ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS , HON. JOSE C. DE GUZMAN, OSCAR D.

TAN-QUECO, There are two (2) main issues in this petition for review: namely, (a) whether a stipulation in a contract of lease to the effect that the contract "may be renewed for a like term at the option of the lessee" is void for being potestative or violative of the principle of mutuality of contracts under Art. 1308 of the Civil Code and, corollarily, what is the meaning of the clause "may be renewed for a like term at the option of the lessee;" and, (b) whether a lessee has the legal personality to assail the validity of a deed of donation executed by the lessor over the leased premises. Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square meter lot located at No. 2 Sarmiento Street corner Quirino Highway, Novaliches, Quezon City, covered by TCT No. 136779 in their name. On 30 June 1978 they leased the property to petitioner Allied Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for the first three (3) years, adjustable by 25% every three (3) years thereafter. 1 The lease contract specifically states in its Provision No. 1 that "the term of this lease shall be fourteen (14) years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee." Pursuant to their lease agreement, ALLIED introduced an improvement on the property consisting of a concrete building with a floor area of 340-square meters which it used as a branch office. As stipulated, the ownership of the building would be transferred to the lessors upon the expiration of the original term of the lease. Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the subject property in favor of their four (4) children, namely, private respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and Nestor D. Tanqueco, who accepted the donation in the same public instrument. On 13 February 1991, a year before the expiration of the contract of lease, the Tanquecos notified petitioner ALLIED that they were no longer interested in renewing the lease. 2 ALLIED replied that it was exercising its option to renew their lease under the same terms with additional proposals. 3 Respondent Ruben D. Tanqueco, acting in behalf of all the donee-lessors, made a counterproposal. 4 ALLIED however rejected the counter-proposal and insisted on Provision No. 1 of their lease contract. When the lease contract expired in 1992 private respondents demanded that ALLIED vacate the premises. But the latter asserted its sole option to renew the lease and enclosed in its reply letter a cashier's check in the amount of P68,400.00 representing the advance rental payments for six (6) months taking into account the escalation clause. Private respondents however returned the check to ALLIED, prompting the latter to consign the amount in court. An action for ejectment was commenced before the Metropolitan Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease contract void for being violative of Art. 1308 of the Civil Code thus . . . but such provision [in the lease contract], to the mind of the Court, does not add luster to defendant's cause nor constitutes as an unbridled or unlimited license or sanctuary of the defendants to perpetuate its occupancy on the subject property. The basic intention of the law in any contract is mutuality and equality. In other words, the validity of a contract cannot be left at (sic) the will of one of the contracting parties. Otherwise, it infringes (upon) Article 1308 of the New Civil Code, which provides: The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them . . . Using the principle laid down in the case of Garcia v. Legarda as cornerstone, it is evident that the renewal of the lease in this case cannot be left at the sole option or will of the defendant notwithstanding provision no. 1 of their expired contract. For that would amount to a situation where the continuance and effectivity of a contract will depend only upon the sole will or power of the lessee, which is repugnant to the very spirit envisioned under Article 1308 of the New Civil Code . . . . the theory adopted by this Court in the case at bar finds ample affirmation from the principle echoed by the Supreme Court in the case of Lao Lim v. CA, 191 SCRA 150, 154, 155.

On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed decision was affirmed. 5 On 20 February 1993, while the case was pending in the Court of Appeals ALLIED vacated the leased premises by reason of the controversy. 6 ALLIED insists before us that Provision No. 1 of the lease contract was mutually agreed upon hence valid and binding on both parties, and the exercise by petitioner of its option to renew the contract was part of their agreement and in pursuance thereof. We agree with petitioner. Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. It provides that "the contract must bind both the contracting parties; its validity or compliance cannot be left to the will of one of them." This binding effect of a contract on both parties is based on the principle that the obligations arising from the contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties. An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the rights is made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and integral part of the agreement. The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment. 7 The case of Lao Lim v. Court of Appeals 8 relied upon by the trial court is not applicable here. In that case, the stipulation in the disputed compromise agreement was to the effect that the lessee would be allowed to stay in the premises "as long as he needs it and can pay the rents." In the present case, the questioned provision states that the lease "may be renewed for a like term at the option of the lessee." The lessor is bound by the option he has conceded to the lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be executed from performing his part of the agreement. Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita Legarda, Inc., 9 is misplaced. In that case, what was involved was a contract to sell involving residential lots, which gave the vendor the right to declare the contract called and of no effect upon the failure of the vendee to fulfill any of the conditions therein set forth. In the instant case, we are dealing with a contract of lease which gives the lessee the right to renew the same. With respect to the meaning of the clause "may be renewed for a like term at the option of the lessee," we sustain petitioner's contention that its exercise of the option resulted in the automatic extension of the contract of lease under the same terms and conditions. The subject contract simply provides that "the term of this lease shall be fourteen (14) years and may be renewed for a like term at the option of the lessee." As we see it, the only term on which there has been a clear agreement is the period of the new contract, i.e., fourteen (14) years, which is evident from the clause "may be renewed for a like term at the option of the lessee," the phrase "for a like term"referring to the period. It is silent as to what the specific terms and conditions of the renewed lease shall be. Shall it be the same terms and conditions as in the original contract, or shall it be under the terms and conditions as may be mutually agreed upon by the parties after the expiration of the existing lease?

