the total price. Also, earnest money
nothing in the said contract to show that petitioner was merely is given by the buyer to the seller to bind the bargain.
given a certain period within which to exercise its privilege to
buy. The agreed period was intended to give time to herein There are clear distinctions between earnest money and option
petitioner within which to fulfill and comply with its obligation, money, viz.: (a) earnest money is part of the purchase price,
that is, to pay the balance of the purchase price. No evidence while option money ids the money given as a distinct
was presented by private respondents to prove otherwise. consideration for an option contract; (b) earnest money is given
only where there is already a sale, while option money applies
The test in determining whether a contract is a "contract of sale to a sale not yet perfected; and (c) when earnest money is
or purchase" or a mere "option" is whether or not the agreement given, the buyer is bound to pay the balance, while when the
could be specifically enforced. 33 There is no doubt that the would-be buyer gives option money, he is not required to buy. 39
obligation of petitioner to pay the purchase price is specific,
definite and certain, and consequently binding and enforceable. The aforequoted characteristics of earnest money are apparent
Had private respondents chosen to enforce the contract, they in the so-called option contract under review, even though it was
could have specifically compelled petitioner to pay the balance called "option money" by the parties. In addition, private
of P2,806,150.00. This is distinctly made manifest in the respondents failed to show that the payment of the balance of
contract itself as an integral stipulation, compliance with which the purchase price was only a condition precedent to the
could legally and definitely be demanded from petitioner as a acceptance of the offer or to the exercise of the right to buy. On
consequence. the contrary, it has been sufficiently established that such
payment was but an element of the performance of petitioner's
This is not a case where no right is as yet created nor an obligation under the contract to sell. 40
obligation declared, as where something further remains to be
done before the buyer and seller obligate themselves. 34 An II
agreement is only an "option" when no obligation rests on the
party to make any payment except such as may be agreed on
1. This brings us to the second issue as to whether or not there
between the parties as consideration to support the option until
was valid suspension of payment of the purchase price by
he has made up his mind within the time specified. 35 An option,
petitioner and the legal consequences thereof. To justify its
and not a contract to purchase, is effected by an agreement to
failure to pay the purchase price within the agreed period,
sell real estate for payments to be made within specified time
petitioner invokes Article 1590 of the civil Code which provides:
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 Art. 1590. Should the vendee be disturbed
forfeiture of the payments made. 36 As hereinbefore discussed, in the possession or ownership of the thing
this is not the situation obtaining in the case at bar. acquired, or should he have reasonable
grounds to fear such disturbance, by a
vindicatory action or a foreclosure of
While there is jurisprudence to the effect that a contract which
mortgage, he may suspend the payment of
provides that the initial payment shall be totally forfeited in case
the price until the vendor has caused the
of default in payment is to be considered as an option
disturbance or danger to cease, unless the
contract, 37 still we are not inclined to conform with the findings
latter gives security for the return of the price
 in a proper case, or it has been stipulated annotated anew on the certificate of title, it already knew of the
that, notwithstanding any such contingency, dismissal of civil Case No. 89-5541. However, it was only on
the vendee shall be bound to make the April 16, 1990 that petitioner, through its counsel, wrote private
payment. A mere act of trespass shall not respondents expressing its willingness to pay the balance of the
authorize the suspension of the payment of purchase price upon the execution of the corresponding deed of
the price. absolute sale. At most, that was merely a notice to pay. There
was no proper tender of payment nor consignation in this case
Respondent court refused to apply the aforequoted provision of as required by law.
law on the erroneous assumption that the true agreement
between the parties was a contract of option. As we have The mere sending of a letter by the vendee expressing the
hereinbefore discussed, it was not an option contract but a intention to
perfected contract to sell. Verily, therefore, Article 1590 would pay, without the accompanying payment, is not considered a
properly apply. valid tender of payment. 43 Besides, a mere tender of payment is
not sufficient to compel private respondents to deliver the
Both lower courts, however, are in accord that since Civil Case property and execute the deed of absolute sale. It is
No. 89-5541 filed against the parties herein involved only the consignation which is essential in order to extinguish petitioner's
eastern half of the land subject of the deed of sale between obligation to pay the balance of the purchase price. 44 The rule
petitioner and the Jimenez brothers, it did not, therefore, have is different in case of an option contract 45 or in legal redemption
any adverse effect on private respondents' title and ownership or in a sale with right to repurchase, 46 wherein consignation is
over the western half of the land which is covered by the not necessary because these cases involve an exercise of a
contract subject of the present case. We have gone over the right or privilege (to buy, redeem or repurchase) rather than the
complaint for recovery of ownership filed in said case 41 and we discharge of an obligation, hence tender of payment would be
are not persuaded by the factual findings made by said courts. sufficient to preserve the right or privilege. This is because the
At a glance, it is easily discernible that, although the complaint provisions on consignation are not applicable when there is no
prayed for the annulment only of the contract of sale executed obligation to pay. 47 A contract to sell, as in the case before us,
between petitioner and the Jimenez brothers, the same likewise involves the performance of an obligation, not merely the
prayed for the recovery of therein plaintiffs' share in that parcel exercise of a privilege of a right. consequently, performance or
of land specifically covered by TCT No. 309773. In other words, payment may be effected not by tender of payment alone but by
the plaintiffs therein were claiming to be co-owners of the entire both tender and consignation.
parcel of land described in TCT No. 309773, and not only of a
portion thereof nor, as incorrectly interpreted by the lower Furthermore, petitioner no longer had the right to suspend
courts, did their claim pertain exclusively to the eastern half payment after the disturbance ceased with the dismissal of the
adjudicated to the Jimenez brothers. civil case filed against it. Necessarily, therefore, its obligation to
pay the balance again arose and resumed after it received
Such being the case, petitioner was justified in suspending notice of such dismissal. Unfortunately, petitioner failed to
payment of the balance of the purchase price by reason of the seasonably make payment, as in fact it has deposit the money
aforesaid vindicatory action filed against it. The assurance made with the trial court when this case was originally filed therein.
by private respondents that petitioner did not have to worry
about the case because it was pure and simple harassment 42 is By reason of petitioner's failure to comply with its obligation,
not the kind of guaranty contemplated under the exceptive private respondents elected to resort to and did announce the
clause in Article 1590 wherein the vendor is bound to make rescission of the contract through its letter to petitioner dated
payment even with the existence of a vindicatory action if the July 27, 1990. That written notice of rescission is deemed
vendee should give a security for the return of the price. sufficient under the circumstances. Article 1592 of the Civil
Code which requires rescission either by judicial action or
2. Be that as it may, and the validity of the suspension of notarial act is not applicable to a contract to sell. 48 Furthermore,
payment notwithstanding, we find and hold that private judicial action for rescission of a contract is not necessary where
respondents may no longer be compelled to sell and deliver the the contract provides for automatic rescission in case of
subject property to petitioner for two reasons, that is, petitioner's breach,49 as in the contract involved in the present controversy.
failure to duly effect the consignation of the purchase price after
the disturbance had ceased; and, secondarily, the fact that the We are not unaware of the ruling in University of the Philippines
contract to sell had been validly rescinded by private vs. De los Angeles, etc. 50 that the right to rescind is not
respondents. absolute, being ever subject to scrutiny and review by the
proper court. It is our considered view, however, that this rule
The records of this case reveal that as early as February 28, applies to a situation where the extrajudicial rescission is
1990 when petitioner caused its exclusive option to be contested by the defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially unless G.R. No. 97332 October 10, 1991
successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial SPOUSES JULIO D. VILLAMOR AND MARINA
determination51 otherwise, if said party does not oppose it, the VILLAMOR, petitioners,
extrajudicial rescission shall have legal effect. 52 vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA
In the case at bar, it has been shown that although petitioner LABINGISA REYES AND ROBERTO REYES,respondents.
was duly furnished and did receive a written notice of rescission
which specified the grounds therefore, it failed to reply thereto or Tranquilino F. Meris for petitioners.
protest against it. Its silence thereon suggests an admission of Agripino G. Morga for private respondents.
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 MEDIALDEA, J.:
of cancellation, it utterly failed to seriously seek redress from the
court for the enforcement of its alleged rights under the contract. This is a petition for review on certiorari of the decision of the
If private respondents had not taken the initiative of filing Civil Court of Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio
Case No. 7532, evidently petitioner had no intention to take any Villamor and Marina Villamor, Plaintiffs-Appellees, versus
legal action to compel specific performance from the former. By Spouses Macaria Labing-isa Reyes and Roberto Reyes,
such cavalier disregard, it has been effectively estopped from Defendants-Appellants," which reversed the decision of the
seeking the affirmative relief it now desires but which it had Regional Trial Court (Branch 121) at Caloocan City in Civil Case
theretofore disdained. No. C-12942.

WHEREFORE, on the foregoing modificatory premises, and The facts of the case are as follows:
considering that the same result has been reached by
respondent Court of Appeals with respect to the relief awarded Macaria Labingisa Reyes was the owner of a 600-square meter
to private respondents by the court a quo which we find to be lot located at Baesa, Caloocan City, as evidenced by Transfer
correct, its assailed judgment in CA-G.R. CV No. 34767 is Certificate of Title No. (18431) 18938, of the Register of Deeds
hereby AFFIRMED. of Rizal.

SO ORDERED. 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 MARINA VILLAMOR ROBERTO REYES
City.
Signed in the Presence Of:
WITNESSETH
MARIANO Z. SUNIGA
That, I Macaria Labingisa, am the owner in fee simple ROSALINDA S. EUGENIO
of a parcel of land with an area of 600 square meters,
more or less, more particularly described in TCT No. ACKNOWLEDGMENT
(18431) 18938 of the Office of the Register of Deeds
for the province of Rizal, issued in may name, I having
REPUBLIC OF THE PHILIPPINES)
inherited the same from my deceased parents, for
CITY OF MANILA ) S.S.
which reason it is my paraphernal property;
At the City of Manila, on the 11th day of November,
That I, with the conformity of my husband, Roberto
1971, personally appeared before me Roberto Reyes,
Reyes, have sold one-half thereof to the aforesaid
Macaria Labingisa, Julio Villamor and Marina Ventura-
spouses Julio Villamor and Marina V. Villamor at the
Villamor, known to me as the same persons who
price of P70.00 per sq. meter, which was greatly
executed the foregoing Deed of Option, which
higher than the actual reasonable prevailing value of
consists of two (2) pages including the page whereon
lands in that place at the time, which portion, after
this acknowledgement is written, and signed at the left
segregation, is now covered by TCT No. 39935 of the
margin of the first page and at the bottom of the
Register of Deeds for the City of Caloocan, issued on
instrument by the parties and their witnesses, and
August 17, 1971 in the name of the aforementioned
sealed with my notarial seal, and said parties
spouses vendees;
acknowledged to me that the same is their free act
and deed. The Residence Certificates of the parties
That the only reason why the Spouses-vendees Julio were exhibited to me as follows: Roberto Reyes, A-
Villamor and Marina V. Villamor, agreed to buy the 22494, issued at Manila on Jan. 27, 1971, and B-
said one-half portion at the above-stated price of 502025, issued at Makati, Rizal on Feb. 18, 1971;
about P70.00 per square meter, is because I, and my Macaria Labingisa, A-3339130 and B-1266104, both
husband Roberto Reyes, have agreed to sell and issued at Caloocan City on April 15, 1971, their joint
convey to them the remaining one-half portion still Tax Acct. Number being 3028-767-6; Julio Villamor, A-
owned by me and now covered by TCT No. 39935 of 804, issued at Manila on Jan. 14, 1971, and B-138,
the Register of Deeds for the City of Caloocan, issued at Manila on March 1, 1971; and Marina
whenever the need of such sale arises, either on our Ventura-Villamor, A-803, issued at Manila on Jan. 14,
part or on the part of the spouses (Julio) Villamor and 1971, their joint Tax Acct. Number being 608-202-6.
Marina V. Villamor, at the same price of P70.00 per
square meter, excluding whatever improvement may
ARTEMIO M. MALUBAY
be found the thereon;
Notary Public
Until December 31, 1972
That I am willing to have this contract to sell inscribed PTR No. 338203, Manila
on my aforesaid title as an encumbrance upon the January 15, 1971
property covered thereby, upon payment of the
corresponding fees; and
Doc. No. 1526;
Page No. 24;
That we, Julio Villamor and Marina V. Villamor, hereby Book No. 38;
agree to, and accept, the above provisions of this Series of 1971. (pp. 25-29, Rollo)
Deed of Option.
According to Macaria, when her husband, Roberto Reyes,
IN WITNESS WHEREOF, this Deed of Option is retired in 1984, they offered to repurchase the lot sold by them
signed in the City of Manila, Philippines, by all the to the Villamor spouses but Marina Villamor refused and
persons concerned, this 11th day of November, 1971. reminded them instead that the Deed of Option in fact gave
them the option to purchase the remaining portion of the lot.
JULIO VILLAMOR MACARIA LABINGISA
The Villamors, on the other hand, claimed that they had
With My Conformity: expressed their desire to purchase the remaining 300 square
meter portion of the lot but the Reyeses had been ignoring 5. FAILING TO CONSIDER THAT EQUITABLE
them. Thus, on July 13, 1987, after conciliation proceedings in CONSIDERATION TILT IN FAVOR OF THE
the barangay level failed, they filed a complaint for specific DEFENDANT-APPELLANTS; and
performance against the Reyeses.
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO
On July 26, 1989, judgment was rendered by the trial court in PAY PLAINTIFF-APPELLEES THE AMOUNT OF
favor of the Villamor spouses, the dispositive portion of which P3,000.00 FOR AND BY WAY OF ATTORNEY'S
states: FEES. (pp. 31-32, Rollo)

WHEREFORE, and (sic) in view of the foregoing, On February 12, 1991, the Court of Appeals rendered a decision
judgment is hereby rendered in favor of the plaintiffs reversing the decision of the trial court and dismissing the
and against the defendants ordering the defendant complaint. The reversal of the trial court's decision was
MACARIA LABING-ISA REYES and ROBERTO premised on the finding of respondent court that the Deed of
REYES, to sell unto the plaintiffs the land covered by Option is void for lack of consideration.
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 The Villamor spouses brought the instant petition for review on
for attorney's fees and to pay the cost of suit. certiorari on the following grounds:

The counterclaim is hereby DISMISSED, for LACK OF I. THE COURT OF APPEALS GRAVELY ERRED IN
MERIT. FINDING THAT THE PHRASE WHENEVER THE
NEED FOR SUCH SALE ARISES ON OUR
SO ORDERED. (pp. 24-25, Rollo) (PRIVATE RESPONDENT) PART OR ON THE PART
OF THE SPOUSES JULIO D. VILLAMOR AND
Not satisfied with the decision of the trial court, the Reyes MARINA V. VILLAMOR' CONTAINED IN THE DEED
spouses appealed to the Court of Appeals on the following OF OPTION DENOTES A SUSPENSIVE
assignment of errors: CONDITION;

1. HOLDING THAT THE DEED OF OPTION II. ASSUMING FOR THE SAKE OF ARGUMENT
EXECUTED ON NOVEMBER 11, 1971 BETWEEN THAT THE QUESTIONED PHRASE IS INDEED A
THE PLAINTIFF-APPELLEES AND DEFENDANT- CONDITION, THE COURT OF APPEALS ERRED IN
APPELLANTS IS STILL VALID AND BINDING NOT FINDING, THAT THE SAID CONDITION HAD
DESPITE THE LAPSE OF MORE THAN THIRTEEN ALREADY BEEN FULFILLED;
(13) YEARS FROM THE EXECUTION OF THE
CONTRACT; III. ASSUMING FOR THE SAKE OF ARGUMENT
THAT THE QUESTIONED PHRASE IS INDEED A
2. FAILING TO CONSIDER THAT THE DEED OF CONDITION, THE COURT OF APPEALS ERRED IN
OPTION CONTAINS OBSCURE WORDS AND HOLDING THAT THE IMPOSITION OF SAID
STIPULATIONS WHICH SHOULD BE RESOLVED CONDITION PREVENTED THE PERFECTION OF
AGAINST THE PLAINTIFF-APPELLEES WHO THE CONTRACT OF SALE DESPITE THE EXPRESS
UNILATERALLY DRAFTED AND PREPARED THE OFFER AND ACCEPTANCE CONTAINED IN THE
SAME; DEED OF OPTION;

3. HOLDING THAT THE DEED OF OPTION IV. THE COURT OF APPEALS ERRED IN FINDING
EXPRESSED THE TRUE INTENTION AND THAT THE DEED OF OPTION IS VOID FOR LACK
PURPOSE OF THE PARTIES DESPITE ADVERSE, OF CONSIDERATION;
CONTEMPORANEOUS AND SUBSEQUENT ACTS
OF THE PLAINTIFF-APPELLEES; V. THE COURT OF APPEALS ERRED IN HOLDING
THAT A DISTINCT CONSIDERATION IS
4. FAILING TO PROTECT THE DEFENDANT- NECESSARY TO SUPPORT THE DEED OF OPTION
APPELLANTS ON ACCOUNT OF THEIR DESPITE THE EXPRESS OFFER AND
IGNORANCE PLACING THEM AT A ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)
DISADVANTAGE IN THE DEED OF OPTION;
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, case. In the first place, the deed of sale was never
either on our part (private respondents) or on the part of Julio produced by them to prove their claim. Defendant-
Villamor and Marina Villamor (petitioners)." The court a quo, rule appellants testified that no copy of the deed of sale
that the Deed of Option was a valid written agreement between had ever been given to them by the plaintiff-appellees.
the parties and made the following conclusions: In the second place, if this was really the condition of
the prior sale, we see no reason why it should be
xxx xxx xxx 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
It is interesting to state that the agreement between
Villamors to acquire the land rather than as a
the parties are evidence by a writing, hence, the
consideration for the option given to them, although
controverting oral testimonies of the herein defendants
one might wonder why they took nearly 13 years to
cannot be any better than the documentary evidence,
invoke their right if they really were in due need of the
which, in this case, is the Deed of Option (Exh. "A"
lot.
and "A-a")

At all events, the consideration needed to support a

The law provides that when the terms of an
unilateral promise to sell is a dinstinct one, not
agreement have been reduced to writing it is to be
something that is as uncertain as P70.00 per square
considered as containing all such terms, and
meter which is allegedly 'greatly higher than the actual
therefore, there can be, between the parties and their
prevailing value of lands.' A sale must be for a price
successors in interest no evidence of their terms of
certain (Art. 1458). For how much the portion
the agreement, other than the contents of the writing.
conveyed to the plaintiff-appellees was sold so that
... (Section 7 Rule 130 Revised Rules of Court)
the balance could be considered the consideration for
Likewise, it is a general and most inflexible rule that
the promise to sell has not been shown, beyond a
wherever written instruments are appointed either by
mere allegation that it was very much below P70.00
the requirements of law, or by the contract of the
per square meter.
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 The fact that plaintiff-appellees might have paid
contradict or alter them. This is a matter both of P18.00 per square meter for another land at the time
principle and of policy; of principle because such of the sale to them of a portion of defendant-
instruments are in their nature and origin entitled to a appellant's lot does not necessarily prove that the
much higher degree of credit than evidence of policy, prevailing market price at the time of the sale was
because it would be attended with great mischief if P18.00 per square meter. (In fact they claim it was
those instruments upon which man's rights depended P25.00). It is improbable that plaintiff-appellees should
were liable to be impeached by loose collateral pay P52.00 per square meter for the privilege of
evidence. Where the terms of an agreement are buying when the value of the land itself was allegedly
reduced to writing, the document itself, being P18.00 per square meter. (pp. 34-35, Rollo)
constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in As expressed in Gonzales v. Trinidad, 67 Phil. 682,
respect of that agreement which the law will recognize consideration is "the why of the contracts, the essential reason
so long as it exists for the purpose of evidence. which moves the contracting parties to enter into the contract."
(Starkie, EV, pp. 648, 655 cited in Kasheenath vs. The cause or the impelling reason on the part of private
Chundy, W.R. 68, cited in Francisco's Rules of Court, respondent executing the deed of option as appearing in the
Vol. VII Part I p. 153) (Emphasis supplied, pp. 126- deed itself is the petitioner's having agreed to buy the 300
127, Records). square meter portion of private respondents' land at P70.00 per
square meter "which was greatly higher than the actual
The respondent appellate court, however, ruled that the said reasonable prevailing price." This cause or consideration is clear
deed of option is void for lack of consideration. The appellate from the deed which stated:
court made the following disquisitions:
That the only reason why the spouses-vendees Julio
Plaintiff-appellees say they agreed to pay P70.00 per Villamor and Marina V. Villamor agreed to buy the said
square meter for the portion purchased by them one-half portion at the above stated price of about
although the prevailing price at that time was only P70.00 per square meter, is because I, and my
P25.00 in consideration of the option to buy the husband Roberto Reyes, have agreed to sell and
remainder of the land. This does not seem to be the
 convey to them the remaining one-half portion still 948). Demandabilitiy may be exercised at any time after the
owned by me ... (p. 26, Rollo) execution of the deed. In Sanchez v. Rigos, No. L-25494, June
14, 1972, 45 SCRA 368, 376, We held:
The respondent appellate court failed to give due consideration
to petitioners' evidence which shows that in 1969 the Villamor In other words, since there may be no valid contract without a
spouses bough an adjacent lot from the brother of Macaria cause of consideration, the promisory is not bound by his
Labing-isa for only P18.00 per square meter which the private promise and may, accordingly withdraw it. Pending notice of its
respondents did not rebut. Thus, expressed in terms of money, withdrawal, his accepted promise partakes, however, of the
the consideration for the deed of option is the difference nature of an offer to sell which, if accepted, results in a
between the purchase price of the 300 square meter portion of perfected contract of sale.
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) A contract of sale is, under Article 1475 of the Civil Code,
though not specifically stated in the deed of option, was "perfected at the moment there is a meeting of minds upon the
ascertainable. Petitioner's allegedly paying P52.00 per square thing which is the object of the contract and upon the price.
meter for the option may, as opined by the appellate court, be From that moment, the parties may reciprocally demand perform
improbable but improbabilities does not invalidate a contract of contracts." Since there was, between the parties, a meeting of
freely entered into by the parties. minds upon the object and the price, there was already a
perfected contract of sale. What was, however, left to be done
The "deed of option" entered into by the parties in this case had was for either party to demand from the other their respective
unique features. Ordinarily, an optional contract is a privilege undertakings under the contract. It may be demanded at any
existing in one person, for which he had paid a consideration time either by the private respondents, who may compel the
and which gives him the right to buy, for example, certain petitioners to pay for the property or the petitioners, who may
merchandise or certain specified property, from another person, compel the private respondents to deliver the property.
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 However, the Deed of Option did not provide for the period
closely at the "deed of option" signed by the parties, We will within which the parties may demand the performance of their
notice that the first part covered the statement on the sale of the respective undertakings in the instrument. The parties could not
300 square meter portion of the lot to Spouses Villamor at the have contemplated that the delivery of the property and the
price of P70.00 per square meter "which was higher than the payment thereof could be made indefinitely and render
actual reasonable prevailing value of the lands in that place at uncertain the status of the land. The failure of either parties to
that time (of sale)." The second part stated that the only reason demand performance of the obligation of the other for an
why the Villamor spouses agreed to buy the said lot at a much unreasonable length of time renders the contract ineffective.
higher price is because the vendor (Reyeses) also agreed to sell
to the Villamors the other half-portion of 300 square meters of
Under Article 1144 (1) of the Civil Code, actions upon written
the land. Had the deed stopped there, there would be no dispute
contract must be brought within ten (10) years. The Deed of
that the deed is really an ordinary deed of option granting the
Option was executed on November 11, 1971. The acceptance,
Villamors the option to buy the remaining 300 square meter-half
as already mentioned, was also accepted in the same
portion of the lot in consideration for their having agreed to buy
instrument. The complaint in this case was filed by the
the other half of the land for a much higher price. But, the "deed
petitioners on July 13, 1987, seventeen (17) years from the time
of option" went on and stated that the sale of the other half
of the execution of the contract. Hence, the right of action had
would be made "whenever the need of such sale arises, either
prescribed. There were allegations by the petitioners that they
on our (Reyeses) part or on the part of the Spouses Julio
demanded from the private respondents as early as 1984 the
Villamor and Marina V. Villamor. It appears that while the option
enforcement of their rights under the contract. Still, it was
to buy was granted to the Villamors, the Reyeses were likewise
beyond the ten (10) years period prescribed by the Civil Code.
granted an option to sell. In other words, it was not only the
In the case of Santos v. Ganayo,
Villamors who were granted an option to buy for which they paid
L-31854, September 9, 1982, 116 SCRA 431, this Court
a consideration. The Reyeses as well were granted an option to
affirming and subscribing to the observations of the court a
sell should the need for such sale on their part arise.
quo held, thus:

In the instant case, the option offered by private respondents

... Assuming that Rosa Ganayo, the oppositor herein, had the
had been accepted by the petitioner, the promise, in the same
right based on the Agreement to Convey and Transfer as
document. The acceptance of an offer to sell for a price certain
contained in Exhibits '1' and '1-A', her failure or the
created a bilateral contract to sell and buy and upon
abandonment of her right to file an action against Pulmano
acceptance, the offer, ipso facto assumes obligations of a
Molintas when he was still a co-owner of the on-half (1/2) portion
vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil.
of the 10,000 square meters is now barred by laches and/or
prescribed by law because she failed to bring such action within G.R. No. L-25494 June 14, 1972
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 NICOLAS SANCHEZ, plaintiff-appellee,
filed the adverse claim through her counsel in 1959 she had vs.
absolutely no more right whatsoever on the same, having been SEVERINA RIGOS, defendant-appellant.
barred by laches.
Santiago F. Bautista for plaintiff-appellee.
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
Jesus G. Villamar for defendant-appellant.
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 CONCEPCION, C.J.:p
the exercise of its equity jurisdiction is not inclined to grant
petitioners' prayer. Appeal from a decision of the Court of First Instance of Nueva
Ecija to the Court of Appeals, which certified the case to Us,
ACCORDINGLY, the petition is DENIED. The decision of upon the ground that it involves a question purely of law.
respondent appellate court is AFFIRMED for reasons cited in
this decision. Judgement is rendered dismissing the complaint in The record shows that, on April 3, 1961, plaintiff Nicolas
Civil Case No. C-12942 on the ground of prescription and Sanchez and defendant Severina Rigos executed an instrument
laches. entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed ... to sell" to Sanchez the sum of
SO ORDERED. 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 proving such consideration. Plaintiff herein has not even
for a price certain is reciprocally demandable. alleged the existence thereof in his complaint.

