G.R. No. L-53820 June 15, 1992 5).

5). Delivery Schedule Shipment be made within four (4) days upon
receipt of your shipping instruction.
YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,
vs. 6). Bag/Container a) All be made of Standard Kraft (water resistant
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented paper, 4 ply, with bursting strength of 220 pounds, and b) Breakage
by its President-Chairman, CONSTANCIO B. MALAGNA, respondents. allowance additional four percent (4%) over the quantity of each
shipment.

7). Terms of Payment Down payment of PESOS: TWO HUNDRED

DAVIDE, JR., J.: FORTY THREE THOUSAND (P243,000.00) payable on the signing of this
contract and the balance to be paid upon presentation of corresponding
Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072- shipping documents.
R, 1 promulgated on 21 December 1979, reversing the decision 2 of the then Court of First Instance (now
Regional Trial Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading It is understood that in the event of a delay in our shipment, you hold the option to discount
versus Prime White Cement Corporation." any price differential resulting from a lower market price vis-a-vis the contract price. In
addition, grant (sic) you the option to extend this contract until the complete delivery of Forty
The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the
Board of private respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin option to renew this contract under the same price, terms and conditions.
Trading, hereinafter referred to as YKS, which describes itself as "a business concern of single proprietorship,"
3
and is represented by its manager, Mr. Henry Yao; the letter reads as follows: Please countersign on the space provided for below as your acknowledgement and
confirmation of the above transaction. Thank You.
PRIME WHITE CEMENT CORPORATION
602 Cardinal Life Building Very truly yours,
Herran Street, Manila
PRIME WHITE
Yao Ka Sin CEMENT
Tacloban City CORPORATION
BY: (SGD)
CONSTANCIO B.
Gentlemen:
MAGLANA
We have the pleasure to submit hereby our firm offer to you under the following quotations,
President & Chairman
terms, and conditions, to wit:

CONFORME:
1). Commodity Prime White Cement

YAO KA SIN TRADING

2). Price At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City;
BY: (SGD) HENRY YAO
and b) P23.30 per 94 lbs. bag net, FOB Asturias Cebu.

3). Quality As fully specified in certificate No. 224-73 by Bureau of WITNESSES:

Public Works, Republic of the Philippines.
(SGD) T. CATINDIG (SGD) ERNESTO LIM
4). Quantity Forty-five Thousand (45,000) bags at 94 lbs. net per bag
withdrawable in guaranteed monthly quantity of Fifteen Thousand (15,000)
bags minimum effective from June, 1973 to August 1973.
 RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter
sum of Pesos: TWO HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00) in the stating that it is "withdrawing or taking delivery of not less than 10,000 bags of white cement on August 6-7,
form of Producers' Bank of the Philippines Check No. C-153576 dated June 7, 1973. 1973 at Asturias, Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its (PWCC's) 5 July 1973
letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you correspondingly paid
PRIME WHITE 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 11, 1973. 6
CEMENT Unfortunately, no copy of the said 4 August 1973 letter of YKS was presented in evidence.
CORPORATION
BY: On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15
August 1973. Enclosed in the reply was a copy of Exhibit "2". While the records reveal that YKS received this
(SGD) reply also on 21 August 1973 (Exhibit "3" "A"), 8 it still denied having received it. Likewise, no copy of the so-
CONSTANCIO B. called 15 August 1973 letter was presented in evidence.
MAGLANA
President & Chairman On 10 September 1973, YKS, through Henry Yao, wrote a letter 9 to PWCC as a follow-up to the letter of 15
4
August 1973; YKS insisted on the delivery of 45,030 bags of white cement. 10

This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the
office of Mr. Teodoro Catindig, Senior Vice-President of the Consolidated Bank and Trust Corporation (Solid statement of delivery dated 24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag
Bank). 5 net FOB Asturias, Cebu. 11

The principal issue raised in this case is whether or not the aforesaid letter-offer, as accepted by YKS, is a On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the
contract that binds the PWCC. The trial court rule in favor of the petitioner, but the respondent Court held terms of Exhibit "A" and informing the latter that it is exercising the option therein stipulated.
otherwise.
On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973
The records disclose the following material operative facts: telegram, but this was returned to sender as unclaimed. 13

In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement.
Board of Directors of PWCC disapproved the same; the rejection is evidenced by the following Minutes
(Exhibit "10"): On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the
latter with its obligation under
the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the Exhibit "A". 14
alledged letter-contract adhered to by them, but must be understood as a new and separate
contract, and has in no way to do with the letter-offer which they (sic) as consummated is by On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974;
this resolution totally disapproved and is unacceptable to the corporation. PWCC reiterated the unenforceability of Exhibit "A". 15

On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A". On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific
Pursuant, however, to its decision with respect to the 10,000 bags of cement, it is issued the corresponding Performance with Damages against PWCC. The complaint 16 was based on Exhibit "A" and was docketed as
Delivery Order (Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the same in the Civil Case No. 5064.
amount of P243,000.00 This is the same amount received and acknowledged by Maglana in Exhibit "A".
In its Answer with Counterclaim 17 filed on 1 July 1974, PWCC denied under oath the material averments in the
YKS accepted without protest both the Delivery and Official Receipts. complaint and alleged that: (a) YKS "has no legal personality to sue having no legal personality even by fiction
to represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into signing Exhibit "A"; (c) such
While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown signing was subject to the condition that Exhibit "A" be approved by the Board of Directors of PWCC, as
to Mr. Henry Yao; since no one would sign a receipt for it, the original was left at the latter's office and this fact corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never
was duly noted in Exhibit "1" (Exhibit "l-A"). consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under
Exhibit "A", but under a separate contract prepared by the Board; (f) the rejection by the Board of Exhibit "A" (2) Ordering defendant to pay P50,000.00, as moral damages; P5,000.00 as
was made known to YKS through various letters sent to it, copies of which were attached to the Answer as exemplary damages; P3,000.00 as attorney's fees; and the costs of these
Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only proceedings.
10;000 bags were sold to it without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu; (h) YKS is
solely to blame for the failure to take complete delivery of 10,000 bags for it did not send its boat or truck to SO ORDERED. 27
PWCC's plant; and (i) YKS has, therefore, no cause of action.
In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws granting its Board of
In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary Directors the power to enter into an agreement or contract of any kind with any person through the President,
damages in the sum of P500,000.00 and attorney's fees in the sum of P10,000.00. to mean that the latter may enter into such contract or agreement at any time and that the same is not subject
to the ratification of the board of directors but "subject only to the declared objects and purpose of the
On 24 July 1974, YKS filed its Answer to the Counterclaim. 21 corporation and existing laws." It then concluded:

Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that It is obvious therefore, that it is not the whole membership of the board of directors who
according to the By-Laws of PWCC, the Chairman of the Board, who is also the President of the corporation, actually enters into any contract with any person in the name and for and in behalf of the
"has the power to execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation, but only its president. It is likewise crystal clear that this automatic representation
corporation enters into," subject to the qualification that "all the president's actuations, prior to and after he had of the board by the president is limited only by the "declared objects and purpose of the
signed and executed said contracts, shall be given to the board of directors of defendant Corporation." corporation and existing provisions of law." 28
Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government
because of the NIDC participation in the same, and that all contracts of the corporation should meet the It likewise interpreted the provision on the power of the president to "operate and conduct the business of the
approval of the NIDC and/or the PNB Board because of an exposure and financial involvement of around P10 corporation according to the orders, directives or resolutions of the board of directors and according to his own
million therein. 23 judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions,"
to mean that the president can operate and conduct the business of the corporation according to his own
During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the board
Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. Per its By- of directors. 29 The trial court found no evidence that the board had set a prior limitation upon the exercise of
Laws (Exhibit "8"), only the Board of Directors has the power . . . (7) To enter into (sic) agreement or contract such judgment and discretion; it further ruled that the By-Laws, does not require that Exhibit "A" be approved
of any kind with any person in the name and for and in behalf of the corporation through its President, subject by the Board of Directors. Finally, in the light of the Chairman's power to "execute and sign for and in behalf of
only to the declared objects and purpose of the corporation and the existing provisions of law. 24 Among the the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1"), it concluded
powers of the President is "to operate and conduct the business of the corporation according to his own that Mr. Maglana merely followed the By-Laws "presumably both as president and chairman of the board
judgment and discretion, whenever the same is not expressly limited by such orders, directives or resolutions." thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation.
25
Per standard practice of the corporation, contracts should first pass through the marketing and intelligence
unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over The trial court, however, ruled that the option to sell is not valid because it is not supported by any
contracts involving funds of and white cement produced by the PWCC. Finally, among the duties of its legal consideration distinct from the price; it was exercised before compliance with the original contract by PWCC;
counsel is to review proposed contracts before they are submitted to the Board. While the president. may be and the repudiation of the original contract by PWCC was deemed a withdrawal of the option before acceptance
tasked with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the by the petitioner.
corporation. 26
Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner
On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner, presented the following Assignment of Errors:
the dispositive portion of which reads:
I
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE
(1) Ordering defendant: to complete the delivery of 45,000 bags of prime CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE
white cement at 94 lbs. net per bag at the price agreed, with a breakage EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY
allowance of empty bags at 4% over the quantity agreed; DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED
BY ANY CONSIDERATION DISTINCT FROM THE PRICE.
 II WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's
complaint is dismissed with costs. Plaintiff is ordered to pay defendant corporation
THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL P25,000.00 exemplary damages, and P10,000.00 attorney's fees.
DAMAGES, SUFFICIENT EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS
ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31 SO ORDERED.

while the private respondent cited the following errors: Such conclusion is based on its findings, to wit:

I Before resolving the issue, it is helpful to bring out some preliminary facts. First, the
defendant corporation is supervised and principally financed by the National Investment and
THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank
CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTER- (PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial
CONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is
UNACCEPTED PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO very material to the issue of whether defendant corporations president can bind the
BE ENTERED INTO OR LATER ON RATIFIED BY THE DEFENDANTS BOARD OF corporation with his own act.
DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND
DISAPPROVED IN TOTO BY THE DEFENDANT'S BOARD OF DIRECTORS IN Second, for failure to deny under oath the following actionable documents in support of
CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO defendant's counterclaim:
PLAINTIFF.
1. The resolution contained in defendant's letter to plaintiff dated July 5,
II 1973, on the 10,000 bags of white cement delivered to plaintiff was not by
reason of the letter contract, Exhibit "A", which was totally disapproved by
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY defendant corporation's board of directors, clearly stating that "If within ten
UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A (10) days from date hereof, we will not hear from you but you will
TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT. withdraw cement at P24.30 per bag from our plant, then we will deposit
your check of P243,000.00 dated June 7, 1973 issued by the Producers
III Bank of the Philippines, per instruction of the Board." (Annex "I" to
defendant's Answer).
THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND
2. Letter of defendant to plaintiff dated August 4, 1973 that defendant "only
CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE
AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR committed to you and which you accordingly paid 10,000 bags of white
10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS cement of which 4,150 bags were already delivered to you as of August 1,
1973" (Annex "2" of defendant's Answer).
TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR
IN EXHIBIT "A".
3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of
IV August 4, 1973 (Annex "3" to defendant's Answer).

4. Letter to stores dated August 21, 1973,

THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS
THE SAME ARE DULY SUPPORTED BY CLEAR AND INDUBITABLE EVIDENCE. 32
5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of
In its decision 33
promulgated on 21 December 1979, the respondent Court reversed the decision of the trial white cement at P24.30 per bag (Annex "5", to defendant's Answer).
court, thus:
plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said
documents, (Rule 8 Sec. 8, Rules of Court) but also the allegations therein (Rule 9, Sec. 1,
 Rules of Court). All of the foregoing documents tend to prove that the letter-offer, Exhibit 4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic)
"A", was rejected by defendant corporation's Board of Directors and plaintiff was duly to be a party to the instrument but not to one who is not a party to the instrument and Sec. 1,
notified thereof and that the P243,000.00 check was considered by both parties as payment of Rule 9 of the said Rules with regards (sic) to denying under oath refers only to allegations of
the 10,000 bags of cement under a separate transaction. As proof of which plaintiff did not usury. 36
complain nor protest until February 9, 1974, when he threatened legal action.
We gave due course 37 to the petition after private respondent filed its Comment 38 and required the parties to
Third, Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly submit simultaneously their Memoranda, which the parties subsequently complied with. 39
upon the condition that it was subject to the approval of the board of directors of defendant
corporation. We find consistency herein because according to the Corporation Law, and the Before going any further, this Court must first resolve an issue which, although raised in the Answer of private
By-Laws of defendant corporation, all corporate commitments and business are conducted by, respondent, was neither pursued in its appeal before the respondent Court nor in its Comment and
and contracts entered into through, the express authority of the Board of Directors (Sec. 28. Memorandum in this case. It also eluded the attention of the trial court and the respondent Court. The issue,
Corp. Law, Exh "I" or "8"). which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of
both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is:
Fourth, What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as
defendant corporation is concerned, was an unauthorized contract (Arts. 1317 and 1403 (1), YAO KA SIN TRADING,
Civil Code). And because Maglana was not authorized by the Board of Directors of defendant owned and operated by
corporation nor was his, actuation ratified by the Board, the agreement is unenforceable (Art. YAO KA SIN. 40
1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of
Manila, 43 O-G. 3224). and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao
Ka Sin." 41 In the body of the petition, it is described as "a single proprietorship business concern." 42 It also
While it may be true that Maglana is President of defendant corporation nowhere in the appears that, as gathered from the decision of the trial court, no Yao Ka Sin testified. Instead, one Henry Yao
Articles of Incorporation nor in the By-Laws of said corporation was he empowered to enter took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation
into any contract all by himself and bind the corporation without first securing the authority of the plaintiff" that he signed Exhibit "A" 43 Under Section 1, Rule 3 of the Rules of Court, only natural or
and consent of the Board of Directors. Whatever authority Maglana may have must be derived juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs.
from the Board of Directors of defendant corporation. A corporate officers power as an agent Mendoza, 44 this Court held that a single proprietorship is neither a natural person nor a juridical person under
must be sought from the law, the articles of incorporation and the By-Laws or from a Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court:
resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw,
20 SCRA 987). The law merely recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual, and requires the proprietor or owner
It clearly results from the foregoing that the judgment appealed from is untenable. Having no thereof to secure licenses and permits, register the business name, and pair taxes to the
cause of action against defendant corporation, plaintiff is not entitled to any relief. We see no national government. It does not vest juridical or legal personality upon the sole
justification, therefore, for the court a quo's awards in its favor. . . . 34 proprietorship nor empower it to file or defend an action in court. 45
35
Its motion for reconsideration having been denied by the respondent Court in its resolution dated 15 April Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46
1980, petitioner filed the instant petition based on the following grounds:
The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin
1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Trading. However, it is now too late in the history of this case to dismiss this petition and, in effect, nullify all
Directors Constancio B. Maglana in behalf of the respondent corporation binds the said proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of
corporation. capacity to sue. Considering that private respondent did not pursue this issue before the respondent Court and
this Court; that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to
2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a]
contract. defect in the designation of the parties may be summarily corrected at any stage of the action provided no
prejudice is caused thereby to the adverse party;" and that "[a] sole proprietorship does not, of coarse, possess
3. That the option to renew the contract as contained in Exhibit "A" is enforceable. any juridical personality separate and apart from the personality of the owner of the enterprise and the
personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin
should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As this Court While there can be no question that Mr. Maglana was an officer the President and Chairman of private
stated nearly eighty (80) years ago in Alonso vs. Villamor: 48 respondent corporation at the time he signed Exhibit "A", the above provisions of said private respondent's By-
Laws do not in any way confer upon the President the authority to enter into contracts for the corporation
No one has been misled by the error in the name of the party plaintiff. If we should by reason independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to
of this error send this case back for amendment and new trial, there would be on the retrial the expedite or facilitate the execution of the contract, only the President and not all the members of the Board,
same complaint, the same answer, the same defense, the same interests, the same witnesses, or so much thereof as are required for the act shall sign it for the corporation. This is the import of the words
and the same evidence. The name of the plaintiff would constitute the only difference between through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for
the old trial and the new. In our judgment there is not enough in a name to justify such action. and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit
"I-1". Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No
greater power can be implied from such express, but limited, delegated authority. Neither can it be logically
And now to the merits of the petition.
claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president
and chairman of the corporation.
The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana,
its President and Chairman, was not empowered to execute it. Petitioner, on the other hand, maintains that it is a
valid contract because the Maglana has the power to enter into contracts for the corporation as implied from the Although there is authority "that if the president is given general control and supervision over the affairs of the
corporation, it will be presumed that he has authority to make contract and do acts within the course of its
following provisions of the By-Laws of private respondent:
ordinary business," 53 We find such inapplicable in this case. We note that the private corporation has a general
manager who, under its By-Laws has, inter alia, the following powers: "(a) to have the active and direct
a) The power of the Board of Directors to . . . enter into (sic) agreement or contract of any management of the business and operation of the corporation, conducting the same accordingly to the order,
kind with any person in the name and for and in behalf of the corporation through its directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr.
President, subject only to the declared objects and purpose of the corporation and the existing Maglana did not have a direct and active and in the management of the business and operations of the
provisions of law. (Exhibit "8-A"); and corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts
similar to that of Exhibit "A" either with the petitioner or with other parties.
b) The power of the Chairman of the Board of Directors to "execute and sign, for and in
behalf of the corporation, all contracts or agreements which the corporation may enter into" Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr.
(Exhibit "I-1"). Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was
conferred with such power. The rule is of course settled that "[a]lthough an officer or agent acts without, or in
And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has
private respondent, pursuant to the doctrine laid down by this Court in Francisco vs. Government Service clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound
Insurance thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where
System 49 and Board of Liquidators vs. Kalaw, 50 is still bound by his act for clothing him with apparent an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it,
authority. continuously and publicly, for a considerable time." 54 Also, "if a private corporation intentionally or
negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be
We are not persuaded. estopped to deny that such apparent authority in real, as to innocent third persons dealing in good faith with
such officers or agents." 55 This "apparent authority may result from (1) the general manner, by which the
Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with
the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or which it clothes him to act in general or (2) acquiescence in his acts of a particular nature, with actual or
restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of constructive knowledge thereof, whether within or without the scope of his ordinary powers. 56
law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of
whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with
members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by
individuals and private persons." 51 Moreover, " . . . a corporate officer or agent may represent and bind the evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do
corporation in transactions with third persons to the extent that authority to do so has been conferred upon him, that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed
and this includes powers which have been intentionally conferred, and also such powers as, in the usual course by the president without first being approved by the Board of Directors; such approval may only be given after
of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel.
added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to believe that it has conferred. 52
The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the of Directors which, at the same time, considered the amount of P243,000.00 received Mr. Maglana as payment
petitioner. In said cases, this Court found sufficient evidence, based on the conduct and actuations of the for 10,000 bags of white cement, treated as an entirely different contract, and forthwith notified petitioner of its
corporations concerned, of apparent authority conferred upon the officer involved which bound the corporations decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement
on the basis of ratification. In the first case, it was established that the offer of compromise made by plaintiff in at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by
the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the trial offer were clear, and over the the Producers Bank of the Philippines, per instruction of the Board." 57 Petitioner received the copy of this
signature of defendant's general manager Rodolfo Andal, plaintiff was informed telegraphically that her notification and thereafter accepted without any protest the Delivery Receipt covering the 10,000 bags and the
proposal had been accepted. It was sent by the GSIS Board Secretary and defendant did not disown the same. Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that petitioner had in fact
Moreover, in a letter remitting the payment of P30,000 advanced by her father, plaintiff quoted verbatim the agreed to a new transaction involving only 10,000 bags of white cement.
telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized
telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg
then ruled that: to stand on. The river cannot rise higher than its source. In any event, the option granted in. this case is without
any consideration Article 1324 of the Civil Code expressly provides that:
This silence, taken together with the unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding ratification of the original agreement When the offerer has allowed the offeree a certain period to accept, the offer may be
(Civil Code, Art. 1393). withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised.
Art. 1393. Ratification may be effected expressly or tactly it is understood
that there is a tacit ratification if, with knowledge of the reason which while Article 1749 of the same Code provides:
renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should execute an act which necessarily implies
A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
an intention to waive his right
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
In the second case, this Court found: binding upon the promissor if the promise is supported by a consideration distinct from the
price.
In the case at bar, the practice of the corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf 58
Accordingly, even if it were accepted, it can not validly bind the private respondent.
without prior board approval. If the by-laws were to be literally followed, the board should
give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-laws requirement of prior approval. The fourth ground is, however, meritorious.

Under the given circumstances, the Kalaw contracts are valid corporate acts. Section 8, Rule 8 of the Rules of Court provides:

The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Sec. 8. How to contest genuineness of such documents When an action or defense is
Code which provides as follows: founded upon a written instrument, copied in or attached in the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument shall
be deemed admitted unless the adverse party, under oath, specifically denies them, and sets
Art. 1317. No one may contract in the name of another without being authorized by the latter, forth what he claims to be the facts; but this provision does not apply when the adverse party
or unless he has by law a right to represent him. does not appear, to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
It is clear that the petitioner is not a party to any of the documents attached to the private respondent's Answer.
ratified, expressly or impliedly, by the person on whose behalf it, has been execrated, before it Thus, the above quoted rule is not applicable. 59 While the respondent Court, erred in holding otherwise, the
is revoked by the other contracting party. challenged decision must, nevertheless, stand in view of the above disquisitions on the first to the third grounds
of the petition.
The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A"
is a valid contract binding upon the private respondent. It was effectively disapproved and rejected by the Board
WHEREFORE, judgment is hereby rendered AFFIRMING the decision of respondent Court of Appeals in C.A. On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated 12 July 1960,
G.R. No. 61072-R promulgated on 21 December 1979. 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.
Cost against the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights over the property
in question to the private respondent for P4,000.00.

G.R. No. L-51824 February 7, 1992 On 25 October 1960, private respondent, with his wife's consent, executed in favor of the petitioner an Option
to Repurchase the property in question within ten (10) years from said date, with a ten-year grace period.
PERCELINO DIAMANTE, petitioner,
vs. Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not, however, submit
HON. COURT OF APPEALS and GERARDO DEYPALUBUS, respondents. the Option to Repurchase.

Hernandez, Velicaria, Vibar & Santiago for petitioner. Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond Permit No. 4953-
Q; on 17 December 1962, it approved FLA No. 1372 in the latter's favor.
Amancio B. Sorongon for private respondent.
On 11 December 1963, petitioner, contending that he has a valid twenty-year option to repurchase the subject
property, requested the Bureau of Fisheries to nullify FLA No. 1372 insofar as the said property is concerned.
On 18 December 1964, his letter-complaint was dismissed. Petitioner then sought a reconsideration of the
dismissal; the same was denied on 29 April 1965. His appeal to the Secretary of the DANR was likewise
DAVIDE, JR., J.: dismissed on 30 October 1968. Again, on 20 November 1968, petitioner sought for a reconsideration; this time,
however, he was successful. On 29 August 1969, the DANR Secretary granted his motion in an Order
Assailed in this petition for review is the Resolution of the respondent Court of Appeals dated 21 March 1979 in cancelling FLA No. 1372 and stating, inter alia, that:
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 Evidently, the application as originally filed, could not be favorably acted upon by reason of
nullified the Orders of the Secretary of the Department of Agriculture and Natural Resources (DANR) dated 29 the existing right of a third party over a portion thereof. It was only the submission of the deed
August 1969, 20 November 1969 and 21 April 1970, declared binding the Fishpond Lease Agreement (FLA) of absolute sale which could eliminate the stumbling block to the approval of the transfer and
issued to private respondent and disallowed petitioner from repurchasing from private respondent a portion of the issuance of a permit or lease agreement. It was on the basis of this deed of sale, in fact, the
the fishery lot located at Dumangas, Iloilo, covered by the FLA. one entitled "option to repurchase" executed barely a week from the execution of the deed of
absolute sale, (which) reverted, in effect, the status of the land in question to what it was after
The pleadings of the parties and the decision of the respondent Court disclose the factual antecedents of this the execution of the deed of sale with right to repurchase; that is, the land was again placed
case. under an encumbrance in favor of a third party. Circumstantially, there is a ground (sic) to
believe that the deed of absolute sale was executed merely with the end in view of
A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the Cadastral Survey of circumventing the requirements for the approval of the transfer of leasehold rights of
Dumangas, Iloilo, was previously covered by Fishpond Permit No. F-2021 issued in the name of Anecita Diamante in favor of Deypalubos; and the subsequent execution of the "Option to
Dionio. Upon Anecita's death, her heirs, petitioner Diamante and Primitivo Dafeliz, inherited the property Repurchase" was made to assure the maintenance of a vendor a retro's rights in favor of
which they later divided between themselves; petitioner got 4.4. hectares while Dafeliz got 5 hectares. It is the Diamante. There was, therefore, a misrepresentation of an essential or material fact committed
petitioner's share that is the subject of the present controversy. Primitivo Dafeliz later sold his share to private by the lessee-appellee (Deypalubos) in his application for the permit and the lease agreement,
respondent. without which the same could not have been issued. 1

On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in question for The Secretary based his action on Section 20 of Fisheries Administrative Order No. 60, the second paragraph of
P8,000.00 with the right to repurchase the same within three (3) years from said date. which reads:

Any and all of the statements made in the corresponding application shall be considered as
essential conditions and parts of the permit or lease granted. Any false statements in the
 application of facts or any alteration, change or modification of any or all terms and With such documentary evidence duly certified by the Notary Public, which is in effect an
conditions made therein shall ipso facto cause the cancellation of the permit or lease. affirmation of the existence of the deed of "Option of Repurchase" (sic) and its due execution,
the Secretary may not be said to have gravely abused his discretion in giving the document
Private respondent moved for a reconsideration of this last Order arguing that the DANR Secretary's previous enough evidentiary weight to justify his action in applying the aforequoted provisions of
Order of 30 October 1968 dismissing petitioner's letter-complaint had already become final on the ground that Fisheries Adm. Order No. 60. This piece of evidence may be considered substantial enough to
he (private respondent) was not served a copy of petitioner's 20 November 1968 motion for reconsideration. On support the conclusion reached by the respondent Secretary, which is all that is necessary to
20 November 1969, private respondent's motion for reconsideration was denied; a second motion for sustain an administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635; Ang Tibay vs.
reconsideration was likewise denied on 20 April 1970. CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture and Natural Resources, et al. L-29097,
Jan. 28, 1974, 55 SCRA 330). Reviewing courts do not re-examine the sufficiency of the
evidence in an administrative case, if originally instituted as such, nor are they authorized to
On 5 May 1970, private respondent filed with the Court of First Instance of Iloilo City a special civil action for
receive additional evidence that was not submitted to the administrative agency concerned.
certiorari with preliminary injunction (docketed as Civil Case No. 8209), seeking to annul the Secretary's
For common sense dictates that the question of whether the administrative agency abused its
Orders of 20 April 1970, 20 November 1969 and 29 August 1969 on the ground that the Secretary: (1) gravely
discretion in weighing evidence should be resolved solely on the basis of the proof that the
abused his discretion in not giving him the opportunity to be heard on the question of whether or not the Option
to Repurchase was forged; and (2) has no jurisdiction to set aside FLA No. 1372 as the Order of the Bureau of administrative authorities had before them and no other (Timbancaya vs. Vicente, L-19100,
Fisheries dismissing petitioner's 11 December 1963 letter-complaint had already become final. Dec. 27, 1963, 9 SCRA 852). In the instant case the evidence presented for the first time
before the court a quo could be considered only for the criminal case heard jointly with this
case.
After issuing a temporary restraining order and a writ of preliminary injunction, the lower court tried the case
jointly with Criminal Case No. 520 wherein both the petitioner and a certain Atty. Agustin Dioquino, the Notary
Public who notarized the 25 October 1960 Option to Repurchase, were charged with falsification of a public The lower court's action of acquitting the notary public, Agustin Dioquino, and appellant
document. Diamante in Criminal Case No. 520 for falsification of public document is in itself a finding
that the alleged forgery has not been conclusively established. This finding is quite correct
considering the admission of the NBI handwriting expert that admission of the NBI
After due trial, the lower court acquitted the accused in the criminal case and decided in favor of the private handwriting expert that he cannot make any finding on the question of whether appellee's
respondent in Civil Case No. 8209; the court ruled that: (1) the DANR Secretary abused his discretion in issuing signature on the deed of "Option to Repurchase" is forged or not, because of the lack of (sic)
the questioned Orders, (2) petitioner cannot repurchase the property in question as the Option to Repurchase is specimen signature of appellee for comparative examination. The Secretary may have such
of doubtful validity, and (3) FLA No. 1372 in the name of private respondent is valid and binding. signature in the application papers of appellee on file with the former's office upon which to
satisfy himself of (sic) the genuineness of appellee's signature. It would be strange, indeed,
Petitioner appealed to the respondent Court which, on 6 December 1978, reversed the decision of the trial court that appellee had not provided the NBI expert with a specimen of his signature when his
2
on the ground that no grave abuse of discretion was committed by respondent Secretary inasmuch as private purpose was to have an expert opinion that his signature on the questioned document is
respondent was given the opportunity to be heard on his claim that the Option to Repurchase is spurious, and forged.
that the trial court merely indulged in conjectures in not upholding its validity. Said the respondent Court:
On the other hand, as to the signature of his wife, the latter herself admitted the same to be her
With all the foregoing arguments appellee had exhaustively adduced to show the spuriousness own. Thus
of the deed of "Option to Repurchase", appellee can hardly complain of not having been given
an opportunity to be heard, which is all that is necessary in relation to the requirement of Q There is a signature below the typewritten words "with
notice and hearing in administrative proceedings. Moreover, appellee never asked for a formal my marital consent" and above the name Edelina Duyo,
hearing at the first opportunity that he had to do so, as when he filed his first motion for whose signature is this?
reconsideration. He asked for a formal hearing only in his second motion for reconsideration
evidently as a mere afterthought, upon realizing that his arguments were futile without proofs
to support them. A That is my signature. (T.s.n., Crim. Case No. 520, April
5, 1971, p. 14).
The only remaining question, therefore, is whether the Secretary acted with grave abuse of
In not finding in favor of the perfect validity of the "Option to Repurchase," the court a quo
discretion in giving weight to the alleged execution by appellee of the deed of Option to
merely indulged in conjectures. Thus, believing the testimony of appellee that the later (sic)
Repurchase, on the basis of the xerox copy of said deed as certified by the Notary Public,
Agustin Dioquino. could not have executed the deed of option to repurchase after spending allegedly P12,000.00,
and that if there was really a verbal agreement upon the execution of the deed of absolute sale,
 as alleged by appellant, that appellant's right to repurchase, as was stipulated in the earlier of a deed found in his notarial file which did not bear any specimen of the signatures of the
deed of sale, shall be preserved, such agreement should have been embodied in the deed of contracting parties. And assuming that a certification made by a notary public as to the
sale of October 17, 1960 (Exh. D), the court doubted the genuineness of the deed of Option to existence of a document should be deemed an affirmation that such document actually exists.
Repurchase (sic). Nevertheless, (sic) when such claim is impugned, the one who assails the existence of a
document should be afforded the opportunity to prove such claim, because, at most, the
It is highly doubtful if appellee had spent P12,000.00 during the period from October 17, presumption of regularity in the performance of official duties is merely disputable and can be
1960 to October 25, 1960 when the deed of option was executed. Likewise, the right to rebutted by convincing and positive evidence to the contrary.
repurchase could not have been embodied in the deed of absolute sale since, as the Secretary
of DANR found, the purpose of the deed of absolute sale is to circumvent the law and insure His motion for reconsideration having been denied, the petitioner filed the instant petition for review.
the approval of appellee's application, as with his right to 4.4 hectares appearing to be subject
to an encumbrance, his application would not have been given favorable action. Petitioner contends that the Rules of Court should not be strictly applied to administrative proceedings and that
the findings of fact of administrative bodies, absent a showing of arbitrariness, should be accorded respect.
Above all, the speculation and conjectures as indulged in by the court a quo cannot outweigh
the probative effect of the document itself, a certified xerox copy thereof as issued by the While the petition has merit, petitioner's victory is hollow and illusory for, as shall hereafter be shown, even as
Notary Public, the non-presentation of the original having been explained by its loss, as was We reverse the assailed resolution of the respondent Court of Appeals, the questioned decision of the Secretary
the testimony of the same Notary Public, who justly won acquittal when charged with must, nevertheless, be set aside on the basis of an erroneous conclusion of law with respect to the Option to
falsification of public document at the instance of appellee. The fact that the spaces for the Repurchase.
document number, page and book numbers were not filled up in the photostatic copy
presented by the representative of the Bureau of Records Management does not militate The respondent Court correctly held in its decision of 6 December 1978 that the respondent Secretary provided
against the genuineness of the document. It simply means that the copy sent to the said
the private respondent sufficient opportunity to question the authenticity of the Option to Repurchase and
Bureau happens to have those spaces unfilled up (sic). But the sending of a copy of the
committed no grave abuse of discretion in holding that the same was in fact executed by private respondent. We
document to the Bureau of Records Management attests strongly to the existence of such
thus find no sufficient legal and factual moorings for respondent Court's sudden turnabout in its resolution of 21
document, the original of which was duly executed, complete with the aforesaid data duly
March 1979. That private respondent and his wife executed the Option to Repurchase in favor of petitioner on
indicated thereon, as shown by the xerox copy certified true by the Notary Public. 25 October 1960 is beyond dispute. As determined by the respondent Court in its decision of 6 December 1978,
private respondent's wife, Edelina Duyo, admitted having affixed her signature to the said document. Besides,
Indeed, in the absence of positive and convincing proof of forgery, a public instrument the trial court itself in Criminal Case No. 520 which was jointly tried with the civil case, acquitted both the
executed with the intervention of a Notary Public must be held in high respect and accorded petitioners and the notary public, before whom the Option to Repurchase was acknowledged, of the crime of
full integrity, if only upon the presumption of the regularity of official functions as in the falsification of said document.
nature of those upon the presumption of the regularity of official functions as in the nature of
those of a notary public (Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar Filipino vs. Olviga,
We hold, however, that the respondent Secretary gravely erred in holding that private respondent's non-
60 Phil. 17).
disclosure and suppression of the fact that 4.4 hectares of the area subject of the application is burdened with or
encumbered by the Option to Repurchase constituted a falsehood or a misrepresentation of an essential or
Subsequently, the respondent Court, acting on private respondent's motion for reconsideration, promulgated on material fact which, under the second paragraph of Section 29 of Fisheries Administrative Order No. 60 earlier
21 March 1979 the challenged Resolution 3 setting aside the earlier decision and affirmed, in toto, the ruling of quoted, "shall ipso facto cause the cancellation of the permit or lease." In short, the Secretary was of the opinion
the trial court, thus: that the Option to Repurchase was an encumbrance on the property which affected the absolute and exclusive
character of private respondent's ownership over the 4.4 hectares sold to him by petitioner. This is a clear case
. . . the respondent (DANR) Secretary had gone beyond his statutory authority and had clearly of a misapplication of the law on conventional redemption and a misunderstanding of the effects of a right to
acted in abuse of discretion in giving due weight to the alleged option to repurchase whose repurchase granted subsequently in an instrument different from the original document of sale.
(sic) genuiness (sic) and due execution had been impugned and denied by petitioner-appellee
(Deypalubos). While the certified true copy of the option to repurchase may have been the Article 1601 of the Civil Code provides:
basis of the respondent Secretary in resolving the motion for reconsideration, the Court
believes that he should have first ordered the presentation of evidence to resolve this factual
Conventional redemption shall take place when the vendor reserves the right to repurchase the
issue considering the conflicting claims of the parties. As earlier pointed out, all that was
thing sold, with the obligation to comply with the provisions of article 1616 and other
submitted to the Bureau of Fisheries and consequently to the respondent Secretary, was a stipulations which may have been agreed upon.
xerox copy of the questioned document which was certified to by a notary public to be a copy
In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29 November 1968, or barely seven (7) days before . . . The contract of option is a separate and distinct contract from the contract which the
the respondent Court promulgated its decision in this case, this Court, interpreting the above Article, held: parties may enter into upon the consummation of the option, and a consideration for an
optional contract is just as important as the consideration for any other kind of contract. Thus,
The right of repurchase is not a right granted the vendor by the vendee in a subsequent a distinction should be drawn between the consideration for the option to repurchase, and the
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the consideration for the contract of repurchase itself. 7
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right thereafter granted the vendor by the Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct
vendee in a separate instrument cannot be a right of repurchase but some other right like the consideration. 8
option to buy in the instant case. . . .
It may be true that the foregoing issues were not squarely raised by the parties. Being, however, intertwined
In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in 1927, this Court had already ruled that "an with the issue of the correctness of the decision of the respondent Secretary and, considering further that the
agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made determination of said issues is essential and indispensable for the rendition of a just decision in this case, this
without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the Court does not hesitate to rule on them.
vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of
the object. In that case the vendor has not reserved to himself the right to repurchase." In Hernandez vs. Andal, 9 this Court held:

In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another occasion to apply the foregoing principle. If the appellants' assignment of error be not considered a direct challenge to the decision of
the court below, we still believe that the objection takes a narrow view of practice and
Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to procedure contrary to the liberal spirit which pervades the Rules of Court. The first injunction
sell, which must be governed by Article 1479 of the Civil Code which reads as follows: of the new Rules (Rule 1, section 2) is that they "shall be liberally construed in order to
promote their object and to assist the parties in obtaining just, speedy, and inexpensive
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally determination of every action and proceeding." In line with the modern trends of procedure,
demandable. we are told that, "while an assignment of error which is required by law or rule of court has
been held essential to appellate review, and only those assigned will be considered, there are a
number of cases which appear to accord to the appellate court a broad discretionary power to
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
waive the lack of proper assignment of errors and consider errors not assigned. And an
binding upon the promissor if the promise is supported by a consideration distinct from the
unassigned error closely related to an error properly assigned, or upon which the
price.
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.,
A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the 1734; 3 C.J., 1341, footnote 77). At the least, the assignment of error, viewed in this light,
pleadings of the parties. This Court cannot, therefore, properly rule on whether the promise was accepted and a authorizes us to examine and pass upon the decision of the court below.
consideration distinct from the price, supports the option. Undoubtedly, in the absence of either or both
acceptance and separate consideration, the promise to sell is not binding upon the promissor (private 10
respondent). In Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd., this
Court ruled:
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract
. . . (t)he Supreme Court has ample authority to review and resolve matter not assigned and
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 specified as errors by either of the parties in the appeal if it finds the consideration and
time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and the determination of the same essential and indispensable in order to arrive at a just decision in
the case. 11 This Court, thus, has the authority to waive the lack of proper assignment of errors
offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand,
if the unassigned errors closely relate to errors properly pinpointed out or if the unassigned
would be liable for damages if he fails to deliver the thing he had offered for sale.
errors refer to matters upon which the determination of the questions raised by the errors
properly assigned depend. 12
xxx xxx xxx
The same also applies to issues not specifically raised by the parties. The Supreme Court,
likewise, has broad discretionary power, in the resolution of a controversy, to take into
 consideration matters on record which the parties fail to submit to the Court as specific On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang
questions for determination. 13 Where the issues already raised also rest on other issues not Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
specifically presented, as long as the latter issues bear relevance and close relation to the Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging,
former and as long as they arise from matters on record, the Court has the authority to include among others, that plaintiffs are tenants or lessees of residential and commercial spaces
them in its discussion of the controversy as well as to pass upon them. In brief, in those cases owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they
wherein questions not particularly raised by the parties surface as necessary for the complete have occupied said spaces since 1935 and have been religiously paying the rental and
adjudication of the rights and obligations of the parties and such questions fall within the complying with all the conditions of the lease contract; that on several occasions before
issues already framed by the parties, the interests of justice dictate that the Court consider and October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and
resolve them. 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
WHEREFORE, the instant petition is GRANTED. The Resolution of respondent Court of Appeals of 21 March plaintiffs thereafter asked the defendants to put their offer in writing to which request
1979 in C.A.-G.R. No. SP-04866 and the Decision of the trial court in Civil Case No. 8209, insofar as they defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24,
declare, for the reasons therein given, Fishpond Lease Agreement No. 1372, valid and binding, are hereby 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs
REVERSED and SET ASIDE. The challenged Orders of the respondent Secretary of Agriculture and Natural did not receive any reply, they sent another letter dated January 28, 1987 with the same
Resources of 29 August 1969, 20 November 1969 and 21 April 1970 are likewise REVERSED and SET ASIDE request; that since defendants failed to specify the terms and conditions of the offer to sell and
and Fishpond Lease Agreement No. 1372 is ordered REINSTATED. because of information received that defendants were about to sell the property, plaintiffs
were compelled to file the complaint to compel defendants to sell the property to them.
No pronouncement as to costs.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did not agree upon the terms and
G.R. No. 109125 December 2, 1994 conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently offer their property for sale at a
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, price of P11-million or below, plaintiffs will have the right of first refusal. Thus the
vs. dispositive portion of the decision states:
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION,
respondents. WHEREFORE, judgment is hereby rendered in favor of the defendants and
against the plaintiffs summarily dismissing the complaint subject to the
Antonio M. Albano for petitioners. aforementioned condition that if the defendants subsequently decide to offer
their property for sale for a purchase price of Eleven Million Pesos or
Umali, Soriano & Associates for private respondent. lower, then the plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.

VITUG, J.: SO ORDERED.

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA- Aggrieved by the decision, plaintiffs appealed to this Court in
G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by
dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058. Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando
A. Santiago), this Court affirmed with modification the lower court's judgment, holding:
The antecedents are recited in good detail by the appellate court thusly:
 In resume, there was no meeting of the minds between the parties As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
concerning the sale of the property. Absent such requirement, the claim for was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
specific performance will not lie. Appellants' demand for actual, moral and December 3, 1990.
exemplary damages will likewise fail as there exists no justifiable ground
for its award. Summary judgment for defendants was properly granted. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the
Courts may render summary judgment when there is no genuine issue as to lessees demanding that the latter vacate the premises.
any material fact and the moving party is entitled to a judgment as a matter
of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
obtaining, the decision of the court a quo is legally justifiable. 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.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed
from is hereby AFFIRMED, but subject to the following modification: The
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
court a quo in the aforestated decision gave the plaintiffs-appellants the No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
right of first refusal only if the property is sold for a purchase price of
Eleven Million pesos or lower; however, considering the mercurial and
uncertain forces in our market economy today. We find no reason not to On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
grant the same right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million pesos. No Presented before the Court is a Motion for Execution filed by plaintiff
pronouncement as to costs. represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng
and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty.
SO ORDERED. Anacleto Magno respectively were duly notified in today's consideration of
the motion as evidenced by the rubber stamp and signatures upon the copy
of the Motion for Execution.
The decision of this Court was brought to the Supreme Court by petition for review on
certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form
and substances" (Annex H, Petition). The gist of the motion is that the Decision of the Court dated September 21,
1990 as modified by the Court of Appeals in its decision in CA G.R. CV-
21123, and elevated to the Supreme Court upon the petition for review and
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
that the same was denied by the highest tribunal in its resolution dated May
Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the 6, 1991 in G.R. No.
property in question to herein petitioner Buen Realty and Development Corporation, subject
L-97276, had now become final and executory. As a consequence, there
to the following terms and conditions:
was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating
that the aforesaid modified decision had already become final and
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS executory.
(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
It is the observation of the Court that this property in dispute was the
VENDEE, his heirs, executors, administrators or assigns, the above-
subject of the Notice of Lis Pendens and that the modified decision of this
described property with all the improvements found therein including all the
Court promulgated by the Court of Appeals which had become final to the
rights and interest in the said property free from all liens and encumbrances
effect that should the defendants decide to offer the property for sale for a
of whatever nature, except the pending ejectment proceeding; price of P11 Million or lower, and considering the mercurial and uncertain
forces in our market economy today, the same right of first refusal to herein
2. That the VENDEE shall pay the Documentary Stamp Tax, registration plaintiffs/appellants in the event that the subject property is sold for a price
fees for the transfer of title in his favor and other expenses incidental to the in excess of Eleven Million pesos or more.
sale of above-described property including capital gains tax and accrued
real estate taxes. WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million
 pesos in recognition of plaintiffs' right of first refusal and that a new An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
Transfer Certificate of Title be issued in favor of the buyer. constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie
which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts,
All previous transactions involving the same property notwithstanding the delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to
issuance of another title to Buen Realty Corporation, is hereby set aside as do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the
having been executed in bad faith. active (obligee) and the passive (obligor) subjects.

SO ORDERED. Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to render some service
(Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its
On September 22, 1991 respondent Judge issued another order, the dispositive portion of
perfection and, finally, its consummation. Negotiation covers the period from the time the prospective
which reads:
contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The
perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which
WHEREFORE, let there be Writ of Execution issue in the above-entitled is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and
case directing the Deputy Sheriff Ramon Enriquez of this Court to acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the
implement said Writ of Execution ordering the defendants among others to delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real
comply with the aforesaid Order of this Court within a period of one (1) contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of
week from receipt of this Order and for defendants to execute the necessary real property, is essential in order to make the act valid, the prescribed form being thereby an essential element
Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu thereof. The stage of consummation begins when the parties perform their respective undertakings under the
Asuncion, Keh Tiong and Arthur Go for the consideration of contract culminating in the extinguishment thereof.
P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to
cancel and set aside the title already issued in favor of Buen Realty
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
Corporation which was previously executed between the latter and
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
defendants and to register the new title in favor of the aforesaid plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go. perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
SO ORDERED.
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, the ownership of and to deliver a determinate thing, and the other to pay therefor a price
Petition) was issued. 1 certain in money or its equivalent.

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without A contract of sale may be absolute or conditional.
force and effect the above questioned orders of the court a quo.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an
Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs. obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is
We affirm the decision of the appellate court. reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public
A not too recent development in real estate transactions is the adoption of such arrangements as the right of first document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party
precepts that may find some relevance to this discussion. which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the
fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5 real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the
main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection
a valuable consideration distinct and separate from the price, is what may properly be termed a perfected (Art. 1482, Civil Code).
contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz: In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out,
it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of
Art. 1479. . . . first refusal, understood in its normal concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code.
An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate,
binding upon the promissor if the promise is supported by a consideration distinct from the
price. (1451a) 6 the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into
a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the relations governed not by contracts (since the essential elements to establish the vinculum juris would still be
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions
bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their of the Civil Code on human conduct.
respective undertakings. 8
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations existence, nor would it sanction an action for specific performance without thereby negating the indispensable
to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal
commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages.
manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
generally govern:
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
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there
right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's is none to execute, but an action for damages in a proper forum for the purpose.
coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see
also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 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
SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058,
could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in
cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
and possession of the property, without first being duly afforded its day in court.
observe honesty and good faith."

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a
execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123.
breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent
The Court of Appeals, in this regard, has observed:
contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance
(exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed Finally, the questioned writ of execution is in variance with the decision of the trial court as
contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, 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 On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a Contract of Lease 5 over the
of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, abovementioned parcel of land for a period of three years. The lease commenced in March 1994 and ended in
147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman February 1997. During the effectivity of the lease, Lourdes sent a letter 6 dated January 2, 1995 to Roberto
vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885). where she offered to sell to the latter subject parcel of land. She pegged the price at P37,541,000.00 and gave
him two years from January 2, 1995 to decide on the said offer.
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time
the execution of any deed of sale between the Cu Unjiengs and petitioners. 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
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 grandsons, Miguel Luis S. De Leon and Rommel S. De Leon (the De Leons), for a total consideration of only
August 1991 and 27 September 1991, of the court a quo. Costs against petitioners. P2,750,000.00 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.
SO ORDERED.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to vacate the premises.
Roberto refused hence, the De Leons filed a complaint for Unlawful Detainer before the Metropolitan Trial
Court (MeTC) of Quezon City against him. On August 30, 2000, the MeTC rendered a Decision 9 ordering
Roberto to vacate the property for non-payment of rentals and expiration of the contract.

Ruling of the Regional Trial Court

G.R. No. 168325 December 8, 2010
On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the RTC of Quezon City a
ROBERTO D. TUAZON, Petitioner, Complaint10 for Annulment of Deed of Absolute Sale, Reconveyance, Damages and Application for Preliminary
vs. Injunction against Lourdes and the De Leons. On November 13, 2000, Roberto filed a Notice of Lis Pendens11
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE LEON, with the Registry of Deeds of Quezon City.
MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L. SANDICO-SILVA,
as attorney-in-fact of the defendants, except Lourdes Q. Del Rosario-Suarez, Respondents.
On January 8, 2001, respondents filed An Answer with Counterclaim12 praying that the Complaint be dismissed
for lack of cause of action. They claimed that the filing of such case was a mere leverage of Roberto against
DECISION them because of the favorable Decision issued by the MeTC in the ejectment case.

DEL CASTILLO, J.: On September 17, 2001, the RTC issued an Order 13 declaring Lourdes and the De Leons in default for their
failure to appear before the court for the second time despite notice. Upon a Motion for Reconsideration, 14 the
In a situation where the lessor makes an offer to sell to the lessee a certain property at a fixed price within a trial court in an Order15 dated October 19, 2001 set aside its Order of default.
certain period, and the lessee fails to accept the offer or to purchase on time, then the lessee loses his right to
buy the property and the owner can validly offer it to another. After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made by Lourdes in favor
of the De Leons as valid and binding. The offer made by Lourdes to Roberto did not ripen into a contract to sell
This Petition for Review on Certiorari1 assails the Decision2 dated May 30, 2005 of the Court of Appeals (CA) because the price offered by the former was not acceptable to the latter. The offer made by Lourdes is no longer
in CA-G.R. CV No. 78870, which affirmed the Decision3 dated November 18, 2002 of the Regional Trial Court binding and effective at the time she decided to sell the subject lot to the De Leons because the same was not
(RTC), Branch 101, Quezon City in Civil Case No. Q-00-42338. accepted by Roberto. Thus, in a Decision dated November 18, 2002, the trial court dismissed the complaint. Its
dispositive portion reads:
Factual Antecedents
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled Complaint for
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land, containing more or lack of merit, and ordering the Plaintiff to pay the Defendants, the following:
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 1. the amount of P30,000.00 as moral damages;
Quezon City.
 2. the amount of P30,000.00 as exemplary damages; would have been binding upon Lourdes without need of any consideration, had Roberto accepted the offer. But
in this case there was no acceptance made neither was there a distinct consideration for the option contract.
3. the amount of P30,000.00 as attorneys fees; and
Our Ruling
4. cost of the litigation.
The petition is without merit.
16
SO ORDERED.
This case involves an option contract and not a contract of a right of first refusal
Ruling of the Court of Appeals
In Beaumont v. Prieto,19 the nature of an option contract is explained thus:
On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and affirming the Decision of the
RTC. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

Hence, this Petition for Review on Certiorari filed by Roberto advancing the following arguments: A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege
of buying from, or selling to, B certain securities or properties within a limited time at a specified price. (Story
I. vs. Salamon, 71 N. Y., 420.)

The Trial Court and the Court of Appeals had decided that the "Right of First Refusal" exists only within the From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10
parameters of an "Option to Buy", and did not exist when the property was sold later to a third person, under Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
favorable terms and conditions which the former buyer can meet.
An agreement in writing to give a person the option to purchase lands within a given time at a named price is
II. neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price within a certain time. He
What is the status or sanctions of an appellee in the Court of Appeals who has not filed or failed to file an does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege
appellees brief?17 to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an
agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive
lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited
Petitioners Arguments period. The second party receives this right, or rather, from his point of view, he receives the right to elect to
buy.
Roberto claims that Lourdes violated his right to buy subject property under
But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the
the principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the property under case where there was cause or consideration for the obligation x x x. (Emphasis supplied.)
the same terms and conditions or specifically based on the much lower price paid by the De Leons.
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an elucidation on the "right of first refusal" was
Roberto further contends that he is enforcing his "right of first refusal" based on Equatorial Realty made thus:
Development, Inc. v. Mayfair Theater, Inc.18 which is the leading case on the "right of first refusal."
In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out,
Respondents Arguments it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be brought within the purview of an option under the
On the other hand, respondents posit that this case is not covered by the principle of "right of first refusal" but second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An
an unaccepted unilateral promise to sell or, at best, a contract of option which was not perfected. The letter of option or an offer would require, among other things, a clear certainty on both the object and the cause or
Lourdes to Roberto clearly embodies an option contract as it grants the latter only two years to exercise the consideration of the envisioned contract. In a right of first refusal, while the object might be made
option to buy the subject property at a price certain of P37,541,000.00. As an option contract, the said letter determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual
intention to enter into a binding juridical relation with another but also on terms, including the price,
that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging I hope the Lord God will help you be the recipient of multi-billion projects aid from other countries.
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, Thank you,
the pertinent scattered provisions of the Civil Code on human conduct.
Lourdes Q. del Rosario vda de Suarez
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its It is clear that the above letter embodies an option contract as it grants Roberto a fixed period of only two years
existence, nor would it sanction an action for specific performance without thereby negating the indispensable to buy the subject property at a price certain of P37,541,000.00. It being an option contract, the rules applicable
element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal
are found in Articles 1324 and 1479 of the Civil Code which provide:
would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages.
(Emphasis supplied.) Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
From the foregoing, it is thus clear that an option contract is entirely different and distinct from a right of first
refusal in that in the former, the option granted to the offeree is for a fixed period and at a determined price.
Lacking these two essential requisites, what is involved is only a right of first refusal. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2, 1995 involved an An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
option contract or a contract of a right of first refusal. In its entirety, the said letter-offer reads: promissor if the promise is supported by a consideration distinct from the price.

206 Valdes Street It is clear from the provision of Article 1324 that there is a great difference between the effect of an option
Josefa Subd. Balibago which is without a consideration from one which is founded upon a consideration. If the option is without any
Angeles City 2009 consideration, the offeror may withdraw his offer by communicating such withdrawal to the offeree at anytime
before acceptance; if it is founded upon a consideration, the offeror cannot withdraw his offer before the lapse
of the period agreed upon.
January 2, 1995
The second paragraph of Article 1479 declares that "an accepted unilateral promise to buy or to sell a
Tuazon Const. Co. determinate thing for a price certain is binding upon the promissor if the promise is supported by a
986 Tandang Sora Quezon City
consideration distinct from the price." Sanchez v. Rigos21 provided an interpretation of the said second
paragraph of Article 1479 in relation to Article 1324. Thus:
Dear Mr. Tuazon,
There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a promise to buy or
I received with great joy and happiness the big box of sweet grapes and ham, fit for a kings party. Thanks very to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is
much. clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is
only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only family. I need money to binding effect if supported by a consideration, which means that the option can still be withdrawn, even if
buy a house and lot and a farm with a little cash to start. accepted, if the same is not supported by any consideration. Hence, it is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in dollars in the name of
my daughter. I never offered it to anyone. Please shoulder the expenses for the transfer. I wish the Lord God It is true that under Article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that,
will help you buy my lot easily and you will be very lucky forever in this place. You have all the time to when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before
decide when you can, but not for 2 years or more. acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as
modified by the provision of Article 1479 above referred to, which applies to "a promise to buy and sell"
I wish you long life, happiness, health, wealth and great fortune always! specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a
consideration distinct from the price.
In Diamante v. Court of Appeals,22 this Court further declared that: (i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-days exclusive option
to purchase the same.
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it
is accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is There is no such similar provision in the Contract of Lease between Roberto and Lourdes. What is involved
accepted, the promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell here is a separate and distinct offer made by Lourdes through a letter dated January 2, 1995 wherein she is
and to buy is created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other selling the leased property to Roberto for a definite price and which gave the latter a definite period for
hand, would be liable for damages if he fails to deliver the thing he had offered for sale. acceptance. Roberto was not given a right of first refusal. The letter-offer of Lourdes did not form part of the
Lease Contract because it was made more than six months after the commencement of the lease.
xxxx
It is also very clear that in Equatorial, the property was sold within the lease period. In this case, the subject
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct property was sold not only after the expiration of the period provided in the letter-offer of Lourdes but also after
consideration. (Emphasis ours.) the effectivity of the Contract of Lease.

In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes as he negotiated Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound thereby because
for a much lower price. Robertos act of negotiating for a much lower price was a counter-offer and is therefore of the absence of a consideration distinct and separate from the price. The argument of Roberto that the separate
not an acceptance of the offer of Lourdes. Article 1319 of the Civil Code provides: consideration was the liberality on the part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes
would show that what drove her to offer the property to Roberto was her immediate need for funds as she was
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to already very old. Offering the property to Roberto was not an act of liberality on the part of Lourdes but was a
simple matter of convenience and practicality as he was the one most likely to buy the property at that time as
constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
he was then leasing the same.
constitutes a counter-offer. (Emphasis supplied.)

The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is therefore no All told, the facts of the case, as found by the RTC and the CA, do not support Robertos claims that the letter
contract that was perfected between them with regard to the sale of subject property. Roberto, thus, does not of Lourdes gave him a right of first refusal which is similar to the one given to Mayfair Theater in the case of
Equatorial. Therefore, there is no justification to annul the deed of sale validly entered into by Lourdes with the
have any right to demand that the property be sold to him at the price for which it was sold to the De Leons
De Leons.
neither does he have the right to demand that said sale to the De Leons be annulled.

Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here What is the effect of the failure of Lourdes to file her appellees brief at the CA?

Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her appellees brief before the
It is the position of Roberto that the facts of this case and that of Equatorial are similar in nearly all aspects.
CA.
Roberto is a lessee of the property like Mayfair Theater in Equatorial. There was an offer made to Roberto by
Lourdes during the effectivity of the contract of lease which was also the case in Equatorial. There were
negotiations as to the price which did not bear fruit because Lourdes sold the property to the De Leons which Certainly, the appellees failure to file her brief would not mean that the case would be automatically decided
was also the case in Equatorial wherein Carmelo and Bauermann sold the property to Equatorial. The existence against her. Under the circumstances, the prudent action on the part of the CA would be to deem Lourdes to
of the lease of the property is known to the De Leons as they are related to Lourdes while in Equatorial, the have waived her right to file her appellees brief. De Leon v. Court of Appeals,23 is instructive when this Court
lawyers of Equatorial studied the lease contract of Mayfair over the property. The property in this case was sold decreed:
by Lourdes to the De Leons at a much lower price which is also the case in Equatorial where Carmelo and
Bauerman sold to Equatorial at a lesser price. It is Robertos conclusion that as in the case of Equatorial, there On the second issue, we hold that the Court of Appeals did not commit grave abuse of discretion in considering
was a violation of his right of first refusal and hence annulment or rescission of the Deed of Absolute Sale is the the appeal submitted for decision. The proper remedy in case of denial of the motion to dismiss is to file the
proper remedy. appellees brief and proceed with the appeal. Instead, petitioner opted to file a motion for reconsideration
which, unfortunately, was pro forma. All the grounds raised therein have been discussed in the first resolution
Robertos reliance in Equatorial is misplaced. Despite his claims, the facts in Equatorial radically differ from of the respondent Court of Appeals. There is no new ground raised that might warrant reversal of the resolution.
the facts of this case. Roberto overlooked the fact that in Equatorial, there was an express provision in the A cursory perusal of the motion would readily show that it was a near verbatim repetition of the grounds stated
Contract of Lease that in the motion to dismiss; hence, the filing of the motion for reconsideration did not suspend the period for filing
the appellees brief. Petitioner was therefore properly deemed to have waived his right to file appellees
brief. (Emphasis supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in the RTC. He obtained a On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of
favorable judgment and so defendant went to the CA. The appeal of defendant-appellant was taken cognizance a portion of Carmelo's property particularly described, to wit:
of by the CA but De Leon filed a Motion to Dismiss the Appeal with Motion to Suspend Period to file
Appellees Brief. The CA denied the Motion to Dismiss. De Leon filed a Motion for Reconsideration which A PORTION OF THE SECOND FLOOR of the two-storey building,
actually did not suspend the period to file the appellees brief. De Leon therefore failed to file his brief within situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square
the period specified by the rules and hence he was deemed by the CA to have waived his right to file appellees meters.
brief.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
The failure of the appellee to file his brief would not result to the rendition of a decision favorable to the situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
appellant. The former is considered only to have waived his right to file the Appellees Brief. The CA has the meters.
jurisdiction to resolve the case based on the Appellants Brief and the records of the case forwarded by the
RTC. The appeal is therefore considered submitted for decision and the CA properly acted on it.
for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair
thereafter constructed on the leased property a movie house known as "Maxim Theatre."
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
Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with
Trial Court, Branch 101, Quezon City in Civil Case No. Q-00-42338 is AFFIRMED.
Carmelo for the lease of another portion of Carmelo's property, to wit:

G.R. No. 106063 November 21, 1996 A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, meters.
vs.
MAYFAIR THEATER, INC., respondent. THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a floor area of 300 square meters and bearing street numbers
1871 and 1875,
HERMOSISIMA, JR., J.:
for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up
Before us is a petition for review of the decision 1 of the Court of another movie house known as "Miramar Theatre" on this leased property.
Appeals 2 involving questions in the resolution of which the respondent appellate court analyzed and
interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the Both contracts of lease provides (sic) identically worded paragraph 8, which reads:
respondent court reversed the trial court 3 which, in dismissing the complaint for specific performance
with damages and annulment of contract, 4 found the option clause in the lease contracts entered into
That if the LESSOR should desire to sell the leased premises, the LESSEE
by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann,
shall be given 30-days exclusive option to purchase the same.
Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the
subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5 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
We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost
shall recognize this lease and be bound by all the terms and conditions
verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:
thereof.

Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President
located at Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name
of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire
by the Register of Deeds of Manila.
Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to
buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter During the pre-trial conference held on January 23, 1979, the parties stipulated on the
was willing to buy the property for Six to Seven Million Pesos. following:

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, 1. That there was a deed of sale of the contested premises by the defendant
Mayfair replied through a letter stating as follows: Carmelo . . . in favor of defendant Equatorial . . .;

It appears that on August 19, 1974 your Mr. Henry Pascal informed our 2. That in both contracts of lease there appear (sic) the stipulation granting
client's Mr. Henry Yang through the telephone that your company desires to the plaintiff exclusive option to purchase the leased premises should the
sell your above-mentioned C.M. Recto Avenue property. lessor desire to sell the same (admitted subject to the contention that the
stipulation is null and void);
Under your company's two lease contracts with our client, it is uniformly
provided: 3. That the two buildings erected on this land are not of the condominium
plan;
8. That if the LESSOR should desire to sell the leased premises the
LESSEE shall be given 30-days exclusive option to purchase the same. In 4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of
the event, however, that the leased premises is sold to someone other than the contracts of lease constitute the consideration for the plaintiff's
the LESSEE, the LESSOR is bound and obligated, as it is (sic) herebinds occupancy of the leased premises, subject of the same contracts of lease,
(sic) and obligates itself, to stipulate in the Deed of Sale thereof that the Exhibits A and B;
purchaser shall recognize this lease and be bound by all the terms and
conditions hereof (sic). xxx xxx xxx

Carmelo did not reply to this letter. 6. That there was no consideration specified in the option to buy embodied
in the contract;
On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest
in acquiring not only the leased premises but "the entire building and other improvements if 7. That Carmelo & Bauermann owned the land and the two buildings
the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of erected thereon;
the second letter.
8. That the leased premises constitute only the portions actually occupied by
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and the theaters; 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. 9. That what was sold by Carmelo & Bauermann to defendant Equatorial
Realty is the land and the two buildings erected thereon.
In September 1978, Mayfair instituted the action a quo for specific performance and
annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as
xxx xxx xxx
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 After assessing the evidence, the court a quo rendered the appealed decision, the decretal
was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and portion of which reads as follows:
void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative
defense that the option is void for lack of consideration (sic) and is unenforceable by reason WHEREFORE, judgment is hereby rendered:
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 (1) Dismissing the complaint with costs against the plaintiff;
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.
 (2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 such withdrawal, except when the option is founded upon consideration, as
by way of attorney's fees on its counterclaim; something paid or promised.

(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per in relation with Article 1479 of the same Code:
month as reasonable compensation for the use of areas not covered by the
contract (sic) of lease from July 31, 1979 until plaintiff vacates said area A promise to buy and sell a determine thing for a price certain is
(sic) plus legal interest from July 31, 1978; P70,000 00 per month as reciprocally demandable.
reasonable compensation for the use of the premises covered by the
contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff
An accepted unilateral promise to buy or to sell a determine thing for a
vacates the premises plus legal interest from June 1, 1987; P55,000.00 per
price certain is binding upon the promissor if the promise is supported by a
month as reasonable compensation for the use of the premises covered by
consideration distinct from the price.
the contract of lease dated March 31, 1969 from March 30, 1989 until
plaintiff vacates the premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees; The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former
establishes the existence of a distinct consideration. In other words, the promisee has the
burden of proving the consideration. The consideration cannot be presumed as in Article
(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo
1354:
& Bauermann.
Although the cause is not stated in the contract, it is presumed that it exists
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared
and is lawful unless the debtor proves the contrary.
expired and all persons claiming rights under these contracts are directed to
vacate the premises. 6
where consideration is legally presumed to exists. Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed particularly and more specifically by
The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to Article 1479 whereby the promisee has the burden of proving the existence of consideration
be an option clause which however cannot be deemed to be binding on Carmelo because of lack of
distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the
distinct consideration therefor.
Court said:

The court a quo ratiocinated: (1) Article 1354 applies to contracts in general, whereas the second
paragraph of Article 1479 refers to sales in particular, and, more
Significantly, during the pre-trial, it was admitted by the parties that the option in the contract specifically, to an accepted unilateral promise to buy or to sell. In other
of lease is not supported by a separate consideration. Without a consideration, the option is words, Article 1479 is controlling in the case at bar.
therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to
the former. The option invoked by the plaintiff appears in the contracts of lease . . . in effect (2) In order that said unilateral promise may be binding upon the promissor,
there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code,
Article 1479 requires the concurrence of a condition, namely, that the
provides:
promise be supported by a consideration distinct from the price.

Contracts without cause or with unlawful cause, produce no effect Accordingly, the promisee cannot compel the promissor to comply with the
whatever. The cause is unlawful if it is contrary to law, morals, good promise, unless the former establishes the existence of said distinct
custom, public order or public policy.
consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in
Contracts therefore without consideration produce no effect whatsoever. Article 1324 his complaint. 7
provides:
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M.
When the offeror has allowed the offeree a certain period to accept, the Recto property to the former.
offer may be withdrawn at any time before acceptance by communicating
Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent To constitute a legal offer, the proposal must be certain as to the object, the price and other
Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment: essential terms of the contract (Art. 1319, Civil Code).

1. Reversing and setting aside the appealed Decision; Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days
exclusive option to purchase" the leased premises is NOT AN OPTION in the context of Arts.
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the 1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain as to
amount of P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering the object (the sale of the leased premises) the price for which the object is to be sold is not
Equatorial Realty Development, Inc. to accept such payment; stated in the provision Otherwise stated, the questioned stipulation is not by itself, an "option"
or the "offer to sell" because the clause does not specify the price for the subject property.
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to
execute the deeds and documents necessary for the issuance and transfer of ownership to Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be
Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the
trial court failed to appreciate was the intention of the parties behind the questioned proviso.
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged,
declaring the Deed of Absolute Sale between the defendants-appellants Carmelo & xxx xxx xxx
Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the
parties. 8 The provision in question is not of the pro-forma type customarily found in a contract of
lease. Even appellees have recognized that the stipulation was incorporated in the two
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was
differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide,
the facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a during the term of the lease, to sell the leased property. This intention of the parties is
fixed price for the purchase of the leased premises, which is an essential element for a contract of sale achieved in two ways in accordance with the stipulation. The first is by giving Mayfair "30-
to be perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It days exclusive option to purchase" the leased property. The second is, in case Mayfair would
explicated: opt not to purchase the leased property, "that the purchaser (the new owner of the leased
property) shall recognize the lease and be bound by all the terms and conditions thereof."
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second
paragraph, of the Civil Code. In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving
Mayfair "30-days exclusive option to purchase the (leased premises)," was meant to provide
Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo
Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept
should decide to dispose of the property. In order to realize this intention, the implicit
within a certain period. Under this article, the offer may be withdrawn by the offeror before
obligation of Carmelo once it had decided to sell the leased property, was not only to notify
the expiration of the period and while the offeree has not yet accepted the offer. However, the
offer cannot be withdrawn by the offeror within the period if a consideration has been Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell
promised or given by the offeree in exchange for the privilege of being given that period the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or
reject the offer, before offering to sell or selling the leased property to third parties. The right
within which to accept the offer. The consideration is distinct from the price which is part of
vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should
the offer. The contract that arises is known as option. In the case of Beaumont vs. Prieto, 41
have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if
Phil. 670, the Supreme court, citing Bouvier, defined an option as follows: "A contract by
Carmelo should receive any offer from third parties to purchase the leased premises, then
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 Carmelo must first give Mayfair the opportunity to match that offer.
at a specified price," (pp. 686-7).
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he
made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:
Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral
promise to buy or to sell a determinate thing for a price within (which) is binding upon the
promisee if the promise is supported by a consideration distinct from the price." That Q Can you tell this Honorable Court how you made the
"unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer. offer to Mr. Henry Yang by telephone?
An "offer", in laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217).
 A I have an offer from another party to buy the property and capable of being performed. A sale limited to the leased premises only, if hypothetically
and having the offer we decided to make an offer to assumed, would have brought into operation the provisions of co-ownership under which
Henry Yang on a first-refusal basis. (TSN November 8, Mayfair would have become the exclusive owner of the leased premises and at the same time
1983, p. 12.). a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the
premises sold to it. 10
and on cross-examination:
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the
Q When you called Mr. Yang on August 1974 can you decision of respondent Court of Appeals on the basis of the following assigned errors:
remember exactly what you have told him in connection
with that matter, Mr. Pascal? I

A More or less, I told him that I received an offer from THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION
another party to buy the property and I was offering him CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST
first choice of the enter property. (TSN, November 29, REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE
1983, p. 18). CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR
We rule, therefore, that the foregoing interpretation best renders effectual the intention of the STIPULATION OF FACTS.
parties. 9
II
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the
requirement of distinct consideration indispensable in an option contract, has no application, WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS
respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN
that the option is valid and effective, it is impossible of performance because it covered only the leased (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
premises and not the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS
entire property in question. The Court of Appeals ruled as to this issue in this wise: LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.

We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the III
Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto
property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED
the information submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN
been controverted by the appellees, and which We, therefore, take judicial notice of the two IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m COMPLAINT.
and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of
land covering the whole Recto property demonstrates the legal and physical possibility that
IV
each parcel of land, together with the buildings and improvements thereof, could have been
sold independently of the other parcels.
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE
ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION
At the time both parties executed the contracts, they were aware of the physical and structural
XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
conditions of the buildings on which the theaters were to be constructed in relation to the
MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE
remainder of the whole Recto property. The peculiar language of the stipulation would tend to
MERITS OF THE CASE IN THE "DECISION STAGE". 11
limit Mayfair's right under paragraph 8 of the Contract of Lease to the acquisition of the
leased areas only. Indeed, what is being contemplated by the questioned stipulation is a
departure from the customary situation wherein the buildings and improvements are included
in and form part of the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the sale would be valid
We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an
case in the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we option contract as one necessarily involving the choice granted to another for a distinct and separate
already took note of this matter and set out the proper applicable procedure to be the following: consideration as to whether or not to purchase a determinate thing at a predetermined fixed price.

On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December
letter-complaint to this Court alleging certain irregularities and infractions committed by 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff
certain lawyers, and Justices of the Court of Appeals and of this Court in connection with case Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the
CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an period of three months and for its assessed valuation, a grant which necessarily implied the
administrative complaint for misconduct against members of the judiciary. While the letter- offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda
complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the during the period and for the price mentioned . . . There was, therefore, a meeting of minds on
disposition thereof should be separate and independent from Case G.R. No. 106063. the part of the one and the other, with regard to the stipulations made in the said document.
However, for purposes of receiving the requisite pleadings necessary in disposing of the But it is not shown that there was any cause or consideration for that agreement, and this
administrative complaint, this Division shall continue to have control of the case. Upon omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a
completion thereof, the same shall be referred to the Court En Banc for proper disposition. 13 contract of option, for, . . . there can be no contract without the requisite, among others, of the
cause for the obligation to be established.
This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate subject for an administrative complaint based on In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent following language:
course of action not to pre-empt the administrative proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits A contract by virtue of which A, in consideration of the payment of a
as to the real nature of the questioned procedures and the true intentions and motives of the players certain sum to B, acquires the privilege of buying from, or selling to B,
therein. certain securities or properties within a limited time at a specified price.
(Story vs. Salamon, 71 N.Y., 420.)
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8
stipulated in the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24
by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto
property to Equatorial. An agreement in writing to give a person the option to purchase lands
within a given time at a named price is neither a sale nor an agreement to
Both contracts of lease in question provide the identically worded paragraph 8, which reads: sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30- price within a certain time. He does not sell his land; he does not then agree
days exclusive option to purchase the same. to sell it; but he does sell something; that is, the right or privilege to buy at
the election or option of the other party. The second party gets in praesenti,
In the event, however, that the leased premises is sold to someone other than the LESSEE, the not lands, nor an agreement that he shall have lands, but he does get
LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the something of value; that is, the right to call for and receive lands if he
Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the elects. The owner parts with his right to sell his lands, except to the second
terms and conditions thereof. 14 party, for a limited period. The second party receives this right, or, rather,
from his point of view, he receives the right to elect to buy.
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 But the two definitions above cited refer to the contract of option, or, what amounts to the
contract of a right of first refusal. same thing, to the case where there was cause or consideration for the obligation, the subject
of the agreement made by the parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
 The rule so early established in this jurisdiction is that the deed of option or the option clause in a An accepted unilateral promise to buy or to sell a determinate thing for a
contract, in order to be valid and enforceable, must, among other things, indicate the definite price at price certain is binding upon the promisor if the promise is supported by a
which the person granting the option, is willing to sell. consideration distinct from the price. (1451a).

Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per Observe, however, that the option is not the contract of sale itself. The optionee has the right,
square meter upon failure to make the purchase within the time specified; 17 in one other case we freed the but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted
landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are
because such option was not supported by a distinct consideration; 18 in the same vein in yet one other case, we then reciprocally bound to comply with their respective undertakings.
also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because
of lack of consideration; 19 and as an exception to the doctrine enumerated in the two preceding cases, in another Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not (policitacion) is merely an offer. Public advertisements or solicitations and the like are
without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the ordinarily construed as mere invitations to make offers or only as proposals. These relations,
consideration for that of the other. 20 In all these cases, the selling price of the object thereof is always until a contract is perfected, are not considered binding commitments. Thus, at any time prior
predetermined and specified in the option clause in the contract or in the separate deed of option. We elucidated, to the perfection of the contract, either negotiating party may stop the negotiation. The offer,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that: at this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of the
. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within
contract is perfected when a person, called the seller, obligates himself, for a price certain, to which to accept the offer, the following rules generally govern:
deliver and to transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees. Article 1458 of the Civil Code provides: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still
free and has the right to withdraw the offer before its acceptance, or if an acceptance has been
Art. 1458. By the contract of sale one of the contracting parties obligates made, before the offeror's coming to know of such fact, by communicating that withdrawal to
himself to transfer the ownership of and to deliver a determinate thing, and the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
the other to pay therefor a price certain in money or its equivalent. holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying
the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
A contract of sale may be absolute or conditional. 1319, Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code
the ownership of the thing sold in retained until the fulfillment of a positive suspensive which ordains that "every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith."
condition (normally, the full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory force. . . .
(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it
An unconditional mutual promise to buy and sell, as long as the object is made determinate would be a breach of that contract to withdraw the offer during the agreed period. The option,
and the price is fixed, can be obligatory on the parties, and compliance therewith may however, is an independent contract by itself; and it is to be distinguished from the projected
main agreement (subject matter of the option) which is obviously yet to be concluded. If, in
accordingly be exacted.
fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by
the optionee-offeree, the latter may not sue for specific performance on the proposed contract
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-
when coupled with a valuable consideration distinct and separate from the price, is what may offeror, however, renders himself liable for damages for breach of the opinion. . .
properly be termed a perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:
In the light of the foregoing disquisition and in view of the wording of the questioned provision in the
two lease contracts involved in the instant case, we so hold that no option to purchase in contemplation
Art. 1479. . . . of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said
lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to the full process to ripen to at least an interface of a definite offer and a possible corresponding
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
separate consideration for the option, has no applicability in the instant case. negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts
which would bring them into the ambit of the usual offer or option requiring an independent Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
consideration. rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial
was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
price. It is a separate and distinct contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration. 22 In the instant case, the right of . . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the
first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason
obligations of the parties. of injury to third persons, like creditors. The status of creditors could be validly accorded the
Bonnevies for they had substantial interests that were prejudiced by the sale of the subject
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by property to the petitioner without recognizing their right of first priority under the Contract of
Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in Lease.
effectual or "inutile" the provisions on right of first refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the According to Tolentino, rescission is a remedy granted by law to the contracting parties and
contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first even to third persons, to secure reparation for damages caused to them by a contract, even if
crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not this should be valid, by means of the restoration of things to their condition at the moment
also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation prior to the celebration of said contract. It is a relief allowed for the protection of one of the
is part and parcel of the entire contract of lease. The consideration for the lease includes the contracting parties and even third persons from all injury and damage the contract may cause,
consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the or to protect some incompatible and preferent right created by the contract. Rescission implies
premises and to pay the price agreed upon provided the lessor also consents that, should it sell the a contract which, even if initially valid, produces a lesion or pecuniary damage to someone
leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy that justifies its invalidation for reasons of equity.
the property at that price. As stated in Vda. De Quirino vs. Palarca, 23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of the other. It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph possession of the subject of the contract and that he did not act in bad faith. However, this rule
8 to be that of a contractual grant of the right of first refusal to Mayfair. is not applicable in the case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject property be regarded as
We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and acquired lawfully and in good faith.
Equatorial.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu petitioner cannot be deemed a purchaser in good faith for the record shows that it
Asuncion vs. Court of Appeals. 24 categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although the Contract of Lease
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile". was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by registration.
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have
the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo
A purchaser in good faith and for value is one who buys the property of another without
did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in
1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. notice that some other person has a right to or interest in such property and pays a full and fair
Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair's price for the same at the time of such purchase or before he has notice of the claim or interest
of some other person in the property. Good faith connotes an honest intention to abstain from
right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair
 taking unconscientious advantage of another. Tested by these principles, the petitioner cannot Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set
tenably claim to be a buyer in good faith as it had notice of the lease of the property by the aside or rescinded. All of these matters are now before us and so there should be no piecemeal
Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determination of this case and leave festering sores to deteriorate into endless litigation. The facts of
determine if it involved stipulations that would prejudice its own interests. the case and considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons
The petitioner insists that it was not aware of the right of first priority granted by the Contract from all injury and damage the contract may cause or to protect some incompatible and preferred right
of Lease. Assuming this to be true, we nevertheless agree with the observation of the by the contract. 26 The sale of the subject real property by Carmelo to Equatorial should now be
respondent court that: rescinded considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair
every opportunity to negotiate within the 30-day stipulated period. 27
If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,
which includes Par. 20 on priority right given to the Bonnevies, it had only
itself to blame. Having known that the property it was buying was under This Court has always been against multiplicity of suits where all remedies according to the facts and
lease, it behooved it as a prudent person to have required Reynoso or the the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at
broker to show to it the Contract of Lease in which Par. 20 is contained. 25 which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the
Petitioners assert the alleged impossibility of performance because the entire property is indivisible
price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records.
property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common
sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should
be given effect by including the indivisible appurtenances in the sale of the dominant portion under the To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the
right of first refusal. A valid and legal contract where the ascendant or the more important of the two latter of the disputed property would be unjust and unkind to Mayfair because it is once more
parties is the landowner should be given effect, if possible, instead of being nullified on a selfish compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this
pretext posited by the owner. Following the arguments of petitioners and the participation of the owner case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being
in the attempt to strip Mayfair of its rights, the right of first refusal should include not only the property thrown back into the river. Why should Carmelo be rewarded for and allowed to profit from, its
specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are wrongdoing? Prices of real estate have skyrocketed. After having sold the property for P11,300,000.00,
claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to why should it be given another chance to sell it at an increased price?
Equatorial without informing Mayfair, a clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to
the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period. execute because a contract over the right of first refusal belongs to a class of preparatory juridical
relations governed not by the law on contracts but by the codal provisions on human relations. This
Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be may apply here if the contract is limited to the buying and selling of the real property. However, the
authorized to exercise its right of first refusal under the contract to include the entirety of the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8
indivisible property. The boundaries of the property sold should be the boundaries of the offer under on the right of first refusal which created the obligation. It should be enforced according to the law on
the right of first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain contracts instead of the panoramic and indefinite rule on human relations. The latter remedy
extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with
Ang Yu Asuncion vs. Court of Appeals should be modified, if not amplified under the peculiar facts of its obligation to the property under the right of the first refusal according to the terms at which they
this case. should have been offered then to Mayfair, at the price when that offer should have been made. Also,
Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory.
Paragraphs 8 of the two leases can be executed according to their terms.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by
bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in
had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a
should have cautioned it to look further into the agreement to determine if it involved stipulations that contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to
would prejudice its own interests. withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances
point to a calculated and contrived plan of non-compliance with the agreement of first refusal.
 On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice Facts of the Case
and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo
and Equatorial took unconscientious advantage of Mayfair. On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5
which is
reproduced in full below:
Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the
grant of interests. The vendor received as payment from the vendee what, at the time, was a full and Plaintiff, by counsel, respectfully states that:
fair price for the property. It has used the P11,300,000.00 all these years earning income or interest
from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use 1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of
of the property turned over to it by Carmelo. In fact, during all the years that this controversy was
the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Paraaque,
being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the
Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and
property. Mayfair is under no obligation to pay any interests arising from this judgment to either
postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action
Carmelo or Equatorial.
by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San
Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in attorney. Defendant David A. Raymundo, is of legal age, single, with residence and postal
CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners address at 1918 Kamias Street, Damarias Village, Makati, Metro Manila, where they (sic)
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; may be served with summons and other court processes. Xerox copy of the general power of
petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the attorney is hereto attached as Annex "A".
purchase price. The latter is directed to execute the deeds and documents necessary to return ownership
to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair 2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic)
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
Paraaque, Metro Manila with transfer certificate of title nos. S-19637, S-19638 and S-19643
to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes "B" to "I",
respectively.

G.R. No. 111538 February 26, 1997 3. On November 28, 1977, a certain Frederick Chua leased the above-described property from
defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. Xerox
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, copy of the lease is hereto attached as Annex "J".
vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B. 4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation
PROTACIO, and DAVID A. RAYMUNDO, respondents. in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the
conformity of defendant Santos, the said assignment was also registered. Xerox copy of the
deed of assignment is hereto attached as Annex "K".

PANGANIBAN, J.: 5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased
property to Paraaque Kings Enterprises, Incorporated by virtue of a deed of assignment and
Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy the with the conformity of defendant Santos, the same was duly registered, Xerox copy of the
properties subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled to be deed of assignment is hereto attached as Annex "L".
offered the same terms and conditions as those given to a third party who eventually bought such properties? In
short, is such right of first refusal enforceable by an action for specific performance? 6. Paragraph 9 of the assigned leased (sic) contract provides among others that:

These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 "9. That in case the properties subject of the lease agreement are sold or
of the Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in encumbered, Lessors shall impose as a condition that the buyer or
CA-G.R. CV No. 34987 entitled "Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which mortgagee thereof shall recognize and be bound by all the terms and
affirmed the order 3 of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil conditions of this lease agreement and shall respect this Contract of Lease
Case No. 91-786 for lack of a valid cause of action. as if they are the LESSORS thereof and in case of sale, LESSEE shall have
the first option or priority to buy the properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease 17. From the preceding facts it is clear that the sale was simulated and that there was a
to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) collusion between the defendants in the sales of the leased properties, on the ground that when
PESOS. The said sale was in contravention of the contract of lease, for the first option or plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the
priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of property reconveyed it (sic) to her in a matter of twelve (12) days.
sale is hereto attached as Annex "M".
18. Defendants have the same counsel who represented both of them in their exchange of
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist
sale of the properties to defendant Raymundo, the said letter was personally handed by the (sic) between the defendants.
attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex "N".
19. When the property was still registered in the name of defendant Santos, her collector of
9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos, the rental of the leased properties was her brother-in-law David Santos and when it was
requesting her to rectify the error and consequently realizing the error, she had it reconveyed transferred to defendant Raymundo the collector was still David Santos up to the month of
to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes "X" to "HH",
of the letter and the deed of reconveyance are hereto attached as Annexes "O" and "P". respectively.

10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of 20. The purpose of this unholy alliance between defendants Santos and Raymundo is to
FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make mislead the plaintiff and make it appear that the price of the leased property is much higher
good of the offer, but therefore (sic) the said period expired another letter came from the than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would
counsel of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies purchase the properties at a higher price.
of the letters are hereto attached as Annexes "Q" and "R".
21. Plaintiff has made considerable investments in the said leased property by erecting a two
11. On May 8, 1989, before the period given in the letter offering the properties for sale (2) storey, six (6) doors commercial building amounting to THREE MILLION
expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties (P3,000,000.00) PESOS. This considerable improvement was made on the belief that
for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as eventually the said premises shall be sold to the plaintiff.
Annex "S".
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as
executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE such defendants should be charged of the same amount for actual damages.
MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached
as Annex "T". 23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff
in the process suffered mental anguish, sleepless nights, bismirched (sic) reputation which
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.
second deed of sale to defendant Raymundo.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's and as a deterrent to the commission of similar acts, they should be made to answer for
offer to buy or two days after she sold her properties. In her reply she stated among others that exemplary damages, the amount left to the discretion of the Court.
the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the
letter is hereto attached as Annex "U". 25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed,
but defendants refused and failed to comply with plaintiffs just and valid and (sic) demands.
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact Xerox copies of the demand letters are hereto attached as Annexes "KK" to "LL",
that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the respectively.
letter is hereto attached as Annex "V".
26. Despite repeated demands, defendants failed and refused without justifiable cause to
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is satisfy plaintiff's claim, and was constrained to engaged (sic) the services of undersigned
defendant Raymundo. Xerox copy of the letter is hereto attached as Annex "W".
 counsel to institute this action at a contract fee of P200,000.00, as and for attorney's fees, This is indeed one instance where a Complaint, after barely commencing to create a cause of
exclusive of cost and expenses of litigation. action, neutralized itself by its subsequent averments which erased or extinguished its earlier
allegations of an impending wrong. Consequently, absent any actionable wrong in the very
PRAYER face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or
devoid of any meaning or purpose. . . . .
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff
and against defendants and ordering that: The inescapable result of the foregoing considerations point to no other conclusion than that
the Complaint actually does not contain any valid cause of action and should therefore be as it
is hereby ordered DISMISSED. The Court finds no further need to consider the other grounds
a. The Deed of Sale between defendants dated May 15,
of estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. 6
1989, be annulled and the leased properties be sold to the
plaintiff in the amount of P5,000,000.00;
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further
b. Dependants (sic) pay plaintiff the sum of reasoned that:
P3,000,000.00 as actual damages;
. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was
reduced to P9 million when she later resold the leased properties to Raymundo has no valid
c. Defendants pay the sum of P5,000,000.00 as moral
damages; legal moorings because appellant, as a prospective buyer, cannot dictate its own price and
forcibly ram it against appellee Santos, as owner, to buy off her leased properties considering
the total absence of any stipulation or agreement as to the price or as to how the price should
d. Defendants pay exemplary damages left to the be computed under paragraph 9 of the lease contract, . . . . 7
discretion of the Court;
8
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.
e. Defendants pay the sum of not less than P200,000.00 as
attorney's fees.
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order
and/or Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9
Plaintiff further prays for other just and equitable reliefs The motion sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed
plus cost of suit. before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment
complaint or of any similar action that may have been filed; and to require respondent Raymundo to explain
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack why he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent
of cause of action, estoppel and laches. Raymundo against petitioner arose from the expiration of the lease contract covering the property subject of this
case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of renders the said motion moot and academic.
action. It ratiocinated thus:
Issue
Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the
defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging
offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were breach of the contractual right of "first option or priority to buy" states a valid cause of action.
plainly rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was
therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because
For in acquiring the said properties back to her name, and in so making the offers to sell both it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right
by herself (attorney-in-fact) and through her counsel, defendant Santos was indeed of first refusal founded in law, and (3) damages.
conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. . . .
.
Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not
raising a question of law as the issue involved is purely factual whether respondent Santos complied with
xxx xxx xxx paragraph 9 of the lease agreement and for not having complied with Section 2, Rule 45 of the Rules of
Court, requiring the filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may
by petitioner before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed maintain an action for recovery of damages. 12
to substantiate its claim that the lower courts decided the same "in a way not in accord with law and applicable
decisions of the Supreme Court"; or that the Court of Appeals has "sanctioned departure by a trial court from In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in
the accepted and usual course of judicial proceedings" so as to merit the exercise by this Court of the power of mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at
review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for the outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack
dismissal, claiming that petitioner's payment of rentals of the leased property to respondent Raymundo from of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has
June 15, 1989, to June 30, 1990, was an acknowledgment of the latter's status as new owner-lessor of said been defectively stated, or is ambiguous, indefinite or uncertain. 13
property, by virtue of which petitioner is deemed to have waived or abandoned its first option to purchase.
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is
Private respondents likewise contend that the deed of assignment of the lease agreement did not include the regarded as having hypothetically admitted all the averments thereof. 14
assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract
of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on
thereof. the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and
petitioner, the latter was granted the "first option or priority" to purchase the leased properties in case Santos
The Court's Ruling decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of
such "right." But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first
Preliminary Issue: Failure to File offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner
Sufficient Copies of Brief complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner,
however, rejected because of the "ridiculous" price. But Santos again appeared to have violated the same
We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file twelve (12) provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9
copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did million without first offering them to petitioner at such price. Whether there was actual breach which entitled
not result in prejudice to the adverse party, dismissal of appeal on mere technicalities in cases where appeal petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial
is a matter of right may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not appear that on the merits where each party can present evidence to prove their respective allegations and defenses. 15
respondents were unduly prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was
intentional. The trial and appellate courts based their decision to sustain respondents' motion to dismiss on the allegations of
Paraaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the
Main Issue: Validity of Cause of Action final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer,
Santos had verily complied with her obligation to grant the right of first refusal to petitioner.
We do not agree with respondents' contention that the issue involved is purely factual. The principal legal
question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid We hold, however, that in order to have full compliance with the contractual right granting petitioner the first
cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally
determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt sold to respondent Raymundo, should have likewise been first offered to petitioner.
or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged facts. 11 The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first
refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the
ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in
facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and
alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was
could render a valid judgment upon the same in accordance with the prayer of the petition or complaint. to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it
at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as
means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell
respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right
the subject property to others, and only under the same terms and conditions previously offered to the Deed of Assignment included
Bonnevies. the option to purchase

Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to
priority, "all things and conditions being equal." This Court interpreted this proviso to mean that there should be petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to
identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching
Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso Bing as assignee, it was expressly stated that:
if the right of first refusal (or the first option to buy) is not to be rendered illusory.
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or offer his rights, interest and participation over said premises afore-described, . . . . 20 (emphasis
to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the supplied)
same terms and within the period contemplated, could the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the optionee. And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner,
represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was
decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the . . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest participation over said leased premises, . . . . 21 (emphasis supplied)
over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period" (emphasis supplied).
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's
right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire assigned lease contract. The deed of assignment need not be very specific as to which rights and obligations
to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and
initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest obligations contained in the contract of lease are those referred to as being assigned. Needless to state,
in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. respondent Santos gave her unqualified conformity to both assignments of rights.
Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for
P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in
Respondent Raymundo privy
bad faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for purchasing
to the Contract of Lease
the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a
No cause of action
proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he
under P.D. 1517 assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of
rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the
right of first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its exercise by petitioner of its right of first refusal.
structures" since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would
have occupied the property for fourteen (14) years at the end of the contractual period. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first
Court has previously ruled that under option to buy.
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal
to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, . . Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first
. . certain prerequisites must be complied with by anyone who wishes to avail himself of the benefits of the refusal and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon
decree." 19 There being no allegation in its complaint that the prerequisites were complied with, it is clear that
the question of whether the complaint states a cause of action for damages or whether the complaint is barred by
the complaint did fail to state a cause of action on this ground.
estoppel or laches. As these matters require presentation and/or determination of facts, they can be best resolved The undisputed facts are as follows:
after trial on the merits.
Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668.
day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational
theoretically admitted, such admission is merely hypothetical and only for the purpose of resolving the motion. institution created in 1978 by virtue of P.D. No. 1341.
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 In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa,
reversal thereof by an appellate court have the effect of stifling such right. 23 So too, the trial court should be Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title
given the opportunity to evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand Nos. 92885, 110301 and 145470.
the instant case to the trial court to allow private respondents to have their day in court.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten (10)
hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for years, renewable for another ten (10) years with mutual consent of the parties.3
further proceedings.
On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering
SO ORDERED. 3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease
period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price to be
negotiated and determined at the time the option to purchase is exercised." 4

Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at
no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor
G.R. No. 183612 March 15, 2010 upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures
as required by the terms of the contract. After the completion of the industrial complex project, for which
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner, GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby
vs. generating hundreds of jobs.5
GOLDEN HORIZON REALTY CORPORATION, Respondent.
On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC
x - - - - - - - - - - - - - - - - - - - - - - -x wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten (10) years. As no
response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew
the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased
G.R. No. 184260 premises.6 NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to
remain in possession of the property.
NATIONAL DEVELOPMENT COMPANY, Petitioner,
vs. Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a
GOLDEN HORIZON REALTY CORPORATION, Respondent. third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with
preliminary injunction and temporary restraining order. 7
DECISION
In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989,
VILLARAMA, JR., J.: ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey
the said property in favor of PUP at acquisition cost. The memorandum order cited the serious need of PUP,
The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended, considered the "Poor Mans University," to expand its campus, which adjoins the NDC Compound, to
seek to reverse the Decision1 dated June 25, 2008 and Resolution dated August 22, 2008 of the Court of accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its
Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the Decision2 dated November 25, 2004 of the property. The order of conveyance of the 10.31-hectare property would automatically result in the cancellation
Regional Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-2238. of NDCs total obligation in favor of the National Government in the amount of P57,193,201.64.8
On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, SO ORDERED.16
representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the
leased premises.9 The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on
the merits ensued.17
On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser
pendente lite of a property subject of litigation it is entitled to intervene in the proceedings. The RTC granted On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC
the said motion and directed PUP to file its Answer-in-Intervention.10 under its lease contract with NDC and ordering PUP to reconvey the said portion of the property in favor of
GHRC. The dispositive portion reads:
PUP also demanded that GHRC vacate the premises, insisting that the latters lease contract had already
expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.11 defendants ordering the plaintiff to cause immediate ground survey of the premises subject of the leased
contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407 and 3,222.8 square meters
Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional respectively, by a duly licensed and registered surveyor at the expense of the plaintiff within two months from
defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC, receipt of this Decision and thereafter, the plaintiff shall have six (6) months from receipt of the approved
and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for ejectment. A survey within which to exercise its right to purchase the leased property at P554.74 per square meter. And
temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting and Judge finally, the defendant PUP, in whose name the property is titled, is hereby ordered to reconvey the aforesaid
Francisco Brillantes, Jr. from proceeding with the ejectment case. 12 property to the plaintiff in the exercise of its right of its option to buy or first refusal upon payment of the
purchase price thereof.
In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a
nullity, for being violative of the writ of injunction issued by the trial court, apart from being an infringement of The defendant NDC is hereby further ordered to pay the plaintiff attorneys fees in the amount of P100,000.00.
the Constitutional prohibition against impairment of obligation of contracts, an encroachment on legislative
functions and a bill of attainder. In the alternative, should the trial court adjudge the memorandum order as The case against defendant Executive Secretary is dismissed and this decision shall bind defendant Metropolitan
valid, GHRC contended that its existing right must still be respected by allowing it to purchase the leased Trial Court, Branch 20 of Manila.
premises.13
With costs against defendants NDC and PUP.
Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case
involving NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the SO ORDERED.18
RTC of Pasay City.14
NDC and PUP separately appealed the decision to the CA. 19 By Decision of June 25, 2008, the CA affirmed in
On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the
toto the decision of the RTC.20
Philippines v. Court of Appeals) and 143590 (National Development Corporation v. Firestone Ceramics,
Inc.),15 which declared that the sale to PUP by NDC of the portion leased by Firestone pursuant to
Memorandum Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract Both the RTC and the CA applied this Courts ruling in Polytechnic University of the Philippines v. Court of
with NDC. We thus decreed: Appeals (supra), considering that GHRC is similarly situated as a lessee of NDC whose right of first refusal
under the lease contract was violated by the sale of the property to PUP without NDC having first offered to sell
the same to GHRC despite the latters request for the renewal of the lease and/or to purchase the leased
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first premises prior to the expiration of the second lease contract. The CA further agreed with the RTCs finding that
contract of lease fixed the area of the leased premises at 2.90118 hectares while the second contract placed it at there was an implied renewal of the lease upon the failure of NDC to act on GHRCs repeated requests for
2.60 hectares, let a ground survey of the leased premises be immediately conducted by a duly licensed,
renewal of the lease contract, both verbal and written, and continuing to accept monthly rental payments from
registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2)
GHRC which was allowed to continue in possession of the leased premises.
months from the finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS,
INC., shall have six (6) months from receipt of the approved survey within which to exercise its right to
purchase the leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first
Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right refusal, said right pertained only to the second lease contract, C-12-78 covering 3,222.80 square meters, and not
of first refusal upon payment of the purchase price thereof. to the first lease contract, C-33-77 covering 2,407 square meters, which had already expired. It sustained the
RTCs finding that the two (2) lease contracts were interrelated because each formed part of GHRCs industrial
complex, such that business operations would be rendered useless and inoperative if the first contract were to be to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National
detached from the other, as similarly held in the afore-mentioned case of Polytechnic University of the Government.25
Philippines v. Court of Appeals.
The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of
Petitioner PUP argues that respondents right to exercise the option to purchase had expired with the Appeals applies in this case involving another lessee of NDC who claimed that the option to purchase the
termination of the original contract of lease and was not carried over to the subsequent implied new lease portion leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to
between respondent and petitioner NDC. As testified to by their witnesses Leticia Cabantog and Atty. Rhoel Memorandum Order No. 214.
Mabazza, there was no agreement or document to the effect that respondents request for extension or renewal
of the subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent can no We rule in the affirmative.
longer exercise the option to purchase the leased premises when the same were conveyed to PUP pursuant to
Memorandum Order No. 214 dated January 6, 1989, long after the expiration of C-33-77 and C-12-78 in
The second lease contract contained the following provision:
September 1988.21
III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of
Petitioner PUP further contends that while it is conceded that there was an implied new lease between
ten (10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of
respondent and petitioner NDC after the expiration of the lease contracts, the same did not include the right of
Article I, with option to renew for another ten (10) years with the mutual consent of both parties. In no case
first refusal originally granted to respondent. The CA should have applied the ruling in Dizon v. Magsaysay22
should the rentals be increased by more than 100% of the original amount fixed.
that the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of the
lease contract. With the implicit renewal of the lease on a monthly basis, the other terms of the original contract
of lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at
which are germane to the lessees right of continued enjoyment of the property leased. The provision entitling the time the option to purchase is exercised. [emphasis supplied]
the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the lessee. Consequently, as in this case, respondents right of An option is a contract by which the owner of the property agrees with another person that the latter shall have
option to purchase the leased premises was not violated despite the impliedly renewed contract of lease with the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract
NDC. Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 (Polytechnic by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price
University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases, within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner
the contracts of lease of respondent with NDC were not mutually extended or renewed for another ten (10) of the property the right to sell or demand a sale.26 It binds the party, who has given the option, not to enter into
years. Thus, when the leased premises were conveyed to PUP, respondent did not any more have any right of the principal contract with any other person during the period designated, and, within that period, to enter into
first refusal, which incidentally appears only in the second lease contract and not in the first lease contract. 23 such contract with the one to whom the option was granted, if the latter should decide to use the
option.271avvphi1
On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for
another ten (10)-year period. The provisions of C-33-77 and C-12-78 clearly state that the lessee is granted the Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first
option "to renew for another ten (10) years with the mutual consent of both parties." As regards the continued priority to buy the property in the event the owner sells the same. 28 As distinguished from an option contract, in
receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed lease a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal
was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as held in would be dependent not only on the owners eventual intention to enter into a binding juridical relation with
Dizon v. Magsaysay.24 another but also on terms, including the price, that are yet to be firmed up. 29

Petitioner NDC further faults the CA in sustaining the RTCs decision which erroneously granted respondent As the option to purchase clause in the second lease contract has no definite period within which the leased
the option to purchase the leased premises at the rate of P554.74 per square meter, the same rate for which NDC premises will be offered for sale to respondent lessee and the price is made subject to negotiation and
sold the property to petitioner PUP and/or the National Government, which is the mere acquisition cost thereof. determined only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually
It must be noted that such consideration or rate was imposed by Memorandum Order No. 214 under the premise inserted in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell
that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended the same. That respondent was granted a right of first refusal under the second lease contract appears not to
merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this have been disputed by petitioners. What petitioners assail is the CAs erroneous conclusion that such right of
case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting refusal subsisted even after the expiration of the original lease period, when respondent was allowed to continue
books. It does not in any way reflect the true and fair market value of the property, nor was it a price a "willing staying in the leased premises under an implied renewal of the lease and without the right of refusal carried over
seller" would demand and accept for parting with his real property. Such benefit, therefore, cannot be extended to such month-to-month lease. Petitioners thus maintain that no right of refusal was violated by the sale of the
property in favor of PUP pursuant to Memorandum Order No. 214.
Petitioners position is untenable. Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely
informative, thus:
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the
leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee August 12, 1988
and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could
the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under HON. ANTONIO HENSON
terms and conditions more favorable to the lessor.30 General Manager

Records showed that during the hearing on the application for a writ of preliminary injunction, respondent NATIONAL DEVELOPMENT COMPANY
adduced in evidence a letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, 377 Se(n). Gil J. Puyat Avenue
Director and Special Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum Makati, Metro Manila
order submitted to President Corazon C. Aquino transferring the whole NDC Compound, including the
premises leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent to REF: Contract of Lease
prove the existence of documents as of that date and even prior to the expiration of the second lease contract or
Nos. C-33-77 & C-12-78
the lapse of the ten (10)-year period counted from the effectivity of the rental payment -- that is, one hundred
and fifty (150) days from the signing of the contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-
78, or on October 1, 1988. Dear Sir:

Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our intention
had been negotiating through the National Government for the sale of the property in favor of PUP as early as to exercise our option for another ten (10) years. Should the National Development Company opt to sell
July 15, 1988 without first offering to sell it to respondent and even when respondent communicated its desire the property covered by said leases, we also request for priority to negotiate for its purchase at terms
to exercise the option to purchase granted to it under the lease contract, it is clear that NDC violated and/or conditions mutually acceptable.
respondents right of first refusal. Under the premises, the matter of the right of refusal not having been carried
over to the impliedly renewed month-to-month lease after the expiration of the second lease contract on October As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property
21, 1988 becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP, by constructing bodega-type buildings which presently house all legitimate trading and manufacturing concerns.
respondents right of first refusal was still subsisting. These business are substantial taxpayers, employ not less than 300 employees and contribute even foreign
earnings.
Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic
University of the Philippines v. Court of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is It is in this context that we are requesting for the extension of the lease contract to prevent serious
different because the lease contract therein had not yet expired while in this case respondents lease contracts economic disruption and dislocation of the business concerns, as well as provide ourselves, the lessee, an
have already expired and never renewed. The date of the expiration of the lease contract in said case is opportunity to recoup our investments and obtain a fair return thereof.
December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In
contrast, respondents lease contracts had already expired (September 1988) at the time said memorandum order Your favorable consideration on our request will be very much appreciated.
was issued.31
very truly yours,
Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third
party was not the issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such TIU HAN TENG
negotiations as early as July 1988 when respondents right of first refusal was still subsisting and the lease President33
contracts still in force. Petitioner NDC did not bother to respond to respondents letter of June 13, 1988
informing it of respondents exercise of the option to renew and requesting to discuss further the matter with
As to petitioners argument that respondents right of first refusal can be invoked only with respect to the
NDC, nor to the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another
second lease contract which expressly provided for the option to purchase by the lessee, and not in the first lease
ten (10) years and also the exercise of the option to purchase under the lease contract. Petitioner NDC had
contract which contained no such clause, we sustain the RTC and CA in finding that the second contract,
dismissed these letters as "mere informative in nature, and a request at its best." 32
covering an area of 3,222.80 square meters, is interrelated to and inseparable from the first contract over 2,407
square meters. The structures built on the leased premises, which are adjacent to each other, form part of an
integrated system of a commercial complex leased out to manufacturers, fabricators and other businesses.
Petitioners submitted a sketch plan and pictures taken of the driveways, in an effort to show that the leased hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its
premises can be used separately by respondent, and that the two (2) lease contracts are distinct from each right of first priority could NDC lawfully sell the property to petitioner PUP.37 [emphasis supplied]
other.34 Such was a desperate attempt to downplay the commercial purpose of respondents substantial
improvements which greatly contributed to the increased value of the leased premises. To prove that petitioner As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and
NDC had considered the leased premises as a single unit, respondent submitted evidence showing that NDC following an earlier ruling in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 38 the execution of
issued only one (1) receipt for the rental payments for the two portions.35 Respondent further presented the such right consists in directing the grantor to comply with his obligation according to the terms at which he
blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the should have offered the property in favor of the grantee and at that price when the offer should have been made.
structures on the leased premises, to show the building concept as a one-stop industrial site and integrated We then determined the proper rate at which the leased portion should be reconveyed to respondent by PUP, to
commercial complex.36 whom the lessor NDC sold it in violation of respondent lessees right of first refusal, as follows:

In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the
Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who was similarly sale at P1,500.00 per square meter. In contracts of sale, the basis of the right of first refusal must be the current
prejudiced by petitioner NDCs sale of the property to PUP, as to entitle the respondent to exercise its option to offer of the seller to sell or the offer to purchase of the prospective buyer. Only after the lessee-grantee fails to
purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the lease for exercise its right under the same terms and within the period contemplated can the owner validly offer to sell
another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises the property to a third person, again, under the same terms as offered to the grantee. It appearing that the whole
for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be noted NDC compound was sold to PUP for P554.74 per square meter, it would have been more proper for the courts
that Memorandum Order No. 214 itself declared that the transfer is "subject to such liens/leases existing [on the below to have ordered the sale of the property also at the same price. However, since FIRESTONE never
subject property]." Thus: raised this as an issue, while on the other hand it admitted that the value of the property stood at
P1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts a quo
...we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal that the leased premises be sold at that price.39 [emphasis supplied]
over the property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their third
contract denominated as A-10-78 executed on 22 December 1978 which, as found by the courts a quo, was In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC, and
interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August neither disputed the P1,500.00 per square meter actual value of NDCs property at that time it was sold to PUP
1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus - at P554.74 per square meter, as duly considered by this Court in the Firestone case, should be bound by such
determination. Accordingly, the price at which the leased premises should be sold to respondent in the exercise
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at
thereof, the LESSOR shall first give to the LESSEE, which shall have the right of first option to purchase the P554.74 per square meter, should be adjusted to P1,500.00 per square meter, which more accurately reflects its
leased premises subject to mutual agreement of both parties. true value at that time of the sale in favor of petitioner PUP.

In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands
inseparable from the whole contract. The consideration for the right is built into the reciprocal obligations of the upon valuable consideration.40 We have categorically ruled that it is not correct to say that there is no
parties. Thus, it is not correct for petitioners to insist that there was no consideration paid by FIRESTONE to consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease.
entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the
making the consideration for the lease the same as that for the option. consideration for the grant of the right of first refusal. In entering into the contract, the lessee is in effect stating
that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that,
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a should it sell the leased property, then, the lessee shall be given the right to match the offered purchase price
legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a and to buy the property at that price.41
certain price and the lessee has failed to accept it. The lessee has a right that the lessors first offer shall be in his
favor. We have further stressed that not even the avowed public welfare or the constitutional priority accorded to
education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and any party for that
The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE matter, to destroy the sanctity of binding obligations. While education may be prioritized for legislative and
which, in view of the total amount of its investments in the property, wanted to be assured that it would budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the right
be given the first opportunity to buy the property at a price for which it would be offered. Consistent of first refusal granted to a lessee of petitioner NDC.42 Clearly, no reversible error was committed by the CA in
with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 sustaining respondents contractual right of first refusal and ordering the reconveyance of the leased portion of
petitioner NDCs property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial "Luis, Soledad, Fe, Rosita, Carlos and Esperanza,"
Court of Makati City, Branch 144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its
Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED with MODIFICATION in all surnamed Horilleno, and since Esperanza had already died, she was succeeded by her only
that the price to be paid by respondent Golden Horizon Realty Corporation for the leased portion of the NDC daughter and heir herein plaintiff. Filomena Javellana, in the proportion of 1/7 undivided
Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter. ownership each; now then, even though their right had not as yet been annotated in the title,
the co-owners led by Carlos, and as to deceased Justice Antonio Horilleno, his daughter Mary,
No pronouncement as to costs. sometime since early 1967, had wanted to sell their shares, or if possible if Filomena
Javellana were agreeable, to sell the entire property, and they hired an acquaintance Cresencia
SO ORDERED. Harder, to look for buyers, and the latter came to interest defendants, the father and son,
named Ramon Doromal, Sr. and Jr., and in preparation for the execution of the sale, since the
brothers and sisters Horilleno were scattered in various parts of the country, Carlos in Ilocos
Sur, Mary in Baguio, Soledad and Fe, in Mandaluyong, Rizal, and Rosita in Basilan City,
they all executed various powers of attorney in favor of their niece, Mary H. Jimenez Exh. 1-
8, they also caused preparation of a power of attorney of identical tenor for signature by
plaintiff, Filomena Javellana, Exh. M, and sent it with a letter of Carlos, Exh. 7 dated 18
G.R. No. L-36083 September 5, 1975 January, 1968 unto her thru Mrs. Harder, and here, Carlos informed her that the price was
P4.00 a square meter, although it now turns out according to Exh. 3 that as early as 22
Spouses RAMON DOROMAL, SR., and ROSARIO SALAS, and Spouses RAMON DOROMAL, JR., October, 1967, Carlos had received in check as earnest money from defendant Ramon
and GAUDELIA VEGA, petitioners, Doromal, Jr., the sum of P5,000.00 and the price therein agreed upon was five (P5.00) pesos a
vs. square meter as indeed in another letter also of Carlos to Plaintiff in 5 November, 1967, Exh.
HON. COURT OF APPEALS and FILOMENA JAVELLANA, respondents. 6, he had told her that the Doromals had given the earnest money of P5,000.00 at P5.00 a
square meter, at any rate, plaintiff not being agreeable, did not sign the power of attorney,
Salonga, Ordonez, Yap, Parlade and Associates and Marvin J. Mirasol for petitioners. Arturo H. Villanueva, and the rest of the co-owners went ahead with their sale of their 6/7, Carlos first seeing to it
Jr. for private respondent. that the deed of sale by their common attorney in fact, Mary H. Jimenez be signed and ratified
as it was signed and ratified in Candon, Ilocos Sur, on 15 January, 1968, Exh. 2, then brought
to Iloilo by Carlos in the same month, and because the Register of Deeds of Iloilo refused to
register right away, since the original registered owner, Justice Antonio Horilleno was already
dead, Carlos had to ask as he did, hire Atty. Teotimo Arandela to file a petition within the
BARREDO, J.: cadastral case, on 26 February, 1968, for the purpose, Exh. C, after which Carlos returned to
Luzon, and after compliance with the requisites of publication, hearing and notice, the petition
Petition for review of the decision of the Court of Appeals in CA-G.R. No. was approved, and we now see that on 29 April, 1968, Carlos already back in Iloilo went to
47945-R entitled Filomena Javellana vs. Spouses Ramon Doromal, Sr., et al. which reversed the decision of the the Register of Deeds and caused the registration of the order of the cadastral court approving
Court of First Instance of Iloilo that had in turn dismissed herein private respondent Filomena Javellana's action the issuance of a new title in the name of the co-owners, as well as of the deed of sale to the
for redemption of a certain property sold by her co-owners to herein petitioners for having been made out of Doromals, as a result of which on that same date, a new title was issued TCT No. 23152, in
time. the name of the Horillenos to 6/7 and plaintiff Filomena Javellana to 1/7, Exh. D, only to be
cancelled on the same day under TCT No. 23153, Exh. 2, already in the names of the vendees
The factual background found by the Court of Appeals and which is binding on this Court, the same not being Doromals for 6/7 and to herein plaintiff, Filomena Javellana, 1/7, and the next day 30 April,
assailed by petitioners as being capricious, is as follows: 1968, the Doromals paid unto Carlos by check, the sum of P97,000.00 Exh. 1, of Chartered
Bank which was later substituted by check of Phil. National Bank, because there was no
IT RESULTING: That the facts are quite simple; Lot 3504 of the cadastral survey of Iloilo, Chartered Bank Branch in Ilocos Sur, but besides this amount paid in check, the Doromals
situated in the poblacion of La Paz, one of its districts, with an area of a little more than 2- according to their evidence still paid an additional amount in cash of P18,250.00 since the
hectares was originally decreed in the name of the late Justice Antonio Horilleno, in 1916, agreed price was P5.00 a square meter; and thus was consummated the transaction, but it is
under Original Certificate of Title No. 1314, Exh. A; but before he died, on a date not here where complications set in,
particularized in the record, he executed a last will and testament attesting to the fact that it
was a co-ownership between himself and his brothers and sisters, Exh. C; so that the truth was On 10 June, 1968, there came to the residence of the Doromals in Dumangas, Iloilo, plaintiff's lawyer, Atty.
that the owners or better stated, the co-owners were; beside Justice Horilleno, Arturo H. Villanueva, bringing with him her letter of that date, reading,
Mr. & Mrs. Ramon Doromal, Sr. expense of her own blood relatives who are her aunts, uncles and cousins. The consideration
and Mr. and Mrs. Ramon Doromal, Jr. of P30,000.00 only was placed in the deed of sale to minimize the payment of the registration
fees, stamps, and sales tax. pp. 77-78, R.A.,
"Dumangas Iloilo
and dismiss and further condemned plaintiff to pay attorney's fees, and moral and exemplary
Dear Mr. and Mrs. Doromal: damages as set forth in few pages back, it is because of this that plaintiff has come here and
contends, that Lower Court erred:
The bearer of this letter is my nephew, Atty. Arturo H. Villanueva, Jr., of
this City. Through him, I am making a formal offer to repurchase or redeem "I. ... in denying plaintiff-appellant, as a co-owner of Lot No. 3504, of the Iloilo Cadastre, the
from you the 6/7 undivided share in Lot No. 3504, of the Iloilo Cadastre, right of legal redemption under Art. 1620, of the Civil Code:
which you bought from my erstwhile co-owners, the Horillenos, for the sum
of P30,000.00, Atty. Villanueva has with him the sum of P30,000.00 in "II. ... as a consequence of the above error, in refusing to order the defendants-appellees, the
cash, which he will deliver to you as soon as you execute the contract of vendees of a portion of the aforesaid Lot No. 3504 which they bought from the co-owners of
sale in my favor. the plaintiff-appellant, to reconvey the portion they purchased to the herein plaintiff-
appellant..
Thank you very much for whatever favorable consideration you can give this request.
"III. ... in admitting extrinsic evidence in the determination of the consideration of the sale,
Very truly yours, instead of simply adhering to the purchase price of P30,000.00, set forth in the pertinent Deed
of Sale executed by the vendors and owners of the plaintiff-appellant in favor of the
defendants-appellees.
p. 26, Exh. "J", Manual of Exhibits.

and then and there said lawyer manifested to the Doromals that he had the P30,000.00 with "IV. ... in dismissing the complaint filed in this case." pp. 1-3, Appellant's Brief,.
him in cash, and tendered it to them, for the exercise of the legal redemption, the Doromals
were aghast, and refused. and the very next day as has been said. 11 June, 1968, plaintiff filed which can be reduced to the simple question of whether or not on tile basis of the evidence
this case, and in the trial, thru oral and documentary proofs sought to show that as co-owner, and the law, the judgment appealed from should be maintained; (Pp. 16-22, Record.) .
she had the right to redeem at the price stated in the deed of sale, Exh. 2, namely P30,000.00
of the but defendants in answer, and in their evidence, oral and documentary sought to show Upon these facts, the Court of Appeals reversed the trial court's decision and held that although respondent
that plaintiff had no more right to redeem and that if ever she should have, that it should be at Javellana was informed of her co-owners' proposal to sell the land in question to petitioners she was, however,
the true and real price by them paid, namely, the total sum of P115,250.00, and trial judge, "never notified ... least of all, in writing", of the actual execution and registration of the corresponding deed of
after hearing the evidence, believed defendants, that plaintiff had no more right, to redeem, sale, hence, said respondent's right to redeem had not yet expired at the time she made her offer for that purpose
because, thru her letter of June 10, 1968 delivered to petitioners on even date. The intermediate court further held that the
redemption price to be paid by respondent should be that stated in the deed of sale which is P30,000
"Plaintiff was informed of the intended sale of the 6/7 share belonging to notwithstanding that the preponderance of the evidence proves that the actual price paid by petitioners was
the Horillenos." P115,250. Thus, in their brief, petitioners assign the following alleged errors:

and that, I

"The plaintiff have every reason to be grateful to Atty. Carlos Horilleno because in the IT IS ERROR FOR THE COURT OF APPEALS TO HOLD THAT THE NOTICE IN
petition for declaration of heirs of her late uncle Antonio Horilleno in whose name only the WRITING OF THE SALE CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL CODE
Original Certificate of Title covering the Lot in question was issued, her uncle Atty. Carlos REFERS TO A NOTICE IN WRITING AFTER THE EXECUTION AND REGISTRATION
Horilleno included her as one of the heirs of said Antonio Horilleno. Instead, she filed this OF THE INSTRUMENT OF SALE, HENCE, OF THE DOCUMENT OF SALE.
case to redeem the 6/7 share sold to the Doromals for the simple reason that the consideration
in the deed of sale is the sum of P30,000.00 only instead of P115,250.00 approximately which II
was actually paid by the defendants to her co-owners, thus she wants to enrich herself at the
 THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INSCRIPTION OF guarantee that the buyer would not back out, considering that it is not clear that there was already a definite
THE SALE IN THE REGISTRY OF PROPERTY TAKES EFFECT AS AGAINST THIRD agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should
PERSONS INCLUDING CLAIMS OF POSSIBLE REDEMPTIONERS. respondent Javellana refuse to agree to part with her 1/7 share.

ASSUMING, ARGUENDO THAT PRIVATE RESPONDENT HAS THE RIGHT TO In the light of these considerations, it cannot be said that the Court of Appeals erred in holding that the letters
REDEEM, THE COURT OF APPEALS ERRED IN HOLDING THAT THE REDEMPTION aforementioned sufficed to comply with the requirement of notice of a sale by co-owners under Article 1623 of
PRICE SHOULD BE THAT STATED IN THE DEED OF SALE. (Pp. 1-2, Brief for the Civil Code. We are of the considered opinion and so hold that for purposes of the co-owner's right of
Petitioner, page 74-Rec.) redemption granted by Article 1620 of the Civil Code, the notice in writing which Article 1623 requires to be
made to the other co-owners and from receipt of which the 30-day period to redeem should be counted is a
We cannot agree with petitioners. notice not only of a perfected sale but of the actual execution and delivery of the deed of sale. This is implied
from the latter portion of Article 1623 which requires that before a register of deeds can record a sale by a co-
owner, there must be presented to him, an affidavit to the effect that the notice of the sale had been sent in
Petitioners do not question respondent's right to redeem, she being admittedly a 1/7 co-owner of the property in
dispute. The thrust of their first assignment of error is that for purposes of Article 1623 of the Civil Code which writing to the other co-owners. A sale may not be presented to the register of deeds for registration unless it be
provides that: in the form of a duly executed public instrument. Moreover, the law prefers that all the terms and conditions of
the sale should be definite and in writing. As aptly observed by Justice Gatmaitan in the decision under review,
Article 1619 of the Civil Code bestows unto a co-owner the right to redeem and "to be subrogated under the
ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within same terms and conditions stipulated in the contract", and to avoid any controversy as to the terms and
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case conditions under which the right to redeem may be exercised, it is best that the period therefor should not be
may be. The deed of sale shall not be recorded in the Registry of Property, unless deemed to have commenced unless the notice of the disposition is made after the formal deed of disposal has
accompanied by an affidavit of the vendor that he has given written notice thereof to all been duly executed. And it being beyond dispute that respondent herein has never been notified in writing of the
possible redemptioners. execution of the deed of sale by which petitioners acquired the subject property, it necessarily follows that her
tender to redeem the same made on June 10, 1968 was well within the period prescribed by law. Indeed, it is
The right of redemption of co-owners excludes that of adjoining owners. immaterial when she might have actually come to know about said deed, it appearing she has never been shown
a copy thereof through a written communication by either any of the petitioners-purchasers or any of her co-
the letters sent by Carlos Horilleno to respondent and dated January 18, 1968, Exhibit 7, and November 5, 1967, owners-vendees. (Cornejo et al. vs. CA et al., 16 SCRA 775.)
Exhibit 6, constituted the required notice in writing from which the 30-day period fixed in said provision should
be computed. But to start with, there is no showing that said letters were in fact received by respondent and The only other pivotal issue raised by petitioners relates to the price which respondent offered for the
when they were actually received. Besides, petitioners do not pinpoint which of these two letters, their dates redemption in question. In this connection, from the decision of the Court of Appeals, We gather that there is
being more than two months apart, is the required notice. In any event, as found by the appellate court, neither "decisive preponderance of evidence" establishing "that the price paid by defendants was not that stated in the
of said letters referred to a consummated sale. As may be observed, it was Carlos Horilleno alone who signed document, Exhibit 2, of P30,000 but much more, at least P97,000, according to the check, Exhibit 1, if not a
them, and as of January 18, 1968, powers of attorney from the various co-owners were still to be secured. total of P115,250.00 because another amount in cash of P18,250 was paid afterwards."
Indeed, the later letter of January 18, 1968 mentioned that the price was P4.00 per square meter whereas in the
earlier letter of November 5, 1967 it was P5.00, as in fact, on that basis, as early as October 27, 1967, Carlos It is, therefore, the contention of petitioners here that considering said finding of fact of the intermediate court,
had already received P5,000 from petitioners supposedly as earnest money, of which, however, mention was it erred in holding nevertheless that "the redemption price should be that stated in the deed of sale."
made by him to his niece only in the later letter of January 18, 1968, the explanation being that "at later
negotiation it was increased to P5.00 per square meter." (p. 4 of petitioners' brief as appellees in the Court of
Again, petitioners' contention cannot be sustained. As stated in the decision under review, the trial court found
Appeals quoting from the decision of the trial court.) In other words, while the letters relied upon by petitioners
that "the consideration of P30,000 only was placed in the deed of sale to minimize the payment of the
could convey the idea that more or less some kind of consensus had been arrived at among the other co-owners
registration fees, stamps and sales tax." With this undisputed fact in mind, it is impossible for the Supreme
to sell the property in dispute to petitioners, it cannot be said definitely that such a sale had even been actually
perfected. The fact alone that in the later letter of January 18, 1968 the price indicated was P4.00 per square Court to sanction petitioners' pragmatic but immoral posture. Being patently violative of public policy and
meter while in that of November 5, 1967, what was stated was P5.00 per square meter negatives the possibility injurious to public interest, the seemingly wide practice of understating considerations of transactions for the
purpose of evading taxes and fees due to the government must be condemned and all parties guilty thereof must
that a "price definite" had already been agreed upon. While P5,000 might have indeed been paid to Carlos in
be made to suffer the consequences of their ill-advised agreement to defraud the state. Verily, the trial court fell
October, 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in
short of its devotion and loyalty to the Republic in officially giving its stamp of approval to the stand of
Article 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the
petitioners and even berating respondent Javellana as wanting to enrich herself "at the expense of her own blood
backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said P5,000
were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a relatives who are her aunts, uncles and cousins." On the contrary, said "blood relatives" should have been
sternly told, as We here hold, that they are in pari-delicto with petitioners in committing tax evasion and should
not receive any consideration from any court in respect to the money paid for the sale in dispute. Their situation or by the vendor as the case may be. The deed of sale shall not be recorded
is similar to that of parties to an illegal contract. 1 in the Registry of Property, unless accompanied by an affidavit of the
vendor that he has given written notice thereof of all possible
Of course, the Court of Appeals was also eminently correct in its considerations supporting the conclusion that redemptioners.' p. 473, New Civil Code,
the redemption in controversy should be only for the price stipulated in the deed, regardless of what might have
been actually paid by petitioners that style inimitable and all his own, Justice Gatmaitan states those if that be so that affidavit must have been intended by the lawmakers for a definite purpose, to
considerations thus: argue that this affidavit has no purpose is to go against all canons of statutory construction, no
law mandatory in character and worse, prohibitive should be understood to have no purpose at
CONSIDERING: As to this that the evidence has established with decisive preponderance all, that would be an absurdity, that purpose could not but have been to give a clear and
that the price paid by defendants was not that stated in the document, Exh. 2 of P30,000.00 unmistakable guide to redemptioner, on how much he should pay and when he should
but much more, at least P97,000.00 according to the check, Exh. 1 if not a total of redeem; from this must follow that that notice must have been intended to state the truth and if
P115,250.00 because another amount in cash of P18,250.00 was paid afterwards, perhaps it vendor and vendee should have instead, decided to state an untruth therein, it is they who
would be neither correct nor just that plaintiff should be permitted to redeem at only should bear the consequences of having thereby misled the redemptioner who had the right to
P30,000.00, that at first glance would practically enrich her by the difference, on the other rely and act thereon and on nothing else; stated otherwise, all the elements of equitable
hand, after some reflection, this Court can not but have to bear in mind certain definite points. estoppel are here since the requirement of the law is to submit the affidavit of notice to all
possible redemptioners, that affidavit to be a condition precedent to registration of the sale
therefore, the law must have intended that it be by the parties understood that they were there
1st According to Art. 1619
asking a solemn representation to all possible redemptioners, who upon faith of that are thus
induced to act, and here worse for the parties to the sale, they sought to avoid compliance with
"Legal redemption is the right to be subrogated, upon the same terms and conditions the law and certainly refusal to comply cannot be rewarded with exception and acceptance of
stipulated in the contract, in the place of one who acquires a thing by purchase or dation in the plea that they cannot be now estopped by their own representation, and this Court notes
payment, or by any other transaction whereby ownership is transmitted by onerous title." pp. that in the trial and to this appeal, plaintiff earnestly insisted and insists on their estoppel;
471-472, New Civil Code,
3rd If therefore, here vendors had only attempted to comply with the law, they would have
and note that redemptioner right is to be subrogated been obligated to send a copy of the deed of sale unto Filomena Javellana and from that copy,
Filomena would have been notified that she should if she had wanted to redeem, offered no
"upon the same terms and conditions stipulated in the contract." more, no less, that P30,000.00, within 30 days, it would have been impossible for vendors and
vendees to have inserted in the affidavit that the price was truly P97,000.00 plus P18,250.00
and here, the stipulation in the public evidence of the contract, made public by both vendors or a total of P115,250.00; in other words, if defendants had only complied with the law, they
and vendees is that the price was P30,000.00; would have been obligated to accept the redemption money of only P30,000.00;

2nd According to Art. 1620, 4th If it be argued that foregoing solution would mean unjust enrichment for plaintiff, it
need only be remembered that plaintiff's right is not contractual, but a mere legal one, the
"A co-owner of a thing may exercise the right of redemption in case the share of all the other co-owners or any exercise of a right granted by the law, and the law is definite that she can subrogate herself in
of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay place of the buyer,
only a reasonable one. p. 472, New Civil Code, .
"upon the same terms and conditions stipulated in the contract,"
from which it is seen that if the price paid is 'grossly excessive' redemptioner is required to
pay only a reasonable one; not that actually paid by the vendee, going to show that the law in the words of Art. 1619, and here the price
seeks to protect redemptioner and converts his position into one not that of a contractually but
of a legally subrogated creditor as to the right of redemption, if the price is not 'grossly "stipulated in the contract"
excessive', what the law had intended redemptioner to pay can be read in Art. 1623.
was P30,000.00, in other words, if this be possible enrichment on the part of Filomena, it was
The right of a legal pre-emption or redemption shall not be exercised except not unjust but just enrichment because permitted by the law; if it still be argued that plaintiff
within thirty (30) days from the notice in writing by the prospective vendor, would thus be enabled to abuse her right, the answer simply is that what she is seeking to
 enforce is not an abuse but a mere exercise of a right; if it be stated that just the same, the This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this
effect of sustaining plaintiff would be to promote not justice but injustice, the answer again purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnest-deposit money, subject to the
simply is that this solution is not unjust because it only binds the parties to make good their following conditions.
solemn representation to possible redemptioners on the price of the sale, to what they had
solemnly averred in a public document required by the law to be the only basis for that 1. We will be given the exclusive option to purchase the property within the 30 days from date of your
exercise of redemption; (Pp. 24-27, Record.) acceptance of this offer.

WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against petitioners.. 2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will
secure the necessary Management and Board approvals; and we initiate the documentation if there is
mutual agreement between us.

G.R. No. 137290 July 31, 2000 3. In the event that we do not come to an agreement on this transaction, the said amount of
P1,000,000.00 shall be refundable to us in full upon demand. . . .
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,
vs. Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate, indicated his
SPOUSES ALFREDO HUANG and GRACE HUANG, respondents. conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million.
Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the
DECISION properties.

MENDOZA, J.: Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey
informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz
countered with an offer of six months within which to pay.
This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which reversed the
decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents
against petitioner for enforcement of a contract of sale. On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not
yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.
The facts are not in dispute.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within
which to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of [our] agreement on the matter."4 Her request was granted.
real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of
Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-
82395 and PT-82396 of the Register of Deeds of Pasig City. On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty.
Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the
extension granted by petitioner, the latter was returning the amount of P1 million given as "earnest-deposit."5
On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was made to
Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter 2 dated March
24, 1994, Atty. Dauz signified her clients interest in purchasing the properties for the amount for which they On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five
were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but
and the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused on the ground that respondents option to purchase had already expired.
petitioner refused the counter-offer.
On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the
3
On March 29, 1994, Atty. Dauz wrote another letter proposing the following terms for the purchase of the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.
properties, viz:
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging
that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from
the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because
there was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale. The petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the
motion was opposed by respondents. record, We are more inclined to believe that the said P5,000.00 were paid in the concept of earnest money as the
term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out,
On December 12, 1994, the trial court granted petitioners motion and dismissed the action. Respondents filed a considering that it is not clear that there was already a definite agreement as to the price then and that petitioners
motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7
which, on April 8, 1997, rendered a decision6 reversing the judgment of the trial court. The appellate court held share.10
that all the requisites of a perfected contract of sale had been complied with as the offer made on March 29,
1994, in connection with which the earnest money in the amount of P1 million was tendered by respondents, In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as
had already been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents offer of
"[w]henever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof March 29, 1994, their contract had not yet been perfected. This is evident from the following conditions
of the perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect the attached by respondents to their letter, to wit: (1) that they be given the exclusive option to purchase the
contract as such is not an essential element for its validity. In addition, the court found that Sobrecarey had property within 30 days from acceptance of the offer; (2) that during the option period, the parties would
authority to act in behalf of petitioner for the sale of the properties.7 negotiate the terms and conditions of the purchase; and (3) petitioner would secure the necessary approvals
while respondents would handle the documentation.
Petitioner moved for reconsideration of the trial courts decision, but its motion was denied. Hence, this
petition. The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1wphi1
As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to
Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30
the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the
option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may
absence of agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner enter.11 All that respondents had was just the option to buy the properties which privilege was not, however,
also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority to sell the subject real exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be
properties.8 enforced by respondents.

Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second
totalling 142 days which the Court had given to them, respondents failed to file their comment. They were thus paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is
considered to have waived the filing of a comment. binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an
option contract may be anything of value, unlike in sale where it must be the price certain in money or its
The petition is meritorious. equivalent. There is no showing here of any consideration for the option. Lacking any proof of such
consideration, the option is unenforceable.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1)
Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option
earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and
operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was period, the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are
a perfected contract of sale. as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the
With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not object of the contract and upon the price; and (3) consummation, which begins when the parties perform their
give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount respective undertakings under the contract of sale, culminating in the extinguishment thereof. 12 In the present
merely as a deposit of what would eventually become the earnest money or downpayment should a contract of case, the parties never got past the negotiation stage. The alleged "indubitable evidence"13 of a perfected sale
sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final
perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale. arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real
Respondents in fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,9 properties which were the objects of the sale and on the purchase price, the fact remains that they failed to
it was held: arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.

. . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the
same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by
The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the
sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. In
Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that the manner
of payment of the purchase price is an essential element before a valid and binding contract of sale can exist.
Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or
manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
Court of Appeals,15 agreement on the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price.16 In Velasco v. Court of Appeals,17 the
parties to a proposed sale had already agreed on the object of sale and on the purchase price. By the buyers
own admission, however, the parties still had to agree on how and when the downpayment and the installments
were to be paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the formation of a binding
and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of
P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the
perfection of any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil
Code, as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be
mutually covenanted.18

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the
contract of sale which establishes the existence of a perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to
enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents complaint is
DISMISSED.