1)) Southwestern Sugar & Molasses Co. vs.

Atlantic
Gulf & Pacific Company
97 Phil 247
June 1955
FACTS:
On March 24, 1953, defendant-appellant Atlantic
granted plaintiff-appellee Southwestern an option
period of ninety days to buy the formers barge No.
10 for the sum of P30,000. On May 11 of the same
year, Southwestern Company communicated its
acceptance of the option to Atlantic through a letter,
to which the latter replied that their understanding
was that the "offer of option" is to be a cash
transaction and to be effected "at the time the
lighter is available." On June 25, Atlantic advised the
Southwestern Company that since there is still
further work for it, the barge could not be turned
over to the latter company.
On June 27, 1953, the Southwestern Company filed
this action to compel Atlantic to sell the barge in line
with the option, depositing with the court a check
covering the sum of P30,000, but said check was
later withdrawn with the approval of the court. On
June 29, the Atlantic withdrew its "offer of option"
with due notices to Southwestern Company stating
that the option was granted merely as a favor. The
Atlantic contended that the option to sell it made to
Southwestern Company is null and void because said
option to sell is not supported by any consideration.
The trial court granted herein plaintiff-appellee
Southwestern Companys action for specific
performance and ordered herein defendant-
appellant Atlantic to pay damages equivalent to 6
per centum per annum on the sum of P30,000 from
the date of the filing of the complaint.

ISSUE:

Is Atlantic liable for specific performance and to pay
damages in favor of Southwestern Company?

COURT RULING:
The Supreme Court reversed the trial courts
decision applying Article 1479 of the new Civil Code.
The Court reiterated that "an accepted unilateral
promise" can only have a binding effect if supported
by a consideration, which means that the option can
still be withdrawn, even if accepted, if said option is
not supported by any consideration. The option that
Atlantic had provided was without consideration,
hence, can be withdrawn notwithstanding
Southwestern Companys acceptance of said option.
American jurisprudence hold that an offer, once
accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration,
but the specific provisions of Article 1479 commands
otherwise. While under the "offer of option" in
question appellant Atlantic has assumed a clear
obligation to sell its barge to appellee Southwestern
Company and the option has been exercised in
accordance with its terms, and there appears to be
no valid or justifiable reason for the former to
withdraw its offer, the Court cannot adopt a
different attitude because the law on the matter is
clear.

2)) G.R. No. L-9871 January 31, 1958
ATKINS, KROLL and CO., INC.,
vs.
B. CUA HIAN TEK

FACTS:

Atkins Kroll & Co. sent a letter to B. Cu HianTek on
September 13, 1951, offering cartons of Luneta
brand Sardines subject to reply by September 23,
1951. HianTek unconditionally accepted the said
offer through a letter delivered on September 21,
1951, but Atkins failed to deliver the commodities
due to the shortage of catch of sardines by the
packers in California.
HianTek, therefore, filed an action for damages in
the CFI of Manila which granted the same in his
favor.
Atkins herein contends that there was no such
contract of sale but only an option to buy, which was
not enforceable for lack of consideration because it
is provided under the 2nd paragraph of Article 1479
of the New Civil Code that "an accepted unilatateral
promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the
promise is supported by a consideration distinct
from the price. Atkins also insisted that the offer
was a mere offer of option, because the "firm offer"
was a continuing offer to sell until September 23.

ISSUE:
Whether a contract of sale was constituted between
the parties or only a unilateral promise to buy.

COURT RULING:

SC held that there was a contract of sale between
the parties. ATKINs argument assumed that only a
unilateral promise arose when the respondent
accepted the offer is incorrect because a bilateral
contract to sell and to buy was created upon HIAN
TEKs acceptance.
B. CuaHianTeks letter-reply to Atkins indicated that
he accepted "the firm offer for the sale. After
accepting the promise and before he exercises his
option, the holder of the option is not bound to buy.
In this case at bar, however, upon TEKs acceptance
of herein ATKIN's offer, a bilateral promise to sell
and to buy ensued, and the respondent had
immediately assumed the obligations of a purchaser.