An accepted unilateral promise to buy or to sell a (3) Upon the other hand, defendant explicitly averred in her
determinate thing for a price certain is binding upon the answer, and pleaded as a special defense, the absence of said
promissor if the promise is supported by a consideration consideration for her promise to sell and, by joining in the
distinct from the price. petition for a judgment on the pleadings, plaintiff has impliedly
admitted the truth of said averment in defendant's answer.
In his complaint, plaintiff alleges that, by virtue of the option Indeed as early as March 14, 1908, it had been held,
under consideration, "defendant agreed and committed to sell" in Bauermann v. Casas,3 that:
and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said One who prays for judgment on the pleadings without
pleading as Annex A thereof and is quoted on the offering proof as to the truth of his own allegations, and
margin.1 Hence, plaintiff maintains that the promise contained in without giving the opposing party an opportunity to
the contract is "reciprocally demandable," pursuant to the first introduce evidence, must be understood to admit the
paragraph of said Article 1479. Although defendant had really truth of all the material and relevant allegations of the
"agreed, promised and committed" herself to sell the land to the opposing party, and to rest his motion for judgment on
plaintiff, it is not true that the latter had, in turn, "agreed and those allegations taken together with such of his own as
committed himself " to buy said property. Said Annex A does not are admitted in the pleadings. (La Yebana Company vs.
bear out plaintiff's allegation to this effect. What is more, since Sevilla, 9 Phil. 210). (Emphasis supplied.)
Annex A has been made "an integral part" of his complaint, the
provisions of said instrument form part "and parcel"2 of said This view was reiterated in Evangelista v. De la
pleading. Rosa4 and Mercy's Incorporated v. Herminia Verde.5

The option did not impose upon plaintiff the obligation to Squarely in point is Southwestern Sugar & Molasses Co. v.
purchase defendant's property. Annex A is not a "contract to buy Atlantic Gulf & Pacific Co.,6 from which We quote:
and sell." It merely granted plaintiff an "option" to buy. And both
parties so understood it, as indicated by the caption, "Option to
The main contention of appellant is that the option granted
Purchase," given by them to said instrument. Under the
to appellee to sell to it barge No. 10 for the sum of P30,000
provisions thereof, the defendant "agreed, promised and
under the terms stated above has no legal effect because it
committed" herself to sell the land therein described to the
is not supported by any consideration and in support thereof
plaintiff for P1,510.00, but there is nothing in the contract to
it invokes article 1479 of the new Civil Code. The article
indicate that her aforementioned agreement, promise and
provides:
undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.
"ART. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
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 An accepted unilateral promise to buy or sell a determinate
plaintiff's favor. It should be noted, however, that: thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the
price."
(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 On the other hand, Appellee contends that, even granting
or to sell." In other words, Article 1479 is controlling in the case that the "offer of option" is not supported by any
at bar. 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
(2) In order that said unilateral promise may be "binding upon
can no longer be withdrawn and in any event such
the promisor, Article 1479 requires the concurrence of a
withdrawal is ineffective. In support this contention, appellee
condition, namely, that the promise be "supported by a
invokes article 1324 of the Civil Code which provides:
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 "ART. 1324. When the offerer has allowed the offeree a
consideration. In other words, the promisee has the burden of 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 Furthermore, an option is unilateral: a
something paid or promised." promise to sell at the price fixed whenever the offeree
should decide to exercise his option within the specified
There is no question that under article 1479 of the new Civil time. After accepting the promise and before he exercises
Code "an option to sell," or "a promise to buy or to sell," as his option, the holder of the option is not bound to buy. He is
used in said article, to be valid must be "supported by a free either to buy or not to buy later. In this case, however,
consideration distinct from the price." This is clearly inferred upon accepting herein petitioner's offer a bilateral promise to
from the context of said article that a unilateral promise to sell and to buy ensued, and the respondent ipso
buy or to sell, even if accepted, is only binding if supported facto assumed the obligation of a purchaser. He did not just
by consideration. In other words, "an accepted unilateral get the right subsequently to buy or not to buy. It was not a
promise can only have a binding effect if supported by a mere option then; it was a bilateral contract of sale.
consideration which means that the option can still be
withdrawn, even if accepted, if the same is not supported by Lastly, even supposing that Exh. A granted
any consideration. It is not disputed that the option is without an option which is not binding for lack of consideration, the
consideration. It can therefore be withdrawn notwithstanding authorities hold that:
the acceptance of it by appellee.
"If the option is given without a
It is true that under article 1324 of the new Civil Code, the consideration, it is a mere offer of a contract of sale, which is
general rule regarding offer and acceptance is that, when not binding until accepted. If, however, acceptance is made
the offerer gives to the offeree a certain period to accept, before a withdrawal, it constitutes a binding contract of sale,
"the offer may be withdrawn at any time before acceptance" even though the option was not supported by a sufficient
except when the option is founded upon consideration, but consideration. ... . (77 Corpus Juris Secundum, p. 652. See
this general rule must be interpreted as modified by the also 27 Ruling Case Law 339 and cases cited.)
provision of article 1479 above referred to, which applies to
"a promise to buy and sell" specifically. As already stated, "It can be taken for granted, as contended
this rule requires that a promise to sell to be valid must be by the defendant, that the option contract was not valid for
supported by a consideration distinct from the price. lack of consideration. But it was, at least, an offer to sell,
which was accepted by letter, and of the acceptance the
We are not oblivious of the existence of American offerer had knowledge before said offer was withdrawn. The
authorities which hold that an offer, once accepted, cannot concurrence of both acts — the offer and the acceptance —
be withdrawn, regardless of whether it is supported or not by could at all events have generated a contract, if none there
a consideration (12 Am. Jur. 528). These authorities, we was before (arts. 1254 and 1262 of the Civil Code)." (Zayco
note, uphold the general rule applicable to offer and vs. Serra, 44 Phil. 331.)
acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific In other words, since there may be no valid contract without a
provision embodied in article 1479. While under the "offer of cause or consideration, the promisor is not bound by his
option" in question appellant has assumed a clear obligation promise and may, accordingly, withdraw it. Pending notice of its
to sell its barge to appellee and the option has been withdrawal, his accepted promise partakes, however, of the
exercised in accordance with its terms, and there appears to nature of an offer to sell which, if accepted, results in a
be no valid or justifiable reason for appellant to withdraw its perfected contract of sale.
offer, this Court cannot adopt a different attitude because
the law on the matter is clear. Our imperative duty is to
This view has the advantage of avoiding a conflict between
apply it unless modified by Congress.
Articles 1324 — on the general principles on contracts — and
1479 — on sales — of the Civil Code, in line with the cardinal
However, this Court itself, in the case of Atkins, Kroll and Co., rule of statutory construction that, in construing different
Inc. v. Cua Hian Tek,8 decided later that Southwestern Sugar & provisions of one and the same law or code, such interpretation
Molasses Co. v. Atlantic Gulf & Pacific Co.,9 saw no distinction should be favored as will reconcile or harmonize said provisions
between Articles 1324 and 1479 of the Civil Code and applied and avoid a conflict between the same. Indeed, the presumption
the former where a unilateral promise to sell similar to the one is that, in the process of drafting the Code, its author has
sued upon here was involved, treating such promise as an maintained a consistent philosophy or position. Moreover, the
option which, although not binding as a contract in itself for lack decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf
of a separate consideration, nevertheless generated a bilateral & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479
contract of purchase and sale upon acceptance. Speaking of the Civil Code, in effect, considers the latter as
through Associate Justice, later Chief Justice, Cesar Bengzon, an exception to the former, and exceptions are not favored,
this Court said: 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 retro's rights in favor of Diamante. There
1960, sold all his remaining rights over the property in question was, therefore, a misrepresentation of an
to the private respondent for P4,000.00. essential or material fact committed by the
lessee-appellee (Deypalubos) in his
On 25 October 1960, private respondent, with his wife's application for the permit and the lease
consent, executed in favor of the petitioner an Option to agreement, without which the same could
Repurchase the property in question within ten (10) years from not have been issued. 1
said date, with a ten-year grace period.
The Secretary based his action on Section 20 of Fisheries
Private respondent submitted to the Bureau of Fisheries the Administrative Order No. 60, the second paragraph of which
definite deed of sale; he did not, however, submit the Option to reads:
Repurchase.
Any and all of the statements made in the
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to corresponding application shall be
private respondent Fishpond Permit No. 4953-Q; on 17 considered as essential conditions and parts
December 1962, it approved FLA No. 1372 in the latter's favor. of the permit or lease granted. Any false
statements in the application of facts or any
alteration, change or modification of any or
On 11 December 1963, petitioner, contending that he has a
all terms and conditions made therein
valid twenty-year option to repurchase the subject property,
shall ipso facto cause the cancellation of the
requested the Bureau of Fisheries to nullify FLA No. 1372
permit or lease.
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 Private respondent moved for a reconsideration of this last
April 1965. His appeal to the Secretary of the DANR was Order arguing that the DANR Secretary's previous Order of 30
likewise dismissed on 30 October 1968. Again, on 20 November October 1968 dismissing petitioner's letter-complaint had
1968, petitioner sought for a reconsideration; this time, however, already become final on the ground that he (private respondent)
he was successful. On 29 August 1969, the DANR Secretary was not served a copy of petitioner's 20 November 1968 motion
granted his motion in an Order cancelling FLA No. 1372 and for reconsideration. On 20 November 1969, private respondent's
stating, inter alia, that: motion for reconsideration was denied; a second motion for
reconsideration was likewise denied on 20 April 1970.
Evidently, the application as originally filed,
could not be favorably acted upon by reason On 5 May 1970, private respondent filed with the Court of First
of the existing right of a third party over a Instance of Iloilo City a special civil action for certiorari with
portion thereof. It was only the submission of preliminary injunction (docketed as Civil Case No. 8209),
the deed of absolute sale which could seeking to annul the Secretary's Orders of 20 April 1970, 20
eliminate the stumbling block to the approval November 1969 and 29 August 1969 on the ground that the
of the transfer and the issuance of a permit Secretary: (1) gravely abused his discretion in not giving him the
or lease agreement. It was on the basis of opportunity to be heard on the question of whether or not the
this deed of sale, in fact, the one entitled Option to Repurchase was forged; and (2) has no jurisdiction to
"option to repurchase" executed barely a set aside FLA No. 1372 as the Order of the Bureau of Fisheries
week from the execution of the deed of dismissing petitioner's 11 December 1963 letter-complaint had
absolute sale, (which) reverted, in effect, the already become final.
status of the land in question to what it was
after the execution of the deed of sale with After issuing a temporary restraining order and a writ of
right to repurchase; that is, the land was preliminary injunction, the lower court tried the case jointly with
again placed under an encumbrance in Criminal Case No. 520 wherein both the petitioner and a certain
favor of a third party. Circumstantially, there Atty. Agustin Dioquino, the Notary Public who notarized the 25
is a ground (sic) to believe that the deed of October 1960 Option to Repurchase, were charged with
absolute sale was executed merely with the falsification of a public document.
end in view of circumventing the
requirements for the approval of the transfer After due trial, the lower court acquitted the accused in the
of leasehold rights of Diamante in favor of criminal case and decided in favor of the private respondent in
Deypalubos; and the subsequent execution Civil Case No. 8209; the court ruled that: (1) the DANR
of the "Option to Repurchase" was made to Secretary abused his discretion in issuing the questioned
assure the maintenance of a vendor a Orders, (2) petitioner cannot repurchase the property in question
as the Option to Repurchase is of doubtful validity, and (3) FLA et al. L-29097, Jan. 28, 1974, 55 SCRA
No. 1372 in the name of private respondent is valid and binding. 330). Reviewing courts do not re-examine
the sufficiency of the evidence in an
Petitioner appealed to the respondent Court which, on 6 administrative case, if originally instituted as
December 1978, reversed the decision of the trial court 2 on the such, nor are they authorized to receive
ground that no grave abuse of discretion was committed by additional evidence that was not submitted
respondent Secretary inasmuch as private respondent was to the administrative agency concerned. For
given the opportunity to be heard on his claim that the Option to common sense dictates that the question of
Repurchase is spurious, and that the trial court merely indulged whether the administrative agency abused
in conjectures in not upholding its validity. Said the respondent its discretion in weighing evidence should be
Court: resolved solely on the basis of the proof that
the administrative authorities had before
them and no other (Timbancaya vs. Vicente,
With all the foregoing arguments appellee
L-19100, Dec. 27, 1963, 9 SCRA 852). In
had exhaustively adduced to show the
the instant case the evidence presented for
spuriousness of the deed of "Option to
the first time before the court a quo could be
Repurchase", appellee can hardly complain
considered only for the criminal case heard
of not having been given an opportunity to
jointly with this case.
be heard, which is all that is necessary in
relation to the requirement of notice and
hearing in administrative proceedings. The lower court's action of acquitting the
Moreover, appellee never asked for a formal notary public, Agustin Dioquino, and
hearing at the first opportunity that he had to appellant Diamante in Criminal Case No.
do so, as when he filed his first motion for 520 for falsification of public document is in
reconsideration. He asked for a formal itself a finding that the alleged forgery has
hearing only in his second motion for not been conclusively established. This
reconsideration evidently as a mere finding is quite correct considering the
afterthought, upon realizing that his admission of the NBI handwriting expert that
arguments were futile without proofs to admission of the NBI handwriting expert that
support them. he cannot make any finding on the question
of whether appellee's signature on the deed
of "Option to Repurchase" is forged or not,
The only remaining question, therefore, is
because of the lack of (sic) specimen
whether the Secretary acted with grave
signature of appellee for comparative
abuse of discretion in giving weight to the
examination. The Secretary may have such
alleged execution by appellee of the deed of
signature in the application papers of
Option to Repurchase, on the basis of the
appellee on file with the former's office upon
xerox copy of said deed as certified by the
which to satisfy himself of (sic) the
Notary Public, Agustin Dioquino.
genuineness of appellee's signature. It
would be strange, indeed, that appellee had
With such documentary evidence duly not provided the NBI expert with a specimen
certified by the Notary Public, which is in of his signature when his purpose was to
effect an affirmation of the existence of the have an expert opinion that his signature on
deed of "Option of Repurchase" (sic) and its the questioned document is forged.
due execution, the Secretary may not be
said to have gravely abused his discretion in
On the other hand, as to the signature of his
giving the document enough evidentiary
wife, the latter herself admitted the same to
weight to justify his action in applying the
be her own. Thus —
aforequoted provisions of Fisheries Adm.
Order No. 60. This piece of evidence may
be considered substantial enough to support Q There is a signature below the typewritten words "with my
the conclusion reached by the respondent marital consent" and above the name Edelina Duyo, whose
Secretary, which is all that is necessary to signature is this?
sustain an administrative finding of fact
(Ortua vs. Encarnacion, 59 Phil. 635; Ang A That is my signature. (T.s.n., Crim. Case No. 520, April 5,
Tibay vs. CIR, 69 Phil. 635; Ramos vs. The 1971, p. 14).
Sec. of Agriculture and Natural Resources,
In not finding in favor of the perfect validity shown by the xerox copy certified true by the
of the "Option to Repurchase," the court a Notary Public.
quo merely indulged in conjectures. Thus,
believing the testimony of appellee that the Indeed, in the absence of positive and
later (sic) could not have executed the deed convincing proof of forgery, a public
of option to repurchase after spending instrument executed with the intervention of
allegedly P12,000.00, and that if there was a Notary Public must be held in high respect
really a verbal agreement upon the and accorded full integrity, if only upon the
execution of the deed of absolute sale, as presumption of the regularity of official
alleged by appellant, that appellant's right to functions as in the nature of those upon the
repurchase, as was stipulated in the earlier presumption of the regularity of official
deed of sale, shall be preserved, such functions as in the nature of those of a
agreement should have been embodied in notary public (Bautista vs. Dy Bun Chin, 49
the deed of sale of October 17, 1960 (Exh. OG 179; El Hogar Filipino vs. Olviga, 60
D), the court doubted the genuineness of Phil. 17).
the deed of Option to Repurchase (sic).
Subsequently, the respondent Court, acting on private
It is highly doubtful if appellee had spent respondent's motion for reconsideration, promulgated on 21
P12,000.00 during the period from October March 1979 the challenged Resolution 3 setting aside the earlier
17, 1960 to October 25, 1960 when the decision and affirmed, in toto, the ruling of the trial court, thus:
deed of option was executed. Likewise, the
right to repurchase could not have been
. . . the respondent (DANR) Secretary had gone beyond
embodied in the deed of absolute sale
his statutory authority and had clearly acted in abuse of
since, as the Secretary of DANR found, the
discretion in giving due weight to the alleged option to
purpose of the deed of absolute sale is to
repurchase whose (sic) genuiness (sic) and due
circumvent the law and insure the approval
execution had been impugned and denied by petitioner-
of appellee's application, as with his right to
appellee (Deypalubos). While the certified true copy of
4.4 hectares appearing to be subject to an
the option to repurchase may have been the basis of the
encumbrance, his application would not
respondent Secretary in resolving the motion for
have been given favorable action.
reconsideration, the Court believes that he should have
first ordered the presentation of evidence to resolve this
Above all, the speculation and conjectures factual issue considering the conflicting claims of the
as indulged in by the court a quo cannot parties. As earlier pointed out, all that was submitted to
outweigh the probative effect of the the Bureau of Fisheries and consequently to the
document itself, a certified xerox copy respondent Secretary, was a xerox copy of the
thereof as issued by the Notary Public, the questioned document which was certified to by a notary
non-presentation of the original having been public to be a copy of a deed found in his notarial file
explained by its loss, as was the testimony which did not bear any specimen of the signatures of the
of the same Notary Public, who justly won contracting parties. And assuming that a certification
acquittal when charged with falsification of made by a notary public as to the existence of a
public document at the instance of appellee. document should be deemed an affirmation that such
The fact that the spaces for the document document actually exists. Nevertheless, (sic) when such
number, page and book numbers were not claim is impugned, the one who assails the existence of
filled up in the photostatic copy presented by a document should be afforded the opportunity to prove
the representative of the Bureau of Records such claim, because, at most, the presumption of
Management does not militate against the regularity in the performance of official duties is merely
genuineness of the document. It simply disputable and can be rebutted by convincing and
means that the copy sent to the said Bureau positive evidence to the contrary.
happens to have those spaces unfilled up
(sic). But the sending of a copy of the
His motion for reconsideration having been denied, the
document to the Bureau of Records
petitioner filed the instant petition for review.
Management attests strongly to the
existence of such document, the original of
which was duly executed, complete with the Petitioner contends that the Rules of Court should not be strictly
aforesaid data duly indicated thereon, as applied to administrative proceedings and that the findings of
fact of administrative bodies, absent a showing of arbitrariness, In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29
should be accorded respect. November 1968, or barely seven (7) days before the respondent
Court promulgated its decision in this case, this Court,
While the petition has merit, petitioner's victory is hollow and interpreting the above Article, held:
illusory for, as shall hereafter be shown, even as We reverse the
assailed resolution of the respondent Court of Appeals, the The right of repurchase is not a right granted the vendor
questioned decision of the Secretary must, nevertheless, be set by the vendee in a subsequent instrument, but is a right
aside on the basis of an erroneous conclusion of law with reserved by the vendor in the same instrument of sale
respect to the Option to Repurchase. as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can
The respondent Court correctly held in its decision of 6 no longer reserve the right to repurchase, and any right
December 1978 that the respondent Secretary provided the thereafter granted the vendor by the vendee in a
private respondent sufficient opportunity to question the separate instrument cannot be a right of repurchase but
authenticity of the Option to Repurchase and committed no some other right like the option to buy in the instant
grave abuse of discretion in holding that the same was in fact case. . . .
executed by private respondent. We thus find no sufficient legal
and factual moorings for respondent Court's sudden turnabout in In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided
its resolution of 21 March 1979. That private respondent and his in 1927, this Court had already ruled that "an agreement to
wife executed the Option to Repurchase in favor of petitioner on repurchase becomes a promise to sell when made after the
25 October 1960 is beyond dispute. As determined by the sale, because when the sale is made without such an
respondent Court in its decision of 6 December 1978, private agreement, the purchaser acquires the thing sold absolutely,
respondent's wife, Edelina Duyo, admitted having affixed her and if he afterwards grants the vendor the right to repurchase, it
signature to the said document. Besides, the trial court itself in is a new contract entered into by the purchaser, as absolute
Criminal Case No. 520 which was jointly tried with the civil case, owner already of the object. In that case the vendor has not
acquitted both the petitioners and the notary public, before reserved to himself the right to repurchase."
whom the Option to Repurchase was acknowledged, of the
crime of falsification of said document. In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found
another occasion to apply the foregoing principle.
We hold, however, that the respondent Secretary gravely erred
in holding that private respondent's non-disclosure and Hence, the Option to Repurchase executed by private
suppression of the fact that 4.4 hectares of the area subject of respondent in the present case, was merely a promise to sell,
the application is burdened with or encumbered by the Option to which must be governed by Article 1479 of the Civil Code which
Repurchase constituted a falsehood or a misrepresentation of reads as follows:
an essential or material fact which, under the second paragraph
of Section 29 of Fisheries Administrative Order No. 60 earlier
Art. 1479. — A promise to buy and sell a determinate
quoted, "shall ipso facto cause the cancellation of the permit or
thing for a price certain is reciprocally demandable.
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 An accepted unilateral promise to buy or to sell a
respondent's ownership over the 4.4 hectares sold to him by determinate thing for a price certain is binding upon the
petitioner. This is a clear case of a misapplication of the law on promissor if the promise is supported by a consideration
conventional redemption and a misunderstanding of the effects distinct from the price.
of a right to repurchase granted subsequently in an instrument
different from the original document of sale. A copy of the so-called Option to Repurchase is neither
attached to the records nor quoted in any of the pleadings of the
Article 1601 of the Civil Code provides: 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
Conventional redemption shall take place
or both acceptance and separate consideration, the promise to
when the vendor reserves the right to
sell is not binding upon the promissor (private respondent).
repurchase the thing sold, with the
obligation to comply with the provisions of
article 1616 and other stipulations which A unilateral promise to buy or sell is a mere offer, which
may have been agreed upon. 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. In Insular Life Assurance Co., Ltd. Employees Association-
Upon acceptance, however, a bilateral contract to sell NATU vs. Insular Life Assurance Co., Ltd., 10 this Court ruled:
and to buy is created, and the offeree ipso
facto assumes the obligations of a purchaser; the . . . (t)he Supreme Court has ample authority to review
offeror, on the other hand, would be liable for damages if and resolve matter not assigned and specified as errors
he fails to deliver the thing he had offered for sale. by either of the parties in the appeal if it finds the
consideration and determination of the same essential
xxx xxx xxx and indispensable in order to arrive at a just decision in
the case. 11 This Court, thus, has the authority to waive
. . . The contract of option is a separate and distinct the lack of proper assignment of errors if the unassigned
contract from the contract which the parties may enter errors closely relate to errors properly pinpointed out or
into upon the consummation of the option, and a if the unassigned errors refer to matters upon which the
consideration for an optional contract is just as important determination of the questions raised by the errors
as the consideration for any other kind of contract. Thus, properly assigned depend. 12
a distinction should be drawn between the consideration
for the option to repurchase, and the consideration for The same also applies to issues not specifically raised
the contract of repurchase itself.7 by the parties. The Supreme Court, likewise, has broad
discretionary power, in the resolution of a controversy, to
Even if the promise was accepted, private respondent was not take into consideration matters on record which the
bound thereby in the absence of a distinct consideration. 8 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
It may be true that the foregoing issues were not squarely raised
long as the latter issues bear relevance and close
by the parties. Being, however, intertwined with the issue of the
relation to the former and as long as they arise from
correctness of the decision of the respondent Secretary and,
matters on record, the Court has the authority to include
considering further that the determination of said issues is
them in its discussion of the controversy as well as to
essential and indispensable for the rendition of a just decision in
pass upon them. In brief, in those cases wherein
this case, this Court does not hesitate to rule on them.
questions not particularly raised by the parties surface
as necessary for the complete adjudication of the rights
In Hernandez vs. Andal, 9 this Court held: and obligations of the parties and such questions fall
within the issues already framed by the parties, the
If the appellants' assignment of error be not considered interests of justice dictate that the Court consider and
a direct challenge to the decision of the court below, we resolve them.
still believe that the objection takes a narrow view of
practice and procedure contrary to the liberal spirit which WHEREFORE, the instant petition is GRANTED. The
pervades the Rules of Court. The first injunction of the Resolution of respondent Court of Appeals of 21 March 1979 in
new Rules (Rule 1, section 2) is that they "shall be C.A.-G.R. No. SP-04866 and the Decision of the trial court in
liberally construed in order to promote their object and to Civil Case No. 8209, insofar as they declare, for the reasons
assist the parties in obtaining just, speedy, and therein given, Fishpond Lease Agreement No. 1372, valid and
inexpensive determination of every action and binding, are hereby REVERSED and SET ASIDE. The
proceeding." In line with the modern trends of challenged Orders of the respondent Secretary of Agriculture
procedure, we are told that, "while an assignment of and Natural Resources of 29 August 1969, 20 November 1969
error which is required by law or rule of court has been and 21 April 1970 are likewise REVERSED and SET ASIDE and
held essential to appellate review, and only those Fishpond Lease Agreement No. 1372 is ordered REINSTATED.
assigned will be considered, there are a number of
cases which appear to accord to the appellate court a
No pronouncement as to costs.
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 IT IS SO ORDERED.
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.
 [G.R. No. 126454. November 26, 2004] 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
BIBLE BAPTIST CHURCH and PASTOR REUBEN possession of the LESSEE, the LESSEE agrees
BELMONTE, petitioners, vs. COURT OF APPEALS to pay all costs involved for the re-issuance of
and MR. & MRS. ELMER TITO MEDINA the title.
VILLANUEVA, respondents.
6. That the leased premises may be renovated by
the LESSEE, to the satisfaction of the LESSEE
DECISION to be fit and usable as a Church.
AZCUNA, J.: 7. That the LESSOR will remove all other tenants
from the leased premises no later than March
This petition for review on certiorari seeks to annul the 15, 1986. It is further agreed that if those
Decision[1] dated August 7, 1996, of the Court of Appeals in CA- tenants are not vacated by June 1, 1986, the
G.R. CV No. 45956, and its Resolution[2] dated September 12, rental will be lowered by the sum of Three
1996, denying reconsideration of the decision. In the questioned Thousand Pesos (P3,000.00) per month until
issuances, the Court of Appeals affirmed the Decision [3] dated said tenants have left the leased premises.
June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in
Civil Case No. 90-55437. 8. That the LESSEE has the option to buy the
leased premises during the Fifteen (15) years
The antecedents are: of the lease. If the LESSEE decides to
purchase the premises the terms will be: A)
On June 7, 1985, the Bible Baptist Church (petitioner A selling Price of One Million Eight Hundred
Baptist Church) entered into a contract of lease[4] with Mr. & Mrs. Thousand Pesos (P1.8 million), Philippine
Elmer Tito Medina Villanueva (respondent spouses Villanueva). Currency. B) A down payment agreed upon
The latter are the registered owners of a property located at No. by both parties. C) The balance of the selling
2436 (formerly 2424) Leon Guinto St., Malate, Manila. The price may be paid at the rate of One Hundred
pertinent stipulations in the lease contract were: Twenty Thousand Pesos (P120,000.00),
1. That the LESSOR lets and leases to the LESSEE Philippine Currency, per year.
a store space known as 2424 Leon Guinto Sr.
St., Malate, Manila, of which property the x x x.[5]
LESSOR is the registered owner in accordance
with the Land Registration Act. The foregoing stipulations of the lease contract are the
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. Although the same lease contract resulted in several
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 a) Respondent Court of Appeals erred in finding that
Pesos (P10,000.00) Philippine Currency, plus the option to buy granted the petitioner Baptist
10% escalation clause per year starting on June Church under its contract of lease with the
7, 1988. Villanuevas did not have a consideration and,
therefore, did not bind the latter;
4. That upon signing of the LEASE
AGREEMENT, the LESSEE shall pay the sum b) [R]espondent court again also erred in finding that
of Eighty Four Thousand Pesos (P84,000.00) the option to buy did not have a fixed price
Philippine Currency. Said sum is to be paid agreed upon by the parties for the purchase of
directly to the Rural Bank, Valenzuela, the property; and
Bulacan for the purpose of redemption of
said property which is mortgaged by the c) [F]inally, respondent court erred in not awarding
LESSOR. petitioners Baptist Church and its pastor
attorneys fees.[7]
5. That the title will remain in the safe keeping of the
Bible Baptist Church, Malate, Metro Manila until In sum, this Court has three issues to resolve: 1) Whether
or not the option to buy given to the Baptist Church is founded
upon a consideration; 2) Whether or not by the terms of the This Court finds no merit in these contentions.
lease agreement, a price certain for the purchase of the land
had been fixed; and 3) Whether or not the Baptist Church is First, petitioners cannot insist that the P84,000 they paid
entitled to an award for attorneys fees. in order to release the Villanuevas property from the mortgage
should be deemed the separate consideration to support the
The stipulation in the lease contract which purportedly contract of option. It must be pointed out that said amount was
gives the lessee an option to buy the leased premises at any in fact apportioned into monthly rentals spread over a period of
time within the duration of the lease, is found in paragraph 8 of one year, at P7,000 per month. Thus, for the entire period of
the lease contract, viz: June 1985 to May 1986, petitioner Baptist Churchs monthly rent
had already been paid for, such that it only again commenced
8. That the LESSEE has the option to buy the leased premises paying the rentals in June 1986. This is shown by the testimony
during the Fifteen (15) years of the lease. If the LESSEE of petitioner Pastor Belmonte where he states that the P84,000
decides to purchase the premises the terms will be: A) A selling was advance rental equivalent to monthly rent of P7,000 for one
Price of One Million Eight Hundred Thousand Pesos (P1.8 year, such that for the entire year from 1985 to 1986 the Baptist
million), Philippine Currency. B) A down payment agreed upon Church did not pay monthly rent.[11]
by both parties. C) The balance of the selling price may be paid This Court agrees with respondents that the amount
at the rate of One Hundred Twenty Thousand Pesos of P84,000 has been fully exhausted and utilized by their
(P120,000.00), Philippine Currency, per year. occupation of the premises and there is no separate
consideration to speak of which could support the option.[12]
Under Article 1479 of the Civil Code, it is provided:
Second, petitioners reliance on the case of Teodoro v.
Art. 1479. A promise to buy and sell a determinate thing for a Court of Appeals[13] is misplaced. The facts of the Teodoro case
price certain is reciprocally demandable. 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
An accepted unilateral promise to buy or to sell a determinate of the rented property and gave Teodoro an option to buy the
thing for a price certain is binding upon the promissor if the same, should Manila Railroad Co. decide to sell the property to
promise is supported by a consideration distinct from the price. Ariola. In addition, Teodoro, who was occupying only a portion
of the subject rented property, also undertook to pay the Manila
The second paragraph of Article 1479 provides for the Railroad Co., the full amount of the rent supposed to be paid by
definition and consequent rights and obligations under an option the registered lessor Ariola. Consequently, unlike this case,
contract. For an option contract to be valid and enforceable Teodoro paid over and above the amount due for her own
against the promissor, there must be a separate and distinct occupation of a portion of the property. That amount, which
consideration that supports it. should have been paid by Ariola as lessor, and for her own
occupation of the property, was deemed by the Court as
In this case, petitioner Baptist Church seeks to buy the
sufficient consideration for the option to buy which Ariola gave to
leased premises from the spouses Villanueva, under the option
Teodoro upon Ariolas acquiring the property.
given to them. Petitioners claim that the Baptist Church agreed
to advance the large amount needed for the rescue of the Hence, in Teodoro, this Court was able to find that a
property but, in exchange, it asked the Villanuevas to grant it a separate consideration supported the option contract and thus,
long term lease and an option to buy the property for P1.8 its enforcement may be demanded. Petitioners, therefore,
million.[8] They argue that the consideration supporting the cannot rely on Teodoro, for the case even supports the
option was their agreement to pay off the Villanuevas P84,000 respondents stand that a consideration that is separate and
loan with the bank, thereby freeing the subject property from the distinct from the purchase price is required to support an option
mortgage encumbrance. They state further that the Baptist contract.
Church would not have agreed to advance such a large amount
as it did to rescue the property from bank foreclosure had it not Petitioners further insist that a consideration need not be a
been given an enforceable option to buy that went with the lease separate sum of money. They posit that their act of advancing
agreement. the money to rescue the property from mortgage and impending
foreclosure, should be enough consideration to support the
In the petition, the Baptist Church states that [t]rue, the option.
Baptist Church did not pay a separate and specific sum of
money to cover the option alone. But the P84,000 it paid the In Villamor v. Court of Appeals,[14] this Court defined
Villanuevas in advance should be deemed consideration for the consideration as the why of the contracts, the essential reason
one contract they entered into the lease with option to which moves the contracting parties to enter into the
buy.[9] They rely on the case of Teodoro v. Court of Appeals[10] to contract.[15] This definition illustrates that the consideration
support their stand. contemplated to support an option contract need not be
monetary. Actual cash need not be exchanged for the option. reduce said rentals. The Court found that the amount of rentals
However, by the very nature of an option contract, as defined in agreed upon x x x which amount turned out to be so
Article 1479, the same is an onerous contract for which the burdensome upon the lessee, that the lessor agreed, five years
consideration must be something of value, although its kind may later, to reduce it as well as the building and/or improvements
vary. contemplated to be constructed and/or introduced by the lessee,
were, undoubtedly, part of the consideration for his option to
Specifically, in Villamor v. Court of Appeals,[16] half of a purchase the leased premises.[20]
parcel of land was sold to the spouses Villamor for P70 per
square meter, an amount much higher than the reasonable Again, this Court notes that the parties therein clearly
prevailing price. Thereafter, a deed of option was executed stipulated in their contract that there was an undertaking on the
whereby the sellers undertook to sell the other half to the same part of the optionee to sell the improvements made on the
spouses. It was stated in the deed that the only reason the property if the option was not exercised. Such is a valuable
spouses bought the first half of the parcel of land at a much consideration that could support the option contract. Moreover,
higher price, was the undertaking of the sellers to sell the there was the excessive rental payments that the optionee paid
second half of the land, also at the same price. This Court held for five years, which the Court also took into account in deciding
that the cause or consideration for the option, on the part of the that there was a separate consideration supporting the option.
spouses-buyers, was the undertaking of the sellers to sell the
other half of the property. On the part of the sellers, the To summarize the rules, an option contract needs to be
consideration supporting the option was the much higher supported by a separate consideration. The consideration need
amount at which the buyers agreed to buy the property. It not be monetary but could consist of other things or
was explicit from the deed therein that for the parties, this was undertakings. However, if the consideration is not monetary,
the consideration for their entering into the contract. these must be things or undertakings of value, in view of the
onerous nature of the contract of option. Furthermore, when a
It can be seen that the Court found that the buyer/optionee consideration for an option contract is not monetary, said
had parted with something of value, which was the amount he consideration must be clearly specified as such in the option
paid over and above the actual prevailing price of the land. Such contract or clause.
amount, different from the price of the land subject of the option,
was deemed sufficient and distinct consideration supporting the This Court also notes that in the present case both the
option contract. Moreover, the parties stated the same in their Regional Trial Court and the Court of Appeals agree that the
contract. option was not founded upon a separate and distinct
consideration and that, hence, respondents Villanuevas cannot
Villamor is distinct from the present case because, First, be compelled to sell their property to petitioner Baptist Church.
this Court cannot find that petitioner Baptist Church parted with
anything of value, aside from the amount of P84,000 which was The Regional Trial Court found that [a]ll payments made
in fact eventually utilized as rental payments. Second, there is under the contract of lease were for rentals. No money [was]
no document that contains an agreement between the parties ever exchanged for and in consideration of the option. Hence,
that petitioner Baptist Churchs supposed rescue of the the Regional Trial Court found the action of the Baptist Church
mortgaged property was the consideration which the parties to be premature and without basis to compel the defendant to
contemplated in support of the option clause in the contract. As sell the leased premises. The Regional Trial Court consequently
previously stated, the amount advanced had been fully utilized ruled:
as rental payments over a period of one year. While the
Villanuevas may have them to thank for extending the payment WHEREFORE, judgment is rendered:
at a time of need, this is not the separate consideration
contemplated by law. 1) Denying plaintiffs application for writ of injunction;
Noting that the option clause was part of a lease contract, 2) That defendant cannot be compelled to sell to
this Court looked into its previous ruling in the early case of Vda. plaintiffs the leased premises in accordance with
De Quirino v. Palarca,[17] where the Court did say that in par. 8 of the contract of lease;
reciprocal contracts, like the one in question,[18] the obligation or
promise of each party is the consideration for that of the 3) Defendant is hereby ordered to reimburse
other.[19] However, it must be noted that in that case, it was also plaintiffs the sum of P15, 919.75 plus 12%
expressly stated in the deed that should there be failure to interest representing real estate taxes, plaintiffs
exercise the option to buy the property, the optionee undertakes paid the City Treasurers Office of Manila;
to sell the building and/or improvements he has made on the 4) Declaring that plaintiff made a valid and legal
premises. In addition, the optionee had also been paying an consignation to the Court of the initial amount
amount of rent that was quite high and in fact turned out to be of P18,634.00 for the month of November and
too burdensome that there was a subsequent agreement to December 1990 and every month thereafter.
 All other claims of the plaintiffs are hereby dismissed for lack G.R. No. 202050, July 25, 2016
of merit.
PHILIPPINE NATIONAL OIL COMPANY AND PNOC
No pronouncement as to costs. DOCKYARD & ENGINEERING
CORPORATION, Petitioners, v. KEPPEL PHILIPPINES
SO ORDERED. [21] HOLDINGS, INC., Respondent.

