Formation of Contract of Sale

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 166862 December 20, 2006
MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-
G.R. No. 46153 which affirmed the decision 2 of the Regional Trial Court (RTC), Branch 71, Pasig
City, in Civil Case No. 58551, and its Resolution 3 denying the motion for reconsideration filed by
petitioner Manila Metal Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City),
Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the
Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine
National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later
granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973,
petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981,
petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments
of P32,650.00, plus interests and other charges.5
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate
mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's
outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.
After due notice and publication, the property was sold at public auction on September 28, 1982 where
respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in
its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the
dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire
on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an
extension of time to redeem/repurchase the property. 8 In its reply dated August 30, 1983, respondent
PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate
action and recommendation.9
FORMATION OF CONTRACT SALE 1

In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from
February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its
request to repurchase the property on installment. 11 Meanwhile, some PNB Pasay City Branch
personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption." 12
Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June
1, 1984, and issued a new title in favor of respondent PNB. 13 Petitioner's offers had not yet been acted
upon by respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account,
and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price
of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration
expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account,
petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No.
978191 was issued to it.15
In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be
allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB
management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It
was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value.
Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise,
its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.16
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated
December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated
December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property
for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner
desire to withdraw its offer to purchase the property. 17 On February 25, 1985, petitioner, through
counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it
had already agreed to the SAMD's offer to purchase the property forP1,574,560.47, and that was why it
had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should
PNB insist on the position.18
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted
petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already
deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's
President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform
to the letter but merely indicated therein that he had received it. 20 Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent
PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment
had been accepted, respondent PNB was proscribed from increasing the purchase price of the property. 21
Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB,
however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22

On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage
and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its
cause of action for specific performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the
substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved
by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the
approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a
potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the
approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its
own will after accepting and benefiting from the substantial payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from
Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher
amount based on unilateral computation of interest rate without the consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim for damages with the following
arguments:
36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank,
plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur
litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the
plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal
suffered besmirched reputation for which defendant PNB is liable for moral damages of at
leastP50,000.00.
38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible,
exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the
public good of at least P30,000.00.23
Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force
and effect.
b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and
setting it for auction sale null and void.
c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT
NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT
No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the
back of the TCT No.37025 described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT
No. 37025described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary
damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and
fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00
and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the
premises.24
In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had
acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract
of sale was perfected between it and petitioner after the period to redeem the property had expired.
During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts. 25
The parties agreed to limit the issues to the following:
1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to
purchase the property is still valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform
with the conditions set forth by the defendant in its letter dated June 4, 1985.
3. Whether or not there is a perfected contract of sale between the parties.26
While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate
the property within 15 days from notice,27 but petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was
however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing
market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not
sell the property for less than its market value. 29 On June 21, 1993, petitioner offered to purchase the
property for P4,250,000.00 in cash.30 The offer was again rejected by respondent PNB on September
13, 1993.31
On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent
PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had
made.32 The trial court ruled that there was no perfected contract of sale between the parties; hence,
petitioner had no cause of action for specific performance against respondent. The trial court declared
that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the
terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to
repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below
the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00
remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or
earnest money.
On appeal to the CA, petitioner made the following allegations:

THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4
JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE
SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF
SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS

RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH
CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-
APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-
APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID
RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO
SUBMIT THE AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-

APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL

AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES. 33
Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it
waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No.
37025 in favor of Bayani Gabriel, one of its Directors. 34 Thereafter, Bayani Gabriel executed a Deed
of Assignment over 51% of the ownership and management of the property in favor of Reynaldo
Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued
a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting
petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.36

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC. 37 It declared that
petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53)
since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly
therefore, there was no meeting of the minds between the parties as to the price or consideration of the
sale.
The CA ratiocinated that petitioner's original offer to purchase the subject property had not been
accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically
on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper.
Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the
June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as
such, there was no contract to rescind.
According to the appellate court, the claim for damages and the counterclaim were correctly dismissed
by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30,
1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner
to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price
and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter
dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari, alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT

THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE
AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE
FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS
CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND
LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF

THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER
OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN
THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF
PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY
THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO
PERFECTED CONTRACT OF SALE.38
The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected
contract for petitioner to repurchase the property from respondent.
Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property
forP1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then
deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which
respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an
acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985,
the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this
was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no
longer unilaterally withdraw its offer to sell the property forP1,574,560.47, since the acceptance of the
offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the
original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and
deliver the property to petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted
respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer
validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains
that, although theP725,000.00 was considered as "deposit for the repurchase of the property" in the
receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of
the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio
v. Court of Appeals.40
Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its
failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was
to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of
respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the
balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the
offered price or to cause the rescission of the contract.
Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the
case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers
to repurchase the property. Such offer to compromise should not be taken against it, in accordance with
Section 27, Rule 130 of the Revised Rules of Court.
For its part, respondent contends that the parties never graduated from the "negotiation stage" as they
could not agree on the amount of the repurchase price of the property. All that transpired was an
exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the
amount and manner of payment of the price are essential elements in the formation of a binding and
enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of
"suspensive condition" signifies a future and uncertain event upon the fulfillment of which the
obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the
effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first
place, there is no basis for the application of the principles governing "suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be
classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner.
Moreover, the amount stated therein could not likewise be considered as the counter-offer since as
admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of
Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale
contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the
amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the
property. The deposit ofP725,000.00 was accepted by respondent on the condition that the purchase
price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the
amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally
claimed that respondent is already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its
authority is limited to administering, managing and preserving the properties and other special assets of
PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the
assets, since the power to do so must emanate from its Board of Directors. The SAMD was not
authorized by respondent's Board to enter into contracts of sale with third persons involving corporate
assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to
petitioner that it represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved
by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim
as of documentation date x x x payable in cash (P725,000.00 already deposited)
within 60 days from notice of approval." A new Statement of Account was attached therein indicating
the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore,
while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the
acceptance was qualified, in that it required a higher sale price and subject to specified terms and
conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating
petitioner's acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale between the parties on June
4, 1985 is correct.
A contract 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. 41 Under Article 1318 of the New Civil Code, there
is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. 42 Once perfected, they
bind other contracting parties and the obligations arising therefrom have the form of law between the
parties and should be complied with in good faith. The parties are bound not only to the fulfillment of
what has been expressly stipulated but also to the consequences which, according to their nature, may
be in keeping with good faith, usage and law.43

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. 44
The absence of any of the essential elements will negate the existence of a perfected contract of sale.
As the Court ruled in Boston Bank of the Philippines v. Manalo:45
A definite agreement as to the price is an essential element of a binding agreement to sell personal or
real property because it seriously affects the rights and obligations of the parties. Price is an essential
element in the formation of a binding and enforceable contract of sale. The fixing of the price can never
be left to the decision of one of the contracting parties. But a price fixed by one of the contracting
parties, if accepted by the other, gives rise to a perfected sale.46
A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there
is merely an offer by one party without acceptance of the other, there is no contract. 47 When the
contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.48
In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of
sale are 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 object of the contract and upon the price; and (3) consummation, which begins when
the parties perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.
A negotiation is formally initiated by an offer, which, however, must be certain. 50 At any time prior to
the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer
may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer
into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,51 the Court ruled that:
x x x The rule is that except where a formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the
offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present
intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts,
conduct, or words of a party recognizing the existence of the contract of sale.52
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of
the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to
end the negotiation between the parties on a different basis. 53 Consequently, when something is
desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms of the offer annuls the offer. 54 The
acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of
the minds.
In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since
it lacked the resources, it requested for more time to redeem/repurchase the property under such terms
and conditions agreed upon by the parties.55 The request, which was made through a letter dated

August 25, 1983, was referred to the respondent's main branch for appropriate action. 56 Before
respondent could act on the request, petitioner again wrote respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY
THOUSAND PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED
FIFTY THOUSAND PESOS (P450,000.00); and
3. The remaining balance together with the interest and other expenses that will be incurred will be paid
within the last six months of the one year grave period requested for.57
When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to
respondent's President reiterating its offer to purchase the property. 59 There was no response to
petitioner's letters dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25,
1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to
purchase the property. The statement is but a computation of the amount which petitioner was obliged to
pay in case respondent would later agree to sell the property, including interests, advances on insurance
premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept
petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's
offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan
Freight Services, Inc.:60
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs
of the corporation, but not in the course of, or connected with the performance of authorized duties of
such director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business through its Board of Directors
and through its officers and agents when authorized by a board resolution or its by-laws.61
It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to
repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to
redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the
recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended
by the SAMD and to which petitioner had previously conformed, respondent set the purchase price
at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at
most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of
sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer
reconsidered. This request for reconsideration would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was
"earnest money" which could be considered as proof of the perfection of a contract of sale under Article
1482 of the New Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
This contention is likewise negated by the stipulation of facts which the parties entered into in the trial
court:
8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated
Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47
and recommended this amount as the repurchase price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The
deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the
approval of the PNB Board.62
Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property,
in the event that respondent would approve the recommendation of SAMD for respondent to accept
petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted
the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of
all the essential elements of a contract of sale, the giving of earnest money cannot establish the
existence of a perfected contract of sale.63
It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the
offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of
respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered
the purchase price, it still declared that its acceptance was subject to the following terms and conditions:
1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached
statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60)
days from notice of approval;
2. The Bank sells only whatever rights, interests and participation it may have in the property and you
are charged with full knowledge of the nature and extent of said rights, interests and participation and
waive your right to warranty against eviction.
3. All taxes and other government imposts due or to become due on the property, as well as expenses
including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with
the execution and registration of all covering documents shall be borne by you;
4. That you shall undertake at your own expense and account the ejectment of the occupants of the
property subject of the sale, if there are any;
5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of
advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell
the property to other interested parties.

6. That the sale shall be subject to such other terms and conditions that the Legal Department may
impose to protect the interest of the Bank.64
It appears that although respondent requested petitioner to conform to its amended counter-offer,
petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's
request was ultimately rejected and respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject
property.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.
SO ORDERED.
Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur.

Panganiban, C.J., retired as of December 7, 2006.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 124791 February 10, 1999
JOSE RAMON CARCELLER, petitioner,

vs.
COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents.
QUISUMBING, J.:
Before us is a petition for review of the Decision 1 dated September 21, 1995 of the Court of Appeals 2 in CA G. R.
CV No. 37520, as well as its Resolution 3 dated April 25, 1996, denying both parties' motion for partial reconsideration
or clarification. The assailed decision affirmed with modification the judgment 4 of the Regional Trial Court of Cebu
City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:
However, We do not find it just that the appellee, in exercising his option to buy, should pay appellant
SIHI only P1,800,000.00. In fairness to appellant SIHI, the purchase price must be based on the
prevailing market price of real property in Bulacao, Cebu City. (Emphasis supplied)
The factual background of this case is quite simple.
Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two (2) parcels of land with a total
area of 9,774 square meters, including all the improvements thereon, located at Bulacao, Cebu City, covered by
Transfer Certificate of Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI entered into a lease contract with option to purchase 5 over said two parcels
of land, at a monthly rental of Ten Thousand (P10,000.00) pesos for a period of eighteen (18) months, beginning on
August 1, 1984 until January 30, 1986. The pertinent portion of the lease contract subject of the dispute reads in part:
4. As part of the consideration of this agreement, the LESSOR hereby grants unto the LESSEE the
exclusive right, option and privilege to purchase, within the lease period, the leased premises thereon
for the aggregate amount of P1,800,000.00 payable as follows:
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay
P360,000.00.
b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87

over sixty (60) consecutive months computed with interest at 24% per annum on the
diminishing balance; Provided, that the LESSEE shall have the right to accelerate
payments at anytime in which event the stipulated interest for the remaining
installments shall no longer be imposed.
x . . The option shall be exercised by a written notice to the LESSOR at anytime within the option
period and the document of sale over the afore-described properties has to be consummated within the
month immediately following the month when the LESSEE exercised his option under this contract. 6

On January 7, 1986, or approximately three (3) weeks before the expiration of the lease contract, SIHI notified
petitioner of the impending termination of the lease agreement, and of the short period of time left within which he
could still validly exercise the option. It likewise requested petitioner to advise them of his decision on the option, on
or before January 20, 1986. 7
In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986, petitioner requested for a six-
month extension of the lease contract, alleging that he needs ample time to raise sufficient funds in order to exercise
the option. To support his request, petitioner averred that he had already made a substantial investment on the property,
and had been punctual in paying his monthly rentals. 8
On February 14, 1986, SIHI notified petitioner that his request was disapproved. Nevertheless, it offered to lease the
same property to petitioner at the rate of Thirty Thousand (P30,000.00) pesos a month, for a period of one (1) year. It
further informed the petitioner of its decision to offer for sale said leased property to the general public. 9
On February 18, 1986, petitioner notified SIHI of his decision to exercise the option to purchase the property and at the
same time he made arrangements for the payment of the downpayment thereon in the amount of Three Hundred Sixty
Thousand (P360,000.00) pesos. 10
On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous stand on the latter's offer, stressing
that the period within which the option should have been exercised had already lapsed. SIHI asked petitioner to vacate
the property within ten (10) days from notice, and to pay rental and penalty due. 11
Hence, on February 28, 1986, a complaint for specific performance and damages 12 was filed by petitioner against
SIHI before the Regional Trial Court of Cebu City, to compel the latter to honor its commitment and execute the
corresponding deed of sale.
After trial, the court a quo promulgated its decision dated April 1, 1991, the dispositive portion of which reads:
In the light of the foregoing considerations, the Court hereby renders judgment in Civil Case No. CEB
4700, ordering the defendant to execute a deed of sale in favor of the plaintiff, covering the parcels of
land together with all the improvements thereon, covered by Transfer Certificates of Title Nos. 89152
and 89153 of the Registry of Deeds of Cebu City, in accordance with the lease contract executed on
January 10, 1984 between the plaintiff and the defendant, but the purchase price may be by "one shot
payment" of P1,800,000.00; and the defendant to pay attorney's fee of P20,000.00.
No damages awarded. 13
Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by way of a petition for review.
On September 21, 1995, respondent court rendered its decision, affirming the trial court's judgment, but modified the
basis for assessing the purchase price. While respondent court affirmed appellee's option to buy the property, it added
that, "the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu City." 14
Baffled by the modification made by respondent court, both parties filed a motion for reconsideration and/or
clarification, with petitioner, on one hand, praying that the prevailing market price be the value of the property in
February 1986, the time when the sale would have been consummated. SIHI, on the other hand, prayed that the market
price of the property be based on the prevailing price index at least 10 years later, that is, 1996.
Respondent court conducted further hearing to clarify the matter, but no agreement was reached by the parties. Thus,
on April 25, 1996, respondent court promulgated the assailed resolution, which denied both parties' motions, and
directed the trial court to conduct further hearings to ascertain the prevailing market value of real properties in
Bulacao, Cebu City and fix the value of the property subject of the controversy. 14a
Hence, the instant petition for review.

The fundamental issue to be resolved is, should petitioner be allowed to exercise the option to purchase the leased
property, despite the alleged delay in giving the required notice to private respondent?
An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified
conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the
option, not to enter into the principal contract with any other person during the period designated, and, within that
period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the
option. 15 It is a separate agreement distinct from the contract which the parties may enter into upon the consummation
of the option. 16
Considering the circumstances in this case, we find no reason to disturb the findings of respondent court, that
petitioner's letter to SIHI, dated January 15, 1986, was fair notice to the latter of the former's intent to exercise the
option, despite the request for the extension of the lease contract. As stated in said letter to SIHI, petitioner was
requesting for an extension (of the contract) for six months "to allow us to generate sufficient funds in order to exercise
our option to buy the subject property". 17 The analysis by the Court of Appeals of the evidence on record and the
process by which it arrived at its findings on the basis thereof, impel this Court's assent to said findings. They are
consistent with the parties' primary intent, as hereafter discussed, when they executed the lease contract. As respondent
court ruled:
We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily, We are in
accord with the trial court that he should be allowed to exercise his option to purchase the lease
property. In fact, SIHI will not be prejudiced. A contrary ruling, however, will definitely cause
damage to the appellee, it appearing that he has introduced considerable improvements on the
property and has borrowed huge loan from the Technology Resources Center. 17a
The contracting parties' primary intent in entering into said lease contract with option to purchase confirms, in our
view, the correctness of respondent court's ruling. Analysis and construction, however, should not be limited to the
words used in the contract, as they may not accurately reflect the parties' true intent. The reasonableness of the result
obtained, after said analysis, ought likewise to be carefully considered.
It is well-settled in both law and jurisprudence, that contracts are the law between the contracting parties and should be
fulfilled, if their terms are clear and leave no room for doubt as to the intention of the contracting parties. 18 Further, it
is well-settled that in construing a written agreement, the reason behind and the circumstances surrounding its
execution are of paramount importance. Sound construction requires one to be placed mentally in the situation
occupied by the parties concerned at the time the writing was executed. Thereby, the intention of the contracting parties
could be made to prevail, because their agreement has the force of law between them. 19
Moreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations
provided for in the contract be construed together, consistent with the parties' contemporaneous and subsequent acts as
regards the execution of the contract. 20 And once the intention of the parties has been ascertained, that element is
deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms.
As sufficiently established during the trial, SIHI, prior to its negotiation with petitioner, was already beset with
financial problems. SIHI was experiencing difficulty in meeting the claims of its creditors. Thus, in order to reprogram
the company's financial investment plan and facilitate its rehabilitation and viability, SIHI, being a quasi-banking
financial institution, had been placed under the supervision and control of the Central Bank (CB). It was in dire need of
liquidating its assets, so to speak, in order to stay afloat financially.
Thus, SIHI was compelled to dispose some of its assets, among which is the subject leased property, to generate
sufficient funds to augment its badly-depleted financial resources. This then brought about the execution of the lease
contract with option to purchase between SIHI and the petitioner.
The lease contract provided that to exercise the option, petitioner had to send a letter to SIHI, manifesting his intent to
exercise said option within the lease period ending January 30, 1986. However, what petitioner did was to request on