3)) Sanchez vs. Rigos
45 SCRA 368
June 1972
FACTS:

In an instrument entitled "Option to Purchase,"
executed on April 3, 1961, defendant-appellant
Severina Rigos "agreed, promised and committed ...
to sell" to plaintiff-appellee Nicolas Sanchez for the
sum of P1,510.00 within two (2) years from said
date, a parcel of land situated in the barrios of Abar
and Sibot, San Jose, Nueva Ecija. It was agreed that
said option shall be deemed "terminated and
elapsed," if Sanchez shall fail to exercise his right to
buy the property" within the stipulated period. On
March 12, 1963, Sanchez deposited the sum of
Pl,510.00 with the CFI of Nueva Ecija and filed an
action for specific performance and damages against
Rigos for the latters refusal to accept several
tenders of payment that Sanchez made to purchase
the subject land.

Defendant Rigos contended that the contract
between them was only a unilateral promise to sell,
and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null
and void." Plaintiff Sanchez, on the other hand,
alleged in his compliant that, by virtue of the option
under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and
committed to buy" the land described in the option.
The lower court rendered judgment in favor of
Sanchez and ordered Rigos to accept the sum
Sanchez judicially consigned, and to execute in his
favor the requisite deed of conveyance. The Court of
Appeals certified the case at bar to the Supreme
Court for it involves a question purely of law.

ISSUE:

Was there a contract to buy and sell between the
parties or only a unilateral promise to sell?

COURT RULING:

The Supreme Court affirmed the lower courts
decision. The instrument executed in 1961 is not a
"contract to buy and sell," but merely granted
plaintiff an "option" to buy, as indicated by its own
title "Option to Purchase." The option did not
impose upon plaintiff Sanchez the obligation to
purchase defendant Rigos' property. Rigos "agreed,
promised and committed" herself to sell the land to
Sanchez for P1,510.00, but there is nothing in the
contract to indicate that her aforementioned
agreement, promise and undertaking is supported
by a consideration "distinct from the price"
stipulated for the sale of the land. The lower court
relied upon Article 1354 of the Civil Code when it
presumed the existence of said consideration, but
the said Article only applies to contracts in general.

However, it is not Article 1354 but the Article 1479
of the same Code which is controlling in the case at
bar because the latters 2nd paragraph refers to
"sales" in particular, and, more specifically, to "an
accepted unilateral promise to buy or to sell." Since
there may be no valid contract without a cause or
consideration, the promisor is not bound by his
promise and may, accordingly, withdraw it. Pending
notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of
sale. Upon mature deliberation, the Court reiterates
the doctrine laid down in the Atkins case and
deemed abandoned or modified the view adhered to
in the Southwestern Company case.

4))
5)) Serra vs. Court of Appeals, and RCBC
229 SCRA 60
January 1994

FACTS:

Petitioner Federico Serra, who is the owner of a 374
square meter parcel of land located at Masbate,
Masbate, and private respondent Rizal Commercial
Banking Corporation (RCBC) entered into a "Contract
of Lease with Option to Buy" in May 25, 1975 which
provided that Serra will lease the subject land to
RCBC for a period of 25 years from June 1, 1975 to
June 1, 2000, that the RCBC has the option to
purchase the same at P210.00 per square meter
within a period of 10 years from May 25, 1975, the
date of the signing of the Contract, and that Serra
will have to register said land under the Torrens
System to the Register of Deeds of Province of
Masbate within the same 10-year option period.
Pursuant to said contract, RCBC constructed
improvements on the subject land to house its
branch office, while the petitioner had the property,
within 3 years from 1975, duly registered with OCT
No. 0-232 under the Torrens System. Later,
petitioner alleged that as soon as he had the
property registered, he kept on pursuing the branch
manager for the sale of the lot as per their
agreement, but it was not until September 4, 1984,
that RCBC decided to exercise the option.

RCBC informed petitioner, through a letter, of its
intention to buy the property at the agreed price of
not greater than P210.00 per square meter or a total
of P78,430.00, but petitioner replied that he is no
longer selling the property. RCBC then filed an action
for specific performance and damages against Serra
in March 1985 alleging that during the negotiations
it made clear to petitioner that it intends to stay
permanently on property once its branch office is
opened unless the exigencies of the business
requires otherwise.

Although finding that the contract was valid, the
lower court ruled that the option to buy is
unenforceable because it lacked a consideration
distinct from the price and RCBC did not exercise its
option within the reasonable time. Upon motion for
reconsideration, however, the lower court reversed
itself on the 2nd issue, declared the contract as valid,
and ordered Serra to deliver the proper deed of sale
to RCBC. The Court of Appeals likewise affirmed said
decision.

ISSUE:

Was there a valid contract of lease with option to
buy between the parties? Was there a consideration
distinct from the price to support the option given to
RCBC?

COURT RULING:

The Supreme Court affirmed the appellate courts
decision. A contract of adhesion is one wherein a
party, usually a corporation, prepares the
stipulations in the contract, while the other party
merely affixes his signature or his "adhesion"
thereto. These types of contracts are as binding as
ordinary contracts because in reality, the party who
adheres to the contract is free to reject it entirely.

In the case at bar, the Supreme Court did not find
the situation to be inequitable because petitioner is
a highly educated man, who, at the time of the trial
was already a CPA-Lawyer, and when he entered
into the contract, was already a CPA, holding a
respectable position with the Metropolitan Manila
Commission. It is evident that a man of his stature
should have been more cautious in transactions he
enters into, particularly where it concerns valuable
properties. Also, in the present case, the
consideration is even more onerous on the part of
the lessee since it entails transferring of the building
and/or improvements on the property to petitioner,
should respondent bank fail to exercise its option
within the period stipulated.

6)) Roman vs. Grimalt
6 Phil 96
April 1906
FACTS:

In between the 13th to the 23d of June, 1904,
petitioner Pedro Roman, the owner, and respondent
Andres Grimalt, the purchaser, verbally agreed upon
the sale of the schooner Santa Marina. In his letter
on June 23, Grimalt agreed to buy the vessel and
offered to pay in three installments of P500 each on
July 15, September 15, and November 15, provided
the title papers to the vessel were in proper form.
The title of the vessel, however, was in the name of
one Paulina Giron and not in the name of Roman as
the alleged owner. Roman promised to perfect his
title to the vessel, but failed so the papers he
presented did not show that he was the owner of
the vessel. On June 25, 1904, the vessel sank in the
Manila harbor during a severe storm, even before
Roman was able to produce for Grimalt the proper
papers showing that the former was in fact the
owner of the vessel in question and not Paulina
Giron. As a result, Grimalt refused to pay the
purchase price when Roman made a demand on
June 30, 1904.

On July 2, 1904, Roman filed this complaint in the CFI
of Manila, which found that the parties had not
arrived at a definite understanding, and later
dismissed said complaint.

ISSUE:

Who should bear the risk of loss?

COURT RULING:

The Supreme Court affirmed the decision of the
lower court and declared Roman as the one who
should bear the risk of lost because there was no
actual contract of sale. If no contract of sale was
actually executed by the parties, the loss of the
vessel must be borne by its owner and not by a party
who only intended to purchase it and who was
unable to do so on account of failure on the part of
the owner to show proper title to the vessel and
thus enable them to draw up the contract of sale.
Grimalt was under no obligation to pay the price of
the vessel, the purchase of which had not been
concluded. The conversations between the parties
and the letter Grimalt had written to Roman did not
establish a contract sufficient in itself to create
reciprocal rights between the parties.

7)) EQUATORIAL REALTY V. MAYFAIR (November
21, 1996)
FACTS:
Petitioner Carmelo and Bauermann Inc. leased its
parcel of land with 2-storey building to respondent
Mayfair Theater Inc.
They entered a contract which provides that if the
LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to
purchase the same.

Carmelo informed Mayfair that it will sell the
property to Equatorial. Mayfair made known its
interest to buy the property but only to the extent of
the leased premises.
Notwithstanding Mayfairs intention, Carmelo sold
the property to Equatorial.

ISSUE:
WON the sale of the property to Equatorial is valid.

