1. MANILA METAL CONTAINER CORP. V.

PNB

RECIT READY:

Manila Metal was the owner of a parcel of land in Mandaluyong. To secure a P900K loan it
obtained from PNB, Manila Metal executed a real estate mortgage over the lot. PNB sought to
have the property foreclosed and sold at a public auction. PNB was the highest bidder. Manila
Metal requested an extension of time to redeem the property and to repurchase such on
installment. The Special Assets Management Department (SAMD) prepared a statement of
account and as of 1984, Manila Metal's obligation amounted to P1.6M, which includes the bid
price, interests, advances of insurance premiums, advances on realty taxes, etc. When apprised
of the statement of account, Manila Metal remitted P725K to PNB as deposit to repurchase. In
the meantime, SAMD recommended that Manila Metal be allowed to repurchase for P1.6M.
PNB, however, rejected the recommendation and offered the property at P2.66M, its
minimum market value. Manila Metal refused and reiterated that it already acceded to
SAMD's offer, to which it remitted P725K. In 1985, PNB accepted the offer but for P1.9M cash
less the P725K deposit. Manila Metal, again, rejected this offer and filed a complaint against
PNB for the annulment of foreclosure or specific performance, contending that there was a
valid contract of sale between Manila Metal and SAMD.

The main issue is whether or not there was a valid contract of sale.

The Supreme Court held that that there was there was no perfected contract of sale between
PNB and Manila Metal because there was no agreement as to the price certain. The Statement
of Account prepared by SAMD cannot be classified as a counter-offer. It is simply a recital of
its total monetary claims against Manila Metal. The amount stated therein could not be
considered as a counter-offer since it was only a recommendation subject to PNB's Board of
Directors' approval. Neither can the receipt of P725K by SAMD be regarded as evidence of a
perfected contract of sale. The amount is merely an acknowledgment of the receipt of P725K as
deposit to repurchase the property. It was accepted by respondent on the condition that the
purchase price will still be approved by the Board of Directors. Pending such approval,
Manila Metal cannot legally claim that PNB is already bound by any contract of sale with it.

FACTS: Petitioner was the owner of a 8,015 square meter parcel of land located in
Mandaluyong City. 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 Amendment 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. 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, 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
Sale issued in its favor was registered with the Office of the Register of Deeds of Rizal.

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. 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.

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. 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.

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.

Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter
dated December 12, 1984 requesting for a reconsideration. 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 for
P1,574,560.47, 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.

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.

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. 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

ISSUE: Whether or not petitioner and respondent PNB had entered into a perfected contract for
petitioner to repurchase the property from respondent.

HELD: NO.

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.The request, which was
made through a letter dated August 25, 1983, was referred to the respondent's main branch for
appropriate action. Before respondent could act on the request, petitioner again wrote to
respondent.
When the petitioner was told that respondent did not allow "partial redemption," it sent a letter
to respondent's President reiterating its offer to purchase the property. 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.

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. This contention is likewise negated by the stipulation
of facts which the parties entered into in the trial court:

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.

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.

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 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.

2. CARCELLER v CA

RECIT READY: Carcellar leased 2 parcels of land owned by State Investment Houses (SIHI),
the period being 18 months at P10,000/month rent. Under the lease, SIHI guaranteed Carceller
the exclusive right and option to purchase the said lots within the lease period for the
aggregate amount of P1.8M, exercised by a WRITTEN NOTICE. Around 3 weeks before the
end of the lease period, SIHI informed Carceller of the impending termination of the lease and
the short period left for him to purchase. Carcellar wrote to SIHI expressing his intent to
exercise the option, but begged for an extension to raise funds, but SIHI refused. After 18 days,
SIHI denied this, and it was only then that Cacellar notified him of exercrising the option
formally. Nevertheless, SIHI offered the property to him for lease for another year, but this
time, it also offered it for sale to the public. Even after the lease expired, Carceller still expressed
his intention to exercise the option. Carceller thus sued SIHI for specific performance to
compel SIHI to execute a Deed of Sale in his favor.

The issue in this case is whether or not Canceller may still exercise the option to purchase the
property.

The Supreme Court held that yes, Canceller may still exercise the option to purchase the
property. Even if Carceller failed to purchase the property within the said period, still equity
must intervene. He had introduced substantial improvements thereon; to rule against him
would cause damage to him and SIHI does not stand to gain much therefrom. SIHI clearly
intended to sell the lot to him considering that it was under financial distress, that is constantly
reminded him of the option and the impending deadline.

The delay of 18 days is not substantial. Carcellers letter to SIHI expressing his intent to
purchase the lot is fair notice of intent to exercise the option despite the request for extension.
His first letter and his formal exercise were within reasonable time frame. Carceller should thus
be allowed to buy the lots.

FACTS: Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two
(2) parcels of land in Bulacao, Cebu City. On January 10, 1985, petitioner and SIHI entered into a
lease contract with option to purchase 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:

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.

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.
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.

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.

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.

On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous stand on
the latters 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.

ISSUE: Whether or not petitioner be allowed to exercise the option to purchase the leased
property, despite the alleged delay in giving the required notice to private respondent

HELD: YES.

Petitioners letter to SIHI, dated January 15, 1986, was fair notice to the latter of the formers
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.

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 companys 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 respondents view, there was already a delay of 18 days, fatal
to petitioners 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.

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.

SIHIs 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 years 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, SIHIs 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.

Petitioners determination to purchase said property is equally indubitable. He introduced

permanent improvements on the leased property, demonstrating his intent to acquire dominion
in a years 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 7% 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.

3. TAYAG V LACSON

RECIT READY:

Respondent Lacsons are registered owners of parcels of agricultural lands in Pampanga. There
were farmer tenants with landholdings on the agricultural land. Petitioner Tayag entered into a
deed of assignment with the respondent farmer-tenants (marami silang farmers na tenants
nila Lacson), that they will sell their right as tillers of the landholdings for P50/ square meter
on the condition that the respondent owners agree to such sale. Some of the respondent
farmer-tenants were able to receive a portion of the full amount promised by the petitioner in
the deed of assignment. However, when the Tayag called for a meeting to finalize the terms and
conditions, the respondent farmer-tenants refused and through a letter, expressed their
intention not to push thru with the deed of assignment because the petitioner allegedly filed
suits against them and that they will sell their rights to the Lacson instead. The petitioner filed
a case of specific performance and a writ of preliminary injunction against the farmer-tillers
and respondent-owners. The primary contention of the petitioners before the Supreme Court
(relevant sa topic) is that the deeds of assignment executed, as evidenced by the payments
partially granted, were actually perfected option contracts. And being such, they are entitled to
the sale of subject property.
The Supreme Court rejected such contention on the ground that an option contract 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. The respondent-tenants,
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 respondent-tenants, and not the
respondent registered owners of the property. Not being the registered owners of the
property, the respondent-tenants could not legally grant to the petitioner the option, much
less the "exclusive right" to buy the property.

Facts: Respondents Angelica Lacson, and her children Amancia, Antonio, Juan, and Teodosia,
all surnamed Lacson, were the registered owners of three parcels of land located in Mabalacat,
Pampanga. The properties, which were tenanted agricultural lands, were administered by
Renato Espinosa for the owner.

On March 17, 1996, a group of original farmers/tillers individually executed in favor of the
petitioner separate Deeds of Assignment 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. However, on August 8, 1996, the
defendants-tenants 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. The reason behind their backing out is that the
petitioners allegedly filed suits against them.

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. Respondents claim
that they never induced the farmer tillers to violate their agreement with the petitioner, and
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
are contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive
Agrarian Reform Program (CARP).

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.
RTC ruled in favour of the petitioners for failure of the respondents to adduce evidence to back
up its contentions. The CA reversed the decision and ruled in favour of the respondents. 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 also ruled that the deeds of assignment executed by the defendants-tenants
were contrary to P.D. No. 27 and Rep. Act No. 6657.

Before the SC, petitioner 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."

RELEVANT CONTENTION: Petitioner contends that the deeds of assignment executed by

the defendant farmer-tillers are perfected option contracts, and therefore, they are bound not
to offer the subject lots to another.

Issue: Whether or not the deeds of assignmet are perfected option contracts?

Held: No. They are not option contracts. 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. In this agreement, the party does not get the objet
of the sale itself, but merely the right to call for and receive the same if he elects. An option
contract is a separate and distinct contract from which the parties may enter into upon the
conjunction of the option.

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.
4. VILLAMOR V CA (higher than market rate = separate condition)

RECIT READY:

Respondent Reyes sold half of her land in Caloocan City to Petitioner Villamors. In addition to
the execution of sale, an option contract with respect to the remaining half of the land was also
agreed upon, which is to be exercised whenever the need of such sale arises, either on our
part (Reyeses) or on the part of the spouses Villamor, at the same price of P70.00 per square
meter.

When her husband retired, Reyes asked the Villamors if she could repurchase the property
sold to them. The petitioners refused and instead reminded Reyes regarding the option to
purchase the remaining parcel of land. When petitioner exercised their option, the Reyeses
merely ignored them. Petitioners filed a complaint for specific performance. The RTC and CA
ruled that the option was void for lack of consideration.

Issue is W/N Deed of Option was valid?