January 15, 1986, for a six-month extension of the lease contract, for the alleged purpose of raising funds intended to
purchase the property subject of the option. It was only after the request was denied on February 14, 1986, that
petitioner notified SIHI of his desire to exercise the option formally. This was by letter dated February 18, 1986. In
private respondent's view, there was already a delay of 18 days, fatal to petitioner's cause. But respondent court found
the delay neither "substantial" nor "fundamental" and did not amount to a breach that would defeat the intention of the
parties when they executed the lease contract with option to purchase. 20a
In allowing petitioner to exercise the option, however, both lower courts are in accord in their decision, rationalizing
that a contrary ruling would definitely cause damage to the petitioner, as he had the whole place renovated to make the
same suitable and conducive for the business he established there. Moreover, judging from the subsequent acts of the
parties, it is undeniable that SIHI really intended to dispose of said leased property, which petitioner indubitably
intended to buy.
SIHI's agreement to enter first into a lease contract with option to purchase with herein petitioner, is a clear proof of its
intent to promptly dispose said property although the full financial returns may materialize only in a year's time.
Furthermore, its letter dated January 7, 1986, reminding the petitioner of the short period of time left within which to
consummate their agreement, clearly showed its desire to sell that property. Also, SIHI's letter dated February 14, 1986
supported the conclusion that it was bent on disposing said property. For this letter made mention of the fact that, "said
property is now for sale to the general public".
Petitioner's determination to purchase said property is equally indubitable. He introduced permanent improvements on
the leased property, demonstrating his intent to acquire dominion in a year's time. To increase his chances of acquiring
the property, he secured an P8 Million loan from the Technology Resources Center (TRC), thereby augmenting his
capital. He averred that he applied for a loan since he planned to pay the purchase price in one single payment, instead
of paying in installment, which would entail the payment of additional interest at the rate of 24% per annum, compared
to 73/4% per annum interest for the TRC loan. His letter earlier requesting extension was premised, in fact, on his need
for time to secure the needed financing through a TRC loan.
In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement, which is the law
between them. 21 Note that by contract SIHI had given petitioner 4 periods: (a) the option to purchase the property for
P1,800,000.00 within the lease period, that is, until January 30, 1986; (b) the option to be exercised within the option
period by written notice at anytime; (c) the "document of sale . . . to be consummated within the month immediately
following the month" when petitioner exercises the option; and (d) the payment in equal installments of the purchase
price over a period of 60 months. In our view, petitioner's letter of January 15, 1986 and his formal exercise of the
option on February 18, 1986 were within a reasonable time-frame consistent with periods given and the known intent
of the parties to the agreement dated January 10, 1985. A contrary view would be harsh and inequituous indeed.
In Tuason, Jr., etc. vs. De Asis, 22 this Court opined that "in a contract of lease, if the lessor makes an offer to the
lessee to purchase the property on or before the termination of the lease, and the lessee fails to accept or make the
purchase on time, the lessee losses the right to buy the property later on the terms and conditions set in the offer."
Thus, on one hand, petitioner herein could not insist on buying the said property based on the price agreed upon in the
lease agreement, even if his option to purchase it is recognized. On the other hand, SIHI could not take advantage of
the situation to increase the selling price of said property by nearly 90% of the original price. Such leap in the price
quoted would show an opportunistic intent to exploit the situation as SIHI knew for a fact that petitioner badly needed
the property for his business and that he could afford to pay such higher amount after having secured an P8 Million
loan from the TRC. If the courts were to allow SIHI to take advantage of the situation, the result would have been an
injustice to petitioner, because SIHI would be unjustly enriched at his expense. Courts of law, being also courts of
equity, may not countenance such grossly unfair results without doing violence to its solemn obligation to administer
fair and equal justice for all.
WHEREFORE, the appealed decision of respondent court, insofar as it affirms the judgment of the trial court in
granting petitioner the opportunity to exercise the option to purchase the subject property, is hereby AFFIRMED.
However the purchase price should be based on the fair market value of real property in Bulacao, Cebu City, as of
February 1986, when the contract would have been consummated. Further, petitioner is hereby ordered to pay private
respondent SIHI legal interest on the said purchase price beginning February 1986 up to the time it is actually paid, as

well as the taxes due on said property, considering that petitioner have enjoyed the beneficial use of said property. The
case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for further proceedings to determine promptly the
fair market value of said real property as of February 1986, in Bulacao, Cebu City.
Costs against private respondent.
SO ORDERED.
Bellosillo, Puno, Mendoza and Buena, JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 134971 March 25, 2004
HERMINIO TAYAG, petitioner,

vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA
LACSON-ESPINOSA and THE COURT OF APPEALS, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 and the Resolution2 of respondent Court
of Appeals in CA-G.R. SP No. 44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, Antonio, Juan, and
Teodosia, all surnamed Lacson, were the registered owners of three parcels of land located in
Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R, and
35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were
tenanted agricultural lands,4 were administered by Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa,
Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun,
Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo
Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores,
and Aurelio Flores,5 individually executed in favor of the petitioner separate Deeds of Assignment6 in
which the assignees assigned to the petitioner their respective rights as tenants/tillers of the landholdings
possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was
made payable "when the legal impediments to the sale of the property to the petitioner no longer
existed." The petitioner was also granted the exclusive right to buy the property if and when the
respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim,
the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued
receipts for the said amounts.
On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the
implementation of the terms of their separate agreements.7 However, on August 8, 1996, the
defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not attending the
meeting and instead gave notice of their collective decision to sell all their rights and interests, as

tenants/lessees, over the landholding to the respondents.8 Explaining their reasons for their collective
decision, they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi
tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng
demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang
sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong magiging katangahan kung ibebenta
pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo
ang aming pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando,
Pampanga, Branch 44, against the defendants-tenants, as well as the respondents, for the court to fix a
period within which to pay the agreed purchase price of P50.00 per square meter to the defendants, as
provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction
against the defendants and the respondents therein.10 The case was docketed as Civil Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana,
Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are
original farmers or direct tillers of landholdings over parcels of lands covered by Transfer Certificate of
Title Nos. 35922-R, 35923-R and 35925-R which are registered in the names of defendants LACSONS;
while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores
are sub-tenants over the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the
plaintiff by which the defendants assigned all their rights and interests on their landholdings to the
plaintiff and that on the same date (March 17, 1996), the defendants received from the plaintiff partial
payments in the amounts corresponding to their names. Subsequent payments were also received:
2nd
CHECK
1st PAYMENT PAYMEN TOTAL
NO.
T
P
1.Julio Tiamson - - - - - - P 20,000 231281 P 30,621.54
10,621.54
2. Renato Gozun - - - - - -
P 10,000 96,000 106,000.00
[son of Felix Gozun (deceased)]
3. Rosita Hernandez - - - - P 5,000 14,374.24 231274 P 19,374.24
4. Bienvenido Tongol - - -
P 10,000 14,465.90 231285 24,465.90
[Son of Abundio Tongol (deceased)]

5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271 56,648.40
6. Norma Quiambao - - - - P 10,000 41,501.10 231279 51,501.10
7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284 32,126.08
8. Jose Sosa - - - - - - - - - P 10,000 14,861.31 231291 24,861.31
9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283 34,237.62
10. Emiliano Laxamana - - P 10,000 ------ ------ ------
11. Ruben Torres - - - - - - P
P 10,000 ------ P 43,587.31
[Son of Mariano Torres (deceased)] 33,587.31
12. Meliton Allanigue P 10,000 12,944.77 231269 P 22,944.77
13. Dominga Laxamana P 5,000 22,269.02 231275 27,269.02
14. Felicencia de Leon 10,000 ------ ------ ------
15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60
16. Felino G. Tolentino 10,000 ------ ------ ------
17. Rica Gozun 5,000 ------ ------ ------
18. Perla Gozun 10,000 ------ ------ ------
19. Benigno Tolentino 10,000 ------ ------ ------
20. Rodolfo Quiambao 10,000 ------ ------ ------
21. Roman Laxamana 10,000 ------ ------ ------
22. Eddie San Luis 10,000 ------ ------ ------
23. Ricardo Hernandez 10,000 ------ ------ ------
24. Nicenciana Miranda 10,000 ------ ------ ------
25. Jose Gozun 10,000 ------ ------ ------
26. Alfredo Sosa 5,000 ------ ------ ------
27. Jose Tiamson 10,000 ------ ------ ------
28. Augusto Tolentino 5,000 ------ ------ ------
29. Sixto Hernandez 10,000 ------ ------ ------
30. Alex Quiambao 10,000 ------ ------ ------
31. Isidro Tolentino 10,000 ------ ------ ------
32. Ceferino de Leon ------ 11,378.70 231270 ------
33. Alberto Hernandez 10,000 ------ ------ ------
34. Orlando Florez 10,000 ------ ------ ------
35. Aurelio Flores 10,000 ------ ------ ------
6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for a
meeting regarding the negotiations/implementations of the terms of their Deeds of Assignment;
7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they
are no longer willing to pursue with the negotiations, and instead they gave notice to the plaintiff that
they will sell all their rights and interests to the registered owners (defendants LACSONS).
A copy of the letter is hereto attached as Annex "A" etc.;
8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON or with
any third persons while their contracts with the plaintiff are subsisting; defendants LACSONS are
inducing or have induced the defendants TIAMSON, et. al., to violate their contracts with the plaintiff;
9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the
forms of mental anguish, mental torture and serious anxiety which in the sum of P500,000.00 for which
defendants should be held liable jointly and severally.11
In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his
complaint:
11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from
rescinding their contracts with the plaintiff, and the defendants LACSONS should also be restrained
from accepting any offer of sale or alienation with the defendants TIAMSON, et al., in whatever form,
the latters rights and interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS
should be restrained from encumbering/alienating the subject properties covered by TCT No. 35922-R,
35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando, Pampanga;
12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are
also bent on selling/alienating their rights and interests over the subject properties to their co-defendants
(LACSONS) or any other persons to the damage and prejudice of the plaintiff who already invested
much money, efforts and time in the said transactions;
13. That the plaintiff is entitled to the reliefs being demanded in the complaint;
14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and
adequate remedy under the ordinary course of law, it is essential that a Writ of Preliminary Injunction be
issued enjoining and restraining the defendants TIAMSON, et al., from rescinding their contracts with
the plaintiff and from selling/alienating their properties to the LACSONS or other persons;
15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which
the defendants would suffer should the injunction prayed for and granted be found without basis.12
The petitioner prayed, that after the proceedings, judgment be rendered as follows:
1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining
defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores,
Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana, Ruben
Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G.
Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie
San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto
Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding
their contracts with the plaintiff and from alienating their rights and interest over the aforementioned
properties in favor of defendants LACSONS or any other third persons; and prohibiting the defendants
LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of
Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a
restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.) from
rescinding their contracts with the plaintiff and from alienating the subject properties to the defendants
LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the
Registry of Deeds of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants
TIAMSON, et al., after the lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorneys fees in the sum of P100,000.00 plus litigation
expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable under the premises.13
In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica
Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants were tenants/lessees of
respondents, but the tenancy status of the rest of the defendants was uncertain; (c) they never induced
the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely tenants-
tillers, the defendants-tenants had no right to enter into any transactions involving their properties
without their knowledge and consent. They also averred that the transfers or assignments of leasehold
rights made by the defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27
and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).14 The respondents
interposed counterclaims for damages against the petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages, that the
money each of them received from the petitioner were in the form of loans, and that they were deceived
into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as
they are material and relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew
that what they did sign is a Deed of Assignment. What they knew was that they were made to sign a
document that will serve as a receipt for the loan granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the employment of fraud, deceit and false
pretenses of plaintiff and made the defendants believe that what they sign[ed] was a mere receipt for
amounts received by way of loans;

d) That the documents signed in blank were filled up and completed after the defendants Tiamson, et al.,
signed the documents and their completion and accomplishment was done in the absence of said
defendants and, worst of all, defendants were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign
all their rights and interests in the properties or landholdings they were tilling in favor of the plaintiff.
That if this is so, assuming arguendo that the documents were voluntarily executed, the defendants
Tiamson, et al., do not have any right to transfer their interest in the landholdings they are tilling as they
have no right whatsoever in the landholdings, the landholdings belong to their co-defendants, Lacson, et
al., and therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs,
the same were received as approved loans granted by plaintiff to the defendants Tiamson, et al., and not
as part consideration of the alleged Deeds of Assignment; and by way of:15
At the hearing of the petitioners plea for a writ of preliminary injunction, the respondents counsel
failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner adduced in
evidence the Deeds of Assignment,16 the receipts17 issued by the defendants-tenants for the amounts
they received from him; and the letter18 the petitioner received from the defendants-tenants. The
petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioners plea for injunctive
relief on the following grounds: (a) the Deeds of Assignment executed by the defendants-tenants were
contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to prove that
the respondents induced the defendants-tenants to renege on their obligations under the "Deeds of
Assignment;" (c) not being privy to the said deeds, the respondents are not bound by the said deeds;
and, (d) the respondents had the absolute right to sell and dispose of their property and to encumber the
same and cannot be enjoined from doing so by the trial court.
The petitioner opposed the motion, contending that it was premature for the trial court to resolve his
plea for injunctive relief, before the respondents and the defendants-tenants adduced evidence in
opposition thereto, to afford the petitioner a chance to adduce rebuttal evidence and prove his
entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the
petitioner to establish the requisites of a writ of preliminary injunction without any evidence on their
part, and that they were not bound to adduce any evidence in opposition to the petitioners plea for a
writ of preliminary injunction.
On February 13, 1997, the court issued an Order19 denying the motion of the respondents for being
premature. It directed the hearing to proceed for the respondents to adduce their evidence. The court
ruled that the petitioner, on the basis of the material allegations of the complaint, was entitled to
injunctive relief. It also held that before the court could resolve the petitioners plea for injunctive relief,
there was need for a hearing to enable the respondents and the defendants-tenants to adduce evidence to
controvert that of the petitioner. The respondents filed a motion for reconsideration, which the court
denied in its Order dated April 16, 1997. The trial court ruled that on the face of the averments of the
complaint, the pleadings of the parties and the evidence adduced by the petitioner, the latter was entitled
to injunctive relief unless the respondents and the defendants-tenants adduced controverting evidence.

The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the
nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The case was
docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that:
1. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16,
1997 as null and void;
2. An order be issued directing the respondent court to issue an order denying the application of
respondent Herminio Tayag for the issuance of a Writ of Preliminary Injunction and/or restraining order.
3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting
it from issuing its own writ of injunction against Petitioners, and thereafter making said injunction to be
issued by this Court permanent.
Such other orders as may be deemed just & equitable under the premises also prayed for.20
The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the
petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of Section 70 of Rep.
Act No. 6657, and, as such, could not be enforced by the petitioner for being null and void. The
respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening
condition:
3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal
impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the
name of the ASSIGNEE.21
The respondents argued that until such condition took place, the petitioner would not acquire any right
to enforce the deeds by injunctive relief. Furthermore, the petitioners plea in his complaint before the
trial court, to fix a period within which to pay the balance of the amounts due to the tenants under said
deeds after the "lapse" of any legal impediment, assumed that the deeds were valid, when, in fact and in
law, they were not. According to the respondents, they were not parties to the deeds of assignment;
hence, they were not bound by the said deeds. The issuance of a writ of preliminary injunction would
restrict and impede the exercise of their right to dispose of their property, as provided for in Article 428
of the New Civil Code. They asserted that the petitioner had no cause of action against them and the
defendants-tenants.
On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and
setting aside the assailed orders of the trial court; and permanently enjoining the said trial court from
proceeding with Civil Case No. 10901. The decretal portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive relief he demands in the lower court still
he could avail of other course of action in order to protect his interest such as the institution of a simple
civil case of collection of money against TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby
NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of discretion amounting
to lack or excess of jurisdiction. Accordingly, public respondent is permanently enjoined from
proceeding with the case designated as Civil Case No. 10901.22

The CA ruled that the respondents could not be enjoined from alienating or even encumbering their
property, especially so since they were not privies to the deeds of assignment executed by the
defendants-tenants. The defendants-tenants were not yet owners of the portions of the landholdings
respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled
that the deeds of assignment executed by the defendants-tenants were contrary to P.D. No. 27 and Rep.
Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioners motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows:
A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE

USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS
ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT
(RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION

FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC)
IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR
NOT THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED FOR BY
TAYAG SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO

SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET "AWARDEES
OF THE LAND REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF

THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS
OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE
PROPRIETY OF MAINTAINING THE STATUS QUO.27
THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF

THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF
THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL
PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR,
AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY
TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF THE NEW CIVIL CODE
AND FOR "DAMAGES" AGAINST THE LACSONS UNDER ART. 1314 OF THE
SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED
NUGATORY UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding
with Civil Case No. 10910. He opines that the same was too drastic, tantamount to a dismissal of the
case. He argues that at that stage, it was premature for the appellate court to determine the merits of the
case since no evidentiary hearing thereon was conducted by the trial court. This, the Court of Appeals
cannot do, since neither party moved for the dismissal of Civil Case No. 10910. The petitioner points
out that the Court of Appeals, in making its findings, went beyond the issue raised by the private
respondents, namely, whether or not the trial court committed a grave abuse of discretion amounting to
excess or lack of jurisdiction when it denied the respondents motion for the denial/dismissal of the
petitioners plea for a writ of preliminary injunction. He, likewise, points out that the appellate court
erroneously presumed that the leaseholders were not DAR awardees and that the deeds of assignment
were contrary to law. He contends that leasehold tenants are not prohibited from conveying or waiving
their leasehold rights in his favor. He insists that there is nothing illegal with his contracts with the
leaseholders, since the same shall be effected only when there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to
determine the merits of his case since no evidentiary hearing on the merits of his complaint had yet been
conducted by the trial court.
The Comment/Motion of the

Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioners
plea for a writ of preliminary injunction after the petitioner had adduced his evidence, testimonial and
documentary, and had rested his case on the incident, was proper and timely. It bears stressing that the
petitioner had the burden to prove his right to a writ of preliminary injunction. He may rely solely on the
material allegations of his complaint or adduce evidence in support thereof. The petitioner adduced his
evidence to support his plea for a writ of preliminary injunction against the respondents and the
defendants-tenants and rested his case on the said incident. The respondents then had three options: (a)
file a motion to deny/dismiss the motion on the ground that the petitioner failed to discharge his burden
to prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial court
denies his motion, for them to adduce evidence in opposition to the petitioners plea; (b) forgo their
motion and adduce testimonial and/or documentary evidence in opposition to the petitioners plea for a
writ of preliminary injunction; or, (c) waive their right to adduce evidence and submit the incident for
consideration on the basis of the pleadings of the parties and the evidence of the petitioner. The
respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the
petitioners plea for a writ of preliminary injunction against them, on their claim that the petitioner
failed to prove his entitlement thereto. The trial court cannot compel the respondents to adduce evidence
in opposition to the petitioners plea if the respondents opt to waive their right to adduce such evidence.
Thus, the trial court should have resolved the respondents motion even without the latters opposition
and the presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of
preliminary injunction against the respondents on the basis of the material averments of the complaint.
In its April 16, 1997 Order, the trial court denied the respondents motion for reconsideration of the
previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based on
the material allegations of his complaint, the evidence on record, the pleadings of the parties, as well as
the applicable laws:
For the record, the Court denied the LACSONS COMMENT/MOTION on the basis of the facts
culled from the evidence presented, the pleadings and the law applicable unswayed by the partisan or
personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ
of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of
things ante litem and is generally availed of to prevent actual or threatened acts, until the merits of the
case can be heard. Injunction is accepted as the strong arm of equity or a transcendent remedy.31 While
generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court
taking cognizance of the case, extreme caution must be observed in the exercise of such
discretion.32 Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise of which is more delicate, which
requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than
the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases
of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the
defendant and should not be granted lightly or precipitately. It should be granted only when the court is
fully satisfied that the law permits it and the emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause of
action and in the probability of irreparable injury, inadequacy of pecuniary compensation and the
prevention of the multiplicity of suits. Where facts are not shown to bring the case within these
conditions, the relief of injunction should be refused.35
For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the
following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that
right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious
damage.36 Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a
grave abuse of discretion. Where the complainants right is doubtful or disputed, injunction is not
proper. Injunction is a preservative remedy aimed at protecting substantial rights and interests. It is not
designed to protect contingent or future rights. The possibility of irreparable damage without proof of
adequate existing rights is not a ground for injunction.37
We have reviewed the pleadings of the parties and found that, as contended by the respondents, the
petitioner failed to establish the essential requisites for the issuance of a writ of preliminary injunction.
Hence, the trial court committed a grave abuse of its discretion amounting to excess or lack of
jurisdiction in denying the respondents comment/motion as well as their motion for reconsideration.
First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling,
disposing of and encumbering their property. As the registered owners of the property, the respondents
have the right to enjoy and dispose of their property without any other limitations than those established
by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property is the
power of the owner to sell, encumber, transfer, and even destroy the property. Ownership also includes
the right to recover the possession of the property from any other person to whom the owner has not
transmitted such property, by the appropriate action for restitution, with the fruits, and for
indemnification for damages.38 The right of ownership of the respondents is not, of course, absolute. It
is limited by those set forth by law, such as the agrarian reform laws. Under Article 1306 of the New
Civil Code, the respondents may enter into contracts covering their property with another under such
terms and conditions as they may deem beneficial provided they are not contrary to law, morals, good
conduct, public order or public policy.
The respondents cannot be enjoined from selling or encumbering their property simply and merely
because they had executed Deeds of Assignment in favor of the petitioner, obliging themselves to assign
and transfer their rights or interests as agricultural farmers/laborers/sub-tenants over the landholding,
and granting the petitioner the exclusive right to buy the property subject to the occurrence of certain
conditions. The respondents were not parties to the said deeds. There is no evidence that the respondents
agreed, expressly or impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed,
they assailed the validity of the said deeds on their claim that the same were contrary to the letter and
spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he testified that he did
not know any of the respondents, and that he had not met any of them before he filed his complaint in
the RTC. He did not even know that one of those whom he had impleaded as defendant, Angelica Vda.
de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of the United States?
A: I do not know, sir.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against petitioners. As owners of the
lands being tilled by TIAMSON, et al., petitioners, under the law, have the right to enjoy and dispose of
the same. Thus, they have the right to possess the lands, as well as the right to encumber or alienate
them. This principle of law notwithstanding, private respondent in the lower court sought to restrain the
petitioners from encumbering and/or alienating the properties covered by TCT No. 35922-R, 35923-R
and TCT No. 35925-R of the Registry of Deeds of San Fernando, Pampanga. This cannot be allowed to
prosper since it would constitute a limitation or restriction, not otherwise established by law on their
right of ownership, more so considering that petitioners were not even privy to the alleged transaction
between private respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that the petitioner clearly has no cause of
action against the respondents for the principal relief prayed for therein, for the trial court to fix a period
within which to pay to each of the defendants-tenants the balance of the P50.00 per square meter, the
consideration under the Deeds of Assignment executed by the defendants-tenants. The respondents are
not parties or privies to the deeds of assignment. The matter of the period for the petitioner to pay the
balance of the said amount to each of the defendants-tenants is an issue between them, the parties to the
deed.
Third. On the face of the complaint, the action of the petitioner against the respondents and the
defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation of the petitioner to
pay to each of the defendants-tenants the balance of the purchase price was conditioned on the
occurrence of the following events: (a) the respondents agree to sell their property to the petitioner; (b)
the legal impediments to the sale of the landholding to the petitioner no longer exist; and, (c) the
petitioner decides to buy the property. When he testified, the petitioner admitted that the legal
impediments referred to in the deeds were (a) the respondents refusal to sell their property; and, (b) the
lack of approval of the Department of Agrarian Reform:
Q : There is no specific agreement prior to the execution of those documents as when they will pay?
A : We agreed to that, that I will pay them when there are no legal impediment, sir.
Q : Many of the documents are unlattered (sic) and you want to convey to this Honorable Court that
prior to the execution of these documents you have those tentative agreement for instance that the
amount or the cost of the price is to be paid when there are no legal impediment, you are using the word
"legal impediment," do you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the unlettered
defendants?
A : We have agreed to that, sir.

ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted
it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to
sell their shares to me or to us it would be hard to (sic) me to pay them in full. And those covered by
DAR. I explain[ed] to them and it was clearly stated in the title that there is [a] prohibited period of time
before you can sell the property. I explained every detail to them.41
It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to
the defendants-tenants the balance of the P50.00 per square meter under the deeds of assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the
ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR shall receive
the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled and
possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR including
commissions, taxes and all allowable deductions relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal
impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the
name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the
fruits/earnings and/or harvest of the said lot until such time that full payment of the agreed purchase
price had been made by the ASSIGNEE.42
There is no showing in the petitioners complaint that the respondents had agreed to sell their property,
and that the legal impediments to the agreement no longer existed. The petitioner and the defendants-
tenants had yet to submit the Deeds of Assignment to the Department of Agrarian Reform which, in
turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner in his
complaint, he was yet to meet with the defendants-tenants to discuss the implementation of the deeds of
assignment. Unless and until the Department of Agrarian Reform approved the said deeds, if at all, the
petitioner had no right to enforce the same in a court of law by asking the trial court to fix a period
within which to pay the balance of the purchase price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the deeds of assignment executed by the
defendants-tenants are perfected option contracts.43 An option is a contract by which the owner of the
property agrees with another person that he shall have the right to buy his property at a fixed price
within a certain time. It is a condition offered or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or
in compliance with certain terms and conditions, or which gives to the owner of the property the right to
sell or demand a sale. It imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.44 The
second party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to
call for and receive lands if he elects.45 An option contract is a separate and distinct contract from
which the parties may enter into upon the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner
not only an option but the exclusive right to buy the landholding. But the grantors were merely the
defendants-tenants, and not the respondents, the registered owners of the property. Not being the
registered owners of the property, the defendants-tenants could not legally grant to the petitioner the
option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT
QUOD NON HABET."
Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation that the
latter induced or are inducing the defendants-tenants to violate the deeds of assignment, contrary to the
provisions of Article 1314 of the New Civil Code which reads:
Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to
the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the pleader is burdened to
prove the following: (1) the existence of a valid contract; (2) knowledge by the third person of the
existence of the contract; and (3) interference by the third person in the contractual relation without
legal justification.
Where there was no malice in the interference of a contract, and the impulse behind ones conduct lies
in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer.
Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot
be said that he is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or
malicious intermeddler. The only evidence adduced by the petitioner to prove his claim is the letter from
the defendants-tenants informing him that they had decided to sell their rights and interests over the
landholding to the respondents, instead of honoring their obligation under the deeds of assignment
because, according to them, the petitioner harassed those tenants who did not want to execute deeds of
assignment in his favor, and because the said defendants-tenants did not want to have any problem with
the respondents who could cause their eviction for executing with the petitioner the deeds of assignment
as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49 The defendants-tenants did
not allege therein that the respondents induced them to breach their contracts with the petitioner. The

petitioner himself admitted when he testified that his claim that the respondents induced the defendants-
assignees to violate contracts with him was based merely on what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the
Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of
fact, that is the reason why they sent me letter that they will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the
authority to sell the property.50
Even if the respondents received an offer from the defendants-tenants to assign and transfer their rights
and interests on the landholding, the respondents cannot be enjoined from entertaining the said offer, or
even negotiating with the defendants-tenants. The respondents could not even be expected to warn the
defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act No. 6657.
Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of,
or abandoned their land, are disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants
execute the Deeds of Assignment in his favor was to acquire the landholding without any tenants
thereon, in the event that the respondents agreed to sell the property to him. The petitioner knew that
under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the defendants-
tenants shall have preferential right to buy the same under reasonable terms and conditions:
SECTION 11. Lessees Right of Pre-emption. In case the agricultural lessor desires to sell the
landholding, the agricultural lessee shall have the preferential right to buy the same under reasonable
terms and conditions: Provided, That the entire landholding offered for sale must be pre-empted by the
Land Authority if the landowner so desires, unless the majority of the lessees object to such acquisition:
Provided, further, That where there are two or more agricultural lessees, each shall be entitled to said
preferential right only to the extent of the area actually cultivated by him. 51
Under Section 12 of the law, if the property was sold to a third person without the knowledge of the
tenants thereon, the latter shall have the right to redeem the same at a reasonable price and
consideration. By assigning their rights and interests on the landholding under the deeds of assignment
in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a
beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep.
Act No. 3844. The defendants-tenants would then have to vacate the property in favor of the petitioner
upon full payment of the purchase price. Instead of acquiring ownership of the portions of the
landholding respectively tilled by them, the defendants-tenants would again become landless for a
measly sum of P50.00 per square meter. The petitioners scheme is subversive, not only of public policy,
but also of the letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to take
effect in the future or ten years hence is not a justification. The respondents may well argue that the
agrarian laws had been violated by the defendants-tenants and the petitioner by the mere execution of
the deeds of assignment. In fact, the petitioner has implemented the deeds by paying the defendants-
tenants amounts of money and even sought their immediate implementation by setting a meeting with

the defendants-tenants. In fine, the petitioner would not wait for ten years to evict the defendants-
tenants. For him, time is of the essence.
The Appellate Court Erred

In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioners contention that the appellate court erred when it permanently enjoined the
RTC from continuing with the proceedings in Civil Case No. 10910. The only issue before the appellate
court was whether or not the trial court committed a grave abuse of discretion amounting to excess or
lack of jurisdiction in denying the respondents motion to deny or dismiss the petitioners plea for a writ
of preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from
further proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the
petitioner may still amend his complaint, and the respondents and the defendants-tenants may file
motions to dismiss the complaint. By permanently enjoining the trial court from proceeding with Civil
Case No. 10910, the appellate court acted arbitrarily and effectively dismissed the complaint motu
proprio, including the counterclaims of the respondents and that of the defendants-tenants. The
defendants-tenants were even deprived of their right to prove their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the
Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is
AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the RTC
from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional
Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with the proceedings in
Civil Case No. 10910 as provided for by the Rules of Court, as amended.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 97332 October 10, 1991
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,

vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES AND
ROBERTO REYES,respondents.
Tranquilino F. Meris for petitioners.
Agripino G. Morga for private respondents.
MEDIALDEA, J.:p
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 24176
entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria
Labing-isa Reyes and Roberto Reyes, Defendants-Appellants," which reversed the decision of the
Regional Trial Court (Branch 121) at Caloocan City in Civil Case No. C-12942.
The facts of the case are as follows:
Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City, as
evidenced by Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.
In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and Marina and
Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses
which amount was deducted from the total purchase price of the 300 square meter lot sold. The portion
sold to the Villamor spouses is now covered by TCT No. 39935 while the remaining portion which is
still in the name of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5 and 7, Complaint). On
November 11, 1971, Macaria executed a "Deed of Option" in favor of Villamor in which the remaining
300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the conditions
stated therein. The document reads:
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of November, 1971,
by and between Macaria Labing-isa, of age, married to Roberto Reyes, likewise of age, and both
resideing on Reparo St., Baesa, Caloocan City, on the one hand, and on the other hand the spouses Julio
Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St., corner Baesa Road,
Baesa, Caloocan City.

WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of 600 square
meters, more or less, more particularly described in TCT No. (18431) 18938 of the Office of the
Register of Deeds for the province of Rizal, issued in may name, I having inherited the same from my
deceased parents, for which reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid
spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which was greatly
higher than the actual reasonable prevailing value of lands in that place at the time, which portion, after
segregation, is now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
issued on August 17, 1971 in the name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the
said one-half portion at the above-stated price of about P70.00 per square meter, is because I, and my
husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still
owned by me and now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor
and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement
may be found the thereon;
That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon
the property covered thereby, upon payment of the corresponding fees; and
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of
this Deed of Option.
IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the
persons concerned, this 11th day of November, 1971.
JULIO VILLAMOR MACARIA LABINGISA
With My Conformity:
MARINA VILLAMOR ROBERTO REYES
Signed in the Presence Of:
MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA ) S.S.
At the City of Manila, on the 11th day of November, 1971, personally appeared before me Roberto
Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura-Villamor, known to me as the same
persons who executed the foregoing Deed of Option, which consists of two (2) pages including the page
whereon this acknowledgement is written, and signed at the left margin of the first page and at the
bottom of the instrument by the parties and their witnesses, and sealed with my notarial seal, and said
parties acknowledged to me that the same is their free act and deed. The Residence Certificates of the
parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971,
and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-
1266104, both issued at Caloocan City on April 15, 1971, their joint Tax Acct. Number being 3028-767-
6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1,
1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax Acct.
Number being 608-202-6.
ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971
Doc. No. 1526;

Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the
lot sold by them to the Villamor spouses but Marina Villamor refused and reminded them instead that
the Deed of Option in fact gave them the option to purchase the remaining portion of the lot.
The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining
300 square meter portion of the lot but the Reyeses had been ignoring them. Thus, on July 13, 1987,
after conciliation proceedings in the barangay level failed, they filed a complaint for specific
performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the
dispositive portion of which states:
WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs
and against the defendants ordering the defendant MACARIA LABING-ISA REYES and ROBERTO
REYES, to sell unto the plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's fees and to pay the cost of
suit.
The counterclaim is hereby DISMISSED, for LACK OF MERIT.
SO ORDERED. (pp. 24-25, Rollo)
Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on
the following assignment of errors:
1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN
THE PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS IS STILL VALID AND

BINDING DESPITE THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE
EXECUTION OF THE CONTRACT;
2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND
STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES
WHO UNILATERALLY DRAFTED AND PREPARED THE SAME;
3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND
PURPOSE OF THE PARTIES DESPITE ADVERSE, CONTEMPORANEOUS AND SUBSEQUENT
ACTS OF THE PLAINTIFF-APPELLEES;
4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR

IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE DEED OF OPTION;
5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE

DEFENDANT-APPELLANTS; and
6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE

AMOUNT OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court
and dismissing the complaint. The reversal of the trial court's decision was premised on the finding of
respondent court that the Deed of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari on the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE WHENEVER
THE NEED FOR SUCH SALE ARISES ON OUR (PRIVATE RESPONDENT) PART OR ON THE
PART OF THE SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN
THE DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;
II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED
A CONDITION, THE COURT OF APPEALS ERRED IN NOT FINDING, THAT THE SAID
CONDITION HAD ALREADY BEEN FULFILLED;
III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS
INDEED A CONDITION, THE COURT OF APPEALS ERRED IN HOLDING THAT THE
IMPOSITION OF SAID CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF
SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF
OPTION;
IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR
LACK OF CONSIDERATION;
V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS

NECESSARY TO SUPPORT THE DEED OF OPTION DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)

The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private
respondents agreed to sell their lot to petitioners "whenever the need of such sale arises, either on our
part (private respondents) or on the part of Julio Villamor and Marina Villamor (petitioners)." The
court a quo, rule that the Deed of Option was a valid written agreement between the parties and made
the following conclusions:
xxx xxx xxx
It is interesting to state that the agreement between the parties are evidence by a writing, hence, the
controverting oral testimonies of the herein defendants cannot be any better than the documentary
evidence, which, in this case, is the Deed of Option (Exh. "A" and "A-a")
The law provides that when the terms of an agreement have been reduced to writing it is to be
considered as containing all such terms, and therefore, there can be, between the parties and their
successors in interest no evidence of their terms of the agreement, other than the contents of the writing.
... (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible rule that
wherever written instruments are appointed either by the requirements of law, or by the contract of the
parties, to be the repositories and memorials of truth, any other evidence is excluded from being used,
either as a substitute for such instruments, or to contradict or alter them. This is a matter both of
principle and of policy; of principle because such instruments are in their nature and origin entitled to a
much higher degree of credit than evidence of policy, because it would be attended with great mischief
if those instruments upon which man's rights depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to writing, the document itself, being
constituted by the parties as the expositor of their intentions, it is the only instrument of evidence in
respect of that agreement which the law will recognize so long as it exists for the purpose of evidence.
(Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited in Francisco's Rules of Court,
Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of option is void for lack of
consideration. The appellate court made the following disquisitions:
Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by them
although the prevailing price at that time was only P25.00 in consideration of the option to buy the
remainder of the land. This does not seem to be the case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-appellants testified that no copy of the deed of sale
had ever been given to them by the plaintiff-appellees. In the second place, if this was really the
condition of the prior sale, we see no reason why it should be reiterated in the Deed of Option. On the
contrary, the alleged overprice paid by the plaintiff-appellees is given in the Deed as reason for the
desire of the Villamors to acquire the land rather than as a consideration for the option given to them,
although one might wonder why they took nearly 13 years to invoke their right if they really were in
due need of the lot.
At all events, the consideration needed to support a unilateral promise to sell is a dinstinct one, not
something that is as uncertain as P70.00 per square meter which is allegedly 'greatly higher than the
actual prevailing value of lands.' A sale must be for a price certain (Art. 1458). For how much the
portion conveyed to the plaintiff-appellees was sold so that the balance could be considered the
consideration for the promise to sell has not been shown, beyond a mere allegation that it was very
much below P70.00 per square meter.

The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of
the sale to them of a portion of defendant-appellant's lot does not necessarily prove that the prevailing
market price at the time of the sale was P18.00 per square meter. (In fact they claim it was P25.00). It is
improbable that plaintiff-appellees should pay P52.00 per square meter for the privilege of buying when
the value of the land itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the
essential reason which moves the contracting parties to enter into the contract." The cause or the
impelling reason on the part of private respondent executing the deed of option as appearing in the deed
itself is the petitioner's having agreed to buy the 300 square meter portion of private respondents' land at
P70.00 per square meter "which was greatly higher than the actual reasonable prevailing price." This
cause or consideration is clear from the deed which stated:
That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor agreed to buy the
said one-half portion at the above stated price of about P70.00 per square meter, is because I, and my
husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still
owned by me ... (p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners' evidence which shows
that in 1969 the Villamor spouses bough an adjacent lot from the brother of Macaria Labing-isa for only
P18.00 per square meter which the private respondents did not rebut. Thus, expressed in terms of
money, the consideration for the deed of option is the difference between the purchase price of the 300
square meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable price of the
same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option,
was ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option may, as opined
by the appellate court, be improbable but improbabilities does not invalidate a contract freely entered
into by the parties.
The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional
contract is a privilege existing in one person, for which he had paid a consideration and which gives him
the right to buy, for example, certain merchandise or certain specified property, from another person, if
he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil.
982). If We look closely at the "deed of option" signed by the parties, We will notice that the first part
covered the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at the
price of P70.00 per square meter "which was higher than the actual reasonable prevailing value of the
lands in that place at that time (of sale)." The second part stated that the only reason why the Villamor
spouses agreed to buy the said lot at a much higher price is because the vendor (Reyeses) also agreed to
sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there,
there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the
option to buy the remaining 300 square meter-half portion of the lot in consideration for their having
agreed to buy the other half of the land for a much higher price. But, the "deed of option" went on and
stated that the sale of the other half would be made "whenever the need of such sale arises, either on our
(Reyeses) part or on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while
the option to buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. In
other words, it was not only the Villamors who were granted an option to buy for which they paid a
consideration. The Reyeses as well were granted an option to sell should the need for such sale on their
part arise.

In the instant case, the option offered by private respondents had been accepted by the petitioner, the
promise, in the same document. The acceptance of an offer to sell for a price certain created a bilateral
contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a vendee (See
Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after
the execution of the deed. InSanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We
held:
In other words, since there may be no valid contract without a cause of consideration, the promisory 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.
A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the price. From that moment, the
parties may reciprocally demand perform of contracts." Since there was, between the parties, a meeting
of minds upon the object and the price, there was already a perfected contract of sale. What was,
however, left to be done was for either party to demand from the other their respective undertakings
under the contract. It may be demanded at any time either by the private respondents, who may compel
the petitioners to pay for the property or the petitioners, who may compel the private respondents to
deliver the property.
However, the Deed of Option did not provide for the period within which the parties may demand the
performance of their respective undertakings in the instrument. The parties could not have contemplated
that the delivery of the property and the payment thereof could be made indefinitely and render
uncertain the status of the land. The failure of either parties to demand performance of the obligation of
the other for an unreasonable length of time renders the contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10)
years. The Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned,
was also accepted in the same instrument. The complaint in this case was filed by the petitioners on July
13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action
had prescribed. There were allegations by the petitioners that they demanded from the private
respondents as early as 1984 the enforcement of their rights under the contract. Still, it was beyond the
ten (10) years period prescribed by the Civil Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the observations
of the courta quo held, thus:
... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to Convey
and Transfer as contained in Exhibits '1' and '1-A', her failure or the abandonment of her right to file an
action against Pulmano Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000
square meters is now barred by laches and/or prescribed by law because she failed to bring such action
within ten (10) years from the date of the written agreement in 1941, pursuant to Art. 1144 of the New
Civil Code, so that when she filed the adverse claim through her counsel in 1959 she had absolutely no
more right whatsoever on the same, having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow
the petitioner to demand the delivery of the property subject of this case thirteen (13) years or seventeen
(17) years after the execution of the deed at the price of only P70.00 per square meter is inequitous. For
reasons also of equity and in consideration of the fact that the private respondents have no other decent
place to live, this Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners'
prayer.
ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED
for reasons cited in this decision. Judgement is rendered dismissing the complaint in Civil Case No. C-
12942 on the ground of prescription and laches.
SO ORDERED.
Narvasa (Chairman) and Cruz, JJ., concur.
Grio-Aquino, J., took no part.

SUPREME COURT
Manila
EN BANC
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,

vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which
certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar
and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in
Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of
payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on
March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying other
allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral
promise to sell, and the same being unsupported by any valuable consideration, by force of the New
Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel,
jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court
rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and
to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay
P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price.
In his complaint, plaintiff alleges 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,
copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence,
plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to
the first paragraph of said Article 1479. Although defendant had really "agreed, promised and
committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and
committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this
effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of
said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A
is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument.
Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land
therein described to the plaintiff 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.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor.
It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to
"sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the
price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the
former establishes the existence of said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his
complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense,
the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on
the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed
as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:
One who prays for judgment on the pleadings without offering proof as to the truth of his own
allegations, and without giving the opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant allegations of the opposing party, and to
rest his motion for judgment on those allegations taken together with such of his own as are admitted in
the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which
We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the
sum of P30,000 under the terms stated above has no legal effect because it is not supported by any
consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or 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."
On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by
any consideration, that option became binding on appellant when the appellee gave notice to it of its
acceptance, and that having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes
article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn any time before acceptance by communicating such withdrawal, except when the option is
founded upon consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to
buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from
the price." This is 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 binding effect if supported by a consideration which means that the
option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is
not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance
is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at
any time before 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" 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.
We are not oblivious of the existence of American authorities which hold that an offer, once accepted,
cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528).
These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in
our new Civil Code. But we are prevented from applying them in view of the specific provision
embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in accordance with its terms,
and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court
cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it
unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later
thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between
Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell
similar to the one sued upon here was involved, treating such promise as an option which, although not
binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral
contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice,
Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should
decide to exercise his option within the specified time. After accepting the promise and before he
exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy
later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy
ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the
authorities hold that:
"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding
contract of sale, even though the option was not supported by a sufficient consideration. ... . (77 Corpus
Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendant, that the option contract was not valid for
lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the
acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts
the offer and the acceptance could at all events have generated a contract, if none there was before
(arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, 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.
This view has the advantage of avoiding a conflict between Articles 1324 on the general principles
on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions of one and the same law or code, such interpretation
should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same.
Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 ismodified by Art. 1479 of the Civil Code, in
effect, considers the latter as an exception to the former, and exceptions are not favored, unless the
intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is
more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise
supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to
enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates
the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the
view adhered to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or
modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant
Severina Rigos. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
Castro, J., took no part.
Separate Opinions
ANTONIO, J., concurring:
I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be
withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of
the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2 holding that "an option implies ... the
legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before
acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a
bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a
purchaser. In other words, if the option is given without a consideration, it is a mere offer to sell, which
is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale. The concurrence of both acts the offer and the acceptance could in such
event generate a contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even before the
period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary
or capricious manner. This is upon the principle that an offer implies an obligation on the part of the
offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not, and
therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may
suffer. A contrary view would remove the stability and security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of
Pl,510.00before any withdrawal from the contract has been made by the Defendant (Severina Rigos)."
Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral
reciprocal contract to sell and to buy was generated.

