EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC. vs.

MAYFAIR
THEATER, INC.

(G.R. No. 106063 November 21, 1996)

FACTS:
CARMELO owned a parcel of land, together with two 2-storey buildings constructed thereon
(Claro M Recto Avenue, Manila).
CARMELO entered into a contract of lease with MAYFAIR for the latter's lease of a portion of
Carmelo's property for use by Mayfair as a motion picture theatre known as "MAXIM
THEATRE." Two years later, MAYFAIR entered into a second contract of lease with Carmelo for
similar use. The other movie house is known as "MIRAMAR THEATRE".
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.
Mr. Henry PASCAL of Carmelo informed Mr. Henry YANG, President of Mayfair that Carmelo
was desirous of selling the entire Claro M. Recto property. Mr. Pascal asked Mr. Yang if the
latter was willing to buy the property for Six to Seven Million Pesos.
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.
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.
TRIAL COURT dismissed the complaint. 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.
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.

TOPIC: OPTION CONTRACT

ISSUE: WON THERE IS AN OPTION CONTRACT?

RULING: NO.

Option is one that 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
price. The rule so early established in this jurisdiction is that the deed of option or the OPTION
CLAUSE IN A CONTRACT, in order to be valid and enforceable, must, among other things, indicate the
definite price at which the person granting the option, is willing to sell.
*****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.
TOPIC: RIGHT OF FIRST REFUSAL
ISSUE: WON CA IS CORRECT IN CONCLUDING THERE IS A RIGHT OF FIRST REFUSAL?

RULING: YES.

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.

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.

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.

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*****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.

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.

***applies only to right of first refusal attached to a valid principal contract****

SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO vs.

HONORABLE COURT OF APPEALS and SPOUSES MARTIN VALLEJERA and APOLONIA OLEA
(G.R. No. 83759 July 12, 1991)

FACTS:

SPS VALLEJERA filed this action against the defendants-spouses (petitioners herein) seeking to
redeem Lot No. 1860 of the Himamaylan Cadastre which was previously sold to SPS VASQUEZ
on September 21, 1964.
The said lot was registered in the name of SPS VALLEJERA. The same was leased by plaintiffs
to SPS VASQUEZ.
SPS VALLEJERA sold the lot to SPS VAAQUEZ 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 SPS VALLEJERA the right to
repurchase the lot for P12,000.00, said Exh. E likewise duly ratified and notarized.
SPS VALLEJERA 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.
 SPS VASQUEZ 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.
TRIAL COURT rendered judgment against the SPS VASQUEZ, 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.
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 SPS VALLEJERA.

ISSUE: WON THE OPTION TO REPURCHASE IS BINDING UPON SPS VASQUES DESPITE LACK
OF CONSIDERATION?

RULING: NO. LACK of consideration and no ACCEPTANCE.

****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 record, however, does not show that the SPS VALLEJERA accepted the "Right to
Repurchase" the land in question. 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 cannot 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. It only served as notice of the existence of such
unilateral promise of the petitioners to resell the same to the private respondents. 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.
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.

AQUILINO NIETES vs. HON. COURT OF APPEALS & DR. PABLO C. GARCIA
(G.R. No. L-32873 August 18, 1972)

FACTS:

NIETES and 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:
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:
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;
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 different from what was stipulated.
 DR. GARCIA'S COUNSEL wrote to NIETES the letter Exhibit 1 (also Exhibit V) stating its desires
to rescind your contract.
NIETES deposited with the branch office of the Agro-Industrial Bank in Angeles City checks
amounting to the balance of the purchase price of the property, but he withdrew it after the
checks had been cleared.
NIETES commenced the present action, in the Court of First Instance of Pampanga, for specific
performance for the alleged obligation to execute in his favor a deed of absolute sale of the
leased property, and to compel him GARCIA to accept whatever balance of the purchase price
is due him.
TRIAL COURT rendered its decision ordering GARCIA to execute the Deed of Absolute Sale of
property originally leased together with the school building and other improvements thereon.
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.
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.
ISSUE: WON NIETES SHOULD BE ALLOWED TO EXERCISE HIS OPTION TO BUY?

RULING: YES

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."
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.
 ANG YU ASUNCION, ARTHUR GO AND KEH TIONG vs. THE HON. COURT OF APPEALS and
BUEN REALTY DEVELOPMENT CORPORATION
(G.R. No. 109125 December 2, 1994)

FACTS:

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, alleging, among
others, that:
1. plaintiffs are tenants or lessees of residential and commercial spaces owned by
defendants
2. 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
3. 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;
4. 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.
The TRIAL COURT (DISMISSED) found that defendants' offer to sell was never accepted by the
plaintiffs.
CA affirmed with modification the lower court's judgment.
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.

ISSUE: WON ASUNCION AND TIONG HAVE THE RIGHT OF FIRST REFUSAL?

RULING: NO.

*****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.

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.

**** would still apply to rights of first refusal constituted as separate contract****

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OPTION CONTRACT:
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.
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