Yes. The SC ruled to the contrary. The CA failed to consider that the price of P70 per sqm for the
first sale was deliberately set at a price higher than the prevailing market value because it
deemed to include the consideration for the option. Thus, the difference of the higher
purchase price and the market value was the consideration. 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. However,
the petitioners are barred from exercising the option because the agreement was actually
worded that 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. The option offered by
private respondents had been accepted by the petitioner, the promise, in the same document.
The SC also rendered that the period to exercise such right on the part of the petitioners have
already prescribed.

Facts: Macaria Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City. In
July 1971, Petitioner 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. 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 pertinent conditions: (ito nalang yung relevant. Medyo mahaba
yung full contract)

[The 300 sqm lot was sold] 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. 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.

When Macrias 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 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. The RTC ruled in favour of the Petitioner Villamors. The CA
promulgated the reversal of the decision, which was premised on the finding that the Deed of
Option is void for lack of consideration.

Issue: Whether or not the Deed of Option is valid?

Held: Yes. The Deed of Option is valid, but there were two options instituted in the case.

(In discussing the ruling, the SC first debunked the CA ruling that the reason why the Option
was void because of lack of consideration. There was a consideration in this case, but still the
option is valid for another reason. I think sir will ask about this.)

The respondent appellate court erred in ruling that there was no consideration. It failed to give
due consideration on the fact that 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." 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, such
consideration was ascertainable.

Main Ruling:

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. 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.

Also, 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. 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.

The petition is denied. Decision of CA is affirmed.

5. SANCHEZ V RIGOS (tenders of payment, promise has burden of proof in showing

payment)

Recit ready: An Option to Purchase was executed where Rigos would sell a piece of land in
Neueva Ecija to Sanchez upon the exercise of the option within 2 years. Sanchez made several
tenders of payment to Rigos, which latter rejected. Sanchez then deposited the amount with the
CFI and commenced suit for specific performance against Rigos. Rigor asserts that it was a
unilateral promise to sell, and not a valid contract for absence of consideration.

Issue: WON there is a valid option contract

Held: NO. Seller cannot revoke an offer if the option to buy had a separate consideration. 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. Accordingly, the promisee cannot 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.

Facts: Petitioner Nicolas Sanchez and respondent Severina Rigos executed an "Option to
Purchase" whereby respondent Rigos agreed and promised to sell to petitioner Sanchez a parcel
of land in the barrios of Abar and Sibot, in Nueva Ecija. The condition was that the petitioner
must purchase the subject lands within 2 years from date of understanding. Failure to do so
within the specified time would terminate the agreement.

Several tenders of payment were done by petitioner, but were rejected by respondent. Thus,
petitioner deposited said amount to the CFI of Nueva Ecija and filed an action for specific
performance and damages.

Petitioner posits that the promise to sell was reciprocally demandable.

Respondent contends that the contract between them was a unilateral promise to sell, which
was not supported by valuable consideration, thus null and void.

RTC ruled in favor of petitioner and ordered respondent to accept the sum judicially consigned
and to execute the requisite deed of conveyance in favor of petitioner.

Issue: WON there was a valid contract of sale.

Held: No, the contract was merely an Option to Buy, did not contain an Option to Sell.

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.

The option did not impose upon Sanchez the obligation to purchase Rigos' property. Annex A is
not a "contract to buy and sell." It merely granted Sanchez 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, Rigos "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.

RTC's reliance on Art. 1354 is misplaced, as this refers only to general contracts. What is
controlling to "sales" in particular, more specifically to "an accepted promise to buy or to sell", is
Art. 1479 which requires that the promise to buy or to sell must 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.

In this case, the petitioner has not even alleged the existence of a consideration; in fact he has
impliedly admitted the lack thereof when he failed to show proof of consideration during the
trial in the RTC.

The court ruled in the case of Atkins, Kroll v Cua Hian Tek that 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.
6. TUAZON V DEL ROSARIO

Recit ready:

Tuazon and Del Rosatio entered into a Contract of Lease for a property situated in Quezon
City. During the effectivity of the lease, Del Rosario offered to sell said property to Tuazon for
a price certain at P37.5M and at a fixed time of 2 years from date of offer. Tuazon made a
counter offer which was not accepted. Thus, more than 4 months after the Lease expired,
respondent sold the property to her child, son-in-law and 2 grandsons for P2.75M as evidenced
by a Deed of Sale.

The new owners notified Tuazon to vacate the property, but he refused. Thus prompting the
respondents to file an Unlawful Detainer suit against petitioner. In response, petitioner filed
for an Annulment of Deed of Absolute Sale, Reconveyance, Damages and Application for
Preliminary Injunction against Lourdes and the new owners. RTC and CA ruled in favor of Del
Rosario and decided that the Deed of Sale executed by respondents were valid and binding.
Tuazon thus appealed and contended that his right of first refusal was violated by
respondent when he was not given notice prior to the sale.

Issue: WON petitioner and respondent had an agreement for right of first refusal.

Held: No, the letter sent by respondent was an Option Contract, not a right of first refusal.
There was a price certain for P37.5M and a fixed period of 2 years from execution of the letter.
The petitioner, by making a counter offer for a lower price, therefore did not agree to the offer.
Consequently, the respondent not having accepted the counter offer made, thereby did not
agree to it. There is therefore no contract that was perfected between them with regard to the
sale of subject property. Petitioner, thus, does not have any right to demand that the property
be sold to him at the price for which it was sold to the De Leons neither does he have the right
to demand that said sale to the De Leons be annulled.

Facts: Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land,
containing more or less an area of 1,211 square meters located along Tandang Sora Street,
Barangay Old Balara, Quezon City. Petitioner Roberto D. Tuazon (Roberto) and Lourdes
executed

a Contract of Lease over the abovementioned parcel of land for a period of three years.

Consequently during the effectivity of the lease, Lourdes offered to sell to Roberto that parcel of
land for P37.5M and gave him 2 years from said offer to decide on it. However, instead of
accepting, he made a counter-offer for a lower price which was not accepted by Lourdes.

More than four months after the expiration of the Lease Contract, Lourdes sold the subject land
to her child, son-in-law and two grandsons for a consideration of P2.75M as evidenced by a
Deed of Absolute Sale. Thus, the new owners notified Roberto to vacate such property, but he
refused. Thereafter, they filed a complaint for Unlawful Detainer against Roberto.

Petitioner Roberto filed for an Annulment of Deed of Absolute Sale, Reconveyance, Damages
and Application for Preliminary Injunction against Lourdes and the new owners.
RTC ruled in favor of respondents and declared that the Deed of Absolute Sale was valid and
binding. The offer made by Lourdes to Roberto did not ripen into a contract to sell because the
price offered by the former was not acceptable to the latter. The offer made by Lourdes is no
longer binding and effective at the time she decided to sell the subject lot to the De Leons
because the same was not accepted by Roberto. CA affirmed the RTC decision.

Thus, petitioner appealed to the SC claiming that Lourdes had violated his right to buy the
subject property under the principle of "right of first refusal" by not giving him "notice" and the
opportunity to buy the property under the same terms and conditions or specifically based on
the much lower price paid by the De Leons.

Roberto further contends that he is enforcing his right of first refusal based on Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc.

Issue: WON the contract entered into by Roberto and Lourdes was a right of first refusal.

Held: No, it was an Option Contract.

An option contract is entirely different and distinct from a right of first refusal in that in the
former, the option granted to the offeree is for a fixed period and at a determined price.
Lacking these two essential requisites, what is involved is only a right of first refusal.

The letter executed upon by Lourdes offering to Roberto to purchase the subject property was
an Option Contract because it grants Roberto a fixed period of only two years to buy the
property at a price certain of P37.5M.

Pursuant to Art. 1324, If the option is without any consideration, the offeror may withdraw his
offer by communicating such withdrawal to the offeree at anytime before acceptance; if it is
founded upon a consideration, the offeror cannot withdraw his offer before the lapse of the
period agreed upon.

In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes
as he negotiated for a much lower price. Robertos act of negotiating for a much lower price
was a counter-offer and is therefore not an acceptance of the offer of Lourdes.

The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is
therefore no contract that was perfected between them with regard to the sale of subject
property. Roberto, thus, does not have any right to demand that the property be sold to him at
the price for which it was sold to the De Leons neither does he have the right to demand that
said sale to the De Leons be annulled.

Furthermore, the case relied upon by Roberto which is Equatorial Realty Devt. Inc. v Mayfair
Theater Inc. is not applicable to him. In that case, it was explicity stated in the Contract of Lease
that if the lessor should desire to sell the leased property, the lessee shall be given 30-days
exclusive option to purchase the same. There is no such similar provision in the Contract of
Lease between Roberto and Lourdes. Roberto was not given a right of first refusal. The letter-
offer of Lourdes did not form part of the Lease Contract because it was made more than six
months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In this case,
the subject property was sold not only after the expiration of the period provided in the letter-
offer of Lourdes but also after the effectivity of the Contract of Lease.

Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound
thereby because of the absence of a consideration distinct and separate from the price.