On appeal, the Court of Appeals agreed with the Regional DECISION

Trial Court and found that the option to buy the leased premises
was not binding upon the Villanuevas for non-compliance with BRION, J.:
Article 1479. It found that said option was not supported by a
consideration as no money was ever really exchanged for and in Before the Court is a petition for review on certiorari filed under
consideration of the option. In addition, the appellate court Rule 45 of the Rules of Court, appealing the decision dated 19
determined that in the instant case, the price for the object is not December 20111 and resolution dated 14 May 20122 of the
yet certain. Thus, the Court of Appeals affirmed the Regional Court of Appeals (CA) in CA-G.R. CV No. 86830. These
Trial Court decision and dismissed the appeal for lack of assailed CA rulings affirmed in toto the decision dated 12
merit.[22] January 20063of the Regional Trial Court (RTQ of Batangas
Having found that the option to buy granted to the City, Branch 84, in Civil Case No. 7364.
petitioner Baptist Church was not founded upon a separate
consideration, and hence, not enforceable against respondents, THE FACTS
this Court finds no need to discuss whether a price certain had
been fixed as the purchase price. The 1976 Lease Agreement and Option to Purchase

Anent the claim for attorneys fees, it is stipulated in Almost 40 years ago or on 6 August 1976, the respondent
paragraph 13 of the lease agreement that in the event of failure Keppel Philippines Holdings, Inc.4 (Keppel) entered into a lease
of either of the parties to comply with any of the conditions of the agreement5 (the agreement) with Luzon Stevedoring
agreement, the aggrieved party can collect reasonable attorneys Corporation (Lusteveco) covering 11 hectares of land located in
fees.[23] 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
In view of this Courts finding that the option contract is not rental fee could be totally or partially converted into equity
enforceable for being without consideration, the respondents shares in Keppel.7chanrobleslaw
Villanueva spouses refusal to comply with it cannot be the basis
of a claim for attorneys fees. At the end of the 25-year Jease period, Keppel was given
Hence, this Court agrees with as the Court of Appeals, the "firm and absolute option to purchase8the land for P4.09
which affirmed the findings of the Regional Trial Court, that such million, provided that it had acquired the necessary
claim is to be dismissed for lack of factual and legal basis. qualification to own land under Philippine laws at the time
the option is exercised.9 Apparently, when the lease
WHEREFORE, the Decision and Resolution of the Court agreement was executed, less than 60% of Keppel's
of Appeals subject of the petition are hereby AFFIRMED. shareholding was Filipino-owned, hence, it was not
constitutionally qualified to acquire private lands in the
No costs.
country.10chanrobleslaw
SO ORDERED.
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 P100.00 if the option is exercised anytime between the 25th and
Lusteveco and took over the rights and obligations under the the 30th year of the lease31; and (c) the prohibition imposed on
agreement, Keppel did not object to the assignment so long as Lusteveco to sell the land or assign its rights therein during the
the agreement was annotated on PNOC's title.15 With PNOC's lifetime of the lease.32 Taken together, PNOC submits that these
consent and cooperation, the agreement was recorded as Entry provisions amounted to a virtual transfer of ownership of the
No. 65340 on PNOC's Transfer of Certificate of Title No. T- land to an alien which act the 1973 Constitution prohibited.
50724.16chanrobleslaw
PNOC claims that the agreement is no different from the lease
The Case and the Lower Court Rulings contract in Philippine Banking Corporation v. Lui She,33 which
the Court struck down as unconstitutional. In Lui She, the lease
On 8 December 2000, Keppel wrote PNOC informing the latter contract allowed the gradual divestment of ownership rights by
that at least 60% of its shares were now owned by the Filipino owner-lessor in favour of the foreigner-lessee.34The
Filipinos17 Consequently, Keppel expressed its readiness to arrangement in Lui She was declared as a scheme designed to
exercise its option to purchase the land. Keppel reiterated its enable the parties to circumvent the constitutional
demand to purchase the land several times, but on every prohibition.35 PNOC posits that a similar intent is apparent from
occasion, PNOC did not favourably respond.18chanrobleslaw the terms of the agreement with Keppel and accordingly should
also be nullified.36chanrobleslaw
To compel PNOC to comply with the Agreement, Keppel
instituted a complaint for specific performance with the RTC PNOC additionally contends the illegality of the option contract
on 26 September 2003 against PNOC.19 PNOC countered for lack of a separate consideration, as required by Article 1479
Keppel's claims by contending that the agreement was illegal for of the Civil Code.37 It claims that the option contract is distinct
circumventing the constitutional prohibition against aliens from the main contract of lease and must be supported by a
holding lands in the Philippines.20 It further asserted that the consideration other than the rental fees provided in the
option contract was void, as it was unsupported by a separate agreement.38chanrobleslaw
valuable consideration.21 It also claimed that it was not privy to
the agreement.22chanrobleslaw On the other hand, Keppel maintains the validity of both the
agreement and the option contract it contains. It opposes the
After due proceedings, the RTC rendered a decision23in claim that there was "virtual sale" of the land, noting that the
favour of Keppel and ordered PNOC to execute a deed of option is subject to the condition that Keppel becomes qualified
absolute sale upon payment by Keppel of the purchase price of to own private lands in the Philippines.39 This condition ripened
P4.09 million.24chanrobleslaw in 2000, when at least 60% of Keppel's equity became Filipino-
owned.
PNOC elevated the case to the CA to appeal the RTC
decision.25cralawred Affirming the RTC decision in toto, the CA Keppel contends that the agreement is not a scheme designed
upheld Keppel's right to acquire the land.26 It found that since to circumvent the constitutional prohibition. Lusteveco was not
the option contract was embodied in the agreement - a proscribed from alienating its ownership rights over the land but
reciprocal contract - the consideration was the obligation that was simply required to secure Keppel's prior written
each of the contracting party assumed.27 Since Keppel was consent.40 Indeed, Lusteveco was able to transfer its interest to
already a Filipino-owned corporation, it satisfied the condition PNOC without any objection from Keppel.41chanrobleslaw
that entitled it to purchase the land.28chanrobleslaw
Keppel also posits that the requirement of a separate
Failing to secure a reconsideration of the CA decision,29 PNOC consideration for an option to purchase applies only when the
filed the present Rule 45 petition before this Court to assail the option is granted in a separate contract.42 In the present case,
CA rulings. the option is embodied in a reciprocal contract and, following the
Court's ruling in Vda. De Quirino v. Palarca,43 the option is
THE PARTIES' ARGUMENTS and THE ISSUES supported by the same consideration supporting the main
contract.
PNOC argues that the CA failed to resolve the constitutionality
of the agreement. It contends that the terms of the agreement From the parties' arguments, the following ISSUES emerge:
amounted to a virtual sale of the land to Keppel who, at the time
of the agreement's enactment, was a foreign corporation and, chanRoblesvirtualLawlibraryFirst, the constitutionality of the
thus, violated the 1973 Constitution. Agreement, i.e., whether the terms of the Agreement amounted
to a virtual sale of the land to Keppel that was designed to
Specifically, PNOC refers to (a) the 25-year duration of the lease circumvent the constitutional prohibition on aliens owning lands
that was automatically renewable for another 25 years30; (b) the in the Philippines.
option to purchase the land for a nominal consideration of
Second, the validity of the option contract, i.e., whether the it reasonable that the agreement's terms provided for an
option to purchase the land given to Keppel is supported by a extended duration of the lease and a restriction on the rights of
separate valuable consideration. Lusteveco.

If these issues are resolved in favour of Keppel, a third issue We observe that, unlike in Lui She,56 Lusteveco was not
emerges - one that was not considered by the lower courts, but completely denied its ownership rights during the course of the
is critical in terms of determining Keppel's right to own and lease. It could dispose of the lands or assign its rights thereto,
acquire full title to the land, i.e., whether Keppel's equity provided it secured Keppel's prior written consent.57 That
ownership meets the 60% Filipino-owned capital requirement of Lusteveco was able to convey the land in favour of PNOC
trie Constitution, in accordance with the Court's ruling during the pendency of the lease58 should negate a finding that
in Gamboa v. Teves.44chanrobleslaw the agreement's terms amounted to a virtual transfer of
ownership of the land to Keppel.
THE COURT'S RULING
II. The validity of the option contract
I. The constitutionality of the Agreement
II.A An option contract must be supported by a separate
consideration that is either clearly specified as such
The Court affirms the constitutionality of the Agreement.
in the contract or duly proven by the
offeree/promisee.
Preserving the ownership of land, whether public or private, in
Filipino hands is the policy consistently adopted in all three of An option contract is defined in the second paragraph of Article
our constitutions.45 Under the 1935,46 1973,47 and 1479 of the Civil Code:ChanRoblesVirtualawlibrary
198748 Constitutions, no private land shall be transferred, Article 14791 x x x An accepted promise to buy or to sell a
assigned, or conveyed except to individuals, corporations, or determinate thing for a price certain is binding upon the
associations qualified to acquire or hold lands of the public promissor if the promise is supported by a consideration distinct
domain. Consequently, only Filipino citizens, or corporations or from the price.
associations whose capital is 60% owned by Filipinos citizens, An option contract is a contract where one person (the
are constitutionally qualified to own private lands. offeror/promissor) grants to another person (the
offeree/promisee) the right or privilege to buy (or to sell) a
Upholding this nationalization policy, the Court has voided not determinate thing at a fixed price, if he or she chooses to do so
only outright conveyances of land to foreigners,49: but also within an agreed period.59chanrobleslaw
arrangements where the rights of ownership were gradually
transferred to foreigners.50 In Lui Shui,51 we considered a 99- As a contract, it must necessarily have the essential elements of
year lease agreement, which gave the foreigner-lessee the subject matter, consent, and consideration.60 Although an option
option to buy the land and prohibited the Filipino owner-lessor contract is deemed a preparatory contract to the principal
from selling or otherwise disposing the land, amounted to - contract of sale,61 it is separate and distinct therefrom,62 thus, its
a virtual transfer of ownership whereby the owner divests essential elements should be distinguished from those of a
himself in stages not only of the right to enjoy the land (Jus sale.63chanrobleslaw
possidendi, jus utendi, jus fruendi, and jus abutendi) but also of
the right to dispose of it (jus disponendi) � rights the sum total In an option contract, the subject matter is the right or
of which make up ownership.52 [Emphasis supplied] privilege to buy (or to sell) a determinate thing for a price
In the present case, PNOC submits that a similar scheme is certain,64 while in a sales contract, the subject matter is the
apparent from the agreement's terms, but a review of the overall determinate thing itself.65 The consent in an option contract is
circumstances leads us to reject PNOC's claim. 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 agreement was executed to enable Keppel to use the land the right or privilege to buy (or to sell) within a specified period.
for its shipbuilding and ship repair business.53 The This acceptance is different from the acceptance of the offer
industrial/commercial purpose behind the agreement itself whereby the offeree asserts his or her right or privilege to
differentiates the present case from Lui She where the leased buy (or to sell), which constitutes as his or her consent to the
property was primarily devoted to residential sales contract. The consideration in an option contract may be
use.54 Undoubtedly, the establishment and operation of a anything of value, unlike in a sale where the purchase price
shipyard business involve significant investments. Keppel's must be in money or its equivalent.66 There is sufficient
uncontested testimony showed that it incurred P60 million costs consideration for a promise if there is any benefit to the offeree
solely for preliminary activities to make the land suitable as a or any detriment to the offeror.67chanrobleslaw
shipyard, and subsequently introduced improvements worth
P177 million.55 Taking these investments into account and the In the present case, PNOC claims the option contract is void for
nature of the business that Keppel conducts on the land, we find want of consideration distinct from the purchase price for the
land.68 The option is incorporated as paragraph 5 of the additional concessions that the parties intended to
Agreement and reads as constitute as a consideration for the option contract,
5. If within the period of the first [25] years [Keppel] becomes separate from that of the purchase price.
qualified to own land under the laws of the Philippines, it has the
firm and absolute option to purchase the above property for a In the present case, paragraph 5 of the agreement provided that
total price of [P-4,090,000.00] at the end of the 25th year, should Keppel exercise its option to buy, Lusteveco could opt to
discounted at 16% annual for every year before the end of the convert the purchase price into equity in Keppel. May
25th year, which amount may be converted into equity of Lusteveco's option to convert the price for shares be deemed as
[Keppel] at book value prevailing at the time of sale, or paid in a sufficient separate consideration for Keppel's option to buy?
cash at Lusteveco's option.
As earlier mentioned, the consideration for an option contract
However, if after the first [25] years, [Keppel] is still not qualified does not need to be monetary and may be anything of
to own land under the laws of the Republic of the Philippines, value.74 However, when the consideration is not monetary,
[Keppel's] lease of the above stated property shall be the consideration must be clearly specified as such in the
automatically renewed for another [25] years, under the same option contract or clause.75chanrobleslaw
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 In Villamor v. CA,76 the parties executed a deed expressly
converted into equity of [Keppel] at book value prevailing at the acknowledging that the purchase price of P70.00 per square
time of conversion, or paid in cash at Lusteveco's option. meter "was greatly higher than the actual reasonable prevailing
value of lands in that place at that time."77 The difference
If anytime within the second [25] years up to the [30th] year from between the purchase price and the prevailing value constituted
the date of this agreement, [Keppel] becomes qualified to own as the consideration for the option contract. Although the actual
land under the laws of the Republic of the Philippines, [Keppel] amount of the consideration was not stated, it was ascertainable
has the firm and absolute option to buy and Lusteveco hereby from the contract whose terms evinced the parties' intent to
undertakes to sell the above stated property for the nominal constitute this amount as consideration for the option
consideration of [P100.00.00]...69 contract.78 Thus, the Court upheld the validity of the option
Keppel counters that a separate consideration is not necessary contract.79 In the light of the offeree's acceptance of the option,
to support its option to buy because the option is one of the the Court further declared that a bilateral contract to sell and buy
stipulations of the lease contract. It claims that a separate was created and that the parties' respective obligations became
consideration is required only when an option to buy is reciprocally demandable.80chanrobleslaw
embodied in an independent contract.70 It relies on Vda. de
Quirino v. Palarca,71 where the Court declared that the option to When the written agreement itself does not state the
buy the leased property is supported by the same consideration consideration for the option contract, the offeree or
as that of the lease itself: "in reciprocal contracts [such as promisee bears the burden of proving the existence of a
lease], the obligation or promise of each party is the separate consideration for the option.81 The offeree cannot
consideration for that of the other.72chanrobleslaw rely on Article 1354 of the Civil Code,82 which presumes the
existence of consideration, since Article 1479 of the Civil Code
In considering Keppel's submission, we note that the Court's is a specific provision on option contracts that explicitly requires
ruling in 1969 in Vda. de Quirino v. Palarcahas been taken out the existence of a consideration distinct from the purchase
of context and erroneously applied in subsequent cases. In price.83chanrobleslaw
2004, through Bible Baptist Church v. CA73 we revisited Vda. de
Quirino v. Palarca and observed that the option to buy given to In the present case, none of the above rules were observed. We
the lessee Palarca by the lessor Quirino was in fact supported find nothing in paragraph 5 of the Agreement indicating that the
by a separate consideration: Palarca paid a higher amount of grant to Lusteveco of the option to convert the purchase price
rent and, in the event that he does not exercise the option to buy for Keppel shares was intended by the parties as the
the leased property, gave Quirino the option to buy the consideration for Keppel's option to buy the land; Keppel itself
improvements he introduced thereon. These additional as the offeree presented no evidence to support this finding. On
concessions were separate from the purchase price and the contrary, the option to convert the purchase price for shares
deemed by the Court as sufficient consideration to support the should be deemed part of the consideration for the contract of
option contract. sale itself, since the shares are merely an alternative to the
actual cash price.
Vda. de Quirino v. Palarca, therefore, should not be regarded as
authority that the mere inclusion of an option contract in a There are, however cases where, despite the absence of an
reciprocal lease contract provides it with the requisite separate express intent in the parties' agreements, the Court considered
consideration for its validity. The reciprocal contract should the additional concessions stipulated in an agreement to
be closely scrutinized and assessed whether it contains constitute a sufficient separate consideration for the option
contract. contract should be clearly specified as such in the option
contract or clause. Otherwise, the offeree must bear the
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the burden of proving that a separate consideration for the
option to buy the land assumed .the obligation to pay not only option contract exists.
her rent as sub-lessee, but also the rent of the sub-lessor
(Ariola) to the primary lessor (Manila Railroad Company).85 In Given our finding that the Agreement did not categorically refer
other words, Teodoro paid an amount over and above the to any consideration to support Keppel's option to buy and for
amount due for her own occupation of the property, and this Keppel's failure to present evidence in this regard, we cannot
amount was found by the Court as sufficient consideration for uphold the existence of an option contract in this case.
the option contract.86chanrobleslaw
II. An option, though unsupported by a separate
B. consideration, remains an offer that, if duly accepted,
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan
generates into a contract to sell where the parties'
with the bank, allowing the latter to foreclose the
respective obligations become reciprocally
mortgage.88 Since the spouses Dijamco did not exercise their
demandable
right to redeem, the bank consolidated its ownership over the
mortgaged property.89 The spouses Dijamco later proposed to The absence of a consideration supporting the option contract,
purchase the same property by paying a purchase price of however, does not invalidate an offer to buy (or to sell). An
P622,095.00 (equivalent to their principal loan) and a monthly option unsupported by a separate consideration stands as
amount of P13,478.00 payable for 12 months (equivalent to the an unaccepted offer to buy (or to sell) which, when properly
interest on their principal loan). They further stated that should accepted, ripens into a contract to sell. This is the rule
they fail to make a monthly payment, the proposal should be established by the Court en banc as early as 1958 in Atkins v.
automatically revoked and all payments be treated as rentals for Cua Hian Tek,96 and upheld in 1972 in Sanchez v.
their continued use of the property.90The Court treated the Rigos.97chanrobleslaw
spouses Dijamco's proposal to purchase the property as an
option contract, and the consideration for which was the monthly Sanchez v. Rigos reconciled the apparent conflict between
interest payments.91 Interestingly, this ruling was made despite Articles 1324 and 1479 of the Civil Code, which are quoted
the categorical stipulation that the monthly interest payments below:ChanRoblesVirtualawlibrary
should be treated as rent for the spouses Dijamco's continued Article 1324. When the offerer has allowed the offeree a certain
possession and use of the foreclosed property. period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when
At the other end of the jurisprudential spectrum are cases where the option is founded upon a consideration, as something
the Court refused to consider the additional concessions paid or promised.
stipulated in agreements as separate consideration for the
option contract. Article 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist An accepted unilateral promise to buy or to sell a
Church) paid in advance P84,000.00 to the lessor in order to determinate thing for a price certain is binding upon the
free the property from an encumbrance. The lessee claimed that promissor if the promise is supported by a consideration
the advance payment constituted as the separate consideration distinct from the price, [emphases supplied]
for its option to buy the property.93 The Court, however,
The Court en banc declared that there is no distinction between
disagreed noting that the P84,000.00 paid in advance was
these two provisions because the scenario contemplated in the
eventually offset against the rent due for the first year of the
second paragraph of
lease, "such that for the entire year from 1985 to 1986 the [Bible
Baptist Church] did not pay monthly rent."94 Hence, the Court
Article 1479 is the same as that in the last clause of Article
refused to recognize the existence of a valid option
1324.98 Instead of finding a conflict, Sanchez v.
contract.95chanrobleslaw
Rigos harmonised the two provisions, consistent with the
established rules of statutory construction.99chanrobleslaw
What Teodoro, Dijamco, and Bible Baptist Church show is that
the determination of whether the additional concessions in
Thus, when an offer is supported by a separate consideration, a
agreements are sufficient to support an option contract, is
valid option contract exists, i.e., there is a contracted
fraught with danger; in ascertaining the parties' intent on this
offer100 which the offerer cannot withdraw from without incurring
matter, a court may read too much or too little from the facts
liability in damages.
before it.
On the other hand, when the offer is not supported by a
For uniformity and consistency in contract interpretation, the
separate consideration, the offer stands but, in the absence of a
better rule to follow is that the consideration for the option
binding contract, the offeror may withdraw it any time.101 In promise to buy and to sell under the first paragraph of Article
either case, once the acceptance of the offer is duly 1479 of the Civil Code ensues and the parties' respective
communicated before the withdrawal of the offer, a bilateral obligations become reciprocally demandable.
contract to buy and sell is generated which, in accordance with
the first paragraph of Article 1479 of the Civil Code, becomes Applied to the present case, we find that the offer to buy the
reciprocally demandable.102chanrobleslaw land was timely accepted by Keppel.

Sanchez v. Rigos expressly overturned the 1955 case of As early as 1994, Keppel expressed its desire to exercise its
Southwestern Sugar v. AGPC,103 which declared that option to buy the land. Instead of rejecting outright Keppel's
a unilateral promise to buy or to sell, even if accepted, is only acceptance, PNOC referred the matter to the Office of the
binding if supported by a consideration... In other words, an Government Corporate Counsel (OGCC). In its Opinion No. 160,
accepted unilateral promise can only have a binding effect series of 1994, the OGCC opined that Keppel "did not yet have
if supported by a consideration, which means that the option the right to purchase the Bauan lands."114 On account of the
can still be withdrawn, even if accepted, if the same is not OGCC opinion, the PNOC did not agree with Keppel's attempt
supported by any consideration.104 [Emphasis supplied] to buy the land;115 nonetheless, the PNOC made no categorical
The Southwestern Sugar doctrine was based on the reasoning withdrawal of the offer to sell provided under the Agreement.
that Article 1479 of the Civil Code is distinct from Article 1324 of
the Civil Code and is a provision that specifically governs By 2000, Keppel had met the required Filipino equity proportion
options to buy (or to sell).105 As mentioned, Sanchez v. Rigos and duly communicated its acceptance of the offer to buy to
found no conflict between these two provisions and accordingly PNOC.116 Keppel met with the board of directors and officials of
abandoned the Southwestern Sugar doctrine. PNOC who interposed no objection to the sale.117 It was only
when the amount of purchase price was raised that the conflict
Unfortunately, without expressly overturning or abandoning between the parties arose,118 with PNOC backtracking in its
the Sanchez ruling, subsequent cases reverted back to position and questioning the validity of the
the Southwestern Sugar doctrine.106 In 2009, Eulogio v option.119chanrobleslaw
Apeles107 referred to Southwestern Sugar v. AGPC as the
controlling doctrine108 and, due to the lack of a separate Thus, when Keppel communicated its acceptance, the offer to
consideration, refused to recognize the option to buy as an offer purchase the Bauan land stood, not having been withdrawn by
that would have resulted in a sale given its timely acceptance by PNOC. The offer having been duly accepted, a contract to
the offeree. In 2010, Tuazon v. Del Rosario-Suarez109 referred sell the land ensued which Keppel can rightfully demand
to Sanchez v. Rigos but erroneously cited as part of its ratio PNOC to comply with.
decidendi that portion of the Southwestern Sugar doctrine that
III. Keppel's constitutional right to acquire full title to the
Sanchez had expressly abandoned.110chanrobleslaw
land
Given that! the issue raised in the present case involves the Filipinization is the spirit that pervades the constitutional
application of Article 1324 and 1479 of the Civil Code, it provisions on national patrimony and economy. The Constitution
becomes imperative for the Court [en banc] to clarify and has reserved the ownership of public and private lands,120 the
declare here which between Sanchez and Southwestern ownership and operation of public utilities,121 and certain areas
Sugar is the controlling doctrine. of investment122 to Filipino citizens, associations, and
corporations. To qualify, sixty per cent (60%) of the association
The Constitution itself declares that "no doctrine or principle of or corporation's capital must be owned by Filipino citizens.
law laid down by the court in a decision rendered en banc or in Although the 60% Filipino equity proportion has been adopted in
division may be modified or reversed except by the court our Constitution since 1935, it was only in 2011 that the Court
sitting en banc.111Sanchez v. Rigos was an en banc decision interpreted what the term capital constituted.
which was affirmed in 1994 in Asuncion v. CA,112 also an en
banc decision, while the decisions citing the Southwestern In Gamboa v. Teves,123 the Court declared that the "legal and
Sugar doctrine are all division cases.113Based on the beneficial ownership of 60 percent of the outstanding capital
constitutional rule (as well as the inherent logic in reconciling stock must rest in the hands of Filipino nationals." 124 Clarifying
Civil Code provisions), there should be no doubt that Sanchez the ruling, the Court decreed that the 60% Filipino ownership
v. Rigos remains as the controlling doctrine. requirement applies separately to each class of shares,
whether with or without voting
Accordingly, when an option to buy or to sell is not supported by rights,125 thus:ChanRoblesVirtualawlibrary
a consideration separate from the purchase price, the option Applying uniformly the 60-40 ownership requirement in favour of
constitutes as an offer to buy or to sell, which may be withdrawn Filipino citizens to each class of shares, regardless of
by the offeror at any time prior to the communication of the differences in voting rights, privileges and restrictions,
offeree's acceptance. When the offer is duly accepted, a mutual
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 October 21, 1988, GHRC filed in the RTC a complaint for
property located along Pureza St., Sta. Mesa, Manila. The specific performance, damages with preliminary injunction and
estate was popularly known as the NDC Compound and temporary restraining order.[7]
covered by Transfer Certificate of Title Nos. 92885, 110301 and
145470. In the meantime, then President Corazon C. Aquino issued
Memorandum Order No. 214 dated January 6, 1989, ordering the
On September 7, 1977, NDC entered into a Contract of Lease transfer of the whole NDC Compound to the National
(C-33-77) with Golden Horizon Realty Corporation (GHRC) over Government, which in turn would convey the said property in favor
a portion of the property, with an area of 2,407 square meters of PUP at acquisition cost. The memorandum order cited the
for a period of ten (10) years, renewable for another ten (10) serious need of PUP, considered the Poor Mans University, to
years with mutual consent of the parties.[3] expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness
On May 4, 1978, a second Contract of Lease (C-12-78) was of PUP to buy and of NDC to sell its property. The order of
executed between NDC and GHRC covering 3,222.80 conveyance of the 10.31-hectare property would automatically
square meters, also renewable upon mutual consent after result in the cancellation of NDCs total obligation in favor of the
the expiration of the ten (10)-year lease period. In addition,
National Government in the amount of P57,193,201.64.[8]
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] On February 20, 1989, the RTC issued a writ of preliminary
injunction enjoining NDC and its attorneys, representatives,
Under the lease agreements, GHRC was obliged to construct at agents and any other persons assisting it from proceeding with
its own expense buildings of strong material at no less than the the sale and disposition of the leased premises.[9]
stipulated cost, and other improvements which shall
automatically belong to the NDC as lessor upon the expiration of On February 23, 1989, PUP filed a motion to intervene as party
the lease period. Accordingly, GHRC introduced permanent defendant, claiming that as a
improvements and structures as required by the terms of the purchaser pendente lite of a property subject of litigation it is
contract. After the completion of the industrial complex project, entitled to intervene in the proceedings. The RTC granted the
for which GHRC spent P5 million, it was leased to various said motion and directed PUP to file its Answer-in-
manufacturers, industrialists and other businessmen thereby Intervention.[10]
generating hundreds of jobs.[5]

PUP also demanded that GHRC vacate the premises, insisting

On June 13, 1988, before the expiration of the ten (10)-year that the latters lease contract had already expired. Its demand
period under the second lease contract, GHRC wrote a letter to letter unheeded by GHRC, PUP filed an ejectment case (Civil
NDC indicating its exercise of the option to renew the lease for Case No. 134416) before the Metropolitan Trial Court (MeTC) of
another ten (10) years. As no response was received from NDC, Manila on January 14, 1991.[11]
GHRC sent another letter on August 12, 1988, reiterating its
desire to renew the contract and also requesting for priority to
Due to this development, GHRC filed an Amended and/or
negotiate for its purchase should NDC opt to sell the leased
Supplemental Complaint to include as additional defendants
premises.[6] NDC still did not reply but continued to accept rental
PUP, Honorable Executive Secretary Oscar Orbos and Judge
payments from GHRC and allowed the latter to remain in
Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-
possession of the property.
mentioned defendants from prosecuting Civil Case No. 134416
for ejectment. A temporary restraining order was subsequently
Sometime after September 1988, GHRC discovered that NDC issued by the RTC enjoining PUP from prosecuting and Judge
had decided to secretly dispose the property to a third party. On
Francisco Brillantes, Jr. from proceeding with
SO ORDERED.[16]
the ejectment case.[12]