HELD:
The sale of the property should be rescinded
because Mayfair has the right of first refusal. Both
Equatorial and Carmelo are in bad faith because they
knew of the stipulation in the contract regarding the
right of first refusal.

The stipulation is a not an option contract but a right
of first refusal and as such the requirement of a
separate consideration for the option, has no
applicability in the instant case. The consideration is
built in the reciprocal obligation of the parties.

In reciprocal contract, the obligation or promise of
each party is the consideration for that of the other.
(Promise to lease in return of the right to first
refusal)

With regard to the impossibility of performance,
only Carmelo can be blamed for not including the
entire property in the right of first refusal. Court held
that Mayfair may not have the option to buy the
property. Not only the leased area but the entire
property.

8)) Norkis Distributors Inc. vs. Court of Appeals, and
Nepales
193 SCRA 694
February 1991
FACTS:

On September 20, 1979, private respondent Alberto
Nepales bought from the Norkis Distributors, Inc.
(Norkis) in its Bacolod branch a brand new Yamaha
Wonderbike motorcycle Model YL2DX with Engine
No.L2-329401K Frame No.NL2-0329401, color
maroon, which was then on display in the Norkis
showroom. The Branch Manager Avelino Labajo
agreed to accept the P7,500.00 price payable by
means of a Letter of Guaranty from the
Development Bank of the Philippines (DBP),
Kabankalan. Hence, credit was extended to Nepales,
and as security for the loan, he executed a chattel
mortgage on the motorcycle in favor of DBP. Labajo
issued the Norkis Sales Invoice No. 0120 perfecting
the contract of sale, and Nepales signed the same to
conform to the terms of the sale, while the unit
remained in Norkis' possession. On November 6,
1979, it was registered under Alberto Nepales name
in the Land Transportation Commission.

On January 22, 1980, the motorcycle was delivered
to a certain Julian Nepales who was allegedly the
agent of Alberto Nepales but the latter denies it. The
record shows, however, that Alberto and Julian
Nepales presented the unit to DBP's Appraiser-
Investigator Ernesto Arriesta at the DBP offices in
Kabankalan, Negros Occidental Branch. On February
3, 1980, the motorcycle met an accident at
Binalbagan, Negros Occidental while being driven by
a certain Zacarias Payba. The unit was a total wreck,
was returned, and stored inside Norkis' warehouse.

On March 20, 1980, DBP released the proceeds of
private respondent's motorcycle loan to Norkis in
the total sum of P7,500. As the price of the
motorcycle later increased to P7,828 in March, 1980,
Nepales paid the difference of P328 and demanded
the delivery of the motorcycle. Norkis failed to
deliver the unit, and Nepales filed an action for
specific performance with damages in the RTC of
Himamaylan, Negros Occidental. Norkis answered
that the motorcycle had already been delivered to
private respondent before the accident, hence, he
should bear the risk of loss or damage as owner of
the unit. The lower court ruled in favor of Nepales,
and the Court of Appeals affirmed the decision but
deleted the award of damages "in the amount of
P50.00 a day from February 3, 1980 until payment of
the present value of the damaged vehicle." Norkis
concedes that there was no "actual" delivery of the
vehicle, but insists that there was constructive
delivery of the unit upon the issuance of the sales
invoice, upon the registration of the unit in Nepales
name, and upon the issuance of the official receipt.

ISSUE:

Who should bear the risk of loss?

COURT RULING:

Affirming the decision of the Court of Appeals, the
Supreme Court reiterated that Article 1496 of the
Civil Code which provides that "in the absence of an
express assumption of risk by the buyer, the things
sold remain at seller's risk until the ownership
thereof is transferred to the buyer," is applicable in
the case at bar for there was neither an actual nor
constructive delivery of the thing sold.

The Court of Appeals correctly ruled that the
purpose of the execution of the sales invoice dated
September 20, 1979 and the registration of the
vehicle in the name of Alberto Nepales with the Land
Registration Commission was not to transfer the
ownership and dominion over the motorcycle to
him, but only to comply with the requirements of
the DBP for processing private respondent's
motorcycle loan. The circumstances in the case itself
more than amply rebut the disputable presumption
of delivery upon which Norkis anchors its defense to
Nepales' action.