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Manila Metal Container Corporation vs Philippine National Bank

Facts:
Petitioner was the owner of 8,015 square meters of parcel of land located in
Mandaluyong City, Metro Manila. To secure a P900,000.00 loan it had obtained from
respondent Philippine National Bank, petitioner executed a real estate mortgage over the
lot. Respondent PNB later granted petitioner a new credit accommodation. 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. After due notice and
publication, the property was sold at public action where respondent PNB was declared the
winning bidder. Petitioner sent a letter to PNB, requesting it to be granted an extension of
time to redeem/repurchase the property. Some PNB personnel informed that as a matter of
policy, the bank does not accept partial redemption. Since petitioner failed to redeem the
property, the Register of Deeds cancelled TCT No. 32098 and issued a new title in favor of
PNB.
Meanwhile, the Special Asset Management Department (SAMD) had prepared a
statement of account of petitioners obligation. It also recommended the management of
PNB to allow petitioner to repurchase the property for P1,574,560.oo. PNB rejected the offer
and recommendation of SAMD. It instead suggested to petitioner to purchase the property
for P2,660,000.00, in its minimum market value. Petitioner declared that it had already
agreed to SAMDs offer to purchase for P1,574,560.47 and deposited a P725,000.00.

A definite agreement as to the price is an essential element of a binding agreement


to sell personal or real property because it seriously affects the rights and obligations of the
parties. Price is an essential element in the formation of a binding and enforceable contract
of sale. The fixing of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the other, gives
rise to a perfected sale.
In the case at bar, the parties to the contract is between Manila Metal Container
Corporation and Philippine National Bank and not to Special Asset Management
Department. Since the price offered by PNB was not accepted, there is no contract. Hence
it cannot serve as a binding juridical relation between the parties.

Quiroga vs Parsons
G.R. No. L-11491

Doctrine: Contract of Agency to Sell vs Contract of Sale

Issue:

1.

Consent of the contracting parties;

2.

Objection certain which is the subject matter of the contract;

3.

Cause of the obligation which is established.

Facts: On Jan 24, 1911, plaintiff and the respondent entered into a contract making the
latter an agent of the former. The contract stipulates that Don Andres Quiroga, here in
petitioner, grants exclusive rights to sell his beds in the Visayan region to J. Parsons. The
contract only stipulates that J.Parsons should pay Quiroga within 6 months upon the
delivery of beds.
Quiroga files a case against Parsons for allegedly violating the following stipulations: not to
sell the beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen and in no other
manner. With the exception of the obligation on the part of the defendant to order the beds
by the dozen and in no other manner, none of the obligations imputed to the defendant in
the two causes of action are expressly set forth in the contract. But the plaintiff alleged that
the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are
implied in a contract of commercial agency. The whole question, therefore, reduced itself to
a determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

Contract is perfected by mere consent which is manifested by the meeting of the offer
and the acceptance upon the thing and causes which are to constitute the contract. Once
perfected, the bind between other contracting parties and the obligations arising therefrom
have the form of law between the parties and should be complied in good faith. The
absence of any essential element will negate the existence of a perfected contract of sale.

Issue: Whether the contract is a contract of agency or of sale.

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

Ruling:
The SC affirmed the ruling of the appellate court that there was no perfected contact
of sale between the parties.
A contract is meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. Under 1818 of the Civil
Code, there is no contract unless the following requisites concur:

The court ruled in Boston Bank of the Philippines vs Manalo:

Held: In order to classify a contract, due attention must be given to its essential clauses. In
the contract in question, what was essential, as constituting its cause and subject matter, is
that the plaintiff was to furnish the defendant with the beds which the latter might order, at
the price stipulated, and that the defendant was to pay the price in the manner stipulated.
Payment was to be made at the end of sixty days, or before, at the plaintiffs request, or in
cash, if the defendant so preferred, and in these last two cases an additional discount was
to be allowed for prompt payment. These are precisely the essential features of a contract
of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds,
and, on the part of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent received the thing
to sell it, and does not pay its price, but delivers to the principal the price he obtains from the
sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By
virtue of the contract between the plaintiff and the defendant, the latter, on receiving the
beds, was necessarily obliged to pay their price within the term fixed, without any other
consideration and regardless as to whether he had or had not sold the beds.
In respect to the defendants obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard
the orders which the defendant might place under other conditions; but if the plaintiff
consents to fill them, he waives his right and cannot complain for having acted thus at his
own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff
and the defendant was one of purchase and sale, and that the obligations the breach of
which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.

COMMISSIONER OF INTERNAL REVENUE vs. ENGINEERING EQUIPMENT


G.R. No. L-27044 June 30, 1975
Facts:
Engineering Equipment and Supply Co., an engineering and machinery firm, is engaged in
the design and installation of central type air conditioning system, pumping plants and steel
fabrications.
CIR received an anonymous letter denouncing Engineering for tax evasion by misdeclaring
its imported articles and failing to pay the correct percentage taxes due thereon in
connivance with its foreign suppliers. Engineering was likewise denounced to the Central
Bank (CB) for alleged fraud in obtaining its dollar allocations. So, NBI and Central Bank
conducted a raid and search on which occasion voluminous records of the firm were seized
and confiscated. CIR also reported about deficiency advance sales tax. CIR assessed
against the Company payment of the increased amount and suggested that P10,000 be

paid as compromise in extrajudicial settlement of the Companys penal liability for violation
of the Tax Code. The firm, however, contested the tax assessment and requested that it be
furnished with the details and particulars of the Commissioners assessment.Engineering
appealed the case to the Court of Tax Appeals. During the pendency of the case the
investigating revenue examiners reduced the Companys deficiency tax. CTA declared that
Engineering is a contractor and is exempt from deficiency manufacturers sales tax. The
Commissioner, not satisfied with the decision of the CTA, appealed to the Supreme Court.
Issue:
1) WON Engineering Equipment is a manufacturer or contractor? CONTRACTOR.
2) Corrollarily WON the installation of a centralized air-conditioning system a contact of sale
or a contract for piece of work? CONTRACT FOR PIECE OF WORK.
3) Is Celestino Co vs. CIR case applicable in this case? NO.
Held:
1)
The word contractor has come to be used with special reference to a person who, in the
pursuit of the independent business, undertakes to do a specific job or piece of work for
other persons, using his own means and methods without submitting himself to control as to
the petty details. The true test of a contractor is that when he renders service in the course
of an independent occupation, representing the will of his employer only as to the result of
his work, and not as to the means by which it is accomplished.
Engineering did not manufacture air conditioning units for sale to the general public, but
imported some items (as refrigeration compressors in complete set, heat exchangers or
coils) which were used in executing contracts entered into by it. Engineering undertook
negotiations and execution of individual contracts for the design, supply and installation of
air conditioning units of the central type taking into consideration in the process such factors
as the area of the space to be air conditioned; the number of persons occupying or would
be occupying the premises; the purpose for which the various air conditioning areas are to
be used; and the sources of heat gain or cooling load on the plant such as sun load,
lighting, and other electrical appliances which are or may be in the plan. Relative to the
installation of air conditioning system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each had to be engineered
separately.
2)
NATURE OF OBJECT TEST:

The distinction between a contract of sale and one for work, labor and materials is tested by
the inquiry whether the thing transferred is one NOT in existence and which never would
have existed but for the order of the party desiring to acquire it, or a thing which would have
existed and has been the subject of sale to some other persons even if the order had not
been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and
keeps on hand for sale to anyone, and no change or modification of it is made at
defendants request, it is a contract of sale, even though it may be entirely made after, and
in consequence of, the defendants order for it.

215, in Civil Case No. Q-99-36834. The RTC directed respondents, spouses Clemente and
Luz Apeles (spouses Apeles) to execute a Deed of Sale over a piece of real property in
favor of Enrico after the latters payment of full consideration therefor.

The air conditioning units installed in a central type of air conditioning system would not
have existed but for the order of the party desiring to acquire it and if it existed without the
special order of Engineerings customer, the said air conditioning units were not intended for
sale to the general public. Hence, it is a contract for a piece of work.

In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo),
Enricos father. Upon Arturos death, his son Enrico succeeded as lessor of the subject
property. Enrico used the subject property as his residence and place of business. Enrico
was engaged in the business of buying and selling imported cars. [5]

3)
Celestino Co compared to Engineering Equipment:
Points of discussion:
1) Advertisement as manufacturer/contractor
2) Ready-made materials
In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of
sash, doors and windows manufactured in its factory. From the very start, Celestino Co
intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a
special trade name for its sash business and ordered company stationery carrying the bold
print ORIENTAL SASH FACTORY. As a general rule, sash factories receive orders for
doors and windows of special design only in particular cases, but the bulk of their sales is
derived from ready-made doors and windows of standard sizes for the average home, which
sales were reflected in their books of accounts totalling P118,754.69 for the period of only
nine (9) months. The Court found said sum difficult to have been derived from its few
customers who placed special orders for these items.
In the present case, the company advertised itself as Engineering Equipment and Supply
Company, Machinery Mechanical Supplies, Engineers, Contractors and not as
manufacturers. It likewise paid the contractors tax on all the contracts for the design and
construction of central system. Similarly, it did not have ready-made air conditioning units for
sale.
EULOGIO vs APELES
Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision [2] dated 20
December 2004 of the Court of Appeals in CA-G.R. CV No. 76933 which reversed the
Decision[3] dated 8 October 2002 of the Regional Trial Court (RTC) of Quezon City, Branch

The factual and procedural antecedents of the present case are as follows:
The real property in question consists of a house and lot situated at No. 87 Timog
Avenue, Quezon City (subject property). The lot has an area of 360.60 square meters,
covered by Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of
Quezon City in the names of the spouses Apeles. [4]

On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract
of Lease[6] with Option to Purchase involving the subject property. According to the said
lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of
her husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in
favor of the former on 24 January 1979. The contract purportedly afforded Enrico, before
the expiration of the three-year lease period, the option to purchase the subject property for
a price not exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are
reproduced below:
3.
That this Contract shall be effective commencing
from January 26, 1987 and shall remain valid and binding for THREE
(3) YEARS from the said date. The LESSOR hereby gives the
LESSEE under this Contract of Lease the right and option to buy the
subject house and lot within the said 3-year lease period.
4.
That the purchase price or total consideration of the
house and lot subject of this Contract of Lease shall, should the
LESSEE exercise his option to buy it on or before the expiration of the
3-year lease period, be fixed or agreed upon by the LESSOR and the
LESSEE, Provided, that the said purchase price, as it is hereby
agreed, shall not be more than ONE MILLION FIVE HUNDRED
THOUSAND PESOS (P1,500,000.00) and, provided further, that the
monthly rentals paid by the LESSEE to the LESSOR during the 3-year
lease period shall form part of or be deducted from the purchase price
or total consideration as may hereafter be mutually fixed or agreed
upon by the LESSOR and the LESSEE.
5.
That if the LESSEE shall give oral or written notice to
the LESSOR on or before the expiry date of the 3-year lease period
stipulated herein of his desire to exercise his option to buy or
purchase the house and lot herein leased, the LESSOR upon receipt
of the purchase price/total consideration as fixed or agreed upon less
the total amount of monthly rentals paid the LESSEE during the 3-year
lease period shall execute the appropriate Deed to SELL, TRANSFER
and CONVEY the house and lot subject of this Contract in favor of the
LESSEE, his heirs, successors and assigns, together with all the
fixtures and accessories therein, free from all liens and
encumbrances.

Before the expiration of the three-year lease period provided in the lease
contract, Enrico exercised his option to purchase the subject property by communicating
verbally and in writing to Luz his willingness to pay the agreed purchase price, but the
spouses Apeles supposedly ignored Enricos manifestation. This prompted Enrico to seek
recourse from the barangay for the enforcement of his right to purchase the subject
property, but despite several notices, the spouses Apeles failed to appear before
the barangay for settlement proceedings. Hence, the barangay issued to Enrico a
Certificate to File Action.[7]
In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that
he pay his rental arrears from January 1991 to December 1996 and he vacate the subject
property since it would be needed by the spouses Apeles themselves.
Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February
1999 a Complaint for Specific Performance with Damages against the spouses Apeles
before the RTC, docketed as Civil Case No.
Q-99-36834. Enricos cause of action is
founded on paragraph 5 of the Contract of Lease with Option to Purchase vesting him with
the right to acquire ownership of the subject property after paying the agreed amount of
consideration.
Following the pre-trial conference, trial on the merits ensued before the RTC.
Enrico himself testified as the sole witness for his side. He narrated that he and Luz
entered into the Contract of Lease with Option to Purchase on 26 January 1987, with Luz
signing the said Contract at Enricos office in Timog Avenue, Quezon City. The Contract
was notarized on the same day as evidenced by the Certification on the Notary Publics
Report issued by the Clerk of Court of the RTC of Manila. [8]
On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease
with Option to Purchase, and posited that Luzs signature thereon was a forgery. To
buttress their contention, the spouses Apeles offered as evidence Luzs Philippine Passport
which showed that on 26 January 1987, the date when Luz allegedly signed the said
Contract, she was in the United States of America. The spouses Apeles likewise presented
several official documents bearing her genuine signatures to reveal their remarkable
discrepancy from the signature appearing in the disputed lease contract. The spouses
Apeles maintained that they did not intend to sell the subject property.[9]
After the spouses Apeles established by documentary evidence that Luz was not in
the country at the time the Contract of Lease with Option to Purchase was executed, Enrico,
in rebuttal, retracted his prior declaration that the said Contract was signed by Luz on 26
January 1996. Instead, Enrico averred that Luz signed the Contract after she arrived in
the Philippines on 30 May 1987. Enrico further related that after Luz signed the lease
contract, she took it with her for notarization, and by the time the document was returned to
him, it was already notarized.[10]
On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in
favor of Enrico. Since none of the parties presented a handwriting expert, the RTC relied on
its own examination of the specimen signatures submitted to resolve the issue of
forgery. The RTC found striking similarity between Luzs genuine signatures in the
documents presented by the spouses Apeles themselves and her purportedly forged
signature in the Contract of Lease with Option to Purchase. Absent any finding of forgery,
the RTC bound the parties to the clear and unequivocal stipulations they made in the lease

contract. Accordingly, the RTC ordered the spouses Apeles to execute a Deed of Sale in
favor of Enrico upon the latters payment of the agreed amount of consideration. Thefallo of
the RTC Decision reads:
WHEREFORE, this Court finds [Enricos] complaint to be
substantiated by preponderance of evidence and accordingly orders
(1)
[The spouses Apeles] to comply with the provisions
of the Contract of Lease with Option to Purchase; and upon payment
of total consideration as stipulated in the said CONTRACT for [the
spouses Apeles] to execute a Deed of Absolute Sale in favor of
[Enrico], over the parcel of land and the improvements existing
thereon located at No. 87 Timog Avenue, Quezon City.
(2)
[The spouses Apeles] to pay [Enrico] moral and
exemplary damages in the respective amounts of P100,000.00
and P50,000.00.
(3)
[The spouses Apeles] to pay attorneys fees
of P50,000.00 and costs of the suit.[11]
The spouses Apeles challenged the adverse RTC Decision before the Court of
Appeals and urged the appellate court to nullify the assailed Contract of Lease with Option
to Purchase since Luzs signature thereon was clearly a forgery. The spouses Apeles
argued that it was physically impossible for Luz to sign the said Contract on 26 January
1987 since she was not in the Philippines on that date and returned five months
thereafter. The spouses Apeles called attention to Enricos inconsistent declarations as to
material details involving the execution of the lease contract, thereby casting doubt on
Enricos credibility, as well as on the presumed regularity of the contract as a notarized
document.
On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No.
76933 granting the appeal of the spouses Apeles and overturning the judgment of the
RTC. In arriving at its assailed decision, the appellate court noted that the Notary Public did
not observe utmost care in certifying the due execution of the Contract of Lease with Option
to Purchase. The Court of Appeals chose not to accord the disputed Contract full faith and
credence. The Court of Appeals held, thus:
WHEREFORE, the foregoing premises considered, the
appealed decision dated October 8, 2002 of the Regional Trial Court
of Quezon City, Branch 215 in Civil Case No. Q-99-36834 for specific
performance with damages is hereby REVERSED and a new is one
entered dismissing [Enricos] complaint.[12]
Enricos Motion for Reconsideration was denied by the Court of Appeals in a
Resolution[13] dated 25 April 2005.
Enrico is presently before this Court seeking the reversal of the unfavorable
judgment of the Court of Appeals, assigning the following errors thereto:
I.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR


WHEN IT BRUSHED ASIDE THE RULING OF THE COURT A QUO
UPHOLDING THE VALIDITY OF THE CONTRACT OF LEASE WITH
OPTION TO PURCHASE AND IN LIEU THEREOF RULED THAT THE
SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL
AND VOID.

matter after the spouses Apeles established by clear and convincing evidence that Luz was
not in the Philippines on that date.[18] In rebuttal, Enrico made a complete turnabout and
claimed that Luz signed the Contract in question on 30 May 1987 after her arrival in the
country.[19] The inconsistencies in Enricos version of events have seriously impaired the
probative value of his testimony and cast serious doubt on his credibility. His contradictory
statements on important details simply eroded the integrity of his testimony.

II.

While it is true that a notarized document carries the evidentiary weight conferred
upon it with respect to its due execution, and has in its favor the presumption of regularity,
this presumption, however, is not absolute. It may be rebutted by clear and convincing
evidence to the contrary.[20] Enrico himself admitted that Luz took the document and had it
notarized without his presence. Such fact alone overcomes the presumption of regularity
since a notary public is enjoined not to notarize a document unless the persons who signed
the same are the very same persons who executed and personally appeared before the
said notary public to attest to the contents and truth of what are stated therein.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR


WHEN CONTRARY TO THE FINDINGS OF THE COURT A QUO IT
RULED THAT THE DEFENSE OF FORGERY WAS SUBSTANTIALLY
AND CONVINCINGLY PROVEN BY COMPETENT EVIDENCE.
Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the
RTC in disregard of the legal aphorism that the factual findings of the trial court should be
accorded great weight and respect on appeal.
We do not agree.
Enricos insistence on the infallibility of the findings of the RTC seriously impairs
the discretion of the appellate tribunal to make independent determination of the merits of
the case appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and
sinker the factual conclusions of the trial court without crippling the very office of
review. Although we have indeed held that the factual findings of the trial courts are to be
accorded great weight and respect, they are not absolutely conclusive upon the appellate
court.[14]
The reliance of appellate tribunals on the factual findings of the trial court is
based on the postulate that the latter had firsthand opportunity to hear the witnesses and to
observe their conduct and demeanor during the proceedings. However, when such findings
are not anchored on their credibility and their testimonies, but on the assessment of
documents that are available to appellate magistrates and subject to their scrutiny, reliance
on the trial court finds no application. [15]
Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the
Revised Rules of Court, the parties may raise both questions of fact and/or of law. In fact, it
is imperative for the Court of Appeals to review the findings of fact made by the trial
court. The Court of Appeals even has the power to try cases and conduct hearings, receive
evidence and perform any and all acts necessary to resolve factual issues raised in cases
falling within its original and appellate jurisdiction. [16]
Enrico assiduously prays before this Court to sustain the validity of the Contract
of Lease with Option to Purchase. Enrico asserts that the said Contract was voluntarily
entered into and signed by Luz who had it notarized herself. The spouses Apeles should
be obliged to respect the terms of the agreement, and not be allowed to renege on their
commitment thereunder and frustrate the sanctity of contracts.
Again, we are not persuaded. We agree with the Court of Appeals that in ruling
out forgery, the RTC heavily relied on the testimony proffered by Enrico during the trial,
ignoring blatant contradictions that destroy his credibility and the veracity of his claims. On
direct examination, Enrico testified that Luz signed the Contract of Lease with Option to
Purchase on 26 January 1987 in his presence,[17] but he recanted his testimony on the

Although there is no direct evidence to prove forgery, preponderance of evidence


inarguably favors the spouses Apeles. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence. Preponderance of evidence is the
weight, credit, and value of the aggregate evidence on either side and is usually considered
to be synonymous with the term greater weight of the evidence or greater weight of the
credible evidence. Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the court as
worthier of belief than that which is offered in opposition thereto. [21] In the case at bar, the
spouses Apeles were able to overcome the burden of proof and prove by preponderant
evidence in disputing the authenticity and due execution of the Contract of Lease with
Option to Purchase. In contrast, Enrico seemed to rely only on his own self-serving
declarations, without asserting any proof of corroborating testimony or circumstantial
evidence to buttress his claim.
Even assuming for the sake of argument that we agree with Enrico that Luz
voluntarily entered into the Contract of Lease with Option to Purchase and personally
affixed her signature to the said document, the provision on the option to purchase the
subject property incorporated in said Contract still remains unenforceable.
There is no dispute that what Enrico sought to enforce in Civil Case No. Q-9936834 was his purported right to acquire ownership of the subject property in the exercise of
his option to purchase the same under the Contract of Lease with Option to Purchase. He
ultimately wants to compel the spouses Apeles to already execute the Deed of Sale over the
subject property in his favor.
An option is a contract by which the owner of the property agrees with another
person that the latter shall have the right to buy the formers 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. [22] An option is not of itself a
purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of
the right to purchase. It is simply 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. He does not sell his land; he does not then agree to sell it; but he does sell
something, i.e., the right or privilege to buy at the election or option of the other party. Its
distinguishing characteristic is that it imposes no binding obligation on the person holding
the option, aside from the consideration for the offer.[23]

It is also sometimes called an unaccepted offer and is sanctioned by Article


1479 of the Civil Code:
Art. 1479. A promise to buy and sell a determinate thing for
a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price.
The second paragraph of Article 1479 provides for the definition and consequent
rights and obligations under an option contract. For an option contract to be valid and
enforceable against the promissor, there must be a separate and distinct consideration that
supports it.[24]
In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic
Gulf and Pacific Co.,[25] we declared that for an option contract to bind the promissor, it must
be supported by consideration:
There is no question that under Article 1479 of the new
Civil Code an option to sell, or a promise to buy or to sell, as used
in said article, to be valid must be supported by a consideration
distinct from the price. This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted, is
only binding if supported by a consideration. In other words, an
accepted unilateral promise can only have a binding effect if
supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not supported
by any consideration. Here it is not disputed that the option is
without consideration. It can therefore be withdrawn
notwithstanding
the
acceptance
made
of
it
by
appellee. (Emphasis supplied.)
The doctrine requiring the payment of consideration in an option contract
enunciated in Southwestern Sugar is resonated in subsequent cases and remains
controlling to this day. Without consideration that is separate and distinct from the purchase
price, an option contract cannot be enforced; that holds true even if the unilateral promise is
already accepted by the optionee.
The consideration is the why of the contracts, the essential reason which moves
the contracting parties to enter into the contract. This definition illustrates that the
consideration contemplated to support an option contract need not be monetary. Actual
cash need not be exchanged for the option. However, by the very nature of an option
contract, as defined in Article 1479, the same is an onerous contract for which the
consideration must be something of value, although its kind may vary.[26]
We have painstakingly examined the Contract of Lease with Option to Purchase,
as well as the pleadings submitted by the parties, and their testimonies in open court, for
any direct evidence or evidence aliunde to prove the existence of consideration for the
option contract, but we have found none. The only consideration agreed upon by the
parties in the said Contract is the supposed purchase price for the subject property in the

amount not exceeding P1.5 Million, which could not be deemed to be the same
consideration for the option contract since the law and jurisprudence explicitly dictate that
for the option contract to be valid, it must be supported by a consideration separate and
distinct from the price.
In Bible Baptist Church v. Court of Appeals, [27] we stressed that an option contract
needs to be supported by a separate consideration. The consideration need not be
monetary but could consist of other things or undertakings. However, if the consideration is
not monetary, these must be things or undertakings of value, in view of the onerous nature
of the option contract. Furthermore, when a consideration for an option contract is not
monetary, said consideration must be clearly specified as such in the option contract or
clause.
In the present case, it is indubitable that no consideration was given by Enrico to
the spouses Apeles for the option contract. The absence of monetary or any material
consideration keeps this Court from enforcing the rights of the parties under said option
contract.
WHEREFORE,
in
view
of
the
foregoing,
the
instant
Petition
is DENIED. The Decision dated 20 December 2004 and Resolution dated 25 April 2005 of
the Court of Appeals in CA-G.R. CV No. 76933 are hereby AFFIRMED. No costs.
SO ORDERED.

ANG YU ASSUNCION VS CA
FACTS:
Petitioners allege that they are tenants or lessees of residential and commercial spaces
owned by defendants in Ongpin Street, Binondo, Manila since 1935 and that on several
occasions before October 9, 1986, defendants informed plaintiffs that they are offering to
sell the premises and are giving them priority to acquire the same. During the negotiations,
Bobby Cu Unjieng offered a price of P6-million while petitioners made a counter offer of P5million. On October 24, 1986, petitioners asked the respondents to specify the terms and
conditions of the offer to sell. Petitioners now raise that since respondents failed to specify
the terms and conditions of the offer to sell and because of information received that the
latter were about to sell the property, plaintiffs were compelled to file the complaint to
compel defendants to sell the property to them.
The trial court found that the respondents offer to sell was never accepted by the petitioners
for the reason that they did not agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. The Court of Appeals affirmed the decision of the
lower court. This decision was brought to the Supreme Court by petition for review on
certiorari which subsequently denied the appeal on May 6, 1991 for insufficiency in form
and substance.
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
Court, the Cu Unjieng spouses executed a Deed of Sale transferring the property in
question to herein respondent Buen Realty and Development Corporation, for
P15,000,000.00. On July 1, 1991, respondent as the new owner of the subject property
wrote a letter to the petitioners demanding that the latter vacate the premises. On July 16,
1991, the petitioners wrote a reply to respondent corporation stating that the latter brought

the property subject to the notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, the RTC ordered the Cu Unjiengs 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 petitioners right of first
refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. The court
also set aside the title issued to Buen Realty Corporation for having been executed in bad
faith. On September 22, 1991, the Judge issued a writ of execution.
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside
and declared without force and effect the above questioned orders of the court a quo.
ISSUE
Whether or not Buen Realty can be 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.
HELD
We affirm the decision of the appellate court.
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.


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.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
right of first refusal in favor of petitioners. The consequence of such a declaration entails
no more than what has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to honor the right of first
refusal, the remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
Furthermore, Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ of execution issued by respondent Judge, let alone ousted from
the ownership and possession of the property, without first being duly afforded its day in
court.