7. NIETES V CA

RECIT READY: Garcia is the owner and lessor of a school in Pampanga. He entered into a
contract of lease with Option to Buy the school with Nietes (lessee). In the agreement, the
lessee is granted an option to buy the land within the period of the contract of lease. Later,
Nietes expressed his intention to exercise his option to buy. Nietes paid Garcia P2200 on Dec.16,
1962 for partial payment on the purchase of the property. However, through their lawyers,
Garcia decided to rescind the contract while Nietes expresses his intention to buy the property.
Nietes also deposited 84K to a bank corresponding to the balance for the purchase of the
property. Garcia asserts that in order to exercise the option to buy, full purchase price must be
paid. Issue is W/N Nietes can exercise his option to buy. YES! Nietes can avail of the option to
buy because he already expressed his intention to buy the property before the termination of
the contract. The contention of the respondent that the full price of the property should first
be paid before the option could be exercised is of no merit. He simply needs to inform Garcia
of his intention a readiness to pay the price.

FACTS: Nietes and Garcia entered into a Contract of Lease with Option to Buy, involving a
school in Pampanga which Garcia owned. It was a five-year lease at 5k per year, payable in
three installments. However, instead of paying in that manner, Nietes instead made smaller
payments, albeit still amounting to the total of 25k plus an excess of more than 2k paid within
the period of lease. Garcia later on sent a letter to Nietes, wishing to rescind the contract for a
number of reasons (mainly centered on subpar maintenance). Nietes replied by saying that he
never violated any of the terms set forth in the lease contract, and that moreover, he was
exercising his option to buy and ready to pay the balance of the purchase price at any time. He
then made the necessary deposit of funds (about 84k) at the Agro-Industrial Development Bank.
Garcia contends that since no full payment had yet been made, Nietes could not be validly
exercising his option to buy.

ISSUE: Was full payment of the purchase price necessary for a valid exercise of the option to buy?

HELD: No. First of all, Garcia is in estoppel. When one of the final payments had been made
which actually exceeded the 25k rent, Garcia stated in the receipt that such payment had been
made as advance pay for the school, the Contract of Lease being paid.

In that regard, Garcia was actually acknowledging and assenting to Nietes intention to buy the
school, as evidenced by his payments exceeding the rent.

Also, in the case of an option to buy, the creditor may validly and effectively exercise his right
by merely advising the debtor of the formers 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. In other words, an
option to buy is governed by provisions on reciprocal obligations. All the buyer needs to do is
to make known his intention to buy and express his capacity to pay the sale price, and in
return, the seller needs to execute and deliver the deed of sale. Besides, nowhere was it
stipulated that Nietes had to make full payment just to exercise his option. 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.

8. ANG YU ASUNCION V CA

RECIT-READY:

Ang Yu and other 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. 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. 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;
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 filed specific performance to compel defendants to sell the property to them.

ISSUE: W/N There was a perfected contract.

NO "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. It can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts.

In a right of first refusal, while the object might be determinate, the exercise of the right,
would depend not only on the sellers intention to sell, but also on the TERMS, including the
price, that are yet to be agreed upon. Breach cannot justify an issuance of a write of execution
for specific performance without negating the consensuality of contracts. Proper remedy is
damages.

FACTS: Ang Yu Asuncion and Keh Tiong 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.

Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan 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 defendants 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. 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.

The CA affirmed with modification the lower courts judgment, holding that it 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.

While the case was pending consideration by this Court, the Cu Unjieng spouses sol the
property to herein petitioner Buen Realty and Development Corporation. It is the observation
of the Court that this property in dispute was the subject of the Notice 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.

The ruled for the 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. It also stated that 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.

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 latters purchase of the property on 15 November 1991 from the Cu Unjiengs.

ISSUE: Whether there was a perfected Contract of Sale?

HELD: NO. 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.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
when coupled with a valuable consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract is legally binding, and in sales,
it conforms with the second paragraph of Article 1479 of the Civil Code. Observe, however, that
the option is not the contract of sale itself. The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option,
a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings.

In the law on sales, the so-called right of first refusal is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code, Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer
would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the
grantors 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. It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for
damages. The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a right of first refusal in favor of petitioners. The consequence of such a declaration
entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to honor the right of first refusal,
the remedy is not a writ of execution on the judgment, since there is none to execute, but an
action for damages in a proper forum for the purpose.

9. EQUITORIAL V MAYFAIR

RECIT READY:

Carmelo and Mayfair entered into two lease contracts in which Mayfair built movie theaters on
said leased properties. Paragraph 8 of the lease contract stipulated that if the lessor should
desire to sell the leased premises, lessee shall be given 30 days option to purchase. Carmelo
offered to sell the entire property to to Mayfair but they rejected the offer because they only
wanted to buy the leased portions. Thereafter, Carmelo sold the entire property to Equatorial.
Mayfair petitioned to annul the sale between Carmelo and Equatorial based on the lease
contract stipulation. However, the trial court ruled in favor of Carmelo because they ruled that
paragraph 8 was interpreted as an option contract

Mayfair appealed and the CA reversed the decision, thereby interpreting the said paragraph as
a right of first refusal.

FACTS: Carmelo owned a parcel of land, together with two 2-storey buildings constructed
thereon located at Claro M Recto Avenue, 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 the a) portion of the second floor and b) the second floor and the mezzanine for use
by Mayfair as a motion picture theater and for a term of 20 years. Mayfair thereafter constructed
on the leased property a movie house known as "Maxim Theatre." On March 31, 1969, Mayfair
entered into a second contract of lease with Carmelo for the lease of another portion of
Carmelos property particularly a) a potion of the second floor and b) two store spaces at the
ground floor and mezzanine for a term of 20 years. Mayfair put up another moviehouse known
as Miramar Theatre on this leased property.

Both contracts of lease includes 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.

In 1974, Henry Pascal of Carmelo told Henry Yang (President of Mayfair) through a phone
conversation that Carmelo wanted to sell the entire property. Jose Araneta was offering to buy
the whole property for US Dollars 1.2 Million. Pascal asked Yang if he was willing to buy the
property for 6-7 Million. Mr. Yang replied that hell let him know his decision and reiterated
paragraph 8 of the lease contract to him.

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, 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

Two months after the sale, Mayfair instituted an action for specific performance and annulment
of the sale to Equatorial. Carmelos answer stated that they informed Mayfair of its desire to sell
the whole property and offered the same to Mayfair, but the latter answere that it was
interested only in buying the areas under lease, which was impossible because the property was
not a condominium. They also said that the Option to purchase invoked by Mayfair is null and
void for lack of

consideration. Equatorials answer stated that the option is void for lack of consideration and is
unforceable for the reason of its impossibility because the leased premises could not be sold
separately from other portions of the land and building.

Trial court adjudged that paragraph 8 of the lease contact was an option clause and therefore
was not binding on Carmelo because of lack of consideration. CA reversed the decision and
asked that Mayfair pay and return the payment made by Equatorial. Afterwhich, fix the
necessary transfer of ownership.
ISSUES:

1. Whether or not the option clause in the contracts of lease is actually a right of first refusal? No.

HELD:

1. Paragraph 8 of the lease contract 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.

Since Paragraph 8 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

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. Paragraph 8 does not require a distinct
consideration indispensable in an option contract.

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.

2. No. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property
in question rescissible. Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts because he is not a purchaser in good faith. 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 Deed of Absolute sale between Mayfair and Carmelo are deemed recissible.

Nice to know:
Option Contract:

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. 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

Right of First Refusal: An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration
distinct from the price.

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

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 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."

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. . .

10. PARANAQUE V CA

RECIT READY:

Catalina Santos sold her 8 parcels of land to Respondent Raymundo without first offering these
to petitioner Paranaque Kings Inc. 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. In a Right of First Refusal, the seller cannot offer the property to
another for a lower price or under terms more favorable. It must be offered under the same
terms & conditions to Paranaque King; otherwise, the right of first refusal becomes illusory. It is
only when Paranaque King fails to meet the offer may the property be offered for sale to
another buyerand under the same terms and conditions. As seen in the case, the Right of First
Refusal may also be validly transferred or assigned.

FACTS:

Defendant Catalina L. Santos is the owner of eight parcels of land located in Paranaque City
Metro Manila. The facts stated that:

On November 28, 1977, Frederick Chua leased her property. This was registered in the

Register of Deeds. On February 12, 1979, Chua assigned all his rights and interests and
participation to lease company to Lee Ching Bing by virtue of a deed of assignment. This was
registered in the Register of Deeds On August 6, 1979, Lee Ching Bing also assigned all his
rights and interest in the leased property to Paranaque Kings Enterprises Inc., by virtue of a
deed of assignment and with the conformity of defendant Santos, the same was duly registered

Paragraph 9 of the assigned lease contract states 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.

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 . This sale was held to be in
contravention of the contract of lease because the right of first refusal was not offered by Santos
to the Paranaque Kings Enterprises, Inc.

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,

Plaintiffs 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 FIVE MILLION.

Subsequently, the property was offered for sale to plaintiff by the defendant for offer.

Before the period given in the letter offering the properties for sale expired, plaintiffs counsel
wrote counsel of defendant Santos offering to buy the properties for FIVE

Before they replied to the offer to purchase, another deed of sale was executed by defendant
Santos in favor of defendant Raymundo for NINE MILLION. (Second violation of Paragraph 9
of the lease contract)
MILLION.

Defendant Santos only replied two days after she sold her properties to the letter of plaintiffs
with their offer to buy. Defendant Raymundo became the new owner.

It is clear to see from the preceding facts that the sale was simulated and that there was a
Collusion between the defendants in the sale of the leased parties. What are the
circumstances?

- when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately
reconveyed the property to her in 12 days.