In Ledesma v. Javellana 10 this Court was confronted with a similar problem. In the case the lessee was given the sole option to renew the lease, but the contract failed to specify the terms and conditions that would govern the new contract. When the lease expired, the lessee demanded an extension under the same terms and conditions. The lessor expressed conformity to the renewal of the contract but refused to accede to the claim of the lessee that the renewal should be under the same terms and conditions as the original contract. In sustaining the lessee, this Court made the following pronouncement: . . . in the case of Hicks v. Manila Hotel Company, a similar issue was resolved by this Court. It was held that "such a clause relates to the very contract in which it is placed, and does not permit the defendant upon the renewal of the contract in which the clause is found, to insist upon different terms and those embraced in the contract to be renewed;" and that "a stipulation to renew always relates to the contract in which it is found and the rights granted thereunder, unless it expressly provides for variations in the terms of the contract to be renewed." The same principle is upheld in American Law regarding the renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find the following citations: "The rule is wellestablished that a general covenant to renew or extend a lease which makes no provision as to the terms of a renewal or extension implies a renewal or extension upon the same terms as provided in the original lease." In the lease contract under consideration, there is no provision to indicate that the renewal will be subject to new terms and conditions that the parties may yet agree upon. It is to renewal provisions of lease contracts of the kind presently considered that the principles stated above squarely apply. We do not agree with the contention of the appellants that if it was intended by the parties to renew the contract under the same terms and conditions stipulated in the contract of lease, such should have expressly so stated in the contract itself. The same argument could easily be interposed by the appellee who could likewise contend that if the intention was to renew the contract of lease under such new terms and conditions that the parties may agree upon, the contract should have so specified. Between the two assertions, there is more logic in the latter. The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease, the tenant is the one favored and not the landlord. "As a general rule, in construing provisions relating to renewals or extensions, where there is any uncertainty, the tenants is favored, and not the landlord, because the latter, having the power of stipulating in his own favor, has neglected to do so; and also upon the principle that every man's grant is to be taken most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S. 599). Besides, if we were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still subject to mutual agreement by and between the parties, then the option which is an integral part of the consideration for the contract would be rendered worthless. For then, the lessor could easily defeat the lessee's right of renewal by simply imposing unreasonable and onerous conditions to prevent the parties from reaching an agreement, as in the case at bar. As in a statute no word, clause, sentence, provision or part of a contract shall be considered surplusage or superfluous, meaningless, void, insignificant or nugatory, if that can be reasonably avoided. To this end, a construction which will render every word operative is to be preferred over that which would make some words idle and nugatory. 11 Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993 indicating its abandonment of whatever rights it had under the renewal clause. Consequently, what remains to be done is for ALLIED to pay rentals for the continued use of premises until it vacated the same, computed from the expiration of the original term of the contract on 31 March 1992 to the time it actually left the premises on 20 February 1993, deducting therefrom the amount of P68,400.00

consigned in court by ALLIED and any other amount which it may have deposited or advanced in connection with the lease. Since the old lease contract was deemed renewed under the same terms and conditions upon the exercise by ALLIED of its option, the basis of the computation of rentals should be the rental rate provided for in the existing contract. Finally, ALLIED cannot assail the validity of the deed of donation, not being a party thereto. A person who is not principally or subsidiarily bound has no legal capacity to challenge the validity of the contract. 12 He must first have an interest in it. "Interest" within the meaning of the term means material interest, an interest to be affected by the deed, as distinguished from a mere incidental interest. Hence, a person who is not a party to a contract and for whose benefit it was not expressly made cannot maintain an action on it, even if the contract, if performed by the parties thereto would incidentally affect him, 13 except when he is prejudiced in his rights with respect to one of the contracting parties and can show the detriment which could positively result to him from the contract in which he had no intervention. 14 We find none in the instant case. WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE. Considering that petitioner ALLIED BANKING CORPORATION already vacated the leased premises as of 20 February 1993, the renewed lease contract is deemed terminated as of that date. However, petitioner is required to pay rentals to respondent lessors at the rate provided in their existing contract, subject to computation in view of the consignment in court of P68,400.00 by petitioner, and of such other amounts it may have deposited or advanced in connection with the lease. SO ORDERED.