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 83759 July 12, 1991
SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO, petitioners,

vs.
HONORABLE COURT OF APPEALS and SPOUSES MARTIN VALLEJERA and APOLONIA
OLEA,respondents.
Dionisio C. Isidto for petitioners.
Raymundo Lozada, Jr. for private respondents.
GUTIERREZ, JR., J.:p
This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier decision of
the Regional Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros Occidental in Civil Case
No. 839 (for specific performance and damages) ordering the petitioners (defendants in the civil case) to
resell Lot No. 1860 of the Cadastral Survey of Himamaylan, Negros Occidental to the respondents
(plaintiffs in the civil case) upon payment by the latter of the amount of P24,000.00 as well as the
appellate court's resolution denying a motion for reconsideration. In addition, the appellate court
ordered the petitioners to pay the amount of P5,000.00 as necessary and useful expenses in accordance
with Article 1616 of the Civil Code.
The facts of the case are not in dispute. They are summarized by the appellate court as follows:
On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action against the defendants-
spouses (petitioners herein) seeking to redeem Lot No. 1860 of the Himamaylan Cadastre which was
previously sold by plaintiffs to defendants on September 21, 1964.
The said lot was registered in the name of plaintiffs. On October 1959, the same was leased by plaintiffs
to the defendants up to crop year 1966-67, which was extended to crop year 1968-69. After the
execution of the lease, defendants took possession of the lot, up to now and devoted the same to the
cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of Sale for the amount
of P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day and along with the
execution of the Deed of Sale, a separate instrument, denominated as Right to Repurchase (Exh. E), was
executed by the parties granting plaintiffs the right to repurchase the lot for P12,000.00, said Exh. E
likewise duly ratified and notarized. By virtue of the sale, defendants secured TCT No. T-58898 in their
name. On January 2, 1969, plaintiffs sold the same lot to Benito Derrama, Jr., after securing the
defendants' title, for the sum of P12,000.00. Upon the protestations of defendant, assisted by counsel,
the said second sale was cancelled after the payment of P12,000.00 by the defendants to Derrama.
Defendants resisted this action for redemption on the premise that Exh. E is just an option to buy since it
is not embodied in the same document of sale but in a separate document, and since such option is not
supported by a consideration distinct from the price, said deed for right to repurchase is not binding
upon them.

After trial, the court below rendered judgment against the defendants, ordering them to resell lot No.
1860 of the Himamaylan Cadastre to the plaintiffs for the repurchase price of P24,000.00, which
amount combines the price paid for the first sale and the price paid by defendants to Benito Derrama, Jr.
Defendants moved for, but were denied reconsideration. Excepting thereto, defendants-appealed, . . .
(Rollo, pp. 44-45)
The petition was given due course in a resolution dated February 12, 1990.
The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan
Cadastre. They contend that the nature of the sale over the said lot between them and the private
respondents was that of an absolute deed of sale and that the right thereafter granted by them to the
private respondents (Right to Repurchase, Exhibit "E") can only be either an option to buy or a mere
promise on their part to resell the property. They opine that since the "RIGHT TO REPURCHASE" was
not supported by any consideration distinct from the purchase price it is not valid and binding on the
petitioners pursuant to Article 1479 of the Civil Code.
The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides:
RIGHT TO REPURCHASE
KNOW ALL MEN BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and Apolonia Olea, their
heirs and assigns, the right to repurchase said Lot No. 1860 for the sum of TWELVE THOUSAND
PESOS (P12,000.00), Philippine Currency, within the period TEN (10) YEARS from the agricultural
year 1969-1970 when my contract of lease over the property shall expire and until the agricultural year
1979-1980.
IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros Occidental, this 21st
day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
(Rollo, p. 47)
The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45 SCRA 368
[1972] decided in favor of the private respondents.
In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino Rigos
executed a document entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed . . . to sell" to Sanchez for the sum of P1,510.00, a registered parcel of land within 2 years
from execution of the document with the condition that said option shall be deemed "terminated and
lapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. In
the same document, Sanchez" . . . hereby agree and conform with all the conditions set forth in the
option to purchase executed in my favor, that I bind myself with all the terms and conditions."
(Emphasis supplied) The notarized document was signed both by Sanchez and Rigos.
After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the stipulated
period were rejected by Rigos, the former deposited said amount with the Court of First Instance of
Nueva Ecija and filed an action for specific performance and damages against Rigos.
The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum judicially
consigned and to execute in Sanchez' favor the requisite deed of conveyance. Rigos appealed the case to
the Court of Appeals which certified to this Court on the ground that it involves a pure question of law.
This Court after deliberating on two conflicting principles laid down in the cases of Southwestern Sugar
and Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v.
Cua Hian Tek, 102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the Civil Code which
provides:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
the promissory if the promise is supported by a consideration distinct from the price.
and Article 1324 thereof which provides:
Art. 1324. When the offerer has allowed the offerer 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.
should be reconciled and harmonized to avoid a conflict between the two provisions. In effect, the Court
abandoned the ruling in the Southwestern Sugar and Molasses Co. case and reiterated the ruling in the
Atkins, Kroll and Co. case, to wit:
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948,
951-952) decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., (supra)
saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a
unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an
option which, although not binding as a contract in itself for lack of separate consideration, nevertheless
generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice,
later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should
decide to exercise his option within the specified time. After accepting the promise and before he
exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy
later. In this case however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy
ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the
authorities hold that
If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding

contract of sale, even though the option was not supported by a sufficient consideration . . . (77 Corpus
Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.)
This Court affirmed the lower court's decision although the promise to sell was not supported by a
consideration distinct from the price. It was obvious that Sanchez, the promisee, accepted the option to
buy before Rigos, the promisor, withdrew the same. Under such circumstances, the option to purchase
was converted into a bilateral contract of sale which bound both parties.
In the instant case and contrary to the appellate court's finding, it is clear that the right to repurchase was
not supported by a consideration distinct from the price. The rule is that the promisee has the burden of
proving such consideration. Unfortunately, the private respondents, promisees in the right to repurchase
failed to prove such consideration. They did not even allege the existence thereof in their complaint.
(See Sanchez v. Rigos supra)
Therefore, in order that the Sanchez case can be applied, the evidence must show that the private
respondents accepted the right to repurchase.
The record, however, does not show that the private respondents accepted the "Right to Repurchase" the
land in question. We disagree with the appellate court's finding that the private respondents accepted the
"right to repurchase" under the following circumstances: . . as evidenced by the annotation and
registration of the same on the back of the transfer of certificate of title in the name of appellants. As
vividly appearing therein, it was signed by appellant himself and witnessed by his wife so that for all
intents and purposes the Vasquez spouses are estopped from disregarding its obvious purpose and
intention."
The annotation and registration of the right to repurchase at the back of the certificate of title of the
petitioners can not be considered as acceptance of the right to repurchase. Annotation at the back of the
certificate of title of registered land is for the purpose of binding purchasers of such registered land.
Thus, we ruled in the case of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589
[1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]), and Constantino v. Espiritu (45 SCRA 557
[1972]) that purchasers of a registered land are bound by the annotations found at the back of the
certificate of title covering the subject parcel of land. In effect, the annotation of the right to repurchase
found at the back of the certificate of title over the subject parcel of land of the private respondents only
served as notice of the existence of such unilateral promise of the petitioners to resell the same to the
private respondents. This, however, can not be equated with acceptance of such right to repurchase by
the private respondent.
Neither can the signature of the petitioners in the document called "right to repurchase" signify
acceptance of the right to repurchase. The respondents did not sign the offer. Acceptance should be
made by the promisee, in this case, the private respondents and not the promisors, the petitioners herein.
It would be absurd to require the promisor of an option to buy to accept his own offer instead of the
promisee to whom the option to buy is given.
Furthermore, the actions of the private respondents (a) filing a complaint to compel re-sale and their
demands for resale prior to filing of the complaint cannot be considered acceptance. As stated in Vda. de
Zulueta v. Octaviano (121 SCRA 314 [1983]):

And even granting, arguendo that the sale was a pacto de retro sale, the evidence shows that Olimpia,
through her lawyer, opted to repurchase the land only on 16 February 1962, approximately two years
beyond the stipulated period, that is not later than May, 1960.
If Olimpia could not locate Aurelio, as she contends, and based on her allegation that the contract
between her was one of sale with right to repurchase, neither, however, did she tender the redemption
price to private respondent Isauro, but merely wrote him letters expressing her readiness to repurchase
the property.
It is clear that the mere sending of letters by the vendor expressing his desire to repurchase the property
without accompanying tender of the redemption price fell short of the requirements of law. (Lee v.
Court of Appeals, 68 SCRA 197 [1972])
Neither did petitioner make a judicial consignation of the repurchase price within the agreed period.
In a contract of sale with a right of repurchase, the redemptioner who may offer to make the repurchase
on the option date of redemption should deposit the full amount in court . . . (Rumbaoa v. Arzaga, 84
Phil. 812 [1949])
To effectively exercise the right to repurchase the vendor a retro must make an actual and simultaneous
tender of payment or consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])
The private respondents' ineffectual acceptance of the option to buy validated the petitioner's refusal to
sell the parcel which can be considered as a withdrawal of the option to buy.
We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point.
Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25,
1952 (Emphasis supplied) Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare
riceland sold the lot to private respondent Aurelio B. Octaviano for P8,600.00 subject to certain terms
and conditions. The contract was an absolute and definite sale. On the same day, November 25,
1952, (Emphasis supplied) the vendee, Aurelio signed another document giving the vendor Zulueta the
"option to repurchase" the property at anytime after May 1958 but not later than May 1960. When
however, Zulueta tried to exercise her "option to buy" the property, Aurelio resisted the same prompting
Zulueta to commence suit for recovery of ownership and possession of the property with the then Court
of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed the trial
court's decision.
We affirmed the appellate court's decision and ruled:
The nature of the transaction between Olimpia and Aurelio, from the context of Exhibit "E" is not a sale
with right to repurchase. Conventional redemption takes place "when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon. (Article 1601, Civil Code).
In this case, there was no reservation made by the vendor, Olimpia, in the document Exhibit "E" the
"option to repurchase" was contained in a subsequent document and was made by the vendee,
Aurelio. Thus, it was more of an option to buy or a mere promise on the part of the vendee, Aurelio, to
resell the property to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil Code Annotated,
Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of Appeals (26 SCRA 189 [1968]):
The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is
a right reserved by the vendor in the same instrument of sale as one of the 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 vendee in a separate instrument cannot be
a right of repurchase but some other right like the option to buy in the instant case. . . (Emphasis
supplied)
The appellate court rejected the application of the Zulueta case by stating:
. . . [A]s found by the trial court from which we quote with approval below, the said cases involve the
lapse of several days for the execution of separate instruments after the execution of the deed of sale,
while the instant case involves the execution of an instrument, separate as it is, but executed on the same
day, and notarized by the same notary public, to wit:
A close examination of Exh. "E" reveals that although it is a separate document in itself, it is far
different from the document which was pronounced as an option by the Supreme Court in the Villarica
case. The option in the Villarica case was executed several days after the execution of the deed of sale.
In the present case, Exh. "E" was executed and ratified by the same notary public and the Deed of Sale
of Lot No. 1860 by the plaintiffs to the defendants were notarized by the same notary public and entered
in the same page of the same notarial register . . .
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the execution of the separate
document after an intervention of several days and the question of laches was decided therein, which is
not present in the instant case. That distinction is therefore crucial and We are of the opinion that the
appellee's right to repurchase has been adequately provided for and reserved in conformity with Article
1601 of the Civil Code, which states:
Conventional redemption shall take place when the vendor reserves the right to repurchase the thing
sold, with the obligation to comply with the provision of Article 1616 and other stipulations which may
have been agreed upon. (Rollo, pp. 46-47)
Obviously, the appellate court's findings are not reflected in the cited decision. As in the instant case, the
option to repurchase involved in the Zulueta case was executed in a separate document but on the same
date that the deed of definite sale was executed.
While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this, however, was not
the primary reason why this Court disallowed the redemption of the property by Zulueta. It is clear from
the decision that the ruling in the Zulueta case was based mainly on the finding that the transaction
between Zulueta and Octaviano was not a sale with right to repurchase and that the "option to
repurchase was but an option to buy or a mere promise on the part of Octaviano to resell the property to
Zulueta.
In the instant case, since the transaction between the petitioners and private respondents was not a sale
with right to repurchase, the private respondents cannot avail of Article 1601 of the Civil Code which
provides for conventional redemption.
WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the Court of
Appeals are hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 839 of the then
Court of First Instance of Negros Occidental 12th Judicial District Branch 6 is DISMISSED. No costs.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Davide, Jr., JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-32873 August 18, 1972
AQUILINO NIETES, petitioner,

vs.
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.
Conrado V. del Rosario for petitioner.
Romeo D. Magat for private respondent.
CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered into a
"Contract of Lease with Option to Buy," pursuant to the terms and conditions set forth in the deed
Exhibits A and A-1, (also, marked as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE situated at Angeles,
Pampanga, a school which is duly recognized by the Government;
That the lessor agrees to lease the above stated school to the LESSEE under the following terms and
conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable in the following
manners:
a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS (P5,500) will be paid upon the
execution of this Contract of Lease;
b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS (P4,500) is payable on or before
the 30th day of October, 1959;
c. That the remaining balance of FIFTEEN THOUSAND PESOS (P15,000) will be paid on or before
March 30, 1960;

3. That all improvements made during the lease by the LESSEE will be owned by the LESSOR after the
expiration of the term of this Contract of Lease;
4. That the LESSOR agrees to give the LESSEE an option to buy the land and the school building, for a
price of ONE HUNDRED THOUSAND PESOS (P100,000) within the period of the Contract of Lease;
5. That should the LESSEE buy the lot, land and the school building within the stipulated period, the
unused payment for the Contract of Lease will be considered as part payment for the sale of the land
and school;
6. That an inventory of all properties in the school will be made on March 31, 1960;
6A. That the term of this Contract will commence in June 1960 and will terminate in June 1965;
7. That the LESSEE will be given full control and responsibilities over all the properties of the school
and over all the supervisions and administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the back accounts of students incurred before
the execution of this contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had, as of
August 4, 1961, made payments as follows:
October 6,1960 ....................................... P18,957.00 (Exh. D)
November 23, 1960 ................................. 300.00 (Exh. E)
December 21, 1960 ................................. 200.00 (Exh. F)
January 14, 1961 ..................................... 500.00 (Exh. G)
February 16, 1961 ................................... 3,000.00 (Exh. H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
March 13, 1961 ....................................... 700.00 (Exh. J)
August 4, 1961 ........................................ 100.00 (Exh. K)
TOTAL .................................................... P24,757.00
Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia the
additional sums of P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit B and C,
reading:
Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as per advance pay for the
school, the contract of lease being paid.
(Sgd.) PABLO GARCIA (Exh. B)

To Whom it May Concern:
This is to certify that I received the sum of Two Thousand Two Hundred Pesos, Philippine Currency,
from Mrs. Catherine R. Nietes as the partial payment on the purchase of the property as specified on the
original contract of "Contract of Lease with the First Option to Buy" originally contracted and duly
signed.
(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit V)
stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your contract, dated 19
October 1959 because of the following:
1. That you had not maintained the building, subject of the lease contract in good condition.
2. That you had not been using the original name of the school Angeles Institute, thereby
extinguishing its existence in the eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of all properties of the school.
4. That up to this time, you had not collected or much less helped in the collection of back accounts of
former students.
This is to remind you that the foregoing obligations had been one, if not, the principal moving factors
which had induced the lessor in agreeing with the terms embodied in your contract of lease, without
which fulfillment, said contract could not have come into existence. It is not simply one of those
reminders that we make mention, that our client under the circumstances, is not only entitled to a
rescission of the contract. He is likewise entitled to damages actual, compensatory and exemplary.
In view of the serious nature of the breach which warrant and sanction drastic legal remedies against
you, we earnestly request you to please see the undersigned at the above-named address two days from
receipt hereof. Otherwise, if we shall not hear from you, the foregoing will serve notice on your part to
vacate the premises within five (5) days to be counted from date of notice.
Very truly yours,

(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.

Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City
Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the Director of the Philippine Institute of
Electronics, Angeles City, has been referred to me and in reply, please, be informed that my client has
not violated any provision of the CONTRACT OF LEASE WITH OPTION TO BUY, executed by him
as LESSEE and Dr. Pablo Garcia as LESSOR. For this reason, there is no basis for rescission of the
contract nor of the demands contained in your letter.
In this connection, I am also serving this formal notice upon your client Dr. Pablo Garcia, thru you, that
my client Mr. AQUILINO T. NIETES will exercise his OPTION to buy the land and building subject
matter of the lease and that my said client is ready to pay the balance of the purchase price in
accordance with the contract. Please, inform Dr. Pablo Garcia to make available the land title and
execute the corresponding Deed of Sale pursuant to this notice, and that if he fails to do so within fifteen
(15) days from the receipt of this letter, we shall take the corresponding action to enforce the agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO

Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City
checks amounting to P84,860.50, as balance of the purchase price of the property, but he withdrew said
sum of P84,860.50 on August 12, 1965, after the checks had been cleared. On August 2, 1965, he
commenced the present action, in the Court of First Instance of Pampanga, for specific performance of
Dr. Garcia's alleged obligation to execute in his (Nietes') favor a deed of absolute sale of the leased
property, free from any lien or encumbrance whatsoever, he having meanwhile mortgaged it to the
People's Bank and Trust Company, and to compel him (Garcia) to accept whatever balance of the
purchase price is due him, as well as to recover from him the aggregate sum of P90,000 by way of
damages, apart from attorney's fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations
thereof, as well as setting up a counterclaim for damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff and against the
defendant, judgment is hereby rendered ordering the latter to execute the Deed of Absolute Sale of
property originally leased together with the school building and other improvements thereon which are
covered by the contract, Annex "A", upon payment of the former of the balance (whatever be the
amount) of the stipulated purchase price; to free the said property from any mortgage or encumbrance
and deliver the title thereto to the plaintiff free from any lien or encumbrance, and should said defendant
fail to do so, the proceeds from the purchase price be applied to the payment of the encumbrance so that
the title may be conveyed to the plaintiff; to pay the plaintiff the sum of P1,000.00 as attorney's fees,
and the cost of this suit.

Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither dismissed
the complaint nor upheld his counterclaim and failed to order Nietes to vacate the property in question,
and Nietes insofar as the trial court had granted him no more than nominal damages in the sum of
P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals rendered its decision, on October
18, 1969, affirming, in effect, that of the trial court, except as regards said attorney's fees, which were
eliminated. The dispositive part of said decision of the Court of Appeals reads:
WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of the
plaintiff is eliminated, the appealed judgment is hereby affirmed in all other respects, and the defendant
is ordered to execute the corresponding deed of sale for the school building and lot in question in favor
of the plaintiff upon the latter's full payment of the balance of the purchase price. The costs of this
proceedings shall be taxed against the defendant-appellant.
On motion for reconsideration of defendant Garcia, said special division set aside its aforementioned
decision and rendered another one, promulgated on March 10, 1970 reversing the appealed decision of
the court of first instance, and dismissing the complaint of Nietes, with costs again him. Hence, the
present petition of Nietes for review certiorari of the second decision of the Court of Appeals, dated
March 10, 1970, to which petition We gave due course.
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly predicated
upon the theory that, under the contract between the parties, "the full purchase price must be
paid before the option counsel be exercised," because "there was no need nor sense providing that "the
unused payment for the Contract Lease will be considered as part payment for the sale the land and
school'" inasmuch as "otherwise there is substantial amount from which such unused rental could be
deducted"; that the statement in the letter, Exhibit L, of Nietes, dated August 7, 1964, to the effect that
he "will exercise his OPTION to buy the land and building," indication that he did not consider the
receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an effective exercise of his option to
buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-Industrial Development Bank,
did not constitute a proper tender of payment, which, at any rate, was "made beyond the stipulated 5-
year period"; that such deposit "was not seriously made, because on August 12, 1965, the same was
withdrawn from the Bank and ostensibly remains in the lessee's hand"; and that "the fact that such
deposit was made by the lessee shows that he himself believed that he should have paid the entire
amount of the purchase price before he could avail of the option to buy, otherwise, the deposit was a
senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of the
contract of lease between the parties which were paid late and not within the periods and/or schedules
fixed by the contract (Annex A.)." What is more, on the witness stand, Garcia claimed that he did "not
know" whether the signatures on Exhibits B and C the receipt for P3,000 and P2,200, respectively
were his, and even said that he was "doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence a Doctor of Medicine and the
owner of an educational institution could not possibly "not know" or entertain doubts as to whether
or not the aforementioned signatures are his and the payments therein acknowledged had been received
by him. His dubious veracity becomes even more apparent when we consider the allegations in
paragraph (4) of his answer referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the
aforementioned partial payments of P3,000 and P2,200, on account of the stipulated sale price to the
effect that said sums " paid to the herein defendant were part of the price of the contract of lease." In
other words, payment of said sums of P3,000 and P2,200 is admitted in said answer. Besides, the rentals
for the whole period of the lease aggregated P25,000 only, whereas said sums of P3,000 and P2,200,
when added to the payments previously made by Nietes, give a grand total of P29,957.00, or P4,957 in
excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less than truthful
when he tried to cast doubt upon the fact of payment of said sums of P3,000 and P2,200, as well as
when he claimed that the same were part of the rentals collectible by him.
We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the tenor of
the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia as reflected in the
receipts Exhibits B and C justifies such view. The contract does not say that Nietes had to pay the
stipulated price of P100,000before exercising his option to buy the property in question. Accordingly,
said option is governed by the general principles on obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. 1
In the case of an option to buy, the creditor may validly and effectively exercise his right by merely
advising the debtor of the former's decision to buy and expressing his readiness to pay the stipulated
price, provided that the same is available and actually delivered to the debtor upon execution and
delivery by him of the corresponding deed of sale. Unless and until the debtor shall have done this the
creditor is not and cannot be in default in the discharge of his obligation to pay. 2 In other words, notice
of the creditor's decision to exercise his option to buy need not be coupled with actual payment of the
price, so long as this is delivered to the owner of the property upon performance of his part of the
agreement. Nietes need not have deposited, therefore, with the Agro-Industrial Bank checks amounting
altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does not and cannot
affect his cause of action in the present case. In making such deposit, he may have had the intent to
show his ability to pay the balance of the sum due to Dr. Garcia as the sale price of his property. In
short, said deposit and its subsequent withdrawal cannot affect the result of the present case.
Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease," which
pursuant to paragraph 6-A of said contract commenced "in June 1960" and was to "terminate in June
1965." As early as September 4, 1961, or well "within the period of the Contract of Lease," Nietes had
paid Dr. Garcia the following sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)

August 4, 1961 ............................... 100.00 (Exh. K)
September 4,1961.3,000.00(Exh. B)
TOTAL ........................................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500 on or
before October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of P25,000, from
October 19, 1959 to March 30, 1960, whereas his first payment was not made until October 10, 1960,
when he delivered the sum of P18,957 to Dr. Garcia, and the latter had by August 4, 1961, received
from the former the aggregate sum of P24,757. This is, however, P243.00 only less than the P25,000
due as of March 30, 1960, so that Nietes may be considered as having complied substantially with the
terms agreed upon. Indeed, Dr. Garcia seems to have either agreed thereto or not considered that Nietes
had thereby violated the contract, because the letter of the former, dated July 31, 1964, demanding
rescission of the contract, did not mention said acts or omissions of Nietes among his alleged violations
thereof enumerated in said communication. In fact, when, on September 4, 1961, Mrs. Nietes turned
over the sum of P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been
made "as per advance pay for the school, the Contract of Lease being paid" in other words, in
accordance or conformity with said contract. Besides, when, on December 13, 1962, Mrs. Nietes
delivered the additional sum of P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial
payment on the purchase price of the property as specified on the original contract," thus further
indicating that the payment, in his opinion, conformed with said contract, and that, accordingly, the
same was in full force and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of
P27,757, or P2,757 in excess of the P25,000 representing the rentals for the entire period of the lease,
and over P21,200 in excess of the rentals for the unexpired portion of the lease, from September 4, 1961
to June 1965. This circumstance indicates clearly that Nietes had, on September 4, 1961, chosen to
exercise and did exercise then his option to buy. What is more, this is borne out by the receipt issued by
Dr. Garcia for the payment of P2,200, on December 13, 1962, to which he referred therein as a "partial
payment on the purchase of the property as specified on the original contract of 'Contract of Lease with
the First Option to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 also, within the
period of the lease stating that he "will exercise his OPTION to buy the land and building subject
matter of the lease." It is not correct to construe this expression as did the appealed decision as
implying that the option had not been or was not yet being exercised, or as a mere announcement of the
intent to avail of it at some future time. This interpretation takes said expression out of the context of
Exhibit L, which positively states, also, that Nietes "is ready to pay the balance of the purchase price in
accordance with the contract," and requests counsel for Dr. Garcia to inform or advise him "to make
available the land title and execute the corresponding Deed of Sale pursuant to this notice, and that if he
fails to do so within fifteen (15) days ... we shall take the corresponding action to enforce the
agreement." Such demand and said readiness to pay the balance of the purchase price leave no room for
doubt that, as stated in Exhibit L, the same is "a formal notice" that Nietes had exercised his option, and
expected Dr. Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would
have been no point for said demand and readiness to pay, if Nietes had not yet exercised his option to
buy.

The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to make
use of his option to buy "the unused payment for the Contract of Lease will be considered as payment
for the sale of the land and school, "simply means that the rental paid for the unused portion of the lease
shall be applied to and deducted from the sale price of P100,000 to be paid by Nietes at the proper
time in other words,simultaneously with the delivery to him of the corresponding deed of sale, duly
executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his option
to buy the property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged receipt from
Mrs. Nietes of the sum of P2,200 then delivered by her "in partial payment on the purchase of the
property" described in the "Contract of Lease with Option to Buy"; that from the aggregate sum of
P29,957.00 paid to him up to that time, the sum of P12,708.33 should be deducted as rental for the
period from June 1960 to December 13, 1962, or roughly thirty (30) months and a half, thereby leaving
a balance of P17,248.67, consisting of P12,291.67, representing the rentals for the unused period of the
lease, plus P4,957.00 paid in excess of said rental and advanced solely on account of the purchase price;
that deducting said sum of P17,248.67 from the agreed price of P100,000.00, there results a balance of
P82,751.33 which should be paid by Nietes to Dr. Garcia, upon execution by the latter of the
corresponding deed of absolute sale of the property in question, free from any lien or encumbrance
whatsoever, in favor of Nietes, and the delivery to him of said deed of sale, as well as of the owner's
duplicate of the certificate of title to said property; and that Dr. Garcia should indemnify Nietes in the
sum of P2,500 as and for attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all other
respects, and that of the Court of Appeals reversed, with costs against respondent herein, Dr. Pablo C.
Garcia. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio and Esguerra, JJ.,
concur.
Castro, J., took no part.

SUPREME COURT
Manila
EN BANC
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in
CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of
the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have
been religiously paying the rental and complying with all the conditions of the lease contract; that on
several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell
the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in
reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms
and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter
dated January 28, 1987 with the same request; that since defendants failed to specify the terms and
conditions of the offer to sell and 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.
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 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 price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs
summarily dismissing the complaint subject to the aforementioned condition that if the defendants
subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or
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.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by 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:
In resume, there was no meeting of the minds between the parties concerning the sale of the property.
Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual,
moral and exemplary damages will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may render summary judgment when
there is no genuine issue as to 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 obtaining, the decision of the
court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED,
but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-
appellants the 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 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 pronouncement as to costs.
SO ORDERED.
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).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu
Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject to the following terms and
conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (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 VENDEE, his heirs, executors, administrators or assigns, the above-described property with
all the improvements found therein including all the rights and interest in the said property free from all
liens and encumbrances of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in
his favor and other expenses incidental to the sale of above-described property including capital gains
tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was
cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3,
1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property
subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-
881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-
41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio
Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison
and Atty. 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 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 that the same was denied by the highest tribunal in its resolution dated May 6,
1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there 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 executory.
It is the observation of the Court that this property in dispute was the subject of theNotice of Lis
Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had
become final to the effect that should the defendants decide to offer the property for sale for a 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 plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.
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 Transfer Certificate of Title
be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the issuance of another title to
Buen Realty Corporation, is hereby set aside as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled case 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.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was
issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared
without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, 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.
We affirm the decision of the appellate court.
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.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
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, delicts and quasi-delicts); (b) the object which is the prestation or conduct;
required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.
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 perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective 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 is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof.
A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance
with certain formalities prescribed by law, such as in a donation of real property, is essential in order to
make the act valid, the prescribed form being thereby an essential element thereof. The stage
ofconsummation begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.
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. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or
its equivalent.
A contract of sale may be absolute or conditional.
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. 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 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. 3 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). 4
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. 5
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, viz:
Art. 1479. . . .
the promissor if the promise is supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 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. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect

promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a
contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection
of the contract, either negotiating party may stop the negotiation. The offer, 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 withdrawal (Laudico vs. Arias, 43 Phil. 270). 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 Paraaque, 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 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 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.
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. 11 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 12 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.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ
of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R.
CV-21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by
this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a deed
of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the
cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod

ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA
885).
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.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders,
dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and
Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

SUPREME COURT
Manila
EN BANC
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,

INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of the Court of 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 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 by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo & Bauermann, 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
We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost
verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at
Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion
of Carmelo's property particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue,
Manila, with a floor area of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue,
Manila, with a floor area of 150 square meters.
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."
Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for
the lease of another portion of Carmelo's property, to wit:

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 meters.
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,
for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another
movie house known as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR
is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that
the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire 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 was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair
replied through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr. Henry Yang through
the telephone that your company desires to sell your above-mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our client, it is uniformly provided:
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 the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and obligated, as it is (sic) herebinds (sic) and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and
be bound by all the terms and conditions hereof (sic).
Carmelo did not reply to this letter.
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 the price is
reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a
Deed of Absolute Sale, for the total sum of P11,300,000.00.

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 special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under
lease, which was impossible since the property was not a condominium; and (b) that the option to
purchase invoked by Mayfair is null and void for lack of consideration. 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 of its impossibility of performance because the leased premises could not be
sold separately from the other portions of the land and building. It counterclaimed for cancellation of
the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties stipulated on the following:
1. That there was a deed of sale of the contested premises by the defendant Carmelo . . . in favor of
defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff exclusive option
to purchase the leased premises should the lessor desire to sell the same (admitted subject to the
contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of lease
constitute the consideration for the plaintiff's occupancy of the leased premises, subject of the same
contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two buildings erected thereon;
8. That the leased premises constitute only the portions actually occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two
buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of
which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorney's fees on
its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per 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 (sic) plus legal interest from July 31, 1978; P70,000 00 per month as
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 vacates the premises plus legal interest from June 1, 1987;
P55,000.00 per month as reasonable compensation for the use of the premises covered by 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;
(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all persons
claiming rights under these contracts are directed to vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to
be an option clause which however cannot be deemed to be binding on Carmelo because of lack of
distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease is
not supported by a separate consideration. Without a consideration, the option is 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 there is no option, on the ground that there
is no consideration. Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it
is contrary to law, morals, good custom, public order or public policy.
Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.
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 1354:

Although the cause is not stated in the contract, it is presumed that it exists and is lawful unless the
debtor proves the contrary.
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 Article 1479 whereby
the promisee has the burden of proving the existence of consideration distinct from the price. Thus, in
the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to
sales in particular, and, more specifically, to an accepted unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon the promissor, Article 1479 requires the
concurrence of a condition, namely, that the promise be supported by a consideration distinct from the
price.
Accordingly, the promisee cannot compel the promissor to comply with the promise, unless the former
establishes the existence of said distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property
to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent
Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
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 Mayfair of the lot
registered under TCT Nos. 17350, 118612, 60936, and 52571; and
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 & Bauermann, Inc. and
Equatorial Realty Development, Inc. as valid and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals
differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the
facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a fixed
price for the purchase of the leased premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the
Civil Code.

Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept within a
certain period. Under this article, the offer may be withdrawn by the offeror before 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 promised or given by the offeree in exchange
for the privilege of being given that period within which to accept the offer. The consideration is distinct
from the price which is part of the offer. The contract that arises is known as option. In the case
of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier, defined an option as follows:
"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," (pp. 686-7).
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 "unilateral promise to buy or to sell a
determinate thing for a price certain" is called an offer. An "offer", in laws, is a proposal to enter into a
contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain as
to the object, the price and other essential terms of the contract (Art. 1319, Civil Code).
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. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the
leased premises) the price for which the object is to be sold is not 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.
Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be 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.
xxx xxx xxx
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 Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect Mayfair
in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased
property. This intention of the parties is achieved in two ways in accordance with the stipulation. The
first is by giving Mayfair "30-days exclusive option to purchase" the leased property. The second is, in
case Mayfair would 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."
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 should decide to
dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had
decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property,
but, more importantly, to make an offer to sell 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 vested in Mayfair is analogous to the right of first refusal, which means that
Carmelo should have offered the sale of the leased premises to Mayfair before offering it to other
parties, or, if Carmelo should receive any offer from third parties to purchase the leased premises, then
Carmelo must first give Mayfair the opportunity to match that offer.
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:
Q Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone?
A I have an offer from another party to buy the property and having the offer we decided to make an
offer to Henry Yang on a first-refusal basis. (TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember exactly what you have told him in
connection with that matter, Mr. Pascal?
A More or less, I told him that I received an offer from another party to buy the property and I was
offering him first choice of the enter property. (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties.9
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, respondent appellate
court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is
valid and effective, it is impossible of performance because it covered only the leased premises and not
the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the entire property in
question. The Court of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the 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 information submitted
by Mayfair in its appellant's Brief (pp. 5 and 46) which has not been controverted by the appellees, and
which We, therefore, take judicial notice of the two theaters stand on the parcels of land covered by
TCT No. 17350 with an area of 622.10 sq. m 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 each parcel of land, together with the buildings and improvements thereof,
could have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the physical and structural
conditions of the buildings on which the theaters were to be constructed in relation to the remainder of
the whole Recto property. The peculiar language of the stipulation would tend to 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 and capable of being performed. A sale limited to the leased premises
only, if hypothetically assumed, would have brought into operation the provisions of co-ownership
under which Mayfair would have become the exclusive owner of the leased premises and at the same

time a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the premises
sold to it. 10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the
decision of respondent Court of Appeals on the basis of the following assigned errors:
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE
IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN
DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH
CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF
THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN

DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH
OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF

ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF
THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS"
AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE". 11
We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this
case in the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we
already took note of this matter and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-
complaint to this Court alleging certain irregularities and infractions committed by certain lawyers, and
Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now
G.R. No. 106063). This partakes of the nature of an administrative complaint for misconduct against
members of the judiciary. While the letter-complaint arose as an incident in case CA-G.R. CV No.
32918 (now G.R. No. 106063), the disposition thereof should be separate and independent from Case
G.R. No. 106063. However, for purposes of receiving the requisite pleadings necessary in disposing of
the administrative complaint, this Division shall continue to have control of the case. Upon completion
thereof, the same shall be referred to the Court En Banc for proper disposition. 13
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
misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent
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 as
to the real nature of the questioned procedures and the true intentions and motives of the players therein.
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
by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo
and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto
property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR
is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof
that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a
right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract
of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an
option contract as one necessarily involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911,
quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to
purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for
its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the
defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned . . .
There was, therefore, a meeting of minds on the part of the one and the other, with regard to the
stipulations made in the said document. But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our holding that the stipulations contained in
Exhibit E is a contract of option, for, . . . there can be no contract without the requisite, among others, of
the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the
privilege of buying from, or selling to B, certain securities or properties within a limited time at a
specified price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695;
10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
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 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 does not sell his land; he does not then agree 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, 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 period. The second party receives this right, or, rather, from his
point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the 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
contract, in order to be valid and enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for a named price
per square meter upon failure to make the purchase within the time specified; 17 in one other case we
freed the landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in
three weeks because such option was not supported by a distinct consideration; 18 in the same vein in yet
one other case, we 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 case, we ruled that the option to buy the leased premises for
P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts,
like lease, the obligation or promise of each party is the consideration for that of the other. 20 In all these
cases, the selling price of the object thereof is always predetermined and specified in the option clause
in the contract or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu
Asuncion vs. Court of Appeals 21 that:
. . . 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. Article
1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or
its equivalent.
A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold in 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. . . .
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, viz:
Art. 1479. . . .
the promisor if the promise is supported by a consideration distinct from the price. (1451a).
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.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise

(policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, 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 withdrawal (Laudico vs. Arias, 43 Phil. 270). 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 Paraaque, 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" 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 opinion. . .
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
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
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a
separate consideration for the option, has no applicability in the instant case.
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 consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined
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
first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by
Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in
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
contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first
crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not also
correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is
part and parcel of the entire contract of lease. The consideration for the lease includes the consideration
for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to
pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price and to buy 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.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph
8 to be that of a contractual grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and
Equatorial.
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu
Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".
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 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. Carmelo,
however, did not pursue the exercise to its logical end. While it initially recognized Mayfair's right of
first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full
process to ripen to at least an interface of a definite offer and a possible corresponding acceptance
within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low
profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M Recto property
to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
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. As
such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a
contract otherwise valid may nonetheless be subsequently rescinded by reason 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 property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to
third persons, to secure reparation for damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause, or to protect some incompatible and
preferent right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.
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 possession of the subject of
the contract and that he did not act in bad faith. However, this rule is not applicable in the case 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 acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that it 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 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.
A purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair 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 taking unconscientious advantage of
another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to
look deeper into the agreement to determine if it involved stipulations that would prejudice its own
interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease.
Assuming this to be true, we nevertheless agree with the observation of the respondent court that:
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 lease, it behooved it as a prudent person to have required Reynoso or the broker to
show to it the Contract of Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because the entire property is indivisible
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
right of first refusal. A valid and legal contract where the ascendant or the more important of the two
parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext
posited by the owner. Following the arguments of petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first refusal should include not only the property
specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed
by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to 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 the
negotiations without giving Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be
authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of the offer under the right of
first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the
concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion
vs.Court of Appeals should be modified, if not amplified under the peculiar facts of this case.
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 had studied the
contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it involved stipulations that would
prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set
aside or rescinded. All of these matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate into endless litigation. The facts of 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 from all
injury and damage the contract may cause or to protect some incompatible and preferred right by the
contract. 26The sale of the subject real property by Carmelo to Equatorial should now be 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
This Court has always been against multiplicity of suits where all remedies according to the facts and
the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at
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
price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the
latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled
to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From
the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown back into
the river. Why should Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of
real estate have skyrocketed. After having sold the property for P11,300,000.00, why should it be given
another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to
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 may
apply here if the contract is limited to the buying and selling of the real property. However, the
obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8
on the right of first refusal which created the obligation. It should be enforced according to the law on
contracts instead of the panoramic and indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with
its obligation to the property under the right of the first refusal according to the terms at which they
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.
On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in
mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a
contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to
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
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.
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 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 of the
property turned over to it by Carmelo. In fact, during all the years that this controversy was being
litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property.
Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or
Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in
CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded;
petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the
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
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur.
Narvasa, C.J., took no part.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 111538 February 26, 1997
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B.
PROTACIO, and DAVID A. RAYMUNDO, respondents.
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy
the properties subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled
to be 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?
These questions are answered in the affirmative by this Court in resolving this petition for review under
Rule 45 of the Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on
March 29, 1993, in CA-G.R. CV No. 34987 entitled "Paraaque Kings Enterprises, Inc. vs. Catalina L.
Santos, et al.," which affirmed the order 3 of September 2, 1991, of the Regional Trial Court of Makati,
Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a
complaint, 5 which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the
Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Paraaque, Metro Manila,
while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444
Plato Street, Ct., Stockton, California, USA, represented in this action 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 attorney. Defendant David A. Raymundo, is of legal age,
single, with residence and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro
Manila, where they (sic) may be served with summons and other court processes. Xerox copy of the
general power of attorney is hereto attached as Annex "A".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) 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.