- Defendants have the same counsel who represented both of them in their exchange of
communication with plaintiffs counsel

- 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

ISSUES:

W/N the aforequoted complaint alleging breach of the contractual right of first option or
priority to buy states a valid cause of action?

HELD: Yes, there is a valid cause of action for breach of right of first refusal to Paranaque
King.

The trial court dismissed the case based on the lack of a valid cause of action because Santos
had verily complied with paragraph 9 of the lease contract by twice offering the properties to
the plaintiff for 15 MILLION. Although, the respondent refused this offer for being of a
ridiculous consideration.

The CA stated that the reduction of the price from 15 MILLION to 9 MILLION has no valid
basis because as prospective buyer, he cannot dictate its own price and forcibly ram it against
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.

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 collusion between Santos and Raymundo was 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 so
that plaintiff would purchase the properties at a higher price.

Plaintiff was made to pay actual damages, moral damages and exemplary damages and
attorneys fees.

The basis of the right of the first refusal must be the current offer to sell of the seller or offer

to purchase of any prospective buyer. Only after the grantee 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
grantee.

Principle was reiterated in Equatorial Law v. Mayfair. 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
negotiate within the 30-day stipulated period.

The 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 refusalof 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.

Petition is granted and remanded back to the trial courts to pass upon the facts of the case to
give the respondents their right to present further evidence.

Nice to know:

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.

11. VASQUEZ V AYALA

Petitioner: Dr. Daniel Vazquez and Ma. Luiza M. Vazquez Respondents: Ayala
Corporation RECIT READY (Sales provision only):

In 1981 Spouses Vasquez entered into a MOA with Ayala where Ayala bought from the Spouses
all of their shares of stock in Conduit. Conduits main asset was a 49.9 hectare property in Ayala
Alabang then being developed by Conduit into another village, then being undertaken by GP
Construction. Under the MOA, Ayala was to develop the entire property less what was defined
as Retained Area which was to be retained by the spouses. Adjacent to this area were 4 lots
from the remaining area to be developed. Ayala agreed to offer these lots for sale to the spouses
at the prevailing price at the time of purchase. The stipulation in the MOA provides, 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.

Believing 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. 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. Vasquez spouses insisted to pay at 1984 prices
thereby leading to this suit.

RTC ruled in favor of the Spouses while CA reversed.

The Supreme Court ruled that the offer to buy the 4 remaining lots was a right of first refusal.
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.

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, and consequently, the offer may be withdrawn
anytime by communicating the withdrawal to the other party.

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. 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. Ayala Corporation rejected petitioners counter-
offer. With this rejection, petitioners lost their right to purchase the subject lots.

Facts:

On April 1981, Spouses Vasquez entered into a MOA with Ayala where Ayala bought from the
spouses all of their shares of stock in Conduit Development. Conduits main asset was a 49.9
hectare property in Ayala Alabanag which was then being developed by Conduit into Villages
1,2, and 3 of Don Vicente Village, then being undertaken for Conduit by GP Construction.

Under Vasquez and Ayalas MOA, Ayala was to develop the entire property less what was
defined as Retained Area to be retained by the spouses. The Remaining Area were 4 lots
adjacent to Retained Area. Ayala agreed to offer these remaining lots for sale to the spouses at
the prevailing price at the time of purchase. The relevant provisions of the MOA 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 warranties such as that Conduit shall not
be obligated to anyone except to GP Construction for P38,766.04, and for advances made by
Daniel Vazquez; that except as reflected in the audited financial statements Conduit had no
other liabilities whether accrued, absolute, contingent or otherwise; 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; that Conduit is not threatened with any legal action or
other proceedings; and 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.

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 CFI. 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.
Vasquez spouses insisted to pay at 1984 prices thereby leading to this suit.

RTC ruled that in favor of the petitioners. CA reversed this ruling and held that 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. 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. Nowhere does the MOA provide that Ayala Corporation shall follow Conduits
plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the
property it will develop.

There was no delay because petitioners never made a demand for Ayala Corporation to sell the
subject lots to them. 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. 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 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.

Ayala filed a comment to this petition saying:

1. Ayala Corporation maintains that the subcontract between GP Constructionand 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. Thus petitioners breached their warranties under the
aforquoted 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.

2. 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. 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.

3. Warranties under the MOA are not just against suits but against all kinds of liabilities not
reflected in the Audited Financial Statements

4. 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. It was 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 a period before Ayala can be in
delay.

5. 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.

6. 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 dated August 15, 2002 reiterating the arguments in their Petition
saying:

1. 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.
2. 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.

3. 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.

4. 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.

5. 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.

Issue:

1. 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.

2. Whether paragraph 5.7 express a commitment or a mere intent on the part of Ayala
Corporation to develop the property within three (3) years from date thereof

3. Whether there was delay in the fulfillment of the obligation

4. Whether paragraph 5.15 of the MOA can properly be construed as an option contract or a
right of first refusal

Held:

1. The Court is convinced that petitioners did not violate the foregoing warranties. The Lancer
subcontract and claim were substantially disclosed to Ayala Corporation before the
Closing date of the MOA. 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 dated February 17, 1992.

2. Intent. 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
paragraph refers not to Conduits but to Ayala Corporations development plan which was yet
to be formulated 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. 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.

3. No. 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, making this action for specific performance immature. Further, no demand was made.
What was merely sent by petitioners were request letters, merely articulating the desire to
purchase the lots.

4. 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 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.

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.

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, and consequently, the offer may be
withdrawn anytime by communicating the withdrawal to the other party.

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. 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. 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.

12. RIVIERA V CA

Petitioners: Riviera Filipina, Inc.

Respondent: CA, Juan L. Reyes subsitited by heirs Reyes, Phil Cypress Construction, Cornhill
Trading, Urban Development Bank

Recit Ready:

A land along EDSA was subject Real Estate Mortgage executed by Reyes in favor of Prudential
Bank. The loan was unpaid, hence it was extrajudicially foreclosed, with the mortgagee bank as
the highest bidder. The redemption period was to expire on March 7, 1989. Realizing he could
not possible raise the money, Reyes decided to sell the same. Said land was currently rented out
by Reyes to Riviera with the right of first refusal should the Lessor decide to sell the property
during the term of lease. Thus, Reyes offered the property to Rivieras president, Angeles, for
5k/square meter. However, Angeles bargained at 3.5k/square meter. Reyes was not amenable
to this so Angeles asked if he could consult other members of the Board.

7 months later, Angeles communicated its offer to buy the property for 4k/square meter but
Reyes was only willing to sell it at 6k since the area was to be developed by Araneta soon. A
notice was sent by Reyes lawyer informing Riviera that Reyes was willing to sell the property
at 6k and as notice for the company to exercise their right of first refusal. Angeles wrote back
confirming Rivieras intent to purchase the subject property for the fixed and final price of
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. In response, Reyes lawyer sent a letter
to Riviera dated December 5, 1988 informing Riviera that Rivieras offer is not acceptable to his
client, and acknowledging that Riviera had lost their right of first refusal to the property.

In December 1988, Reyes confided to a certain Traballo, a family friend and President of
Cypress, his predicament about the expiry date of the redemption period, his failure to come up
with the funds. Traballo expressed interest and bargained for P5,300.00 per square meter. Reyes
accepted the same after considering the reasons set out by Traballo. However, Traballo did not
have the amount with which to pay Reyes yet, since he will look for a partner first.

In January 1989, apprehensive of the impending expiration in March 1989 of the redemption
period of the foreclosed property, and the deal between Reyes and Traballo was not yet
formally concluded, Reyes decided to approach Riviera again, through his lawyer nephew, Atty.
Alinea, hoping that they would make their offer a bit higher. Angeles mainted that his offer is
P5,000.00/ square meter. After, Angeles sent a letter to Reyes, through Atty. Alinea, that his
offer is P5,000.00 per square meter with conditions that admittedly downgraded the previous
offer of Riviera on December 2, 1988. Reyes still 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. Reyes did not expressly offer his subject property to Riviera at the price of
P5,300.00 per square meter.

Cypress was able to come up with funds and was able to buy the property from Reyes for
P5.3M. 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.

W/N the right of first refusal of Riviera was violated? NO, the right of first refusal in this
contract, means 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.

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.

Facts:

On November 23, 1982, respondent Reyes executed a 10 year Contract of Lease with Riviera
starting August 1, 1982, involving a 1,018 square meter parcel of land located along Edsa,
Quezon City, covered and described in the TCT in the name of Juan L. Reyes. 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.

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, Reyes
offered to sell the subject property to Riviera, through its President Vicente C. Angeles, for
5,000.00 per square meter. However, Angeles bargained for P3,500.00 per square meter. Since
Reyes was not amenable to the said price and insisted on P5,000.00 per square meter, Angeles
requested Reyes to allow him to consult the other members of the Board of Directors of Riviera.

7 months later, or sometime in October 1988, Angeles communicated with Reyes Rivieras offer
to purchase the subject property for P4,000.00 per square meter. However, Reyes did not accept
the offer. This time he asked for 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.

In a letter dated November 2, 1988, Atty. Juan, acting as counsel for Reyes, informed Riviera
that Reyes was selling the subject property for 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.

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. Riviera increased its offer to P5,000.00 per square
meter but Reyes did not accede to said price as it was still lower than his quoted price of
P6,000.00 per square meter.. Angeles asked Reyes to give him until the end of November 1988
for Rivieras final decision.

In a letter dated December 2, 1988, Angeles wrote Reyes confirming Rivieras intent to purchase
the subject property for the fixed and final price of 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. In response, 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.

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 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. The next day, Traballo bargained for
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. Reyes told Traballo that
he had already afforded Riviera its right of first refusal but they cannot agree because Rivieras
final offer was for P5,000.00 per square meter.

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 P5,000.00 per square meter but
Angeles said that his offer is P5,000.00 per square meter.

Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty.
Alinea, that his offer is 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, admittedly downgraded the previous offer of Riviera on December 2,
1988. Atty. Alinea conveyed to Reyes Rivieras offer of 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. Reyes did not expressly offer his
subject property to Riviera at the price of P5,300.00 per square meter.

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. 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).

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. 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.

Trial court dismissed the complaint of Riviera as well as the counterclaims and cross-claims of
the other parties. It ruled that the defendants therein did not violate Rivieras right of first
refusal, ratiocinating that since the beginning, plaintiff, through their President Angeles, was
not willing to buy said property higher than P5,000, much lower than the asking price of Reyes
for P6,000. It is also clear that Reyes was willing to sell the property at a price less than P6,000
but a little higher than P5,000. 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. Had Angeles

signified its willingness instead of sticking to its offer, the plaintiff is considered to have
forfeited his right. It was no longer necessary for Reyes to offer to Angeles the property at
P5,3000 since to do so would be a useless ceremony considering the firm and unbending
position of the plaintiff.
CA affirmed this ruling, adding that 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 oncebut
twicedid 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.

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, 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.

ISSUES: W/N Riviera Filipina had already lost its right of first refusal

HELD:

YES. 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.

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.

The court must read a contract as the average person would read it and should not give it a
strained or forced construction. 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. 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 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 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 1339 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. 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.

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.

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.

Note: The prevailing doctrine is that a contract of sale entered into in violation of a right of first
refusal of another person is rescissible. (Conculada vs. Court of Appeals, 367 SCRA 164 [2001]).

13. MACION V GUILANI

RECIT-READY:
Macion and De La Vida Institute (DLV) entered into a contract to sell under which terms, DLV
assured Macion that they would buy the said properties on or before July 31, 1991 in the
amount of P1.75M. Macion surrendered the physical possession of the two lots to DLV who
promptly built an edifice worth P800K. The sale did not materialize. Macion filed for an
unlawful detainer action against DLV, DLV filed a reformation of the contract of sell. They
ended up agreeing into a compromise agreement which stipulated that DLV would be given 5
months to raise the amount of P2.06M, and in the event of failure to raise, DLV would vacate
the premises.

(Transaction : contract to sell (1.75M)-> physical possession with DLV -> DLV did not pay ->
Macion filed for unlawful detainer -> DLV for reformation -> ended up a compromise
agreement -> DLV given 5 months to raise P2.06M)

Even though that in two months, DLV demanded that a contract to sell be executed, the
petitioners failed to do so and even stated in the lapse of 5 months, DLV failed to settle their
obligation. Respondent judge Guani denied this motion and directed petitioners to execute the
required contract to sell.

The issue is whether or not respondent judge erred in ordering Macion to execute the contract
to sell in favor of DLV. It was held the compromise agreement must be interpreted as the power
of DLV to demand a contract to sell from Maciano. Where the seller promised to execute a deed
of absolute sale upon completing payment of the price, it is a contract to sell.

The sale was actually still in the executory stage, since the passing of the title is a supensive
condition thus no ownership is passed. The compromise agreement is tantamount to a
bilateral promise to buy and sell a certain thing for a price certain. But a contract of sale is
consummated only upon delivery and payment whereas in a bilateral promise to buy and
sell gives the contracting parties rights in personam, that each has the right to demand from
other.

The judgment given to the petitioners never obliged them to give up ownership to theit title. It
was only for the to execute a contract to sell. Thus, the trial court is ordered to fix anew a period
within which DLV could secure the funds for the purchase of land.

FACTS:

On April 26, 1991, the petitioners (Macion) and private respondent (De La Vida Institute)
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.

But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint for
unlawful detainer against private respondent In retaliation, private respondent filed a
complaint for reformation of thecontract to sell executed on April 26, 1991 (Civil Case 592).

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; 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 stated:

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 respondents favor in accordance with paragraph 7 of the compromise agreement.

On July 8, 1992, petitioners filed a motion for execution of judgment alleging that after a
lapse of five (5) months from February 6, 1992, private respondent have failed to settle their
obligations with petitioners.

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 respondents 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.

ISSUE: W/N respondent judge committed grave abuse of discretion in ordering petitioner to
execute a contract to sell in favor of private respondent.

HELD:

The resolution of this case hinges on whether the compromise agreement gives private
respondentbuyer the right to demand from petitionersellers the execution of a contract to sell in
favor of the former.

Paragraph 71 of the compromise agreement does not give such right to private
respondentbuyer. 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 owners duplicate copy of Transfer Certificate
of Title Nos. T22004 and T- 22005.

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

1 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
turnover to said plaintiff the owners duplicate copy of TCT Nos. T22004 and T22005 of the
Registry of Deeds for the City of Cotabato.

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.

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 turnover to said plaintiff the owners duplicate copy of TCT Nos. T22004 and T22005 of
the Registry of Deeds for the City of Cotabato.

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.

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 respondentbuyer 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.

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 purchase 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.

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.

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. 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 unsuccessful demand for said price upon the
expiration of the time agreed upon.

Since the period given by 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.

14. VILLONCO V BORMAHECO

RECIT-READY:

Cervantes, the president of Bormaheco, owned three lots with his wife. These lots were
occupied by his company Bormaheco and the adjacent lots were owned by Villonco Realty.

Transaction : Cervantes made a written offer (pls see body for the contents) -> Villonco made a
counter-offer -> Cervantes accepted the counter-offer -> Villonco paid P100K earnest money

All of a sudden, Cervantes rescinded the contract because one of the conditions in the offer was
not met. They stated as an excuse that the Punta property was not going to be sold to the
Bormaheco.

There was a valid sale between Bormaheco and Cervantes. It was not true that the Punta was
not going to be sold to the Bormaheco because they had already won it in a bidding and all that
was waiting was approval.

More importantly, there were no changes made in the offer and counter-offer which could have
affected their agreement. There were no proof of any changes made by Cervantes That crucial
fact implies that Cervantes was aware that Villonco Realty Company had accepted the
modifications which he had made in Villoncos counter offer. Had Villonco Realty Company
not asserted to those insertions and annotations, then it would have stopped payment on its
check for P100,000. The fact that Villonco Realty Company allowed its check to be cashed by
Bormaheco, Inc. signifies that the company was in conformity with the changes made by
Cervantes and that Bormaheco, Inc. was aware of that conformity. Had those insertions not
been binding, then Bormaheco, Inc. would not have paid interest at the rate of ten percent per
annum on the earnest money of P100,000. The truth is that the alleged changes or
qualifications in the revised counteroffer are not material or are mere clarifications of what
the parties had previously agreed upon.

There is no incompatibility between Bormahecos offer and Villoncos counteroffer March 4,

1964 The revised counteroffer merely amplified Bormahecos original offer. The controlling fact
is that there was agreement between the parties on the subject matter, the price and the mode of
payment and that part of the price was paid. 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
(Art. 1482, Civil Code). Thus, it was held that the vendors change in a phrase of the offer to
purchase, which change does not essentially change the terms of the offer, does not amount
to a rejection of the offer and the tender of a counteroffer.
FACTS:

Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and
agricultural machinery. The own three lots which are occupied by the building, machinery and
equipment of Bormaheco, Inc. and are adjacent to the property of Villonco Realty Company.

In the early part of February, 1964 there were negotiations for the sale of the said lots and the
improvements thereon between Romeo Villonco of Villonco Realty Company and Bormaheco,
Inc., represented by its president, Francisco N. Cervantes, through the intervention of Edith
Perez de Tagle, a real estate broker.

During the negotiations, Villonco Realty Company assumed that the lots belonged to
Bormaheco, Inc. and that Cervantes was duly authorized to sell the same. Cervantes did not
disclose to the broker and to Villonco Realty Company that the lots were conjugal properties of
himself and his wife and that they were mortgaged to the DBP.

Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo
Villonco for the sale of the property. (Contents: P400 per sq meter, deposit of P100K and will be
returned in case negotiation will not be consummated, sale is to be consummated only after purchase of
the Punta land(another property which the Bormaheco won in a bidding))

Villonco Realty Company, through Teofilo Villonco, in its letter of March 4, 1964 made a
revised counteroffer for the purchase of the property. The counteroffer was accepted by
Cervantes. (P400 per sq meter; deposit of 100K as earnest money which will become as party
payment in the event the sale will be consummated; sale will be cancelled only if deal with Sta.
Ana property shall not be consummated & in such case, the P100K earnest money will be
returned with 10% interest)

The check for P100, mentioned in the foregoing lettercontract was delivered by Edith Perez de
Tagle to Bormaheco, Inc. on March 4, 1964 and was received by Cervantes. In the
voucherreceipt evidencing the delivery the broker indicated in her handwriting that the earnest
money was subject to the terms and conditions embodied in Bormahecos letter of February
12 and Villonco Realty Companys letter of March 4, 1964

Then, unexpectedly, in a letter dated March 30, 1964, or twentysix days after the signing of the
contract of sale, Cervantes returned the earnest money, with interest amounting to P694.24 (at
ten percent per annum). Cervantes cited as an excuse the circumstance that despite the lapse
of 45 days from February 12, 1964 there is no certainty yet for the acquisition of the Punta
property.

Villonco Realty Company refused to accept the letter and the checks of Bormaheco, Inc.
Cervantes sent them by registered mail. When he rescinded the contract, he was already aware
that the Punta lot had been awarded to Bormaheco, Inc. Villonco refused to agree to the
rescision of the sale.

Cervantes said that his letter was a manifestation that we are no longer interested to sell the
Buendia Avenue property to Villonco Realty Company.

Villonco Realty filed the complaint for specific performance. ISSUE + HELD: 1) W/N there was
a valid sale YES

Bormahecos acceptance of Villonco Realty Companys offer to purchase the Buendia Avenue
property indubitably proves that there was a meeting of minds upon the subject matter and
consideration of the sale. Therefore, on that date the sale was perfected.

Bormahecos acceptance of the part payment of P100K shows that the sale was conditionally
consummated or partly executed subject to the purchase by Bormaheco, Inc. of the Punta
property. The nonconsummation of that purchase would be a negative resolutory condition. On
February 18, 1964 Bormahecos bid for the Punta property was already accepted by the Nassco
which had authorized its General Manager to sign the corresponding deed of sale. What was
necessary only was the approval of the sale by the Economic Coordinator and a request for that
approval was already pending in the office of that functionary on March 4, 1964.

Bormaheco, Inc. and the Cervantes spouses contend that the sale was not perfected because
Cervantes allegedly qualified his acceptance of Villoncos revised offer and, therefore, his
acceptance amounted to a counteroffer which Villonco Realty Company should accept but no
such acceptance was ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its
offer.

That contention is not welltaken. It should be stressed that there is no evidence as to what
changes were made by Cervantes in Villoncos revised offer. And there is no evidence that
Villonco

Realty Company did not assent to the supposed changes and that such assent was never made
known to Cervantes.

That crucial fact implies that Cervantes was aware that Villonco Realty Company had
accepted the modifications which he had made in Villoncos counter offer. Had Villonco
Realty Company not asserted to those insertions and annotations, then it would have
stopped payment on its check for P100,000. The fact that Villonco Realty Company allowed
its check to be cashed by Bormaheco, Inc. signifies that the company was in conformity with
the changes made by Cervantes and that Bormaheco, Inc. was aware of that conformity. Had
those insertions not been binding, then Bormaheco, Inc. would not have paid interest at the
rate of ten percent per annum on the earnest money of P100,000.

The truth is that the alleged changes or qualifications in the revised counteroffer are not
material or are mere clarifications of what the parties had previously agreed upon.

Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in clarifying in the
voucher for the earnest money of P100,000 that Bormahecos acceptance thereof was subject to
the terms and conditions embodied in Bormahecos letter of February 12, 1964 and your
(Villoncos) letter of March 4, 1964 made Bormahecos acceptance qualified and conditional.

That contention is not correct. There is no incompatibility between Bormahecos offer and
Villoncos counteroffer March 4, 1964 The revised counteroffer merely amplified Bormahecos
original offer.

The controlling fact is that there was agreement between the parties on the subject matter, the
price and the mode of payment and that part of the price was paid. 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 (Art. 1482, Civil Code).

Thus, it was held that the vendors change in a phrase of the offer to purchase, which change
does not essentially change the terms of the offer, does not amount to a rejection of the offer
and the tender of a counteroffer.

Appellants next contention is that the contract was not perfected because the condition that
Bormaheco, Inc. would acquire the Punta land within 45 days from February 12, 1964 or on or
before March 28, 1964 was not fulfilled. That contention is predicated on the erroneous
assumption that Bormaheco, Inc. was to acquire the Nassco land within fortyfive days or on or
before March 28, 1964.

The record does not support the theory of Bormaheco, Inc. and the Cervantes spouses that the
fortyfiveday period was the time within which (a) the Nassco property and two Pasong Tamo
lots should be acquired, (b) when Cervantes would secure his wifes consent to the sale of the
three lots and (c) when Bormaheco, Inc. had to decide what to do with the DBP encumbrance.

It is deducible from the tenor of those statements that the consummation of the sale of the
Buendia lots to Villonco Realty Company was conditioned on Bormahecos acquisition of the
Punta land. But it was not spelled out that such acquisition should be effected within fortyfive
days from February 12, 1964.

No such specification was made. The term of fortyfive days was not a part of the condition
that the Nassco property should be acquired. It is clear that the statement that final
negotiations on both property can be definitely known after 45 days does not and cannot
mean that Bormaheco, Inc. should acquire the Puntaproperty within fortyfive days from
February 12, 1964 as pretended by Cervantes.

Taking into account the situation of Cervantes visavis Bormaheco, Inc. and his wife and the fact

that the three lots were entirely occupied by Bormahecos building, machinery and equipment
and were mortgaged to the DBP as security for its obligation, and considering that appellants
vague affirmative defenses do not include Mrs. Cervantes alleged opposition to the sale, the
plea that Cervantes had no authority to sell the lots strains the rivets of credibility

(Another issue is the capacity to sell the land since it is conjugal property of spouses. The ruling
was that it was irrelevant as the excuse of Cervantes to not sell the land did not predicate on the
character of the land and it was never disclosed in the letter of rescission)

15. FIRST OPTIMA V SSS

RECIT READY:

Petitioner is a real estate corporation and is the registered owner of a 256 sq. m. parcel of land in
Pasay City. To expand its business and add to its existing offices, respondent - through its
General Manager Eleazar - sent a letter to petitioner - through its Executive VP Young - offering
to purchase the property. A series of telephone calls ensued, but only between Eleazar and
Youngs secretary. Eleazar was unable to personally negotiate with Young or the petitioners
board of directors.

Thereafter, Eleazar personally went to petitioners office offering to pay for the subject property
in cash, which he already brought with him. However, Young declined to accept payment,
saying that she still needed to secure her sisters advice on the matter. She likewise informed
Eleazar that prior approval of petitioners Board of Directors was required for the transaction.

Respondent then sent a letter to petitioner accompanied by a PNB check, issued for P100,000
and made payable to petitioner. The check was eventually deposited with and credited to
petitioners bank account.

Thereafter, respondent through counsel demanded in writing that petitioner proceed with the
sale of the property. Petitioner wrote back saying, among others, xxx 4. We have no Contract
for the earnest money nor Contract to Sell the said property with your client; xxx

Respondent filed a case with the Pasay RTC for specific performance with damages to compel
petitioner to consummate the supposed sale of the subject property. The complaint is predicated
on the claim that since a perfected contract of sale arose between the parties after negotiations
were conducted and respondent paid the P100,000.00 supposed earnest money.

Petitioner argued that it never agreed to sell the subject property; that its board of directors did
not authorize the sale thereof to respondent; that the respondents P100,000.00 check payment
cannot be considered as earnest money for the subject property, since said payment was merely
coursed through petitioners receiving clerk, who was forced to accept the same.

RTC and CA ruled in favor of respondent.

SC: The trial and appellate courts failed to appreciate that respondents offer to purchase the
subject property was never accepted by the petitioner at any instance, even after negotiations
were held between them. Thus, as between them, there is no sale to speak of.

There must first be a perfected contract of sale before we can speak of earnest money. Where
the parties merely exchanged offers and counter-offers, no contract is perfected since they did
not yet give their consent to such offers. Earnest money applies to a perfected sale.

This Court is inclined to accept petitioners explanation that since the check was mixed up with
all other checks and correspondence sent to and received by the corporation during the course
of its daily operations, Young could not have timely discovered respondents check payment;
petitioners failure to return the purported earnest money cannot mean that it agreed to
respondents offer. Besides, respondents payment of supposed earnest money was made under
dubious circumstances and in disregard of sound business practice and common sense.

In a potential sale transaction, the prior payment of earnest money even before the property
owner can agree to sell his property is irregular, and cannot be used to bind the owner to the
obligations of a seller under an otherwise perfected contract of sale

Nor will respondents supposed payment be treated as a deposit or guarantee; its actions will
not be dignified and must be called for what they are: they were done irregularly and with a
view to acquiring the subject property against petitioners consent.

Facts:

Petitioner First Optima Realty Corporation is a domestic corporation engaged in the real estate
business. It is the registered owner of a 256-square meter parcel of land with improvements
located in Pasay City.

Looking to expand its business and add to its existing offices, respondent through its General
Manager, Antonio Eleazar - sent a December 9, 2004 letter addressed to petitioner - through its
Executive Vice- President, Carolina Young - offering to purchase the subject property at
P6,000.00 per square meter. A series of telephone calls ensued, but only between Eleazar and
Youngs secretary; Eleazar likewise personally negotiated with a certain Maria Remoso, who
was an employee of petitioner. At this point, Eleazar was unable to personally negotiate with
Young or the petitioners board of directors.

Sometime thereafter, Eleazar personally went to petitioners office offering to pay for the subject
property in cash, which he already brought with him. However, Young declined to accept
payment, saying that she still needed to secure her sisters advice on the matter. She likewise
informed Eleazar that prior approval of petitioners Board of Directors was required for the
transaction, to which remark Eleazar replied that respondent shall instead await such approval.

On February 4, 2005, respondent sent a letter to petitioner accompanied by a PNB check, issued
for P100,000 and made payable to petitioner.

Despite the delicate nature of the matter and large amount involved, respondent did not deliver
the letter and check directly to Young or her office; instead, they were coursed through an
ordinary receiving clerk/ receptionist of the petitioner, who thus received the same and therefor
issued and signed a provisional receipt.

The check was eventually deposited with and credited to petitioners bank account.

Thereafter, respondent through counsel demanded in writing that petitioner proceed with the
sale of the property. The petitioner wrote back to respondent:

Dear Atty. De Jesus: Anent your letter dated January 16, 2006 received on February 20, 2006,
please be informed of the following:

1. It was your client SECURITRON SECURITY SERVICES, INC. represented by Mr. Antonio
Eleazar who offered to buy our property located at corner Layug and Lim-An St., Pasay City;

2. It tendered an earnest money despite the fact that we are still undecided to sell the said
property; 3. Our Board of Directors failed to pass a resolution to date whether it agrees to sell
the property; 4. We have no Contract for the earnest money nor Contract to Sell the said
property with your client;

Considering therefore the above as well as due to haste and demands which we feel are forms
of intimidation and harassment, we regret to inform you that we are now incline not to accept
your offer to buy our property. Please inform your client to coordinate with us for the refund of
this money.

Very truly yours, CAROLINA T. YOUNG Executive Vice-President

Respondent filed with the Pasay RTC a civil case against petitioner for specific performance
with damages to compel the latter to consummate the supposed sale of the subject property.
The complaint is predicated on the claim that since a perfected contract of sale arose between
the parties after negotiations were conducted and respondent paid the P100,000.00 supposed
earnest

money which petitioner accepted, the latter should be compelled to sell the subject property to
the former.

Petitioner argued that it never agreed to sell the subject property; that its board of directors did
not authorize the sale thereof to respondent, as no corresponding board resolution to such effect
was issued; that the respondents P100,000.00 check payment cannot be considered as earnest
money for the subject property, since said payment was merely coursed through petitioners
receiving clerk, who was forced to accept the same.

Respondent countered that authorization by petitioners Board of Directors was not necessary
since it is a real estate corporation principally engaged in the buying and selling of real
property; that respondent did not force nor intimidate petitioners receiving clerk into accepting
the February 4, 2005 letter and check for P100,000.00; that petitioners acceptance of the check
and its failure for more than a year to return respondents payment amounts to estoppel and
a ratification of the sale.

In ruling for the respondent, the trial court held that petitioners acceptance of P100,000.00
earnest money indicated the existence of a perfected contract of sale between the parties; that
there is no showing that when respondent gave the February 4, 2005 letter and check to
petitioners receiving clerk, the latter was harassed or forced to accept the same; and that for the
sale of the subject property, no resolution of petitioners board of directors was required since
Young was free to represent the corporation in negotiating with respondent for the sale
thereof.

CA affirmed the trial courts Decision, pronouncing that the following instances militate against
the claim of the defendant-appellant: First. The letter of the plaintiff-appellee dated February 4,
2005 reiterating their agreement as to the sale of the realty for the consideration of Php
1,536,000.00 was not disputed nor replied to by the defendant-appellant, the said letter also
provides for the payment of the earnest money of Php 100,000.00 and the full payment upon the
clearing of the property of unwanted tenants. Second. In addition to the aforementioned letter,
defendant- appellants acceptance of the earnest money and the issuance of a provisional receipt
clearly shows that there was indeed an agreement between the parties and we do not subscribe
to the argument of the defendant-appellant that the check was merely forced upon its employee
and the contents of the receipt was just dictated by the plaintiff-appellees employee. hird. The
said check for earnest money was deposited in the bank by defendant-appellant and not until
after one year did it offer to return the same.

Issue: W/N the CA erred when it ruled that the money respondent delivered to petitioner was
earnest money thereby providing a perfected contract of sale
Held: YES. Petitioner argues that ultimately, it cannot be said that it gave its consent to any
transaction with respondent or to the payment made by the latter. Respondents letter and
check constitute merely an offer which required petitioners acceptance in order to give rise to a
perfected sale; otherwise, a buyer can easily bind any unsuspecting seller to a contract of sale by
merely devising a way that prevents the latter from acting on the communicated offer.

Petitioner thus theorizes that since it had no perfected agreement with the respondent, the
latters check should be treated not as earnest money, but as mere guarantee, deposit or option
money to prevent the prospective seller from backing out from the sale, since the payment of
any consideration acquires the character of earnest money only after a perfected sale between
the parties has been arrived at.

Respondent states that contrary to petitioners claim, negotiations were in fact held between the
parties after it sent its December 9, 2004 letter-offer, which negotiations precisely culminated in
the preparation and issuance of the February 4, 2005 letter; that petitioners failure to reply to its
February 4, 2005 letter meant that it was amenable to respondents terms; that the issuance of a

provisional receipt does not prevent the perfection of the agreement between the parties, since
earnest money was already paid; and that petitioner cannot pretend to be ignorant of
respondents check payment, as it involved a large sum of money that was deposited in the
formers bank account.

The Court grants the Petition. The trial and appellate courts erred materially in deciding the
case; they overlooked important facts that should change the complexion and outcome of the
case.

It cannot be denied that there were negotiations between the parties conducted after the
respondents December 9, 2004 letter-offer and prior to the February 4, 2005 letter. These
negotiations culminated in a meeting between Eleazar and Young whereby the latter declined
to enter into an agreement and accept cash payment then being tendered by the former. Instead,
Young informed Eleazar during said meeting that she still had to confer with her sister and
petitioners board of directors; in turn, Eleazar told Young that respondent shall await the
necessary approval.

Thus, the trial and appellate courts failed to appreciate that respondents offer to purchase the
subject property was never accepted by the petitioner at any instance, even after negotiations
were held between them. Thus, as between them, there is no sale to speak of.

Respondents subsequent sending of the February 4, 2005 letter and check to petitioner
without awaiting the approval of petitioners board of directors and Youngs decision, or
without making a new offer constitutes a mere reiteration of its original offer which was
already rejected previously; thus, petitioner was under no obligation to reply to the February 4,
2005 letter. It would be absurd to require a party to reject the very same offer each and every
time it is made; otherwise, a perfected contract of sale could simply arise from the failure to
reject the same offer made for the hundredth time. Thus, said letter cannot be considered as
evidence of a perfected sale, which does not exist in the first place.

Since there is no perfected sale between the parties, respondent had no obligation to make
payment through the check; nor did it possess the right to deliver earnest money to petitioner in
order to bind the latter to a sale. As contemplated under Art. 1482 of the Civil Code, there
must first be a perfected contract of sale before we can speak of earnest money. Where the
parties merely exchanged offers and counter-offers, no contract is perfected since they did not
yet give their consent to such offers. Earnest money applies to a perfected sale.

This Court is inclined to accept petitioners explanation that since the check was mixed up with
all other checks and correspondence sent to and received by the corporation during the course
of its daily operations, Young could not have timely discovered respondents check payment;
petitioners failure to return the purported earnest money cannot mean that it agreed to
respondents offer. Besides, respondents payment of supposed earnest money was made under
dubious circumstances and in disregard of sound business practice and common sense. Indeed,
respondent must be faulted for taking such a course of action that is irregular and
extraordinary: common sense and logic dictate that if any payment is made under the supposed
sale transaction, it should have been made directly to Young or coursed directly through her
office, since she is the officer directly responsible for negotiating the sale, as far as respondent is
concerned and considering the amount of money involved; no other ranking officer of
petitioner can be expected to know of the ongoing talks covering the subject property.
Respondent already knew, from Eleazars previous meeting with Young, that it could only
effectively deal with her; more than that, it should know that corporations work only through
the proper channels. It impresses the Court that respondent attempted to secure the consent
needed for the sale by depositing part of the purchase price and under the false pretense that an
agreement was already arrived at, even though there was none. Respondent achieved the
desired effect up to this point, but the Court will not be fooled.

Thus, as between respondents irregular and improper actions and petitioners failure to timely
return the P100,000.00 purported earnest money, this Court sides with petitioner. In a manner
of

speaking, respondent cannot fault petitioner for not making a refund since it is equally to blame
for making such payment under false pretenses and irregular circumstances, and with improper
motives. Parties must come to court with clean hands, as it were.

In a potential sale transaction, the prior payment of earnest money even before the property
owner can agree to sell his property is irregular, and cannot be used to bind the owner to the
obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn clich,
the carriage cannot be placed before the horse. The property owner-prospective seller may not
be legally obliged to enter into a sale with a prospective buyer through the latters employment
of questionable practices which prevent the owner from freely giving his consent to the
transaction. An agreement where the prior free consent of one party thereto is withheld or
suppressed will be struck down, and the Court shall always endeavor to protect a property
owners rights against devious practices that put his property in danger of being lost or unduly
disposed without his prior knowledge or consent. As this ponente has held before, this Court
cannot presume the existence of a sale of land, absent any direct proof of it.

Nor will respondents supposed payment be treated as a deposit or guarantee; its actions will
not be dignified and must be called for what they are: they were done irregularly and with a
view to acquiring the subject property against petitioners consent.

16. OESMER V PARAISO

RECIT READY:

Petitioners are siblings and co-owners of two parcels of land in Cavite, which they inherited.
One of the petitioners, Ernesto, met up with Lee, President of Paraiso Development Corporation,
and afterwards a Contract to Sell the properties was drafted. A check in the amount of P100,000,
payable to Ernesto, was given as option money. All the co-owners signed the contract except
two of the brothers, Adolfo and Jesus.

Petitioners then sent a letter to respondent corporation informing the latter of their intention to
rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as
option money. Respondent did not respond. Therefore, petitioners, together with Adolfo and
Jesus, filed a Complaint or Declaration of Nullity or for Annulment of Option Agreement or
Contract to Sell with Damages before the RTC.

Trial court ruled in favor of respondent corporation, stating that the assailed Contract to Sell is
valid and binding only to the undivided proportionate share of the signatory of this document
and recipient of the check, co-owner Ernesto Oesmer. CA modified the trial courts decision
declaring that the Contract to Sell is valid and binding with respect to the undivided
proportionate shares of the six signatories of the said document.

Issue: W/N the Contract to Sell is valid and binding

Yes. The Contract to Sell entered into by the parties is not a unilateral promise to sell merely
because it used the word option money when it referred to the amount of P100,000.00, which
also form part of the purchase price.

Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to project that
intention in their contract, all the words, not just a particular word or two.

The consideration of P100,000.00 paid by respondent to petitioners was referred to as option

money. However, a careful examination of the words used in the contract indicates that the
money is not option money but earnest money. Earnest money and option money are not the
same but distinguished thus: (a) earnest money is part of the purchase price, while option
money is the money given as a distinct consideration for an option contract; (b) earnest money
is given only where there is already a sale, while option money applies to a sale not yet
perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is not required to buy, but may even forfeit it
depending on the terms of the option.

Facts:

Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed
Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and
sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land
situated in Cavite with a total land area of 55, 276 sq. m. Both lots are unregistered and
originally owned by their parents who declared the lots for taxation purposes. When the
spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of
the former by right of succession.
Respondent Paraiso Development Corporation is known to be engaged in the real estate
business.

Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of
Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President
of respondent

Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the
purpose of brokering the sale of petitioners properties to respondent corporation.

Pursuant to the said meeting, a Contract to Sell was drafted by the Executive Assistant of Sotero
Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid
Contract to Sell. A check in the amount of P100,000.00, payable to Ernesto, was given as
option money. Sometime thereafter, the other co-owners also signed the said Contract to Sell.
However, two of the brothers, Adolfo and Jesus, did not sign the document.

In a letter dated 1 November 1989, addressed to respondent corporation, petitioners informed

the former of their intention to rescind the Contract to Sell and to return the amount of
P100,000.00 given by respondent as option money.

Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together
with Adolfo and Jesus, filed a Complaint or Declaration of Nullity or for Annulment of
Option Agreement or Contract to Sell with Damages before the RTC of Bacoor, Cavite.

During trial, petitioner Rizalino died and was substituted by his wife and children. However,
the name of Rizalino was retained in the title of the case both in the RTC and the Court of
Appeals.

Trial court ruled in favor of respondent corporation, stating that the assailed Contract to Sell is
valid and binding only to the undivided proportionate share of the signatory of this document
and recipient of the check, co-owner Ernesto Oesmer.

Respondent appealed to CA. The appellate court modified the trial courts decision declaring
that the Contract to Sell is valid and binding with respect to the undivided proportionate shares
of the six signatories of the said document.

Issue: W/N the Contract to Sell is valid and binding

Held: YES. Petitioners assert that the signatures of five of them namely: Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not
confer authority on petitioner Ernesto as agent to sell their respective shares in the questioned
properties, and hence, for lack of written authority from the above-named petitioners to sell
their respective shares in the subject parcels of land, the supposed Contract to Sell is void as to
them. Neither do their signatures signify their consent to directly sell their shares in the
questioned properties. Assuming that the signatures indicate consent, such consent was merely
conditional. The effectivity of the alleged Contract to Sell was subject to a suspensive condition,
which is the approval of the sale by all the co-owners.

They further claim that the supposed Contract to Sell does not bind the respondent because the
latter did not sign the said contract as to indicate its consent to be bound by its terms.
Furthermore, they maintain that the supposed Contract to Sell is really a unilateral promise to
sell and the option money does not bind petitioners for lack of cause or consideration distinct
from the purchase price.

The Petition is bereft of merit.

It is true that the signatures of the 5 petitioners on the Contract to Sell did not confer authority
on petitioner Ernesto as agent authorized to sell their respective shares in the questioned
properties. The law itself explicitly requires a written authority before an agent can sell an
immovable. The conferment of such an authority should be in writing, in as clear and precise
terms as possible. Thus, the Contract to Sell, although signed on the margin by the five
petitioners, is not sufficient to confer authority on petitioner Ernesto to act as their agent in
selling their shares in the properties in question.

However, despite petitioner Ernestos lack of written authority from the five petitioners to sell
their shares in the subject parcels of land, the supposed Contract to Sell remains valid and
binding upon the latter.

As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed
the said Contract to Sell; the other five petitioners also personally affixed their signatures
thereon. Therefore, a written authority is no longer necessary in order to sell their shares in the
subject parcels of land because, by affixing their signatures on the Contract to Sell, they were
not selling their shares through an agent but, rather, they were selling the same directly and in
their own right.

The Contract to Sell was perfected when the petitioners consented to the sale to the respondent
of their shares in the subject parcels of land by affixing their signatures on the said contract.
Such signatures show their acceptance of what has been stipulated in the Contract to Sell and
such acceptance was made known to respondent corporation when the duplicate copy of the
Contract to Sell was returned to the latter bearing petitioners signatures.

As to petitioner Enriquetas claim that she merely signed as a witness to the said contract, the
contract itself does not say so. There was no single indication in the said contract that she signed
the same merely as a witness. The fact that her signature appears on the right-hand margin of
the Contract to Sell is insignificant. The contract indisputably referred to the Heirs of Bibiano
and Encarnacion Oesmer, and since there is no showing that Enriqueta signed the document in
some other capacity.

With respect to the other petitioners assertion that they did not understand the importance and
consequences of their action because of their low degree of education and because the contents
of the aforesaid contract were not read nor explained to them, the same cannot be sustained.
First, the Contract to Sell is courted in such a simple language which is undoubtedly easy to
read and understand. Second, circumstances show as testified by the witnesses and as can be
gleaned from the records of the case clearly indicate the petitioners intention to be bound by
the stipulations chronicled in the said Contract to Sell (Ernesto was the one who initiated the
negotiation process and culminated the same by affixing his signature on the Contract to Sell
and by taking receipt of the amount of P100,000.00 which formed part of the purchase price; As
to petitioner Librado, the appellate court finds it preposterous that he willingly affixed his
signature on a document written in a language [English] that he purportedly does not
understand; Similarly, the other co-heirs, like Adolfo, are far from ignorant, more so, illiterate
that they can be extricated from their obligations under the Contract to Sell which they
voluntarily and knowingly entered into with the [respondent] corporation.).

We also cannot sustain the allegation of the petitioners that assuming the signatures indicate
consent, such consent was merely conditional, and that, the effectivity of the alleged Contract to
Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The
Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall control. The terms of the Contract to Sell made no
mention of the condition that before it can become valid and binding, a unanimous consent of
all the heirs is necessary. Thus, when the language of the contract is explicit, as in the present
case, leaving no doubt as to the intention of the parties thereto, the literal meaning of its
stipulation is controlling.

Therefore, this Court finds no error in the findings of the Court of Appeals that all the
petitioners who were signatories in the Contract to Sell are bound thereby.

The final arguments of petitioners state that the Contract to Sell is void altogether considering
that respondent itself did not sign it as to indicate its consent to be bound by its terms; and
moreover, the Contract to Sell is really a unilateral promise to sell without consideration distinct
from the price, and hence, again, void. Said arguments must necessarily fail.

The Contract to Sell is not void merely because it does not bear the signature of the respondent
corporation. Respondent corporations consent to be bound by the terms of the contract is shown
in the uncontroverted facts which established that there was partial performance by respondent
of its obligation in the said Contract to Sell when it tendered the amount of P100,000.00 to form
part of the purchase price, which was accepted and acknowledged expressly by petitioners.

(IMPORTANT DISCUSSION)

As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell
merely because it used the word option money when it referred to the amount of P100,000.00,
which also form part of the purchase price.

Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of
the contracting parties is to be discharged by looking to the words they used to project that
intention in their contract, all the words, not just a particular word or two, and words in context,
not words standing alone.

In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was
referred to as option money. However, a careful examination of the words used in the contract
indicates that the money is not option money but earnest money. Earnest money and option
money are not the same but distinguished thus: (a) earnest money is part of the purchase price,
while option money is the money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while option money applies to a sale
not yet perfected; and, (c) when earnest money is given, the buyer
is bound to pay the balance, while when the would-be buyer gives option money, he is not
required to buy, but may even forfeit it depending on the terms of the option.

The sum of P100,000.00 was part of the purchase price. Although the same was denominated
as option money, it is actually in the nature of earnest money or down payment when
considered with the other terms of the contract. Doubtless, the agreement is not a mere
unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the
appellate court declared in their Decisions.