Heirs of Dimaculangan v. IAC, 170 SCRA 393 (1989) FACTS: Dimaculangan and her children occupy by lease an apartment at a monthly rental of P250.00. Respondent Uy sent Dimaculangan a letter informing her that the property, which she has been occupying, has been sold to him and should she desire to continue occupying the same, she should sign a contract of lease for a period of two (2) years at a monthly rental of P1,500.00. Uy received no reply to this demand. Thus, he wrote another letter, demanding payment of P750.00 covering unpaid rentals. But still, there was no word from Dimaculangan such that Uy was forced to file a complaint for ejectment ISSUE: Whether or not the trial court may alter the agreement of the parties by shortening the period of the lease from an indefinite period within the purview of Presidential Decree No. 20, the law in force at the time, and of the amendatory Batas Pambansa Blg. 25, to a fixed two (2) years HELD: Yes. It is exempt from the application of P.D. No. 20, it must be one with a definite period It has been established that petitioners have been occupying the leased premises on a verbal contract since 1961 at a monthly rent of P250.00, and that although no fixed period for the duration of the lease has been agreed upon the original lessor and lessee, the rentals were paid monthly. The SC had already ruled that leases are deemed on a "month-to-month basis", if rentals therefore are paid monthly.

MAURA INDUCTIVO, petitioner, vs. THE HON. COURT OF APPEALS AND VICKY DIMAPILIS, respondents. In a lease on a "month to month" basis, would there be a significant consequential differences between a situation where the said "month to month" term is contractually stipulated and a case where that period is merely implicit from the provisions of Article 1687, in relation to Article 1670, of the Civil Code? Where the lessor refuses to accept the payment of lease rentals, would a deposit of said rentals with a bank, instead of consigning the same with a court, avoid an incurrence of default on the part of the lessee under the provisions of B.P. Blg. 25, as amended? These questions are the basic issues in this Petition for Review on Certiorari. The findings of the appellate court on the essential facts are not disputed. Said court has narrated, thus . . . Petitioner Vicky Dimapilis is the lessee of apartment No. 104-D at Clara St., Grace Park, Kalookan City, which private respondent Maura Inductivo owns. The lease was originally

covered by a contract which the parties executed on February 1, 1976 (Exh. A-1), to be effective for one year but after its expiration on January 31, 1977, petitioner remained in the premises, paying private respondent a monthly rental of P850.00. In a letter dated December 20, 1989, private respondent, through her lawyer, informed petitioner of her desire to repossess the apartment occupied by petitioner and, for this reason, gave notice that she was terminating the lease effective December 31, 1989. At the same time she demanded that petitioner vacate and surrender the premises within five (5) days from notice. (Annex A, p. 14, records) In her reply letter, petitioner denied the right of respondent to repossess the apartment, pointing out that she was a spinster and was living in her house and, therefore, could not possibly need the apartment for her use. She likewise said that the five-day period given to her was short. (Annex B, p. 15, records) Petitioner, therefore, refused the respondent's demand. But so did respondent Maura Inductivo refuse to accept payment of rents from petitioner. On March 10, 1990, private respondent wrote to petitioner claiming that the latter had not paid the rents from January to March 1990 and demanding payment and the return of the premises. As petitioner refused to vacate the apartment, private respondent filed on June 28, 1990 a complaint for unlawful detainer with the Metropolitan Trial Court of Caloocan City. In her complaint, private respondent alleged that petitioner had failed and refused to pay the monthly rent of P850.00 for the months of January to March 1990 in the total amount of P2,550.00 and that despite demands petitioner refused to pay and vacate the apartment. On the other hand petitioner denied that she had defaulted in the payment of the rents. She claimed that she had tendered payment of the rents but private respondent had refused the payment and for this reason she was forced to deposit the amount in the bank (Annex A, B, B-1, B-2, C, C-1, D, D-1, D-2, E, E-1, E-2). After the case was submitted for decision, following the presentation by the parties of their respective position papers and affidavits of witnesses, the Metropolitan Trial Court rendered judgment in favor of the plaintiff (herein petitioner), viz.: WHEREFORE, by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff Maura Inductivo and against the defendant Victoria Dimapilis, ordering the latter as follows: 1. Ordering the ejectment of defendant and all members of her family and household and all persons claiming rights under her from the apartment door located at 104-D, Maria Clara St., Grace Park, Kalookan City; 2. Ordering the defendant to pay the plaintiff her remaining unpaid rentals corresponding to six (6) consecutive months from January to June 1990, equivalent to the sum of P5,100.00 and until she has completely vacated and surrendered the possession of the premises in question; 3. Ordering the defendant to pay plaintiff the sum of P5,000.00 as attorney's fees, and to pay the cost of suit. The decision was appealed by the defendant to the Regional Trial Court ("RTC") which, among other things, held, in turn, as follows:

The lower court in its decision dated August 13, 1991, ruled that defendant failed to pay the arrears in rentals for three (3) consecutive months and subsequent rentals and that there was no evidence on record which shows that defendant consigned his rentals with the court or with any bank. This Court however rules that the non-payment of rentals as a cause in ejecting the defendant appellant is without merit. There was a valid tender of payments made by the defendants. There was sufficient evidence presented by the defendant to prove this. In fact, the Court is convinced that defendant had exhausted all the legal means, if only to show that she had every intention to pay the rentals (pages 61 to 66, records). Anent the second issue raised in this appeal, the Court agrees with the findings of the Court a quothat the lease contract between the plaintiff and defendant is on a monthto-month basis and that this is one with a definite term and the lessor may judicially eject his tenant upon expiration of the term or at the end of the month. On this point, this Court rules that since the lease can be terminated at the end of each month, the lessor has the legal right to eject the occupant. The above findings are borne out by the records. Thus, no reason exists why the Court should not reaffirm the same on this point. xxx xxx xxx WHEREFORE, above premises considered, judgment appealed from is AFFIRMED with modification on paragraph 2 of the dispositive portion of the decision appealed from since this Court rules that the payment for rentals for the use of the premises in question was validly consignated with the Philippine Savings Bank, Central Market Branch to which amount rightly belonged to the plaintiff as due and demandable rentals. From the above holding, the plaintiff appealed to the Court of Appeals, which reversed the RTC's decision, thus WHEREFORE, the decision of the Regional Trial Court is REVERSED, in so far as it rules that private respondent (herein petitioner) can judicially eject petitioner (herein private respondent) on the ground that the lease agreement between them already expired, and the complaint against petitioner is DISMISSED. Hence, the instant petition. Then lease her involved is concededly covered by the provision of the Rent Control Law (Batas Pambansa ["B.P."] 25, as amended). Under this law, the lessor is prohibited from ejecting the lessee except in those cases expressly provided by it. Among such cases when ejectment can be so demanded are (a) when the lessee has been in arrears in the payment of rentals for a total of three (3) months, or (b) when the lease is for a definite period which has expired. The petitioner contends that the private respondent has, for not less than three (3) months, been in arrears in the payment of rentals. The Regional Trial Court, sustained by the Court of Appeals, has expressed otherwise. We agree. It appears that following the petitioner's repeated refusal to accept private respondent's tender of monthly rentals, the private respondent did deposit the amounts instead with the Philippine Savings Bank, Central Market Branch, in the name of, and with notice to, the petitioner under the account no. 13-0055695-8. Section 5 (b) of Batas Pambansa Blg. 25, as amended, expressly sanctions such method of payment as a sufficient and valid alternative to judicial consignation. The second proposition proffered by the petitioner, i.e., that the lease, since it is on a "month-to-month" basis, can be validly terminated by the lessor at the end of any given month upon prior notice to that effect made on the lessee, finds support in previous decisions of this Court (Madriaga vs. Court of Appeals, G.R. No. 76294, 14 July 1988; Limpan vs. Lim, 159 SCRA 484; Cruz vs. Pano, 120 SCRA 497). On a factual setting similar to the case at bench, the Court, in Heirs of Fausta Dimaculangan vs. Intermediate Appellate Court

(170 SCRA 393), has ruled that when the rentals are paid monthly, a lease is deemed to be for a definite period, "expiring at the end of every monthly period." The lessor is thus granted the right to eject the lessee, being an excepted case under the Rental Control Law, after prior notice of such termination and demand to vacate the leased premises. In the present case, the lease contract initially contained a one-year term that expired on 31 January 1977 but the lessee, with the acquiescence of the lessor, continued in the possession and enjoyment of the property for several years thereafter. This situation gave rise to an implied new lease, not for the period of the original contract but for the time established in Article 1687 (see Fermin vs. Court of Appeals, 196 SCRA 723). Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in articles 1682 and 1687. The other terms of the original contract shall be revived. (1566a) Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lease has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. On case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. (1581a) Accordingly, following the Dimaculangan case, the appellate court erred in not upholding the right of the petitioner to eject the private respondent from the leased premises. In retrospect, the view adopted by the appellate court, it might be stated, has likewise heretofore been shared by the assigned writer of this Court's decision. A contract of lease, being impermanent, can only be either for adefinite or for an indefinite period. It is definite where the contract itself specifies its duration. A lease contract,expressly providing that it is "on a month to month" basis, or the like, is certainly for a definite period. When no such duration is contractually stipulated or specified, it should instead be deemed to be for an indefinite term, and it is in this instance when Article 1687 of the Civil Code can precisely find pertinence not so much for the periods therein expressed as the potestative authority it grants to the courts in fixing a longer period. The periods set by Article 1687 must be understood to be no more than transitory in nature. Thus construed Article 1687 would be consistent with the rule stated in Article 1197 of the Civil Code to the effect that when the parties to an obligation do not fix a period, but from the circumstances it can be inferred that a period has been intended, the courts, on the assumption that the parties are unable to come to an agreement thereon, may fix the duration thereof. But more primordial than one's personal inclination is the stability and respect that we must accord to settled rules heretofore considered and pronounced with finality by this Court. WHEREFORE, the decision appealed from is REVERSED and that of the Regional Trial Court is AFFIRMED. No costs. SO ORDERED. Ang Yu v Asuncion G.R. No. 109125, December 2, 1994 FACTS: Petitioners allege that they are tenants or lessees of residential and commercial spaces owned by defendants in Ongpin Street, Binondo, Manila since 1935 and that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the

same. During the negotiations, Bobby Cu Unjieng offered a price of P6-million while petitioners made a counter offer of P5-million. On October 24, 1986, petitioners asked the respondents to specify the terms and conditions of the offer to sell. Petitioners now raise that since respondents failed to specify the terms and conditions of the offer to sell and because of information received that the latter were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. The trial court found that the respondents offer to sell was never accepted by the petitioners for the reason that they did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. The Court of Appeals affirmed the decision of the lower court. This decision was brought to the Supreme Court by petition for review on certiorari which subsequently denied the appeal on May 6, 1991 for insufficiency in form and substance. On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale transferring the property in question to herein respondent Buen Realty and Development Corporation, for P15,000,000.00. On July 1, 1991, respondent as the new owner of the subject property wrote a letter to the petitioners demanding that the latter vacate the premises. On July 16, 1991, the petitioners wrote a reply to respondent corporation stating that the latter brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123. On August 30, 1991, the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of petitioners right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. The court also set aside the title issued to Buen Realty Corporation for having been executed in bad faith. On September 22, 1991, the Judge issued a writ of execution. On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo. ISSUE Whether or not Buen Realty can be bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latters purchase of the property on 15 November 1991 from the Cu Unjiengs. HELD We affirm the decision of the appellate court. In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. 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, 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. EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC. vs. MAYFAIR THEATER, INC.

G.R. No. 106063 November 21, 1996 FACTS: Carmelo entered into a contract with respondent for the latter to lease A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters. The contract is set for the next 20 years. 2 years later, the parties entered into yet another contract involving; A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters. Stipulated in the contract was; That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the respondent that it is contemplating to sell the said property and that a certain Jose Araneta is willing to buy the same for US$1,200,000. It also asked the respondent if its willing to the property for six to seven million pesos. Respondent through Mr. Yang told the petitioner that it would respond once a decision was made. Respondent in its reply mentioned a stipulated part of the contract as to when Carmelo would decide to sell the property. Carmelo did not reply. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. Carmelos defense; as special and affirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of consideration. Equitorials allegation; that the option is void for lack of cons ideration (sic) and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair's claims. Trial Court rendered decision in favor of Carmelo and Equitorial. ISSUE: Whether or not the OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO HELD: We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language: A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified price. The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other

things, indicate the definite price at which the person granting the option, is willing to sell