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 copy of the
lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation 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".
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 with the conformity of
defendant Santos, the same was duly registered, Xerox copy of the deed of assignment is hereto
attached as Annex "L".
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
"9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall
impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms
and conditions of this lease agreement and shall respect this Contract of Lease 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 to
defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said
sale was in contravention of the contract of lease, for the first option or priority to buy was not offered
by defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto attached as Annex "M".
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of
the properties to defendant Raymundo, the said letter was personally handed by the attorney-in-fact of
defendant Santos, Xerox copy of the letter is hereto attached as Annex "N".
9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos, requesting her
to rectify the error and consequently realizing the error, she had it reconveyed to her for the same
consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of
reconveyance are hereto attached as Annexes "O" and "P".
10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN
MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but
therefore (sic) the said period expired another letter came from the counsel of defendant Santos,
containing the same tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as
Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering the properties for sale expired,
plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION
(P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as Annex "S".
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by
defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION
(P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached as Annex "T".
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of
sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's offer to buy
or two days after she sold her properties. In her reply she stated among others that 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".
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that
plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the letter is hereto
attached as Annex "V".
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant
Raymundo. Xerox copy of the letter is hereto attached as Annex "W".
17. From the preceding facts it is clear that the sale was simulated and that there was a collusion
between the defendants in the sales of the leased properties, on the ground that when plaintiff wrote a
letter to defendant Santos to rectify the error, she immediately have (sic) the property reconveyed it (sic)
to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their exchange of
communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist (sic)
between the defendants.
19. When the property was still registered in the name of defendant Santos, her collector of the rental of
the leased properties was her brother-in-law David Santos and when it was transferred to defendant
Raymundo the collector was still David Santos up to the month of June, 1990. Xerox copies of cash
vouchers are hereto attached as Annexes "X" to "HH", respectively.
20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the
plaintiff and make it appear that the price of the leased property is much higher than its actual value of
FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a higher
price.
21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey,
six (6) doors commercial building amounting to THREE MILLION (P3,000,000.00) PESOS. This
considerable improvement was made on the belief that eventually the said premises shall be sold to the
plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss of
THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as such defendants
should be charged of the same amount for actual damages.
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 entitles plaintiff to
moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.

24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a
deterrent to the commission of similar acts, they should be made to answer for exemplary damages, the
amount left to the discretion of the Court.
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. Xerox copies
of the demand letters are hereto attached as Annexes "KK" to "LL", respectively.
26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy
plaintiff's claim, and was constrained to engaged (sic) the services of undersigned counsel to institute
this action at a contract fee of P200,000.00, as and for attorney's fees, exclusive of cost and expenses of
litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against
defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be
sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as moral damages;
d. Defendants pay exemplary damages left to the discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00 as attorney's fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds
of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause
of action. It ratiocinated thus:
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 offering the properties
for sale to the plaintiff for ~1 5 M. The said offers, however, were 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. For in acquiring the said properties back to her name,
and in so making the offers to sell both by herself (attorney-in-fact) and through her counsel, defendant
Santos was indeed conscientiously complying with her obligation under paragraph 9 of the Lease
Agreement. . . . .
xxx xxx xxx

This is indeed one instance where a Complaint, after barely commencing to create a cause of 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 face of the Complaint itself,
the plaintiffs subsequent protestations of collusion is bereft or devoid of any meaning or purpose. . . . .
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 of estoppel and
laches inasmuch as this resolution is sufficient to dispose the matter. 6
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and
further reasoned that:
. . . . 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 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 be computed under paragraph 9 of the lease
contract, . . . . 7
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8
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 The motion sought to enjoin respondent Raymundo and his counsel from pursuing the
ejectment complaint filed before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct
the dismissal of said ejectment complaint or of any similar action that may have been filed; and to
require respondent Raymundo to explain why he should not be held in contempt of court for forum-
shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the
expiration of the lease contract covering the property subject of this case. The ejectment suit was
decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said
motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the aforequoted complaint
alleging breach of the contractual right of "first option or priority to buy" states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint
because it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of
contract, (2) its right of first refusal founded in law, and (3) damages.
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 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 by petitioner before the Regional Trial Court of Makati stated no valid
cause of action and that petitioner failed 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 the accepted and usual course of judicial
proceedings" so as to merit the exercise by this Court of the power of review under Rule 45 of the Rules
of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that
petitioner's payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to
June 30, 1990, was an acknowledgment of the latter's status as new owner-lessor of said property, by
virtue of which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did not include
the 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 thereof.
The Court's Ruling
Preliminary Issue: Failure to File

Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file
twelve (12) copies of its brief. We have ruled that when non-compliance with the Rules was not
intended for delay or did not result in prejudice to the adverse party, dismissal of appeal on mere
technicalities in cases where appeal is a matter of right may be stayed, in the exercise of the
court's equity jurisdiction. 10 It does not appear that respondents were unduly prejudiced by petitioner's
nonfeasance. Neither has it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
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 cause of action. Since such question assumes the facts alleged in the complaint as true, it
follows that the determination thereof is one of law, and not of facts. There is a question of law in a
given case when the doubt 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
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of
action, such ground must appear on the face of the complaint; that to determine the sufficiency of a
cause of action, only the facts alleged in the complaint and no others should be considered; and that the
test of sufficiency of the facts alleged in a petition or complaint to constitute a cause of action is
whether, admitting the facts alleged, the court could render a valid judgment upon the same in
accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on the part of the
named defendant to respect or not to violate such right, and (3) an act or omission on the part of such
defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the
plaintiff for which the latter may maintain an action for recovery of damages. 12
In determining whether allegations of a complaint are sufficient to support a cause of action, it must be
borne in mind that the complaint does not have to establish or allege facts proving the existence of a
cause of action at 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 of cause of action, the complaint must show that the claim for relief does not
exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action
is regarded as having hypothetically admitted all the averments thereof. 14
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual
breach on 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 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 offering these to petitioner. Santos indeed realized her
error, since she repurchased the properties after petitioner 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 provision of the lease contract when she
finally resold the properties to respondent Raymundo for only P9 million without first offering them to
petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or
other just or equitable relief, is a question which can better be resolved after trial on the merits where
each party can present evidence to prove their respective allegations and defenses. 15
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 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 hold, however, that in order to have full compliance with the contractual right granting petitioner the
first option to purchase, the sale of the properties for the amount of P9 million, the price for which they
were finally sold to respondent Raymundo, should have likewise been first offered to petitioner.
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 (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the
leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies
was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the
selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was 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 more
favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter
lawfully sell the subject property to others, and only under the same terms and conditions previously
offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right
of first priority, "all things and conditions being equal." This Court interpreted this proviso to mean that
there should be identity of terms and conditions to be offered to the Bonnevies and all other prospective
buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even
without the same proviso if the right of first refusal (or the first option to buy) is not to be
rendered illusory.
From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or
offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first
priority under the 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.
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 property by the lessor Carmelo to Equatorial Realty "considering
that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every opportunity to negotiatewithin the 30-day
stipulated period" (emphasis supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided "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 initially offered to sell the leased property to Mayfair for six to seven million pesos.
Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was
heard thereafter from Carmelo. 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 bad faith: Carmelo for knowingly violating the
right of first option of Mayfair, and Equatorial for purchasing the property despite being aware of the
contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow
Mayfair to buy the subject property at the same price of P11,300,000.00.
No cause of action
under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source
of its right of first refusal. It claims to be covered under said law, being the "rightful occupant of the
land and its structures" since it is the lawful lessee thereof by reason of contract. Under the lease
contract, petitioner would have occupied the property for fourteen (14) years at the end of the
contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that
this Court has previously ruled that under
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, . . . . certain prerequisites must be complied with by anyone who wishes to avail
himself of the benefits of the decree." 19 There being no allegation in its complaint that the prerequisites
were complied with, it is clear that the complaint did fail to state a cause of action on this ground.
Deed of Assignment included

the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract
to petitioner did not include the option to purchase. The provisions of the deeds of assignment with

regard to matters assigned were very clear. Under the first assignment between Frederick Chua as
assignor and Lee Ching Bing as assignee, it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights,
interest and participation over said premises afore-described, . . . . 20 (emphasis supplied)
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;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said
leased premises, . . . . 21 (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 assigned lease contract. The deed of assignment need not be very specific as to which
rights and obligations were passed on to the assignee. It is understood in the general provision
aforequoted that all specific rights and obligationscontained in the contract of lease are those referred to
as being assigned. Needless to state, respondent Santos gave her unqualified conformity to both
assignments of rights.
Respondent Raymundo privy

to the Contract of Lease
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 proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by
virtue of his purchase, he 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 properties to him. Both pleadings also alleged collusion
between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. 22 A favorable judgment for the petitioner will necessarily affect the
rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert
its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of
first refusal and that the trial court should thus not have dismissed the complaint, we find no more need
to pass upon the question of whether the complaint states a cause of action for damages or whether the
complaint is barred by estoppel or laches. As these matters require presentation and/or determination of
facts, they can be best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be
denied their day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in
the complaint are theoretically admitted, such admission is merely hypothetical and only for the purpose
of resolving the motion. In case of denial, the movant is not to be deprived of the right to submit its own
case and to submit evidence to rebut the allegations in the complaint. Neither will the grant of the
motion by a trial court and the ultimate reversal thereof by an appellate court have the effect of stifling
such right. 23 So too, the trial court should be given the opportunity to evaluate the evidence, apply the
law and decree the proper remedy. Hence, we remand the instant case to the trial court to allow private
respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of
Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial
Court of Makati for further proceedings.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

SECOND DIVISION
[G.R. No. 149734. November 19, 2004]
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners vs. AYALA
CORPORATION, respondent.
DECISION
TINGA, J.:
The rise in value of four lots in one of the countrys prime residential developments, Ayala Alabang
Village in Muntinlupa City, over a period of six (6) years only, represents big money. The huge price
difference lies at the heart of the present controversy. Petitioners insist that the lots should be sold to
them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be the
selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez[1] filed this Petition for Review on Certiorari[2] dated
October 11, 2001 assailing the Decision[3] of the Court of Appeals dated September 6, 2001 which
reversed the Decision[4] of the Regional Trial Court (RTC) and dismissed their complaint for specific
performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents:
[5]
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses)
entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with
AYALA buying from the Vazquez spouses, all of the latters shares of stock in Conduit Development,
Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a development plan where the land was
divided into Villages 1, 2 and 3 of the Don Vicente Village. The development was then being undertaken
for Conduit by G.P. Construction and Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined as the Retained Area
consisting of 18,736 square meters. This Retained Area was to be retained by the Vazquez spouses. The
area to be developed by Ayala was called the Remaining Area. In this Remaining Area were 4 lots
adjacent to the Retained Area and Ayala agreed to offer these lots for sale to the Vazquez spouses at the
prevailing price at the time of purchase. The relevant provisions of the MOA on this point are:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the date
of this Agreement. x x x
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next
to the Retained Area at the prevailing market price at the time of the purchase.
The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduits
development plan, but Ayalas amended development plan which was still to be formulated as of
the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez

Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a year
later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has pending contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing,
of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this Agreement shall be
true and correct at the time of Closing as though such representations and warranties were made
at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the
execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS,
threatened against or affecting the SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance
with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall
own the Remaining Property, free from all liens and encumbrances and that the Company shall have
no obligation to any party except for billings payable to GP Construction & Development

Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in
accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof, has
no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect
of the Companys income prior to Closing or arising out of transactions or state of facts existing prior
thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at closing or any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative
body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action
or proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement
to which the company is a party or by which it is bound, and no condition exists which, with
notice or lapse of time or both, will constitute such default or breach.
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente
Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder
Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the subcontractor of
G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982,
Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil
Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P. Construction and
Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was
terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both
Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the Retained Area within 3
years from the date of the MOA, the Vasquez spouses sent several reminder letters of the approaching
so-called deadline. However, no demand after April 23, 1984, was ever made by the Vasquez spouses
for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their authorized agent, Engr.
Eduardo Turla, categorically stated that they expected development of Phase 1 to be completed by
February 19, 1990, three years from the settlement of the legal problems with the previous contractor.

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The
four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was
rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering
defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village at
the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse to
plaintiffs attorneys fees in the sum of P200,000.00 and to pay the cost of the suit.
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the
potential claims of GP Construction, Lancer and Del Rosario; Ayalas accountants should have opened
the records of Conduit to find out all claims; the warranty against suit is with respect to the shares of the
Property and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated to
develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to put the
Vasquezes at Ayalas mercy; Ayala did not develop because of a slump in the real estate market; the
MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to purchase
the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA
where the parties had prestations to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did
not breach their warranties under the MOA[6] dated April 23, 1981; that it was obliged to develop the
land where the four (4) lots subject of the option to purchase are located within three (3) years from the
date of the MOA; that it was in delay; and that the option to purchase was valid because it was
incorporated in the MOA and the consideration therefor was the commitment by Ayala Corporation to
petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the
appellate court, Ayala Corporation was never informed beforehand of the existence of the Lancer claim.
In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P.
Constructions lawyers. The Court of Appeals thus held that petitioners violated their warranties under
the MOA when they failed to disclose Lancers claims. Hence, even conceding that Ayala Corporation
was obliged to develop and sell the four (4) lots in question within three (3) years from the date of the
MOA, the obligation was suspended during the pendency of the case filed by Lancer.
Interpreting the MOAs paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation
committed to develop the first phase of its own amended development plan and not Conduits
development plan. Nowhere does the MOA provide that Ayala Corporation shall follow Conduits
development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the
property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never
made a demand for Ayala Corporation to sell the subject lots to them. According to the appellate court,
what petitioners sent were mere reminder letters the last of which was dated prior to April 23, 1984
when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in
fact waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla,
stating that they expect that the development of Phase I will be completed by 19 February 1990, three
years from the settlement of the legal problems with the previous contractor.[7]

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a
right of first refusal there being no separate consideration therefor. Since petitioners refused Ayala
Corporations offer to sell the subject lots at the reduced 1990 price of P5,000.00 per square meter, they
have effectively waived their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated
their warranties under the MOA; that Ayala Corporation was not obliged to develop the Remaining
Property within three (3) years from the execution of the MOA; that Ayala was not in delay; and that
paragraph 5.15 of the MOA is a mere right of first refusal. Additionally, petitioners insist that the Court
should review the factual findings of the Court of Appeals as they are in conflict with those of the trial
court.
Ayala Corporation filed a Comment on the Petition[8] dated March 26, 2002, contending that the
petition raises questions of fact and seeks a review of evidence which is within the domain of the Court
of Appeals. Ayala Corporation maintains that the subcontract between GP Construction, with whom
Conduit contracted for the development of the property under a Construction Contract dated October
10, 1980, and Lancer was not disclosed by petitioners during the negotiations. Neither was the liability
for Lancers claim included in the Audited Financial Statements submitted by petitioners after the
signing of the MOA. These justify the conclusion that petitioners breached their warranties under the
afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-
year period within which Ayala Corporation committed to develop the property should only be counted
thence. Thus, when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in
delay.
In response to petitioners contention that there was no action or proceeding against them at the time
of the execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and
circumstances which gave rise to the Lancer claim were already extant then. Petitioners warranted that
their representations under the MOA shall be true and correct at the time of Closing which shall take
place within four (4) weeks from the signing of the MOA. [9] Since the MOA was signed on April 23,
1981, Closing was approximately the third week of May 1981. Hence, Lancers claims, articulated in a
letter which Ayala Corporation received on May 4, 1981, are among the liabilities warranted against
under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits
but against all kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted
for relying on the express warranty that except for billings payable to GP Construction and advances
made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence,
petitioners cannot claim that Ayala Corporation should have examined and investigated the Audited
Financial Statements of Conduit and should now assume all its obligations and liabilities including the
Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the development of the
first phase of the property within three (3) years from the execution of the MOA. The provision refers to
a mere declaration of intent to develop the first phase of its (Ayala Corporations) own development plan
and not Conduits. True to its intention, Ayala Corporation did complete the development of the first
phase (Phase II-A) of its amended development plan within three (3) years from the execution of the
MOA. However, it is not obliged to develop the third phase (Phase II-C) where the subject lots are
located within the same time frame because there is no contractual stipulation in the MOA therefor. It is
free to decide on its own the period for the development of Phase II-C. If petitioners wanted to impose
the same three (3)-year timetable upon the third phase of the amended development plan, they should

have filed a suit to fix the time table in accordance with Article 1197 [10] of the Civil Code. Having failed
to do so, Ayala Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance of its
alleged obligation. The letter dated October 4, 1983 sent when petitioners were already aware of the
Lancer suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it requested Ayala
Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4, 1984
was merely an inquiry as to the date when the development of Phase 1 will be completed. More
importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners
expectation that Phase 1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and
not an option contract.
Petitioners filed their Reply[11] dated August 15, 2002 reiterating the arguments in their Petition and
contending further that they did not violate their warranties under the MOA because the case was filed
by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on
April 23, 1981. Ayala Corporation admitted that it received Lancers claim before the Closing date. It
therefore had all the time to rescind the MOA. Not having done so, it can be concluded that Ayala
Corporation itself did not consider the matter a violation of petitioners warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an
acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought Conduit with open eyes.
Petitioners also maintain that they had no knowledge of the impending case against Conduit at the
time of the execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of
all billings of GP Construction. Since Lancers claim was actually a claim against GP Construction being
its sub-contractor, it is Ayala Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of its
development plan, it is obliged under the MOA to develop the entire area where the subject lots are
located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their obligation under
the MOA. Apart from their reminder letters dated January 24, February 18 and March 5, 1984, they also
sent a letter dated March 4, 1984 which they claim is a categorical demand for Ayala Corporation to
comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution[12] dated
November 18, 2002. In compliance with this directive, petitioners submitted theirMemorandum[13] dated
February 14, 2003 on even date, while Ayala Corporation filed its Memorandum[14] dated February 14,
2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals
by way of petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to
it, its findings of fact being conclusive on this Court as a matter of general principle. However, since in
the instant case there is a conflict between the factual findings of the trial court and the appellate court,
particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay,
we have to consider the evidence on record and resolve such factual issues as an exception to the
general rule.[15] In any event, the submitted issue relating to the categorization of the right to purchase
granted to petitioners under the MOA is legal in character.