The RTC resumed the proceedings and when mediation and

In its Second Amended and/or Supplemental Complaint, GHRC pre-trial failed to settle the case amicably, trial on the merits
argued that Memorandum Order No. 214 is a nullity, for ensued.[17]
being violative of the writ of injunction issued by the trial court,
apart from being an infringement of the Constitutional prohibition
On November 25, 2004, the RTC rendered its decision
against impairment of obligation of contracts, an encroachment
upholding the right of first refusal granted to GHRC under its
on legislative functions and a bill of attainder. In the alternative,
lease contract with NDC and ordering PUP to reconvey the said
should the trial court adjudge the memorandum order as valid,
portion of the property in favor of GHRC. The dispositive portion
GHRC contended that its existing right must still be respected
reads:
by allowing it to purchase the leased premises.[13]
WHEREFORE, premises
Pre-trial was set but was suspended upon agreement of the considered, judgment is hereby rendered in
favor of the plaintiff and against the
parties to await the final resolution of a similar case involving
defendants ordering the plaintiff to cause
NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc. immediate ground survey of the premises
(Firestone), then pending before the RTC of Pasay City.[14] 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
On November 14, 2001, this Court rendered a decision in G.R. respectively, by a duly licensed and
Nos. 143513 (Polytechnic University of the Philippines v. Court registered surveyor at the expense of the
of Appeals) and 143590 (National Development Corporation v. plaintiff within two months from receipt of
this Decision and thereafter, the plaintiff
Firestone Ceramics, Inc.),[15] which declared that the sale to shall have six (6) months from receipt of the
PUP by NDC of the portion leased by Firestone pursuant to approved survey within which to exercise its
Memorandum Order No. 214 violated the right of first refusal right to purchase the leased property at
granted to Firestone under its third lease contract with NDC. We P554.74 per square meter. And finally, the
defendant PUP, in whose name the property
thus decreed: is titled, is hereby ordered to reconvey the
WHEREFORE, the petitions in aforesaid property to the plaintiff in the
G.R. No. 143513 and G.R. No. 143590 are exercise of its right of its option to buy or first
DENIED. Inasmuch as the first contract of refusal upon payment of the purchase price
lease fixed the area of the leased premises thereof.
at 2.90118 hectares while the second
contract placed it at 2.60 hectares, let a The defendant NDC is hereby
ground survey of the leased premises be further ordered to pay the plaintiff attorneys
immediately conducted by a duly licensed, fees in the amount of P100,000.00.
registered surveyor at the expense of private
respondent FIRESTONE CERAMICS, INC., The case against defendant
within two (2) months from the finality of the Executive Secretary is dismissed and this
judgment in this case. Thereafter, private decision shall bind defendant Metropolitan
respondent FIRESTONE CERAMICS, INC., Trial Court, Branch 20 of Manila.
shall have six (6) months from receipt of the
approved survey within which to exercise its With costs against defendants
right to purchase the leased property at NDC and PUP.
P1,500.00 per square meter, and petitioner
Polytechnic University of the Philippines is SO ORDERED.[18]
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.
NDC and PUP separately appealed the decision to the 1989, long after the expiration of C-33-77 and C-12-78 in
CA.[19] By Decision of June 25, 2008, the CA affirmed in toto the September 1988.[21]
decision of the RTC.[20]
Petitioner PUP further contends that while it is conceded that
Both the RTC and the CA applied this Courts ruling there was an implied new lease between respondent and
in Polytechnic University of the Philippines v. Court of Appeals petitioner NDC after the expiration of the lease contracts, the
(supra), considering that GHRC is similarly situated as a lessee same did not include the right of first refusal originally granted to
of NDC whose right of first refusal under the lease contract was respondent. The CA should have applied the ruling in Dizon v.
violated by the sale of the property to PUP without NDC having Magsaysay[22] that the lessee cannot any more exercise its
first offered to sell the same to GHRC despite the latters request option to purchase after the lapse of the one (1)-year period of
for the renewal of the lease and/or to purchase the the lease contract. With the implicit renewal of the lease on a
leased premises prior to the expiration of the second lease monthly basis, the other terms of the original contract of lease
contract. The CA further agreed with the RTCs finding that there which are revived in the implied new lease under Article 1670 of
was an implied renewal of the lease upon the failure of NDC to the Civil Code are only those terms which are germane to the
act on GHRCs repeated requests for renewal of the lease lessees right of continued enjoyment of the property leased. The
contract, both verbal and written, and continuing to accept provision entitling the lessee the option to purchase the leased
monthly rental payments from GHRC which was allowed to premises is not deemed incorporated in the impliedly renewed
continue in possession of the leased premises. contract because it is alien to the possession of the lessee.
Consequently, as in this case, respondents right of option to
The CA also rejected the argument of NDC and PUP that even purchase the leased premises was not violated despite the
assuming that GHRC had the right of first refusal, said right impliedly renewed contract of lease with NDC. Respondent
pertained only to the second lease contract, C-12-78 covering cannot favorably invoke the decision in G.R. Nos. 143513 and
3,222.80 square meters, and not to the first lease contract, C- 143590 (Polytechnic University of the Philippines v. Court of
33-77 covering 2,407 square meters, which had already Appeals) for the simple reason, among others, that unlike in said
expired. It sustained the RTCs finding that the two (2) lease cases, the contracts of lease of respondent with NDC were not
contracts were interrelated because each formed part of GHRCs mutually extended or renewed for another ten (10) years. Thus,
industrial complex, such that business operations would be when the leased premises were conveyed to PUP, respondent
rendered useless and inoperative if the first contract were to be did not any more have any right of first refusal, which
detached from the other, as similarly held in the afore- incidentally appears only in the second lease contract and not in
mentioned case of Polytechnic University of the Philippines v. the first lease contract.[23]
Court of Appeals.
On its part, petitioner NDC assails the CA in holding that the
Petitioner PUP argues that respondents right to exercise the contracts of lease were impliedly renewed for another ten (10)-
option to purchase had expired with the termination of the year period. The provisions of C-33-77 and C-12-78 clearly state
original contract of lease and was not carried over to the that the lessee is granted the option to renew for another ten
subsequent implied new lease between respondent and (10) years with the mutual consent of both parties. As regards
petitioner NDC. As testified to by their witnesses the continued receipt of rentals by NDC and possession by the
Leticia Cabantog and Atty. Rhoel Mabazza, there was no respondent of the leased premises, the impliedly renewed lease
agreement or document to the effect that respondents request was only month-to-month and not ten (10) years since the
for extension or renewal of the subject contracts of lease for rentals are being paid on a monthly basis, as held in Dizon v.
another ten (10) years was approved by NDC. Hence, Magsaysay.[24]
respondent can no longer exercise the option to purchase the
leased premises when the same were conveyed to Petitioner NDC further faults the CA in sustaining the RTCs
PUP pursuant to Memorandum Order No. 214 dated January 6, decision which erroneously granted respondent the option to
purchase the leased premises at the rate of P554.74 per square An option is a contract by which the owner of the property
meter, the same rate for which NDC sold the property to agrees with another person that the latter shall have the right to
petitioner PUP and/or the National Government, which is the buy the formers property at a fixed price within a certain time. It
mere acquisition cost thereof. It must be noted that such is a condition offered or contract by which the owner stipulates
consideration or rate was imposed by Memorandum Order No. with another that the latter shall have the right to buy the
214 under the premise that it shall, in effect, be a sale and/or property at a fixed price within a certain time, or under, or in
purchase from one (1) government agency to another. It was compliance with certain terms and conditions; or which gives to
intended merely as a transfer of one (1) user of the National the owner of the property the right to sell or demand a sale.[26] It
Government to another, with the beneficiary, PUP in this case, binds the party, who has given the option, not to enter into the
merely returning to the petitioner/transferor the cost of principal contract with any other person during the period
acquisition thereof, as appearing on its accounting books. It designated, and, within that period, to enter into such contract
does not in any way reflect the true and fair market value of the with the one to whom the option was granted, if the latter should
property, nor was it a price a willing seller would demand and decide to use the option.[27]
accept for parting with his real property. Such benefit, therefore,
cannot be extended to respondent as a private entity, as the Upon the other hand, a right of first refusal is a contractual
latter does not share the same pocket, so to speak, with the grant, not of the sale of a property, but of the first priority to buy
National Government.[25] the property in the event the owner sells the same.[28] As
distinguished from an option contract, in a right of first refusal,
The issue to be resolved is whether or not our ruling while the object might be made determinate, the exercise of
in Polytechnic University of the Philippines v. Court of the right of first refusal would be dependent not only on the
Appeals applies in this case involving another lessee of NDC owners eventual intention to enter into a binding juridical relation
who claimed that the option to purchase the portion leased to it with another but also on terms, including the price, that are yet
was similarly violated by the sale of the NDC Compound in favor to be firmed up.[29]
of PUP pursuant to Memorandum Order No. 214.
As the option to purchase clause in the second lease contract
We rule in the affirmative. has no definite period within which the leased premises will be
offered for sale to respondent lessee and the price is made
The second lease contract contained the following provision: subject to negotiation and determined only at the time the option
to buy is exercised, it is obviously a mere right of refusal, usually
III. It is mutually agreed by the inserted in lease contracts to give the lessee the first crack to
parties that this Contract of Lease shall be in
buy the property in case the lessor decides to sell the
full force and effect for a period of ten (10)
years counted from the effectivity of the same. That respondent was granted a right of first refusal under
payment of rental as provided under sub- the second lease contract appears not to have been disputed by
paragraph (b) of Article I, with option to petitioners. What petitioners assail is the CAs erroneous
renew for another ten (10) years with the
conclusion that such right of refusal subsisted even after the
mutual consent of both parties. In no case
should the rentals be increased by more expiration of the original lease period, when respondent was
than 100% of the original amount fixed. allowed to continue staying in the leased premises under an
implied renewal of the lease and without the right of refusal
Lessee shall also have the
carried over to such month-to-month lease. Petitioners thus
option to purchase the area leased, the
price to be negotiated and determined at maintain that no right of refusal was violated by the sale of the
the time the option to purchase is property in favor of PUP pursuant to Memorandum Order No.
exercised. [EMPHASIS SUPPLIED] 214.

Petitioners position is untenable.

When a lease contract contains a right of first refusal, Firestone Ceramics, Inc. is different because the lease contract
the lessor has the legal duty to the lessee not to sell the leased therein had not yet expired while in this case respondents lease
property to anyone at any price until after the lessor has made contracts have already expired and never renewed. The date of
an offer to sell the property to the lessee and the lessee has the expiration of the lease contract in said case is December 31,
failed to accept it. Only after the lessee has failed to exercise 1989 which is prior to the issuance of Memorandum Order No.
his right of first priority could the lessor sell the property to other 214 on January 6, 1989. In contrast, respondents lease
buyers under the same terms and conditions offered to the contracts had already expired (September 1988) at the time said
lessee, or under terms and conditions more favorable to memorandum order was issued.[31]
the lessor.[30]
Such contention does not hold water. As already mentioned, the
Records showed that during the hearing on the application for a reckoning point of the offer of sale to a third party was not the
writ of preliminary injunction, respondent adduced in evidence a issuance of Memorandum Order No. 214 on January 6, 1989
letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. but the commencement of such negotiations as early as July
Jake C. Lagonera, Director and Special Assistant to Executive 1988 when respondents right of first refusal was still subsisting
Secretary Catalino Macaraeg, reviewing a proposed and the lease contracts still in force. Petitioner NDC did not
memorandum order submitted to President Corazon C. Aquino bother to respond to respondents letter of June 13, 1988
transferring the whole NDC Compound, including the premises informing it of respondents exercise of the option to renew and
leased by respondent, in favor of petitioner PUP. This letter was requesting to discuss further the matter with NDC, nor to the
offered in evidence by respondent to prove the existence of subsequent letter of August 12, 1988 reiterating the request for
documents as of that date and even prior to the expiration of the renewing the lease for another ten (10) years and also the
second lease contract or the lapse of the ten (10)-year period exercise of the option to purchase under the lease
counted from the effectivity of the rental payment -- that is, one contract. Petitioner NDC had dismissed these letters as mere
hundred and fifty (150) days from the signing of the contract informative in nature, and a request at its best.[32]
(May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or
on October 1, 1988. Perusal of the letter dated August 12, 1988, however, belies
such claim of petitioner NDC that it was merely informative,
Respondent thus timely exercised its option to purchase on thus:
August 12, 1988. However, considering that NDC had been
negotiating through the National Government for the sale of the August 12, 1988
property in favor of PUP as early as July 15, 1988 without first
HON. ANTONIO HENSON
offering to sell it to respondent and even when respondent General Manager
communicated its desire to exercise the option to purchase NATIONAL DEVELOPMENT COMPANY
granted to it under the lease contract, it is clear that NDC 377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
violated respondents right of first refusal. Under the premises,
the matter of the right of refusal not having been carried over to REF: Contract of Lease
the impliedly renewed month-to-month lease after the expiration Nos. C-33-77 & C-12-78
of the second lease contract on October 21, 1988 becomes
Dear Sir:
irrelevant since at the time of the negotiations of the sale to a
third party, petitioner PUP, respondents right of first refusal was This is further to our earlier letter dated
still subsisting. June 13, 1988 formally advising
your goodselves of our intention to
exercise our option for another ten (10)
Petitioner NDC in its memorandum contended that the CA erred years. Should the National Development
in applying the ruling in Polytechnic University of the Philippines Company opt to sell the property
v. Court of Appeals pointing out that the case of lessee covered by said leases, we also request
 for priority to negotiate for its purchase rental payments for the two portions.[35] Respondent further
at terms and/or conditions mutually
presented the blueprint plan prepared by its witness, Engr.
acceptable.
Alejandro E. Tinio, who supervised the construction of the
As a backgrounder, we wish to inform you structures on the leased premises, to show the building concept
that since the start of our lease, we have as a one-stop industrial site and integrated commercial
improved on the property by constructing
complex.[36]
bodega-type buildings which presently
house all legitimate trading and
manufacturing concerns. These business In fine, the CA was correct in declaring that there exists no
are substantial taxpayers, employ not less
than 300 employees and contribute even justifiable reason not to apply the same rationale in Polytechnic
foreign earnings. University of the Philippines v. Court of Appeals in the case of
respondent who was similarly prejudiced by petitioner NDCs
It is in this context that we are requesting sale of the property to PUP, as to entitle the respondent to
for the extension of the lease contract to
prevent serious economic disruption and exercise its option to purchase until October 1988 inasmuch as
dislocation of the business concerns, as the May 4, 1978 contract embodied the option to renew the
well as provide ourselves, the lessee, an lease for another ten (10) years upon mutual consent and giving
opportunity to recoup our investments respondent the option to purchase the leased premises for a
and obtain a fair return thereof.
price to be negotiated and determined at the time such option
Your favorable consideration on our request was exercised by respondent. It is to be noted
will be very much appreciated. that Memorandum Order No. 214 itself declared that the transfer
is subject to such liens/leases existing [on the subject
very truly yours,
property].Thus:
TIU HAN TENG
President[33] ...we now proceed to determine
whether FIRESTONE should be allowed to
exercise its right of first refusal over the
As to petitioners argument that respondents right of first refusal property. Such right was expressly stated
by NDC and FIRESTONE in par. XV of
can be invoked only with respect to the second lease contract their third contract denominated as A-10-
which expressly provided for the option to purchase by the 78 executed on 22 December 1978 which,
lessee, and not in the first lease contract which contained no as found by the courts a quo, was
such clause, we sustain the RTC and CA in finding that the interrelated to and inseparable from their
first contract denominated as C-30-65
second contract, covering an area of 3,222.80 square meters, is executed on 24 August 1965 and their
interrelated to and inseparable from the first contract over 2,407 second contract denominated as C-26-68
square meters. The structures built on the leased premises, executed on 8 January 1969. Thus -
which are adjacent to each other, form part of an integrated
Should the
system of a commercial complex leased out to manufacturers,
LESSOR desire to sell
fabricators and other businesses. Petitioners submitted a sketch the leased premises
plan and pictures taken of the driveways, in an effort to show during the term of this
that the leased premises can be used separately by respondent, Agreement, or any
extension thereof, the
and that the two (2) lease contracts are distinct from each LESSOR shall first give
other.[34] Such was a desperate attempt to downplay the to the LESSEE, which
commercial purpose of respondents substantial improvements shall have the right of
which greatly contributed to the increased value of the leased first option to
purchase the leased
premises. To prove that petitioner NDC had considered the premises subject to
leased premises as a single unit, respondent submitted mutual agreement of
evidence showing that NDC issued only one (1) receipt for the both parties.
 In the instant case, the right of first It now becomes apropos to ask
refusal is an integral and indivisible part of whether the courts a quo were correct in
the contract of lease and is inseparable from fixing the proper consideration of the sale
the whole contract. The consideration for at P1,500.00 per square meter. In contracts
the right is built into the reciprocal of sale, the basis of the right of first refusal
obligations of the parties. Thus, it is not must be the current offer of the seller to sell
correct for petitioners to insist that there was or the offer to purchase of the prospective
no consideration paid by FIRESTONE to buyer. Only after the lessee-grantee fails to
entitle it to the exercise of the right, exercise its right under the same terms and
inasmuch as the stipulation is part and within the period contemplated can the
parcel of the contract of lease making the owner validly offer to sell the property to a
consideration for the lease the same as that third person, again, under the same terms
for the option. as offered to the grantee. It appearing that
the whole NDC compound was sold to PUP
It is a settled principle in civil law for P554.74 per square meter, it would have
that when a lease contract contains a right been more proper for the courts below to
of first refusal, the lessor is under a legal have ordered the sale of the property also at
duty to the lessee not to sell to anybody at the same price. However, since
any price until after he has made an offer to FIRESTONE never raised this as an
sell to the latter at a certain price and the issue, while on the other hand it admitted
lessee has failed to accept it. The lessee that the value of the property stood
has a right that the lessors first offer shall be at P1,500.00 per square meter, then we
in his favor. see no compelling reason to modify the
holdings of the courts a quo that the
The option in this case was leased premises be sold at that
incorporated in the contracts of lease by price.[39] [EMPHASIS SUPPLIED]
NDC for the benefit of FIRESTONE which,
in view of the total amount of its
investments in the property, wanted to be In the light of the foregoing, we hold that respondent, which did
assured that it would be given the first
not offer any amount to petitioner NDC, and neither disputed
opportunity to buy the property at a price
for which it would be offered. Consistent the P1,500.00 per square meter actual value of NDCs
with their agreement, it was then implicit property at that time it was sold to PUP at P554.74 per square
for NDC to have first offered the leased meter, as duly considered by this Court in
premises of 2.60 hectares to FIRESTONE
the Firestone case, should be bound by such
prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of determination. Accordingly, the price at which the leased
first priority could NDC lawfully sell the premises should be sold to respondent in the exercise of its right
property to petitioner PUP.[37] [EMPHASIS of first refusal under the lease contract with petitioner NDC,
SUPPLIED]
which was pegged by the RTC at P554.74 per square meter,
should be adjusted toP1,500.00 per square meter, which more
As we further ruled in the afore-cited case, the contractual grant
accurately reflects its true value at that time of the sale in favor
of a right of first refusal is enforceable, and following an earlier
of petitioner PUP.
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 Indeed, basic is the rule that a party to a contract cannot
which he should have offered the property in favor of the unilaterally withdraw a right of first refusal that stands upon
grantee and at that price when the offer should have been valuable consideration.[40] We have categorically ruled that it is
made. We then determined the proper rate at which the leased not correct to say that there is no consideration for the grant of
portion should be reconveyed to respondent by PUP, to whom the right of first refusal if such grant is embodied in the same
the lessor NDC sold it in violation of respondent lessees right of contract of lease. Since the stipulation forms part of the entire
first refusal, as follows: lease contract, the consideration for the lease includes the
consideration for the grant of the right of first refusal. In entering G.R. No. 109125 December 2, 1994
into the contract, the lessee is in effect stating that it consents to
ANG YU ASUNCION, ARTHUR GO AND KEH
lease the premises and to pay the price agreed upon provided
TIONG, petitioners,
the lessor also consents that, should it sell the leased property, vs.
then, the lessee shall be given the right to match the offered THE HON. COURT OF APPEALS and BUEN REALTY
purchase price and to buy the property at that price.[41] DEVELOPMENT CORPORATION, respondents.

Antonio M. Albano for petitioners.

We have further stressed that not even the avowed public
welfare or the constitutional priority accorded to education, Umali, Soriano & Associates for private respondent.
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
VITUG, J.:
prioritized for legislative and budgetary purposes, it is doubtful if
such importance can be used to confiscate private property
Assailed, in this petition for review, is the decision of the Court
such as the right of first refusal granted to a lessee of petitioner of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345
NDC.[42] Clearly, no reversible error was committed by the CA in setting aside and declaring without force and effect the orders of
sustaining respondents contractual right of first refusal and execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
ordering the reconveyance of the leased portion of petitioner
NDCs property in its favor. The antecedents are recited in good detail by the appellate court
thusly:
WHEREFORE, the petitions are DENIED. The Decision dated
On July 29, 1987 a Second Amended
November 25, 2004 of the Regional Trial Court of Makati City,
Complaint for Specific Performance was
Branch 144 in Civil Case No. 88-2238, as affirmed by the Court filed by Ang Yu Asuncion and Keh Tiong, et
of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV al., against Bobby Cu Unjieng, Rose Cu
No. 84399, is hereby AFFIRMED with MODIFICATION in that Unjieng and Jose Tan before the Regional
Trial Court, Branch 31, Manila in Civil Case
the price to be paid by respondent Golden Horizon Realty
No. 87-41058, alleging, among others, that
Corporation for the leased portion of the NDC Compound under plaintiffs are tenants or lessees of residential
Lease Contract Nos. C-33-77 and C-12-78 is hereby increased and commercial spaces owned by
to P1,500.00 per square meter. defendants described as Nos. 630-638
Ongpin Street, Binondo, Manila; that they
have occupied said spaces since 1935 and
No pronouncement as to costs. have been religiously paying the rental and
complying with all the conditions of the lease
contract; that on several occasions before
SO ORDERED. 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 2. That the VENDEE
uncertain forces in our shall pay the
market economy today. Documentary Stamp
We find no reason not to Tax, registration fees for
grant the same right of the transfer of title in his
first refusal to herein favor and other
appellants in the event expenses incidental to
that the subject property the sale of above-
is sold for a price in described property
excess of Eleven Million including capital gains
pesos. No tax and accrued real
pronouncement as to estate taxes.
costs.
As a consequence of the sale, TCT No.
SO ORDERED. 105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof,
The decision of this Court was brought to TCT No. 195816 was issued in the name of
the Supreme Court by petition for review petitioner on December 3, 1990.
on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in On July 1, 1991, petitioner as the new owner
form and substances" (Annex H, Petition). of the subject property wrote a letter to the
lessees demanding that the latter vacate the
On November 15, 1990, while CA-G.R. CV premises.
No. 21123 was pending consideration by
this Court, the Cu Unjieng spouses executed On July 16, 1991, the lessees wrote a reply
a Deed of Sale (Annex D, Petition) to petitioner stating that petitioner brought
transferring the property in question to the property subject to the notice of lis
herein petitioner Buen Realty and pendens regarding Civil Case No. 87-41058
Development Corporation, subject to the annotated on TCT No. 105254/T-881 in the
following terms and conditions: name of the Cu Unjiengs.

1. That for and in The lessees filed a Motion for Execution

consideration of the sum dated August 27, 1991 of the Decision in
of FIFTEEN MILLION Civil Case No. 87-41058 as modified by the
PESOS Court of Appeals in CA-G.R. CV No. 21123.
(P15,000,000.00),
receipt of which in full is On August 30, 1991, respondent Judge
hereby acknowledged, issued an order (Annex A, Petition) quoted
the VENDORS hereby as follows:
sells, transfers and
conveys for and in favor
Presented before the
of the VENDEE, his
Court is a Motion for
heirs, executors,
Execution filed by
administrators or
plaintiff represented by
assigns, the above-
Atty. Antonio Albano.
described property with
Both defendants Bobby
all the improvements
Cu Unjieng and Rose
found therein including
Cu Unjieng represented
all the rights and interest
by Atty. Vicente Sison
in the said property free
and Atty. Anacleto
from all liens and
Magno respectively
encumbrances of
were duly notified in
whatever nature, except
today's consideration of
the pending ejectment
the motion as evidenced
proceeding;
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 Among the sources of an obligation is a contract (Art. 1157, Civil
consideration of Code), which is a meeting of minds between two persons
P15,000,000.00 and whereby one binds himself, with respect to the other, to give
ordering the Register of something or to render some service (Art. 1305, Civil Code). A
Deeds of the City of contract undergoes various stages that include its negotiation or
Manila, to cancel and preparation, its perfection and, finally, its
set aside the title consummation. Negotiation covers the period from the time the
already issued in favor prospective contracting parties indicate interest in the
of Buen Realty contract to the time the contract is concluded (perfected).
Corporation which was The perfection of the contract takes place upon the concurrence
previously executed of the essential elements thereof. A contract which
between the latter and is consensual as to perfection is so established upon a mere
defendants and to meeting of minds, i.e., the concurrence of offer and acceptance,
register the new title in on the object and on the cause thereof. A contract which
favor of the aforesaid requires, in addition to the above, the delivery of the object of
plaintiffs Ang Yu the agreement, as in a pledge or commodatum, is commonly
Asuncion, Keh Tiong referred to as a real contract. In a solemn contract, compliance
and Arthur Go. with certain formalities prescribed by law, such as in a donation
of real property, is essential in order to make the act valid, the
SO ORDERED. 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
On the same day, September 27, 1991 the
extinguishment thereof.
corresponding writ of execution (Annex C,
Petition) was issued.1
Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation. In
On 04 December 1991, the appellate court, on appeal to it by
sales, particularly, to which the topic for discussion about the
private respondent, set aside and declared without force and
case at bench belongs, the contract is perfected when a person,
effect the above questioned orders of the court a quo.
called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called
In this petition for review on certiorari, petitioners contend that the buyer, over which the latter agrees. Article 1458 of the Civil
Buen Realty can be held bound by the writ of execution by virtue Code provides:
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
Art. 1458. By the contract of sale one of the
purchase of the property on 15 November 1991 from the Cu
contracting parties obligates himself to
Unjiengs.
transfer the ownership of and to deliver a
determinate thing, and the other to pay
We affirm the decision of the appellate court. therefor a price certain in money or its
equivalent.
A not too recent development in real estate transactions is the
adoption of such arrangements as the right of first refusal, a A contract of sale may be absolute or
purchase option and a contract to sell. For ready reference, we conditional.
might point out some fundamental precepts that may find some
relevance to this discussion.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the thing
An obligation is a juridical necessity to give, to do or not to do sold is retained until the fulfillment of a positive suspensive
(Art. 1156, Civil Code). The obligation is constituted upon the condition (normally, the full payment of the purchase price), the
concurrence of the essential elements thereof, viz: (a) breach of the condition will prevent the obligation to convey title
The vinculum juris or juridical tie which is the efficient cause from acquiring an obligatory force.2 In Dignos vs. Court of
established by the various sources of obligations (law, contracts, Appeals (158 SCRA 375), we have said that, although
quasi-contracts, delicts and quasi-delicts); (b) the object which is denominated a "Deed of Conditional Sale," a sale is still
the prestation or conduct; required to be observed (to give, to do absolute where the contract is devoid of any proviso that title is
or not to do); and (c) the subject-persons who, viewed from the reserved or the right to unilaterally rescind is stipulated, e.g.,
demandability of the obligation, are the active (obligee) and the until or unless the price is paid. Ownership will then be
passive (obligor) subjects. transferred to the buyer upon actual or constructive delivery
(e.g., by the execution of a public document) of the property 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil.
sold. Where the condition is imposed upon the perfection of the 948, holding that this rule is applicable to a unilateral promise to
contract itself, the failure of the condition would prevent such sell under Art. 1479, modifying the previous decision in South
perfection.3 If the condition is imposed on the obligation of a Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
party which is not fulfilled, the other party may either waive the 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado,
condition or refuse to proceed with the sale (Art. 1545, Civil 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
Code).4 withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under
An unconditional mutual promise to buy and sell, as long as the Article 19 of the Civil Code which ordains that "every person
object is made determinate and the price is fixed, can be must, in the exercise of his rights and in the performance of his
obligatory on the parties, and compliance therewith may duties, act with justice, give everyone his due, and observe
accordingly be exacted.5 honesty and good faith."

An accepted unilateral promise which specifies the thing to be (2) If the period has a separate consideration, a contract of
sold and the price to be paid, when coupled with a valuable "option" is deemed perfected, and it would be a breach of that
consideration distinct and separate from the price, is what may contract to withdraw the offer during the agreed period. The
properly be termed a perfected contract of option. This contract option, however, is an independent contract by itself, and it is to
is legally binding, and in sales, it conforms with the second be distinguished from the projected main agreement (subject
paragraph of Article 1479 of the Civil Code, viz: 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
Art. 1479. . . .
latter may not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to reach its
An accepted unilateral promise to buy or to own stage of perfection. The optioner-offeror, however, renders
sell a determinate thing for a price certain is himself liable for damages for breach of the option. In these
binding upon the promissor if the promise is cases, care should be taken of the real nature of
supported by a consideration distinct from the consideration given, for if, in fact, it has been intended to be
the price. (1451a)6 part of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract could
Observe, however, that the option is not the contract of sale be deemed perfected; a similar instance would be an "earnest
itself.7 The optionee has the right, but not the obligation, to buy. money" in a contract of sale that can evidence its perfection (Art.
Once the option is exercised timely, i.e., the offer is accepted 1482, Civil Code).
before a breach of the option, a bilateral promise to sell and to
buy ensues and both parties are then reciprocally bound to In the law on sales, the so-called "right of first refusal" is an
comply with their respective undertakings.8 innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the
Let us elucidate a little. A negotiation is formally initiated by an Civil Code. Neither can the right of first refusal, understood in its
offer. An imperfect promise (policitacion) is merely an offer. normal concept, per se be brought within the purview of an
Public advertisements or solicitations and the like are ordinarily option under the second paragraph of Article 1479, aforequoted,
construed as mere invitations to make offers or only as or possibly of an offer under Article 13199 of the same Code. An
proposals. These relations, until a contract is perfected, are not option or an offer would require, among other things,10 a clear
considered binding commitments. Thus, at any time prior to the certainty on both the object and the cause or consideration of
perfection of the contract, either negotiating party may stop the the envisioned contract. In a right of first refusal, while the object
negotiation. The offer, at this stage, may be withdrawn; the might be made determinate, the exercise of the right, however,
withdrawal is effective immediately after its manifestation, such would be dependent not only on the grantor's eventual intention
as by its mailing and not necessarily when the offeree learns of to enter into a binding juridical relation with another but also on
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period terms, including the price, that obviously are yet to be later
is given to the offeree within which to accept the offer, the firmed up. Prior thereto, it can at best be so described as merely
following rules generally govern: belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish
(1) If the period is not itself founded upon or supported by a the vinculum juris would still be indefinite and inconclusive) but
consideration, the offeror is still free and has the right to by, among other laws of general application, the pertinent
withdraw the offer before its acceptance, or, if an acceptance scattered provisions of the Civil Code on human conduct.
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art.
Even on the premise that such right of first refusal has been It is likewise quite obvious to us that the decision in Civil Case
decreed under a final judgment, like here, its breach cannot No. 87-41058 could not have decreed at the time the execution
justify correspondingly an issuance of a writ of execution under of any deed of sale between the Cu Unjiengs and petitioners.
a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby WHEREFORE, we UPHOLD the Court of Appeals in ultimately
negating the indispensable element of consensuality in the setting aside the questioned Orders, dated 30 August 1991 and
perfection of contracts.11 It is not to say, however, that the right 27 September 1991, of the court a quo. Costs against
of first refusal would be inconsequential for, such as already petitioners.
intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 1912 of the Civil
SO ORDERED.
Code, can warrant a recovery for damages.

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

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

Furthermore, whether private respondent Buen Realty

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

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

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

Finally, the questioned writ of execution is in

variance with the decision of the trial court
as modified by this Court. As already stated,
there was nothing in said decision 13 that
decreed the execution of a deed of sale
between the Cu Unjiengs and respondent
lessees, or the fixing of the price of the sale,
or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516;
Pamantasan ng Lungsod ng Maynila vs.
IAC, 143 SCRA 311; De Guzman vs. CA,
137 SCRA 730; Pastor vs. CA, 122 SCRA
885).
 [G.R. No. 111538. February 26, 1997] 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.
PARAAQUE KINGS ENTERPRISES,
INCORPORATED, petitioner, vs. COURT OF 2. Defendant Catalina L. Santos is the owner of
APPEALS, CATALINA L. SANTOS, represented by eight (8) parcels of land located at (sic) Paraaque,
her attorney-in-fact, LUZ B. PROTACIO, and DAVID Metro Manila with transfer certificate of title nos. S-
A. RAYMUNDO, respondents. 19637, S-19638 and S-19643 to S-19648. Xerox
copies of the said title (sic) are hereto attached as
DECISION Annexes B to I, respectively.

PANGANIBAN, J.: 3. On November 28, 1977, a certain Frederick Chua

leased the above-described property from
Do allegations in a complaint showing violation of a defendant Catalina L. Santos, the said lease was
contractual right of first option or priority to buy the properties registered in the Register of Deeds. Xerox copy of
subject of the lease constitute a valid cause of action? Is the the lease is hereto attached as Annex J.
grantee of such right entitled to be offered the same terms and
conditions as those given to a third party who eventually bought 4. On February 12, 1979, Frederick Chua assigned
such properties? In short, is such right of first refusal all his rights and interest and participation in the
enforceable by an action for specific performance? leased property to Lee Ching Bing, by virtue of a
These questions are answered in the affirmative by this deed of assignment and with the conformity of
Court in resolving this petition for review under Rule 45 of the defendant Santos, the said assignment was also
Rules of Court challenging the Decision[1] of the Court of registered. Xerox copy of the deed of assignment is
Appeals[2] promulgated on March 29, 1993, in CA-G.R. CV No. hereto attached as Annex K.
34987 entitled Paraaque Kings Enterprises, Inc. vs. Catalina L.
Santos, et al., which affirmed the order[3] of September 2, 1991, 5. On August 6, 1979, Lee Ching Bing also assigned
of the Regional Trial Court of Makati, Branch 57, [4]dismissing all his rights and interest in the leased property to
Civil Case No. 91-786 for lack of a valid cause of action. 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
Facts of the Case
attached as Annex L.

On March 19, 1991, herein petitioner filed before the 6. Paragraph 9 of the assigned leased (sic) contract provides
Regional Trial Court of Makati a complaint,[5] which is among others that:
reproduced in full below:
9. That in case the properties subject of the
Plaintiff, by counsel, respectfully states that: lease agreement are sold or encumbered,
Lessors shall impose as a condition that the
1. Plaintiff is a private corporation organized and buyer or mortgagee thereof shall recognize
existing under and by virtue of the laws of the and be bound by all the terms and conditions
Philippines, with principal place of business of (sic) of this lease agreement and shall respect this
Dr. A. Santos Avenue, Paraaque, Metro Manila, Contract of Lease as if they are the
while defendant Catalina L. Santos, is of legal age, LESSORS thereof and in case of sale,
widow, with residence and postal address at 444 LESSEE shall have the first option or priority
Plato Street, Ct., Stockton, California, USA, to buy the properties subject of the lease;
represented in this action by her attorney-in-fact,
Luz B. Protacio, with residence and postal address 7. On September 21, 1988, defendant Santos sold
at No, 12, San Antonio Street, Magallanes Village, the eight parcels of land subject of the lease to
Makati, Metro Manila, by virtue of a general power defendant David Raymundo for a consideration of
of attorney. Defendant David A. Raymundo, is of FIVE MILLION (P5,000,000.00) PESOS. The said
legal age, single, with residence and postal address sale was in contravention of the contract of lease,
at 1918 Kamias Street, Damarias Village, Makati, for the first option or priority to buy was not offered
by defendant Santos to the plaintiff. Xerox copy of 15. On June 28, 1989, counsel for plaintiff informed
the deed of sale is hereto attached as Annex M. counsel of defendant Santos of the fact that plaintiff
is the assignee of all rights and interest of the
8. On March 5, 1989, defendant Santos wrote a former lessor. Xerox copy of the letter is hereto
letter to the plaintiff informing the same of the sale attached as Annex V.
of the properties to defendant Raymundo, the said
letter was personally handed by the attorney-in-fact 16. On July 6, 1989, counsel for defendant Santos
of defendant Santos, Xerox copy of the letter is informed the plaintiff that the new owner is
hereto attached as Annex N. defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex W.
9. Upon learning of this fact plaintiffs representative
wrote a letter to defendant Santos, requesting her to 17. From the preceding facts it is clear that the sale
rectify the error and consequently realizing the was simulated and that there was a collusion
error, she had it reconveyed to her for the same between the defendants in the sales of the leased
consideration of FIVE MILLION (P5,000,000.00) properties, on the ground that when plaintiff wrote a
PESOS. Xerox copies of the letter and the deed of letter to defendant Santos to rectify the error, she
reconveyance are hereto attached as Annexes O immediately have (sic) the property reconveyed it
and P. (sic) to her in a matter of twelve (12) days.

10. Subsequently the property was offered for sale 18. Defendants have the same counsel who
to plaintiff by the defendant for the sum of FIFTEEN represented both of them in their exchange of
MILLION (P15,000,000.00) PESOS. Plaintiff was communication with plaintiffs counsel, a fact that led
given ten (10) days to make good of the offer, but to the conclusion that a collusion exist (sic) between
therefore (sic) the said period expired another letter the defendants.
came from the counsel of defendant Santos,
containing the same tenor of (sic) the former 19. When the property was still registered in the
letter. Xerox copies of the letters are hereto name of defendant Santos, her collector of the
attached as Annexes Q and R. rental of the leased properties was her brother-in-
law David Santos and when it was transferred to
11. On May 8, 1989, before the period given in the defendant Raymundo the collector was still David
letter offering the properties for sale expired, Santos up to the month of June, 1990. Xerox copies
plaintiffs counsel wrote counsel of defendant Santos of cash vouchers are hereto attached as Annexes X
offering to buy the properties for FIVE MILLION to HH, respectively.
(P5,000,000.00) PESOS.Xerox copy of the letter is
hereto attached as Annex S. 20. The purpose of this unholy alliance between
defendants Santos and Raymundo is to mislead the
12. On May 15, 1989, before they replied to the offer plaintiff and make it appear that the price of the
to purchase, another deed of sale was executed by leased property is much higher than its actual value
defendant Santos (in favor of) defendant Raymundo of FIVE MILLION (P5,000,000.00) PESOS, so that
for a consideration of NINE MILLION plaintiff would purchase the properties at a higher
(P9,000,000.00) PESOS.Xerox copy of the second price.
deed of sale is hereto attached as Annex T.
21. Plaintiff has made considerable investments in
13. Defendant Santos violated again paragraph 9 of the said leased property by erecting a two (2)
the contract of lease by executing a second deed of storey, six (6) doors commercial building amounting
sale to defendant Raymundo. to THREE MILLION (P3,000,000.00) PESOS. This
considerable improvement was made on the belief
14. It was only on May 17, 1989, that defendant that eventually the said premises shall be sold to
Santos replied to the letter of the plaintiffs offer to the plaintiff.
buy or two days after she sold her properties. In her
reply she stated among others that the period has 22. As a consequence of this unlawful act of the
lapsed and the plaintiff is not a privy (sic) to the defendants, plaintiff will incurr (sic) total loss of
contract. Xerox copy of the letter is hereto attached THREE MILLION (P3,000,000.00) PESOS as the
as Annex U. actual cost of the building and as such defendants
 should be charged of the same amount for actual Plaintiff further prays for other just and equitable reliefs plus cost
damages. of suit.

23. As a consequence of the collusion, evil design Instead of filing their respective answers, respondents
and illegal acts of the defendants, plaintiff in the filed motions to dismiss anchored on the grounds of lack of
process suffered mental anguish, sleepless nights, cause of action, estoppel and laches.
bismirched (sic) reputation which entitles plaintiff to
moral damages in the amount of FIVE MILLION On September 2, 1991, the trial court issued the order
(P5,000,000.00) PESOS. dismissing the complaint for lack of a valid cause of action. It
ratiocinated thus:
24. The defendants acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner and as Upon the very face of the plaintiffs Complaint itself, it therefore
a deterrent to the commission of similar acts, they indubitably appears that the defendant Santos had verily
should be made to answer for exemplary damages, complied with paragraph 9 of the Lease Agreement by twice
the amount left to the discretion of the Court. 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
25. Plaintiff demanded from the defendants to rectify definite refusal on the part of the plaintiff to accept the offer of
their unlawful acts that they committed, but defendant Santos. For in acquiring the said properties back to
defendants refused and failed to comply with her name, and in so making the offers to sell both by herself
plaintiffs just and valid and (sic) demands. Xerox (attorney-in-fact) and through her counsel, defendant Santos
copies of the demand letters are hereto attached as was indeed conscientiously complying with her obligation under
Annexes KK to LL, respectively. paragraph 9 of the Lease Agreement. x x x

26. Despite repeated demands, defendants failed xxxxxxxxx

and refused without justifiable cause to satisfy
plaintiffs claim, and was constrained to engaged
(sic) the services of undersigned counsel to institute This is indeed one instance where a Complaint, after barely
this action at a contract fee of P200,000.00, as and commencing to create a cause of action, neutralized itself by its
for attorneys fees, exclusive of cost and expenses subsequent averments which erased or extinguished its earlier
of litigation. 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
PRAYER devoid of any meaning or purpose. x x x

WHEREFORE, it is respectfully prayed, that judgment be The inescapable result of the foregoing considerations point to
rendered in favor of the plaintiff and against defendants no other conclusion than that the Complaint actually does not
and ordering that: contain any valid cause of action and should therefore be as it is
hereby ordered DISMISSED. The Court finds no further need to
a. The Deed of Sale between defendants dated May consider the other grounds of estoppel and laches inasmuch as
15, 1989, be annulled and the leased properties be this resolution is sufficient to dispose the matter.[6]
sold to the plaintiff in the amount of P5,000,000.00;
Petitioners appealed to the Court of Appeals which
b. Dependants (sic) pay plaintiff the sum affirmed in toto the ruling of the trial court, and further reasoned
of P3,000,000.00 as actual damages; that:

c. Defendants pay the sum of P5,000,000.00 as x x x Appellants protestations that the P15 million price quoted
moral damages; by appellee Santos was reduced to P9 million when she later
resold the leased properties to Raymundo has no valid legal
d. Defendants pay exemplary damages left to the moorings because appellant, as a prospective buyer, cannot
discretion of the Court; dictate its own price and forcibly ram it against appellee Santos,
as owner, to buy off her leased properties considering the total
e. Defendants pay the sum of not less absence of any stipulation or agreement as to the price or as to
than P200,000.00 as attorneys fees. 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 Private respondents likewise contend that the deed of
order dated August 20, 1993.[8] assignment of the lease agreement did not include the
assignment of the option to purchase. Respondent Raymundo
Hence this petition. Subsequently, petitioner filed an further avers that he was not privy to the contract of lease, being
Urgent Motion for the Issuance of Restraining Order and/or Writ neither the lessor nor lessee adverted to therein, hence he could
of Preliminary Injunction and to Hold Respondent David A. not be held liable for violation thereof.
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 The Courts Ruling
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 Preliminary Issue: Failure to File Sufficient Copies of Brief
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 We first dispose of the procedural issue raised by
was decided in favor of Raymundo, and the entry of final respondents, particularly petitioners failure to file twelve (12)
judgment in respect thereof renders the said motion moot and copies of its brief. We have ruled that when non-compliance with
academic. 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
Issue 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
The principal legal issue presented before us for failure was intentional.
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. Main Issue: Validity of 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, We do not agree with respondents contention that the
to wit: (1) breach of contract, (2) its right of first refusal founded issue involved is purely factual. The principal legal question, as
in law, and (3) damages. stated earlier, is whether the complaint filed by herein petitioner
in the lower court states a valid cause of action. Since such
Respondents Santos and Raymundo, in their separate question assumes the facts alleged in the complaint as true, it
comments, aver that the petition should be denied for not raising follows that the determination thereof is one of law, and not of
a question of law as the issue involved is purely factual -- facts. There is a question of law in a given case when the doubt
whether respondent Santos complied with paragraph 9 of the or difference arises as to what the law is on a certain state of
lease agreement -- and for not having complied with Section 2, facts, and there is a question of fact when the doubt or
Rule 45 of the Rules of Court, requiring the filing of twelve (12) difference arises as to the truth or the falsehood of alleged
copies of the petitioners brief. Both maintain that the complaint facts.[11]
filed by petitioner before the Regional Trial Court of Makati
stated no valid cause of action and that petitioner failed to At the outset, petitioner concedes that when the ground
substantiate its claim that the lower courts decided the same in for a motion to dismiss is lack of cause of action, such ground
a way not in accord with law and applicable decisions of the must appear on the face of the complaint; that to determine the
Supreme Court; or that the Court of Appeals has sanctioned sufficiency of a cause of action, only the facts alleged in the
departure by a trial court from the accepted and usual course of complaint and no others should be considered; and that the test
judicial proceedings so as to merit the exercise by this Court of of sufficiency of the facts alleged in a petition or complaint to
the power of review under Rule 45 of the Rules of Court. constitute a cause of action is whether, admitting the facts
Furthermore, they reiterate estoppel and laches as grounds for alleged, the court could render a valid judgment upon the same
dismissal, claiming that petitioners payment of rentals of the in accordance with the prayer of the petition or complaint.
leased property to respondent Raymundo from June 15, 1989, A cause of action exists if the following elements are
to June 30, 1990, was an acknowledgment of the latters status present: (1) a right in favor of the plaintiff by whatever means
as new owner-lessor of said property, by virtue of which and under whatever law it arises or is created; (2) an obligation
petitioner is deemed to have waived or abandoned its first on the part of the named defendant to respect or not to violate
option to purchase.
such right, and (3) an act or omission on the part of such the case of Guzman, Bocaling & Co. vs. Bonnevie.[16] In that
defendant violative of the right of plaintiff or constituting a case, under a contract of lease, the lessees (Raul and
breach of the obligation of defendant to the plaintiff for which the Christopher Bonnevie) were given a right of first priority to
latter may maintain an action for recovery of damages.[12] purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies
In determining whether allegations of a complaint are was P600,000.00 to be fully paid in cash, less a mortgage lien
sufficient to support a cause of action, it must be borne in mind of P100,000.00. On the other hand, the selling price offered by
that the complaint does not have to establish or allege facts Reynoso to and accepted by Guzman was only P400,000.00 of
proving the existence of a cause of action at the outset; this will which P137,500.00 was to be paid in cash while the balance
have to be done at the trial on the merits of the case. To sustain was to be paid only when the property was cleared of
a motion to dismiss for lack of cause of action, the complaint occupants. We held that even if the Bonnevies could not buy it
must show that the claim for relief does not exist, rather than at the price quoted (P600,000.00), nonetheless, Reynoso could
that a claim has been defectively stated, or is ambiguous, not sell it to another for a lower price and under more favorable
indefinite or uncertain.[13] terms and conditions without first offering said favorable terms
Equally important, a defendant moving to dismiss a and price to the Bonnevies as well. Only if the Bonnevies failed
complaint on the ground of lack of cause of action is regarded to exercise their right of first priority could Reynoso thereafter
as having hypothetically admitted all the averments thereof.[14] lawfully sell the subject property to others, and only under the
same terms and conditions previously offered to the Bonnevies.
A careful examination of the complaint reveals that it
sufficiently alleges an actionable contractual breach on the part Of course, under their contract, they specifically stipulated
of private respondents. Under paragraph 9 of the contract of that the Bonnevies could exercise the right of first priority, all
lease between respondent Santos and petitioner, the latter was things and conditions being equal. This Court interpreted
granted the first option or priority to purchase the leased this proviso to mean that there should be identity of terms and
properties in case Santos decided to sell. If Santos never conditions to be offered to the Bonnevies and all other
decided to sell at all, there can never be a breach, much less an prospective buyers, with the Bonnevies to enjoy the right of first
enforcement of such right. But on September 21, 1988, Santos priority. We hold that the same rule applies even without the
sold said properties to Respondent Raymundo without first same proviso if the right of first refusal (or the first option to buy)
offering these to petitioner. Santos indeed realized her error, is not to be rendered illusory.
since she repurchased the properties after petitioner From the foregoing, the basis of the right of the first
complained. Thereafter, she offered to sell the properties to refusal* must be the current offer to sell of the seller or offer to
petitioner for P15 million, which petitioner, however, rejected purchase of any prospective buyer. Only after the grantee** fails
because of the ridiculous price. But Santos again appeared to to exercise its right of first priority under the same terms and
have violated the same provision of the lease contract when she within the period contemplated, could the owner validly offer to
finally resold the properties to respondent Raymundo for only P9 sell the property to a third person, again, under the same terms
million without first offering them to petitioner at such as offered to the grantee***.
price. Whether there was actual breach which entitled petitioner
to damages and/or other just or equitable relief, is a question This principle was reiterated in the very recent case
which can better be resolved after trial on the merits where each of Equatorial Realty vs. Mayfair Theater, Inc.[17] which was
party can present evidence to prove their respective allegations decided en banc. This Court upheld the right of first refusal of
and defenses.[15] the lessee Mayfair, and rescinded the sale of the property by the
lessor Carmelo to Equatorial Realty considering that Mayfair,
The trial and appellate courts based their decision to which had substantial interest over the subject property, was
sustain respondents motion to dismiss on the allegations of prejudiced by its sale to Equatorial without Carmelo conferring
Paraaque Kings Enterprises that Santos had actually offered the to Mayfair every opportunity to negotiate within the 30-day
subject properties for sale to it prior to the final sale in favor of stipulated period (underscoring supplied).
Raymundo, but that the offer was rejected. According to said
courts, with such offer, Santos had verily complied with her In that case, two contracts of lease between Carmelo and
obligation to grant the right of first refusal to petitioner. Mayfair provided that if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30 days exclusive
We hold, however, that in order to have full compliance option to purchase the same. Carmelo initially offered to sell the
with the contractual right granting petitioner the first option to leased property to Mayfair for six to seven million pesos. Mayfair
purchase, the sale of the properties for the amount of P9 million, indicated interest in purchasing the property though it invoked
the price for which they were finally sold to respondent the 30-day period. Nothing was heard thereafter from
Raymundo, should have likewise been first offered to petitioner. Carmelo. Four years later, the latter sold its entire Recto Avenue
The Court has made an extensive and lengthy discourse property, including the leased premises, to Equatorial
on the concept of, and obligations under, a right of first refusal in for P11,300,000.00 without priorly informing Mayfair. The Court
held that both Carmelo and Equatorial acted in bad faith: x x x the ASSIGNOR hereby sells, transfers and assigns all his
Carmelo for knowingly violating the right of first refusal* of rights, interest and participation over said leased premises, x x
Mayfair, and Equatorial for purchasing the property despite x[21] (underscoring supplied)
being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow One of such rights included in the contract of lease and,
Mayfair to buy the subject property at the same price therefore, in the assignments of rights was the lessees right of
of P11,300,000.00. 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
No cause of action under P.D. 1517 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
Petitioner also invokes Presidential Decree No. 1517, or to as being assigned. Needless to state, respondent Santos
the Urban Land Reform Law, as another source of its right of gave her unqualified conformity to both assignments of rights.
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 Respondent Raymundo privy to the Contract of 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 With respect to the contention of respondent Raymundo
beneficiary under said law, suffice it to say that this Court has that he is not privy to the lease contract, not being the lessor nor
previously ruled that under Section 6[18] of P.D. 1517, the terms the lessee referred to therein, he could thus not have violated its
and conditions of the sale in the exercise of the lessees right of provisions, but he is nevertheless a proper party. Clearly, he
first refusal to purchase shall be determined by the Urban Zone stepped into the shoes of the owner-lessor of the land as, by
Expropriation and Land Management Committee. Hence, x x x virtue of his purchase, he assumed all the obligations of the
certain prerequisites must be complied with by anyone who lessor under the lease contract. Moreover, he received benefits
wishes to avail himself of the benefits of the decree.[19] There in the form of rental payments. Furthermore, the complaint, as
being no allegation in its complaint that the prerequisites were well as the petition, prayed for the annulment of the sale of the
complied with, it is clear that the complaint did fail to state a properties to him. Both pleadings also alleged collusion between
cause of action on this ground. 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,
Deed of Assignment included the option to purchase 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
Neither do we find merit in the contention of respondent buyer of the property over which petitioner would like to assert
Santos that the assignment of the lease contract to petitioner did its right of first option to buy.
not include the option to purchase. The provisions of the deeds
Having come to the conclusion that the complaint states a
of assignment with regard to matters assigned were very
valid cause of action for breach of the right of first refusal and
clear. Under the first assignment between Frederick Chua as
that the trial court should thus not have dismissed the complaint,
assignor and Lee Ching Bing as assignee, it was expressly
we find no more need to pass upon the question of whether the
stated that:
complaint states a cause of action for damages or whether the
complaint is barred by estoppel or laches. As these matters
x x x the ASSIGNOR hereby CEDES, TRANSFERS and require presentation and/or determination of facts, they can be
ASSIGNS to herein ASSIGNEE, all his rights, interest and best resolved after trial on the merits.
participation over said premises afore-described, x x
x[20] (underscoring supplied) While the lower courts erred in dismissing the complaint,
private respondents, however, cannot be denied their day in
And under the subsequent assignment executed between court. While, in the resolution of a motion to dismiss, the truth of
Lee Ching Bing as assignor and the petitioner, represented by the facts alleged in the complaint are theoretically admitted,
its Vice President Vicenta Lo Chiong, as assignee, it was such admission is merely hypothetical and only for the purpose
likewise expressly stipulated that: 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 The lessees offered to reimburse de Leon the selling price of
lessees continued to stay in the premises and allegedly spent P726,000.00 plus an additional P274,000.00 to complete their
their own money amounting from P50,000.00 to P100,000.00 for P1,000.000.00 earlier offer. When their offer was refused, they
its upkeep. These expenses were never deducted from the filed the present action praying for the following: a) rescission of
rentals which already increased to P1,000.00. the Deed of Absolute Sale between de Leon and Rosencor
dated September 4, 1990; b) the defendants Rosencor/Rene
In June 1990, the lessees received a letter from Atty. Erlinda Joaquin be ordered to reconvey the property to de Leon; and c)
Aguila demanding that they vacate the premises so that the de Leon be ordered to reimburse the plaintiffs for the repairs of
demolition of the building be undertaken. They refused to leave the property, or apply the said amount as part of the price for the
the premises. In that same month, de Leon refused to accept purchase of the property in the sum of P100,000.00.[4]
the lessees rental payment claiming that they have run out of
receipts and that a new collector has been assigned to receive After trial on the merits, the Regional Trial Court rendered
the payments. Thereafter, they received a letter from Eufrocina a Decision[5] dated May 13, 1996 dismissing the complaint. The
de Leon offering to sell to them the property they were leasing trial court held that the right of redemption on which the
for P2,000,000.00. xxx. complaint was based was merely an oral one and as such, is
unenforceable under the law. The dispositive portion of the May
The lessees offered to buy the property from de Leon for the 13, 1996 Decision is as follows:
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 WHEREFORE, in view of the foregoing, the Court DISMISSES
was given by de Leon as to their offer to buy the property. the instant action. Plaintiffs and plaintiffs-intervenors are hereby
However, in November 1990, Rene Joaquin came to the leased ordered to pay their respective monthly rental of P1,000.00 per
premises introducing himself as its new owner. month reckoned from May 1990 up to the time they leave the
premises. No costs.
In January 1991, the lessees again received another letter from
Atty. Aguila demanding that they vacate the premises. A month SO ORDERED.[6]
thereafter, the lessees received a letter from de Leon advising
them that the heirs of the late spouses Tiangcos have already Not satisfied with the decision of the trial court,
sold the property to Rosencor. The following month Atty. Aguila respondents herein filed a Notice of Appeal dated June 3,
wrote them another letter demanding the rental payment and 1996. On the same date, the trial court issued an Order for the
introducing herself as counsel for Rosencor/Rene Joaquin, the elevation of the records of the case to the Court of Appeals.On
new owners of the premises. August 8, 1997, respondents filed their appellate brief before the
Court of Appeals.
The lessees requested from de Leon why she had disregarded
the pre-emptive right she and the late Tiangcos have promised On June 25, 1999, the Court of Appeals rendered its
them. They also asked for a copy of the deed of sale between decision[7] reversing the decision of the trial court. The
her and the new owners thereof but she refused to heed their dispositive portion of the June 25, 1999 decision is as follows:
request. In the same manner, when they asked Rene Joaquin a
copy of the deed of sale, the latter turned down their request WHEREFORE, premises considered, the appealed decision
and instead Atty. Aguila wrote them several letters demanding (dated May 13, 1996) of the Regional Trial Court (Branch 217)
that they vacate the premises. The lessees offered to tender in Quezon City in Case No. Q-93-18582 is hereby REVERSED
their rental payment to de Leon but she refused to accept the and SET ASIDE. In its stead, a new one is rendered ordering:
same.
(1) The rescission of the Deed of Absolute Sale
In April 1992 before the demolition can be undertaken by the executed between the appellees on September
Buiding Official, the barangay interceded between the parties 4, 1990;
herein after which Rosencor raised the issue as to the rental
(2) The reconveyance of the subject premises to
payment of the premises. It was also at this instance that the
appellee Eufrocina de Leon;
lessees were furnished with a copy of the Deed of Sale and
discovered that they were deceived by de Leon since the sale (3) The heirs of Faustino and Crescencia Tiangco,
between her and Rene Joaquin/Rosencor took place in thru appellee Eufrocina de Leon, to afford the
September 4, 1990 while de Leon made the offer to them only in appellants thirty days within which to exercise
October 1990 or after the sale with Rosencor had been their right of first refusal by paying the amount of
consummated. The lessees also noted that the property was ONE MILLION PESOS (P1,000,000.00) for the
sold only for P726,000.00. subject property; and
 (4) The appellants to, in turn, pay the appellees back Both the appellate court and the trial court failed to
rentals from May 1990 up to the time this discuss, however, the threshold issue of whether or not a right
decision is promulgated. of first refusal is indeed covered by the provisions of the New
Civil Code on the statute of frauds. The resolution of the issue
No pronouncement as to costs. 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.
SO ORDERED.[8]
The term statute of frauds is descriptive of statutes which
Petitioners herein filed a Motion for Reconsideration of the require certain classes of contracts to be in writing. This statute
decision of the Court of Appeals but the same was denied in a does not deprive the parties of the right to contract with respect
Resolution dated October 15, 1999.[9] to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it
Hence, this petition for review on certiorari where enforceable. Thus, they are included in the provisions of the
petitioners Rosencor Development Corporation and Rene New Civil Code regarding unenforceable contracts, more
Joaquin raise the following assignment of errors[10]: particularly Art. 1403, paragraph 2. Said article provides, as
I. follows:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT Art. 1403. The following contracts are unenforceable, unless
ORDERED THE RESCISSION OF THE ABSOLUTE they are ratified:
DEED OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR. xxx

II. (2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
THE COURT OF APPEALS COMMITTED MANIFEST hereafter made shall be unenforceable by action, unless the
ERROR IN MANDATING THAT EUFROCINA DE LEON same, or some note or memorandum thereof, be in writing, and
AFFORD RESPONDENTS THE OPPORTUNITY TO subscribed by the party charged, or by his agent; evidence,
EXERCISE THEIR RIGHT OF FIRST REFUSAL. therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
III.
a) An agreement that by its terms is not to be performed within a
year from the making thereof;
THE COURT OF APPEALS GRIEVOUSLY ERRED IN
CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL b) A special promise to answer for the debt, default, or
DESPITE PETITIONERS RELIANCE ON THEIR miscarriage of another;
DEFENSE BASED ON THE STATUTE OF FRAUDS.
c) An agreement made in consideration of marriage, other than
Eufrocina de Leon, for herself and for the heirs of the a mutual promise to marry;
spouses Faustino and Crescencia Tiangco, did not appeal the
decision of the Court of Appeals. d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
At the onset, we note that both the Court of Appeals and buyer accept and receive part of such goods and chattels, or the
the Regional Trial Court relied on Article 1403 of the New Civil evidences, or some of them, of such things in action, or pay at
Code, more specifically the provisions on the statute of frauds, the time some part of the purchase money; but when a sale is
in coming out with their respective decisions. The trial court, in made by auction and entry is made by the auctioneer in his
denying the petition for reconveyance, held that right of first sales book, at the time of the sale, of the amount and kind of
refusal relied upon by petitioners was not reduced to writing and property sold, terms of sale, price, names of purchasers and
as such, is unenforceable by virtue of the said article. The Court person on whose account the sale is made, it is a sufficient
of Appeals, on the other hand, also held that the statute of memorandum;
frauds governs the right of first refusal claimed by
respondents. However, the appellate court ruled that
e) An agreement for the leasing of a longer period than one
respondents had duly proven the same by reason of petitioners
year, or for the sale of real property or of an interest therein;
waiver of the protection of the statute by reason of their failure to
object to the presentation of oral evidence of the said right.
f) A representation to the credit of a third person. 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
The purpose of the statute is to prevent fraud and perjury price if they were interested. Verily, if Eufrocina de Leon did not
in the enforcement of obligations depending for their evidence recognize respondents right of first refusal over the property
on the unassisted memory of witnesses by requiring certain they were leasing, then she would not have bothered to offer the
enumerated contracts and transactions to be evidenced by a property for sale to the respondents.
writing signed by the party to be charged.[11] Moreover, the It must be noted that petitioners did not present evidence
statute of frauds refers to specific kinds of transactions and before the trial court contradicting the existence of the right of
cannot apply to any other transaction that is not enumerated first refusal of respondents over the disputed property. They
therein.[12] The application of such statute presupposes the only presented petitioner Rene Joaquin, the vice-president of
existence of a perfected contract.[13] petitioner Rosencor, who admitted having no personal
The question now is whether a right of first refusal is knowledge of the details of the sales transaction between
among those enumerated in the list of contracts covered by the Rosencor and the heirs of the spouses Tiangco[21] They also
Statute of Frauds. More specifically, is a right of first refusal akin dispensed with the testimony of Eufrocina de Leon[22] who could
to an agreement for the leasing of a longer period than one have denied the existence or knowledge of the right of first
year, or for the sale of real property or of an interest therein as refusal. As such, there being no evidence to the contrary, the
contemplated by Article 1403, par. 2(e) of the New Civil Code. right of first refusal claimed by respondents was substantially
proven by respondents before the lower court.
We have previously held that not all agreements affecting
land must be put into writing to attain enforceability[14]. Thus, we Having ruled upon the question as to the existence of
have held that the setting up of boundaries,[15] the oral partition respondents right of first refusal, the next issue to be answered
of real property[16], and an agreement creating a right of is whether or not the Court of Appeals erred in ordering the
way[17] are not covered by the provisions of the statute of rescission of the Deed of Absolute Sale dated September 4,
frauds. The reason simply is that these agreements are not 1990 between Rosencor and Eufrocina de Leon and in
among those enumerated in Article 1403 of the New Civil Code. decreeing that the heirs of the spouses Tiangco should afford
respondents the exercise of their right of first refusal. In other
A right of first refusal is not among those listed as words, may a contract of sale entered into in violation of a third
unenforceable under the statute of frauds. Furthermore, the partys right of first refusal be rescinded in order that such third
application of Article 1403, par. 2(e) of the New Civil Code party can exercise said right?
presupposes the existence of a perfected, albeit unwritten,
contract of sale.[18] A right of first refusal, such as the one The issue is not one of first impression.
involved in the instant case, is not by any means a perfected In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the
contract of sale of real property. At best, it is a contractual grant, Court upheld the decision of a lower court ordering the
not of the sale of the real property involved, but of the right of rescission of a deed of sale which violated a right of first refusal
first refusal over the property sought to be sold[19] granted to one of the parties therein. The Court held:
It is thus evident that the statute of frauds does not
contemplate cases involving a right of first refusal. As such, a xxx Contract of Sale was not voidable but rescissible. Under
right of first refusal need not be written to be enforceable and Article 1380 to 1381 (3) of the Civil Code, a contract otherwise
may be proven by oral evidence. valid may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors
The next question to be ascertained is whether or not could be validly accorded the Bonnevies for they had substantial
respondents have satisfactorily proven their right of first refusal interests that were prejudiced by the sale of the subject property
over the property subject of the Deed of Absolute Sale dated to the petitioner without recognizing their right of first priority
September 4, 1990 between petitioner Rosencor and Eufrocina under the Contract of Lease.
de Leon.
On this point, we agree with the factual findings of the According to Tolentino, rescission is a remedy granted by law to
Court of Appeals that respondents have adequately proven the the contracting parties and even to third persons, to secure
existence of their right of first refusal. Federico Bantugan, Irene reparations for damages caused to them by a contract, even if
Guillermo, and Paterno Inquing uniformly testified that they were this should be valid, by means of the restoration of things to
promised by the late spouses Faustino and Crescencia Tiangco their condition at the moment prior to the celebration of said
and, later on, by their heirs a right of first refusal over the contract. It is a relief allowed for the protection of one of the
property they were currently leasing should they decide to sell contracting parties and even third persons from all injury and
the same. Moreover, respondents presented a letter[20] dated damage the contract may cause, or to protect some
October 9, 1990 where Eufrocina de Leon, the representative of incompatible and preferent right created by the
the heirs of the spouses Tiangco, informed them that they had contract. Rescission implies a contract which, even if initially
valid, produces a lesion or pecuniary damage to someone that without affording its negotiations with Mayfair the full process to
justifies its invalidation for reasons of equity. ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the 30-day exclusive option
It is true that the acquisition by a third person of the property time granted Mayfair, Carmelo abandoned negotiations, kept a
subject of the contract is an obstacle to the action for its low profile for some time, and then sold, without prior notice to
rescission where it is shown that such third person is in lawful Mayfair, the entire Claro M. Recto property to Equatorial.
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 Since Equatorial is a buyer in bad faith, this finding renders the
before us because the petitioner is not considered a third party sale to it of the property in question, rescissible. We agree with
in relation to the Contract of Sale nor may its possession of the respondent Appellate Court that the records bear out the fact
subject property be regarded as acquired lawfully and in good that Equatorial was aware of the lease contracts because its
faith. lawyers had, prior to the sale, studied the said contracts. As
such, Equatorial cannot tenably claim that to be a purchaser in
Indeed, Guzman, Bocaling and Co. was the vendee in the good faith, and, therefore, rescission lies.
Contract of Sale. Moreover, the petitioner cannot be deemed a
purchaser in good faith for the record shows that it categorically XXX
admitted that it was aware of the lease in favor of the
Bonnevies, who were actually occupying the subject property at As also earlier emphasized, the contract of sale between
the time it was sold to it. Although the Contract of Lease was not Equatorial and Carmelo is characterized by bad faith, since it
annotated on the transfer certificate of title in the name of the was knowingly entered into in violation of the rights of and to the
late Jose Reynoso and Africa Reynoso, the petitioner cannot prejudice of Mayfair. In fact, as correctly observed by the Court
deny actual knowledge of such lease which was equivalent to of Appeals, Equatorial admitted that its lawyers had studied the
and indeed more binding than presumed notice by registration. contract of lease prior to the sale. Equatorials knowledge of the
stipulations therein should have cautioned it to look further into
A purchaser in good faith and for value is one who buys the the agreement to determine if it involved stipulations that would
property of another without notice that some other person has a prejudice its own interests.
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 Since Mayfair had a right of first refusal, it can exercise the right
has notice of the claim or interest of some other person in the only if the fraudulent sale is first set aside or rescinded. All of
property. Good faith connotes an honest intention to abstain these matters are now before us and so there should be no
from taking unconscientious advantage of another. Tested by piecemeal determination of this case and leave festering sores
these principles, the petitioner cannot tenably claim to be a to deteriorate into endless litigation. The facts of the case and
buyer in good faith as it had notice of the lease of the property considerations of justice and equity require that we order
by the Bonnevies and such knowledge should have cautioned it rescission here and now. Rescission is a relief allowed for the
to look deeper into the agreement to determine if it involved protection of one of the contracting parties and even third
stipulations that would prejudice its own interests. persons from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the
Subsequently[24] in Equatorial Realty and Development, contract. The sale of the subject real property should now be
Inc. vs. Mayfair Theater, Inc.[25], the Court, en banc, with three rescinded considering that Mayfair, which had substantial
justices dissenting,[26] ordered the rescission of a contract interest over the subject property, was prejudiced by the sale of
entered into in violation of a right of first refusal.Using the ruling the subject property to Equatorial without Carmelo conferring to
in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court Mayfair every opportunity to negotiate within the 30-day
decreed that since respondent therein had a right of first refusal stipulate period.[27]
over the said property, it could only exercise the said right if the
fraudulent sale is first set aside or rescinded. Thus: In Paranaque Kings Enterprises, Inc. vs. Court of
Appeals,[28] the Court held that the allegations in a complaint
What Carmelo and Mayfair agreed to, by executing the two showing violation of a contractual right of first option or priority to
lease contracts, was that Mayfair will have the right of first buy the properties subject of the lease constitute a valid cause
refusal in the event Carmelo sells the leased premises. It is of action enforceable by an action for specific
undisputed that Carmelo did recognize this right of Mayfair, for it performance. Summarizing the rulings in the two previously
informed the latter of its intention to sell the said property in cited cases, the Court affirmed the nature of and concomitant
1974. There was an exchange of letters evidencing the offer and rights and obligations of parties under a right of first
counter-offers made by both parties. Carmelo, however, did not refusal. Thus:
pursue the exercise to its logical end. While it initially recognized
Mayfairs right of first refusal, Carmelo violated such right when
We hold however, that in order to have full compliance with the Mayfair to buy the subject property at the same price of
contractual right granting petitioner the first option to purchase, P11,300,000.00.
the sale of the properties for the amount of P9,000,000.00, the
price for which they were finally sold to respondent Raymundo, In the recent case of Litonjua vs. L&R Corporation,[29] the
should have likewise been offered to petitioner. Court, also citing the case of Guzman, Bocaling & Co. vs.
Bonnevie, held that the sale made therein in violation of a right
The Court has made an extensive and lengthy discourse on the of first refusal embodied in a mortgage contract, was
concept of, and obligations under, a right of first refusal in the rescissible. Thus:
case of Guzman, Bocaling & Co. vs. Bonnevie. In that case,
under a contract of lease, the lessees (Raul and Christopher While petitioners question the validity of paragraph 8 of their
Bonnevie) were given a "right of first priority" to purchase the mortgage contract, they appear to be silent insofar as paragraph
leased property in case the lessor (Reynoso) decided to 9 thereof is concerned. Said paragraph 9 grants upon L&R
sell. The selling price quoted to the Bonnevies was 600,000.00 Corporation the right of first refusal over the mortgaged property
to be fully paid in cash, less a mortgage lien of P100,000.00. On in the event the mortgagor decides to sell the same. We see
the other hand, the selling price offered by Reynoso to and nothing wrong in this provision. The right of first refusal has long
accepted by Guzman was only P400,000.00 of which been recognized as valid in our jurisdiction. The consideration
P137,500.00 was to be paid in cash while the balance was to be for the loan mortgage includes the consideration for the right of
paid only when the property was cleared of occupants. We held first refusal. L&R Corporation is in effect stating that it consents
that even if the Bonnevies could not buy it at the price quoted to lend out money to the spouses Litonjua provided that in case
(P600,000.00), nonetheless, Reynoso could not sell it to another they decide to sell the property mortgaged to it, then L&R
for a lower price and under more favorable terms and conditions Corporation shall be given the right to match the offered
without first offering said favorable terms and price to the purchase price and to buy the property at that price. Thus, while
Bonnevies as well. Only if the Bonnevies failed to exercise their the spouses Litonjua had every right to sell their mortgaged
right of first priority could Reynoso thereafter lawfully sell the property to PWHAS without securing the prior written consent of
subject property to others, and only under the same terms and L&R Corporation, they had the obligation under paragraph 9,
conditions previously offered to the Bonnevies. which is a perfectly valid provision, to notify the latter of their
intention to sell the property and give it priority over other
XXX 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
This principle was reiterated in the very recent case subject properties to the others, under the same terms and
of Equatorial Realty vs. Mayfair Theater, Inc. which was decided conditions offered to L&R Corporation.
en banc. This Court upheld the right of first refusal of the lessee
Mayfair, and rescinded the sale of the property by the lessor What then is the status of the sale made to PWHAS in violation
Carmelo to Equatorial Realty "considering that Mayfair, which of L & R Corporation's contractual right of first refusal? On this
had substantial interest over the subject property, was score, we agree with the Amended Decision of the Court of
prejudiced by its sale to Equatorial without Carmelo conferring Appeals that the sale made to PWHAS is rescissible. The case
to Mayfair every opportunity to negotiate within the 30-day of Guzman, Bocaling & Co. v. Bonnevie is instructive on this
stipulated period" point.

In that case, two contracts of lease between Carmelo and XXX

Mayfair provided "that if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30 days exclusive It was then held that the Contract of Sale there, which violated
option to purchase the same." Carmelo initially offered to sell the the right of first refusal, was rescissible.
leased property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked
In the case at bar, PWHAS cannot claim ignorance of the right
the 30-day period. Nothing was heard thereafter from
of first refusal granted to L & R Corporation over the subject
Carmelo. Four years later, the latter sold its entire Recto Avenue
properties since the Deed of Real Estate Mortgage containing
property, including the leased premises, to Equatorial for
such a provision was duly registered with the Register of
P11,300,000.00 without priorly informing Mayfair. The Court
Deeds. As such, PWHAS is presumed to have been notified
held that both Carmelo and Equatorial acted in bad faith:
thereof by registration, which equates to notice to the whole
Carmelo for knowingly violating the right of first option of
world.
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 XXX
All things considered, what then are the relative rights and Tiangco. Respondents failed to present any evidence that prior
obligations of the parties? To recapitulate: the sale between the to the sale of the property on September 4, 1990, petitioners
spouses Litonjua and PWHAS is valid, notwithstanding the were aware or had notice of the oral right of first refusal.
absence of L & R Corporation's prior written consent
thereto. Inasmuch as the sale to PWHAS was valid, its offer to Respondents point to the letter dated June 1, 1990[33] as
redeem and its tender of the redemption price, as successor-in- indicative of petitioners knowledge of the said right. In this letter,
interest of the spouses Litonjua, within the one-year period a certain Atty. Erlinda Aguila demanded that respondent Irene
should have been accepted as valid by the L & R Guillermo vacate the structure they were occupying to make
Corporation. However, while the sale is, indeed, valid, the same way for its demolition.
is rescissible because it ignored L & R Corporation's right of first We fail to see how the letter could give rise to bad faith on
refusal. the part of the petitioner. No mention is made of the right of first
refusal granted to respondents. The name of petitioner
Thus, the prevailing doctrine, as enunciated in the cited Rosencor or any of it officers did not appear on the letter and
cases, is that a contract of sale entered into in violation of a right the letter did not state that Atty. Aguila was writing in behalf of
of first refusal of another person, while valid, is rescissible. petitioner. In fact, Atty. Aguila stated during trial that she wrote
the letter in behalf of the heirs of the spouses
There is, however, a circumstance which prevents the Tiangco. Moreover, even assuming that Atty. Aguila was indeed
application of this doctrine in the case at bench. In the cases writing in behalf of petitioner Rosencor, there is no showing that
cited above, the Court ordered the rescission of sales made in Rosencor was aware at that time that such a right of first refusal
violation of a right of first refusal precisely because the vendees existed.
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 Neither was there any showing that after receipt of this
another person by the vendors therein. The rationale for this is June 1, 1990 letter, respondents notified Rosencor or Atty.
found in the provisions of the New Civil Code on rescissible Aguila of their right of first refusal over the
contracts. Under Article 1381 of the New Civil Code, paragraph property. Respondents did not try to communicate with Atty.
3, a contract validly agreed upon may be rescinded if it is Aguila and inform her about their preferential right over the
undertaken in fraud of creditors when the latter cannot in any disputed property. There is even no showing that they contacted
manner collect the claim due them. Moreover, under Article the heirs of the spouses Tiangco after they received this letter to
1385, rescission shall not take place when the things which are remind them of their right over the property.
the object of the contract are legally in the possession of third
persons who did not act in bad faith.[30] Respondents likewise point to the letter dated October 9,
1990 of Eufrocina de Leon, where she recognized the right of
It must be borne in mind that, unlike the cases cited first refusal of respondents, as indicative of the bad faith of
above, the right of first refusal involved in the instant case was petitioners. We do not agree. Eufrocina de Leon wrote the letter
an oral one given to respondents by the deceased spouses on her own behalf and not on behalf of petitioners and, as such,
Tiangco and subsequently recognized by their heirs. As such, in it only shows that Eufrocina de Leon was aware of the existence
order to hold that petitioners were in bad faith, there must be of the oral right of first refusal. It does not show that petitioners
clear and convincing proof that petitioners were made aware of were likewise aware of the existence of the said right. Moreover,
the said right of first refusal either by the respondents or by the the letter was made a month after the execution of the Deed of
heirs of the spouses Tiangco. Absolute Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is no
It is axiomatic that good faith is always presumed unless showing that prior to the date of the execution of the said Deed,
contrary evidence is adduced.[31] A purchaser in good faith is petitioners were put on notice of the existence of the right of first
one who buys the property of another without notice that some refusal.
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 Clearly, if there was any indication of bad faith based on
notice of the claim or interest of some other person in the respondents evidence, it would only be on the part of Eufrocina
property.[32] In this regard, the rule on constructive notice would de Leon as she was aware of the right of first refusal of
be inapplicable as it is undisputed that the right of first refusal respondents yet she still sold the disputed property to
was an oral one and that the same was never reduced to Rosencor. However, bad faith on the part of Eufrocina de Leon
writing, much less registered with the Registry of Deeds. In fact, does not mean that petitioner Rosencor likewise acted in bad
even the lease contract by which respondents derive their right faith. There is no showing that prior to the execution of the Deed
to possess the property involved was an oral one. of Absolute Sale, petitioners were made aware or put on notice
of the existence of the oral right of first refusal. Thus, absent
On this point, we hold that the evidence on record fails to clear and convincing evidence to the contrary, petitioner
show that petitioners acted in bad faith in entering into the deed Rosencor will be presumed to have acted in good faith in
of sale over the disputed property with the heirs of the spouses
entering into the Deed of Absolute Sale over the disputed [G.R. No. 149734. November 19, 2004]
property.
Considering that there is no showing of bad faith on the
part of the petitioners, the Court of Appeals thus erred in
DR. DANIEL VAZQUEZ and MA. LUIZA M.
ordering the rescission of the Deed of Absolute Sale dated
VAZQUEZ, petitioners vs. AYALA
September 4, 1990 between petitioner Rosencor and the heirs
CORPORATION, respondent.
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 DECISION
Rosencor is in lawful possession of the subject of the contract TINGA, J.:
and that it did not act in bad faith.[34]
This does not mean however that respondents are left The rise in value of four lots in one of the countrys prime
without any remedy for the unjustified violation of their right of residential developments, Ayala Alabang Village in Muntinlupa
first refusal. Their remedy however is not an action for the City, over a period of six (6) years only, represents big money.
rescission of the Deed of Absolute Sale but an action for The huge price difference lies at the heart of the present
damages against the heirs of the spouses Tiangco for the controversy. Petitioners insist that the lots should be sold to
unjustified disregard of their right of first refusal[35]. them at 1984 prices while respondent maintains that the
prevailing market price in 1990 should be the selling price.
WHEREFORE, premises considered, the decision of the
Court of Appeals dated June 25, 1999 is REVERSED and SET Dr. Daniel Vazquez and Ma. Luisa Vazquez[1] filed
ASIDE. The Decision dated May 13, 1996 of the Quezon City this Petition for Review on Certiorari[2] dated October 11, 2001
Regional Trial Court, Branch 217 is hereby REINSTATED assailing the Decision[3] of the Court of Appeals dated
insofar as it dismisses the action for rescission of the Deed of September 6, 2001 which reversed the Decision[4] of the
Absolute Sale dated September 4, 1990 and orders the Regional Trial Court (RTC) and dismissed their complaint for
payment of monthly rentals of P1,000.00 per month reckoned specific performance and damages against Ayala Corporation.
from May 1990 up to the time respondents leave the premises.
Despite their disparate rulings, the RTC and the appellate
SO ORDERED. 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 The SELLERS jointly and severally represent and warrant to the
development plan within three (3) years from the date of BUYER that at the time of the execution of this Agreement and
this Agreement. x x x at the Closing:

5.15. The BUYER agrees to give the SELLERS a first option xxx
to purchase four developed lots next to the Retained Area
at the prevailing market price at the time of the purchase. 6.2.3. There are no actions, suits or proceedings pending, or to
the knowledge of the SELLERS, threatened against or affecting
The parties are agreed that the development plan referred the SELLERS with respect to the Shares or the Property; and
to in paragraph 5.7 is not Conduits development plan, but
Ayalas amended development plan which was still to be 7. Additional Warranties by the SELLERS
formulated as of the time of the MOA. While in the Conduit
plan, the 4 lots to be offered for sale to the Vasquez
7.1. With respect to the Audited Financial Statements required
Spouses were in the first phase thereof or Village 1, in the
to be submitted at Closing in accordance with Par. 3.1.5 above,
Ayala plan which was formulated a year later, it was in
the SELLER jointly and severally warrant to the BUYER that:
the third phase, or Phase II-c.
7.1.1 The said Audited Financial Statements shall show that on
Under the MOA, the Vasquez spouses made several express
the day of Closing, the Company shall own the Remaining
warranties, as follows:
Property, free from all liens and encumbrances and that the
Company shall have no obligation to any party except for
3.1. The SELLERS shall deliver to the BUYER: billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for
xxx which BUYER shall be responsible in accordance with Par.
2 of this Agreement.
3.1.2. The true and complete list, certified by the Secretary and
Treasurer of the Company showing: 7.1.2 Except to the extent reflected or reserved in the
Audited Financial Statements of the Company as of
xxx 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,
D. A list of all persons and/or entities with whom the Company
without limitation, tax liabilities due or to become due and
has pending contracts, if any.
whether incurred in respect of or measured in respect of the
Companys income prior to Closing or arising out of transactions
xxx or state of facts existing prior thereto.

3.1.5. Audited financial statements of the Company as at 7.2 SELLERS do not know or have no reasonable ground to
Closing date. know of any basis for any assertion against the Company
as at closing or any liability of any nature and in any
4. Conditions Precedent amount not fully reflected or reserved against such Audited
Financial Statements referred to above, and those
All obligations of the BUYER under this Agreement are subject disclosed to BUYER.
to fulfillment prior to or at the Closing, of the following
conditions: xxx xxx xxx

4.1. The representations and warranties by the SELLERS 7.6.3 Except as otherwise disclosed to the BUYER in writing
contained in this Agreement shall be true and correct at the on or before the Closing, the Company is not engaged in or
time of Closing as though such representations and a party to, or to the best of the knowledge of the SELLERS,
warranties were made at such time; and threatened with, any legal action or other proceedings
before any court or administrative body, nor do the
xxx SELLERS know or have reasonable grounds to know of any
basis for any such action or proceeding or of any governmental
6. Representation and Warranties by the SELLERS investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach In its decision, the court a quo concluded that the Vasquez
exists in the due performance and observance by the spouses were not obligated to disclose the potential claims of
Company of any term, covenant or condition of any GP Construction, Lancer and Del Rosario; Ayalas accountants
instrument or agreement to which the company is a party or should have opened the records of Conduit to find out all claims;
by which it is bound, and no condition exists which, with the warranty against suit is with respect to the shares of the
notice or lapse of time or both, will constitute such default Property and the Lancer suit does not affect the shares of stock
or breach. sold to Ayala; Ayala was obligated to develop within 3 years; to
say that Ayala was under no obligation to follow a time frame
After the execution of the MOA, Ayala caused the suspension of was to put the Vasquezes at Ayalas mercy; Ayala did not
work on Village 1 of the Don Vicente Project. Ayala then develop because of a slump in the real estate market; the MOA
received a letter from one Maximo Del Rosario of Lancer was drafted and prepared by the AYALA who should suffer its
General Builder Corporation informing Ayala that he was ambiguities; the option to purchase the 4 lots is valid because it
claiming the amount of P1,509,558.80 as the subcontractor of was supported by consideration as the option is incorporated in
G.P. Construction... the MOA where the parties had prestations to each other.
[Emphasis supplied]
G.P. Construction not being able to reach an amicable
settlement with Lancer, on March 22, 1982, Lancer sued G.P. Ayala Corporation filed an appeal, alleging that the trial
Construction, Conduit and Ayala in the then Court of First court erred in holding that petitioners did not breach their
Instance of Manila in Civil Case No. 82-8598. G.P. Construction warranties under the MOA[6] dated April 23, 1981; that it was
in turn filed a cross-claim against Ayala. G.P. Construction and obliged to develop the land where the four (4) lots subject of the
Lancer both tried to enjoin Ayala from undertaking the option to purchase are located within three (3) years from the
development of the property. The suit was terminated only on date of the MOA; that it was in delay; and that the option to
February 19, 1987, when it was dismissed with prejudice after purchase was valid because it was incorporated in the MOA and
Ayala paid both Lancer and GP Construction the total of the consideration therefor was the commitment by Ayala
P4,686,113.39. Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed
Taking the position that Ayala was obligated to sell the 4 lots the RTC Decision. According to the appellate court, Ayala
adjacent to the Retained Area within 3 years from the date of Corporation was never informed beforehand of the existence of
the MOA, the Vasquez spouses sent several reminder letters of the Lancer claim. In fact, Ayala Corporation got a copy of the
the approaching so-called deadline. However, no demand after Lancer subcontract only on May 29, 1981 from G.P.
April 23, 1984, was ever made by the Vasquez spouses for Constructions lawyers. The Court of Appeals thus held that
Ayala to sell the 4 lots. On the contrary, one of the letters signed petitioners violated their warranties under the MOA when they
by their authorized agent, Engr. Eduardo Turla, categorically failed to disclose Lancers claims. Hence, even conceding that
stated that they expected development of Phase 1 to be Ayala Corporation was obliged to develop and sell the four (4)
completed by February 19, 1990, three years from the lots in question within three (3) years from the date of the MOA,
settlement of the legal problems with the previous contractor. the obligation was suspended during the pendency of the case
filed by Lancer.
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 Interpreting the MOAs paragraph 5.7 above-quoted, the
to be sold to the Vasquez spouses at the prevailing price in appellate court held that Ayala Corporation committed to
1990. This was rejected by the Vasquez spouses who wanted to develop the first phase of its own amended development plan
pay at 1984 prices, thereby leading to the suit below. and not Conduits development plan. Nowhere does the MOA
provide that Ayala Corporation shall follow Conduits
development plan nor is Ayala Corporation prohibited from
After trial, the court a quo rendered its decision, the dispositive changing the sequence of the phases of the property it will
portion of which states: develop.

THEREFORE, judgment is hereby rendered in favor of plaintiffs Anent the question of delay, the Court of Appeals ruled
and against defendant, ordering defendant to sell to plaintiffs the that there was no delay as petitioners never made a demand for
relevant lots described in the Complaint in the Ayala Alabang Ayala Corporation to sell the subject lots to them. According to
Village at the price of P460.00 per square meter amounting the appellate court, what petitioners sent were mere reminder
to P1,349,540.00; ordering defendant to reimburse to plaintiffs letters the last of which was dated prior to April 23, 1984 when
attorneys fees in the sum of P200,000.00 and to pay the cost of the obligation was not yet demandable. At any rate, the Court of
the suit. 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 has no other liabilities. Hence, petitioners cannot claim that
from the settlement of the legal problems with the previous Ayala Corporation should have examined and investigated the
contractor.[7] Audited Financial Statements of Conduit and should now
assume all its obligations and liabilities including the Lancer suit
The appellate court likewise ruled that paragraph 5.15 and the cross-claim of GP Construction.
above-quoted is not an option contract but a right of first refusal
there being no separate consideration therefor. Since petitioners Furthermore, Ayala Corporation did not make a
refused Ayala Corporations offer to sell the subject lots at the commitment to complete the development of the first phase of
reduced 1990 price of P5,000.00 per square meter, they have the property within three (3) years from the execution of the
effectively waived their right to buy the same. MOA. The provision refers to a mere declaration of intent to
develop the first phase of its (Ayala Corporations) own
In the instant Petition, petitioners allege that the appellate development plan and not Conduits. True to its intention, Ayala
court erred in ruling that they violated their warranties under the Corporation did complete the development of the first phase
MOA; that Ayala Corporation was not obliged to develop the (Phase II-A) of its amended development plan within three (3)
Remaining Property within three (3) years from the execution of years from the execution of the MOA. However, it is not obliged
the MOA; that Ayala was not in delay; and that paragraph 5.15 to develop the third phase (Phase II-C) where the subject lots
of the MOA is a mere right of first refusal. Additionally, are located within the same time frame because there is no
petitioners insist that the Court should review the factual findings contractual stipulation in the MOA therefor. It is free to decide on
of the Court of Appeals as they are in conflict with those of the its own the period for the development of Phase II-C. If
trial court. petitioners wanted to impose the same three (3)-year timetable
Ayala Corporation filed a Comment on the Petition[8] dated upon the third phase of the amended development plan, they
March 26, 2002, contending that the petition raises questions of should have filed a suit to fix the time table in accordance with
fact and seeks a review of evidence which is within the domain Article 1197[10] of the Civil Code. Having failed to do so, Ayala
of the Court of Appeals. Ayala Corporation maintains that the Corporation cannot be declared to have been in delay.
subcontract between GP Construction, with whom Conduit Ayala Corporation further contends that no demand was
contracted for the development of the property under a made on it for the performance of its alleged obligation. The
Construction Contract dated October 10, 1980, and Lancer was letter dated October 4, 1983 sent when petitioners were already
not disclosed by petitioners during the negotiations. Neither was aware of the Lancer suit did not demand the delivery of the
the liability for Lancers claim included in the Audited Financial subject lots by April 23, 1984. Instead, it requested Ayala
Statements submitted by petitioners after the signing of the Corporation to keep petitioners posted on the status of the case.
MOA. These justify the conclusion that petitioners breached Likewise, the letter dated March 4, 1984 was merely an inquiry
their warranties under the afore-quoted paragraphs of the MOA. as to the date when the development of Phase 1 will be
Since the Lancer suit ended only in February 1989, the three completed. More importantly, their letter dated June 27, 1988
(3)-year period within which Ayala Corporation committed to through Engr. Eduardo Turla expressed petitioners expectation
develop the property should only be counted thence. Thus, that Phase 1 will be completed by February 19, 1990.
when it offered the subject lots to petitioners in 1990, Ayala
Corporation was not yet in delay. Lastly, Ayala Corporation maintains that paragraph 5.15 of
the MOA is a right of first refusal and not an option contract.
In response to petitioners contention that there was no
action or proceeding against them at the time of the execution of Petitioners filed their Reply[11] dated August 15, 2002
the MOA on April 23, 1981, Ayala Corporation avers that the reiterating the arguments in their Petition and contending further
facts and circumstances which gave rise to the Lancer claim that they did not violate their warranties under the MOA because
were already extant then. Petitioners warranted that their the case was filed by Lancer only on April 1, 1982, eleven (11)
representations under the MOA shall be true and correct at the months and eight (8) days after the signing of the MOA on April
time of Closing which shall take place within four (4) weeks from 23, 1981. Ayala Corporation admitted that it received Lancers
the signing of the MOA.[9] Since the MOA was signed on April claim before the Closing date. It therefore had all the time to
23, 1981, Closing was approximately the third week of May rescind the MOA. Not having done so, it can be concluded that
1981. Hence, Lancers claims, articulated in a letter which Ayala Ayala Corporation itself did not consider the matter a violation of
Corporation received on May 4, 1981, are among the liabilities petitioners warranty.
warranted against under paragraph 7.1.2 of the MOA.
Moreover, petitioners submitted the Audited Financial
Moreover, Ayala Corporation asserts that the warranties Statements of Conduit and allowed an acquisition audit to be
under the MOA are not just against suits but against all kinds of conducted by Ayala Corporation. Thus, the latter bought Conduit
liabilities not reflected in the Audited Financial Statements. It with open eyes.
cannot be faulted for relying on the express warranty that except
for billings payable to GP Construction and advances made by Petitioners also maintain that they had no knowledge of
petitioner Daniel Vazquez in the amount of P38,766.04, Conduit the impending case against Conduit at the time of the execution
of the MOA. Further, the MOA makes Ayala Corporation liable c) Clause 7.2. that there is no basis for any assertion against
for the payment of all billings of GP Construction. Since Lancers Conduit of any liability of any value not reflected or reserved in
claim was actually a claim against GP Construction being its the financial statements, and those disclosed to Ayala;
sub-contractor, it is Ayala Corporation and not petitioners which
is liable. d) Clause 7.6.3. that Conduit is not threatened with any legal
Likewise, petitioners aver that although Ayala Corporation action or other proceedings; and
may change the sequence of its development plan, it is obliged
under the MOA to develop the entire area where the subject lots e) Clause 7.6.4. that Conduit had not breached any term,
are located in three (3) years. condition, or covenant of any instrument or agreement to which
it is a party or by which it is bound.[16]
They also assert that demand was made on Ayala
Corporation to comply with their obligation under the MOA. The Court is convinced that petitioners did not violate the
Apart from their reminder letters dated January 24, February 18 foregoing warranties.
and March 5, 1984, they also sent a letter dated March 4, 1984
which they claim is a categorical demand for Ayala Corporation The exchanges of communication between the parties
to comply with the provisions of the MOA. indicate that petitioners substantially apprised Ayala Corporation
of the Lancer claim or the possibility thereof during the period of
The parties were required to submit their respective negotiations for the sale of Conduit.
memoranda in the Resolution[12] dated November 18, 2002. In
compliance with this directive, petitioners submitted In a letter[17] dated March 5, 1984, petitioner Daniel
their Memorandum[13] dated February 14, 2003 on even date, Vazquez reminded Ayala Corporations Mr. Adolfo Duarte (Mr.
while Ayala Corporation filed its Memorandum[14] dated February Duarte) that prior to the completion of the sale of Conduit, Ayala
14, 2003 on February 17, 2003. Corporation asked for and was given information that GP
Construction sub-contracted, presumably to Lancer, a greater
We shall first dispose of the procedural question raised by percentage of the project than it was allowed. Petitioners gave
the instant petition. this information to Ayala Corporation because the latter
It is well-settled that the jurisdiction of this Court in cases intimated a desire to break the contract of Conduit with GP.
brought to it from the Court of Appeals by way of petition for Ayala Corporation did not deny this. In fact, Mr. Duartes
review under Rule 45 is limited to reviewing or revising errors of letter[18] dated March 6, 1984 indicates that Ayala Corporation
law imputed to it, its findings of fact being conclusive on this had knowledge of the Lancer subcontract prior to its acquisition
Court as a matter of general principle. However, since in the of Conduit. Ayala Corporation even admitted that it tried to
instant case there is a conflict between the factual findings of explorelegal basis to discontinue the contract of Conduit with
the trial court and the appellate court, particularly as regards the GP but found this not feasible when information surfaced about
issues of breach of warranty, obligation to develop and the tacit consent of Conduit to the sub-contracts of GP with
incurrence of delay, we have to consider the evidence on record Lancer.
and resolve such factual issues as an exception to the general At the latest, Ayala Corporation came to know of the
rule.[15] In any event, the submitted issue relating to the Lancer claim before the date of Closing of the MOA. Lancers
categorization of the right to purchase granted to petitioners letter[19] dated April 30, 1981 informing Ayala Corporation of its
under the MOA is legal in character. unsettled claim with GP Construction was received by Ayala
The next issue that presents itself is whether petitioners Corporation on May 4, 1981, well before the Closing[20] which
breached their warranties under the MOA when they failed to occurred four (4) weeks after the date of signing of the MOA on
disclose the Lancer claim. The trial court declared they did not; April 23, 1981, or on May 23, 1981.
the appellate court found otherwise. The full text of the pertinent clauses of the MOA quoted
Ayala Corporation summarizes the clauses of the MOA hereunder likewise indicate that certain matters pertaining to the
which petitioners allegedly breached when they failed to liabilities of Conduit were disclosed by petitioners to Ayala
disclose the Lancer claim: Corporation although the specifics thereof were no longer
included in the MOA:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone
except to GP Construction for P38,766.04, and for advances 7.1.1 The said Audited Financial Statements shall show that on
made by Daniel Vazquez; 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
b) Clause 7.1.2. that except as reflected in the audited financial
payable to GP Construction & Development Corporation and
statements Conduit had no other liabilities whether accrued,
advances made by Daniel Vazquez for which BUYER shall be
absolute, contingent or otherwise;
responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the embodied in the letter dated April 30, 1981, acknowledging that
Audited Financial Statements of the Company as of it is taking over the contractual responsibilities of Conduit, and
Closing, and those disclosed to BUYER, the Company as of requesting copies of all sub-contracts affecting the Conduit
the date hereof, has no liabilities of any nature whether accrued, property. The pertinent excerpts of the letter read:
absolute, contingent or otherwise, including, without limitation,
tax liabilities due or to become due and whether incurred in In this connection, we wish to inform you that this morning we
respect of or measured in respect of the Companys income prior received a letter from Mr. Maximo D. Del Rosario, President of
to Closing or arising out of transactions or state of facts existing Lancer General Builders Corporation apprising us of the
prior thereto. existence of subcontracts that they have with your corporation.
They have also furnished us with a copy of their letter to you
7.2 SELLERS do not know or have no reasonable ground to dated 30 April 1981.
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 Since we are taking over the contractual responsibilities of
reflected or reserved against such Audited Financial Statements Conduit Development, Inc., we believe that it is necessary, at
referred to above, and those disclosed to BUYER. this point in time, that you furnish us with copies of all your
subcontracts affecting the property of Conduit, not only with
xxx xxx xxx Lancer General Builders Corporation, but all subcontracts with
other parties as well[24]
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 Quite tellingly, Ayala Corporation even attached to its Pre-
party to, or to the best of the knowledge of the SELLERS, Trial Brief[25] dated July 9, 1992 a copy of the letter[26] dated May
threatened with, any legal action or other proceedings before 28, 1981 of GP Constructions counsel addressed to Conduit
any court or administrative body, nor do the SELLERS know or furnishing the latter with copies of all sub-contract agreements
have reasonable grounds to know of any basis for any such entered into by GP Construction. Since it was addressed to
action or proceeding or of any governmental investigation Conduit, it can be presumed that it was the latter which gave
relative to the Company. Ayala Corporation a copy of the letter thereby disclosing to the
latter the existence of the Lancer sub-contract.
7.6.4 To the knowledge of the SELLERS, no default or breach The ineluctable conclusion is that petitioners did not
exists in the due performance and observance by the Company violate their warranties under the MOA. The Lancer sub-contract
of any term, covenant or condition of any instrument or and claim were substantially disclosed to Ayala Corporation
agreement to which the Company is a party or by which it is before the Closing date of the MOA. Ayala Corporation cannot
bound, and no condition exists which, with notice or lapse of disavow knowledge of the claim.
time or both, will constitute such default or breach.[21] [Emphasis
supplied] Moreover, while in its correspondence with petitioners,
Ayala Corporation did mention the filing of the Lancer suit as an
Hence, petitioners warranty that Conduit is not engaged obstacle to its development of the property, it never actually
in, a party to, or threatened with any legal action or proceeding brought up nor sought redress for petitioners alleged breach of
is qualified by Ayala Corporations actual knowledge of the warranty for failure to disclose the Lancer claim until it filed
Lancer claim which was disclosed to Ayala Corporation before its Answer[27] dated February 17, 1992.
the Closing.
We now come to the correct interpretation of paragraph
At any rate, Ayala Corporation bound itself to pay all 5.7 of the MOA. Does this paragraph express a commitment or
billings payable to GP Construction and the advances made by a mere intent on the part of Ayala Corporation to develop the
petitioner Daniel Vazquez. Specifically, under paragraph 2 of the property within three (3) years from date thereof? Paragraph 5.7
MOA referred to in paragraph 7.1.1, Ayala Corporation provides:
undertook responsibility for the payment of all billings of the
contractor GP Construction & Development Corporation after 5.7. The BUYER hereby commits that it will develop the
the first billing and any payments made by the company and/or Remaining Property into a first class residential subdivision of
SELLERS shall be reimbursed by BUYER on closing which the same class as its New Alabang Subdivision, and that it
advances to date is P1,159,012.87.[22] intends to complete the first phase under its amended
development plan within three (3) years from the date of this
The billings knowingly assumed by Ayala Corporation Agreement.[28]
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 Notably, while the first phrase of the paragraph uses the
the latter of Ayala Corporations receipt of the Lancer claim word commits in reference to the development of the Remaining
Property into a first class residential subdivision, the second the first phase under its amended
phrase uses the word intends in relation to the development of development plan within three years from the
the first phase of the property within three (3) years from the date of this agreement.
date of the MOA. The variance in wording is significant. While
commit[29] connotes a pledge to do something, intend[30] merely Now, my question to you, Dr. Vasquez is that
signifies a design or proposition. there is no dispute that the amended
development plan here is the amended
Atty. Leopoldo Francisco, former Vice President of Ayala development plan of Ayala?
Corporations legal division who assisted in drafting the MOA,
testified: A: Yes, sir.

COURT Q: In other words, it is not Exhibit D-5 which is the

original plan of Conduit?
You only ask what do you mean by that intent.
Just answer on that point. A: No, it is not.

ATTY. BLANCO Q: This Exhibit D-5 was the plan that was being
followed by GP Construction in 1981?
Dont talk about standard.
A: Yes, sir.
WITNESS
Q: And point of fact during your direct examination
A Well, the word intent here, your Honor, was used as of the date of the agreement, this amended
to emphasize the tentative character of the development plan was still to be formulated by
period of development because it will be noted Ayala?
that the sentence refers to and I quote to
complete the first phase under its amended A: Yes, sir.[32]
development plan within three (3) years from As correctly held by the appellate court, this admission is
the date of this agreement, at the time of the crucial because while the subject lots to be sold to petitioners
execution of this agreement, your Honor. That were in the first phase of the Conduit development plan, they
amended development plan was not yet in were in the third or last phase of the Ayala Corporation
existence because the buyer had manifested development plan. Hence, even assuming that paragraph 5.7
to the seller that the buyer could amend the expresses a commitment on the part of Ayala Corporation to
subdivision plan originally belonging to the develop the first phase of its amended development plan within
seller to conform with its own standard of three (3) years from the execution of the MOA, there was no
development and second, your Honor, parallel commitment made as to the timeframe for the
(interrupted)[31] development of the third phase where the subject lots are
It is thus unmistakable that this paragraph merely located.
expresses an intention on Ayala Corporations part to complete Lest it be forgotten, the point of this petition is the alleged
the first phase under its amended development plan within three failure of Ayala Corporation to offer the subject lots for sale to
(3) years from the execution of the MOA. Indeed, this paragraph petitioners within three (3) years from the execution of the MOA.
is so plainly worded that to misunderstand its import is It is not that Ayala Corporation committed or intended to develop
deplorable. the first phase of its amended development plan within three (3)
More focal to the resolution of the instant case is years. Whether it did or did not is actually beside the point since
paragraph 5.7s clear reference to the first phase of Ayala the subject lots are not located in the first phase anyway.
Corporations amended development plan as the subject of the We now come to the issue of default or delay in the
three (3)-year intended timeframe for development. Even fulfillment of the obligation.
petitioner Daniel Vazquez admitted on cross-examination that
the paragraph refers not to Conduits but to Ayala Corporations Article 1169 of the Civil Code provides:
development plan which was yet to be formulated when the
MOA was executed: Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
Q: Now, turning to Section 5.7 of this Memorandum
demands from them the fulfillment of their obligation.
of Agreement, it is stated as follows: The
Buyer hereby commits that to develop the
remaining property into a first class residential However, the demand by the creditor shall not be necessary in
subdivision of the same class as New Alabang order that delay may exist:
Subdivision, and that they intend to complete
(1) When the obligation or the law expressly so declares; or As per the memorandum of Agreement also dated April 23,
1981, it was undertaken by your goodselves to complete the
(2) When from the nature and the circumstances of the development of Phase I within three (3) years. Dr. & Mrs.
obligation it appears that the designation of the time when the Vazquez were made to understand that you were unable to
thing is to be delivered or the service is to be rendered was a accomplish this because of legal problems with the previous
controlling motive for the establishment of the contract; or 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,
(3) When demand would be useless, as when the obligor has
three years from the settlement of the legal problems with the
rendered it beyond his power to perform.
previous contractor. The reason for this is, as you know, that
security-wise, Dr. & Mrs. Vazquez have been advised not to
In reciprocal obligations, neither party incurs in delay if the other construct their residence till the surrounding area (which is
does not comply or is not ready to comply in a proper manner Phase I) is developed and occupied. They have been anxious to
with what is incumbent upon him. From the moment one of the build their residence for quite some time now, and would like to
parties fulfills his obligation, delay by the other begins. receive assurance from your goodselves regarding this, in
compliance with the agreement.
In order that the debtor may be in default it is necessary
that the following requisites be present: (1) that the obligation be II. Option on the adjoining lots
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance
We have already written your goodselves regarding the intention
judicially or extrajudicially.[33]
of Dr. & Mrs. Vazquez to exercise their option to purchase the
Under Article 1193 of the Civil Code, obligations for whose two lots on each side (a total of 4 lots) adjacent to their Retained
fulfillment a day certain has been fixed shall be demandable Area. They are concerned that although over a year has
only when that day comes. However, no such day certain was elapsed since the settlement of the legal problems, you have not
fixed in the MOA. Petitioners, therefore, cannot demand presented them with the size, configuration, etc. of these lots.
performance after the three (3) year period fixed by the MOA for They would appreciate being provided with these at your earliest
the development of the first phase of the property since this is convenience.[35]
not the same period contemplated for the development of the
subject lots. Since the MOA does not specify a period for the Manifestly, this letter expresses not only petitioners
development of the subject lots, petitioners should have acknowledgement that the delay in the development of Phase I
petitioned the court to fix the period in accordance with Article was due to the legal problems with GP Construction, but also
1197[34] of the Civil Code. As no such action was filed by their acquiescence to the completion of the development of
petitioners, their complaint for specific performance was Phase I at the much later date of February 19, 1990. More
premature, the obligation not being demandable at that point. importantly, by no stretch of semantic interpretation can it be
Accordingly, Ayala Corporation cannot likewise be said to have construed as a categorical demand on Ayala Corporation to
delayed performance of the obligation. offer the subject lots for sale to petitioners as the letter merely
articulates petitioners desire to exercise their option to purchase
Even assuming that the MOA imposes an obligation on
the subject lots and concern over the fact that they have not
Ayala Corporation to develop the subject lots within three (3)
been provided with the specifications of these lots.
years from date thereof, Ayala Corporation could still not be held
to have been in delay since no demand was made by petitioners The letters of petitioners children, Juan Miguel and
for the performance of its obligation. Victoria Vazquez, dated January 23, 1984[36] and February 18,
1984[37] can also not be considered categorical demands on
As found by the appellate court, petitioners letters which
Ayala Corporation to develop the first phase of the property
dealt with the three (3)-year timetable were all dated prior to
within the three (3)-year period much less to offer the subject
April 23, 1984, the date when the period was supposed to
lots for sale to petitioners. The letter dated January 23, 1984
expire. In other words, the letters were sent before the obligation
reads in part:
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 You will understand our interest in the completion of the roads to
evidenced by their agent, Engr. Eduardo Turlas letter to the our property, since we cannot develop it till you have
effect that petitioners agreed that the three (3)-year period constructed the same. Allow us to remind you of our
should be counted from the termination of the case filed by Memorandum of Agreement, as per which you committed to
Lancer. The letter reads in part: develop the roads to our property as per the original plans of the
company, and that
I. Completion of Phase I
1. The back portion should have been developed before the Applied to the instant case, paragraph 5.15 is obviously a
front portion which has not been the case. mere right of first refusal and not an option contract. Although
the paragraph has a definite object, i.e., the sale of subject lots,
2. The whole project front and back portions be completed by the period within which they will be offered for sale to petitioners
1984.[38] 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
The letter dated February 18, 1984 is similarly worded. It
within which Ayala Corporation is bound to reserve the subject
states:
lots for petitioners to exercise their privilege to purchase. Neither
is there a fixed or determinable price at which the subject lots
In this regard, we would like to remind you of Articles 5.7 and will be offered for sale. The price is considered certain if it may
5.9 of our Memorandum of Agreement which states be determined with reference to another thing certain or if the
respectively:[39] determination thereof is left to the judgment of a specified
person or persons.[46]
Even petitioner Daniel Vazquez letter[40] dated March 5,
1984 does not make out a categorical demand for Ayala Further, paragraph 5.15 was inserted into the MOA to give
Corporation to offer the subject lots for sale on or before April petitioners the first crack to buy the subject lots at the price
23, 1984. The letter reads in part: 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
and that we expect from your goodselves compliance with our
Articles 1324 and 1479 of the Civil Code, viz:
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] 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
At best, petitioners letters can only be construed as mere
the option is founded upon a consideration, as something paid
reminders which cannot be considered demands for
or promised.
performance because it must appear that the tolerance or
benevolence of the creditor must have ended.[42]
Art. 1479. A promise to buy and sell a determinate thing for a
The petition finally asks us to determine whether price certain is reciprocally demandable.
paragraph 5.15 of the MOA can properly be construed as an
option contract or a right of first refusal. Paragraph 5.15 states: An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
5.15 The BUYER agrees to give the SELLERS first option to promise is supported by a consideration distinct from the price.
purchase four developed lots next to the Retained Area at the
prevailing market price at the time of the purchase.[43] Consequently, the offer may be withdrawn anytime by
communicating the withdrawal to the other party.[47]
The Court has clearly distinguished between an option
contract and a right of first refusal. An option is a preparatory In this case, Ayala Corporation offered the subject lots for
contract in which one party grants to another, for a fixed period sale to petitioners at the price of P6,500.00/square meter, the
and at a determined price, the privilege to buy or sell, or to prevailing market price for the property when the offer was made
decide whether or not to enter into a principal contract. It binds on June 18, 1990.[48]Insisting on paying for the lots at the
the party who has given the option not to enter into the principal prevailing market price in 1984 of P460.00/square meter,
contract with any other person during the period designated, petitioners rejected the offer. Ayala Corporation reduced the
and within that period, to enter into such contract with the one to price to P5,000.00/square meter but again, petitioners rejected
whom the option was granted, if the latter should decide to use the offer and instead made a counter-offer in the amount
the option. It is a separate and distinct contract from that which of P2,000.00/square meter.[49] Ayala Corporation rejected
the parties may enter into upon the consummation of the option. petitioners counter-offer. With this rejection, petitioners lost their
It must be supported by consideration.[44] right to purchase the subject lots.

In a right of first refusal, on the other hand, while the It cannot, therefore, be said that Ayala Corporation
object might be made determinate, the exercise of the right breached petitioners right of first refusal and should be
would be dependent not only on the grantors eventual intention compelled by an action for specific performance to sell the
to enter into a binding juridical relation with another but also on subject lots to petitioners at the prevailing market price in 1984.
terms, including the price, that are yet to be firmed up.[45] WHEREFORE, the instant petition is DENIED. No
pronouncement as to costs.SO ORDERED.
 [G.R. No. 140182. April 12, 2005] WHEREFORE, the appealed decision is AFFIRMED AND
ACCORDINGLY MODIFIED AS DISCUSSED.

Furthermore, we resolved:
TANAY RECREATION CENTER AND DEVELOPMENT
CORP., petitioner, vs. CATALINA MATIENZO 1.0. That TRCDC VACATE the leased premises immediately;
FAUSTO+ and ANUNCIACION FAUSTO
PACUNAYEN, respondents.
2.0. To GRANT the motion of Pacunayen to allow her to
withdraw the amount of P320,000.00, deposited according to
DECISION records, with this court.
AUSTRIA-MARTINEZ, J.:
3.0. To order TRCDC to MAKE THE NECESSARY
Petitioner Tanay Recreation Center and Development ACCOUNTING regarding the amounts it had already deposited
Corp. (TRCDC) is the lessee of a 3,090-square meter property (for unpaid rentals for the extended period of seven [7] years of
located in Sitio Gayas, Tanay, Rizal, owned by Catalina the contract of lease). In case it had not yet completed its
Matienzo Fausto,[1] under a Contract of Lease executed on deposit, to immediately pay the remaining balance to
August 1, 1971. On this property stands the Tanay Coliseum Pacunayen.
Cockpit operated by petitioner. The lease contract provided for a
20-year term, subject to renewal within sixty days prior to its 4.0. To order TRCDC to PAY the amount of P10,000.00 as
expiration. The contract also provided that should Fausto decide monthly rental, with regard to its continued stay in the leased
to sell the property, petitioner shall have the priority right to premises even after the expiration of the extended period of
purchase the same.[2] seven (7) years, computed from August 1, 1998, until it finally
vacates therefrom.
On June 17, 1991, petitioner wrote Fausto informing her of
its intention to renew the lease.[3] However, it was Faustos SO ORDERED.[11]
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 In arriving at the assailed decision, the CA acknowledged
Fausto had earlier sold the property to Pacunayen on August 8, the priority right of TRCDC to purchase the property in question.
1990, for the sum of P10,000.00 under a Kasulatan ng Bilihan However, the CA interpreted such right to mean that it shall be
Patuluyan ng Lupa,[5] and title has already been transferred in applicable only in case the property is sold to strangers and not
her name under Transfer Certificate of Title (TCT) No. M- to Faustos relative. The CA stated that (T)o interpret it otherwise
35468.[6] as to comprehend all sales including those made to relatives
and to the compulsory heirs of the seller at that would be an
Despite efforts, the matter was not resolved. Hence, on absurdity, and her (Faustos) only motive for such transfer was
September 4, 1991, petitioner filed an Amended Complaint for precisely one of preserving the property within her bloodline and
Annulment of Deed of Sale, Specific Performance with that someone administer the property.[12] The CA also ruled that
Damages, and Injunction, docketed as Civil Case No. 372-M.[7] petitioner already acknowledged the transfer of ownership and
is deemed to have waived its right to purchase the
In her Answer, respondent claimed that petitioner is property.[13] The CA even further went on to rule that even if the
estopped from assailing the validity of the deed of sale as the sale is annulled, petitioner could not achieve anything because
latter acknowledged her ownership when it merely asked for a the property will be eventually transferred to Pacunayen after
renewal of the lease. According to respondent, when they met to Faustos death.[14]
discuss the matter, petitioner did not demand for the exercise of
its option to purchase the property, and it even asked for grace Petitioner filed a motion for reconsideration but it was
period to vacate the premises.[8] denied per Resolution dated September 14, 1999.[15]
After trial on the merits, the Regional Trial Court of Dissatisfied, petitioner elevated the case to this Court on
Morong, Rizal (Branch 78), rendered judgment extending the petition for review on certiorari, raising the following grounds:
period of the lease for another seven years from August 1, 1991
at a monthly rental of P10,000.00, and dismissed petitioners THE HONORABLE COURT OF APPEALS COMMITTED
claim for damages.[9] SERIOUS REVERSIBLE ERROR IN HOLDING THAT THE
On appeal, docketed as CA-G.R. CV No. 43770, the Court CONTRACTUAL STIPULATION GIVING PETITIONER THE
of Appeals (CA) affirmed with modifications the trial courts PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES
judgment per its Decision dated June 14, 1999.[10] The SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL
dispositive portion of the decision reads: THE SAME TO STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED performance.[22] In Riviera Filipina, Inc. vs. Court of
SERIOUS REVERSIBLE ERROR IN HOLDING THAT Appeals,[23] the Court discussed the concept and interpretation
PETITIONERS PRIORITY RIGHT TO PURCHASE THE of the right of first refusal and the consequences of a breach
LEASED PREMISES IS INCONSEQUENTIAL. [16] thereof, to wit:

The principal bone of contention in this case refers to . . . It all started in 1992 with Guzman, Bocaling & Co. v.
petitioners priority right to purchase, also referred to as the right Bonnevie where the Court held that a lease with a proviso
of first refusal. granting the lessee the right of first priority all things and
conditions being equal meant that there should be identity of the
Petitioners right of first refusal in this case is expressly terms and conditions to be offered to the lessee and all other
provided for in the notarized Contract of Lease dated August 1, prospective buyers, with the lessee to enjoy the right of first
1971, between Fausto and petitioner, to wit: 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
7. That should the LESSOR decide to sell the leased premises, violation of a right of first refusal granted to the lessee is not
the LESSEE shall have the priority right to purchase the voidable under the Statute of Frauds but rescissible under
same;[17] Articles 1380 to 1381 (3) of the New Civil Code.

When a lease contract contains a right of first refusal, the Subsequently in 1994, in the case of Ang Yu Asuncion v.
lessor is under a legal duty to the lessee not to sell to anybody Court of Appeals, the Court en banc departed from the doctrine
at any price until after he has made an offer to sell to the latter laid down in Guzman, Bocaling & Co. v. Bonnevie and
at a certain price and the lessee has failed to accept it. The refused to rescind a contract of sale which violated the right of
lessee has a right that the lessor's first offer shall be in his first refusal. The Court held that the so-called right of first refusal
favor.[18] Petitioners right of first refusal is an integral and cannot be deemed a perfected contract of sale under Article
indivisible part of the contract of lease and is inseparable from 1458 of the New Civil Code and, as such, a breach thereof
the whole contract. The consideration for the lease includes the decreed under a final judgment does not entitle the aggrieved
consideration for the right of first refusal[19] and is built into the party to a writ of execution of the judgment but to an action for
reciprocal obligations of the parties. damages in a proper forum for the purpose.
It was erroneous for the CA to rule that the right of first
refusal does not apply when the property is sold to Faustos In the 1996 case of Equatorial Realty Development, Inc. v.
relative.[20] When the terms of an agreement have been reduced Mayfair Theater, Inc., the Court en banc reverted back to the
to writing, it is considered as containing all the terms agreed doctrine in Guzman Bocaling & Co. v. Bonnevie stating that
upon. As such, there can be, between the parties and their rescission is a relief allowed for the protection of one of the
successors in interest, no evidence of such terms other than the contracting parties and even third persons from all injury and
contents of the written agreement, except when it fails to damage the contract may cause or to protect some incompatible
express the true intent and agreement of the parties.[21] In this and preferred right by the contract.
case, the wording of the stipulation giving petitioner the right of
first refusal is plain and unambiguous, and leaves no room for Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v.
interpretation. It simply means that should Fausto decide to sell Court of Appeals, the Court affirmed the nature of and the
the leased property during the term of the lease, such sale concomitant rights and obligations of parties under a right of first
should first be offered to petitioner. The stipulation does not refusal. The Court, summarizing the rulings in Guzman,
provide for the qualification that such right may be exercised Bocaling & Co. v. Bonnevie and Equatorial Realty
only when the sale is made to strangers or persons other than Development, Inc. v. Mayfair Theater, Inc., held that in order
Faustos kin. Thus, under the terms of petitioners right of first to have full compliance with the contractual right granting
refusal, Fausto has the legal duty to petitioner not to sell the petitioner the first option to purchase, the sale of the properties
property to anybody, even her relatives, at any price until after for the price for which they were finally sold to a third person
she has made an offer to sell to petitioner at a certain price and should have likewise been first offered to the former. Further,
said offer was rejected by petitioner. Pursuant to their contract, it there should be identity of terms and conditions to be offered to
was essential that Fausto should have first offered the property the buyer holding a right of first refusal if such right is not to be
to petitioner before she sold it to respondent. It was only after rendered illusory. Lastly, the basis of the right of first refusal
petitioner failed to exercise its right of first priority could Fausto must be the current offer to sell of the seller or offer to purchase
then lawfully sell the property to respondent. of any prospective buyer.
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 The prevailing doctrine therefore, is that a right of first
case, may be the subject of an action for specific 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 succeeds to what rights his mother had and what is valid
person, while valid, is rescissible.[24] and binding against her is also valid and binding as against
him. This is clear from Paraaque Kings Enterprises vs. Court of
It was also incorrect for the CA to rule that it would be Appeals, where this Court rejected a similar defense-
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, With respect to the contention of respondent
Fausto died in March 1996, and the property now belongs to Raymundo that he is not privy to the lease contract,
respondent, being Faustos heir.[25] not being the lessor nor the lessee referred to
therein, he could thus not have violated its
For one, Fausto was bound by the terms and conditions of provisions, but he is nevertheless a proper party.
the lease contract. Under the right of first refusal clause, she Clearly, he stepped into the shoes of the owner-
was obligated to offer the property first to petitioner before lessor of the land as, by virtue of his purchase, he
selling it to anybody else. When she sold the property to assumed all the obligations of the lessor under the
respondent without offering it to petitioner, the sale while valid is lease contract. Moreover, he received benefits in
rescissible so that petitioner may exercise its option under the the form of rental payments. Furthermore, the
contract. complaint, as well as the petition, prayed for the
annulment of the sale of the properties to him. Both
With the death of Fausto, whatever rights and obligations pleadings also alleged collusion between him and
she had over the property, including her obligation under the respondent Santos which defeated the exercise by
lease contract, were transmitted to her heirs by way of petitioner of its right of first refusal.
succession, a mode of acquiring the property, rights and
obligation of the decedent to the extent of the value of the
In order then to accord complete relief to petitioner,
inheritance of the heirs. Article 1311 of the Civil Code provides:
respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable
ART. 1311. Contracts take effect only between the parties, their judgment for the petitioner will necessarily affect the
assigns and heirs, except in case where the rights and rights of respondent Raymundo as the buyer of the
obligations arising from the contract are not transmissible by property over which petitioner would like to assert
their nature, or by stipulation or by provision of law. The heir is its right of first option to buy.[29] (Emphasis supplied)
not liable beyond the value of the property he received from the
decedent.
Likewise in this case, the contract of lease, with all its
concomitant provisions, continues even after Faustos death and
A lease contract is not essentially personal in her heirs merely stepped into her shoes.[30] Respondent, as an
character.[26] Thus, the rights and obligations therein are heir of Fausto, is therefore bound to fulfill all its terms and
transmissible to the heirs. The general rule is that heirs are conditions.
bound by contracts entered into by their predecessors-in-
interest except when the rights and obligations arising therefrom There is no personal act required from Fausto such that
are not transmissible by (1) their nature, (2) stipulation or (3) respondent cannot perform it. Faustos obligation to deliver
provision of law.[27] possession of the property to petitioner upon the exercise by the
latter of its right of first refusal may be performed by respondent
In this case, the nature of the rights and obligations are, and the other heirs, if any. Similarly, nonperformance is not
by their nature, transmissible. There is also neither contractual excused by the death of the party when the other party has a
stipulation nor provision of law that makes the rights and property interest in the subject matter of the contract.[31]
obligations under the lease contract intransmissible. The lease
contract between petitioner and Fausto is a property right, which The CA likewise found that petitioner acknowledged the
is a right that passed on to respondent and the other heirs, if legitimacy of the sale to respondent and it is now barred from
any, upon the death of Fausto. exercising its right of first refusal. According to the appellate
court:
In DKC Holdings Corporation vs. Court of Appeals,[28] the
Court held that the Contract of Lease with Option to Buy entered
Second, when TRCDC, in a letter to Fausto, signified its
into by the late Encarnacion Bartolome with DKC Holdings
intention to renew the lease contract, it was Pacunayen who
Corporation was binding upon her sole heir, Victor, even after
answered the letter on June 19, 1991. In that letter Pacunayen
her demise and it subsists even after her death. The Court ruled
demanded that TRCDC vacate the leased premises within sixty
that:
(60) days and informed it of her ownership of the leased
premises. The pertinent portion of the letter reads:
. . . Indeed, being an heir of Encarnacion, there is privity of
interest between him and his deceased mother. He only
Furtherly, please be advised that the land is no longer under the for her to be able to take charge of the latters affairs. As
absolute ownership of my mother and the undersigned is now admitted by respondent in her Appellees Brief filed before the
the real and absolute owner of the land. CA, viz.:

Instead of raising a howl over the contents of the letter, as would After June 19, 1991, TRCDC invited Pacunayen to meeting with
be its expected and natural reaction under the circumstances, the officers of the corporation. . . . In the same meeting,
TRCDC surprisingly kept silent about the whole thing. As we Pacunayens attention was called to the provision of the
mentioned in the factual antecedents of this case, it even invited Contract of Lease had by her mother with TRCDC,
Pacunayen to its special board meeting particularly to discuss particularly paragraph 7 thereof, which states:
with her the renewal of the lease contract. Again, during that
meeting, TRCDC did not mention anything that could be 7. That should the lessor decide to sell the leased premises, the
construed as challenging Pacunayens ownership of the leased LESSEE shall have the priority right to purchase the same.
premises. Neither did TRCDC assert its priority right to purchase
the same against Pacunayen.[32]
Of course, in the meeting she had with the officers of TRCDC,
Pacunayen explained that the sale made in her favor by her
The essential elements of estoppel are: (1) conduct of a mother was just a formality so that she may have the proper
party amounting to false representation or concealment of representation with TRCDC in the absence of her parents, more
material facts or at least calculated to convey the impression so that her father had already passed away, and there was no
that the facts are otherwise than, and inconsistent with, those malice in her mine (sic) and that of her mother, or any intention
which the party subsequently attempts to assert; (2) intent, or at on their part to deceive TRCDC. All these notwithstanding, and
least expectation, that this conduct shall be acted upon by, or at for her to show their good faith in dealing with TRCDC,
least influence, the other party; and (3) knowledge, actual or Pacunayen started the ground work to reconvey ownership over
constructive, of the real facts.[33] the whole land, now covered by Transfer Certificare (sic) of Title
The records are bereft of any proposition that petitioner No. M-259, to and in the name of her mother (Fausto), but the
waived its right of first refusal under the contract such that it is latter was becoming sickly, old and weak, and they found no
now estopped from exercising the same. In a letter dated June time to do it as early as they wanted to.[40] (Emphasis supplied)
17, 1991, petitioner wrote to Fausto asking for a renewal of the
term of lease.[34] Petitioner cannot be faulted for merely seeking Given the foregoing, the Kasulatan ng Bilihan Patuluyan
a renewal of the lease contract because obviously, it was ng Lupa dated August 8, 1990 between Fausto and respondent
working on the assumption that title to the property is still in must be rescinded. Considering, however, that Fausto
Faustos name and the latter has the sole authority to decide on already died on March 16, 1996, during the pendency of this
the fate of the property. Instead, it was respondent who replied, case with the CA, her heirs should have been substituted as
advising petitioner to remove all the improvements on the respondents in this case. Considering further that the Court
property, as the lease is to expire on the 1st of August 1991. cannot declare respondent Pacunayen as the sole heir, as it is
Respondent also informed petitioner that her mother has not the proper forum for that purpose, the right of petitioner may
already sold the property to her.[35] In order to resolve the only be enforced against the heirs of the deceased Catalina
matter, a meeting was called among petitioners stockholders, Matienzo Fausto, represented by respondent Pacunayen.
including respondent, on July 27, 1991, where petitioner, again,
In Paraaque Kings Enterprises, Inc. vs. Court of
proposed that the lease be renewed. Respondent, however,
Appeals,[41] it was ruled that the basis of the right of the first
declined. While petitioner may have sought the renewal of the
refusal must be the current offer to sell of the seller or offer to
lease, it cannot be construed as a relinquishment of its right of
purchase of any prospective buyer. It is only after the grantee
first refusal. Estoppel must be intentional and unequivocal.[36]
fails to exercise its right of first priority under the same terms
Also, in the excerpts from the minutes of the special and within the period contemplated, could the owner validly offer
meeting, it was further stated that the possibility of a sale was to sell the property to a third person, again, under the same
likewise considered.[37] But respondent also refused to sell the terms as offered to the grantee. The circumstances of this case,
land, while the improvements, if for sale shall be subject for however, dictate the application of a different ruling. An offer of
appraisal.[38] After respondent refused to sell the land, it was the property to petitioner under identical terms and conditions of
then that petitioner filed the complaint for annulment of sale, the offer previously given to respondent Pacunayen would be
specific performance and damages.[39] Petitioners acts of inequitable. The subject property was sold in 1990 to
seeking all possible avenues for the amenable resolution of the respondent Pacunayen for a measly sum of P10,000.00.
conflict do not amount to an intentional and unequivocal Obviously, the value is in a small amount because the sale was
abandonment of its right of first refusal. between a mother and daughter. As admitted by said
respondent, the sale made in her favor by her mother was just a
Respondent was well aware of petitioners right to priority formality so that she may have the proper representation with
of sale, and that the sale made to her by her mother was merely
TRCDC in the absence of her parents[42] Consequently, the offer In the present case, there is no question that the Tanay
to be made to petitioner in this case should be under reasonable Coliseum Cockpit was closed for two months and TRCDC did
terms and conditions, taking into account the fair market value not gain any income during said period. But there is nothing on
of the property at the time it was sold to respondent. record to substantiate petitioners claim that it was bound to lose
some P111,000.00 from such closure. TRCDCs president,
In its complaint, petitioner prayed for the cancellation of Ambrosio Sacramento, testified that they suffered income losses
TCT No. M-35468 in the name of respondent with the closure of the cockpit from August 2, 1991 until it re-
Pacunayen,[43] which was issued by the Register of Deeds of opened on October 20, 1991.[48] Mr. Sacramento, however,
Morong on February 7, 1991.[44] Under ordinary circumstances, cannot state with certainty the amount of such unrealized
this would be the logical effect of the rescission of the Kasulatan income.[49] Meanwhile, TRCDCs accountant, Merle Cruz, stated
ng Bilihan Patuluyan ng Lupa between the deceased Fausto that based on the corporations financial statement for the years
and respondent Pacunayen. However, the circumstances in this 1990 and 1991,[50] they derived the amount of P120,000.00 as
case are not ordinary. The buyer of the subject property is the annual income from rent.[51] From said financial statement, it is
sellers own daughter. If and when the title (TCT No. M-35468) in safe to presume that TRCDC generated a monthly income
respondent Pacunayens name is cancelled and reinstated in of P10,000.00 a month (P120,000.00 annual income divided by
Faustos name, and thereafter negotiations between petitioner 12 months). At best therefore, whatever actual damages that
and respondent Pacunayen for the purchase of the subject petitioner suffered from the cockpits closure for a period of two
property break down, then the subject property will again revert months can be reasonably summed up only to P20,000.00.
to respondent Pacunayen as she appears to be one of Faustos
heirs. This would certainly be a winding route to traverse. Sound Such award of damages shall earn interest at the legal
reason therefore dictates that title should remain in the name of rate of six percent (6%) per annum, which shall be computed
respondent Pacunayen, for and in behalf of the other heirs, if from the time of the filing of the Complaint on August 22, 1991,
any, to be cancelled only when petitioner successfully exercises until the finality of this decision. After the present decision
its right of first refusal and purchases the subject property. becomes final and executory, the rate of interest shall increase
to twelve percent (12%) per annum from such finality until its
Petitioner further seeks the award of the following satisfaction, this interim period being deemed to be equivalent to
damages in its favor: (1) P100,000.00 as actual damages; a forbearance of credit.[52] This is in accord with the guidelines
(2) P1,100,000.00 as compensation for lost goodwill or laid down by the Court in Eastern Shipping Lines, Inc. vs. Court
reputation; (3) P100,000.00 as moral damages; (4) P100,000.00 of Appeals,[53] regarding the manner of computing legal
as exemplary damages; (5) P50,000.00 as attorneys fees; interest, viz.:
(6) P1,000.00 appearance fee per hearing; and (7) the costs of
suit.[45]
II. With regard particularly to an award of interest in the concept
According to petitioner, respondents act in fencing the of actual and compensatory damages, the rate of interest, as
property led to the closure of the Tanay Coliseum Cockpit and well as the accrual thereof, is imposed, as follows:
petitioner was unable to conduct cockfights and generate
income of not less than P100,000.00 until the end of September 1. When the obligation is breached, and it consists in the
1991, aside from the expected rentals from the cockpit space payment of a sum of money, i.e., a loan or forbearance of
lessees in the amount of P11,000.00.[46] money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
Under Article 2199 of the Civil Code, it is provided that:
earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per
Except as provided by law or by stipulation, one is entitled to an annum to be computed from default, i.e., from judicial or
adequate compensation only for such pecuniary loss extrajudicial demand under and subject to the provisions of
suffered by him as he has duly proved. Such compensation is Article 1169 of the Civil Code.
referred to as actual or compensatory damages. (Emphasis
supplied)
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
The rule is that actual or compensatory damages cannot awarded may be imposed at the discretion of the court at the
be presumed, but must be proved with reasonable degree of rate of 6% per annum. No interest, however, shall be adjudged
certainty. A court cannot rely on speculations, conjectures, or on unliquidated claims or damages except when or until the
guesswork as to the fact and amount of damages, but must demand can be established with reasonable certainty.
depend upon competent proof that they have been suffered by Accordingly, where the demand is established with reasonable
the injured party and on the best obtainable evidence of the certainty, the interest shall begin to run from the time the claim
actual amount thereof. It must point out specific facts, which is made judicially or extrajudicially (Art. 1169, Civil Code) but
could afford a basis for measuring whatever compensatory or when such certainty cannot be so reasonably established at the
actual damages are borne.[47] 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 of a corporation because, being an artificial person and having
quantification of damages may be deemed to have been existence only in legal contemplation, it has no feelings, no
reasonably ascertained). The actual base for the computation of emotions, no senses. It cannot, therefore, experience physical
legal interest shall, in any case, be on the amount finally suffering and mental anguish, which can be experienced only by
adjudged. one having a nervous system.[58] Petitioner being a
corporation,[59] the claim for moral damages must be denied.
3. When the judgment of the court awarding a sum of money With regard to the claim for exemplary damages, it is a
becomes final and executory, the rate of legal interest, whether requisite in the grant thereof that the act of the offender must be
the case falls under paragraph 1 or paragraph 2, above, shall be accompanied by bad faith or done in wanton, fraudulent or
12% per annum from such finality until its satisfaction, this malevolent manner.[60]Moreover, where a party is not entitled to
interim period being deemed to be by then an equivalent to a actual or moral damages, an award of exemplary damages is
forbearance of credit.[54] likewise baseless.[61] In this case, petitioner failed to show that
respondent acted in bad faith, or in wanton, fraudulent or
Petitioner also claims the amount of P1,100,000.00 as malevolent manner.
compensation for lost goodwill or reputation. It alleged that with
the unjust and wrongful conduct of the defendants as above- Petitioner likewise claims the amount of P50,000.00 as
described, plaintiff stands to lose its goodwill and reputation attorneys fees, the sum of P1,000.00 for every appearance of its
established for the past 20 years.[55] counsel, plus costs of suit. It is well settled that no premium
should be placed on the right to litigate and not every winning
An award of damages for loss of goodwill or reputation party is entitled to an automatic grant of attorney's fees. The
falls under actual or compensatory damages as provided in party must show that he falls under one of the instances
Article 2205 of the Civil Code, to wit: enumerated in Article 2208 of the Civil Code. In this case, since
petitioner was compelled to engage the services of a lawyer and
Art. 2205. Damages may be recovered: incurred expenses to protect its interest and right over the
subject property, the award of attorneys fees is proper. However
(1) For loss or impairment of earning capacity in cases of there are certain standards in fixing attorney's fees, to wit: (1)
temporary or permanent personal injury; 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
(2) For injury to the plaintiffs business standing or commercial
rendered; (4) the responsibility imposed; (5) the amount of
credit.
money and the value of the property affected by the controversy
or involved in the employment; (6) the skill and the experience
Even if it is not recoverable as compensatory damages, it called for in the performance of the services; (7) the professional
may still be awarded in the concept of temperate or moderate character and the social standing of the attorney; and (8) the
damages.[56] In arriving at a reasonable level of temperate results secured, it being a recognized rule that an attorney may
damages to be awarded, trial courts are guided by the ruling properly charge a much larger fee when it is contingent than
that: when it is not.[62] Considering the foregoing, the award
of P10,000.00 as attorneys fees, including the costs of suit, is
. . . There are cases where from the nature of the case, definite reasonable under the circumstances.
proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to WHEREFORE, the instant Petition for Review is
one's commercial credit or to the goodwill of a business firm is PARTIALLY GRANTED. The Court of Appeals Decision dated
often hard to show certainty in terms of money. Should June 14, 1999 in CA-G.R. CV No. 43770 is MODIFIED as
damages be denied for that reason? The judge should be follows:
empowered to calculate moderate damages in such cases,
rather than that the plaintiff should suffer, without redress from (1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8,
the defendant's wrongful act. (Araneta v. Bank of America, 40 1990 between Catalina Matienzo Fausto and respondent
SCRA 144, 145)[57] Anunciacion Fausto Pacunayen is hereby deemed rescinded;

In this case, aside from the nebulous allegation of (2) The Heirs of the deceased Catalina Matienzo Fausto who
petitioner in its amended complaint, there is no evidence on are hereby deemed substituted as respondents, represented by
record, whether testimonial or documentary, to adequately respondent Anunciacion Fausto Pacunayen, are ORDERED to
support such claim. Hence, it must be denied. recognize the obligation of Catalina Matienzo Fausto under the
Contract of Lease with respect to the priority right of petitioner
Petitioners claim for moral damages must likewise be Tanay Recreation Center and Development Corp. to purchase
denied. The award of moral damages cannot be granted in favor the subject property under reasonable terms and conditions;
(3) Transfer Certificate of Title No. M-35468 shall remain in the G.R. No. 168325 December 8, 2010
name of respondent Anunciacion Fausto Pacunayen, which
shall be cancelled in the event petitioner successfully purchases ROBERTO D. TUAZON, Petitioner,
the subject property; vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R.
(4) Respondent is ORDERED to pay petitioner Tanay SUAREZ-DE LEON, WILFREDO DE LEON, MIGUEL LUIS S.
Recreation Center and Development Corporation the amount of DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L.
Twenty Thousand Pesos (P20,000.00) as actual damages, plus SANDICO-SILVA, as attorney-in-fact of the defendants,
interest thereon at the legal rate of six percent (6%) per annum except Lourdes Q. Del Rosario-Suarez, Respondents.
from the filing of the Complaint until the finality of this Decision.
After this Decision becomes final and executory, the applicable DECISION
rate shall be twelve percent (12%) per annum until its
satisfaction; and,
DEL CASTILLO, J.:

(5) Respondent is ORDERED to pay petitioner the amount of

In a situation where the lessor makes an offer to sell to the
Ten Thousand Pesos (P10,000.00) as attorneys fees, and to
lessee a certain property at a fixed price within a certain period,
pay the costs of suit.
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
(6) Let the case be remanded to the Regional Trial Court, can validly offer it to another.
Morong, Rizal (Branch 78) for further proceedings on the
determination of the reasonable terms and conditions of the
This Petition for Review on Certiorari1 assails the
offer to sell by respondents to petitioner, without prejudice to
Decision2 dated May 30, 2005 of the Court of Appeals (CA) in
possible mediation between the parties.
CA-G.R. CV No. 78870, which affirmed the Decision3 dated
November 18, 2002 of the Regional Trial Court (RTC), Branch
The rest of the unaffected dispositive portion of the Court 101, Quezon City in Civil Case No. Q-00-42338.
of Appeals Decision is AFFIRMED.
SO ORDERED. 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. Ruling of the Court of Appeals
Silva, notified Roberto to vacate the premises. Roberto refused
hence, the De Leons filed a complaint for Unlawful Detainer On May 30, 2005, the CA issued its Decision dismissing
before the Metropolitan Trial Court (MeTC) of Quezon City Roberto’s appeal and affirming the Decision of the RTC.
against him. On August 30, 2000, the MeTC rendered a
Decision9 ordering Roberto to vacate the property for non-
Hence, this Petition for Review on Certiorari filed by Roberto
payment of rentals and expiration of the contract.
advancing the following arguments:

Ruling of the Regional Trial Court

I.

On November 8, 2000, while the ejectment case was on appeal,

The Trial Court and the Court of Appeals had decided that the
Roberto filed with the RTC of Quezon City a Complaint10 for
"Right of First Refusal" exists only within the parameters of an
Annulment of Deed of Absolute Sale, Reconveyance, Damages
"Option to Buy", and did not exist when the property was sold
and Application for Preliminary Injunction against Lourdes and
later to a third person, under favorable terms and conditions
the De Leons. On November 13, 2000, Roberto filed a Notice
which the former buyer can meet.
of Lis Pendens11 with the Registry of Deeds of Quezon City.
II.
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 What is the status or sanctions of an appellee in the Court of
a mere leverage of Roberto against them because of the Appeals who has not filed or failed to file an appellee’s brief?17
favorable Decision issued by the MeTC in the ejectment case.
Petitioner’s Arguments
On September 17, 2001, the RTC issued an Order13 declaring
Lourdes and the De Leons in default for their failure to appear Roberto claims that Lourdes violated his right to buy subject
before the court for the second time despite notice. Upon a property under
Motion for Reconsideration,14 the trial court in an Order15 dated
October 19, 2001 set aside its Order of default. the principle of "right of first refusal" by not giving him "notice"
and the opportunity to buy the property under the same terms
After trial, the court a quo rendered a Decision declaring the and conditions or specifically based on the much lower price
Deed of Absolute Sale made by Lourdes in favor of the De paid by the De Leons.
Leons as valid and binding. The offer made by Lourdes to
Roberto did not ripen into a contract to sell because the price Roberto further contends that he is enforcing his "right of first
offered by the former was not acceptable to the latter. The offer refusal" based on Equatorial Realty Development, Inc. v.
made by Lourdes is no longer binding and effective at the time Mayfair Theater, Inc.18 which is the leading case on the "right of
she decided to sell the subject lot to the De Leons because the first refusal."
same was not accepted by Roberto. Thus, in a Decision dated
November 18, 2002, the trial court dismissed the complaint. Its Respondents’ Arguments
dispositive portion reads:
On the other hand, respondents posit that this case is not
WHEREFORE, premises considered, judgment is hereby covered by the principle of "right of first refusal" but an
rendered dismissing the above-entitled Complaint for lack of unaccepted unilateral promise to sell or, at best, a contract of
merit, and ordering the Plaintiff to pay the Defendants, the option which was not perfected. The letter of Lourdes to Roberto
following: clearly embodies an option contract as it grants the latter only
two years to exercise the option to buy the subject property at a
1. the amount of ₱30,000.00 as moral damages; price certain of ₱37,541,000.00. As an option contract, the said
letter would have been binding upon Lourdes without need of
2. the amount of ₱30,000.00 as exemplary damages; any consideration, had Roberto accepted the offer. But in this
case there was no acceptance made neither was there a distinct
3. the amount of ₱30,000.00 as attorney’s fees; and consideration for the option contract.

4. cost of the litigation. Our Ruling

SO ORDERED.16 The petition is without merit.

This case involves an option contract and not a contract of a eventual intention to enter into a binding juridical relation
right of first refusal with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at
In Beaumont v. Prieto,19 the nature of an option contract is best be so described as merely belonging to a class of
explained thus: 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
In his Law Dictionary, edition of 1897, Bouvier defines an option
general application, the pertinent scattered provisions of the
as a contract, in the following language:
Civil Code on human conduct.
‘A contract by virtue of which A, in consideration of the payment
Even on the premise that such right of first refusal has been
of a certain sum to B, acquires the privilege of buying from, or
decreed under a final judgment, like here, its breach cannot
selling to, B certain securities or properties within a limited time
justify correspondingly an issuance of a writ of execution under
at a specified price. (Story vs. Salamon, 71 N. Y., 420.)’
a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby
From Vol. 6, page 5001, of the work "Words and Phrases," citing negating the indispensable element of consensuality in the
the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. perfection of contracts. It is not to say, however, that the right of
Rep., 17) the following quotation has been taken: first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for
‘An agreement in writing to give a person the ‘option’ to instance, the circumstances expressed in Article 19 of the Civil
purchase lands within a given time at a named price is neither a Code, can warrant a recovery for damages. (Emphasis
sale nor an agreement to sell. It is simply a contract by which supplied.)
the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price From the foregoing, it is thus clear that an option contract is
within a certain time. He does not sell his land; he does not entirely different and distinct from a right of first refusal in that in
then agree to sell it; but he does sell something; that is, the right the former, the option granted to the offeree is for a fixed
or privilege to buy at the election or option of the other party. period and at a determined price. Lacking these two essential
The second party gets in praesenti, not lands, nor an agreement requisites, what is involved is only a right of first refusal.
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
In this case, the controversy is whether the letter of Lourdes to
owner parts with his right to sell his lands, except to the second
Roberto dated January 2, 1995 involved an option contract or a
party, for a limited period. The second party receives this right,
contract of a right of first refusal. In its entirety, the said letter-
or rather, from his point of view, he receives the right to elect to
offer reads:
buy.

206 Valdes Street

But the two definitions above cited refer to the contract of option,
Josefa Subd. Balibago
or, what amounts to the same thing, to the case where there
Angeles City 2009
was cause or consideration for the obligation x x x. (Emphasis
supplied.)
January 2, 1995
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an
elucidation on the "right of first refusal" was made thus: Tuazon Const. Co.
986 Tandang Sora Quezon City
In the law on sales, the so-called ‘right of first refusal’ is an
innovative juridical relation. Needless to point out, it cannot be Dear Mr. Tuazon,
deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its I received with great joy and happiness the big box of sweet
normal concept, per se be brought within the purview of an grapes and ham, fit for a king’s party. Thanks very much.
option under the second paragraph of Article 1479, aforequoted,
or possibly of an offer under Article 1319 of the same Code. An I am getting very old (79 going 80 yrs. old) and wish to live in the
option or an offer would require, among other things, a clear U.S.A. with my only family. I need money to buy a house and lot
certainty on both the object and the cause or consideration of and a farm with a little cash to start.
the envisioned contract. In a right of first refusal, while the
object might be made determinate, the exercise of the right,
I am offering you to buy my 1211 square
however, would be dependent not only on the grantor's
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 distinct from the price." This is clearly inferred from the context
expenses for the transfer. I wish the Lord God will help you buy of said article that a unilateral promise to buy or to sell, even if
my lot easily and you will be very lucky forever in this place. You accepted, is only binding if supported by consideration. In other
have all the time to decide when you can, but not for 2 words, "an accepted unilateral promise can only have a binding
years or more. effect if supported by a consideration, which means that the
option can still be withdrawn, even if accepted, if the same is not
I wish you long life, happiness, health, wealth and great fortune supported by any consideration. Hence, it is not disputed that
always! the option is without consideration. It can therefore be withdrawn
notwithstanding the acceptance made of it by appellee.
I hope the Lord God will help you be the recipient of multi-billion
projects aid from other countries. 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
Thank you,
may be withdrawn at any time before acceptance" except when
the option is founded upon consideration, but this general rule
Lourdes Q. del Rosario vda de Suarez must be interpreted as modified by the provision of Article 1479
above referred to, which applies to "a promise to buy and
It is clear that the above letter embodies an option contract as it sell" specifically. As already stated, this rule requires that a
grants Roberto a fixed period of only two years to buy the promise to sell to be valid must be supported by a consideration
subject property at a price certain of ₱37,541,000.00. It being distinct from the price.
an option contract, the rules applicable are found in Articles
1324 and 1479 of the Civil Code which provide: In Diamante v. Court of Appeals,22 this Court further declared
that:
Art. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before A unilateral promise to buy or sell is a mere offer, which is not
acceptance by communicating such withdrawal, except when converted into a contract except at the moment it is
the option is founded upon a consideration, as something paid accepted. Acceptance is the act that gives life to a juridical
or promised. obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance,
Art. 1479. A promise to buy and sell a determinate thing for a however, a bilateral contract to sell and to buy is created, and
price certain is reciprocally demandable. the offeree ipso facto assumes the obligations of a purchaser;
the offeror, on the other hand, would be liable for damages if he
An accepted unilateral promise to buy or to sell a determinate fails to deliver the thing he had offered for sale.
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price. xxxx

It is clear from the provision of Article 1324 that there is a great Even if the promise was accepted, private respondent was
difference between the effect of an option which is without a not bound thereby in the absence of a distinct
consideration from one which is founded upon a consideration. consideration. (Emphasis ours.)
If the option is without any consideration, the offeror may
withdraw his offer by communicating such withdrawal to the In this case, it is undisputed that Roberto did not accept the
offeree at anytime before acceptance; if it is founded upon a terms stated in the letter of Lourdes as he negotiated for a much
consideration, the offeror cannot withdraw his offer before the lower price. Roberto’s act of negotiating for a much lower price
lapse of the period agreed upon. was a counter-offer and is therefore not an acceptance of the
offer of Lourdes. Article 1319 of the Civil Code provides:
The second paragraph of Article 1479 declares that "an
accepted unilateral promise to buy or to sell a determinate thing Consent is manifested by the meeting of the offer and
for a price certain is binding upon the promissor if the promise is the acceptance upon the thing and the cause which are to
supported by a consideration distinct from the price." Sanchez v. constitute the contract. The offer must be certain and
Rigos21 provided an interpretation of the said second paragraph the acceptance absolute. A qualified acceptanceconstitutes a
of Article 1479 in relation to Article 1324. Thus: counter-offer. (Emphasis supplied.)

There is no question that under Article 1479 of the new Civil The counter-offer of Roberto for a much lower price was not
Code "an option to sell," or "a promise to buy or to sell," as used accepted by Lourdes. There is therefore no contract that was
in said article, to be valid must be "supported by a consideration
perfected between them with regard to the sale of subject Moreover, even if the offer of Lourdes was accepted by Roberto,
property. Roberto, thus, does not have any right to demand that still the former is not bound thereby because of the absence of a
the property be sold to him at the price for which it was sold to consideration distinct and separate from the price. The
the De Leons neither does he have the right to demand that said argument of Roberto that the separate consideration was the
sale to the De Leons be annulled. liberality on the part of Lourdes cannot stand. A perusal of the
letter-offer of Lourdes would show that what drove her to offer
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is the property to Roberto was her immediate need for funds as
not applicable here 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
It is the position of Roberto that the facts of this case and that
likely to buy the property at that time as he was then leasing the
of Equatorial are similar in nearly all aspects. Roberto is a
same.
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. All told, the facts of the case, as found by the RTC and the CA,
There were negotiations as to the price which did not bear fruit do not support Roberto’s claims that the letter of Lourdes gave
because Lourdes sold the property to the De Leons which was him a right of first refusal which is similar to the one given to
also the case in Equatorial wherein Carmelo and Bauermann Mayfair Theater in the case of Equatorial.Therefore, there is no
sold the property to Equatorial. The existence of the lease of the justification to annul the deed of sale validly entered into by
property is known to the De Leons as they are related to Lourdes with the De Leons.
Lourdes while in Equatorial, the lawyers of Equatorial studied
the lease contract of Mayfair over the property. The property in What is the effect of the failure of Lourdes to file her appellee’s
this case was sold by Lourdes to the De Leons at a much lower brief at the CA?
price which is also the case in Equatorial where Carmelo and
Bauerman sold to Equatorial at a lesser price. It is Roberto’s Lastly, Roberto argues that Lourdes should be sanctioned for
conclusion that as in the case of Equatorial, there was a her failure to file her appellee’s brief before the CA.
violation of his right of first refusal and hence annulment or
rescission of the Deed of Absolute Sale is the proper remedy.
Certainly, the appellee’s failure to file her brief would not mean
that the case would be automatically decided against her. Under
Roberto’s reliance in Equatorial is misplaced. Despite his claims, the circumstances, the prudent action on the part of the CA
the facts in Equatorial radically differ from the facts of this case. would be to deem Lourdes to have waived her right to file her
Roberto overlooked the fact that in Equatorial, there was an appellee’s brief. De Leon v. Court of Appeals,23 is instructive
express provision in the Contract of Lease that – when this Court decreed:

(i)f the LESSOR should desire to sell the leased properties, the On the second issue, we hold that the Court of Appeals did not
LESSEE shall be given 30-days exclusive option to purchase commit grave abuse of discretion in considering the appeal
the same. submitted for decision. The proper remedy in case of denial of
the motion to dismiss is to file the appellee’s brief and proceed
There is no such similar provision in the Contract of Lease with the appeal. Instead, petitioner opted to file a motion for
between Roberto and Lourdes. What is involved here is a reconsideration which, unfortunately, was pro forma. All the
separate and distinct offer made by Lourdes through a letter grounds raised therein have been discussed in the first
dated January 2, 1995 wherein she is selling the leased resolution of the respondent Court of Appeals. There is no new
property to Roberto for a definite price and which gave the latter ground raised that might warrant reversal of the resolution. A
a definite period for acceptance. Roberto was not given a right cursory perusal of the motion would readily show that it was a
of first refusal. The letter-offer of Lourdes did not form part of the near verbatim repetition of the grounds stated in the motion to
Lease Contract because it was made more than six months dismiss; hence, the filing of the motion for reconsideration did
after the commencement of the lease. not suspend the period for filing the appellee’s brief. Petitioner
was therefore properly deemed to have waived his right to
It is also very clear that in Equatorial, the property was sold file appellee’s brief. (Emphasis supplied.)lawphi1
within the lease period. In this case, the subject property was
sold not only after the expiration of the period provided in the In the above cited case, De Leon was the plaintiff in a Complaint
letter-offer of Lourdes but also after the effectivity of the for a sum of money in the RTC. He obtained a favorable
Contract of Lease. 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.