ANG YU ASUNCION v.

CA
G.R. No. 109125, December 2, 1994
Vitug, J.

FACTS:

1. Petitioners are tenants or lessees of residential and commercial spaces

owned by Bobby Co Unjieng. On several occasions, Unjieng informed
petitioner that they are offering to sell the premises and are giving them
priority to acquire the same. During the negotiations, Bobby Cu Unjieng
offered a price of P6-million while petitioner made a counter offer of P5-
million. Petitioners thereafter asked Unjieng to put their offer in writing to
which request Unjieng acceded; that in reply to Unjieng’s letter, petitioner
wrote them asking that they specify the terms and conditions of the offer to
sell; that when petitioner did not receive any reply, they sent another letter
with the same request; that since Unjieng failed to specify the terms and
conditions of the offer to sell and because of information received that
Unjieng were about to sell the property, Petitioner were compelled to file
the complaint to compel Unjieng to sell the property to them.
2. The court found that offer to sell was never accepted by the petitioner for
the reason that the parties did not agree upon the terms and conditions of
the proposed sale, hence, there was no contract of sale at all. Nonetheless,
the court ruled that should the property is subsequently offered for sale,
petitioners will have the right of first refusal.
3. The CA affirmed the decision of the trial court with modifictaion that
considering the mercurial and uncertain forces in our market economy
today, it found no reason not to grant the same right of first refusal to herein
appellants in the event that the subject property is sold for a price in excess
of Eleven Million pesos.
4. While the case was pending consideration by this Court, the Cu Unjieng
spouses executed a Deed of Sale transferring the property in question to
herein petitioner Buen Realty and Development Corporation.
5. As the new owner, they wrote a letter to the lessees demanding that the
latter vacate the premises. Lessees wrote a reply stating that private
respondent brought the property subject to the notice of lis pendens, under
pending legal action.
6. The lessees filed a Motion for Execution where the respondent Judge issued
an order for a writ of execution directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution ordering the
defendants among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for defendants
to execute the necessary Deed of Sale of the property in litigation in favor of
the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the Register of Deeds of the
City of Manila, to cancel and set aside the title already issued in favor of
Buen Realty Corporation which was previously executed between the latter
and defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
7. The appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a
quo.
8. Petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No.
 195816 issued in the name of Buen Realty, at the time of the latter's purchase
of the property on 15 November 1991 from the Cu Unjiengs.
ISSUE:

WON a breach of a decree right of first refusal has been under a final
judgment, like justify an issuance of a writ of execution under a judgment that
merely recognizes its existence.

HELD:

NO. Even on the premise that such right of first refusal has been decreed
under a final judgment, like here, its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the perfection of contracts.
It is not to say, however, that the right of first refusal would be inconsequential
for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil Code, can warrant
a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The consequence
of such a declaration entails no more than what has heretofore been said. In fine,
if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of execution
on the judgment, since there is none to execute, but an action for damages in a
proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development

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

PRINCIPLES:

A not too recent development in real estate transactions is the adoption of

such arrangements as the right of first refusal, a purchase option and a contract to
sell. For ready reference, we might point out some fundamental precepts that may
find some relevance to this discussion.

Until the contract is perfected, it cannot, as an independent source of

obligation, serve as a binding juridical relation. In sales, particularly, to which the
topic for discussion about the case at bench belongs, the contract is perfected when
a person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees.
 When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the fulfillment
of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force. In Dignos vs. Court of Appeals (158 SCRA 375), we
have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is reserved or the
right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of
the condition would prevent such perfection. If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code).

An unconditional mutual promise to buy and sell, as long as the object is

made determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.

An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option. This
contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code.

Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is exercised
timely, i.e., the offer is accepted before a breach of the option, a bilateral promise
to sell and to buy ensues and both parties are then reciprocally bound to comply
with their respective undertakings.

Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration,

the offeror is still free and has the right to withdraw the offer before its
acceptance, or, if an acceptance has been made, before the offeror's coming
to know of such fact, by communicating that withdrawal to the offeree (see
Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western Sugar vs. Atlantic
Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19
of the Civil Code which ordains that "every person must, in the exercise of
his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is

deemed perfected, and it would be a breach of that contract to withdraw the
offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main
 agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee- offeree, the latter may
not sue for specific performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the
option. In these cases, care should be taken of the real nature of the
consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part
of the optionee, the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale that can evidence
its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative

juridical relation. Needless to point out, it cannot be deemed a perfected contract
of sale under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319 of the same Code. An option or an offer would require,
among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object
might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so described
as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still
be indefinite and inconclusive) but by, among other laws of general application,
the pertinent scattered provisions of the Civil Code on human conduct.