The next issue that presents itself is whether petitioners breached their warranties under the MOA
when they failed to disclose the Lancer claim. The trial court declared they did not; the appellate court
found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when
they failed to disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04,
and for advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no other
liabilities whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value not
reflected or reserved in the financial statements, and those disclosed to Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any instrument or
agreement to which it is a party or by which it is bound.[16]
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners substantially
apprised Ayala Corporation of the Lancer claim or the possibility thereof during the period of
negotiations for the sale of Conduit.
In a letter[17] dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporations Mr.
Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation asked
for and was given information that GP Construction sub-contracted, presumably to Lancer, a greater
percentage of the project than it was allowed. Petitioners gave this information to Ayala Corporation
because the latter intimated a desire to break the contract of Conduit with GP. Ayala Corporation did not
deny this. In fact, Mr. Duartes letter[18] dated March 6, 1984 indicates that Ayala Corporation had
knowledge of the Lancer subcontract prior to its acquisition of Conduit. Ayala Corporation even
admitted that it tried to explorelegal basis to discontinue the contract of Conduit with GP but found this
not feasible when information surfaced about the tacit consent of Conduit to the sub-contracts of GP
with Lancer.
At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the
MOA. Lancers letter[19] dated April 30, 1981 informing Ayala Corporation of its unsettled claim with GP
Construction was received by Ayala Corporation on May 4, 1981, well before the Closing [20] which
occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain
matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation
although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall
own the Remaining Property, free from all liens and encumbrances and that the Company shall have no
obligation to any party except for billings payable to GP Construction & Development Corporation and

advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with
Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has no
liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect
of the Companys income prior to Closing or arising out of transactions or state of facts existing prior
thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against
the Company as at Closing of any liability of any nature and in any amount not fully reflected or
reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened
with, any legal action or other proceedings before any court or administrative body, nor do the
SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or
of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement to
which the Company is a party or by which it is bound, and no condition exists which, with notice or
lapse of time or both, will constitute such default or breach.[21] [Emphasis supplied]
Hence, petitioners warranty that Conduit is not engaged in, a party to, or threatened with any legal
action or proceeding is qualified by Ayala Corporations actual knowledge of the Lancer claim which
was disclosed to Ayala Corporation before the Closing.
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the
advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to in
paragraph 7.1.1, Ayala Corporation undertook responsibility for the payment of all billings of the
contractor GP Construction & Development Corporation after the first billing and any payments made
by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date
is P1,159,012.87.[22]
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for
which GP Construction is liable. Proof of this is Ayala Corporations letter [23] to GP Construction dated
before Closing on May 4, 1981, informing the latter of Ayala Corporations receipt of the Lancer claim
embodied in the letter dated April 30, 1981, acknowledging that it is taking over the contractual
responsibilities of Conduit, and requesting copies of all sub-contracts affecting the Conduit property.
The pertinent excerpts of the letter read:
In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D.
Del Rosario, President of Lancer General Builders Corporation apprising us of the existence of
subcontracts that they have with your corporation. They have also furnished us with a copy of their
letter to you dated 30 April 1981.

Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that
it is necessary, at this point in time, that you furnish us with copies of all your subcontracts affecting the
property of Conduit, not only with Lancer General Builders Corporation, but all subcontracts with other
parties as well[24]
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief[25] dated July 9, 1992 a copy
of the letter[26] dated May 28, 1981 of GP Constructions counsel addressed to Conduit furnishing the
latter with copies of all sub-contract agreements entered into by GP Construction. Since it was
addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of
the letter thereby disclosing to the latter the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The
Lancer sub-contract and claim were substantially disclosed to Ayala Corporation before the Closing date
of the MOA. Ayala Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of
the Lancer suit as an obstacle to its development of the property, it never actually brought up nor sought
redress for petitioners alleged breach of warranty for failure to disclose the Lancer claim until it filed
its Answer[27] dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph
express a commitment or a mere intent on the part of Ayala Corporation to develop the property within
three (3) years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete
the first phase under its amended development plan within three (3) years from the date of this
Agreement.[28]
Notably, while the first phrase of the paragraph uses the word commits in reference to the
development of the Remaining Property into a first class residential subdivision, the second phrase uses
the word intends in relation to the development of the first phase of the property within three (3) years
from the date of the MOA. The variance in wording is significant. While commit [29] connotes a pledge to
do something, intend[30] merely signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporations legal division who assisted
in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Dont talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative character of the
period of development because it will be noted that the sentence refers to and I quote to
complete the first phase under its amended development plan within three (3) years from
the date of this agreement, at the time of the execution of this agreement, your Honor. That
amended development plan was not yet in existence because the buyer had manifested to

the seller that the buyer could amend the subdivision plan originally belonging to the seller
to conform with its own standard of development and second, your Honor, (interrupted)[31]
It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporations part
to complete the first phase under its amended development plan within three (3) years from the
execution of the MOA. Indeed, this paragraph is so plainly worded that to misunderstand its import is
deplorable.
More focal to the resolution of the instant case is paragraph 5.7s clear reference to the first phase of
Ayala Corporations amended development plan as the subject of the three (3)-year intended timeframe
for development. Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph
refers not to Conduits but to Ayala Corporations development plan which was yet to be formulated
when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: The
Buyer hereby commits that to develop the remaining property into a first class residential
subdivision of the same class as New Alabang Subdivision, and that they intend to
complete the first phase under its amended development plan within three years from the
date of this agreement.
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended
development plan here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit D-5 which is the original plan of Conduit?
A: No, it is not.
Q: This Exhibit D-5 was the plan that was being followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the agreement, this
amended development plan was still to be formulated by Ayala?
A: Yes, sir.[32]
As correctly held by the appellate court, this admission is crucial because while the subject lots to
be sold to petitioners were in the first phase of the Conduit development plan, they were in the third or
last phase of the Ayala Corporation development plan. Hence, even assuming that paragraph 5.7
expresses a commitment on the part of Ayala Corporation to develop the first phase of its amended
development plan within three (3) years from the execution of the MOA, there was no parallel
commitment made as to the timeframe for the development of the third phase where the subject lots are
located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the
subject lots for sale to petitioners within three (3) years from the execution of the MOA. It is not that
Ayala Corporation committed or intended to develop the first phase of its amended development plan
within three (3) years. Whether it did or did not is actually beside the point since the subject lots are not
located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.[33]
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed
shall be demandable only when that day comes. However, no such day certain was fixed in the MOA.
Petitioners, therefore, cannot demand performance after the three (3) year period fixed by the MOA for
the development of the first phase of the property since this is not the same period contemplated for the
development of the subject lots. Since the MOA does not specify a period for the development of the
subject lots, petitioners should have petitioned the court to fix the period in accordance with Article
1197[34] of the Civil Code. As no such action was filed by petitioners, their complaint for specific
performance was premature, the obligation not being demandable at that point. Accordingly, Ayala
Corporation cannot likewise be said to have delayed performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject
lots within three (3) years from date thereof, Ayala Corporation could still not be held to have been in
delay since no demand was made by petitioners for the performance of its obligation.
As found by the appellate court, petitioners letters which dealt with the three (3)-year timetable
were all dated prior to April 23, 1984, the date when the period was supposed to expire. In other words,
the letters were sent before the obligation could become legally demandable. Moreover, the letters were
mere reminders and not categorical demands to perform. More importantly, petitioners waived the three
(3)-year period as evidenced by their agent, Engr. Eduardo Turlas letter to the effect that petitioners
agreed that the three (3)-year period should be counted from the termination of the case filed by Lancer.
The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves
to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to
understand that you were unable to accomplish this because of legal problems with the previous
contractor. These legal problems were resolved as of February 19, 1987, and Dr. & Mrs. Vazquez
therefore expect that the development of Phase I will be completed by February 19, 1990, three years

from the settlement of the legal problems with the previous contractor. The reason for this is, as you
know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till the
surrounding area (which is Phase I) is developed and occupied. They have been anxious to build their
residence for quite some time now, and would like to receive assurance from your goodselves regarding
this, in compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their
option to purchase the two lots on each side (a total of 4 lots) adjacent to their Retained Area. They are
concerned that although over a year has elapsed since the settlement of the legal problems, you have not
presented them with the size, configuration, etc. of these lots. They would appreciate being provided
with these at your earliest convenience.[35]
Manifestly, this letter expresses not only petitioners acknowledgement that the delay in the
development of Phase I was due to the legal problems with GP Construction, but also their acquiescence
to the completion of the development of Phase I at the much later date of February 19, 1990. More
importantly, by no stretch of semantic interpretation can it be construed as a categorical demand on
Ayala Corporation to offer the subject lots for sale to petitioners as the letter merely articulates
petitioners desire to exercise their option to purchase the subject lots and concern over the fact that they
have not been provided with the specifications of these lots.
The letters of petitioners children, Juan Miguel and Victoria Vazquez, dated January 23, 1984 [36] and
February 18, 1984[37] can also not be considered categorical demands on Ayala Corporation to develop
the first phase of the property within the three (3)-year period much less to offer the subject lots for sale
to petitioners. The letter dated January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to our property, since we cannot develop
it till you have constructed the same. Allow us to remind you of our Memorandum of Agreement, as per
which you committed to develop the roads to our property as per the original plans of the company, and
that
1. The back portion should have been developed before the front portion which has not been the case.
2. The whole project front and back portions be completed by 1984.[38]
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement
which states respectively:[39]
Even petitioner Daniel Vazquez letter[40] dated March 5, 1984 does not make out a categorical
demand for Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The letter
reads in part:
and that we expect from your goodselves compliance with our Memorandum of Agreement, and a
definite date as to when the road to our property and the development of Phase I will be completed.[41]

At best, petitioners letters can only be construed as mere reminders which cannot be considered
demands for performance because it must appear that the tolerance or benevolence of the creditor must
have ended.[42]
The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be
construed as an option contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the
Retained Area at the prevailing market price at the time of the purchase.[43]
The Court has clearly distinguished between an option contract and a right of first refusal. An
option is a preparatory contract in which one party grants to another, for a fixed period and at a
determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal
contract. It binds the party who has given the option not to enter into the principal contract with any
other person during the period designated, and within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the option. 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.[44]
In a right of first refusal, on the other hand, while the object might be made determinate, the
exercise of the right would be dependent not only on the grantors eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that are yet to be firmed
up.[45]
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an
option contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the period
within which they will be offered for sale to petitioners and, necessarily, the price for which the subject
lots will be sold are not specified. The phrase at the prevailing market price at the time of the purchase
connotes that there is no definite period within which Ayala Corporation is bound to reserve the subject
lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price
at which the subject lots will be offered for sale. The price is considered certain if it may be determined
with reference to another thing certain or if the determination thereof is left to the judgment of a
specified person or persons.[46]
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the
subject lots at the price which Ayala Corporation would be willing to accept when it offers the subject
lots for sale. It is not supported by an independent consideration. As such it is not governed by Articles
1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
the promissor if the promise is supported by a consideration distinct from the price.
Consequently, the offer may be withdrawn anytime by communicating the withdrawal to the other party.
[47]

In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price
of P6,500.00/square meter, the prevailing market price for the property when the offer was made on
June 18, 1990.[48] Insisting on paying for the lots at the prevailing market price in 1984
of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price
to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer in
the amount of P2,000.00/square meter.[49] Ayala Corporation rejected petitioners counter-offer. With this
rejection, petitioners lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners right of first refusal and
should be compelled by an action for specific performance to sell the subject lots to petitioners at the
prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

SUPREME COURT
Baguio City
SECOND DIVISION

G.R. No. 117355 April 5, 2002
RIVIERA FILIPINA, INC., petitioner,

vs.
COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs, namely, Estefania B. Reyes,
Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes, PHILIPPINE CYPRESS CONSTRUCTION &
DEVELOPMENT CORPORATION, CORNHILL TRADING CORPORATION and URBAN DEVELOPMENT
BANK,respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals2 dated June 6, 1994 in CA-G.R.
CV No. 26513 affirming the Decision3 dated March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89
dismissing Civil Case No. Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31, 1989 4 to compel the
defendants therein Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation
(Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018
square meter parcel of land located along EDSA, Quezon City for alleged violation of Rivieras right of first refusal.
It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease
with Riviera. The ten-year (10) renewable lease of Riviera, which started on August 1, 1982, involved a 1,018 square
meter parcel of land located along Edsa, Quezon City, covered and described in Transfer Certificate of Title No.
186326 of the Registry of Deeds of Quezon City in the name of Juan L. Reyes. 5
The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since
the loan with Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the
mortgage thereon. At the public auction sale, the mortgagee bank emerged as the highest bidder. The redemption
period was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the money needed to
redeem the subject property, Reyes decided to sell the same.6
Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the right of first refusal
should the LESSOR decide to sell the property during the term of the lease, "7 Reyes offered to sell the subject property
to Riviera, through its President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However,
Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not
amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter, Angeles requested Reyes
to allow him to consult the other members of the Board of Directors of Riviera.8
Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes Rivieras offer to purchase
the subject property for Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not accept the offer.
This time he asked for Six Thousand Pesos (P6,000.00) per square meter since the value of the property in the area had
appreciated in view of the plans of Araneta to develop the vicinity.9
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed Riviera that Reyes was
selling the subject property for Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and transfer
taxes, registration fees, notarial fees and all other attendant charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your CONTRACT OF
LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of Notary Public Leovillo S.
Agustin), notice is served upon your goodselves for you to exercise "the right of first refusal" in the sale of said
property, for which purpose you are hereby given a period of ten (10) days from your receipt hereof within which to
thus purchase the same under the terms and conditions aforestated, and failing which you shall be deemed to have
thereby waived such pre-emptive right and my client shall thereafter be absolutely free to sell the subject property to

interested buyers.10
To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera sent a letter dated
November 22, 1988 to Atty. Juan, counsel for Reyes, expressing Rivieras interest to purchase the subject property and
that Riviera is already negotiating with Reyes which will take a couple of days to formalize. 11 Riviera increased its
offer to Five Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was still lower
than his quoted price of Six Thousand Pesos (P6,000.00) per square meter. 12 Angeles asked Reyes to give him until the
end of November 1988 for Rivieras final decision. 1wphi1.nt
In a letter dated December 2, 1988, Angeles wrote Reyes confirming Rivieras intent to purchase the subject property
for the fixed and final13 price of Five Thousand Pesos (P5,000.00) per square meter, complete payment within sixty
(60) to ninety (90) days which "offer is what we feel should be the market price of your property." Angeles asked that
the decision of Reyes and his written reply to the offer be given within fifteen (15) days since there are also other
properties being offered to them at the moment.14
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988 informing Riviera that
Rivieras offer is not acceptable to his client. He further expressed, "let it be made clear that, much as it is the earnest
desire of my client to really give you the preference to purchase the subject property, you have unfortunately failed to
take advantage of such opportunity and thus lost your right of first refusal in sale of said property."15
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend and President of
Cypress, his predicament about the nearing expiry date of the redemption period of the foreclosed mortgaged property
with Prudential Bank, the money for which he could not raise on time thereby offering the subject property to him for
Six Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in buying the said property, told Reyes
that he will study the matter and suggested for them to meet the next day.16
They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand Three Hundred Pesos
(P5,300.00) per square meter. After considering the reasons cited by Traballo for his quoted price, Reyes accepted the
same. However, since Traballo did not have the amount with which to pay Reyes, he told the latter that he will look for
a partner for that purpose.17 Reyes told Traballo that he had already afforded Riviera its right of first refusal but they
cannot agree because Rivieras final offer was for Five Thousand Pesos (P5,000.00) per square meter. 18
Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the redemption period of the
foreclosed mortgaged property with Prudential Bank and the deal between Reyes and Traballo was not yet formally
concluded, Reyes decided to approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao
Alinea, to approach Angeles and find out if the latter was still interested in buying the subject property and ask him to
raise his offer for the purchase of the said property a little higher. As instructed, Atty. Alinea met with Angeles and
asked the latter to increase his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that his
offer is Five Thousand Pesos (P5,000.00) per square meter. 19
Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty. Alinea, that his offer is
Five Thousand Pesos (P5,000.00) per square meter payment of which would be fifty percent (50%) down within thirty
(30) days upon submission of certain documents in three (3) days, the balance payable in five (5) years in equal
monthly installments at twelve percent (12%) interest in diminishing balance. 20 With the terms of this second offer,
Angeles admittedly downgraded the previous offer of Riviera on December 2, 1988. 21
Atty. Alinea conveyed to Reyes Rivieras offer of Five Thousand Pesos (P5,000.00) per square meter but Reyes did not
agree. Consequently, Atty. Alinea contacted again Angeles and asked him if he can increase his price. Angeles,
however, said he cannot add anymore.22 Reyes did not expressly offer his subject property to Riviera at the price of
Five Thousand Three Hundred Pesos (P5,300.00) per square meter.23
Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading Corporation, were able to come
up with the amount sufficient to cover the redemption money, with which Reyes paid to the Prudential Bank to redeem

the subject property.24 On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed by Reyes
in favor of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety Five Thousand Four
Hundred Pesos (P5,395,400.00).25 On the same date, Cypress and Cornhill mortgaged the subject property to Urban
Development Bank for Three Million Pesos (P3,000,000.00).26
Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property to it claiming that its right
of first refusal under the lease contract was violated. After several unsuccessful attempts, 27 Riviera filed the suit to
compel Reyes, Cypress, Cornhill and Urban Development Bank to transfer the disputed title to the land in favor of
Riviera upon its payment of the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court dismissed the complaint of Riviera as well as the counterclaims and cross-
claims of the other parties.28 It ruled that the defendants therein did not violate Rivieras right of first refusal,
ratiocinating in this wise:
Resolving the first issue, this Court takes note that since the beginning of the negotiation between the plaintiff and
defendant Reyes for the purchase of the property, in question, the plaintiff was firm and steadfast in its position,
expressed in writing by its President Vicente Angeles, that it was not willing to buy the said property higher than
P5,000.00, per square meter, which was far lower than the asking price of defendant Reyes for P6,000.00, per square
meter, undoubtedly, because, in its perception, it would be difficult for other parties to buy the property, at a higher
price than what it was offering, since it is in occupation of the property, as lessee, the term of which was to expire after
about four (4) years more.
On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes, thru his nephew, Atty.
Alinea, to have the plaintiff buy the property, in question, that he was willing to sell the said property at a price less
than P6,000.00 and a little higher than P5,000.00, per square meter, precisely, because Atty. Alinea, in behalf of his
uncle, defendant Reyes, sought plaintiffs Angeles and asked him to raise his price a little higher, indicating thereby the
willingness of defendant Reyes to sell said property at less than his offer of P6,000.00, per square meter.
This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right of first refusal to buy
the subject property at a price of P5,300.00, per square meter which is the amount defendants Cypress/Cornhill bought
the said property from defendant Reyes. For, it was again given such an opportunity to exercise its right of first refusal
by defendant Reyes had it only signified its willingness to increase a little higher its purchase price above P5,000.00,
per square meter, when its President, Angeles, was asked by Atty. Alinea to do so, instead of adamantly sticking to its
offer of only P5,000.00 per square meter, by reason of which, therefore, the plaintiff had lost, for the second time, its
right of first refusal, even if defendant Reyes did not expressly offer to sell to it the subject land at P5,300.00, per
square meter, considering that by the plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a
little, the plaintiff is to be considered as having forfeited again its right of first refusal, it having refused to budged from
its regid (sic) offer to buy the subject property at no more than P5,000.00, per square meter.
As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly and categorically offer to
the plaintiff the subject property at P5,300.00, per square meter, in order that he can comply with his obligation to give
first refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff having had already lost its right of first
refusal, at the first instance, by refusing to buy the said property at P6,000.00, per square meter, which was the asking
price of defendant Reyes, since to do so would be a useless ceremony and would only be an exercise in futility,
considering the firm and unbending position of the plaintiff, which defendant Reyes already knew, that the plaintiff, at
any event, was not amenable to increasing its price at over P5,000.00, per square meter.
Dissatisfied with the decision of the trial court, both parties appealed to the Court of Appeals. 29 However, the appellate
court, through its Special Seventh Division, rendered a Decision dated June 6, 1994 which affirmed the decision of the
trial court in its entirety. 30 In sustaining the decision of the trial court, the Court of Appeals adopted the above-quoted
ratiocination of the trial court and further added:
To put things in its proper perspective in accordance with the peculiar attendant circumstances herein, particular stress

should be given to RIVIERAs uncompromising counter offer of only P5,000.00 per square meter on all the occasions
when REYES offered the subject property to it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit
"D", p. 68, Rollo) justified its rigid offer by saying that "the above offer is what we feel should be the market price of
your property." If that be the case, We are convinced, the same manner that REYES was, that RIVIERA was unwilling
to increase its counter offer at any present or future time. RIVIERAs unilateral valuation of the subject property thus
binds him, it cannot now be heard to claim that it could have upped its offer had it been informed of CYPRESS and
CORNHILLS offer of P5,000.00 (sic) per square meter. Defendants CYPRESS and CORNHILL were therefore right
in saying that:
On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could not be faulted for
believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER SQUARE METER
ON HIS PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA. Injustice (sic) and equity,
RIVIERA must be deemed in estoppel in now belatedly asserting that it would have been willing to pay a price higher
than P5,000.00 x x x." (Defendants-Appellees Cypress and Cornhills Brief, p. 8)
For this reason, no adverse inference can be drawn from REYES failure to disclose to RIVIERA the intervening
counter-offer of CYPRESS and CORNHILL.
It would have been far different had REYES non-disclosure of CYPRESS and CORNHILLs counter-offer to
RIVIERA resulted in the sale of the subject property at equal or less than RIVIERAs offer; in which case, REYES
would have been rightly accused of cunningly circumventing RIVIERAs right of first refusal. But the incontrovertible
antecedents obtaining here clearly reveal REYES earnest efforts in respecting RIVIERAs contractual right to initially
purchase the subject property. Not only once but twice did REYES approach RIVIERA, the last one being the most
telling indication of REYES sincerest intention in RIVIERA eventually purchasing the subject property if only the
latter would increase a little its offer of P5,000.00 per square meter. And to this REYES was desperately willing to
accede to despite the financial quandary he was then in as the expiration of the redemption period drew closer and
closer, and despite the better offer of CYPRESS and CORNHILL. REYES unquestionably had displayed good faith.
Can the same be said of RIVIERA? We do not think so. It appears that RIVIERA all along was trying to push REYES
back against the wall, for RIVIERA was well-aware of REYES precarious financial needs at that time, and by clinging
to its offer, REYES might eventually succumb to its offer out of sheer desperation. RIVIERA was, to be frank,
whimsically exercising its contractual right to the prejudice of REYES who had commendably given RIVIERA extra
leeway in exercising it. And to this We say that no amount of jurisprudence RIVIERA might avail of for the purpose of
construing the right of first refusal, however enlightening and persuasive they may be, will cover-up for its arrogant
exercise of its right as can be gleaned from the factual premises. Equity in this case tilts in favor of defendants REYES,
CYPRESS and CORNHILL that the consummated sale between them concerning the subject property be given this
Courts imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to blame. For after all, REYES
fundamental and intrinsic right of ownership which necessarily carries with it the exclusive right to dispose of it to
whoever he pleases, must ultimately prevail over RIVIERAs right of first refusal which it unscrupulously tried to
exercise.
From this decision, Riviera filed a motion for reconsideration, 31 but the appellate court denied the same in a Resolution
dated September 22, 1994.32
Hence, Riviera interposed the instant petition anchored on the following errors: 33
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT

TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA, INC.
ALREADY LOST ITS RIGHT OF FIRST REFUSAL.
II

TO LACK OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER, NOT
RESPONDENT JUAN L. REYES, WHICH HAD BEEN THOROUGHLY DECEIVED BY THE LATTER OUT OF
ITS RIGHTS TO ITS CONTINUING PREJUDICE.
III

TO LACK OR EXCESS OF ITS JURISDICTION IN DENYING RECONSIDERATION.
IV

TO LACK OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONERS APPEAL AT A TIME WHEN THE
PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE ALLEGED
DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS
RESOLUTION DENYING RECONSIDERATION, IS NULL AND VOID.
At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave abuse of discretion
amounting to lack or excess of jurisdiction, the instant petition is, as it should be, treated as a petition for review under
Rule 45 and not as a special civil action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules
of Civil Procedure.
The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that errors of jurisdiction are
best reviewed in a special civil action for certiorari under Rule 65, while errors of judgment are correctible only by
appeal in a petition for review under Rule 45.34 The rationale for the distinction is simple. When a court exercises its
jurisdiction an error committed while so engaged does not deprive it of the jurisdiction being exercised when the error
is committed. If it did, every error committed by a court would deprive it of its jurisdiction and every erroneous
judgment would be a void judgment. This cannot be allowed. The administration of justice would not countenance
such a rule. Thus, an error of judgment that the court may commit in the exercise of its jurisdiction is not correctible
through the original special civil action of certiorari. 35 Appeal from a final disposition of the Court of Appeals, as in the
case at bar, is by way of a petition for review under Rule 45.36
In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded or violated by Reyes
by the latters sale of the subject property to Cypress and Cornhill. It contends that the right of first refusal principally
amounts to a right to match in the sense that it needs another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in
Philippine juristic sphere only within the last decade. It all started in 1992 with Guzman, Bocaling & Co. v.
Bonnevie37 where the Court held that a lease with a proviso granting the lessee the right of first priority "all things and
conditions being equal" meant that there should be identity of the terms and conditions to be offered to the lessee and
all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a
third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted
to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of the New
Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,38 the Court en banc departed from the
doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated
the right of first refusal. The Court held that the so-called "right of first refusal" cannot be deemed a perfected contract
of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final judgment does
not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in a proper forum for
the purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,39 the Court en bancreverted back to
the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of one
of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some
incompatible and preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals,40 the Court affirmed the nature of and
the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings in
Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that in
order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the
properties for the price for which they were finally sold to a third person should have likewise been first offered to the
former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first
refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer
to sell of the seller or offer to purchase of any prospective buyer.
Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the
lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of
another person, while valid, is rescissible.
However, we must remember that general propositions do not decide specific cases. Rather, laws are interpreted in the
context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled
upon on the basis of isolated clinical classroom principles. 41 Analysis and construction should not be limited to the
words used in the contract, as they may not accurately reflect the parties true intent. 42 The court must read a contract as
the average person would read it and should not give it a strained or forced construction. 43
In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation of contracts that the
intention of the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and
subsequent acts shall be principally considered. 44 Where the parties to a contract have given it a practical construction
by their conduct as by acts in partial performance, such construction may be considered by the court in construing the
contract, determining its meaning and ascertaining the mutual intention of the parties at the time for contracting. The
parties practical construction of their contract has been characterized as a clue or index to, or as evidence of, their
intention or meaning and as an important, significant, convincing, persuasive, or influential factor in determining the
proper construction of the contract.45
An examination of the attendant particulars of the case do not persuade us to uphold Rivieras view. As clearly shown
by the records and transcripts of the case, the actions of the parties to the contract of lease, Reyes and Riviera, shaped
their understanding and interpretation of the lease provision "right of first refusal" to mean simply that should the
lessor Reyes decide to sell the leased property during the term of the lease, such sale should first be offered to the
lessee Riviera. And that is what exactly ensued between Reyes and Riviera, a series of negotiations on the price per
square meter of the subject property with neither party, especially Riviera, unwilling to budge from his offer, as
evidenced by the exchange of letters between the two contenders.
It can clearly be discerned from Rivieras letters dated December 2, 1988 and February 4, 1989 that Riviera was so
intractable in its position and took obvious advantage of the knowledge of the time element in its negotiations with
Reyes as the redemption period of the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or
leave-it" attitude in its negotiations with Reyes. It quoted its "fixed and final" price as Five Thousand Pesos
(P5,000.00) and not any peso more. It voiced out that it had other properties to consider so Reyes should decide and
make known its decision "within fifteen days." Riviera, in its letter dated February 4, 1989, admittedly, even
downgraded its offer when Reyes offered anew the property to it, such that whatever amount Reyes initially receives
from Riviera would absolutely be insufficient to pay off the redemption price of the subject property. Naturally, Reyes
had to disagree with Rivieras highly disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Rivieras lips, as it were, but a seemingly whimper of
acceptance when the counsel of Reyes strongly expressed in a letter dated December 5, 1989 that Riviera had lost its
right of first refusal. Riviera cannot now be heard that had it been informed of the offer of Five Thousand Three

Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach in its
negotiations with Reyes showed crystal-clear that there was never any need to disclose such information and doing so
would be just a futile effort on the part of Reyes. Reyes was under no obligation to disclose the same. Pursuant to
Article 133946 of the New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a
special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication
should be made.47 We apply the general rule in the case at bar since Riviera failed to convincingly show that either of
the exceptions are relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal as understood by the parties herein, the
question as to what is to be included therein or what is meant by the same, as in all other provisions of the contract, is
for the parties and not for the court to determine, and this question may not be resolved by what the parties might have
provided had they thought about it, which is evident from Riviera claims, or by what the court might conclude
regarding abstract fairness.48
The Court would be rewriting the contract of Reyes and Riviera under the guise of construction were we to interpret
the right of first refusal as Riviera propounds it, despite a contrary construction as exhibited by its actions. A court,
even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them,
simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a
contract for the parties which they did not make themselves or the imposition upon one party to a contract of an
obligation not assumed.49
On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the appellate court of the
non-substitution of Reyes, who died during the pendency of the appeal, the Court notes that when Riviera filed its
petition with this Court and assigned this error, it later filed on October 27, 1994 a Manifestation 50 with the Court of
Appeals stating that it has discovered that Reyes is already dead, in view of which the appellate court issued a
Resolution dated December 16, 1994 which noted the manifestation of Riviera and directed the counsel of Reyes to
submit a copy of the latters death certificate and to file the proper motion for substitution of party. 51Complying
therewith, the necessary motion for substitution of deceased Reyes, who died on January 7, 1994, was filed by the
heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes. 52 Acting on the motion
for substitution, the Court of Appeals granted the same.53
Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of Court, upon which Riviera
anchors its argument, has already been amended by the 1997 Rules of Civil Procedure. 56 Even applying the old Rules,
the failure of a counsel to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the
court of the death of his client and no substitution of such is effected, will not invalidate the proceedings and the
judgment thereon if the action survives the death of such party, 57 as this case does, since the death of Reyes did not
extinguish his civil personality. The appellate court was well within its jurisdiction to proceed as it did with the case
since the death of a party is not subject to its judicial notice. Needless to stress, the purpose behind the rule on
substitution of parties is the protection of the right of every party to due process. This purpose has been adequately met
in this case since both parties argued their respective positions through their pleadings in the trial court and the
appellate court. Besides, the Court has already acquired jurisdiction over the heirs of Reyes by voluntarily submitting
themselves to our jurisdiction.58
In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its
challenged Decision.1wphi1.nt
WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994
in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, and Quisumbing, JJ., concur.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 106837 August 4, 1993
HENRY MACION and ANGELES MACION, petitioners,

vs.
HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the Regional Trial Court Branch
14, Cotabato City and DELA VIDA INSTITUTE represented by MS. JOSEPHINE
LANZADERAS, respondents.
Leonardo J. Rendon for petitioners.
Mama Dalandag for private respondent Dela Vida Institute.
ROMERO, J.:
The subject of this litigation revolves around two (2) parcels of adjoining lots owned by petitioners
which are the proposed extension sites of De La Vida Institute, an educational institution located in
Cotabato City.
On April 26, 1991, the petitioners and private respondent entered into a contract to sell under which
terms, private respondent, as president of De la Vida Institute, assured petitioners that they would buy
the said properties on or before July 31, 1991 in the amount of P1,750,000.00. In the meantime,
petitioners surrendered the physical possession of the two lots to private respondent who promptly built
an edifice worth P800,000.00. 1
But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint for
unlawful detainer against private respondent (MTCC Civil Case No. 2739). In retaliation, private
respondent filed a complaint for reformation of the contract to sell executed on April 26, 1991 (Civil
Case 592). 2 Afterwards, the parties met to settle their differences.
On February 6, 1992, the parties entered into a compromise agreement which stipulated among others
that petitioners would give private respondent five (5) months to raise the amount of
P2,060,000.00; 3 that in the event of failure to raise the said amount within the designated period, private
respondent would vacate the premises immediately. The compromise agreement, inter alia, provided:
6. that upon the execution of this agreement, the defendant will furnish the plaintiff with xerox copy of
the land title for each lot which the latter may use for the purpose of providing information in securing a
loan from any financing or banking institution of their choice.
7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff succeeds in
obtaining funds for the purpose of settling their obligations with defendants in the total sum of
P2,060,000.00 the latter shall oblige themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the subject of this case and turn-over to said

plaintiff the owner's duplicate copy of TCT Nos. T-22004 and T-22005 of the Registry of Deeds for the
City of Cotabato.
In affirmation of the compromise agreement, the Board of Trustees of De La Vida College passed
thereafter a resolution expressing full support to the said agreement entered into between the parties. 4
On March 10, 1992, private respondent wrote petitioners that "the compromise agreement we have had
in the presence of Judge Guiani is not the same as per attached xerox copy you gave us." In that letter,
which essentially was a counter proposal, private respondent said that the price of P2,060,000.00 was
higher than they were willing to pay in the amount of P2,000,000.00 only. 5 Other matters taken up in
the letter were: De la Vida Institute would admit students and hold classes until July 6, 1992 but in case
they (private respondent) fail to deliver the said amount, they would voluntarily vacate the premises and
that "in the event that the bank and other lending institutions give its nod and approval to our loan and
require the submission of other documents, you will give to us the Deed of Sale and Owner's copies of
the Titles of the two (2) to t expedite release of the amount concerned." 6
On March 25, 1992, the trial court approved the compromise agreement dated February 6, 1992.
Two (2) months after, private respondents, alleging that they had negotiated a loan from the Bank of the
Philippine Islands, wrote letters dated May 19, 20 and 26 requesting petitioners to execute with them a
contract to sell in their favor. On May 28, 1992, private respondent filed with the trial court an urgent
motion for an order directing petitioners to execute a contract to sell in private respondent's favor in
accordance with paragraph 7 of the compromise agreement. 7
On July 8, 1992, petitioners filed a motion for execution of judgement alleging that after a lapse of five
(5) months from February 6, 1992, private respondent have failed to settle their obligations with
petitioners. 8
In its order dated August 6, 1992, respondent judge denied the motion for execution and directed
petitioners to execute the required contract to sell in favor of private respondent. Respondent judge
opined that the proximate cause of private respondent's failure to comply with the compromise
agreement was the refusal of petitioners to execute a contract to sell as required under the agreement.
Respondent judge added that petitioners should have executed the contract to sell because anyway they
would not be prejudiced since there was no transfer of ownership involved in a contract to sell. 9
Hence this instant petition for certiorari, with prayer for a temporary restraining order enjoining
respondent judge from enforcing its August 6, 1992 order.
On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that private respondent be
ordered to consign with the court below P135,000.00 representing rentals from May 1991 to January
1992. In our resolution dated November 18, 1992, we granted said prayer. On March 9, 1992, private
respondent consigned with the Office of the Clerk of Court the sum of P135,000.00. On March 29,
1993, petitioners filed with the lower court a motion to withdraw the consigned amount and on April 5,
1993, the trial court released the consigned amount to petitioners. 10
The issue in the case at bar is whether or not respondent judge committed grave abuse of discretion in
ordering petitioner to execute a contract to sell in favor of private respondent.
We dismiss the petition.

The resolution of this case hinges on whether the compromise agreement gives private respondent-
buyer the right to demand from petitioner-sellers the execution of a contract to sell in favor of the
former.
Apparently, paragraph 7 of the compromise agreement does not give such right to private respondent-
buyer. To wit:
7. that if within the period of five (5) months from and after February 6, 1992, the plaintiff succeeds in
obtaining funds for the purpose of settling their obligations with defendants in the total sum of
P2,060,000.00 the latter shall oblige themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the subject of this case and turn-over to said
plaintiff the owner's duplicate copy of TCT Nos. T-22004 and T-22005 of the Registry of Deeds for the
City of Cotabato. (Italics provided).
From the aforecited paragraph, it is clear that the seller is obliged to execute a Deed of Sale and not a
Contract to Sell upon payment of the full price of P2.06 million. Thereafter, the sellers would turn over
to the buyers, respondents herein, the owner's duplicate copy of Transfer Certificate of Title Nos. T-
22004 and T-22005.
However, in the interpretation of the compromise agreement, we must delve in the contemporaneous
and subsequent acts of the parties to fathom the real intention of the parties. 11 A review of the facts
reveal that even prior to the signing of the compromise agreement and the filing of Civil Case No. 592
before the trial court, the parties had already entered into a contract to sell. Thereafter, when the
transaction failed to materialize, the parties filed suits against each other; petitioners, their unlawful
detainer case, and private respondent a complaint for reformation of contract, alleging that petitioners in
fact had caused the preparation of the contract to sell dated April 26, 1991 with the understanding that
the land would be used as a collateral in obtaining a loan with DBP.
Said contract to sell was superseded by the compromise agreement entered into on February 6, 1992
containing the abovequoted paragraph. It must be recalled that private respondent was given five (5)
months from February 6, 1992, i. e., on or before July 6, 1992 to secure the purchase price of the two
(2) lots. We note that within the time frame agreed upon by the parties, private respondents wrote three
(3) letters dated may 19, 20 and 26 requesting petitioners to execute a contract to sell in its favor.
Under these factual circumstances, we opine that the compromise agreement must be interpreted as
bestowing upon private respondent-buyer the power to demand a contract to sell from petitioner-sellers.
Where the seller promised to execute a deed of absolute sale upon completing payment of the price, it is
a contract to sell. 12 In the case at bar, the sale is still in the executory stage since the passing of title is
subject to a suspensive condition, namely, that if private respondent is able to secure the needed funds to
be used in the purchased of the two (2) lots owned by petitioners. A mere executory sale, one where the
sellers merely promise to transfer the property at some future date, or where some conditions have to be
fulfilled before the contract is converted from an executory to an executed one, does not pass ownership
over the real estate being sold. 13
In our jurisdiction, it has been that an accepted bilateral promise to buy and sell is in a sense similar to,
but not exactly the same, as a perfected contract of sale because there is already a meeting of minds
upon the thing which is the object of the contract and upon the price. 14 But a contract of sale is
consummated only upon the delivery and payment. It cannot be denied that the compromise agreement,
having been signed by both parties, is tantamount to a bilateral promise to buy and sell a certain thing
for a price certain. Hence, this gives the contracting parties rights in personam, such that each has the
right to demand from the other the fulfillment of their respective undertakings. 15 Demandability may be
exercised at any time after the execution of the Deed. 16
The order of respondent judge directing petitioners to issue a contract to sell does not place petitioners
in any danger of losing their property without consideration, for, to repeat, in a contract to sell there is
no immediate transfer of ownership. In contracts to sell, payment is a positive suspensive condition,
failure of which does not constitute a breach but an event that prevents the obligation of the vendor to
convey title from materializing, in accordance with Article 1184 of the Civil Code. 17 Petitioners as
promisors were never obliged to convey title before the happening of the suspensive condition. In fact,
nothing stood in the way of their selling the property to another after a unsuccessful demand for said
price upon the expiration of the time agreed upon.
Since the period given by the petitioners under the compromise agreement has already lapsed, we order
the trial court to fix anew a period within which private respondents could secure the needed funds for
the purchase of the
land. 18 Moreover, considering that private respondents have only consigned rentals from May 1991 to
January 1992 and have since accepted students for the present school year, it is only proper that they be
ordered to deposit the monthly rentals collected thereafter with the trial court.
WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby ordered to EXECUTE a
contract to sell in favor of private respondents. On the other hand, private respondent is ordered to
DEPOSIT with the trial court current rentals pending consummation of the transaction between the
parties. The trial court is ordered to FIX anew the period within which private respondents may be given
the opportunity to raise funds for the purchase of the two (2) adjoining lots owned by petitioners.
SO ORDERED.
Feliciano, Bidin, Melo and Vitug, JJ., concur.

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Republic of the Philippines

G.R. No. 166862 December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner,

CALLEJO, SR., J.:

FORMATION OF CONTRACT SALE 1

FORMATION OF CONTRACT SALE 2

FORMATION OF CONTRACT SALE 3

3. Whether or not there is a perfected contract of sale between the parties.26

On appeal to the CA, petitioner made the following allegations:

FORMATION OF CONTRACT SALE 4

THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS

THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-

THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL

FORMATION OF CONTRACT SALE 5

Petitioner filed a motion for reconsideration, which the CA likewise denied.

I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT

IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF

FORMATION OF CONTRACT SALE 7

The Ruling of the Court

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

FORMATION OF CONTRACT SALE 8

FORMATION OF CONTRACT SALE 9

FORMATION OF CONTRACT SALE 10

FORMATION OF CONTRACT SALE 11

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur.

FORMATION OF CONTRACT SALE 12

G.R. No. 124791 February 10, 1999

JOSE RAMON CARCELLER, petitioner,

The factual background of this case is quite simple.

b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87

FORMATION OF CONTRACT SALE 13

Hence, the instant petition for review.

FORMATION OF CONTRACT SALE 14

FORMATION OF CONTRACT SALE 15

FORMATION OF CONTRACT SALE 16

Costs against private respondent.

Bellosillo, Puno, Mendoza and Buena, JJ., concur.

FORMATION OF CONTRACT SALE 17

G.R. No. 134971 March 25, 2004

HERMINIO TAYAG, petitioner,

CALLEJO, SR., J.:

The Case for the Petitioner

FORMATION OF CONTRACT SALE 18

In his complaint, the petitioner alleged, inter alia, the following:

FORMATION OF CONTRACT SALE 19

A copy of the letter is hereto attached as Annex "A" etc.;

4. Making the Writ of Preliminary Injunction permanent;

FORMATION OF CONTRACT SALE 22

FORMATION OF CONTRACT SALE 23

FORMATION OF CONTRACT SALE 24

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE

THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION

THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO

THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF

THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF

The Comment/Motion of the

Q: But you have not met any of these Lacsons?

A: Not yet, sir.

A: I do not know, sir.

A: I am aware of that, sir.39

We are one with the Court of Appeals in its ruling that: