LAW ON SALES CASES

J.K.Z. SAGUM
L.L.B 2
 SECOND DIVISION
G.R. No. 111238, January 25, 1995
ADELFA PROPERTIES, INC., PETITIONER, VS. COURT OF APPEALS,
ROSARIO JIMENEZ-CASTAÑEDA AND SALUD JIMENEZ,
RESPONDENTS.

DECISION

REGALADO, J.:

The main issues presented for resolution in this petition for review on certiorari
of the judgment of respondent Court of Appeals, dated April 6, 1993, in CA-
G.R. CV No. 34767 [1] are (1) whether or not the "Exclusive Option to
Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option
contract; and (2) whether or not there was a valid suspension of payment of the
purchase price by said petitioner, and the legal effects thereof on the contractual
relations of the parties.

The records disclose the following antecedent facts which culminated in the
present appellate review, to wit:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez,
were the registered co-owners of a parcel of land consisting of 17,710 square
meters, covered by Transfer Certificate of Title (TCT) No. 309773, [2] situated in
Barrio Culasi, Las Piñas, Metro Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of
one-half of said parcel of land, specifically the eastern portion thereof, to herein
petitioner pursuant to a “Kasulatan sa Bilihan ng Lupa.” [3] Subsequently, a
"Confirmatory Extrajudicial Partition Agreement" [4] was executed by the
Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855
square meters was adjudicated to Jose and Dominador Jimenez, while the
western portion was allocated to herein private respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion

of the property from private respondents. Accordingly, on November 25, 1989,
an "Exclusive Option to Purchase" [5] was executed between petitioner and
private respondents, under the following terms and conditions:

"1. The selling price of said 8,655 square meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE
HUNDRED FIFTY PESOS ONLY (P2,856,150.00);

"2. The sum of P50,000.00 which we received from ADELFA PROPERTIES,

INC, as an option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November 30, 1989;

"3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said
balance in accordance with paragraph 2 hereof, this option shall be cancelled
and 50% of the option money to be forfeited in our favor and we will refund
the remaining 50% of said option money upon the sale of said property to a
third party:

"4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses for
the registration of the deed of sale in the Registry of Deeds are for the account
of ADELFA PROPERTIES, INC."

Considering, however, that the owner's copy of the certificate of title issued to
respondent Salud Jimenez had been lost, a petition for the re-issuance of a new
owner's copy of said certificate of title was filed in court through Atty. Bayani L.
Bernardo, who acted as private respondents' counsel. Eventually, a new owner's
copy of the certificate of title was issued but it remained in the possession of
Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.

4. Before petitioner could make payment, it received summons [6] on November

29, 1989, together with a copy of a complaint filed by the nephews and nieces of
private respondents against the latter, Jose and Dominador Jimenez, and herein
petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-
5541, for annulment of the deed of sale in favor of Household Corporation and
recovery of ownership of the property covered by TCT No. 309773. [7]
5. As a consequence, in a letter dated November 29, 1989, petitioner informed
private respondents that it would hold payment of the full purchase price and
suggested that private respondents settle the case with their nephews and nieces,
adding that "x x x if possible, although November 30, 1989 is a holiday, we will
be waiting for you and said plaintiffs at our office up to 7:00 p.m." [8] Another
letter of the same tenor and of even date was sent by petitioner to Jose and
Dominador Jimenez. [9] Respondent Salud Jimenez refused to heed the
suggestion of petitioner and attributed the suspension of payment of the
purchase price to “lack of word of honor”.

6. On December 7, 1989, petitioner caused to be annotated on the title of the

lot its option contract with private respondents, and its contract of sale with
Jose and Dominador Jimenez, as Entry No. 1437-4 and Entry No. 1438-4,
respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see

Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter
that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay
the purchase price provided that P500,000.00 be deducted therefrom for the
settlement of the civil case. This was rejected by private respondents. On
December 22, 1989, Atty. Bernardo wrote private respondents on the same
matter but this time reducing the amount from P500,000.00 to P300,000.00, and
this was also rejected by the latter.

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil
Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be
annotated anew on TCT No. 309773 the exclusive option to purchase as Entry
No. 4442-4.

9. On the same day, February 28, 1990, private respondents executed a Deed of
Conditional Sale [10] in favor of Emylene Chua over the same parcel of land for
P3,029,250.00, of which P1,500,000.00 was paid to private respondents on said
date, with the balance to be paid upon the transfer of title to the specified one-
half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the
latter that in view of the dismissal of the case against them, petitioner was
willing to pay the purchase price, and he requested that the corresponding deed
of absolute sale be executed. [11] This was ignored by private respondents.

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner
enclosing therein a check for P25,000.00 representing the refund of fifty percent
of the option money paid under the exclusive option to purchase. Private
respondents then requested petitioner to return the owner's duplicate copy of
the certificate of title of respondent Salud Jimenez. [12] Petitioner failed to
surrender the certificate of title, hence private respondents filed Civil Case No.
7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of
contract with damages, praying, among others, that the exclusive option to
purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the
option contract on TCT No. 309773 be cancelled. Emylene Chua, the
subsequent purchaser of the lot, filed a complaint in intervention.

12. The trial court rendered judgment [13] therein on September 5, 1991 holding
that the agreement entered into by the parties was merely an option contract,
and declaring that the suspension of payment by herein petitioner constituted a
counter-offer which, therefore, was tantamount to a rejection of the option. It
likewise ruled that herein petitioner could not validly suspend payment in favor
of private respondents on the ground that the vindicatory action filed by the
latter's kin did not involve the western portion of the land covered by the
contract between petitioner and private respondents, but the eastern portion
thereof which was the subject of the sale between petitioner and the brothers
Jose and Dominador Jimenez. The trial court then directed the cancellation of
the exclusive option to purchase, declared the sale to intervenor Emylene Chua
as valid and binding, and ordered petitioner to pay damages and attorney's fees
to private respondents, with costs.

13. On appeal, respondent Court of Appeals affirmed in toto the decision of the
court a quo and held that the failure of petitioner to pay the purchase price
within the period agreed upon was tantamount to an election by petitioner not
to buy the property; that the suspension of payment constituted an imposition
of a condition which was actually a counter-offer amounting to a rejection of
the option; and that Article 1590 of the Civil Code on suspension of payments
applies only to a contract of sale or a contract to sell, but not to an option
contract which it opined was the nature of the document subject of the case at
bar. Said appellate court similarly upheld the validity of the deed of conditional
sale executed by private respondents in favor of intervenor Emylene Chua.

In the present petition, the following assignment of errors are raised:

1. Respondent Court of Appeals acted with grave abuse of discretion in making

its finding that the agreement entered into by petitioner and private respondents
was strictly an option contract;

2. Granting arguendo that the agreement was an option contract, respondent

Court of Appeals acted with grave abuse of discretion in grievously failing to
consider that while the option period had not lapsed, private respondents could
not unilaterally and prematurely terminate the option period;

3. Respondent Court of Appeals acted with grave abuse of discretion in failing

to appreciate fully the attendant facts and circumstances when it made the
conclusion of law that Article 1590 does not apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in

conforming with the sale in favor of appellee Ma. Emylene Chua and the award
of damages and attorney's fees which are not only excessive, but also without
bases in fact and in law. [14]

An analysis of the facts obtaining in this case, as well as the evidence presented
by the parties, irresistibly leads to the conclusion that the agreement between the
parties is a contract to sell, and not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by respondent court, it would be

worthwhile at this juncture to briefly discourse on the rationale behind our
treatment of the alleged option contract as a contract to sell, rather than a
contract of sale. The distinction between the two is important for in a contract
of sale, the title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of
sale, the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to sell, title is retained by
the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.
Thus, a deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller until
the full payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed period. [15]

There are two features which convince us that the parties never intended to
transfer ownership to petitioner except upon full payment of the purchase price.
Firstly, the exclusive option to purchase, although it provided for automatic
rescission of the contract and partial forfeiture of the amount already paid in
case of default, does not mention that petitioner is obliged to return possession
or ownership of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to herein private
respondents in the event that petitioner does not comply with its obligation.
With the absence of such a stipulation, although there is a provision on the
remedies available to the parties in case of breach, it may legally be inferred that
the parties never intended to transfer ownership to the petitioner prior to
completion of payment of the purchase price.

In effect, there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price. Article 1478 of the Civil Code does
not require that such a stipulation be expressly made. Consequently, an implied
stipulation to that effect is considered valid and, therefore, binding and
enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered a contract to
sell.

Moreover, that the parties really intended to execute a contract to sell, and not a
contract of sale, is bolstered by the fact that the deed of absolute sale would
have been issued only upon the payment of the balance of the purchase price, as
may be gleaned from petitioner's letter dated April 16, 1990 [16] wherein it
informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."

Secondly, it has not been shown that there was delivery of the property, actual
or constructive, made to herein petitioner. The exclusive option to purchase is
not contained in a public instrument the execution of which would have been
considered equivalent to delivery. [17] Neither did petitioner take actual, physical
possession of the property at any given time. It is true that after the
reconstitution of private respondents' certificate of title, it remained in the
possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter
delivered the same to herein petitioner. Normally, under the law, such
possession by the vendee is to be understood as a delivery. [18] However, private
respondents explained that there was really no intention on their part to deliver
the title to herein petitioner with the purpose of transferring ownership to it.
They claim that Atty. Bernardo had possession of the title only because he was
their counsel in the petition for reconstitution. We have no reason not to believe
this explanation of private respondents, aside from the fact that such contention
was never refuted or contradicted by petitioner.

2. Irrefragably, the controverted document should legally be considered as a

perfected contract to sell. On this particular point, therefore, we reject the
position and ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents, categorized the instrument as
"strictly an option contract."

The important task in contract interpretation is always the ascertainment of the

intention of the contracting parties and that task is, of course, 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. [19] Moreover, judging from the subsequent acts of the parties
which will hereinafter be discussed, it is undeniable that the intention of the
parties was to enter into a contract to sell. [20] In addition, the title of a contract
does not necessarily determine its true nature. [21] Hence, the fact that the
document under discussion is entitled "Exclusive Option to Purchase" is not
controlling where the text thereof shows that it is a contract to sell.

An option, as used in the law on sales, is a continuing offer 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 is also sometimes called an "unaccepted offer."
An option is not of itself a purchase, but merely secures the privilege to buy. [22]
It is not a sale of property but a sale of the right to purchase. [23] It is simply a
contract by which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time. He
does not sell his land; he does not then agree to sell it; but he does sell
something, that is, the right or privilege to buy at the election or option of the
other party. [24] Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the consideration for
the offer. Until acceptance, it is not, properly speaking, a contract, and does not
vest, transfer, or agree to transfer, any title to, or any interest or right in the
subject matter, but is merely a contract by which the owner of property gives
the optionee the right or privilege of accepting the offer and buying the property
on certain terms. [25]

On the other hand, a contract, like a contract to sell, involves a meeting of

minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. [26] Contracts, in general, are
perfected by mere consent, [27] which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. [28]

The distinction between an "option" and a contract of sale is that an option is

an unaccepted offer. It states the terms and conditions on which the owner is
willing to sell his land, if the holder elects to accept them within the time
limited. If the holder does so elect, he must give notice to the other party, and
the accepted offer thereupon becomes a valid and binding contract. If an
acceptance is not made within the time fixed, the owner is no longer bound by
his offer, and the option is at an end. A contract of sale, on the other hand, fixes
definitely the relative rights and obligations of both parties at the time of its
execution. The offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement. [29]

A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents' acceptance
thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror, it may be
made either in a formal or an informal manner, and may be shown by acts,
conduct, or words of the accepting party that clearly manifest a present
intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale. [30]

The records also show that private respondents accepted the offer of petitioner
to buy their property under the terms of their contract. At the time petitioner
made its offer, private respondents suggested that their transfer certificate of
title be first reconstituted, to which petitioner agreed. As a matter of fact, it was
petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents
in filing a petition for reconstitution. After the title was reconstituted, the parties
agreed that petitioner would pay either in cash or manager's check the amount
of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on
November 25, 1989, but it later offered to make a down payment of P50,000.00,
with the balance of P2,806,150.00 to be paid on or before November 30, 1989.
Private respondents agreed to the counter-offer made by petitioner. [31] As a
result, the so?called exclusive option to purchase was prepared by petitioner and
was subsequently signed by private respondents, thereby creating a perfected
contract to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite
and certain, while the acceptance thereof was absolute and without any
condition or qualification. The agreement as to the object, the price of the
property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts than that they were meant to finalize
and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the
corresponding capital gains tax, cost of documentary stamps are for the account
of the vendors, and expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of Adelfa Properties, Inc." Hence, there
was nothing left to be done except the performance of the respective
obligations of the parties.

We do not subscribe to private respondents’ submission, which was upheld by

both the trial court and respondent Court of Appeals, that the offer of
petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the
purchase price for the settlement of the civil case was tantamount to a counter-
offer. It must be stressed that there already existed a perfected contract between
the parties at the time the alleged counter-offer was made. Thus, any new offer
by a party becomes binding only when it is accepted by the other. In the case of
private respondents, they actually refused to concur in said offer of petitioner,
by reason of which the original terms of the contract continued to be
enforceable.

At any rate, the same cannot be considered a counter-offer for the simple
reason that petitioner's sole purpose was to settle the civil case in order that it
could already comply with its obligation. In fact, it was even indicative of a
desire by petitioner to immediately comply therewith, except that it was being
prevented from doing so because of the filing of the civil case which, it believed
in good faith, rendered compliance improbable at that time. In addition, no
inference can be drawn from that suggestion given by petitioner that it was
totally abandoning the original contract.

More importantly, it will be noted that the failure of petitioner to pay the
balance of the purchase price within the agreed period was attributed by private
respondents to "lack of word of honor" on the part of the former. The reason
of "lack of word of honor" is to us a clear indication that private respondents
considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting
fulfillment of the obligation from herein petitioner. With the arrival of the
period agreed upon by the parties, petitioner was supposed to comply with the
obligation incumbent upon it to perform, not merely to exercise an option or a
right to buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation

to give something, that is, the payment of the purchase price. The contract did
not simply give petitioner the discretion to pay for the property. [32] It will be
noted that there is nothing in the said contract to show that petitioner was
merely given a certain period within which to exercise its privilege to buy. The
agreed period was intended to give time to herein petitioner within which to
fulfill and comply with its obligation, that is, to pay the balance of the purchase
price. No evidence was presented by private respondents to prove otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or

a mere "option" is whether or not the agreement could be specifically enforced.
[33] There is no doubt that the obligation of petitioner to pay the purchase price

is specific, definite and certain, and consequently binding and enforceable. Had
private respondents chosen to enforce the contract, they could have specifically
compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made
manifest in the contract itself as an integral stipulation, compliance with which
could legally and definitely be demanded from petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as
where something further remains to be done before the buyer and seller obligate
themselves. [34] An agreement is only an "option" when no obligation rests on
the party to make any payment except such as may be agreed on between the
parties as consideration to support the option until he has made up his mind
within the time specified. [35] An option, and not a contract to purchase, is
effected by an agreement to sell real estate for payments to be made within a
specified time and providing for forfeiture of money paid upon failure to make
payment, where the purchaser does not agree to purchase, to make payment, or
to bind himself in any way other than the forfeiture of the payments made. [36]
As hereinbefore discussed, this is not the situation obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that the
initial payment shall be totally forfeited in case of default in payment is to be
considered as an option contract, [37] still we are not inclined to conform with
the findings of respondent court and the court a quo that the contract executed
between the parties is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the purchase price, and were not
merely quoting an agreed value for the property. The term "balance," connotes a
remainder or something remaining from the original total sum already agreed
upon.

In other words, the alleged option money of P50,000.00 was actually earnest
money which was intended to form part of the purchase price. The amount of
P50,000.00 was not distinct from the cause or consideration for the sale of the
property, but was itself a part thereof. It is a statutory rule that 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. [38] It constitutes an advance
payment and must, therefore, be deducted from the total price. Also, earnest
money is given by the buyer to the seller to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (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. [39]

The aforequoted characteristics of earnest money are apparent in the so-called

option contract under review, even though it was called “option money” by the
parties. In addition, private respondents failed to show that the payment of the
balance of the purchase price was only a condition precedent to the acceptance
of the offer or to the exercise of the right to buy. On the contrary, it has been
sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell. [40]

II

1. This brings us to the second issue as to whether or not there was valid
suspension of payment of the purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the purchase price within the
agreed period, petitioner invokes Article 1590 of the Civil Code which provides:

"ART. 1590. Should the vendee be disturbed in the possession or ownership of

the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the disturbance or
danger to cease, unless the latter gives security for the return of the price in a
proper case, or it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the payment. A mere act of
trespass shall not authorize the suspension of the payment of the price."

Respondent court refused to apply the aforequoted provision of law on the

erroneous assumption that the true agreement between the parties was a
contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590 would
properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541
filed against the parties herein involved only the eastern half of the land subject
of the deed of sale between petitioner and the Jimenez brothers, it did not,
therefore, have any adverse effect on private respondents' title and ownership
over the western half of the land which is covered by the contract subject of the
present case. We have gone over the complaint for recovery of ownership filed
in said case [41] and we are not persuaded by the factual findings made by said
courts. At a glance, it is easily discernible that, although the complaint prayed for
the annulment only of the contract of sale executed between petitioner and the
Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs’
share in that parcel of land specifically covered by TCT No. 309773. In other
words, the plaintiffs therein were claiming to be co-owners of the entire parcel
of land described in TCT No. 309773, and not only of a portion thereof nor, as
incorrectly interpreted by the lower courts, did their claim pertain exclusively to
the eastern half adjudicated to the Jimenez brothers.

Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action filed
against it. The assurance made by private respondents that petitioner did not
have to worry about the case because it was pure and simple harassment [42] is
not the kind of guaranty contemplated under the exceptive clause in Article
1590 wherein the vendor is bound to make payment even with the existence of
a vindicatory action if the vendee should give a security for the return of the
price.

2. Be that as it may, and the validity of the suspension of payment

notwithstanding, we find and hold that private respondents may no longer be
compelled to sell and deliver the subject property to petitioner for two reasons,
that is, petitioner's failure to duly effect the consignation of the purchase price
after the disturbance had ceased; and, secondarily, the fact that the contract to
sell had been validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when
petitioner caused its exclusive option to be annotated anew on the certificate of
title, it already knew of the dismissal of Civil Case No. 89-5541. However, it was
only on April 16, 1990 that petitioner, through its counsel, wrote private
respondents expressing its willingness to pay the balance of the purchase price
upon the execution of the corresponding deed of absolute sale. At most, that
was merely a notice to pay. There was no proper tender of payment nor
consignation in this case as required by law.
The mere sending of a letter by the vendee expressing the intention to pay,
without the accompanying payment, is not considered a valid tender of
payment. [43] Besides, a mere tender of payment is not sufficient to compel
private respondents to deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to extinguish petitioner's
obligation to pay the balance of the purchase price. [44] The rule is different in
case of an option contract [45] or in legal redemption or in a sale with right to
repurchase, [46] wherein consignation is not necessary because these cases
involve an exercise of a right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of payment would be
sufficient to preserve the right or privilege. This is because the provisions on
consignation are not applicable when there is no obligation to pay. [47] A
contract to sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege or a right. Consequently,
performance or payment may be effected not by tender of payment alone but by
both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the balance again arose and resumed
after it received notice of such dismissal. Unfortunately, petitioner failed to
seasonably make payment, as in fact it has failed to do so up to the present time,
or even to deposit the money with the trial court when this case was originally
filed therein.

By reason of petitioner's failure to comply with its obligation, private

respondents elected to resort to and did announce the rescission of the contract
through its letter to petitioner dated July 27, 1990. That written notice of
rescission is deemed sufficient under the circumstances. Article 1592 of the Civil
Code which requires rescission either by judicial action or notarial act is not
applicable to a contract to sell. [48] Furthermore, judicial action for rescission of a
contract is not necessary where the contract provides for automatic rescission in
case of breach, [49] as in the contract involved in the present controversy.

We are not unaware of the ruling in University of the Philippines vs. De los Angeles,
etc. [50] that the right to rescind is not absolute, being ever subject to scrutiny and
review by the proper court. It is our considered view, however, that this rule
applies to a situation where the extrajudicial rescission is contested by the
defaulting party. In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial determination. [51] Otherwise, if said
party does not oppose it, the extrajudicial rescission shall have legal effect. [52]

In the case at bar, it has been shown that although petitioner was duly furnished
and did receive a written notice of rescission which specified the grounds
therefor, it failed to reply thereto or protest against it. Its silence thereon
suggests an admission of the veracity and validity of private respondents' claim.
[53] Furthermore, the initiative of instituting suit was transferred from the

rescinder to the defaulter by virtue of the automatic rescission clause in the

contract. [54] But then, the records bear out the fact that aside from the
lackadaisical manner with which petitioner treated private respondents' letter of
cancellation, it utterly failed to seriously seek redress from the court for the
enforcement of its alleged rights under the contract. If private respondents had
not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no
intention to take any legal action to compel specific performance from the
former. By such cavalier disregard, it has been effectively estopped from seeking
the affirmative relief it now desires but which it had theretofore disdained.

WHEREFORE, on the foregoing modificatory premises, and considering that

the same result has been reached by respondent Court of Appeals with respect
to the relief awarded to private respondents by the court a quo which we find to
be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby
AFFIRMED.

SO ORDERED.

Narvasa, C.J., (Chairman), Puno, and Mendoza, JJ., concur.

 SECOND DIVISION
G.R. No. 124791, February 10, 1999
JOSE RAMON CARCELLER, PETITIONER, VS. COURT OF APPEALS AND
STATE INVESTMENT HOUSES, INC., RESPONDENTS.

DECISION

QUISUMBING, J.:

Before us is a petition for review of the Decision[1] dated September 21, 1995 of
the Court of Appeals[2]in CA - G. R. CV No. 37520, as well as its Resolution[3]
dated April 25, 1996, denying both parties' motion for partial reconsideration or
clarification. The assailed decision affirmed with modification the judgment[4] of
the Regional Trial Court of Cebu City, Branch 5, in Civil Case No. CEB 4700,
and disposed of the controversy as follows:
"However, We do not find it just that the appellee, in exercising his option to
buy, should pay appellant SIHI only P1,800,000.00. In fairness to appellant
SIHI, the purchase price must be based on the prevailing market price of real property in
Bulacao, Cebu City." (Emphasis supplied)
The factual background of this case is quite simple.

Private respondent State Investment Houses, Inc. (SIHI) is the registered owner
of two (2) parcels of land with a total area of 9,774 square meters, including all
the improvements thereon, located at Bulacao, Cebu City, covered by Transfer
Certificate of Titles Nos. T-89152 and T-89153 of the Registry of Deeds of
Cebu City.

On January 10, 1985, petitioner and SIHI entered into a lease contract with
option to purchase[5] over said two parcels of land, at a monthly rental of Ten
Thousand (P10,000.00) pesos for a period of eighteen (18) months, beginning
on August 1, 1984 until January 30, 1986. The pertinent portion of the lease
contract subject of the dispute reads in part:
"4. As part of the consideration of this agreement, the LESSOR hereby grants
unto the LESSEE the exclusive right, option and privilege to purchase, within
the lease period, the leased premises thereon for the aggregate amount of
P1,800,000.00 payable as follows:

a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay
P360,000.00.

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

P41,425.87 over sixty (60) consecutive months computed with interest at
24% per annum on the diminishing balance; Provided, that the LESSEE
shall have the right to accelerate payments at anytime in which event the
stipulated interest for the remaining installments shall no longer be
imposed.

x . . The option shall be exercised by a written notice to the LESSOR at anytime

within the option period and the document of sale over the afore-described
properties has to be consummated within the month immediately following the
month when the LESSEE exercised his option under this contract."[6]
On January 7, 1986, or approximately three (3) weeks before the expiration of
the lease contract, SIHI notified petitioner of the impending termination of the
lease agreement, and of the short period of time left within which he could still
validly exercise the option. It likewise requested petitioner to advise them of his
decision on the option, on or before January 20, 1986.[7]

In a letter dated January 15, 1986, which was received by SIHI on January 29,
1986, petitioner requested for a six-month extension of the lease contract,
alleging that he needs ample time to raise sufficient funds in order to exercise
the option. To support his request, petitioner averred that he had already made a
substantial investment on the property, and had been punctual in paying his
monthly rentals.[8]

On February 14, 1986, SIHI notified petitioner that his request was
disapproved. Nevertheless, it offered to lease the same property to petitioner at
the rate of Thirty Thousand (P30,000.00) pesos a month, for a period of one (1)
year. It further informed the petitioner of its decision to offer for sale said
leased property to the general public.[9]

On February 18, 1986, petitioner notified SIHI of his decision to exercise the
option to purchase the property and at the same time he made arrangements for
the payment of the downpayment thereon in the amount of Three Hundred
Sixty Thousand (P360,000.00) pesos.[10]

On February 20, 1986, SIHI sent another letter to petitioner, reiterating its
previous stand on the latter's offer, stressing that the period within which the
option should have been exercised had already lapsed. SIHI asked petitioner to
vacate the property within ten (10) days from notice, and to pay rental and
penalty due.[11]

Hence, on February 28, 1986, a complaint for specific performance and

damages[12] was filed by petitioner against SIHI before the Regional Trial Court
of Cebu City, to compel the latter to honor its commitment and execute the
corresponding deed of sale.

After trial, the court a quo promulgated its decision dated April 1, 1991, the
dispositive portion of which reads:
"In the light of the foregoing considerations, the Court hereby renders judgment
in Civil Case No. CEB 4700, ordering the defendant to execute a deed of sale in
favor of the plaintiff, covering the parcels of land together with all the
improvements thereon, covered by Transfer Certificates of Title Nos. 89152 and
89153 of the Registry of Deeds of Cebu City, in accordance with the lease
contract executed on January 10, 1984 between the plaintiff and the defendant,
but the purchase price may be by "one shot payment" of P1,800,000.00; and the
defendant to pay attorney's fee of P20,000.00.

No damages awarded."[13]
Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals
by way of a petition for review.

On September 21, 1995, respondent court rendered its decision, affirming the
trial court's judgment, but modified the basis for assessing the purchase price.
While respondent court affirmed appellee's option to buy the property, it added
that, "the purchase price must be based on the prevailing market price of real
property in Bulacao, Cebu City."[14]

Baffled by the modification made by respondent court, both parties filed a

motion for reconsideration and/or clarification, with petitioner, on one hand,
praying that the prevailing market price be the value of the property in February
1986, the time when the sale would have been consummated. SIHI, on the other
hand, prayed that the market price of the property be based on the prevailing
price index at least 10 years later, that is, 1996.

Respondent court conducted further hearings to clarify the matter, but no

agreement was reached by the parties. Thus, on April 25, 1996, respondent
court promulgated the assailed resolution, which denied both parties' motions,
and directed the trial court to conduct further hearings to ascertain the
prevailing market value of real properties in Bulacao, Cebu City and fix the value
of the property subject of the controversy.14a

Hence, the instant petition for review.

The fundamental issue to be resolved is, should petitioner be allowed to exercise

the option to purchase the leased property, despite the alleged delay in giving
the required notice to private respondent?

An option is a preparatory contract in which one party grants to the other, for a
fixed period and under specified conditions, the power to decide, whether or
not to enter into a principal contract. It binds the party who has given the
option, not to enter into the principal contract with any other person during the
period designated, and, within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the
option.[15] It is a separate agreement distinct from the contract which the parties
may enter into upon the consummation of the option.[16]

Considering the circumstances in this case, we find no reason to disturb the

findings of respondent court, that petitioner's letter to SIHI, dated January 15,
1986, was fair notice to the latter of the former's intent to exercise the option,
despite the request for the extension of the lease contract. As stated in said letter
to SIHI, petitioner was requesting for an extension (of the contract) for six
months "to allow us to generate sufficient funds in order to exercise our option
to buy the subject property".[17] The analysis by the Court of Appeals of the
evidence on record and the process by which it arrived at its findings on the
basis thereof, impel this Court's assent to said findings. They are consistent with
the parties' primary intent, as hereafter discussed, when they executed the lease
contract. As respondent court ruled:
"We hold that the appellee [herein petitioner] acted with honesty and good faith.
Verily, We are in accord with the trial court that he should be allowed to
exercise his option to purchase the lease property. In fact, SIHI will not be
prejudiced. A contrary ruling, however, will definitely cause damage to the
appellee, it appearing that he has introduced considerable improvements on the
property and has borrowed huge loan from the Technology Resources
Center."17a
The contracting parties' primary intent in entering into said lease contract with
option to purchase confirms, in our view, the correctness of respondent court's
ruling. Analysis and construction, however, should not be limited to the words
used in the contract, as they may not accurately reflect the parties' true intent.
The reasonableness of the result obtained, after said analysis, ought likewise to
be carefully considered.

It is well-settled in both law and jurisprudence, that contracts are the law
between the contracting parties and should be fulfilled, if their terms are clear
and leave no room for doubt as to the intention of the contracting parties.[18]
Further, it is well-settled that in construing a written agreement, the reason
behind and the circumstances surrounding its execution are of paramount
importance. Sound construction requires one to be placed mentally in the
situation occupied by the parties concerned at the time the writing was executed.
Thereby, the intention of the contracting parties could be made to prevail,
because their agreement has the force of law between them.[19]

Moreover, to ascertain the intent of the parties in a contractual relationship, it is

imperative that the various stipulations provided for in the contract be
construed together, consistent with the parties' contemporaneous and
subsequent acts as regards the execution of the contract.[20] And once the
intention of the parties has been ascertained, that element is deemed as an
integral part of the contract as though it has been originally expressed in
unequivocal terms.

As sufficiently established during the trial, SIHI, prior to its negotiation with
petitioner, was already beset with financial problems. SIHI was experiencing
difficulty in meeting the claims of its creditors. Thus, in order to reprogram the
company's financial investment plan and facilitate its rehabilitation and viability,
SIHI, being a quasi-banking financial institution, had been placed under the
supervision and control of the Central Bank (CB). It was in dire need of
liquidating its assets, so to speak, in order to stay afloat financially.

Thus, SIHI was compelled to dispose some of its assets, among which is the
subject leased property, to generate sufficient funds to augment its badly-
depleted financial resources. This then brought about the execution of the lease
contract with option to purchase between SIHI and the petitioner.

The lease contract provided that to exercise the option, petitioner had to send a
letter to SIHI, manifesting his intent to exercise said option within the lease
period ending January 30, 1986. However, what petitioner did was to request on
January 15, 1986, for a six-month extension of the lease contract, for the alleged
purpose of raising funds intended to purchase the property subject of the
option. It was only after the request was denied on February 14, 1986, that
petitioner notified SIHI of his desire to exercise the option formally. This was
by letter dated February 18, 1986. In private respondent's view, there was
already a delay of 18 days, fatal to petitioner's cause. But respondent court found
the delay neither "substantial" nor "fundamental" and did not amount to a
breach that would defeat the intention of the parties when they executed the
lease contract with option to purchase.20a

In allowing petitioner to exercise the option, however, both lower courts are in
accord in their decision, rationalizing that a contrary ruling would definitely
cause damage to the petitioner, as he had the whole place renovated to make the
same suitable and conducive for the business he established there. Moreover,
judging from the subsequent acts of the parties, it is undeniable that SIHI really
intended to dispose of said leased property, which petitioner indubitably
intended to buy.

SIHI's agreement to enter first into a lease contract with option to purchase
with herein petitioner, is a clear proof of its intent to promptly dispose said
property although the full financial returns may materialize only in a year's time.
Furthermore, its letter dated January 7, 1986, reminding the petitioner of the
short period of time left within which to consummate their agreement, clearly
showed its desire to sell that property. Also, SIHI's letter dated February 14,
1986 supported the conclusion that it was bent on disposing said property. For
this letter made mention of the fact that, "said property is now for sale to the
general public".
Petitioner's determination to purchase said property is equally indubitable. He
introduced permanent improvements on the leased property, demonstrating his
intent to acquire dominion in a year's time. To increase his chances of acquiring
the property, he secured an P8 Million loan from the Technology Resources
Center (TRC), thereby augmenting his capital. He averred that he applied for a
loan since he planned to pay the purchase price in one single payment, instead
of paying in installment, which would entail the payment of additional interest at
the rate of 24% per annum, compared to 7¾% per annum interest for the TRC
loan. His letter earlier requesting extension was premised, in fact, on his need
for time to secure the needed financing through a TRC loan.

In contractual relations, the law allows the parties reasonable leeway on the
terms of their agreement, which is the law between them.[21] Note that by
contract SIHI had given petitioner 4 periods: (a) the option to purchase the
property for P1,800,000.00 within the lease period, that is, until January 30,
1986; (b) the option to be exercised within the option period by written notice
at anytime; (c) the "document of sale...to be consummated within the month
immediately following the month" when petitioner exercises the option; and (d)
the payment in equal installments of the purchase price over a period of 60
months. In our view, petitioner's letter of January 15, 1986 and his formal
exercise of the option on February 18, 1986 were within a reasonable time-
frame consistent with periods given and the known intent of the parties to the
agreement dated January 10, 1985. A contrary view would be harsh and
inequituous indeed.

In Tuason, Jr., etc. vs. De Asis,[22] this Court opined that "in a contract of lease, if
the lessor makes an offer to the lessee to purchase the property on or before the
termination of the lease, and the lessee fails to accept or make the purchase on
time, the lessee losses the right to buy the property later on the terms and
conditions set in the offer." Thus, on one hand, petitioner herein could not
insist on buying the said property based on the price agreed upon in the lease
agreement, even if his option to purchase it is recognized. On the other hand,
SIHI could not take advantage of the situation to increase the selling price of
said property by nearly 90% of the original price. Such leap in the price quoted
would show an opportunistic intent to exploit the situation as SIHI knew for a
fact that petitioner badly needed the property for his business and that he could
afford to pay such higher amount after having secured an P8 Million loan from
the TRC. If the courts were to allow SIHI to take advantage of the situation, the
result would have been an injustice to petitioner, because SIHI would be
unjustly enriched at his expense. Courts of law, being also courts of equity, may
not countenance such grossly unfair results without doing violence to its solemn
obligation to administer fair and equal justice for all.

WHEREFORE, the appealed decision of respondent court, insofar as it

affirms the judgment of the trial court in granting petitioner the opportunity to
exercise the option to purchase the subject property, is hereby AFFIRMED.
However the purchase price should be based on the fair market value of real
property in Bulacao, Cebu City, as of February 1986, when the contract would
have been consummated. Further, petitioner is hereby ordered to pay private
respondent SIHI legal interest on the said purchase price beginning February
1986 up to the time it is actually paid, as well as the taxes due on said property,
considering that petitioner have enjoyed the beneficial use of said property. The
case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for further
proceedings to determine promptly the fair market value of said real property as
of February 1986, in Bulacao, Cebu City.

Costs against private respondent.

SO ORDERED.

Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

 EN BANC
G.R. No. 118910, November 16, 1995
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A.
RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE
CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN.
WIGBERTO TAÑADA, REP. JOKER P. ARROYO, PETITIONERS, VS.
MANUEL L. MORATO, IN HIS CAPACITY AS CHAIRMAN OF THE
PHILIPPINE CHARITY SWEEPSTAKES OFFICE, AND THE PHILIPPINE
GAMING MANAGEMENT CORPORATION, RESPONDENTS.

RESOLUTION

MENDOZA, J.:

Petitioners seek reconsideration of our decision in this case. They insist that the
decision in the first case has already settled (1) whether petitioner Kilosbayan,
Inc. has a standing to sue and (2) whether under its charter (R.A. No. 1169, as
amended) the Philippine Charity Sweepstakes Office can enter into any form of
association or collaboration with any party in operating an on-line lottery.
Consequently, petitioners contend, these questions can no longer be reopened.

Because two members of the Court did not consider themselves bound by the
decision in the first case, petitioners suggest that the two, in joining the
dissenters in the first case in reexamining the questions in the present case, acted
otherwise than according to law. They cite the following statement in the
opinion of the Court:

The voting on petitioners' standing in the previous case was a narrow one, with
seven (7) members sustaining petitioners' standing and six (6) denying
petitioners' right to bring the suit. The majority was thus a tenuous one that is
not likely to be maintained in any subsequent litigation. In addition, there have
been changes in the membership of the Court, with the retirement of Justices
Cruz and Bidin and the appointment of the writer of this opinion and Justice
Francisco. Given this fact it is hardly tenable to insist on the maintenance of
the ruling as to petitioners' standing.
Petitioners claim that this statement "conveys a none too subtle suggestion,
perhaps a Freudian slip, that the two new appointees, regardless of the merit of
the Decision in the first Kilosbayan case against the lotto (Kilosbayan, et al. v.
Guingona, 232 SCRA 110 (1994)) must of necessity align themselves with all the
Ramos appointees who were dissenters in the first case and constitute the new
majority in the second lotto case." And petitioners ask, "why should it be so?"

Petitioners ask a question to which they have made up an answer. Their attempt
at psychoanalysis, detecting a Freudian slip where none exists, may be more
revealing of their own unexpressed wish to find motives where there are none
which they can impute to some members of the Court.

For the truth is that the statement is no more than an effort to explain ? rather
than to justify ? the majority's decision to overrule the ruling in the previous case.
It is simply meant to explain that because the five members of the Court who
dissented in the first case (Melo, Quiason, Puno, Vitug and Kapunan, JJ.) and
the two new members (Mendoza and Francisco, JJ.) thought the previous ruling
to be erroneous and its reexamination not to be barred by stare decisis, res judicata
or conclusiveness of judgment, or law of the case, it was hardly tenable for
petitioners to insist on the first ruling.

Consequently to petitioners' question "What is the glue that holds them together,"
implying some ulterior motives on the part of the new majority in reexamining
the two questions, the answer is: None, except a conviction on the part of the
five, who had been members of the Court at the time they dissented in the first
case, and the two new members that the previous ruling was erroneous. The
eighth Justice (Padilla, J.) on the other hand agrees with the seven Justices that
the ELA is in a real sense a lease agreement and therefore does not violate R.A.
No. 1169.

The decision in the first case was a split decision: 7-6. With the retirement of
one of the original majority (Cruz, J.) and one of the dissenters (Bidin, J.), it was
not surprising that the first decision in the first case was later reversed.

It is argued that, in any case, a reexamination of the two questions is barred

because the PCSO and the Philippine Gaming Management Corporation made a
"formal commitment not to ask for a reconsideration of the Decision in the first
lotto case and instead submit a new agreement that would be in conformity with
the PCSO Charter (R.A. No. 1169, as amended) and with the Decision of the
Supreme Court in the first Kilosbayan case against on-line, hi-tech lotto."

To be sure, a new contract was entered into which the majority of the Court
finds has been purged of the features which made the first contract
objectionable. Moreover, what the PCSO said in its manifestation in the first
case was the following:

1. They are no longer filing a motion for reconsideration of the Decision of this
Honorable Court dated May 5, 1994, a copy of which was received on May 6,
1994.

2. Respondents PCSO and PGMC are presently negotiating a new lease

agreement consistent with the authority of PCSO under its charter (R.A. No.
1169, as amended by B.P. Blg. 42) and conformable with the pronouncements
of this Honorable Court in its Decision of May 5, 1995.

The PGMC made substantially the same manifestation as the PCSO.

There was thus no "formal commitment" ? but only a manifestation ? that the
parties were not filing a motion for reconsideration. Even if the parties made a
"formal commitment," the six (6) dissenting Justices certainly could not be
bound thereby not to insist on their contrary view on the question of
standing. Much less were the two new members bound by any "formal
commitment" made by the parties. They believed that the ruling in the first case
was erroneous. Since in their view reexamination was not barred by the
doctrine of stare decisis, res judicata or conclusiveness of judgment or law of the
case, they voted the way they did with the remaining five (5) dissenters in the
first case to form a new majority of eight.

Petitioners ask, "Why should this be so?" Because, as explained in the decision,
the first decision was erroneous and no legal doctrine stood in the way of its
reexamination. It can, therefore, be asked "with equal candor": "Why should
this not be so?"

Nor is this the first time a split decision was tested, if not reversed, in a
subsequent case because of change in the membership of a court. In 1957, this
Court, voting 6-5, held in Feliciano v. Aquino, G.R. No. L-10201, Sept. 23, 1957
that the phrase "at the time of the election" in §2174 of the Revised
Administrative Code of 1917 meant that a candidate for municipal elective
position must be at least 23 years of age on the date of the election. On the
other hand, the dissenters argued that it was enough if he attained that age on
the day he assumed office.

Less than three years later, the same question was before the Court again, as a
candidate for municipal councilor stated under oath in her certificate of
candidacy that she was eligible for that position although she attained the
requisite age (23 years) only when she assumed office. The question was
whether she could be prosecuted for falsification. In People v. Yanza, 107 Phil.
888 (1960), the Court ruled she could not. Justice, later Chief Justice, Bengzon,
who dissented in the first case, Feliciano v. Aquino, supra, wrote the opinion of the
Court, holding that while the statement that the accused was eligible was
"inexact or erroneous, according to the majority in the Feliciano case," the
accused could not be held liable for falsification, because the question [whether
the law really required candidates to have the required age on the day of the
election or whether it was sufficient that they attained it at the beginning of the
term of office] has not been discussed anew, despite the presence of new
members; we simply assume for the purpose of this decision that the doctrine
stands.

Thus because in the meantime there had been a change in the membership of
the Court with the retirement of two members (Reyes and Felix, JJ.) who had
taken part in the decision in the first case and their replacement by new
members (Barrera and Gutierrez-David, JJ.) and the fact that the vote in the first
case was a narrow one (6 to 5), the Court allowed that the continuing validity of
its ruling in the first case might well be doubted. For this reason it gave the
accused the benefit of the doubt that she had acted in the good faith belief that
it was sufficient that she was 23 years of age when she assumed office.

In that case, the change in the membership of the Court and the possibility of
change in the ruling were noted without anyone ? much less would-be
psychoanalysts ? finding in the statement of the Court any Freudian slip. The
possibility of change in the rule as a result of change in membership was
accepted as a sufficient reason for finding good faith and lack of criminal intent
on the part of the accused.
Indeed, a change in the composition of the Court could prove the means of
undoing an erroneous decision. This was the lesson of Knox v. Lee, 12 Wall. 457
(1871). The Legal Tender Acts, which were passed during the Civil War, made
U.S. notes (greenbacks) legal tender for the payment of debts, public or private,
with certain exceptions. The validity of the acts, as applied to preexisting debts,
was challenged in Hepburn v. Griswold, 8 Wall. 603 (1869). The Court was then
composed of only eight (8) Justices because of Congressional effort to limit the
appointing power of President Johnson. Voting 5-3, the Court declared the acts
void. Chief Justice Chase wrote the opinion of the Court in which four others,
including Justice Grier, concurred. Justices Miller, Swayne and Davis
dissented. A private memorandum left by the dissenting Justices described how
an effort was made "to convince an aged and infirm member of the court
[Justice Grier] that he had not understood the question on which he voted,"
with the result that what was originally a 4-4 vote was converted into a majority
(5-3) for holding the acts invalid.

On the day the decision was announced, President Grant nominated to the
Court William Strong and Joseph P. Bradley to fill the vacancy caused by the
resignation of Justice Grier and to restore the membership of the Court to
nine. In 1871, Hepburn v. Griswold was overruled in the Legal Tender Cases, as
Knox v. Lee came to be known, in an opinion by Justice Strong, with a dissenting
opinion by Chief Justice Chase and the three other surviving members of the
former majority. There were allegations that the new Justices were appointed
for their known views on the validity of the Legal Tender Acts, just as there
were others who defended the character and independence of the new
Justices. History has vindicated the overruling of the Hepburn case by the new
majority. The Legal Tender Cases proved to be the Court's means of salvation
from what Chief Justice Hughes later described as one of the Court's "self
inflicted wounds."[1]

We now consider the specific grounds for petitioners' motion for

reconsideration.

I. We have held that because there are no genuine issues of constitutionality in

this case, the rule concerning real party in interest, applicable to private litigation
rather than the more liberal rule on standing, applies to petitioners. Two
objections are made against that ruling: (1) that the constitutional policies and
principles invoked by petitioners, while not supplying the basis for affirmative
relief from the courts, may nonetheless be resorted to for striking down laws or
official actions which are inconsistent with them and (2) that the Constitution,
by guaranteeing to independent people's organizations "effective and reasonable
participation at all levels of social, political and economic decision-making" (Art.
XIII, §16), grants them standing to sue on constitutional grounds.

The policies and principles of the Constitution invoked by petitioner read:

ART. II, §5. The maintenance of peace and order, the protection of life, liberty,
and property, and the promotion of the general welfare are essential for the enjoyment
by all the people of the blessings of democracy.

Id., §12. The natural and primary right and duty of parents in the rearing of the
youth for civic efficiency and the development of moral character shall receive the
support of the Government.

Id., §13. The State recognizes the vital role of the youth in nation-building and
shall promote and protect their physical, moral, spiritual, intellectual, and social well-
being. It shall inculcate in the youth patriotism and nationalism, and encourage
their involvement in public and civic affairs.

Id., §17. The State shall give priority to education, science and technology, arts,
culture, and sports to foster patriotism and nationalism, accelerate social
progress, and promote total human liberation and development.

As already stated, however, these provisions are not self-executing. They do not
confer rights which can be enforced in the courts but only provide guidelines for
legislative or executive action. By authorizing the holding of lottery for charity,
Congress has in effect determined that consistently with these policies and
principles of the Constitution, the PCSO may be given this authority. That is
why we said with respect to the opening by the PAGCOR of a casino in
Cagayan de Oro, "the morality of gambling is not a justiciable issue. Gambling is
not illegal per se . . . . It is left to Congress to deal with the activity as it sees fit."
(Magtajas v. Pryce Properties Corp., Inc., 234 SCRA 255, 268 (1994))

It is noteworthy that petitioners do not question the validity of the law allowing
lotteries. It is the contract entered into by the PCSO and the PGMC which they
are assailing. This case, therefore, does not raise issues of constitutionality but
only of contract law, which petitioners, not being privies to the agreement,
cannot raise.

Nor does Kilosbayan's status as a people's organization give it the requisite

personality to question the validity of the contract in this case. The Constitution
provides that "the State shall respect the role of independent people's
organizations to enable the people to pursue and protect, within the democratic
framework, their legitimate and collective interests and aspirations through
peaceful and lawful means," that their right to "effective and reasonable
participation at all levels of social, political, and economic decision-making shall
not be abridged." (Art. XIII, §§ 15-16)

These provisions have not changed the traditional rule that only real parties in
interest or those with standing, as the case may be, may invoke the judicial
power. The jurisdiction of this Court, even in cases involving constitutional
questions, is limited by the "case and controversy" requirement of Art. VIII,
§5. This requirement lies at the very heart of the judicial function. It is what
differentiates decisionmaking in the courts from decisionmaking in the political
departments of the government and bars the bringing of suits by just any party.

Petitioners quote extensively from the speech of Commissioner Garcia before

the Constitutional Commission, explaining the provisions on independent
people's organizations. There is nothing in the speech, however, which supports
their claim of standing. On the contrary, the speech points the way to the
legislative and executive branches of the government, rather than to the courts,
as the appropriate fora for the advocacy of petitioners' views.[2] Indeed, the
provisions on independent people's organizations may most usefully be read in
connection with the provision on initiative and referendum as a means whereby
the people may propose or enact laws or reject any of those passed by
Congress. For the fact is that petitioners' opposition to the contract in question
is nothing more than an opposition to the government policy on lotteries.

It is nevertheless insisted that this Court has in the past accorded standing to
taxpayers and concerned citizens in cases involving "paramount public interest."
Taxpayers, voters, concerned citizens and legislators have indeed been allowed
to sue but then only (1) in cases involving constitutional issues and (2) under certain
conditions. Petitioners do not meet these requirements on standing.
Taxpayers are allowed to sue, for example, where there is a claim of illegal
disbursement of public funds. (Pascual v. Secretary of Public Works, 110 Phil.
331 (1960); Sanidad v. Comelec, 73 SCRA 333 (1976); Bugnay Const. & Dev. v.
Laron, 176 SCRA 240 (1989); City Council of Cebu v. Cuizon, 47 SCRA 325
(1972)) or where a tax measure is assailed as unconstitutional. (VAT Cases
[Tolentino v. Secretary of Finance], 235 SCRA 630 (1994)) Voters are allowed to
question the validity of election laws because of their obvious interest in the
validity of such laws. (Gonzales v. Comelec, 21 SCRA 774 (1967)) Concerned
citizens can bring suits if the constitutional question they raise is of
"transcendental importance" which must be settled early. (Emergency Powers
Cases [Araneta v. Dinglasan], 84 Phil. 368 (1949); Iloilo Palay and Corn Planters
Ass'n v. Feliciano, 121 Phil. 358 (1965); Philconsa v. Gimenez, 122 Phil. 894
(1965); CLU v. Executive Secretary, 194 SCRA 317 (1991)) Legislators are
allowed to sue to question the validity of any official action which they claim
infringes their prerogatives qua legislators. (Philconsa v. Enriquez, 235 506
(1994); Guingona v. PCGG, 207 SCRA 659 (1992); Gonzales v. Macaraig, 191
SCRA 452 (1990); Tolentino v. Comelec, 41 SCRA 702 (1971); Tatad v. Garcia,
G.R. No. 114222, April 16, 1995 (Mendoza, J., concurring))

Petitioners do not have the same kind of interest that these various litigants
have. Petitioners assert an interest as taxpayers, but they do not meet the
standing requirement for bringing taxpayer's suits as set forth in Dumlao v.
Comelec, 95 SCRA 392, 403 (1980), to wit:

While, concededly, the elections to be held involve the expenditure of public

moneys, nowhere in their Petition do said petitioners allege that their tax money is "being
extracted and spent in violation of specific constitutional protections against abuses of legislative
power" (Flast v. Cohen, 392 U.S., 83 [1960]), or that there is a misapplication of
such funds by respondent COMELEC (see Pascual vs. Secretary of Public
Works, 110 Phil. 331 [1960]), or that public money is being deflected to any
improper purpose. Neither do petitioners seek to restrain respondent from
wasting public funds through the enforcement of an invalid or unconstitutional
law. (Philippine Constitution Association vs. Mathay, 18 SCRA 300 [1966]),
citing Philippine Constitution Association vs. Gimenez, 15 SCRA 479
[1965]). Besides, the institution of a taxpayer's suit, per se, is no assurance of judicial
review. As held by this Court in Tan vs. Macapagal (43 SCRA 677 [1972]),
speaking through our present Chief Justice, this Court is vested with discretion
as to whether or not a taxpayer's suit should be entertained. (Emphasis added)

Petitioners' suit does not fall under any of these categories of taxpayers' suits.

Neither do the other cases cited by petitioners support their contention that
taxpayers have standing to question government contracts regardless of whether
public funds are involved or not. In Gonzales v. National Housing, Corp., 94 SCRA
786 (1979), petitioner filed a taxpayer's suit seeking the annulment of a contract
between the NHC and a foreign corporation. The case was dismissed by the
trial court. The dismissal was affirmed by this Court on the grounds of res
judicata and pendency of a prejudicial question, thus avoiding the question of
petitioner's standing.

On the other hand, in Gonzales v. Raquiza, 180 SCRA 254 (1989), petitioner
sought the annulment of a contract made by the government with a foreign
corporation for the purchase of road construction equipment. The question of
standing was not discussed, but even if it was, petitioner's standing could be
sustained because he was a minority stockholder of the Philippine National
Bank, which was one of the defendants in the case.

In the other case cited by petitioners, City Council of Cebu v. Cuizon, 47 SCRA 325
(1972), members of the city council were allowed to sue to question the validity
of a contract entered into by the city government for the purchase of road
construction equipment because their contention was that the contract had been
made without their authority. In addition, as taxpayers they had an interest in
seeing to it that public funds were spent pursuant to an appropriation made by
law.

But, in the case at bar, there is no allegation that public funds are being
misapplied or misappropriated. The controlling doctrine is that of Gonzales v.
Marcos, 65 SCRA 624 (1975) where it was held that funds raised from
contributions for the benefit of the Cultural Center of the Philippines were not
public funds and petitioner had no standing to bring a taxpayer's suit to question
their disbursement by the President of the Philippines.

Thus, petitioners' right to sue as taxpayers cannot be sustained. Nor as concerned

citizens can they bring this suit because no specific injury suffered by them is
alleged. As for the petitioners, who are members of Congress, their right to sue
as legislators cannot be invoked because they do not complain of any
infringement of their rights as legislators.

Finally, in Valmonte v. PCSO, G.R. No. 78716, September 22, 1987, we threw out
a petition questioning another form of lottery conducted by the PCSO on the
ground that petitioner, who claimed to be a "citizen, lawyer, taxpayer and father
of three minor children," had no direct and personal interest in the lottery. We
said: "He must be able to show, not only that the law is invalid, but also that he
has sustained or is in immediate danger of sustaining some direct injury as a
result of its enforcement, and not merely that he suffers thereby in some
indefinite way. It must appear that the person complaining has been or is about to be denied
some right or privilege to which he is lawfully entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute complained of." In the case at bar, petitioners
have not shown why, unlike petitioner in the Valmonte case, they should be
accorded standing to bring this suit.

The case of Oposa v. Factoran, Jr. 224 SCRA 792 (1993) is different. Citizens'
standing to bring a suit seeking the cancellation of timber licenses was sustained
in that case because the Court considered Art. II, §16 a right-conferring
provision which can be enforced in the courts. That provision states:

The State shall protect and advance the right of the people to a balanced and
healthful ecology in accord with the rhythm and harmony of nature. (Emphasis)

In contrast, the policies and principles invoked by petitioners in this case do not
permit of such categorization.

Indeed, as already stated, petitioners' opposition is not really to the validity of

the ELA but to lotteries which they regard to be immoral. This is not, however,
a legal issue, but a policy matter for Congress to decide and Congress has
permitted lotteries for charity.

Nevertheless, although we have concluded that petitioners do not have standing,

we have not stopped there and dismissed their case. For in the view we take,
whether a party has a cause of action and, therefore, is a real party in interest or
one with standing to raise a constitutional question must turn on whether he has
a right which has been violated. For this reason the Court has not ducked the
substantive issues raised by petitioners.
II. R.A. No. 1169, as amended by B.P No. 42, states:

§1. The Philippine Charity Sweepstakes Office. -- The Philippine Charity Sweepstakes
Office, hereinafter designated the Office, shall be the principal government
agency for raising and providing for funds for health programs, medical
assistance and services and charities of national character, and as such shall have
the general powers conferred in section thirteen of Act Numbered One
Thousand Four Hundred Fifty-Nine, as amended, and shall have the authority:

A. To hold and conduct charity sweepstakes races, lotteries and other similar
activities, in such frequency and manner, as shall be determined, and subject to
such rules and regulations as shall be promulgated by the Board of Directors.

B. Subject to the approval of the Minister of Human Settlements, to engage in

health and welfare-related investments, programs, projects and activities which
may be profit-oriented, by itself or in collaboration, association or joint venture
with any person, association, company or entity, whether domestic or foreign,
except for the activities mentioned in the preceding paragraph (A), for the
purpose of providing for permanent and continuing sources of funds for health
programs, including the expansion of existing ones, medical assistance and
services, and/or charitable grants: Provided, That such investments will not
compete with the private sector in areas where investments are adequate as may
be determined by the National Economic and Development Authority.

Petitioners insist on the ruling in the previous case that the PCSO cannot hold
and conduct charity sweepstakes, lotteries and other similar activities in
collaboration, association or joint venture with any other party because of the
clause "except for the activities mentioned in the preceding paragraph (A)" in
paragraph (B) of §1. Petitioners contend that the ruling is the law of this case
because the parties are the same and the case involves the same issue, i.e., the
meaning of this statutory provision.

The "law of the case" doctrine is inapplicable, because this case is not a
continuation of the first one. Petitioners also say that inquiry into the same
question as to the meaning of the statutory provision is barred by the doctrine
of res judicata. The general rule on the "conclusiveness of judgment," however, is
subject to the exception that a question may be reopened if it is a legal question and the two
actions involve substantially different claims. This is generally accepted in American law
from which our Rules of Court was adopted. (Montana v. United States, 440
U.S. 59 L. Ed. 2d 147, 210 (1979); RESTATEMENT OF THE LAW 2d, ON
JUDGMENTS, §28; P. BATOR, D. MELTZER, P. MISHKIN AND D.
SHAPIRO, THE FEDERAL COURTS AND THE FEDERAL SYSTEM
1058, n.2 (3rd Ed., 1988)) There is nothing in the record of this case to suggest
that this exception is inapplicable in this jurisdiction.

Indeed, the questions raised in this case are legal questions and the claims
involved are substantially different from those involved in the prior case
between the parties. As already stated, the ELA is substantially different from
the Contract of Lease declared void in the first case.

Borrowing from the dissenting opinion of Justice Feliciano, petitioners argue

that the phrase "by itself or in collaboration, association or joint venture with
any other party" qualifiers not only §1 (B) but also §1 (A), because the exception
clause ("except for the activities mentioned in the preceding paragraph (A)")
"operates, as it were, as a renvoi clause which refers back to Section 1(A) and in
this manner avoids the necessity of simultaneously amending the text of Section
1 (A)."

This interpretation, however, fails to take into account not only the location of
the phrase in paragraph (B), when it should be in paragraph (A) had that been
the intention of the lawmaking authority, but also the phrase "by itself." In other
words, under paragraph (B), the PCSO is prohibited from "engag[ing] in . . .
investments, programs, projects and activities" if these involve sweepstakes
races, lotteries and other similar activities not only "in collaboration, association
or joint venture" with any other party but also "by itself." Obviously, this
prohibition cannot apply when the PCSO conducts these activities
itself. Otherwise, what paragraph (A) authorizes the PCSO to do, paragraph (B)
would prohibit.

The fact is that the phrase in question does not qualify the authority of the
PCSO under paragraph (A), but rather the authority granted to it by paragraph
(B). The amendment of paragraph (B) by B.P. Blg. 42 was intended to enable
the PCSO to engage in certain investments, programs, projects and activities for
the purpose of raising funds for health programs and charity. That is why the
law provides that such investments by the PCSO should "not compete with the
private sector in areas where investments are adequate as may be determined by
the National Economic and Development Authority." Justice Davide, then an
Assemblyman, made a proposal which was accepted, reflecting the
understanding that the bill they were discussing concerned the authority of the
PCSO to invest in the business of others. The following excerpt from the
Record of the Batasan Pambansa shows this to be the subject of the discussion:

MR. May I introduce an amendment after "adequate". The intention of

DAVIDE. the amendment is not to leave the determination of whether it is
adequate or not to anybody. And my amendment is to add after
"adequate" the words AS MAY BE DETERMINED BY THE
NATIONAL ECONOMIC AND DEVELOPMENT
AUTHORITY. As a mater of fact, it will strengthen the authority to
invest in these areas, provided that the determination of whether the
private sector's activity is already adequate must be determined by
the National Economic and Development Authority.

Mr. Mr. Speaker, the committee accepts the proposed amendment.

ZAMORA.

MR. Thank you, Mr. Speaker.

DAVIDE.

(2 RECORD OF THE BATASAN PAMBANSA, Sept. 6, 1979, p. 1007)

Thus what the PCSO is prohibited from doing is from investing in a business
engaged in sweepstakes races, lotteries and other similar activities. It is prohibited
from doing so whether "in collaboration, association or joint venture" with others or "by itself."
This seems to be the only possible interpretation of §1 (A) and (B) in light of its
text and its legislative history. That there is today no other entity engaged in
sweepstakes races, lotteries and the like does not detract from the validity of this
interpretation.

III. The Court noted in its decision that the provisions of the first contract,
which were considered to be features of a joint venture agreement, had been
removed in the new contract. For instance, §5 of the ELA provides that in the
operation of the on-line lottery, the PCSO must employ "its own competent and
qualified personnel." Petitioners claim, however, that the "contemporaneous
interpretation" of PGMC officials of this provision is otherwise. They cite the
testimony of Glen Barroga of the PGMC before a Senate committee to the
effect that under the ELA the PGMC would be operating the lottery system
"side by side" with PCSO personnel as part of the transfer of technology.

Whether the transfer of technology would result in a violation of PCSO's

franchise should be determined by facts and not by what some officials of the
PGMC state by way of opinion. In the absence of proof to the contrary, it must
be presumed that §5 reflects the true intention of the parties. Thus, Art. 1370 of
the Civil Code says 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
stipulations shall control." The intention of the parties must be ascertained from
their "contemporaneous and subsequent acts." (Art. 1371; Atlantic Gulf Co. v.
Insular Government, 10 Phil. 166 (1908)) It cannot simply be judged from what
one of them says. On the other hand, the claim of third parties, like petitioners,
that the clause on upgrading of equipment would enable the parties after a while
to change the contract and enter into something else in violation of the law is
mere speculation and cannot be a basis for judging the validity of the contract.

IV. It is contended that §1 of E.O. No. 301 covers all types of "contract[s] for
public services or for furnishing of supplies, materials and equipment to the
government or to any of its branches, agencies or instrumentalities" and not
only contracts of purchase and sale. Consequently, a lease of equipment, like
the ELA, must be submitted to public bidding in order to be valid. This
contention is based on two premises: (1) that §1 of E.O. No. 301 applies to any
contract whereby the government acquires title to or the use of the equipment
and (2) that the words "supplies," "materials," and "equipment" are distinct
from each other so that when an exception in §1 speaks of "supplies," it cannot
be construed to mean "equipment."

Petitioners' contention will not bear analysis. For example, the term "supplies"
is used in paragraph (a), which provides that a contract for the furnishing of
"supplies" in order to meet an emergency is exempt from public
bidding. Unless "supplies" is construed to include "equipment," however, the
lease of heavy equipment needed for rescue operations in case of a calamity will
have to be submitted to public bidding before it can be entered into by the
government.

In dissent Justice Feliciano says that in such a situation the government can
simply resort to expropriation, paying compensation afterward. This is just like
purchasing the equipment through negotiation when the question is whether the
purchase should be by public bidding, not to mention the fact that the power to
expropriate may not be exercised when the government can very well negotiate
with private owners.

Indeed, there are fundamental difficulties in simultaneously contending (1) that

E.O. No. 301, §1 covers both contracts of sale and lease agreements and (2) that
the words "supplies," "materials" and "equipment" can not be interchanged.
Thus, under paragraph (b) of §1, public bidding is not required "whenever the
supplies are to be used in connection with a project or activity which cannot be
delayed without causing detriment to the public service." Following petitioners'
theory, there should be a public bidding before the government can enter into a
contract for the lease of bulldozers and dredging equipment even if these are
urgently needed in areas ravaged by lahar because, first, lease contracts are
covered by the general rule and, second, the exception to public bidding in
paragraph (b) covers only "supplies" but not equipment.

To take still another example. Paragraph (d), which does away with the
requirement of public bidding "whenever the supplies under procurement have
been unsuccessfully placed on bid for at least two consecutive times, either due
to lack of bidders or the offers received in each instance were exorbitant or
nonconforming to specifications." Again, following the theory of the
petitioners, a contract for the lease of equipment cannot be entered into even if
there are no bids because, first, lease contracts are governed by the general rule
on public bidding and, second, the exception to public bidding in paragraph (d)
applies only to contracts for the furnishing of "supplies."

Other examples can be given to show the absurdity of interpreting §1 as

applicable to any contract for the furnishing of supplies, materials and
equipment and of considering the words "supplies," "materials" and
"equipment" to be not interchangeable. Our ruling that §1 of E.O. No. 301
does not cover the lease of equipment avoids these fundamental difficulties and
is supported by the text of §1, which is entitled "Guidelines for Negotiated
Contracts" and by the fact that the only provisions of E.O. No. 301 on leases,
namely, §§6 and 7, concern the lease of buildings by or to the
government. Thus the text of §1 reads:

§1. Guidelines for Negotiated Contracts. -- Any provision of law, decree, executive
order or other issuances to the contrary notwithstanding, no contract for public
services or for furnishing supplies, materials and equipment to the government
or any of its branches, agencies or instrumentalities shall be renewed or entered
into without public bidding, except under any of the following situations:

a. Whenever the supplies are urgently needed to meet an emergency which may
involve the loss of, or danger to, life and/or property;

b. Whenever the supplies are to be used in connection with a project or activity

which cannot be delayed without causing detriment to the public service;

c. Whenever the materials are sold by an exclusive distributor or manufacturer

who does not have subdealers selling at lower prices and for which no suitable
substitute can be obtained elsewhere at more advantageous terms to the
government;

d. Whenever the supplies under procurement have been unsuccessfully placed

on bid for at least two consecutive times, either due to lack of bidders or the
offers received in each instance were exorbitant or non-conforming to
specifications;

e. In cases where it is apparent that the requisition of the needed supplies

through negotiated purchase is most advantageous to the government to be
determined by the Department Head concerned; and

f. Whenever the purchase is made from an agency of the government.

Indeed, the purpose for promulgating E.O. No. 301 was merely to decentralize
the system of reviewing negotiated contracts of purchase for the furnishing of
supplies, materials and equipment as well as lease contracts of
buildings. Theretofore, E.O. No. 298, promulgated on August 12, 1940,
required consultation with the Secretary of Justice and the Department Head
concerned and the approval of the President of the Philippines before contracts
for the furnishing of supplies, materials and equipment could be made on a
negotiated basis, without public bidding. E.O. No. 301 changed this by
providing as follows:

§2. Jurisdiction over Negotiated Contracts. -- In line with the principles of

decentralization and accountability, negotiated contracts for public services or
for furnishing supplies, materials or equipment may be entered into by the
department or agency head or the governing board of the government-owned or
controlled corporation concerned, without need of prior approval by higher
authorities, subject to availability of funds, compliance with the standards or
guidelines prescribed in Section 1 hereof, and to the audit jurisdiction of the
Commission on Audit in accordance with existing rules and regulations.

Negotiated contracts involving P2,000,000 up to P10,000,000 shall be signed by

the Secretary and two other Undersecretaries.

xxx xxx xxx

§7. Jurisdiction Over Lease Contracts. — The heads of agency intending to rent
privately-owned buildings or spaces for their use, or to lease out government-
owned buildings or spaces for private use, shall have authority to determine the
reasonableness of the terms of the lease and the rental rates thereof, and to
enter into such lease contracts without need of prior approval by higher
authorities, subject to compliance with the uniform standards or guidelines
established pursuant to Section 6 hereof by the DPWH and to the audit
jurisdiction of COA or its duly authorized representative in accordance with
existing rules and regulations.

In sum, E.O. No. 301 applies only to contracts for the purchase of supplies,
materials and equipment, and it was merely to change the system of
administrative review of emergency purchases, as theretofore prescribed by E.O.
No. 298, that E.O. No. 301 was issued on July 26, 1987. Part B of this
Executive Order applies to leases of buildings, not of equipment, and therefore
does not govern the lease contract in this case. Even if it applies, it does not
require public bidding for entering into it.

Our holding that E.O. No. 301, §1 applies only to contracts of purchase and
sale is conformable to P.D. No. 526, promulgated on August 2, 1974, which is in
pari materia. P.D. No. 526 requires local governments to hold public bidding in
the "procurement of supplies." By specifying "procurement of supplies" and
excepting from the general rule "purchases" when made under certain
circumstances, P.D. No. 526, §12 indicates quite clearly that it applies only to
contracts of purchase and sale. This provision reads:

§12. Procurement without public bidding.— Procurement of supplies may be made

without the benefit of public bidding in the following modes:

(1) Personal canvass of responsible merchants;

(2) Emergency purchases;

(3) Direct purchases from manufacturers or exclusive distributors;

(4) Thru the Bureau of Supply Coordination; and

(5) Purchase from other government entities or foreign governments.

Sec. 3 broadly defines the term "supplies" as including —

everything, except real estate, which may be needed in the transaction of public
business, or in the pursuit of any undertaking, project, or activity, whether of the
nature of equipment, furniture, stationery, materials for construction, or
personal property of any sort, including non-personal or contractual services
such as the repair and maintenance of equipment and furniture, as well as
trucking, hauling, janitorial, security, and related or analogous services.

Thus, the texts of both E.O. No. 301, §1 and of P.D. No. 526, §§1 and 12, make
it clear that only contracts for the purchase and sale of supplies, materials and
equipment are contemplated by the rule concerning public biddings.

Finally, it is contended that equipment leases are attractive and commonly used
in place of contracts of purchase and sale because of "multifarious credit and tax
constraints" and therefore could not have been left out from the requirement of
public bidding. Obviously these credit and tax constraints can have no
attraction to the government when considering the advantages of sale over lease
of equipment. The fact that lease contracts are in common use is not a reason
for implying that the rule on public bidding applies not only to government
purchases but also to lease contracts. For the fact also is that the government leases
equipment, such as copying machines, personal computers and the like, without going through
public bidding.

FOR THE FOREGOING REASONS, the motion for reconsideration of

petitioners is DENIED with finality.

SO ORDERED.

Melo, Puno, Kapunan, Francisco and Hermosisima, Jr., JJ., concur.

Padilla and Vitug, JJ., maintain their separate and concurring opinion.
Feliciano, Regalado, Davide, Jr., Romero, and Bellosillo, JJ., maintain and reiterate his
dissenting opinion.
Narvasa, C.J. and Panganiban, J., took no part.
 FIRST DIVISION
G.R. No.97332, October 10, 1991
SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR,
PETITIONERS, VS. THE HON. COURT OF APPEALS AND SPOUSES
MACARIA LABINGISA REYES AND ROBERTO REYES, RESPONDENTS.

DECISION

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals
in CA-G.R. CV. No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor,
Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto Reyes,
Defendants-Appellants," which reversed the decision of the Regional Trial Court
(Branch 121) at Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:

Macaria Labing-isa Reyes was the owner of a 600-square meter lot located at
Baesa, Caloocan City, as evidenced by Transfer Certificate of Title No. (18431)
18938, of the Register of Deeds of Rizal.

In July 1971, Macaria sold a portion of 300 square meters of the lot to the
Spouses Julio and Marina Villamor for the total amount of P21,000.00. Earlier,
Macaria borrowed P2,000.00 from the spouses which amount was deducted
from the total purchase price of the 300 square meter lot sold. The portion sold
to the Villamor spouses is now covered by TCT No. 39935 while the remaining
portion which is still in the name of Macaria Labing-isa is covered by TCT No.
39934 (pars. 5 and 7, Complaint). On November 11, 1971, Macaria executed a
"Deed of Option" in favor of Villamor in which the remaining 300 square meter
portion (TCT No. 39934) of the lot would be sold to Villamor under the
conditions stated therein. The document reads:
"DEED OF OPTION

"This Deed of Option, entered into in the City of Manila, Philippines, this 11th
day of November, 1971, by and between Macaria Labing-isa, of age, married to
Roberto Reyes, likewise of age, and both residing on Reparo St., Baesa,
Caloocan City, on the one hand, and on the other hand the spouses Julio
Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St.,
corner Baesa Road, Baesa, Caloocan City,

"W I T N E S S E T H

"That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with
an area of 600 square meters, more or less, more particularly described in TCT
No. (18431) 18938 of the Office of the Register of Deeds for the province of
Rizal, issued in my name, I having inherited the same from my deceased parents,
for which reason it is my paraphernal property;

"That I, with the conformity of my husband, Roberto Reyes, have sold one-half
thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the
price of P70.00 per sq. meter, which was greatly higher than the actual
reasonable prevailing value of lands in that place at the time, which portion,
after segregation, is now covered by TCT No. 39935 of the Register of Deeds
for the City of Caloocan, issued on August 17, 1971 in the name of the
aforementioned spouses vendees;

"That the only reason why the Spouses-vendees Julio Villamor and Marina V.
Villamor, agreed to buy the said one-half portion at the above-stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still
owned by me and now covered by TCT No. 39935 of the Register of Deeds for
the City of Caloocan, whenever the need of such sale arises, either on our part
or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the
same price of P70.00 per square meter, excluding whatever improvement may
be found thereon;

"That I am willing to have this contract to sell inscribed on my aforesaid title as

an encumbrance upon the property covered thereby, upon payment of the
corresponding fees; and

"That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept,
the above provisions of this Deed of Option.
"IN WITNESS WHEREOF, this Deed of Option is signed in the City of
Manila, Philippines, by all the persons concerned, this 11th day of November,
1971.
"JULIO VILLAMOR "MACARIA LABINGISA

With My
Conformity:

"MARINA VILLAMOR "ROBERTO REYES

"Signed in the Presence Of

"MARIANO Z. SUNIGA

"ROSALINDA S. EUGENIO

"ACKNOWLEDGMENT

"REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA ) S.S.

"At the City of Manila, on the 11th day of November, 1971, personally appeared
before me Roberto Reyes, Macaria Labingsa, Julio Villamor and Marina
Ventura-Villamor, known to me as the same persons who executed the
foregoing Deed of Option, which consists of two (2) pages including the page
whereon this acknowledgment is written, and signed at the left margin of the
first page and at the bottom of the instrument by the parties and their witnesses,
and sealed with my notarial seal, and said parties acknowledged to me that the
same is their free act and deed. The Residence Certificates of the parties were
exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan. 27,
1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria
Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April 15,
1971, their joint Tax Acct. Number being 3028-767-6; .Julio Villamor, A-804,
issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971;
and Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971, their
joint Tax Acct. Number being 608-202-6.

"ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

"Doc. No. 1526;

Page No. 24;
Book No. 38;
Series of 1971." (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they
offered to repurchase the lot sold by them to the Villamor spouses but Marina
Villamor refused and reminded them instead that the Deed of Option in fact
gave them the option to purchase the remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire
to purchase the remaining 300 square meter portion of the lot but the Reyeses
had been ignoring them. Thus, on July 13, 1987, after conciliation proceedings
in the barangay level failed, they filed a complaint for specific performance
against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in favor of the
Villamor spouses, the dispositive portion of which states:
"WHEREFORE, and (sic) in view of the foregoing, judgment is hereby
rendered in favor of the plaintiffs and against the defendants ordering the
defendant MACARIA LABING-ISA REYES and ROBERTO REYES, to sell
unto the plaintiffs the land covered by T.C.T. No. 39934 of the Register of
Deeds of Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for
attorney's fees and to pay the cost of suit.
"The counterclaim is hereby DISMISSED, for LACK OF MERIT.

"SO ORDERED." (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to
the Court of Appeals on the following assignment of errors:
"1. HOLDING THAT THE DEED OF OPTION EXECUTED ON
NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND
DEFENDANT-APPELLANTS IS STILL VALID AND BINDING
DESPITE THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM
THE EXECUTION OF THE CONTRACT;

"2. FAILING TO CONSIDER THAT THE DEED OF OPTION

CONTAINS OBSCURE WORDS AND STIPULATIONS WHICH
SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES
WHO UNILATERALLY DRAFTED AND PREPARED THE SAME;

"3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE

INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE
PLAINTIFF-APPELLEES;

"4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON

ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A
DISADVANTAGE IN THE DEED OF OPTION;

"5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION

TILT IN FAVOR OF THE DEFENDANT-APPELLANTS; and

"6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY

PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY
WAY OF ATTORNEY'S FEES." (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the
decision of the trial court and dismissing the complaint. The reversal of the trial
court's decision was premised on the finding of respondent court that the Deed
of Option is void for lack of consideration.
The Villamor spouses brought the instant petition for review on certiorari on the
following grounds:
"I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
THE PHRASE 'WHENEVER THE NEED FOR SUCH SALE ARISES ON
OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF THE
SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR’
CONTAINED IN THE DEED OF OPTION DENOTES A SUSPENSIVE
CONDITION;

"II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE

QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN NOT FINDING THAT THE SAID CONDITION
HAD ALREADY BEEN FULFILLED;

"III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE

QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF
APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID
CONDITION PREVENTED THE PERFECTION OF THE CONTRACT
OF SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE
CONTAINED IN THE DEED OF OPTION;

"IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE

DEED OF OPTION IS VOID FOR LACK OF CONSIDERATION;

"V. THE COURT OF APPEALS ERRED IN HOLDING THAT A

DISTINCT CONSIDERATION IS NECESSARY TO SUPPORT THE
DEED OF OPTION DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED THEREIN." (p. 12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option
whereby the private respondents agreed to sell their lot to petitioners "whenever
the need of such sale arises, either on our part (private respondents) or on the
part of Julio Villamor and Marina Villamor (petitioners)." The court a quo, ruled
that the Deed of Option was a valid written agreement between the parties and
made the following conclusions:
"x x x xxx x
xx

"It is interesting to state that the agreement between the parties are evidenced by a writing,
hence, the controverting oral testimonies of the herein defendants cannot be any better than the
documentary evidence, which, in this case, is the Deed of Option. (Exh. 'A' and 'A-a')

"The law provides that when the terms of an agreement have been reduced to
writing it is to be considered as containing all such terms, and therefore, there
can be, between the parties and their successors in interest no evidence of the
terms of the agreement, other than the contents of the writing. x x x (Section 7
Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible
rule that wherever written instruments are appointed either by the requirements
of law, or by the contract of the parties, to be the repositories and memorials of
truth, any other evidence is excluded from being used, either as a substitute for
such instruments, or to contradict or alter them. This is a matter both of
principle and of policy: of principle because such instruments are in their nature
and origin entitled to a much higher degree of credit than parol evidence, of
policy, because it would be attended with great mischief if those instruments
upon which man's rights depended were liable to be impeached by loose
collateral evidence. Where the terms of an agreement are reduced to writing the document
itself being constituted by the parties as the expositor of their intentions it is the only instrument
of evidence in respect of that agreement which the law will recognize so long as it exists
for the purpose of evidence." (Starkie, EV. pp. 648, 655 cited in Kasheenath vs.
Chundy, W. R. 68, cited in Francisco's Rules of Court, Vol. VII Part 1 p. 153)
(Italics supplied, pp. 126-127, Records).
The respondent appellate court, however, ruled that the said deed of option is
void for lack of consideration. The appellate court made the following
disquisitions:
"Plaintiff-appellees say they agreed to pay P70.00 per square meter for the
portion purchased by them although the prevailing price at that time was only
P25.00 in consideration of the option to buy the remainder of the land. This
does not seem to be the case. In the first place, the deed of sale was never
produced by them to prove their claim. Defendant-appellants testified that no
copy of the deed of sale had ever been given to them by the plaintiff-
appellees. In the second place, if this was really the condition of the prior sale,
we see no reason why it should be reiterated in the Deed of Option. On the
contrary, the alleged overprice paid by the plaintiff-appellees is given in the
Deed as reason for the desire of the Villamors to acquire the land rather than as
a consideration for the option given to them, although one might wonder why
they took nearly 13years to invoke their right if they really were in due need of
the lot.

"At all events, the consideration needed to support a unilateral promise to sell is
a distinct one, not something that is as uncertain as P70.00 per square meter
which is allegedly 'greatly higher than the actual prevailing value of lands.’ A
sale must be for a price certain (Art. 1458). For how much the portion
conveyed to the plaintiff-appellees was sold so that the balance could be
considered the consideration for the promise to sell has not been shown,
beyond a mere allegation that it was very much below P70.00 per square meter.

"The fact that plaintiff-appellees might have paid P18.00 per square meter for
another land at the time of the sale to them of a portion of defendant-
appellant's lot does not necessarily prove that the prevailing market price at the
time of the sale was P18.00 per square meter. (In fact they claim it was P25.00).
It is improbable that plaintiff-appellees should pay P52.00 per square meters for
the privilege of buying when the value of the land itself was allegedly P18.00 per
square meter." (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of
the contracts, the essential reason which moves the contracting parties to enter
into the contract." The cause or the impelling reason on the part of private
respondents in executing the deed of option as appearing in the deed itself is the
petitioners' having agreed to buy the 300 square meter portion of private
respondents' land at P70.00 per square meter "which was greatly higher than the
actual reasonable prevailing price." This cause or consideration is clear from the
deed which stated:
"That the only reason why the spouses-vendees Julio Villamor and Marina V.
Villamor agreed to buy the said one-half portion at the above stated price of
about P70.00 per square meter, is because I, and my husband Roberto Reyes,
have agreed to sell and convey to them the remaining one-half portion still
owned by me x x x." (p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners'
evidence which shows that in 1969 the Villamor spouses bought an adjacent lot
from the brother of Macaria Labing-isa for only P18.00 per square meter which
the private respondents did not rebut. Thus, expressed in terms of money, the
consideration for the deed of option is the difference between the purchase
price of the 300 square meter portion of the lot in 1971 (P70.00 per sq. m.) and
the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00
or P18.00) though not specifically stated in the deed of option, was
ascertainable. Petitioners’ allegedly paying P52.00 per square meter for the
option may, as opined by the appellate court, be improbable but improbabilities
does not invalidate a contract freely entered into by the parties.

The "deed of option" entered into by the parties in this case had unique
features. Ordinarily, an optional contract is a privilege existing in one person,
for which he had paid a consideration and which gives him the right to buy, for
example, certain merchandise or certain specified property, from another
person, if he chooses, at any time within the agreed period at a fixed price
(Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of
option" signed by the parties, We will notice that the first part covered the
statement on the sale of the 300 square meter portion of the lot to Spouses
Villamor at the price of P 70.00 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 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 promisee, in the same document. The acceptance of an
offer to sell for a price certain created a bilateral contract to sell and buy and
upon acceptance, the offeree, ipso facto assumes obligations of a vendee (See
Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandability may be
exercised at any time after the execution of the deed. In Sanchez v. Rigos, No. L-
25494, June 14, 1972, 45 SCRA 368, 376, We held:
"In other words, since there may be no valid contract without a cause 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."
A contract of sale is, under Article 1475 of the Civil Code," perfected at the
moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form
of contracts." Since there was, between the parties, a meeting of minds upon the
object and the price, there was already a perfected contract of sale. What was,
however, left to be done was for either party to demand from the other their
respective undertakings under the contract. It may be demanded at any time
either by the private respondents, who may compel the petitioners to pay for the
property or the petitioners, who may compel the private respondents to deliver
the property.

However, the Deed of Option did not provide for the period within which the
parties may demand the performance of their respective undertakings in the
instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render
uncertain the status of the land. The failure of either parties to demand
performance of the obligation of the other for an unreasonable length of time
renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon a written contract must
be brought within ten (10) years. The Deed of Option was executed on
November 11, 1971. The acceptance, as already mentioned, was also accepted
in the same instrument. The complaint in this case was filed by the petitioners
on July 13, 1987, seventeen (17) years from the time of the execution of the
contract. Hence, the right of action had prescribed. There were allegations by
the petitioners that they demanded from the private respondents as early as
1984 the enforcement of their rights under the contract. Still, it was beyond the
ten (10) year period prescribed by the Civil Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus:
"x x x. Assuming that Rosa Ganayo, the oppositor herein, had the right based
on the Agreement to Convey and Transfer as contained in Exhibits ‘1’ and ‘1-
A’, her failure or the abandonment of her right to file an action against Pulmano
Molintas when he was still a co-owner of the one-half (1/2) portion of the
10,000 square meters is now barred by laches and/or prescribed by law because
she failed to bring such action within ten (10) years from the date of the written
agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when
she filed the adverse claim through her counsel in 1959 she had absolutely no
more right whatsoever on the same, having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is
continuously on the rise. To allow the petitioner to demand the delivery of the
property subject of this case thirteen (13) years or seventeen (17) years after the
execution of the deed at the price of only P70.00 per square meter is
inequitous. For reasons also of equity and in consideration of the fact that the
private respondents have no other decent place to live, this Court, in the
exercise of its equity jurisdiction is not inclined to grant petitioners' prayer,

ACCORDINGLY, the petition is DENIED. The decision of respondent

appellate court is AFFIRMED for reasons cited in this decision. Judgment is
rendered dismissing the complaint in Civil Case No. C-12942 on the ground of
prescription and laches.

SO ORDERED.

Narvasa and Cruz, JJ., concur.

Griño-Aquino, J., no part.
 G.R. No. L-25494, June 14, 1972
NICOLAS SANCHEZ, PLAINTIFF AND APPELLEE, VS. SEVERINA
RIGOS, DEFENDANT AND APPELLANT.

DECISION

CONCEPCION, C.J.:

Appeal from a decision of the Court of First Instance of Nueva Ecija to the
Court of Appeals, which certified the case to Us, upon the ground that it
involves a question purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
defendant Severina Rigos executed an instrument, entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, promised and committed * * * to sell"
to Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of
Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more
particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date, with the understanding that said
option shall be deemed "terminated and elapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. Inasmuch as
several tenders of payment of the sum of P1,510.00, made by Sanchez within
said period, were rejected by Mrs. Rigos, on March 12, 1963, the former
deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and
damages.

After the filing of defendant's answer – admitting some allegations of the

complaint, denying other allegations, thereof, and alleging, as special defense,
that the contract between the parties "is a unilateral promise to sell, and the
same being unsupported by any valuable consideration, by force of the New
Civil Code, is null and void" – on February 11, 1964, both parties, assisted by
their respective counsel, jointly moved for a judgment on the
pleadings. Accordingly, on February 28, 1964, the lower court rendered
judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially
consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's
fees, and the costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our
Civil Code, which provides:

"ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

"An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price."

In his complaint plaintiff alleges that, by virtue of the option under

consideration, "defendant agreed and committed to sell" and "the plaintiff
agreed and committed to buy" the land described in the option, copy of which
was annexed to said pleading as Annex A thereof and is quoted on the margin.[1]
Hence, plaintiff maintains that the promise contained in the contract is
"reciprocally demandable," pursuant to the first paragraph of said Article
1479. Although defendant had really "agreed, promised and committed" herself
to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed
and committed himself" to buy said property. Said Annex A does not bear out
plaintiff's allegation to this effect. What is more, since Annex A has been made
"an integral part" of his complaint, the provisions of said instrument form part
"and parcel"[1] of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's
property. Annex A is not a "contract to buy and sell." It merely granted plaintiff
an "option" to buy. And both parties so understood it, as indicated by the
caption. "Option to Purchase," given by them to said instrument. Under the
provisions thereof, the defendant "agreed, promised and committed" herself to
sell the land therein described to the plaintiff for P1,510.00, but there is nothing
in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated
for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the
existence of said consideration, and this would seem to be the main factor that
influenced its decision in plaintiff's favor. It should be noted, however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph
of Article 1479 refers to "sales" in particular, and, more specifically, to "an
accepted unilateral promise to buy or to sell." In other words, Article 1479 is
controlling in the case at bar.

(2) In order that said unilateral promise may be "binding" upon the
promisor. Article 1479 requires the concurrence of a condition, namely, that the
promise be "supported by a consideration distinct from the price." Accordingly,
the promisee can not compel the promisor to comply with the promise, unless the
former establishes the existence of said distinct consideration. In other words
the promiseehastheburdenofproving such consideration. Plaintiff herein has
notevenalleged the existence thereof in his complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and
pleaded as a special defense, the absence of said consideration for her promise
to sell and, by joining in the petition for a judgment on the pleadings, plaintiff
has impliedly admitted the truth of said averment in defendant's
answer. Indeed, as early as March 14, 1908, it had been held, in Bauermann vs.
Casas,[3] that:

"One who prays for judgment on the pleadings without offering proof as to the
truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth of all the
material and relevant allegations of the opposingparty, and to rest his motion for judgment on
those allegations taken together with such of his own as are admitted in the pleadings. (La
Yebana Company vs. Sevilla, 9 Phil. 210)." (Italics ours.)

This view was reiterated in Evangelista vs. De la Rosa[4] and Mercy's

Incorporated vs. Herminia Verde.[5]

Squarely in point is Southwestern Sugar & Molasses Co. vs. Atlantic Gulf &
Pacific Co.,[6] from which We quote:

"The main contention of appellant is that the option granted to appellee to sell
to it barge No. 10 for the sum of P30,000 under the terms stated above has no
legal effect because it is not supported by any consideration and in support
thereof it invokes article 1479 of the new Civil Code. This article provides:

'Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
'An accepted unilateral promise to buy or sell a determinate thing for a price
certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price.'

"On the other hand, appellee contends that, even granting that the 'offer of
option' is not supported by any consideration, that option became binding on
appellant when the appellee gave notice to it of its acceptance, and that having
accepted it within the period of option, the offer can no longer be withdrawn
and in any event such withdrawal is ineffective. In support of this contention,
appellee invokes article 1324 of the Civil Code which provides:

'Art. 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon consideration, as
something paid or promised.'

"There is no question that under article 1479 of the new Civil Code 'an option
to sell,' or 'a promise to buy or to sell,' as used in said article, to be valid must be
'supported by a consideration distinct from the price.' This is clearly inferred
from the context of said article that a unilateral promise to buy or to sell,
evenifaccepted, 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, evenifaccepted,
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 notwithstandingthe
acceptance made of it by appellee.

"It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree a
certain period to accept, 'the offer may be withdrawn at any time before
acceptance' except when the option is founded upon consideration, but this
general rule must be interpreted as modified by the provision of article 1479
above referred to, which applies to 'a promise to buy and sell' specifically. As
already stated, this rule requires that a promise to sell to be valid must be
supported by a consideration distinct from the price.

"We are not oblivious of the existence of American authorities which hold that
an offer, once accepted, cannot be withdrawn, regardless of whether it is
supported or not by a consideration (12 Am. Jur. 528). These authorities, we
note, uphold the general rule applicable to offer and acceptance as contained in
our new Civil Code. But we are prevented from applying them in view of the
specific provision embodied in article 1479. While under the 'offer of option' in
question appellant has assumed a clear obligation to sell its barge to appellee and
the option has been exercised in accordance with its terms and there appears to
be no valid or justifiable reason for appellant to withdraw its offer, this
Courtcannot adopt a different attitude because the law on the matter is clear. Our imperative
duty is to apply it unless modified by Congress."[7]

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. vs. Cua
Hian Tek,[8] decided later than Southwestern Sugar & Molasses Co. vs. Atlantic
Gulf & Pacif ic Co.,[9] saw no distinction between Articles 1324 and 1479 of the
Civil Code and applied the former where a unilateral promise to sell similar to
the one sued upon here was involved, treating such promise as an option which,
although not binding as a contract in itself for lack of a separate consideration,
nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar
Bengzon, this Court said:

"Furthermore, an option is unilateral: a promise to sell at the price fixed

whenever the offeree should decide to exercise his option within the specified
time. After accepting the promise and before he exercises his option, the holder of
the option is not bound to buy. He is free either to buy or not to buy later. In
this case, however, upon accepting herein petitioner's offer a bilateral promise to
sell and to buy ensued, and the respondent ipso facto assumed the obligations of a
purchaser. He did not just get the right subsequently to buy or not to buy. It
was not a mere option then, it was bilateral contract of sale.

"Lastly, even supposing that Exh. A granted an option which is not binding for
lack of consideration, the authorities hold that

'If the option is given without a consideration, it is a mere offer of a contract of

sale, which is not binding until accepted. If, however, acceptance is made
before a withdrawal, it constitutes a binding contract of sale, even though the
option was not supported by a sufficient consideration. * * *.' (77 Corpus Juris
Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.)

'It can be taken for granted, as contended by the defendants, that the option
contract was not valid for lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of the acceptance the offerer had
knowledge before said offer was withdrawn. The concurrence of both acts –
the offer and the acceptance – could at all events have generated a contract, if
none there was before (arts. 1254 and 1262 of the Civil Code).' (Zayco vs. Serra,
44 Phil. 331.)"

In other words, since there may be no valid contract without a cause or

consideration, the promisor is not bound by his promise and may, accordingly,
withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 – on
the general principles on contracts and 1479 – on sales – of the Civil Code, in
line with the cardinal rule of statutory construction that, in construing different
provisions of one and the same law or code, such interpretation should be
favored as will reconcile or harmonize said provisions and avoid a conflict
between the same. Indeed, the presumption is that, in the process of drafting
the Code, its author has maintained a consistent philosophy or
position. Moreover, the decision in Southwestern Sugar & Molasses Co. vs.
Atlantic Gulf & Pacific Co.,[10] holding that Art. 1324 is modified by Art. 1479 of
the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is
not so, insofar as said two (2) articles are concerned. What is more, the
reference, in both the second paragraph of Art. 1479 and Art. 1324, to an
option or promise supported by or founded upon a consideration, strongly
suggests that the two (2) provisions intended to enforce or implement the same
principle.

Upon mature deliberation, the Court is of the considered opinion that it should,
as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case,
and that, insofar as inconsistent therewith, the view adhered to in the
Southwestern Sugar & Molasses Co. case should be deemed abandoned or
modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs

against defendant-appellant Severina Rigos.

IT IS SO OREDERED.
Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, and
Makasiar,JJ.,concur.

Ruiz Castro, J., did not take part.

Antonio, J., see concurring opinion.

[1]

"OPTION TO PURCHASE

"KNOW ALL MEN BY THESE PRESENTS:

"I, SEVERINA RIGOS, Filipino, of legal age, widow, with residence at San
Jose, Nueva Ecija, do by these presents –

WITNESSETH:

"That I am the owner of that property covered by Transfer Certificate of Title

No. NT-12528 of the Land Records of Nueva Ecija, my ownership thereof is
evidenced by a Deed of Absolute Sale in my favor known as Doc. No. 47; Page
No. 12; Book No. 1; Series of 1961 of Notary Public, A. Tomas;

"That I have agreed, promised and committed and do hereby agree, promise and
commit to sell the property covered by the above numbered certificate of title to
NICOLAS SANCHEZ, Filipino, of legal age, married to Engracia Barrantes,
with residence at San Jose, Nueva Ecija, within a period of two (2) years from
the execution of this instrument for the amount of One Thousand Five
Hundred Ten Pesos (P1,510.00) Philippine Currency;

"That if within the period of two (2) years from the execution of this instrument
said Nicolas Sanchez shall fail to exercise his right to buy the property under this
option, then his right is deemed terminated and elapsed and that I shall no
longer be compelled to sell to him the property;

"That I, NICOLAS SANCHEZ, whose personal circumstances are mentioned

above hereby agree and conform with all the conditions set forth in this option
to purchase executed in my favor; that I bind myself with all the terms and
conditions.

IN WITNESS WHEREOF, the parties have hereunto affixed their signatures

below this 3rd day of April, 1961, at San Jose, Nueva Ecija.

(Sgd.) NICOLAS SANCHEZ (Sgd.)

SEVERINA RIGOS

Res. Cert. No. A-3914416 Res.

Cert. No. A-2977240

Issued at San Jose, N. E. Issued at

San Jose, N. E.

on April 3, 1961 April

1, 1961

SIGNED IN THE PRESINCE OF:

(Sgd.)E. R. Bautista (Sgd.)

Hipolito Francisco"
[1] As alleged in paragraph 5 of the Complaint.
[3] 10 Phil. 386, 390.
[4] 76 Phil. 115.
[5] L-21571, September 19, 1956.
[6] 97 Phil. 249, 251-252.
[7] Italics ours.
[8] 102 Phil. 948, 951-952.
[9] Supra.
[10] Supra.
 CONCURRING OPINION

ANTONIO, J.:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in

Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co.[1] which
holds that an option to sell can still be withdrawn, even if accepted, if the same is
not supported by any consideration, and the reaffirmance of the doctrine in
Atkins, Kroll & Co. Inc. vs. Cua Hian Tek,[2] holding that "an option implies * *
* the legal obligation to keep the offer (to sell) open for the time specified;" that it
could be withdrawn before acceptance, if there was no consideration for the
option, but once the “offer to sell" is accepted, a bilateral promise to sell and to
buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In
other words, if the option is given without a consideration, it is a mere offer to
sell, which is not binding until accepted. If, however, acceptance is made before
a withdrawal, it constitutes a binding contract of sale. The concurrence of both
acts – the offer and the acceptance – could in such event generate a contract.

While the law permits the offeror to withdraw the offer at any time before
acceptance even before the period has expired, some writers hold the view, that
the offeror cannot exercise this right in an arbitrary or capricious manner. This
is upon the principle that an offer implies an obligation on the part of the
offeror to maintain it for such length of time as to permit the offeree to decide
whether to accept or not, and therefore cannot arbitrarily revoke the offer
without being liable for damages which the offeree may suffer. A contrary view
would remove the stability and security of business transactions.[3] In the present
case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the
sum of P1,510.00 before any withdrawal from the contract has been made by the
Defendant (Severina Rigos)." Since Rigos' offer to sell was accepted by Sanchez,
before she could withdraw her offer, a bilateral reciprocal contract – to sell and
to buy was generated.
 EN BANC
G.R. No. 118971, September 15, 1999
RODOLFO R. VASQUEZ, PETITIONER, VS. COURT OF APPEALS, THE
REGIONAL TRIAL COURT OF MANILA, BRANCH 40, AND THE PEOPLE
OF THE PHILIPPINES, RESPONDENTS.

DECISION

MENDOZA, J.:

The question for determination in this case is the liability for libel of a citizen
who denounces a barangay official for misconduct in office. The Regional Trial
Court of Manila, Branch 40, found petitioner guilty and fined him P1,000.00 on
the ground that petitioner failed to prove the truth of the charges and that he
was “motivated by vengeance in uttering the defamatory statement.” On appeal,
the Court of Appeals, in a decision[1] dated February 1, 1995, affirmed. Hence,
this petition for review. The decision appealed from should be reversed.

The facts are not in dispute. Petitioner Rodolfo R. Vasquez is a resident of the
Tondo Foreshore Area. Sometime in April 1986, he and some 37 families from
the area went to see then National Housing Authority (NHA) General Manager
Lito Atienza regarding their complaint against their Barangay Chairman, Jaime
Olmedo. After their meeting with Atienza and other NHA officials, petitioner
and his companions were met and interviewed by newspaper reporters at the
NHA compound concerning their complaint. The next day, April 22, 1986, the
following news article[2] appeared in the newspaper Ang Tinig ng Masa:
Nananawagan kahapon kay pangulong Corazon Aquino ang 38 mahihirap na
pamilya sa Tondo Foreshore Area na umano’y inagawan ng lupa ng kanilang
barangay chairman sa pakikipagsabwatan sa ilang pinuno ng National Housing
Authority sapul 1980.

Sinabi nila na nakipagsabwatan umano si Chairman Jaime Olmedo ng barangay

66, Zone 6, Tondo Foreshore Area, sa mga project manager ng NHA upang
makamkam ang may 14 na lote ng lupa sa naturang lugar.

Binanggit ni Rodolfo R. Vasquez, 40, Tagapagsalita ng (mga) pamilyang

apektado, na umaabot lang sa 487.87 metro kuwadrado ang kabuuan ng mga
lupa na kinatitirikan ng mga barung-barung ng 38 pamilya.

“Naninirahan na kami sa mga lupang nabanggit sapul 1950 at pinatunayan sa

mga survey ng NHA noong nakalipas na taon na may karapatan kami sa mga
lupang ito ng pamahalaan,” ani Vasquez.

“Pawang lupa ng gobyerno ang mga lupa at ilegal man na patituluhan, nagawa
ito ni Olmedo sa pakikipagsabwatan sa mga project manager at legal officers ng
NHA,” sabi ni Vasquez.

Sinabi rin ng mga pamilya na protektado ng dating pinuno ng city hall ng

Maynila, MHS Minister Conrado Benitez, at ilang pinuno ng pulisya ang
barangay chairman kaya “nakalusot” ang mga ginawa nitong katiwalian.

Bukod sa pagkamkam ng mga lupaing gobyerno, kasangkot din umano si

Olmedo sa mga ilegal na pasugalan sa naturang lugar at maging sa mga nakawan
ng manok.

“Sapin-sapin na ang mga kaso na idinulog namin noong nakalipas na mga taon,
pero pinawalang saysay ang lahat ng iyon, kabilang na ang tangkang pagpatay sa
akin kaugnay ng pagrereklamo sa pangangamkam ng lupa noong 1984,” sabi pa
ni Vasquez.
Based on the newspaper article, Olmedo filed a complaint for libel against
petitioner alleging that the latter’s statements cast aspersions on him and
damaged his reputation. After conducting preliminary investigation, the city
prosecutor filed the following information in the Regional Trial Court of Manila,
Branch 40:
The undersigned accuses RODOLFO R. VASQUEZ of the crime of libel
committed as follows:

That on or about April 22, 1986, in the city of Manila, Philippines, the said
accused, with malicious intent of impeaching the reputation and character of
one Jaime Olmedo, chairman of Barangay 66, Zone 6 in Tondo, Manila, and
with evident intent of exposing him to public hatred, contempt, ridicule, did
then and there willfully, unlawfully, feloniously and maliciously caused the
publication of an article entitled “38 Pamilya Inagawan ng Lupa” in Ang Tinig
ng Masa, a daily newspaper sold to the public and of general circulation in the
Philippines in its April 22, 1986 issue, which portion of the said article reads as
follows:

Nananawagan kahapon kay pangulong Corazon Aquino ang 38 mahihirap na

pamilya sa Tondo Foreshore Area na umano’y inagawan ng lupa ng kanilang
barangay chairman sa pakikipagsabwatan sa ilang pinuno ng National Housing
Authority sapul 1980.

Sinabi nila na nakipagsabwatan umano si Chairman Jaime Olmedo ng barangay

66, Zone 6, Tondo Foreshore Area sa mga project manager ng NHA upang
makamkam ang may 14 na lote ng lupa sa naturang lugar.

x x x “Pawang lupa ng gobyerno ang mga lupa at ilegal man na patituluhan,

nagawa ito ni Olmedo sa pakikipagsabwatan sa mga project manager at legal
officers ng NHA,” sabi ni Vasquez.

Sinabi rin ng mga pamilya na protektado ng dating pinuno ng city hall ng

Maynila, MHS Minister Conrado Benitez, at ilang pinuno ng pulisya ang
barangay chairman kaya “nakalusot” ang mga ginawa nitong katiwalian.

Bukod sa pagkamkam ng mga lupaing gobyerno, kasangkot din umano si

Olmedo sa mga ilegal na pasugalan sa naturang lugar at maging sa mga nakawan
ng manok. x x x

with which statements, the said accused meant and intended to convey, as in
fact he did mean and convey false and malicious imputations that said Jaime
Olmedo is engaged in landgrabbing and involved in illegal gambling and stealing
of chickens at the Tondo Foreshore Area, Tondo, Manila, which statements, as
he well knew, were entirely false and malicious, offensive and derogatory to the
good name, character and reputation of said Jaime Olmedo, thereby tending to
impeach, besmirch and destroy the honor, character and reputation of Jaime
Olmedo, as in fact, the latter was exposed to dishonor, discredit, public hatred,
contempt and ridicule.

Contrary to law.
Upon being arraigned, petitioner entered a plea of not guilty, whereupon the
case was tried. The prosecution presented Barangay Chairman Olmedo and his
neighbor, Florentina Calayag, as witnesses. On the other hand, the defense
presented Ciriaco Cabuhat, Nicasio Agustin, Estrelita Felix, Fernando
Rodriguez ¾ all residents of the Tondo Foreshore Area ¾ and petitioner as its
witnesses.

On May 28, 1992, the trial court rendered judgment finding petitioner guilty of
libel and sentencing him to pay a fine of P1,000.00. On appeal, the Court of
Appeals affirmed in toto. Hence, this petition for review. Petitioner contends
that ¾
I. THE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE TRIAL COURT PINPOINTING PETITIONER
AS THE SOURCE OF THE ALLEGED LIBELOUS ARTICLE.

II. THE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE TRIAL COURT THAT PETITIONER
IMPUTED THE QUESTIONED ACTS TO COMPLAINANT.

III. THE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE TRIAL COURT THAT THE ALLEGED
IMPUTATIONS WERE MADE MALICIOUSLY.

IV. THE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE TRIAL COURT WHICH FAILED TO
APPRECIATE PETITIONER’S DEFENSE OF TRUTH.
V. THE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE TRIAL COURT THAT ALL THE ELEMENTS
OF LIBEL WERE PROVEN.
We will deal with these contentions in the order in which they are made.

First. Petitioner claims he was “unfairly singled out” as the source of the
statements in the article when any member of the 38 complainant-families could
have been the source of the alleged libelous statements.[3] The reference is to the
following portion of the decision of the Court of Appeals:
. . . In his sworn statement, appellant admitted he was the source of the libelous
article (Exh. “B”). He affirmed this fact when he testified in open court as
follows: That his allegation on the act of landgrabbing by Olmedo was based on
the alleged report and pronouncements of the NHA representatives (p. 5, tsn,
Oct. 18, 1989); that said allegations were made by him before the local press
people in the pursuit of fairness and truthfulness and not in bad faith (pp. 8-9,
id.); that the only inaccurate account in the published article of “Ang Tinig ng
Masa” is the reference to the 487.87 sq.m. lot, on which Olmedo’s residence
now stands, attributed by the reporter as the lot currently occupied by appellants
and his fellow complainants (pp. 4-5, tsn, Nov. 15, 1989; pp. 4-5, tsn, January
15, 1990); and that after the interview, he never expected that his statement
would be the cause of the much-publicized libelous article (pp. 4-6, tsn, Nov.
15, 1989).[4]
It is true petitioner did not directly admit that he was the source of the
statements in the questioned article. What he said in his sworn statement[5] was
that the contents of the article are true in almost all respects, thus:
9. Tama ang nakalathala sa pahayagang “Ang Masa” maliban na lang sa
tinutukoy na ako at ang mga kasamahang maralitang taga-lungsod ay nakatira sa
humigit kumulang 487.87 square meters sapagkat ang nabanggit na 487.87
square meters ay siyang kinatitirikan ng bahay ni Barangay Chairman Olmedo
kung saan nakaloob ang anim na lote - isang paglabag sa batas o regulasyon ng
NHA;

10. Ang ginawa kong pahayag na nailathala sa “Ang Masa” ay sanhi ng aking
nais na maging mabuting mamamayan at upang maituwid ang mga katiwaliang
nagaganap sa Tondo Foreshore Area kung saan ako at sampu ng aking mga
kasamang maralitang taga-lungsod ay apektado at naaapi.
This was likewise what he stated in his testimony in court both on direct[6] and
on cross-examination.[7] However, by claiming that what he had told the
reporter was made by him in the performance of a civic duty, petitioner in effect
admitted authorship of the article and not only of the statements attributed to
him therein, to wit:
“Pawang lupa ng gobyerno ang mga lupa at ilegal man na patituluhan, nagawa
ito ni Olmedo sa pakikipagsabwatan sa mga project manager at legal officers ng
NHA,” sabi ni Vasquez.

....

“Sapin-sapin na ang mga kaso na idinulog namin noong nakalipas na mga taon,
pero pinawalang saysay ang lahat ng iyon, kabilang na ang tangkang pagpatay sa
akin kaugnay ng pagrereklamo sa pangangamkam ng lupa noong 1984,” sabi pa
ni Vasquez.
Petitioner cannot claim to have been the source of only a few statements in the
article in question and point to the other parties as the source of the rest, when
he admits that he was correctly identified as the spokesperson of the families
during the interview.

Second. Petitioner points out that the information did not set out the entire news
article as published. In fact, the second statement attributed to petitioner was
not included in the information. But, while the general rule is that the
information must set out the particular defamatory words verbatim and as
published and that a statement of their substance is insufficient,[8] United States
v. Eguia, 38 Phil. 857 (1918).8 a defect in this regard may be cured by
evidence.[9] In this case, the article was presented in evidence, but petitioner
failed to object to its introduction. Instead, he engaged in the trial of the entire
article, not only of the portions quoted in the information, and sought to prove
it to be true. In doing so, he waived objection based on the defect in the
information. Consequently, he cannot raise this issue at this late stage.[10]

Third. On the main issue whether petitioner is guilty of libel, petitioner contends
that what he said was true and was made with good motives and for justifiable
ends.

To find a person guilty of libel under Art. 353 of the Revised Penal Code, the
following elements must be proved: (a) the allegation of a discreditable act or
condition concerning another; (b) publication of the charge; (c) identity of the
person defamed; and (d) existence of malice.[11]

An allegation is considered defamatory if it ascribes to a person the commission

of a crime, the possession of a vice or defect, real or imaginary, or any act,
omission, condition, status or circumstance which tends to dishonor or discredit
or put him in contempt, or which tends to blacken the memory of one who is
dead.[12]

There is publication if the material is communicated to a third person.[13] It is

not required that the person defamed has read or heard about the libelous
remark. What is material is that a third person has read or heard the libelous
statement, for “a man’s reputation is the estimate in which others hold him, not
the good opinion which he has of himself.”[14]

On the other hand, to satisfy the element of identifiability, it must be shown

that at least a third person or a stranger was able to identify him as the object of
the defamatory statement.[15]

Finally, malice or ill will must be present. Art. 354 of the Revised Penal Code
provides:

Every defamatory imputation is presumed to be malicious, even if it be true, if

no good intention and justifiable motive for making it is shown, except in the
following cases:
1. A private communication made by any person to another in the
performance of any legal, moral or security duty; and

2. A fair and true report, made in good faith, without any comments or
remarks, of any judicial, legislative or other official proceedings which are
not of confidential nature, or of any statement, report or speech delivered
in said proceedings, or of any other act performed by public officers in the
exercise of their functions.
In this case, there is no doubt that the first three elements are present. The
statements that Olmedo, through connivance with NHA officials, was able to
obtain title to several lots in the area and that he was involved in a number of
illegal activities (attempted murder, gambling and theft of fighting cocks) were
clearly defamatory. There is no merit in his contention that “landgrabbing,” as
charged in the information, has a technical meaning in law.[16] Such act is so
alleged and proven in this case in the popular sense in which it is understood by
ordinary people. As held in United States v. Sotto:[17]
. . . [F]or the purpose of determining the meaning of any publication alleged to
be libelous “that construction must be adopted which will give to the matter
such a meaning as is natural and obvious in the plain and ordinary sense in
which the public would naturally understand what was uttered. The published
matter alleged to be libelous must be construed as a whole. In applying these
rules to the language of an alleged libel, the court will disregard any subtle or
ingenious explanation offered by the publisher on being called to account. The
whole question being the effect the publication had upon the minds of the
readers, and they not having been assisted by the offered explanation in reading
the article, it comes too late to have the effect of removing the sting, if any there
be, from the words used in the publication.”
Nor is there any doubt that the defamatory remarks referred to complainant and
were published. Petitioner caused the publication of the defamatory remarks
when he made the statements to the reporters who interviewed him.[18]

The question is whether from the fact that the statements were defamatory,
malice can be presumed so that it was incumbent upon petitioner to overcome
such presumption. Under Art. 361 of the Revised Penal Code, if the defamatory
statement is made against a public official with respect to the discharge of his
official duties and functions and the truth of the allegation is shown, the accused
will be entitled to an acquittal even though he does not prove that the
imputation was published with good motives and for justifiable ends.[19]

In this case, contrary to the findings of the trial court, on which the Court of
Appeals relied, petitioner was able to prove the truth of his charges against the
barangay official. His allegation that, through connivance with NHA officials,
complainant was able to obtain title to several lots at the Tondo Foreshore Area
was based on the letter[20] of NHA Inspector General Hermogenes Fernandez
to petitioner’s counsel which reads:
 09 August 1983

Atty. Rene V. Sarmiento

Free Legal Assistance Group (FLAG)
55 Third Street
New Manila, Quezon City

Dear Atty. Sarmiento:

In connection with your request that you be furnished with a copy of the results
of the investigation regarding the complaints of some Tondo residents against
Chairman Jaime Olmedo, we are providing you a summary of the findings based
on the investigation conducted by our Office which are as follows:

1. Based on the subdivision plan of Block 260, SB 8, Area III, Jaime Olmedo’s
present structure is constructed on six lots which were awarded before by the
defunct Land Tenure Administration to different persons as follows:
Lot 4 - Juana Buenaventura - 79.76 sq. m.
Lot 6 - Servando Simbulan - 48.50 sq. m.
Lot 7 - Alfredo Vasquez - 78.07 sq. m.
Lot 8 - Martin Gallardo - 78.13 sq. m.
Lot 9 - Daniel Bayan - 70.87 sq. m.
Lot 1 - Fortunato de Jesus - 85.08 sq. m. (OIT No. 7800)
The above-mentioned lots were not yet titled, except for Lot 1. Fortunato de
Jesus sold the said lot to a certain Jovita Bercasi, a sister-in-law of Jaime
Olmedo. The other remaining lots were either sold to Mr. Olmedo and/or to
his immediate relatives.

Lot 14 is also titled in the name of Mariano Bercasi, father-in-law of Jaime

Olmedo, with an area of 47.40 sq. m.

The lot assigned to Chairman Olmedo has a total area of 487.87 sq. m.

2. Block 261, SB 8, Area III

Lot No. 7 is titled in the name of Jaime Olmedo, consisting an area of 151.67 sq.
m. A four-door apartment owned by Mr. Olmedo is being rented to uncensused
residents.

3. Block 262, SB 8, Area III

Lot No. 13 is allocated to Delfin Olmedo, nephew of Jaime Olmedo, but this lot
is not yet titled.

4. Block 256, SB 5, Area III

Victoria Olmedo, uncensused, is a daughter of Jaime Olmedo. Her structure is

erected on a non-titled lot. The adjacent lot is titled in the name of Victoria. It
was issued OCT No. 10217 with an area of 202.23 sq. m. Inside this compound
is another structure owned and occupied by Amelia Dofredo, a censused
houseowner. The titled lot of Victoria now has an area of 338.20 sq. m.

For your information.

(s/t) HERMOGENES
C. FERNANDEZ
Inspector General
Public Assistance &
Action Office
In addition, petitioner acted on the basis of two memoranda,[21] both dated
November 29, 1983, of then NHA General Manager Gaudencio Tobias
recommending the filing of administrative charges against the NHA officials
“responsible for the alleged irregular consolidation of lots [in Tondo to Jaime
and Victoria Olmedo.]”

With regard to the other imputations made by petitioner against complainant, it

must be noted that what petitioner stated was that various charges (for
attempted murder against petitioner, gambling, theft of fighting cocks) had been
filed by the residents against their barangay chairman but these had all been
dismissed. Petitioner was able to show that Olmedo’s involvement in the theft
of fighting cocks was the subject of an affidavit-complaint,[22] dated October 19,
1983, signed by Fernando Rodriguez and Ben Lareza, former barangay tanods
of Barangay 66, Zone 6, Tondo. Likewise, petitioner presented a resolution,[23]
dated March 10, 1988, of the Office of the Special Prosecutor in TBP-87-03694,
stating that charges of malversation and corrupt practices had been filed against
Olmedo and nine (9) other barangay officials but the same were dismissed.
Indeed, the prosecution’s own evidence bears out petitioner’s statements. The
prosecution presented the resolution[24]in TBP Case No. 84-01854 dismissing
the charge of attempted murder filed by petitioner against Jaime Olmedo and
his son-in-law, Jaime Reyes. The allegation concerning this matter is thus true.

It was error for the trial court to hold that petitioner “only tried to prove that
the complainant [barangay chairman] is guilty of the crimes alluded to; accused,
however, has not proven that the complainant committed the crimes.” For that
is not what petitioner said as reported in the Ang Tinig ng Masa. The fact that
charges had been filed against the barangay official, not the truth of such
charges, was the issue.

In denouncing the barangay chairman in this case, petitioner and the other
residents of the Tondo Foreshore Area were not only acting in their self-interest
but engaging in the performance of a civic duty to see to it that public duty is
discharged faithfully and well by those on whom such duty is incumbent. The
recognition of this right and duty of every citizen in a democracy is inconsistent
with any requirement placing on him the burden of proving that he acted with
good motives and for justifiable ends.

For that matter, even if the defamatory statement is false, no liability can attach
if it relates to official conduct, unless the public official concerned proves that
the statement was made with actual malice ¾ that is, with knowledge that it was
false or with reckless disregard of whether it was false or not. This is the gist of
the ruling in the landmark case of New York Times v. Sullivan,[25] which this Court
has cited with approval in several of its own decisions.[26] This is the rule of
“actual malice.” In this case, the prosecution failed to prove not only that the
charges made by petitioner were false but also that petitioner made them with
knowledge of their falsity or with reckless disregard of whether they were false
or not.

A rule placing on the accused the burden of showing the truth of allegations of
official misconduct and/or good motives and justifiable ends for making such
allegations would not only be contrary to Art. 361 of the Revised Penal Code. It
would, above all, infringe on the constitutionally guaranteed freedom of
expression. Such a rule would deter citizens from performing their duties as
members of a self- governing community. Without free speech and assembly,
discussions of our most abiding concerns as a nation would be stifled. As Justice
Brandeis has said, “public discussion is a political duty” and the “greatest
menace to freedom is an inert people.”[27]

Complainant contends that petitioner was actuated by vengeful political motive

rather than by his firm conviction that he and his fellow residents had been
deprived of a property right because of acts attributable to their barangay
chairman. The Court of Appeals, sustaining complainant’s contention, held:
That the said imputations were malicious may be inferred from the facts that
appellant and complainant are enemies, hence, accused was motivated by
vengeance in uttering said defamatory statements and that accused is a leader of
Ciriaco Cabuhat who was defeated by complainant when they ran for the
position of barangay captain. . . .[28]
As already stated, however, in accordance with Art. 361, if the defamatory
matter either constitutes a crime or concerns the performance of official duties,
and the accused proves the truth of his charge, he should be acquitted.[29]

Instead of the claim that petitioner was politically motivated in making the
charges against complainant, it would appear that complainant filed this case to
harass petitioner. Art. 360 of the Revised Penal Code provides:
Persons responsible.—Any person who shall publish, exhibit, or cause the
publication or exhibition of any defamation in writing or by similar means, shall
be responsible for the same.

The author or editor of a book or pamphlet, or the editor or business manager

of a daily newspaper, magazine or serial publication, shall be responsible for the
defamations contained therein to the same extent as if he were the author
thereof. . . .
Yet, in this case, neither the reporter, editor, nor the publisher of the newspaper
was charged in court. What was said in an analogous case[30] may be applied
mutatis mutandis to the case at bar:
It is curious that the ones most obviously responsible for the publication of the
allegedly offensive news report, namely, the editorial staff and the periodical
itself, were not at all impleaded. The charge was leveled against the petitioner
and, “curiouser” still, his clients who have nothing to do with the editorial
policies of the newspaper. There is here a manifest effort to persecute and
intimidate the petitioner for his temerity in accusing the ASAC agents who
apparently enjoyed special privileges—and perhaps also immunities—during
those oppressive times. The non-inclusion of the periodicals was a transparent
hypocrisy, an ostensibly pious if not at all convincing pretense of respect for
freedom of expression that was in fact one of the most desecrated liberties
during the past despotism.[31]
WHEREFORE, the decision of the Court of Appeals is REVERSED and the
petitioner is ACQUITTED of the crime charged.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Panganiban, Quisumbing,
Purisima, Pardo, Buena, Gonzaga-Reyes, and Ynares-Santiago, JJ., concur.
 SPECIAL FIRST DIVISION
G.R. No. 122544, January 28, 2003
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA,
ESTER ABAD DIZON AND JOSEPH ANTHONY DIZON, RAYMUND A.
DIZON, GERARD A. DIZON AND JOSE A. DIZON, JR., PETITIONERS, VS.
COURT OF APPEALS AND OVERLAND EXPRESS LINES, INC.,
RESPONDENTS.

YNARES-SANTIAGO, J.:

On January 28, 1999, this Court rendered judgment in these consolidated cases
as follows:
WHEREFORE, in view of the foregoing, both petitions are GRANTED.
The decision dated March 29, 1994 and the resolution dated October 19, 1995
in CA-G.R. CV Nos. 25153-54, as well as the decision dated December 11, 1995
and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court
of Appeals are hereby REVERSED and SET ASIDE.

Let the records of this case be remanded to the trial court for immediate
execution of the judgment dated November 22, 1982 in Civil Case No. VIII-
29155 of the then City Court (now Metropolitan Trial Court) of Quezon City,
Branch III as affirmed in the decision dated September 26, 1984 of the then
Intermediate Appellate Court (now Court of Appeals) and in the resolution
dated June 19, 1985 of this Court.

However, petitioners are ordered to REFUND to private respondent the

amount of P300,000.00 which they received through Alice A. Dizon on June 20,
1975.

SO ORDERED.
Private respondent filed a Motion for Reconsideration, Second Motion for
Reconsideration, and Motion to Suspend Procedural Rules in the Higher
Interest of Substantial Justice, all of which have been denied by this Court. This
notwithstanding, the cases were set for oral argument on March 21, 2001, on the
following issues:
 1. WHETHER THERE ARE CIRCUMSTANCES THAT
WOULD JUSTIFY SUSPENSION OF THE RULES OF
COURT;

2. WHETHER THE SUM OF P300,000.00 RECEIVED BY

ALICE DIZON FROM PRIVATE RESPONDENT WAS
INTENDED AS PARTIAL PAYMENT OF THE
PURCHASE PRICE OF THE PROPERTY, OR AS
PAYMENT OF BACK RENTALS ON THE PROPERTY;

3. WHETHER ALICE DIZON WAS AUTHORIZED TO

RECEIVE THE SUM OF P300,000.00 ON BEHALF OF
PETITIONERS;

4. (A) IF SO, WHETHER PETITIONERS ARE ESTOPPED

FROM QUESTIONING THE BELATED EXERCISE BY
PRIVATE RESPONDENT OF ITS OPTION TO BUY
WHEN THEY ACCEPTED THE SAID PARTIAL
PAYMENT;

(B) IF SO, WHETHER ALICE DIZON CAN VALIDLY

BIND PETITIONERS IN THE ABSENCE OF A
WRITTEN POWER OF ATTORNEY;

5. (A) WHETHER THERE WAS A PERFECTED

CONTRACT OF SALE BETWEEN THE PARTIES;

(B) WHETHER THERE WAS A CONTRACT OF SALE

AT LEAST WITH RESPECT TO THE SHARES OF
FIDELA AND ALICE DIZON; AND

6. WHETHER PRIVATE RESPONDENT’S ACTION FOR

SPECIFIC PERFORMANCE HAS PRESCRIBED.

In order to resolve the first issue, it is necessary to pass upon the other
questions which relate to the merits of the case. It is only where there exist
strong compelling reasons, such as serving the ends of justice and preventing a
miscarriage thereof, that this Court can suspend the rules.[1]
After reviewing the records, we find that, despite all of private respondent’s
protestations, there is absolutely no written proof of Alice Dizon’s authority to
bind petitioners. First of all, she was not even a co-owner of the property.
Neither was she empowered by the co-owners to act on their behalf.

The acceptance of the amount of P300,000.00, purportedly as partial payment

of the purchase price of the land, was an act integral to the sale of the land. As a
matter of fact, private respondent invokes such receipt of payment as giving rise
to a perfected contract of sale. In this connection, Article 1874 of the Civil Code
is explicit that: “When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale shall
be void.”
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. Thus
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A special power
of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee of
an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent to sell real estate,
a power of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the language so
used conveys such power, no such construction shall be given the document.[2]
It necessarily follows, therefore, that petitioners cannot be deemed to have
received partial payment of the supposed purchase price for the land through
Alice Dizon. It cannot even be said that Alice Dizon’s acceptance of the money
bound at least the share of Fidela Dizon, in the absence of a written power of
attorney from the latter. It should be borne in mind that the Receipt dated June
20, 1975, while made out in the name of Fidela Dizon, was signed by Alice
Dizon alone.

Moreover, there could not have been a perfected contract of sale. As we held in
our Decision dated January 28, 1999, the implied renewal of the contract of
lease between the parties affected only those terms and conditions which are
germane to the lessee’s right of continued enjoyment of the property. The
option to purchase afforded private respondent expired after the one-year
period granted in the contract. Otherwise stated, the implied renewal of the
lease did not include the option to purchase. We see no reason to disturb our
ruling on this point, viz:
In this case, there was a contract of lease for one (1) year with option to
purchase. The contract of lease expired without the private respondent, as
lessee, purchasing the property but remained in possession thereof. Hence, there
was an implicit renewal of the contract of lease on a monthly basis. The other
terms of the original contract of lease which are revived in the implied new lease
under Article 1670 of the New Civil Code are only those terms which are
germane to the lessee’s right of continued enjoyment of the property leased.
Therefore, an implied new lease does not ipso facto carry with it any implied
revival of private respondent's option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased
premises is not deemed incorporated in the impliedly renewed contract because
it is alien to the possession of the lessee. Private respondent’s right to exercise
the option to purchase expired with the termination of the original contract of
lease for one year. The rationale of this Court is that:
“This is a reasonable construction of the provision, which is based on the
presumption that when the lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the expiration of the contract he
is willing that such enjoyment shall be for the entire period corresponding to the
rent which is customarily paid – in this case up to the end of the month because
the rent was paid monthly. Necessarily, if the presumed will of the parties refers
to the enjoyment of possession the presumption covers the other terms of the
contract related to such possession, such as the amount of rental, the date when
it must be paid, the care of the property, the responsibility for repairs, etc. But
no such presumption may be indulged in with respect to special agreements
which by nature are foreign to the right of occupancy or enjoyment inherent in a
contract of lease.”[3]-
There being no merit in the arguments advanced by private respondent, there is
no need to suspend the Rules of Court and to admit the motion for
reconsideration. While it is within the power of the Court to suspend its own
rules, or to except a particular case from its operation, whenever the interest of
justice require it, however, the movant must show strong compelling reasons
such as serving the ends of justice and preventing a grave miscarriage thereof,[4]
none of which obtains in this case.
Litigation must end sometime and somewhere. An effective and efficient
administration of justice requires that, once a judgment has become final, the
winning party be not, through a mere subterfuge, deprived of the fruits of the
verdict. Courts must, therefore, guard against any scheme calculated to bring
about that result. Constituted as they are to put an end to controversies, courts
should frown upon any attempt to prolong them.[5]

ACCORDINGLY, the Motion to Suspend Procedural Rules in the Higher

Interest of Substantial Justice filed by private respondent is DENIED WITH
FINALITY. No further pleadings will be entertained in these cases.

SO ORDERED.

Puno, J., concur.

Davide, Jr., C.J., (Chairman), see separate opinion, hereto attached.

[1] Public Estates Authority v. Yujuico, et al., G.R. No. 140486, February 6, 2001.

[2] Cosmic Lumber Corp. v. Court of Appeals, 265 SCRA 168, 176 [1996].

Dizon, et al. v. Court of Appeals, et al., 302 SCRA 288, 300-301 [1999], citing
[3]

Dizon v. Magsaysay, 57 SCRA 250, 254 [1974].

[4] Equitable-PCI Bank v. Ku, G.R. No. 142950 March 26, 2001.

Vda. de Cochingyan, et al. v. Court of Appeals, et al., G.R. No. 116092, June
[5]

29, 2001.

SEPARATE OPINION
DAVIDE, JR., C.J.,

After a meticulous evaluation of the antecedent facts in these cases I respectfully

submit that private respondent’s submission that the sum of P300,000 was
intended as partial payment of the purchase price; it was received by Alice
Dizon for and in behalf of Fidela Dizon, mother of petitioners; and that Fidela
Dizon ratified the act of Alice by accepting the cashier’s check representing that
consideration drawn in favor of Fidela Dizon, and in encashing it. Neither Alice
nor Fidela returned the money.

Therefore, there was indeed, a perfected sale in favor of private respondent of,
at the very least, the rights, shares and participation in the property in question
to private respondent. Hence, private respondent became a co-owner of the
property as regards Fidela’s co-owner.

That private respondent exercised its option to buy beyond the term of the
original terms of the lease contract is then rendered academic. For, by accepting
the P300,000 as partial payment of the land in question and using it for her own
benefit and advantages, Fidela effectively estopped herself from insisting or a
technicality.

I therefore vote to grant, pro hac vice, the second motion for reconsideration
and to modify the decision by now declaring that Fidela Dizon is bound by the
perfected sale to private respondent of, at least, her rights, participation, or share
in the property in question.
 EN BANC
G.R. No. 109125, December 02, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, PETITIONERS, VS.
THE HON. COURT OF APPEALS AND BUEN REALTY DEVELOPMENT
CORPORATION, RESPONDENTS.

DECISION

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals,
dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring
without force and effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

"On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ann Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng,
Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31,
Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are
tenants or lessees of residential and commercial spaces owned by defendants
described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several occasions
before October 9, 1986, defendants informed plaintiffs that they are offering to
sell the premises and are giving them priority to acquire the same; that during
the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs
made a counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request defendants acceded;
that in reply to 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.
"After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants'
offer to sell was never accepted by the plaintiffs for the reason that the parties
did not agree upon the terms and conditions of the proposed sale, hence, there
was no contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion
of the decision states:

"‘WHEREFORE, judgment is hereby rendered in favor of the defendants and

against the plaintiffs summarily dismissing the complaint subject to the
aforementioned condition that if the defendants subsequently decide to offer
their property for sale for a purchase price of Eleven Million Pesos or lower,
then the plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.

"‘SO ORDERED.’

"Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No.

21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court's
judgment, holding:

''’In resume, there was no meeting of the minds between the parties concerning
the sale of the property. Absent such requirement, the claim for specific
performance will not lie. Appellants' demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia vs. Court
of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a
quo is legally justifiable.
‘WHEREFORE, finding the appeal unmeritorious, the judgment appealed from
is hereby AFFIRMED, but subject to the following modification: The court a
quo in the aforestated decision gave the plaintiffs-appellants the right of first
refusal only if the property is sold for a purchase price of Eleven Million pesos
or lower; however, considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first refusal to
herein appellants in the event that the subject property is sold for a price in
excess of Eleven Million pesos. No pronouncement as to costs.

'SO ORDERED.'

"The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991 'for
insufficiency in form and substance' (Annex H, Petition).
"On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner
Buen Realty and Development Corporation, subject to the following terms and
conditions:

"‘1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the above-described
property with all the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances of whatever
nature, except the pending ejectment proceeding;

‘2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees
for the transfer of title in his favor and other expenses incidental to the sale of
above-described property including capital gains tax and accrued real estate
taxes.’

"As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu
Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued
in the name of petitioner on December 3, 1990.
"On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.
"On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case
No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.
"The lessees filed a Motion for Execution dated August 27, 1991 of the decision
in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV
No. 21123.
"On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:

"‘Presented before the Court is a Motion for Execution filed by plaintiff

represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and
Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today's consideration of the motion as
evidenced by the rubber stamp and signatures upon the copy of the Motion for
Execution.

‘The gist of the motion is that the Decision of the Court dated September 21,
1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123,
and elevated to the Supreme Court upon the petition for review and that the
same was denied by the highest tribunal in its resolution dated May 6, 1991 in
G.R. No. L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become final and
executory.

‘It is the observation of the Court that this property in dispute was the subject
of 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.

‘WHEREFORE, defendants are hereby ordered to execute the necessary Deed

of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the consideration of P15 Million pesos in recognition
of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.

‘All previous transactions involving the same property notwithstanding the

issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.

'SO ORDERED.'

"On September 22, 1991 respondent Judge issue another order, the dispositive
portion of which reads:

"‘WHEREFORE, let there be Writ of Execution issue in the above-entitled case

directing the Deputy Sheriff Ramon Enriquez of this Court to implement said
Writ of Execution ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week from receipt of
this Order and for defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15,000,000.00 and ordering the Register of
Deeds of the City of Manila, to cancel and set aside the title already issued in
favor of Buen Realty Corporation which was previously executed between the
latter and defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.

'SO ORDERED.'

"On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued." [1]

On 04 December 1991, the appellate court, on appeal to it by private

respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can
be held bound by the writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of Buen Realty, at the time
of the latter's purchase of the property on 15 November 1991 from the Cu
Unjiengs.
We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to
sell. For ready reference, we might point out some fundamental precepts that
may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil

Code). The obligation is constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct, required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which
is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service (Art. 1305,
Civil Code). A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected). The perfection of the
contract takes place upon the concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an
essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation,

serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees. Article 1458 of the Civil Code provides:

"Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.
"A contract of sale may be absolute or conditional."

When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the fulfillment
of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force. In Dignos vs. Court of Appeals (158 SCRA
[2]

375), we have said that, although denominated a "Deed of Conditional Sale," a

sale is still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the buyer upon actual or
constructive delivery (e.g., by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection. If the
[3]

condition is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code). [4]

An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted. [5]

An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:

"ART. 1479. x x x.
"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. (1451a)" [6]
Observe, however, that the option is not the contract of sale itself. The
[7]

optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings. [8]

Let us elucidate a little. A negotiation is formally initiated by an offer. An

imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation.’ The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed
perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter
of the option) which is obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to reach its own
stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care should be taken of the
real nature of the consideration given, for if, in fact, it has been intended to be part
of the consideration for the main contract with a right of withdrawal on the part
of the optionee, the main contract could be deemed perfected; a similar instance
would be an "earnest money" in a contract of sale that can evidence its
perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted, or possibly of
an offer under Article 1319 of the same Code. An option or an offer would
[9]

require, among other things, a clear certainty on both the object and the cause
[10]

or consideration of the envisioned contract. In a right of first refusal, while the

object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of the Civil Code on
human conduct.

Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an issuance
of a writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. It is[11]

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
[12]

warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of
such a declaration entails no more than what has heretofore been said. In fine,
if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ
of execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development

Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters
that must be independently addressed in appropriate proceedings. Buen Realty,
not having been impleaded in Civil Case No. 87-41058, cannot be held subject
to the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its
day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred
in holding that the writ of execution varies the terms of the judgment in Civil
Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:

"Finally, the questioned writ of execution is in variance with the decision of the
trial court as modified by this Court. As already stated, there was nothing in said
decision that decreed the execution of a deed of sale between the Cu Unjiengs
[13]

and respondent lessees, or the fixing of the price of the sale, or the cancellation
of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan
ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885)."

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058
could not have decreed at the time the execution of any deed of sale between
the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside

the questioned Orders, dated 30 August 1991 and 27 September 1991, of the
court a quo. Costs against petitioners.

SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno, and Mendoza, JJ., concur.
Feliciano, J., on leave.
Kapunan, J., no part.
 EN BANC
G.R. No. 109125, December 02, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, PETITIONERS, VS.
THE HON. COURT OF APPEALS AND BUEN REALTY DEVELOPMENT
CORPORATION, RESPONDENTS.

DECISION

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals,
dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring
without force and effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

"On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ann Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng,
Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31,
Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are
tenants or lessees of residential and commercial spaces owned by defendants
described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several occasions
before October 9, 1986, defendants informed plaintiffs that they are offering to
sell the premises and are giving them priority to acquire the same; that during
the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs
made a counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request defendants acceded;
that in reply to 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.
"After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants'
offer to sell was never accepted by the plaintiffs for the reason that the parties
did not agree upon the terms and conditions of the proposed sale, hence, there
was no contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion
of the decision states:

"‘WHEREFORE, judgment is hereby rendered in favor of the defendants and

against the plaintiffs summarily dismissing the complaint subject to the
aforementioned condition that if the defendants subsequently decide to offer
their property for sale for a purchase price of Eleven Million Pesos or lower,
then the plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.

"‘SO ORDERED.’

"Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No.

21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court's
judgment, holding:

''’In resume, there was no meeting of the minds between the parties concerning
the sale of the property. Absent such requirement, the claim for specific
performance will not lie. Appellants' demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia vs. Court
of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a
quo is legally justifiable.
‘WHEREFORE, finding the appeal unmeritorious, the judgment appealed from
is hereby AFFIRMED, but subject to the following modification: The court a
quo in the aforestated decision gave the plaintiffs-appellants the right of first
refusal only if the property is sold for a purchase price of Eleven Million pesos
or lower; however, considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first refusal to
herein appellants in the event that the subject property is sold for a price in
excess of Eleven Million pesos. No pronouncement as to costs.

'SO ORDERED.'

"The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991 'for
insufficiency in form and substance' (Annex H, Petition).
"On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner
Buen Realty and Development Corporation, subject to the following terms and
conditions:

"‘1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the above-described
property with all the improvements found therein including all the rights and
interest in the said property free from all liens and encumbrances of whatever
nature, except the pending ejectment proceeding;

‘2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees
for the transfer of title in his favor and other expenses incidental to the sale of
above-described property including capital gains tax and accrued real estate
taxes.’

"As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu
Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued
in the name of petitioner on December 3, 1990.
"On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.
"On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case
No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu
Unjiengs.
"The lessees filed a Motion for Execution dated August 27, 1991 of the decision
in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV
No. 21123.
"On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:

"‘Presented before the Court is a Motion for Execution filed by plaintiff

represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and
Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today's consideration of the motion as
evidenced by the rubber stamp and signatures upon the copy of the Motion for
Execution.

‘The gist of the motion is that the Decision of the Court dated September 21,
1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123,
and elevated to the Supreme Court upon the petition for review and that the
same was denied by the highest tribunal in its resolution dated May 6, 1991 in
G.R. No. L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become final and
executory.

‘It is the observation of the Court that this property in dispute was the subject
of 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.

‘WHEREFORE, defendants are hereby ordered to execute the necessary Deed

of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the consideration of P15 Million pesos in recognition
of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.

‘All previous transactions involving the same property notwithstanding the

issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.

'SO ORDERED.'

"On September 22, 1991 respondent Judge issue another order, the dispositive
portion of which reads:

"‘WHEREFORE, let there be Writ of Execution issue in the above-entitled case

directing the Deputy Sheriff Ramon Enriquez of this Court to implement said
Writ of Execution ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week from receipt of
this Order and for defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15,000,000.00 and ordering the Register of
Deeds of the City of Manila, to cancel and set aside the title already issued in
favor of Buen Realty Corporation which was previously executed between the
latter and defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.

'SO ORDERED.'

"On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued." [1]

On 04 December 1991, the appellate court, on appeal to it by private

respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can
be held bound by the writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of Buen Realty, at the time
of the latter's purchase of the property on 15 November 1991 from the Cu
Unjiengs.
We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to
sell. For ready reference, we might point out some fundamental precepts that
may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil

Code). The obligation is constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct, required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which
is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service (Art. 1305,
Civil Code). A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected). The perfection of the
contract takes place upon the concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an
essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation,

serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which
the latter agrees. Article 1458 of the Civil Code provides:

"Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.
"A contract of sale may be absolute or conditional."

When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the fulfillment
of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force. In Dignos vs. Court of Appeals (158 SCRA
[2]

375), we have said that, although denominated a "Deed of Conditional Sale," a

sale is still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the buyer upon actual or
constructive delivery (e.g., by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection. If the
[3]

condition is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code). [4]

An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted. [5]

An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:

"ART. 1479. x x x.
"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. (1451a)" [6]
Observe, however, that the option is not the contract of sale itself. The
[7]

optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings. [8]

Let us elucidate a little. A negotiation is formally initiated by an offer. An

imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation.’ The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed
perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter
of the option) which is obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to reach its own
stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care should be taken of the
real nature of the consideration given, for if, in fact, it has been intended to be part
of the consideration for the main contract with a right of withdrawal on the part
of the optionee, the main contract could be deemed perfected; a similar instance
would be an "earnest money" in a contract of sale that can evidence its
perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted, or possibly of
an offer under Article 1319 of the same Code. An option or an offer would
[9]

require, among other things, a clear certainty on both the object and the cause
[10]

or consideration of the envisioned contract. In a right of first refusal, while the

object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of the Civil Code on
human conduct.

Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an issuance
of a writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. It is[11]

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
[12]

warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of
such a declaration entails no more than what has heretofore been said. In fine,
if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ
of execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development

Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters
that must be independently addressed in appropriate proceedings. Buen Realty,
not having been impleaded in Civil Case No. 87-41058, cannot be held subject
to the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its
day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred
in holding that the writ of execution varies the terms of the judgment in Civil
Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of
Appeals, in this regard, has observed:

"Finally, the questioned writ of execution is in variance with the decision of the
trial court as modified by this Court. As already stated, there was nothing in said
decision that decreed the execution of a deed of sale between the Cu Unjiengs
[13]

and respondent lessees, or the fixing of the price of the sale, or the cancellation
of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan
ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885)."

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058
could not have decreed at the time the execution of any deed of sale between
the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside

the questioned Orders, dated 30 August 1991 and 27 September 1991, of the
court a quo. Costs against petitioners.

SO ORDERED.
 FIRST DIVISION
G.R. No. 168325, December 08, 2010
ROBERTO D. TUAZON, PETITIONER, VS. LOURDES Q. DEL ROSARIO-
SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE LEON,
MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, AND
GUILLERMA L. SANDICO-SILVA, AS ATTORNEY-IN-FACT OF THE
DEFENDANTS, EXCEPT LOURDES Q. DEL ROSARIO-SUAREZ,
RESPONDENTS.

DECISION

DEL CASTILLO, J.:

In a situation where the lessor makes an offer to sell to the lessee a certain
property at a fixed price within a certain period, and the lessee fails to accept the
offer or to purchase on time, then the lessee loses his right to buy the property
and the owner can validly offer it to another.

This Petition for Review on Certiorari[1] assails the Decision[2] dated May 30, 2005
of the Court of Appeals (CA) in CA-G.R. CV No. 78870, which affirmed the
Decision[3] dated November 18, 2002 of the Regional Trial Court (RTC), Branch
101, Quezon City in Civil Case No. Q-00-42338.

Factual Antecedents

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 and previously
covered by Transfer Certificate of Title (TCT) No. RT-56118[4] issued by the
Registry of Deeds of Quezon City.

On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes

executed a Contract of Lease[5] over the abovementioned parcel of land for a
period of three years. The lease commenced in March 1994 and ended in
February 1997. During the effectivity of the lease, Lourdes sent a letter[6] dated
January 2, 1995 to Roberto where she offered to sell to the latter subject parcel
of land. She pegged the price at P37,541,000.00 and gave him two years from
January 2, 1995 to decide on the said offer.

On June 19, 1997, or more than four months after the expiration of the
Contract of Lease, Lourdes sold subject parcel of land to her only child, Catalina
Suarez-De Leon, her son-in-law Wilfredo De Leon, and her two grandsons,
Miguel Luis S. De Leon and Rommel S. De Leon (the De Leons), for a total
consideration of only P2,750,000.00 as evidenced by a Deed of Absolute Sale[7]
executed by the parties. TCT No. 177986[8] was then issued by the Registry of
Deeds of Quezon City in the name of the De Leons.

The new owners through their attorney-in-fact, Guillerma S. Silva, notified

Roberto to vacate the premises. Roberto refused hence, the De Leons filed a
complaint for Unlawful Detainer before the Metropolitan Trial Court (MeTC)
of Quezon City against him. On August 30, 2000, the MeTC rendered a
Decision[9] ordering Roberto to vacate the property for non-payment of rentals
and expiration of the contract.

Ruling of the Regional Trial Court

On November 8, 2000, while the ejectment case was on appeal, Roberto filed
with the RTC of Quezon City a Complaint[10] for Annulment of Deed of
Absolute Sale, Reconveyance, Damages and Application for Preliminary
Injunction against Lourdes and the De Leons. On November 13, 2000,
Roberto filed a Notice of Lis Pendens[11] with the Registry of Deeds of Quezon
City.

On January 8, 2001, respondents filed An Answer with Counterclaim[12] praying

that the Complaint be dismissed for lack of cause of action. They claimed that
the filing of such case was a mere leverage of Roberto against them because of
the favorable Decision issued by the MeTC in the ejectment case.

On September 17, 2001, the RTC issued an Order[13] declaring Lourdes and the
De Leons in default for their failure to appear before the court for the second
time despite notice. Upon a Motion for Reconsideration,[14] the trial court in an
Order[15] dated October 19, 2001 set aside its Order of default.

After trial, the court a quo rendered a Decision declaring the Deed of Absolute
Sale made by Lourdes in favor of the De Leons as 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. Thus, in a Decision dated November 18, 2002, the trial court
dismissed the complaint. Its dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing

the above-entitled Complaint for lack of merit, and ordering the Plaintiff to pay
the Defendants, the following:

1. the amount of P30,000.00 as moral damages;

2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorney's fees; and
4. cost of the litigation.

SO ORDERED.[16]

Ruling of the Court of Appeals

On May 30, 2005, the CA issued its Decision dismissing Roberto's appeal and
affirming the Decision of the RTC.

Hence, this Petition for Review on Certiorari filed by Roberto advancing the
following arguments:

I.

THE TRIAL COURT AND THE COURT OF APPEALS HAD DECIDED

THAT THE "RIGHT OF FIRST REFUSAL" EXISTS ONLY WITHIN THE
PARAMETERS OF AN "OPTION TO BUY", AND DID NOT EXIST
WHEN THE PROPERTY WAS SOLD LATER TO A THIRD PERSON,
UNDER FAVORABLE TERMS AND CONDITIONS WHICH THE
FORMER BUYER CAN MEET.

II.

WHAT IS THE STATUS OR SANCTIONS OF AN APPELLEE IN THE

COURT OF APPEALS WHO HAS NOT FILED OR FAILED TO FILE AN
APPELLEE'S BRIEF?[17]

Petitioner's Arguments

Roberto claims that Lourdes violated his right to buy 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.[18] which is the leading
case on the "right of first refusal."

Respondents' Arguments

On the other hand, respondents posit that this case is not covered by the
principle of "right of first refusal" but an unaccepted unilateral promise to sell
or, at best, a contract of option which was not perfected. The letter of Lourdes
to Roberto clearly embodies an option contract as it grants the latter only two
years to exercise the option to buy the subject property at a price certain of
P37,541,000.00. As an option contract, the said letter would have been binding
upon Lourdes without need of any consideration, had Roberto accepted the
offer. But in this case there was no acceptance made neither was there a distinct
consideration for the option contract.

Our Ruling

The petition is without merit.

This case involves an option contract and not a contract of a right of first refusal

In Beaumont v. Prieto,[19] the nature of an option contract is explained thus:

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract,

in the following language:
`A contract by virtue of which A, in consideration of the payment of a certain
sum to B, acquires the privilege of buying from, or selling to, B certain securities
or properties within a limited time at a specified price. (Story vs. Salamon, 71 N.
Y., 420.)'

From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of
Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following
quotation has been taken:

`An agreement in writing to give a person the `option' to purchase lands within
a given time at a named price is neither a sale nor an agreement to sell. It is
simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell
it; but he does sell something; that is, the right or privilege to buy at the election
or option of the other party. The second party gets in praesenti, not lands, nor an
agreement that he shall have lands, but he does get something of value; that is,
the right to call for and receive lands if he elects. The owner parts with his right
to sell his lands, except to the second party, for a limited period. The second
party receives this right, or rather, from his point of view, he receives the right
to elect to buy.

But the two definitions above cited refer to the contract of option, or, what
amounts to the same thing, to the case where there was cause or consideration
for the obligation x x x. (Emphasis supplied.)

On the other hand, in Ang Yu Asuncion v. Court of Appeals,[20] an elucidation on

the "right of first refusal" was made thus:

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 grantor's eventual intention to enter
into a binding juridical relation with another but also on terms, including
the price, that obviously are yet to be later firmed up. Prior thereto, it can at
best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the
vinculum juris would still be indefinite and inconclusive) but by, among other laws
of general application, the pertinent scattered provisions of the Civil Code on
human conduct.

Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an issuance
of a writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. 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. (Emphasis supplied.)

From the foregoing, it is thus clear that 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.

In this case, the controversy is whether the letter of Lourdes to Roberto dated
January 2, 1995 involved an option contract or a contract of a right of first
refusal. In its entirety, the said letter-offer reads:

206 Valdes Street

Josefa Subd. Balibago
Angeles City 2009
January 2, 1995

Tuazon Const. Co.

986 Tandang Sora Quezon City

Dear Mr. Tuazon,

I received with great joy and happiness the big box of sweet grapes and ham, fit
for a king's party. Thanks very much.

I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with
my only family. I need money to buy a house and lot and a farm with a little
cash to start.

I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay
me in dollars in the name of my daughter. I never offered it to anyone. Please
shoulder the expenses for the transfer. I wish the Lord God will help you buy
my lot easily and you will be very lucky forever in this place. You have all the
time to decide when you can, but not for 2 years or more.

I wish you long life, happiness, health, wealth and great fortune always!

I hope the Lord God will help you be the recipient of multi-billion projects aid
from other countries.

Thank you,

Lourdes Q. del Rosario vda de Suarez

It is clear that the above letter embodies an option contract as it grants Roberto
a fixed period of only two years to buy the subject property at a price certain of
P37,541,000.00. It being an option contract, the rules applicable are found in
Articles 1324 and 1479 of the Civil Code which provide:

Art. 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon a consideration, as
something paid or promised.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

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.
It is clear from the provision of Article 1324 that there is a great difference
between the effect of an option which is without a consideration from one
which is founded upon a consideration. 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.

The second paragraph of Article 1479 declares that "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." Sanchez v. Rigos[21] provided an interpretation of the said second paragraph
of Article 1479 in relation to Article 1324. Thus:

There is no question that under Article 1479 of the new Civil Code "an option
to sell," or "a promise to buy or to sell," as used in said article, to be valid must
be "supported by a consideration distinct from the price." This is clearly inferred
from the context of said article that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by consideration. In other words, "an
accepted unilateral promise can only have a binding effect if supported by a
consideration, which means that the option can still be withdrawn, even if accepted,
if the same is not supported by any consideration. Hence, it is not disputed that
the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by appellee.

It is true that under Article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree a
certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but this
general rule must be interpreted as modified by the provision of Article 1479
above referred to, which applies to "a promise to buy and sell" specifically. As
already stated, this rule requires that a promise to sell to be valid must be
supported by a consideration distinct from the price.

In Diamante v. Court of Appeals,[22] this Court further declared that:

A unilateral promise to buy or sell is a mere offer, which is not converted into a
contract except at the moment it is accepted. Acceptance is the act that gives
life to a juridical obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance, however, a
bilateral contract to sell and to buy is created, and the offeree ipso facto assumes
the obligations of a purchaser; the offeror, on the other hand, would be liable
for damages if he fails to deliver the thing he had offered for sale.

xxxx

Even if the promise was accepted, private respondent was not bound
thereby in the absence of a distinct consideration. (Emphasis ours.)

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. Roberto's act of
negotiating for a much lower price was a counter-offer and is therefore not an
acceptance of the offer of Lourdes. Article 1319 of the Civil Code provides:

Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer. (Emphasis supplied.)

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.

Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable

here

It is the position of Roberto that the facts of this case and that of Equatorial are
similar in nearly all aspects. Roberto is a lessee of the property like Mayfair
Theater in Equatorial. There was an offer made to Roberto by Lourdes during
the effectivity of the contract of lease which was also the case in Equatorial.
There were negotiations as to the price which did not bear fruit because
Lourdes sold the property to the De Leons which was also the case in Equatorial
wherein Carmelo and Bauermann sold the property to Equatorial. The
existence of the lease of the property is known to the De Leons as they are
related to Lourdes while in Equatorial, the lawyers of Equatorial studied the lease
contract of Mayfair over the property. The property in this case was sold by
Lourdes to the De Leons at a much lower price which is also the case in
Equatorial where Carmelo and Bauerman sold to Equatorial at a lesser price. It
is Roberto's conclusion that as in the case of Equatorial, there was a violation of
his right of first refusal and hence annulment or rescission of the Deed of
Absolute Sale is the proper remedy.

Roberto's reliance in Equatorial is misplaced. Despite his claims, the facts in

Equatorial radically differ from the facts of this case. Roberto overlooked the
fact that in Equatorial, there was an express provision in the Contract of Lease
that -

(i)f the LESSOR should desire to sell the leased properties, 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. What is involved here is a separate and distinct offer made by
Lourdes through a letter dated January 2, 1995 wherein she is selling the leased
property to Roberto for a definite price and which gave the latter a definite
period for acceptance. 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. The argument of Roberto that the separate
consideration was the liberality on the part of Lourdes cannot stand. A perusal
of the letter-offer of Lourdes would show that what drove her to offer the
property to Roberto was her immediate need for funds as she was already very
old. Offering the property to Roberto was not an act of liberality on the part of
Lourdes but was a simple matter of convenience and practicality as he was the
one most likely to buy the property at that time as he was then leasing the same.

All told, the facts of the case, as found by the RTC and the CA, do not support
Roberto's claims that the letter of Lourdes gave him a right of first refusal which
is similar to the one given to Mayfair Theater in the case of
Equatorial. Therefore, there is no justification to annul the deed of sale validly
entered into by Lourdes with the De Leons.

What is the effect of the failure of Lourdes to file her appellee's brief at the CA?

Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file
her appellee's brief before the CA.

Certainly, the appellee's failure to file her brief would not mean that the case
would be automatically decided against her. Under the circumstances, the
prudent action on the part of the CA would be to deem Lourdes to have waived
her right to file her appellee's brief. De Leon v. Court of Appeals,[23] is instructive
when this Court decreed:

On the second issue, we hold that the Court of Appeals did not commit grave
abuse of discretion in considering the appeal submitted for decision. The proper
remedy in case of denial of the motion to dismiss is to file the appellee's brief
and proceed with the appeal. Instead, petitioner opted to file a motion for
reconsideration which, unfortunately, was pro forma. All the grounds raised
therein have been discussed in the first resolution of the respondent Court of
Appeals. There is no new ground raised that might warrant reversal of the
resolution. A cursory perusal of the motion would readily show that it was a
near verbatim repetition of the grounds stated in the motion to dismiss; hence,
the filing of the motion for reconsideration did not suspend the period for filing
the appellee's brief. Petitioner was therefore properly deemed to have
waived his right to file appellee's brief. (Emphasis supplied.)

In the above cited case, De Leon was the plaintiff in a Complaint for a sum of
money in the RTC. He obtained a favorable judgment and so defendant went
to the CA. The appeal of defendant-appellant was taken cognizance of by the
CA but De Leon filed a Motion to Dismiss the Appeal with Motion to Suspend
Period to file Appellee's Brief. The CA denied the Motion to Dismiss. De
Leon filed a Motion for Reconsideration which actually did not suspend the
period to file the appellee's brief. De Leon therefore failed to file his brief within
the period specified by the rules and hence he was deemed by the CA to have
waived his right to file appellee's brief.

The failure of the appellee to file his brief would not result to the rendition of a
decision favorable to the appellant. The former is considered only to have
waived his right to file the Appellee's Brief. The CA has the jurisdiction to
resolve the case based on the Appellant's Brief and the records of the case
forwarded by the RTC. The appeal is therefore considered submitted for
decision and the CA properly acted on it.

WHEREFORE, the instant petition for review on certiorari is DENIED. The

assailed Decision of the Court of Appeals in CA-G.R. CV No. 78870, which
affirmed the Decision dated November 18, 2002 of the Regional Trial Court,
Branch 101, Quezon City in Civil Case No. Q-00-42338 is AFFIRMED.

SO ORDERED.

Corona, C.J., (Chairperson), Leonardo-De Castro, Abad,* and Perez, JJ., concur.
 FIRST DIVISION
G.R. No. 86150, March 02, 1992
GUZMAN, BOCALING & CO., PETITIONER, VS. RAOUL S. V. BONNEVIE,
RESPONDENT.

DECISION

CRUZ, J.:

The subject of the controversy is a parcel of land measuring six hundred (600)
square meters, more or less, with two buildings constructed thereon, belonging
to the Intestate Estate of Jose L. Reynoso.

This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the
administratrix, Africa Valdez de Reynoso, for a period of one year beginning
August 8, 1976, at a monthly rental of P4,000.00.

The Contract of Lease contained the following stipulation:

20. - In case the LESSOR desires or decides to sell the leased property, the
LESSEES shall be given a first priority to purchase the same, all things and
considerations being equal.

On November 3, 1976, according to Reynoso, she notified the private

respondents by registered mail that she was selling the leased premises for
P600,000.00 less a mortgage loan of P100,000.00, and was giving them 30 days
from receipt of the letter within which to exercise their right of first priority to
purchase the subject property. She said that in the event that they did not
exercise the said right, she would expect them to vacate the property not later
than March, 1977.

On January 20, 1977, Reynoso sent another letter to private respondents

advising them that in view of their failure to exercise their right of first priority,
she had already sold the property.

Upon receipt of this letter, the private respondents wrote Reynoso informing
her that neither of them had received her letter dated November 3, 1976; that
they had advised her agent to inform them officially should she decide to sell the
property so negotiations could be initiated; and that they were "constrained to
refuse (her) request for the termination of the lease."

On March 7, 1977, the leased premises were formally sold to petitioner

Guzman, Bocaling & Co. The Contract of Sale provided for immediate payment
of P137,500.00 on the purchase price, the balance of P262,500.00 to be paid
only when the premises were vacated.

On April 12, 1977, Reynoso wrote a letter to the private respondents demanding
that they vacate the premises within 15 days for their failure to pay the rentals
for four months. When they refused, Reynoso filed a complaint for ejectment
against them which was docketed as Civil Case No. 043851-CV in the then City
Court of Manila.

On September 25, 1979, the parties submitted a Compromise Agreement, which

provided inter alia that "the defendant Raoul S.V. Bonnevie shall vacate the
premises subject of the Lease Contract, voluntarily and peacefully not later than
October 31, 1979."

This agreement was approved by the City Court and became the basis of its
decision. However, as the private respondents failed to comply with the above-
quoted stipulation, Reynoso filed a motion for execution of the judgment by
compromise, which was granted on November 8, 1979.

On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to

set aside the decision of the City Court as well as the Compromise Agreement
on the sole ground that Reynoso had not delivered to him the "records of
payments and receipts of all rentals by or for the account of defendants xxx."
The motion was denied and the case was elevated to the then Court of First
Instance. That Court remanded the case to the City Court of Manila for trial on
the merits after both parties had agreed to set aside the Compromise
Agreement.

On April 29, 1980, while the ejectment case was pending in the City Court, the
private respondents filed an action for annulment of the sale between Reynoso
and herein petitioner Guzman, Bocaling & Co. and cancellation of the transfer
certificate of title in the name of the latter. They also asked that Reynoso be
required to sell the property to them under the same terms and conditions
agreed upon in the Contract of Sale in favor of the petitioner. This complaint
was docketed as Civil Case No. 131461 in the then Court of First Instance of
Manila.

On May 5, 1980, the City Court decided the ejectment case, disposing as
follows:

WHEREFORE, judgment is hereby rendered ordering defendants and all

persons holding under them to vacate the premises at No. 658 Gen. Malvar
Street, Malate, Manila, subject of this action, and deliver possession thereof to
the plaintiff, and to pay to the latter: (1) The sum of P4,000.00 a month from
April 1, 1977 to August 8, 1977; (2) The sum of P7,000.00 a month, as
reasonable compensation for the continued unlawful use and occupation of said
premises, from August 9, 1977 and every month thereafter until defendants
actually vacate and deliver possession thereof to the plaintiff; (3) The sum of
P1,000.00 as and for attorney's fees; and (4) The costs of suit.

The decision was appealed to the then Court of First Instance of Manila,
docketed as Civil Case No. 132634 and consolidated with Civil Case No.
131461. In due time, Judge Tomas P. Maddela, Jr. decided the two cases as
follows:

WHEREFORE, premises considered, this Court in Civil Case No. 132634

hereby modifies the decision of the lower court as follows:
1. Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and
all persons holding under them to vacate the premises at No. 658 Gen. Malvar
St., Malate, Manila, subject of this action and deliver possessions thereof to the
plaintiff; and
2. To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to
September 21, 1980 (when possession of the premises was turned over to the
Sheriff) after deducting whatever payments were made and accepted by Mrs.
Africa Valdez Vda. de Reynoso during said period, without pronouncement as
to costs.
As to Civil Case No. 131461, the Court hereby renders judgment in favor of the
plaintiff Raoul Bonnevie as against the defendants Africa Valdez Vda. de
Reynoso and Guzman and Bocaling & Co., declaring the deed of sale with
mortgage executed by defendant Africa Valdez Vda. de Reynoso in favor of
defendant Guzman and Bocaling null and void; cancelling the Certificate of
Title No. 125914 issued by the Register of Deeds of Manila in the name of
Guzman and Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de
Reynoso to execute in favor of the plaintiff Raoul Bonnevie a deed of sale with
mortgage over the property leased by him in the amount of P400,000.00 under
the same terms and conditions should there be any other occupants or tenants
in the premises; ordering the defendants jointly and severally to pay the plaintiff
Raoul Bonnevie the amount of P50,000.00 as temperate damages; to pay the
plaintiff jointly and severally the amount of P2,000.00 per month from the time
the property was sold to defendant Guzman and Bocaling by defendant Africa
Valdez Vda. de Reynoso on March 7, 1977, up to the execution of a deed of sale
of the property by defendant Africa Valdez Vda. de Reynoso in favor of
plaintiff Bonnevie; to pay jointly and severally the plaintiff Bonnevie the amount
of P20,000.00 as exemplary damages, for attorney's fees in the amount of
P10,000.00, and to pay the costs of suit.

Both Reynoso and the petitioner company filed with the Court of Appeals a
petition for review of this decision. The appeal was eventually resolved against
them in a decision promulgated on March 16, 1988, where the respondent court
substantially affirmed the conclusions of the lower court but reduced the award
of damages. [1]

Its motion for reconsideration having been denied on December 14, 1988, the
petitioner has come to this Court, asserting inter alia that the respondent court
erred in ruling that the grant of first priority to purchase the subject properties
by the judicial administratrix needed no authority from the probate court;
holding that the Contract of Sale was not voidable but rescissible; considering
the petitioner as a buyer in bad faith; ordering Reynoso to execute the deed of
sale in favor of the Bonnevies; and not passing upon the counterclaim. Reynosa
has not appealed.

The Court has examined the petitioner's contentions and finds them to be
untenable.

Reynoso claimed to have sent the November 3, 1976 letter by registered mail,
but the registry return card was not in offered in evidence. What she presented
instead was a copy of the said letter with a photocopy of only the face of a
registry return card claimed to refer to the said letter. A copy of the other side of
the card showing the signature of the person who received the letter and the
date of the receipt was not submitted. There is thus no satisfactory proof that
the letter was received by the Bonnevies.

Even if the letter had indeed been sent to and received by the private
respondents and they did not exercise their right of first priority, Reynoso would
still be guilty of violating Paragraph 20 of the Contract of Lease which
specifically stated that the private respondents could exercise the right of first
priority, "all things and conditions being equal." The Court reads this to mean
that there should be identity of the terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the
right of first priority.

The selling price quoted to the Bonnevies was P600,000.00, to be fully paid in
cash less only the mortgage lien of P100,000.00. On the other hand, the selling
[2]

price offered to and accepted by the petitioner was only P400,000.00, and only
P137,500.00 was paid in cash while the balance of P272,500.00 was to be paid
"when the property (was) cleared of tenants or occupants." [3]

The fact that the Bonnevies had financial problems at that time was no
justification for denying them the first option to buy the subject property. Even
if the Bonnevies could not buy it at the price quoted, Reynoso could not sell it
to another for a lower price and under more favorable terms and conditions.
Only if the Bonnevies failed to exercise their right of first priority could
Reynoso lawfully sell the subject property to others, and at that only under the
same terms and conditions offered to the Bonnevies.

The Court agrees with the respondent court that it was not necessary to secure
the approval by the probate court of the Contract of Lease because it did not
involve an alienation of real property of the estate nor did the term of the lease
exceed one year so as to make it fall under Article 1878(8) of the Civil Code.
Only if Paragraph 20 of the Contract of Lease was activated and the said
property was intended to be sold would it be required of the administratrix to
secure the approval of the probate court pursuant to Rule 89 of the Rules of
Court.

As a strict legal proposition, no judgment of the probate court was reviewed and
eventually annulled collaterally by the respondent court as contended by the
petitioner. The order authorizing the sale in its favor was duly issued by the
probate court, which thereafter approved the Contract of Sale resulting in the
eventual issuance of title in favor of the petitioner. That order was valid insofar
as it recognized the existence of all the essential elements of a valid contract of
sale, but without regard to the special provision in the Contract of Lease giving
another party the right of first priority.

Even if the order of the probate court was valid, the private respondents still
had a right to rescind the Contract of Sale because of the failure of Reynoso to
comply with her duty to give them the first opportunity to purchase the subject
property.

The petitioner argues that assuming the Contract of Sale to be voidable, only the
parties thereto could bring an action to annul it pursuant to Article 1397 of the
Civil Code. It is stressed that private respondents are strangers to that agreement
and therefore have no personality to seek its annulment.

The respondent court correctly held that the Contract of Sale was not voidable
but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded by reason of injury
to third persons, like creditors. The status of creditors could be validly accorded
the Bonnevies for they had substantial interests that were prejudiced by the sale
of the subject property to the petitioner without recognizing their right of first
priority under the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting

parties and even to third persons, to secure reparation for damages caused to
them by a contract, even if this should be valid, by means of the restoration of
things to their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the contracting
[4]

parties and even third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right created by the
contract. Rescission implies a contract which, even if initially valid, produces a
[5]

lesion or pecuniary damage to someone that justifies its invalidation for reasons
of equity. [6]

It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that such
third person is in lawful possession of the subject of the contract and that he did
not act in bad faith. However, this rule is not applicable in the case before us
[7]

because the petitioner is not considered a third party in relation to the Contract
of Sale nor may its possession of the subject property be regarded as acquired
lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was aware of the lease in favor of
the Bonnevies, who were actually occupying the subject property at the time it
was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person in the property. [8]

Good faith connotes an honest intention to abstain from taking unconscientious

advantage of another. Tested by these principles, the petitioner cannot tenably
[9]

claim to be a buyer in good faith as it had notice of the lease of the property by
the Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice its
own interests.

The petitioner insists that it was not aware of the right of first priority granted
by the Contract of Lease. Assuming this to be true, we nevertheless agree with
the observation of the respondent court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,

which includes Par. 20 on priority right given to the Bonnevies, it had only itself
to blame. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required Reynoso or the broker to
show to it the Contract of Lease in which Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise Agreement which it
says canceled the right of first priority granted to the Bonnevies by the Contract
of Lease. This agreement was set aside by the parties thereto, resulting in the
restoration of the original rights of the private respondents under the Contract
of Lease. The Joint Motion to Remand filed by Reynoso and the private
respondents clearly declared inter alia:
That without going into the merits of instant petition, the parties have agreed to
SET ASIDE the compromise agreement, dated September 24, 1979 and remand
Civil Case No. 043851 of the City Court of Manila to Branch IX thereof for trial
on the merits.[10]

We find, in sum, that the respondent court did not commit the errors imputed
to it by the petitioner. On the contrary, its decision is conformable to the
established facts and the applicable law and jurisprudence and so must be
sustained.

WHEREFORE, the petition is DENIED, with costs against the petitioner.

The challenged decision is AFFIRMED in toto. It is so ordered.

Narvasa, C.J., Griño-Aquino, and Medialdea, JJ., concur.

 EN BANC
G.R. No. 106063, November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC., PETITIONERS, VS. MAYFAIR THEATER, INC.,
RESPONDENT.

DECISION

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision[1] of the Court of Appeals[2]

involving questions in the resolution of which the respondent appellate court
analyzed and interpreted particular provisions of our laws on contracts and
sales. In its assailed decision, the respondent court reversed the trial court[3]
which, in dismissing the complaint for specific performance with damages and
annulment of contract,[4] found the option clause in the lease contracts entered
into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and
petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of
performance and unsupported by a consideration and the subsequent sale of the
subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said
lease contracts.[5]

We reproduce below the facts as narrated by the respondent court, which

narration, we note, is almost verbatim the basis of the statement of facts as
rendered by the petitioners in their pleadings:
"Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon
located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its
name by the Register of Deeds of Manila.

On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter’s lease of
a portion of Carmelo’s property particularly described, to wit:

‘A PORTION OF THE SECOND FLOOR of the two-storey building, situated at

C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at
C.M. Recto Avenue, Manila, with a floor area of 150 square meters,’

for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair
thereafter constructed on the leased property a movie house known as ‘Maxim Theatre.’

Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with
Carmelo for the lease of another portion of Carmelo’s property, to wit:

‘A PORTION OF THE SECOND FLOOR of the two-storey building, situated at

C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters.

THE TWO (2) STORE SPACES AT THE GROUND FLOOR and

MEZZANINE of the two-storey building situated at C.M. Recto Avenue, Manila, with a
floor area of 300 square meters and bearing street numbers 1871 and 1875,’

for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up
another movie house known as ‘Miramar Theatre’ on this leased property.

Both contracts of lease provides (sic) identically worded paragraph 8, which reads:

‘That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given
30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the
Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms
and conditions thereof.’

Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang,
President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the
entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was
offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr.
Yang if the latter was willing to buy the property for Six to Seven Million Pesos.

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974,
Mayfair replied through a letter stating as follows:
‘It appears that on August 19, 1974 your Mr. Henry Pascal informed our client’s Mr.
Henry Yang through the telephone that your company desires to sell your above-mentioned
C.M. Recto Avenue property.

Under your company’s two lease contracts with our client, it is uniformly provided:

‘8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be
given 30-days exclusive option to purchase the same. In the event, however, that the leased
premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated,
as it is (sic) herebinds (sic) and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and conditions hereof (sic).’

Carmelo did not reply to this letter.

On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest
in acquiring not only the leased premises but ‘the entire building and other improvements if the
price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the
second letter.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and
building, which included the leased premises housing the ‘Maxim’ and ‘Miramar’ theatres, to
Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00.

In September 1978, Mayfair instituted the action a quo for specific performance and
annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as
special and affirmative defense (a) that it had informed Mayfair of its desire to sell the entire
C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it
was interested only in buying the areas under lease, which was impossible since the property was
not a condominium; and (b) that the option to purchase invoked by Mayfair is null and void
for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative defense
that the option is void for lack of considertion (sic) and is unenforceable by reason of its
impossibility of performance because the leased premises could not be sold separately from the
other portions of the land and building. It counterclaimed for cancellation of the contracts of
lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of
the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair’s claims.

During the pre-trial conference held on January 23, 1979, the parties stipulated on the
following:

‘1. That there was a deed of sale of the contested premises by the defendant Carmelo x x x in
favor of defendant Equatorial x x x;

2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff
exclusive option to purchase the leased premises should the lessor desire to sell the same
(admitted subject to the contention that the stipulation is null and void);

3. That the two buildings erected on this land are not of the condominium plan;

4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of
lease constitute the consideration for the plaintiff’s occupancy of the leased premises, subject of
the same contracts of lease, Exhibits A and B;

xxx xxx xxx

6. That there was no consideration specified in the option to buy embodied in the contract;

7. That Carmelo & Bauermann owned the land and the two buildings erected thereon;

8. That the leased premises constitute only the portions actually occupied by the theaters; and

9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land
and the two buildings erected thereon.’

xxx xxx xxx

After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion
of which reads as follows:

‘WHEREFORE, judgment is hereby rendered:

(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of
attorney’s fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as
reasonable compensation for the use of areas not covered by the contract (sic) of lease from July
31, 1979 until plaintiff vacates said area (sic) plus legal interest from July 31, 1978;
P70,000.00 per month as reasonable compensation for the use of the premises covered by the
contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the
premises plus legal interest from June 1, 1987; P55,000.00 per month as reasonable
compensation for the use of the premises covered by the contract of lease dated March 31, 1969
from March 30, 1989 until plaintiff vacates the premises plus legal interest from March 30,
1989; and P40,000.00 as attorney’s fees;

(4) Dismissing defendant Equatorial’s crossclaim against defendant Carmelo & Bauermann.

The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all
persons claiming rights under these contracts are directed to vacate the premises’.’"[6]
The trial court adjudged the identically worded paragraph 8 found in both
aforecited lease contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct consideration
therefor.

The court a quo ratiocinated:

"Significantly, during the pre-trial, it was admitted by the parties that the option in the
contract of lease is not supported by a separate consideration. Without a consideration, the
option is therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former. The option invoked by the plaintiff appears in the contracts of lease x x
x in effect there is no option, on the ground that there is no consideration. Article 1352 of the
Civil Code, provides:

‘Contracts without cause or with unlawful cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good custom, public order or public policy.’

Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:

‘When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.’

in relation with Article 1479 of the same Code:

‘A promise to buy and sell a 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 plaintiff cannot compel defendant Carmelo to comply with the promise unless the former
establishes the existence of a distinct consideration. In other words, the promisee has the burden
of proving the consideration. The consideration cannot be presumed as in Article 1354:

‘Although the cause is not stated in the contract, it is presumed that it exists and is lawful
unless the debtor proves the contrary.’

where consideration is legally presumed to exists. Article 1354 applies to contracts in general,
whereas when it comes to an option it is governed particularly and more specifically by Article
1479 whereby the promisee has the burden of proving the existence of consideration distinct
from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court
said:

‘(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article
1479 refers to sales in particular, and, more specifically, to an accepted unilateral promise to
buy or to sell. In other words, Article 1479 is controlling in the case at bar.

(2) In order that said unilateral promise may be binding upon the promissor, Article 1479
requires the concurrence of a condition, namely, that the promise be supported by a
consideration distinct from the price.

Accordingly, the promisee cannot compel the promissor to comply with the promise, unless the
former establishes the existence of said distinct consideration. In other words, the promisee has
the burden of proving such consideration. Plaintiff herein has not even alleged the existence
thereof in his complaint.’[7]

It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M.
Recto property to the former."
Mayfair taking exception to the decision of the trial court, the battleground
shifted to the respondent Court of Appeals. Respondent appellate court
reversed the court a quo and rendered judgment:
"1. Reversing and setting aside the appealed Decision;

2. Directing the plaintiff-appellant Mayfair Theater, Inc. to pay and return to Equatorial the
amount of P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering
Equatorial Realty Development, Inc. to accept such payment;

3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc.
to execute the deeds and documents necessary for the issuance and transfer of ownership to
Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and

4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged,
declaring the Deed of Absolute Sale between the defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the
parties."[8]
Rereading the law on the matter of sales and option contracts, respondent Court
of Appeals differentiated between Article 1324 and Article 1479 of the Civil
Code, analyzed their application to the facts of this case, and concluded that
since paragraph 8 of the two lease contracts does not state a fixed price for the
purchase of the leased premises, which is an essential element for a contract of
sale to be perfected, what paragraph 8 is, must be a right of first refusal and not
an option contract. It explicated:
"Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second
paragraph, of the Civil Code.

Article 1324 speaks of an ‘offer’ made by an offeror which the offeree may or may not accept
within a certain period. Under this article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet accepted the offer. However, the offer
cannot be withdrawn by the offeror within the period if a consideration has been promised or
given by the offeree in exchange for the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price which is part of the offer. The
contract that arises is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the
Supreme Court, citing Bouvier, defined an option as follows: ‘A contract by virtue of which A,
in consideration of the payment of a certain sum to B, acquires the privilege of buying from or
selling to B, certain securities or properties within a limited time at a specified price.’ (pp. 686-
7).

Article 1479, second paragraph, on the other hand, contemplates of an ‘accepted unilateral
promise to buy or to sell a determinate thing for a price within (which) is binding upon the
promisee if the promise is supported by a consideration distinct from the price.’ That ‘unilateral
promise to buy or to sell a determinate thing for a price certain’ is called an offer. An ‘offer’, in
law, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute
a legal offer, the proposal must be certain as to the object, the price and other essential terms of
the contract (Art. 1319, Civil Code).

Based on the foregoing discussion, it is evident that the provision granting Mayfair ‘30-days
exclusive option to purchase’ the leased premises is NOT AN OPTION in the context of
Arts. 1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain
as to the object (the sale of the leased premises) the price for which the object is to be sold is not
stated in the provision. Otherwise stated, the questioned stipulation is not, by itself, an ‘option’
or the ‘offer to sell’ because the clause does not specify the price for the subject property.

Although the provision giving Mayfair ‘30-days exclusive option to purchase’ cannot be
legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the
trial court failed to appreciate was the intention of the parties behind the questioned proviso.

xxx xxx xxx

The provision in question is not of the pro-forma type customarily found in a contract of lease.
Even appellees have recognized that the stipulation was incorporated in the two Contracts of
Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit
and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of the
lease, to sell the leased property. This intention of the parties is achieved in two ways in
accordance with the stipulation. The first is by giving Mayfair ‘30-days exclusive option to
purchase’ the leased property. The second is, in case Mayfair would opt not to purchase the
leased property, ‘that the purchaser (the new owner of the leased property) shall recognize the
lease and be bound by all the terms and conditions thereof.’

In other words, paragraph 8 of the two Contracts of Lease, particularly the stipulation giving
Mayfair ‘30-days exclusive option to purchase the (leased premises),’ was meant to provide
Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo
should decide to dispose of the property. In order to realize this intention, the implicit obligation
of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of
such decision to sell the property, but, more importantly, to make an offer to sell the leased
premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the
offer, before offering to sell or selling the leased property to third parties. The right vested in
Mayfair is analogous to the right of first refusal, which means that Carmelo should have
offered the sale of the leased premises to Mayfair before offering it to other parties, or, if
Carmelo should receive any offer from third parties to purchase the leased premises, then
Carmelo must first give Mayfair the opportunity to match that offer.

In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he
made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:

‘Q. Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by
telephone?

A. I have an offer from another party to buy the property and having the offer we decided to
make an offer to Henry Yang on a first-refusal basis.’ (TSN, November 8, 1983, p. 12.).

and on cross-examination:

‘Q. When you called Mr. Yang on August 1974 can you remember exactly what you have
told him in connection with that matter, Mr. Pascal?

A. More or less, I told him that I received an offer from another party to buy the property
and I was offering him first choice of the entire property.’ (TSN, November 29, 1983, p. 18).

We rule, therefore, that the foregoing interpretation best renders effectual the intention of the
parties."[9]
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to
which the requirement of distinct consideration indispensable in an option
contract, has no application, respondent appellate court also addressed the claim
of Carmelo and Equatorial that assuming arguendo that the option is valid and
effective, it is impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while Carmelo’s offer to
sell pertained to the entire property in question. The Court of Appeals ruled as
to this issue in this wise:
"We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the
Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto
property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571.
Based on the information submitted by Mayfair in its appellant’s Brief (pp. 5 and 46) which
has not been controverted by the appellees, and which We, therefore, take judicial notice of the
two theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10
sq. m. and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate
parcels of land covering the whole Recto property demonstrates the legal and physical possibility
that each parcel of land, together with the buildings and improvements thereon, could have been
sold independently of the other parcels.

At the time both parties executed the contracts, they were aware of the physical and structural
conditions of the buildings on which the theaters were to be constructed in relation to the
remainder of the whole Recto property. The peculiar language of the stipulation would tend to
limit Mayfair’s right under paragraph 8 of the Contract of Lease to the acquisition of the
leased areas only. Indeed, what is being contemplated by the questioned stipulation is a
departure from the customary situation wherein the buildings and improvements are included in
and form part of the sale of the subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the buildings, the sale would be valid and
capable of being performed. A sale limited to the leased premises only, if hypothetically
assumed, would have brought into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased premises and at the same time a
co-owner with Carmelo of the subjacent land in proportion to Mayfair’s interest over the
premises sold to it."[10]
Carmelo and Equatorial now comes before us questioning the correctness and
legal basis for the decision of respondent Court of Appeals on the basis of the
following assigned errors:
"I

THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING

THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO
THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF
LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN
OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH
OPTION IN THEIR STIPULATION OF FACTS.
 II

WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT

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

III

THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT

DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE
ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT
WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.

IV

THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES

IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED
THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL
HERRERA, TO RESOLVE ALL THE MOTIONS IN THE ‘COMPLETION
PROCESS’ AND TO STILL RESOLVE THE MERITS OF THE CASE IN
THE ‘DECISION STAGE’."[11]
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it to say
that in our Resolution,[12] dated December 9, 1992, we already took note of this
matter and set out the proper applicable procedure to be the following:
"On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a
letter-complaint to this Court alleging certain irregularities and infractions committed by certain
lawyers, and Justices of the Court of Appeals and of this Court in connection with case CA-
G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of the judiciary. While the letter-
complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063),
the disposition thereof should be separate and independent from Case G.R. No. 106063.
However, for purposes of receiving the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have control of the case. Upon
completion thereof, the same shall be referred to the Court En Banc for proper disposition."[13]
This court having ruled the procedural irregularities raised in the fourth assigned
error of Carmelo and Equatorial, to be an independent and separate subject for
an administrative complaint based on misconduct by the lawyers and justices
implicated therein, it is the correct, prudent and consistent course of action not
to pre-empt the administrative proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this case would entail a
finding on the merits as to the real nature of the questioned procedures and the
true intentions and motives of the players therein.

In essence, our task is two-fold: (1) to define the true nature, scope and efficacy
of paragraph 8 stipulated in the two contracts of lease between Carmelo and
Mayfair in the face of conflicting findings by the trial court and the Court of
Appeals; and (2) to determine the rights and obligations of Carmelo and
Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the
entire Claro M. Recto property to Equatorial.

Both contracts of lease in question provide the identically worded paragraph 8,

which reads:
"That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given
30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the
Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms
and conditions thereof."[14]
We agree with the respondent Court of Appeals that the aforecited contractual
stipulation provides for a right of first refusal in favor of Mayfair. It is not an
option clause or an option contract. It is a contract of a right of first refusal.

As early as 1916, in the case of Beaumont vs. Prieto,[15] unequivocal was our
characterization of an option contract as one necessarily involving the choice
granted to another for a distinct and separate consideration as to whether or not
to purchase a determinate thing at a predetermined fixed price.
"It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December
4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff
Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the
period of three months and for its assessed valuation, a grant which necessarily implied the offer
or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the
period and for the price mentioned, x x x. There was, therefore, a meeting of minds on the part
of the one and the other, with regard to the stipulations made in the said document. But it is
not shown that there was any cause or consideration for that agreement, and this omission is a
bar which precludes our holding that the stipulations contained in Exhibit E is a contract of
option, for, x x x there can be no contract without the requisite, among others, of the cause for
the obligation to be established.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
following language:

‘A contract by virtue of which A, in consideration of the payment of a certain sum to B,

acquires the privilege of buying from, or selling to B, certain securities or properties within a
limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.)’

From vol. 6, page 5001, of the work ‘Words and Phrases,’ citing the case of Ide vs. Leiser
(24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:

‘An agreement in writing to give a person the option to purchase lands within a given time at a
named price is neither a sale nor an agreement to sell. It is simply a contract by which the
owner of property agrees with another person that he shall have the right to buy his property at
a fixed price within a certain time. He does not sell his land; he does not then agree to sell it;
but he does sell something; that is, the right or privilege to buy at the election or option of the
other party. The second party gets in praesenti, not lands, nor an agreement that he shall have
lands, but he does get something of value; that is, the right to call for and receive lands if he
elects. The owner parts with his right to sell his lands, except to the second party, for a limited
period. The second party receives this right, or, rather, from his point of view, he receives the
right to elect to buy.’

But the two definitions above cited refer to the contract of option, or, what amounts to the same
thing, to the case where there was cause or consideration for the obligation, the subject of the
agreement made by the parties; while in the case at bar there was no such cause or
consideration."[16] (Underscoring ours.)
The rule so early established in this jurisdiction is that the deed of option or the
option clause in a contract, in order to be valid and enforceable, must, among
other things, indicate the definite price at which the person granting the option,
is willing to sell.

Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the purchase
within the time specified;[17] in one other case we freed the landowner from her
promise to sell her land if the prospective buyer could raise P4,500.00 in three
weeks because such option was not supported by a distinct consideration;[18] in
the same vein in yet one other case, we also invalidated an instrument entitled,
"Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack
of consideration;[19] and as an exception to the doctrine enumerated in the two
preceding cases, in another case, we ruled that the option to buy the leased
premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of
each party is the consideration for that of the other.[20] In all these cases, the
selling price of the object thereof is always predetermined and specified in the
option clause in the contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals[21]that:
"x x x. In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees. Article
1458 of the Civil Code provides:

‘Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.’

When the sale is not absolute but conditional, such as in a ‘Contract to Sell’
where invariably the ownership of the thing sold is retained until the fulfillment
of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force. x x x.
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.

An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:

‘ART. 1479. x x x.

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 (1451a).’

Observe, however, that the option is not the contract of sale itself. The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with
their respective undertakings.

Let us elucidate a little. A negotiation is formally initiated by an offer. An

imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to
the offeree within which to accept the offer, the following rules generally
govern:

(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror’s coming to know of
such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil
Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule
is applicable to a unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc. vs. Remolado, 135
SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however,
must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil Code which ordains that ‘every
person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.’

(2) If the period has a separate consideration, a contract of ‘option’ is deemed

perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter
of the option) which is obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the
proposed contract (‘object’ of the option) since it has failed to reach its own
stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. x x x."
In the light of the foregoing disquisition and in view of the wording of the
questioned provision in the two lease contracts involved in the instant case, we
so hold that no option to purchase in contemplation of the second paragraph of
Article 1479 of the Civil Code, has been granted to Mayfair under the said lease
contracts.

Respondent Court of Appeals correctly ruled that the said paragraph 8 grants
the right of first refusal to Mayfair and is not an option contract. It also correctly
reasoned that as such, the requirement of a separate consideration for the
option, has no applicability in the instant case.

There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March
31, 1969 contracts which would bring them into the ambit of the usual offer or
option requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time

and at a determined price. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration.[22] In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the
reciprocal obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the

contracts is governed by Article 1324 on withdrawal of the offer or Article 1479
on promise to buy and sell would render ineffectual or "inutile" the provisions
on right of first refusal so commonly inserted in leases of real estate nowadays.
The Court of Appeals is correct in stating that Paragraph 8 was incorporated
into the contracts of lease for the benefit of Mayfair which wanted to be assured
that it shall be given the first crack or the first option to buy the property at the
price which Carmelo is willing to accept. It is not also correct to say that there is
no consideration in an agreement of right of first refusal. The stipulation is part
and parcel of the entire contract of lease. The consideration for the lease
includes the consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price and to buy
the property at that price. As stated in Vda. De Quirino vs. Palarca,[23] in
reciprocal contract, the obligation or promise of each party is the consideration
for that of the other.

The respondent Court of Appeals was correct in ascertaining the true nature of
the aforecited paragraph 8 to be that of a contractual grant of the right of first
refusal to Mayfair.

We shall now determine the consequential rights, obligations and liabilities of

Carmelo, Mayfair and Equatorial.

The different facts and circumstances in this case call for an amplification of the
precedent in Ang Yu Asuncion vs. Court of Appeals.[24]

First and foremost is that the petitioners acted in bad faith to render Paragraph
8 "inutile."

What Carmelo and Mayfair agreed to, by executing the two lease contracts, was
that Mayfair will have the right of first refusal in the event Carmelo sells the
leased premises. It is undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to sell the said property in
1974. There was an exchange of letters evidencing the offer and counter-offers
made by both parties. Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo
violated such right when without affording its negotiations with Mayfair the full
process to ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option" time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and
then sold, without prior notice to Mayfair, the entire Claro M. Recto property to
Equatorial.

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question rescissible. We agree with respondent Appellate Court that
the records bear out the fact that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
"x x x Contract of Sale was not voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the subject property to
the petitioner without recognizing their right of first priority under the Contract
of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting

parties and even to third persons, to secure reparation for damages caused to
them by a contract, even if this should be valid, by means of the restoration of
things to their condition at the moment prior to the celebration of said contract.
It is a relief allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause, or to protect
some incompatible and preferent right created by the contract. Rescission
implies a contract which, even if initially valid, produces a lesion or pecuniary
damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that such
third person is in lawful possession of the subject of the contract and that he did
not act in bad faith. However, this rule is not applicable in the case before us
because the petitioner is not considered a third party in relation to the Contract
of Sale nor may its possession of the subject property be regarded as acquired
lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was aware of the lease in favor of
the Bonnevies, who were actually occupying the subject property at the time it
was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person in the property.
Good faith connotes an honest intention to abstain from taking unconscientious
advantage of another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by
the Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice its
own interests.

The petitioner insists that it was not aware of the right of first priority granted
by the Contract of Lease. Assuming this to be true, we nevertheless agree with
the observation of the respondent court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,

which includes Par. 20 on priority right given to the Bonnevies, it had only itself
to blame. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required Reynoso or the broker to
show to it the Contract of Lease in which Par. 20 is contained."[25]
Petitioners assert the alleged impossibility of performance because the entire
property is indivisible property. It was petitioner Carmelo which fixed the limits
of the property it was leasing out. Common sense and fairness dictate that
instead of nullifying the agreement on that basis, the stipulation should be given
effect by including the indivisible appurtenances in the sale of the dominant
portion under the right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the landowner should be
given effect, if possible, instead of being nullified on a selfish pretext posited by
the owner. Following the arguments of petitioners and the participation of the
owner in the attempt to strip Mayfair of its rights, the right of first refusal
should include not only the property specified in the contracts of lease but also
the appurtenant portions sold to Equatorial which are claimed by petitioners to
be indivisible. Carmelo acted in bad faith when it sold the entire property to
Equatorial without informing Mayfair, a clear violation of Mayfair’s rights. While
there was a series of exchanges of letters evidencing the offer and counter-offers
between the parties, Carmelo abandoned the negotiations without giving
Mayfair full opportunity to negotiate within the 30-day period.

Accordingly, even as it recognizes the right of first refusal, this Court should
also order that Mayfair be authorized to exercise its right of first refusal under
the contract to include the entirety of the indivisible property. The boundaries
of the property sold should be the boundaries of the offer under the right of
first refusal. As to the remedy to enforce Mayfair’s right, the Court disagrees to a
certain extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals
should be modified, if not amplified under the peculiar facts of this case.

As also earlier emphasized, the contract of sale between Equatorial and Carmelo
is characterized by bad faith, since it was knowingly entered into in violation of
the rights of and to the prejudice of Mayfair. In fact, as correctly observed by
the Court of Appeals, Equatorial admitted that its lawyers had studied the
contract of lease prior to the sale. Equatorial’s knowledge of the stipulations
therein should have cautioned it to look further into the agreement to determine
if it involved stipulations that would prejudice its own interests.

Since Mayfair has a right of first refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded. All of these matters are now before
us and so there should be no piecemeal determination of this case and leave
festering sores to deteriorate into endless litigation. The facts of the case and
considerations of justice and equity require that we order rescission here and
now. Rescission is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by the contract.[26]
The sale of the subject real property by Carmelo to Equatorial should now be
rescinded considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property to
Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period.[27]

This Court has always been against multiplicity of suits where all remedies
according to the facts and the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the price at which Mayfair could
have purchased the property is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which Mayfair suffered are in terms of
actual injury and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it was entitled to
accept or reject which is P11,300,000.00. This is clear from the records.

To follow an alternative solution that Carmelo and Mayfair may resume

negotiations for the sale to the latter of the disputed property would be unjust
and unkind to Mayfair because it is once more compelled to litigate to enforce
its right. It is not proper to give it an empty or vacuous victory in this case.
From the viewpoint of Carmelo, it is like asking a fish if it would accept the
choice of being thrown back into the river. Why should Carmelo be rewarded
for and allowed to profit from, its wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for P11,300,000.00, why should it
be given another chance to sell it at an increased price?

Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated
that there was nothing to execute because a contract over the right of first
refusal belongs to a class of preparatory juridical relations governed not by the
law on contracts but by the codal provisions on human relations. This may
apply here if the contract is limited to the buying and selling of the real property.
However, the obligation of Carmelo to first offer the property to Mayfair is
embodied in a contract. It is Paragraph 8 on the right of first refusal which
created the obligation. It should be enforced according to the law on contracts
instead of the panoramic and indefinite rule on human relations. The latter
remedy encourages multiplicity of suits. There is something to execute and that
is for Carmelo to comply with its obligation to the property under the right of
the first refusal according to the terms at which they should have been offered
then to Mayfair, at the price when that offer should have been made. Also,
Mayfair has to accept the offer. This juridical relation is not amorphous nor is it
merely preparatory. Paragraphs 8 of the two leases can be executed according to
their terms.

On the question of interest payments on the principal amount of

P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial
acted in bad faith. Carmelo knowingly and deliberately broke a contract entered
into with Mayfair. It sold the property to Equatorial with purpose and intend to
withhold any notice or knowledge of the sale coming to the attention of
Mayfair. All the circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.

On the part of Equatorial, it cannot be a buyer in good faith because it bought

the property with notice and full knowledge that Mayfair had a right to or
interest in the property superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair.

Neither may Carmelo and Equatorial avail of considerations based on equity

which might warrant the grant of interests. The vendor received as payment
from the vendee what, at the time, was a full and fair price for the property. It
has used the P11,300,000.00 all these years earning income or interest from the
amount. Equatorial, on the other hand, has received rents and otherwise
profited from the use of the property turned over to it by Carmelo. In fact,
during all the years that this controversy was being litigated, Mayfair paid rentals
regularly to the buyer who had an inferior right to purchase the property.
Mayfair is under no obligation to pay any interests arising from this judgment to
either Carmelo or Equatorial.

WHEREFORE, the petition for review of the decision of the Court of

Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter is directed to
execute the deeds and documents necessary to return ownership to Carmelo &
Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow
Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.

SO ORDERED.

Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza, and Francisco, JJ.,
concur.
Narvasa, C.J., No part: related to interested party.
Padilla, J., See separate opinion.
Romero, J., Please see Concurring and Dissenting opinion.
Vitug, J., Pls. see dissenting opinion.
Panganiban, J., Please see Separate Concurring Opinion.
Torres, Jr., J., joins Justice Jose Vitug in his dissent.
 SECOND DIVISION
G.R. No. 134117, February 09, 2000
SEN PO EK MARKETING CORPORATION, PETITIONER, VS. TEODORA
PRICE MARTINEZ, JUANITO TIU UYPING, JR., NELSON TIU UYPING
LEONCIO TIU UYPING, RESPONDENTS.

DECISION

DE LEON, JR., J.:

Before us is a petition for review on certiorari assailing the Decision[1] and

Resolution[2] dated October 13, 1997 and May 18, 1998, respectively, of the
Court of Appeals[3] which reversed and set aside the Decision[4] of the Regional
Trial Court (RTC) of Palo, Leyte, Branch 8, rescinding the Deed of Absolute
Sale over two (2) parcels of land executed by private respondent Teodora P.
Martinez in favor of private respondent brothers Juanito, Nelson and Leoncio,
all surnamed Tiu Uyping and declaring that petitioner Sen Po Ek Marketing
Corporation (hereafter Sen Po Ek) has the first preference to buy said land.

The pertinent facts are:

Sofia P. Martinez was the registered owner of two (2) parcels of land, known as
Lot Nos. 50 and 106 of the Tacloban City Cadastre, located at No. 84 Justice
Romualdez St., formerly Gran Capitan, Tacloban City. The said parcels of land
are covered and described by Transfer Certificate of Title (TCT) No. 2915.[5]

On October 25, 1961, Sofia leased the lots to Yu Siong, father of the president
and stockholders of petitioner Sen Po Ek for a period of ten (10) years.[6] The
lease contract required the lessee to construct a commercial building on the
leased property which shall become the property of Sofia upon the expiration of
the lease. The building which was constructed sometime in 1963 was declared,
for taxation purposes, in the name of petitioner Sen Po Ek under Tax
Declaration No. 19487.

On October 25, 1971, the contract of lease expired.

On September 20, 1973, the lease contract[7] was renewed between Sofia and Yu
Siong’s wife, Lim Hua, who succeeded him, as lessee, upon his death. Said
contract explicitly states that "as of October 1, 1973, the lessor shall be the
absolute owner of a building located at Lot Nos. 50 and 106 of the Tacloban
Cadastre."[8] The lease underwent several renewals. The last written contract of
lease was executed on March 24, 1982 for a term of five (5) years expiring on
January 1, 1987.[9]

Meantime, Sofia sold the lots and the building to her daughter, private
respondent Teodora P. Martinez. The deed of sale was executed sometime in
1979 but was notarized only on November 5, 1985.[10]

After the lease contract expired in January 1987, it was no longer renewed by the
parties. Petitioner Sen Po Ek, however, continued to possess and occupy the
leased properties, and regularly paid the monthly rentals to Sofia until her death
in August 1989. After the latter’s death, the rentals were paid to the heirs of
Sofia through private respondent Teodora P. Martinez.

On November 11, 1989, Teodora sent a letter to petitioner Sen Po Ek

informing it of her intention to sell the leased premises and authorizing Mrs.
Remedios Petilla to negotiate the sale "with any and all interested parties."[11]
The letter reads, viz.:
"Quezon City
November 11, 1989

SIN [sic] PO EK COMMERCIAL

Tacloban City

Gentlemen:

Please take notice that we are selling the two (2) lots, including the building
hereon, covered by Transfer Certificate of Title No. T-2915, with a total area of
Three Hundred Thirteen (313) square meters, situated at Tacloban City and
presently occupied by your establishment.

Please contact Mrs. REMEDIOS L. PETILLA who is authorized to negotiate

the sale with any and all interested parties.
 Cordially yours,
(sgd.) TEODORA P. MARTINEZ"
But petitioner Sen Po Ek received the letter only on December 12, 1989.[12] It
sought to purchase the properties at six thousand pesos (P6,000.00) per square
meter, and the Yu Siongs were able to contact private respondent Teodora P.
Martinez who advised them to formalize the offer of petitioner Sen Po Ek in
writing. This was done in a letter dated December 27, 1989 by Consorcio Yu
Siong.[13]

Meantime, sometime in December 1989, private respondent Juanito Tiu Uyping,

Jr. was informed by a certain Mr. Militante that the subject leased premises were
for sale and that the sale was being brokered by Mrs. Remedios Petilla.[14]
Juanito contacted his two (2) other brothers, and together, they went to the
office of Governor Leopoldo Petilla, the husband of Remedios Petilla, and
inquired about the property.[15]

On January 9, 1990, petitioner Sen Po Ek filed a verified complaint against

Teodora in the RTC of Palo, Leyte, for the annulment of the Deed of Sale
executed by her mother, Sofia, in her favor and notarized on November 5, 1985.
Petitioner invoked its alleged right of first refusal or preferential right to buy the
leased premises based on Republic Act (R.A.) No. 1162,[16] as amended, in
relation to Presidential Decree (P.D.) No. 1517.[17]

On January 12, 1990, Teodora sold the property to the respondent Tiu Uyping
brothers.[18] As a result, TCT No. T-32239[19] was issued in the names of Juanito
Tiu Uyping, Nelson Tiu Uyping and Leoncio Tiu Uyping. On March 5, 1990, an
amended complaint[20] was filed to include the respondents Tiu Uyping brothers
and also praying for the nullity of the second sale transaction.

On February 27, 1992, the trial court rendered a decision in favor of petitioner
Sen Po Ek, the dispositive portion of which reads, viz.:
"WHEREFORE, upon the preponderance of evidence this Court renders
judgment in favor of the plaintiffs [sic] SEN PO EK MARKETING
CORPORATION represented by Consorcio Yusiong, and against the
defendants –

1. Declaring, as ordering the rescission of the Deed of Absolute

Sale executed by defendant Teodora P. Martinez on 12
 January 1990 in favor of the brother defendants Juanito Tiu
Uyping Jr., Nelson Tiu Uyping and Leoncio Tiu Uyping,
Exhibit ‘2’;

2. Declaring that the plaintiffs [sic] have a first preference to

buy Lot Nos. 50 and 106 of the Tacloban Cadastre as well as
the building erected thereon as of December, 1989, hence,
commanding defendant Teodora P. Martinez and her
brothers and sisters to sell the aforementioned properties to
the plaintiff corporation at the price of Six Thousand
(P6,000.00) Pesos per square meter as offered in the letter
dated 11 November 1989 and as appearing to have been
quoted by Teodora P. Martinez’ agent, Mrs. Remedios L.
Petilla;

3. Ordering the defendant Teodora P. Martinez to return to his

[sic] co-defendants Tiu Uyping brothers the sum of EIGHT
HUNDRED THOUSAND (P800,000.00) Pesos, appearing
to be the total selling price of the property in question;

4. Ordering defendant Teodora P. Martinez to pay the plaintiff

corporation the sum of TEN THOUSAND PESOS
(P10,000.00) in the concept of attorney’s fees and THREE
THOUSAND PESOS (P 3,000.00) in that of litigation
expenses.

Costs of this suit jointly and severally against all defendants.

SO ORDERED."[21]
Private respondents appealed from the said decision to the Court of Appeals.

On October 13, 1997, the Court of Appeals rendered a decision reversing the
trial court. It held:
"It is noteworthy that although the CORPORATION included the sale by Sofia
of the subject property to her daughter, Teodora, as one of the deeds it prayed
to be declared void or annulled the trial court did not nullify the deed. It,
therefore, remains valid and binding. And, indeed, the trial court could not have
granted what was prayed for, notwithstanding the late notarization of the deed
and its other perceived defects, not only because neither Sofia nor her heirs
complained, and on the contrary, the said heirs acknowledged its validity, but
more importantly, a contract is valid in whatever form it may have been entered
into unless form is essential for its validity, which is not so in this case. The
Corporation’s protestation that the sale is invalid since it was not informed of it,
has no basis in law.

"Being the owner of the property in suit, Teodora had the right to exercise all
the attributes of ownership, to wit: jus possidendi, jus utendi, jus fruendi, jus abutendi,
jus disponendi and jus vindicandi. With respect to jus disponendi, she may dispose
of the property to whomsoever and in whatsoever manner and for whatever
consideration she wishes, although at a loss or even for free and no one can
complain, except as may otherwise be provided by law, like the limitations on
donation and in the case of sale, the right of pre-emption of an adjoining owner
and the right of first refusal under the Urban Land Reform Law (P.D. No. 1517)
when the area is proclaimed as an urban land reform zone.

"In the case on hand, the appellee Corporation is neither an adjoining owner of
the property in suit nor a qualified tenant of a residential land in a duly
proclaimed urban land reform zone, there being no proof of such proclamation
in Tacloban City. Its claim to first priority to buy the disputed property is merely
derived from the following postulation:
`We believe that in this particular case, plaintiff-appellee should be accorded the
first priority to buy the questioned properties, being its actual possessor and
occupant. Even under equal circumstances, plaintiff-appellee should have been
given the preference to purchase the property over third persons. More so, in
this case for the plaintiff-appellee accepted the offer to buy for an amount more
than double the price for which defendants-appellant Uyping brothers paid the
same properties for.’
"The claim is, however, utterly bereft of any foundation in law. It is noteworthy
that the Corporation does not cite any specific piece of legislation or even any
decisional law that is supportive of its stance. This is simply because there is
none. Deserving of some examination, if at all, is only the last part of the
Corporation’s formulation, to wit: that it accepted Teodora’s offer to sell.

"Teodora, however, made no offer to sell the property, much less to the
Corporation in particular. She merely gave notice to the Corporation of her
intention to sell. x x x x x x x x x
"Clearly, no offer to sell was made. If ever there was any semblance of an offer,
it was merely for the Corporation to contact Mrs. Remedios Petilla who was
authorized to negotiate the sale `with any and all interested parties.’ But the
Corporation did not promptly react. On the contrary, the Uypings, upon
learning somehow that the property was up for sale, were the ones who
immediately made inquiries from Governor Leopoldo Petilla, the husband of
Remedios, and, thereupon, made an offer to buy. Still, to be considerate to the
Corporation, which was a long-time lessee of the property, the Governor called
up its representative, Alfredo Yu Siong, to find out if they were interested in
buying the property but after mulling over the matter for sometime, Alfredo
informed the Governor that they were not interested. So, on December 23,
1989, Teodora accepted the offer of the Uypings and executed in their favor the
Option to Purchase after the latter had paid her one-half of the agreed purchase
price of P800,000.00. Then on January 12, 1990, upon payment of the balance
of P400,000.00, she executed the corresponding deed of absolute sale.

"The Corporation discredits the testimony of Governor Petilla in this regard

and, not without malediction asks, `Is it because Gov. Petilla is a lawyer, and
consequently is more eloquent in narrating defendants-appellants distorted
version of the facts?’ For being a lawyer and, hence, an officer of the court, we
readily give full faith and credence to the testimony of Governor Petilla as
against Alfredo Yu Siong’s whom we found to be lying through his teeth for, in
his testimony on April 26, 1991, he declared that upon receiving Teodora’s
notice of intention to sell, he and his brother, Consorico Yu Siong, went to see
Mrs. Petilla at Palo, Leyte, because they know that the Petillas reside there.

"x x x x x x x x x

"But on December 6, 1991, in rebutting Governor Petilla’s testimony, he

perjuriously executed a turn about and declared that he did not go to the
Governor’s residence in Palo as he did not know that they reside there.

"x x x x x x x x x

"In any event, even if Teodora’s letter of November 11, 1989, were construed as
an offer or promise to sell the property to the Corporation, the latter did not
thereby acquire any enforceable or actionable right for the simple reason that
the letter did not quote any price and is, therefore, not the offer contemplated
by law. In this regard, Article 1479 of the Civil Code provides:

`Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
`An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.’
"Thus, although the Yu Siong brothers and sisters, who own the Corporation,
allegedly decided among themselves to buy the property upon receipt of
Teodora’s letter on December 12, 1989, still Consorcio and Alfredo Yu Siong
had to seek out Mrs. Remedios Petilla, about three (3) to four (4) days
thereafter, to find out the selling price.

"x x x x x x x x x

"But Consorcio and Alfredo Yu Siong could not make any decision on the price
without first consulting their brothers and sisters. After the consultation, they
sent Alfredo to Manila to see Teodora, who was residing there, to clarify if she
was really selling the property.

"x x x x x x x x x

"Alfredo allegedly met with Teodora on December 26, 1989, who told him to
reduce into writing their offer to buy.

"x x x x x x x x x

"On December 27, 1989, Consorcio Yu Siong wrote their letter of acceptance
and on December 28, sent it by registered mail to Teodora in Quezon City with
a copy furnished Remedios Petilla in Palo, Leyte. Teodora received the letter on
January 12, 1990 while Remedios got her copy on January 2, 1990.

"But the letter of acceptance was too late since, as aforestated, on December 23,
1989, Teodora already executed an option to purchase in favor of the Uypings
upon her receipt of their initial payment of P400,000.00. It bears stressing in this
connection that Teodora’s notice of intention to sell became an offer to sell to
the Corporation only on December 15 or 16, 1989, (three or four days after it
received the notice on December 12, 1989) when Mrs. Remedios Petilla quoted
the price of P6,000.00 per square meter to Consorcio and Alfredo Yu Siong.
However, the latter did not then signify their acceptance and, instead, according
to Consorcio himself, they took their time to make up their minds. In the
interim, Teodora committed to sell to the Uypings on December 23, 1989. At
that point in time, there could not have been any perfected contract between
Teodora and the Corporation since there was no meeting of the minds between
them on the consideration. As Article 1475 of the Civil Code provides:
`Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.’
"At most, there was only an offer or promise to sell which was not binding on
Teodora as it was not then accepted, and even if accepted, the acceptance was
not supported by a consideration distinct from the promise. Teodora was,
therefore, at complete liberty to convey the property to the Uypings.

"And when Alfredo Yu Siong went to see her on December 26, 1989, pleading
that they be allowed to buy the property, she refused, telling him that she had
already committed it to other people. Thus, she was surprised to receive in
January 1990, a letter from the Corporation offering to buy the property for
P6,000.00 per square meter.

"Understandably, Alfredo Yu Siong gave the lie to Teodora’s testimony.

xxx xxx xxx

"He even went further to flatly contradict and make a liar out of his own
brother, Consorcio Yu Siong, by asserting that in their meeting with Mrs.
Remedios Petilla on December 15 or 16, 1989, they already agreed on the
latter’s price quotation of P6,000.00 per square meter.

xxx xxx xxx

"Alfredo Yu Siong, however, is hopelessly wanting in credibility. As we pointed

out earlier, he caught himself in irretrievable inconsistency in his attempt to
discredit Governor Petilla. Now, he can not even spare his own brother from
his penchant for prevarication for the sake of advancing their cause.

"From our viewpoint, the Corporation, upon the instigation of Alfredo Yu

Siong, conceived of the plot of belatedly offering to buy the property in suit at
P6,000.00 per square meter, or the total price of P1,878,000.00 in order to make
the accepted offer of the Uypings in the amount of P800,000.00 appear a
pittance, in a calculated move to start a lawsuit and thereby prolong their stay on
the premises. So far, they have succeeded. But to us, it is downright unthinkable
that Teodora could have agreed to back out from her commitment to the
Uypings. That is too foolhardy an adventure to go into and too farfetched to
merit belief.

"To repeat, under the facts, no contractual or juridical relation whatsoever has
been established between Teodora and the Corporation as seller and buyer,
respectively, of the property in dispute. Even the trial court conspicuously failed
to point out any. Nonetheless, it inscrutably ordered the `rescission’ of the deed
of absolute sale between Teodora and the Uypings, and `commanded’ Teodora
and her brothers and sisters to sell the property to the Corporation on the basis
of Article 19 of the Civil Code.

xxx xxx xxx

"We are at a loss as to why the court below decreed the rescission of the deed of
sale between Teodora and the Uypings when the Corporation prayed for the
declaration of its nullity and/or annulment. There is a whale of a difference
between rescission and declaration of nullity or annulment of contracts. The
grounds for the first are those enumerated in Article 1381 of the Civil Code
while those for the second are found in Article 1409 while the grounds for
annulment are stated in Article 1390. In any case violation of Article 19 of the
same Code is not a ground for rescission, declaration of nullity or annulment.
The appealed judgment has, therefore, no leg both in fact and in law to stand
on."[22]
The dispositive portion of the foregoing decision reads, thus:
"WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and
another is rendered DISMISSING the complaint of plaintiff-appellee
CORPORATION, with costs against the latter."[23]
Petitioner Sen Po Ek moved for reconsideration of the decision of the Court of
Appeals, but the latter denied the motion.[24]

Hence, this petition.

Petitioner Sen Po Ek raises the following issues:
"I

WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED IN A

WAY NOT IN ACCORD WITH LAW AND JURISPRUDENCE,
DISREGARDING CLEAR EVIDENCE ON RECORD, WHEN IT HELD
THAT THE SALE OF THE PROPERTY IN QUESTION BY THE LATE
SOFIA MARTINEZ TO HER DAUGHTER TEODORA WAS VALID,
AND NOT VOID AS FOUND BY THE TRIAL COURT.

"II

WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED

ARBITRARILY AND CAPRICIOUSLY, IN A WAY NOT IN ACCORD
WITH JUSTICE AND EQUITY, WHEN IT HELD THAT THE
PETITIONER HAS NO LEGAL AND EQUITABLE RIGHT TO
PURCHASE THE PROPERTY IN QUESTION, AS AGAINST THE TIU
UYPINGS.

"III

WHETHER OR NOT THE COURT OF APPEALS HAS DECIDED

ARBITRARILY AND CAPRICIOUSLY IN A WAY NOT IN ACCORD
WITH LAW AND JURISPRUDENCE, IN UPHOLDING THE VALIDITY
OF THE DEED OF SALE BETWEEN TEODORA AND THE TIU
UYPINGS.

"IV

WHETHER OR NOT THE COURT OF APPEALS HAS ACTED

ARBITRARILY AND CAPRICIOUSLY IN GIVING TOO MUCH
WEIGHT TO THE TESTIMONY OF RESPONDENTS’ WITNESS
LEOPOLD PETILLA AND DISCREDITING THAT OF PETITIONER’S
ALFREDO YU SIONG, CONSIDERING THAT THE FORMER DID NOT
EVEN HAD [sic] THE LEGAL AUTHORITY TO SELL OR NEGOTIATE
THE SALE OF THE PROPERTY IN QUESTION."[25]
We deny the petition.

First. Private respondent Teodora P. Martinez had the right, as lawful owner of
the leased premises, to sell the same to private respondent Tiu Uyping brothers.

The first sale between mother and daughter, Sofia and Teodora, was void for
being fictitious. Under Art. 1409 (2) of the New Civil Code, one type of contract
which can be declared void and inexistent is that which is absolutely simulated
or fictitious, and this was established by several badges of simulation proving
that the sale between Sofia and Teodora was not intended to have any legal
effect between them.[26]

Immediately suspect is the Contract of Sale itself which was executed sometime
in 1979 but was notarized only on November 5, 1985, six (6) years later. Said
sale all the more inspires doubt when upon close reading of the lease contracts
executed thereafter, Teodora signed not as owner but merely as an instrumental
witness.

If Teodora was really the owner of the leased premises as transferee-vendee

under the 1979 Deed of Sale, she should have signed in that capacity and not in
any other. Moreover, this clearly indicates that Sofia retained enjoyment and
control of the leased premises as lessor-owner thereof so much so that Teodora
never asserted her alleged right of ownership over the leased premises. Indeed
the most protuberant index of simulation is the absence of an attempt in any
manner in the past of the alleged vendee-owner to exercise his rights as such
over the subject property.[27]

Finally, Sofia continued receiving the rentals until her demise in August 1989.
This was admitted by Teodora herself during the trial:
Q – So, the rentals were actually intended and received by Sofia P. Martinez?

A – Yes, sir.

Q – And it was at this happening that Sofia Martinez have been receiving the
rentals in the year 1979 when you were already allegedly the owner up to her
death in August, 1989? Is that correct?

A – Yes, sir, it was Sofia Martinez.[28]

The combination of all of these events leads one to the inescapable conclusion
that the first sale transaction was absolutely simulated, hence void.

Nonetheless, the sale between private respondents Teodora P. Martinez and the
Tiu Uyping brothers, is valid.

Teodora, as only one of the co-heirs of Sofia, had no authority to sell the entire
lot to the Tiu Uyping brothers. She can only sell her undivided portion of the
property. Thus, when she sold the leased premises to private respondent
brothers Tiu Uyping, the sale is unenforceable having been entered into by
Teodora in behalf of her co-heirs who, however, gave no authority or legal
representation. However, such a contract is susceptible of ratification.[29] In this
case, the ratification came in the form of "Confirmation of Sale of Land and
Improvements"[30] executed by the other heirs of Sofia.[31] Since the sale by
private respondent Teodora Martinez of the leased premises to private
respondents Tiu Uyping brothers was ratified by her co-heirs, then the sale is
considered valid and binding.

Second. Petitioner Sen Po Ek does not have a right of first refusal to assert
against private respondents. Neither any law nor any contract grants it
preference in the purchase of the leased premises.

Petitioner cites P.D. No. 1517, R.A. No. 1162 and Article 1622 of the New Civil
Code, but they are not applicable to the case at bar. P.D. No. 1517, otherwise
known as "The Urban Land Reform Act", pertains to areas proclaimed as urban
land reform zones. Lot Nos. 50 and 106 are both located in Tacloban City,
which has not been declared as an urban land reform zone. R.A. No. 1162, on
the other hand, only deals with expropriation of parcels of land located in the
City of Manila, which the leased premises are not. Finally, Article 1622 of the
New Civil Code, which provides that:
"Whenever a piece of urban land which is so small and so situated that a major
portion thereof cannot be used for any practical purpose within a reasonable
time, having been bought merely for speculation, is about to be re-sold, the
owner of the adjoining land shall have the right of redemption, also at a
reasonable price.

When two or more owners of adjoining lands wish to exercise the right of pre-
emption or redemption, the owner whose intended use of the land in question
appears best justified shall be preferred,"
only deals with small urban lands that are bought for speculation where only
adjoining lot owners can exercise the right of pre-emption or redemption.
Petitioner Sen Po Ek is not an adjoining lot owner, but a lessee trying to buy the
land that it was leasing.

Indeed the right of first refusal may be provided for in a lease contract.[32]
However in this case, such right was never stipulated in any of the several lease
contracts between petitioner and Sofia. Petitioner claims that it was Teodora
herself who assured them that they can have the first priority to buy the subject
parcels of land, but there is absolutely no proof of this. Such grant of the right
of first refusal must be clearly embodied in a written contract, but there is none
in the present case.

WHEREFORE, the petition is hereby DENIED. No costs.

SO ORDERED.

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

 THIRD DIVISION
G.R. No. 111538, February 26, 1997
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, PETITIONER,
VS. COURT OF APPEALS, CATALINA L. SANTOS, REPRESENTED BY
HER ATTORNEY-IN-FACT, LUZ B. PROTACIO, AND DAVID A.
RAYMUNDO, RESPONDENTS.

DECISION

PANGANIBAN, J.:

Do allegations in a complaint showing violation of a contractual right of “first

option or priority to buy the properties subject of the lease” constitute a valid
cause of action? Is the grantee of such right entitled to be offered the same
terms and conditions as those given to a third party who eventually bought such
properties? In short, is such right of first refusal enforceable by an action for
specific performance?

These questions are answered in the affirmative by this Court in resolving this
petition for review under Rule 45 of the Rules of Court challenging the
Decision[1]of the Court of Appeals[2] promulgated on March 29, 1993, in CA-
G.R. CV No. 34987 entitled “Parañaque Kings Enterprises, Inc. vs. Catalina L.
Santos, et al.,” which affirmed the order[3]of September 2, 1991, of the Regional
Trial Court of Makati, Branch 57,[4]dismissing Civil Case No. 91-786 for lack of
a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of
Makati a complaint,[5] which is reproduced in full below:

“Plaintiff, by counsel, respectfully states that:

1. Plaintiff is a private corporation organized and existing under and by virtue of

the laws of the Philippines, with principal place of business of (sic) Dr. A.
Santos Avenue, Parañaque, Metro Manila, while defendant Catalina L. Santos, is
of legal age, widow, with residence and postal address at 444 Plato Street, Ct.,
Stockton, California, USA, represented in this action by her attorney-in-fact, Luz
B. Protacio, with residence and postal address at No, 12, San Antonio Street,
Magallanes Village, Makati, Metro Manila, by virtue of a general power of
attorney. Defendant David A. Raymundo, is of legal age, single, with residence
and postal address at 1918 Kamias Street, Damariñas Village, Makati, Metro
Manila, where they (sic) may be served with summons and other court
processes. Xerox copy of the general power of attorney is hereto attached as
Annex ‘A’.

2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located
at (sic) Parañaque, Metro Manila with transfer certificate of title nos. S-19637, S-
19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto
attached as Annexes ‘B’ to ‘I’, respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-described

property from defendant Catalina L. Santos, the said lease was registered in the
Register of Deeds. Xerox copy of the lease is hereto attached as Annex ‘J’.

4. On February 12, 1979, Frederick Chua assigned all his rights and interest and
participation in the leased property to Lee Ching Bing, by virtue of a deed of
assignment and with the conformity of defendant Santos, the said assignment
was also registered. Xerox copy of the deed of assignment is hereto attached as
Annex ‘K’.

5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in
the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a
deed of assignment and with the conformity of defendant Santos, the same was
duly registered, Xerox copy of the deed of assignment is hereto attached as
Annex ‘L’.

6. Paragraph 9 of the assigned leased (sic) contract provides among others that:

‘9. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or mortgagee
thereof shall recognize and be bound by all the terms and conditions of this
lease agreement and shall respect this Contract of Lease as if they are the
LESSORS thereof and in case of sale, LESSEE shall have the first option or
priority to buy the properties subject of the lease;’
7. On September 21, 1988, defendant Santos sold the eight parcels of land
subject of the lease to defendant David Raymundo for a consideration of FIVE
MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the
contract of lease, for the first option or priority to buy was not offered by
defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto
attached as Annex ‘M’.

8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing

the same of the sale of the properties to defendant Raymundo, the said letter
was personally handed by the attorney-in-fact of defendant Santos, Xerox copy
of the letter is hereto attached as Annex ‘N’.

9. Upon learning of this fact plaintiff’s representative wrote a letter to defendant

Santos, requesting her to rectify the error and consequently realizing the error,
she had it reconveyed to her for the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter and the deed of
reconveyance are hereto attached as Annexes ‘O’ and ‘P’.

10. Subsequently the property was offered for sale to plaintiff by the defendant
for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was
given ten (10) days to make good of the offer, but therefore (sic) the said period
expired another letter came from the counsel of defendant Santos, containing
the same tenor of (sic) the former letter. Xerox copies of the letters are hereto
attached as Annexes ‘Q’ and ‘R’.

11. On May 8, 1989, before the period given in the letter offering the properties
for sale expired, plaintiff’s counsel wrote counsel of defendant Santos offering
to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy
of the letter is hereto attached as Annex ‘S’.

12. On May 15, 1989, before they replied to the offer to purchase, another deed
of sale was executed by defendant Santos (in favor of) defendant Raymundo for
a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of
the second deed of sale is hereto attached as Annex ‘T’.

13. Defendant Santos violated again paragraph 9 of the contract of lease by

executing a second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of
the plaintiff’s offer to buy or two days after she sold her properties. In her reply
she stated among others that the period has lapsed and the plaintiff is not a
privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex
‘U’.

15. On June 28, 1989, counsel for plaintiff informed counsel of defendant
Santos of the fact that plaintiff is the assignee of all rights and interest of the
former lessor. Xerox copy of the letter is hereto attached as Annex ‘V’.

16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the
new owner is defendant Raymundo. Xerox copy of the letter is hereto attached
as Annex ‘W’.

17. From the preceding facts it is clear that the sale was simulated and that there
was a collusion between the defendants in the sales of the leased properties, on
the ground that when plaintiff wrote a letter to defendant Santos to rectify the
error, she immediately have (sic) the property reconveyed it (sic) to her in a
matter of twelve (12) days.

18. Defendants have the same counsel who represented both of them in their
exchange of communication with plaintiff’s counsel, a fact that led to the
conclusion that a collusion exist (sic) between the defendants.

19. When the property was still registered in the name of defendant Santos, her
collector of the rental of the leased properties was her brother-in-law David
Santos and when it was transferred to defendant Raymundo the collector was
still David Santos up to the month of June, 1990. Xerox copies of cash vouchers
are hereto attached as Annexes ‘X’ to ‘HH’, respectively.

20. The purpose of this unholy alliance between defendants Santos and
Raymundo is to mislead the plaintiff and make it appear that the price of the
leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a
higher price.

21. Plaintiff has made considerable investments in the said leased property by
erecting a two (2) storey, six (6) doors commercial building amounting to
THREE MILLION (P3,000,000.00) PESOS. This considerable improvement
was made on the belief that eventually the said premises shall be sold to the
plaintiff.

22. As a consequence of this unlawful act of the defendants, plaintiff will incurr
(sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost
of the building and as such defendants should be charged of the same amount
for actual damages.

23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to moral damages in the
amount of FIVE MILLION (P5,000,000.00) PESOS.

24. The defendants acted in a wanton, fraudulent, reckless, oppressive or

malevolent manner and as a deterrent to the commission of similar acts, they
should be made to answer for exemplary damages, the amount left to the
discretion of the Court.

25. Plaintiff demanded from the defendants to rectify their unlawful acts that
they committed, but defendants refused and failed to comply with plaintiffs just
and valid and (sic) demands. Xerox copies of the demand letters are hereto
attached as Annexes ‘KK’ to ‘LL’, respectively.

26. Despite repeated demands, defendants failed and refused without justifiable
cause to satisfy plaintiff’s claim, and was constrained to engaged (sic) the
services of undersigned counsel to institute this action at a contract fee of
P200,000.00, as and for attorney’s fees, exclusive of cost and expenses of
litigation.

PRAYER

WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of

the plaintiff and against defendants and ordering that:

a. The Deed of Sale between defendants dated May 15, 1989, be annulled and
the leased properties be sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;

c. Defendants pay the sum of P5,000,000.00 as moral damages;

d. Defendants pay exemplary damages left to the discretion of the Court;

e. Defendants pay the sum of not less than P200,000.00 as attorney’s fees.

Plaintiff further prays for other just and equitable reliefs plus cost of suit.”

Instead of filing their respective answers, respondents filed motions to dismiss

anchored on the grounds of lack of cause of action, estoppel and laches.

On September 2, 1991, the trial court issued the order dismissing the complaint
for lack of a valid cause of action. It ratiocinated thus:

“Upon the very face of the plaintiff’s Complaint itself, it therefore indubitably
appears that the defendant Santos had verily complied with paragraph 9 of the
Lease Agreement by twice offering the properties for sale to the plaintiff for
P15 M. The said offers, however, were plainly rejected by the plaintiff which
scorned the said offer as “RIDICULOUS”. There was therefore a definite
refusal on the part of the plaintiff to accept the offer of defendant Santos. For
in acquiring the said properties back to her name, and in so making the offers to
sell both by herself (attorney-in-fact) and through her counsel, defendant Santos
was indeed conscientiously complying with her obligation under paragraph 9 of
the Lease Agreement. x x x

xxx xxx xxx

This is indeed one instance where a Complaint, after barely commencing to

create a cause of action, neutralized itself by its subsequent averments which
erased or extinguished its earlier allegations of an impending wrong.
Consequently, absent any actionable wrong in the very face of the Complaint
itself, the plaintiff’s subsequent protestations of collusion is bereft or devoid of
any meaning or purpose. x x x

The inescapable result of the foregoing considerations point to no other

conclusion than that the Complaint actually does not contain any valid cause of
action and should therefore be as it is hereby ordered DISMISSED. The Court
finds no further need to consider the other grounds of estoppel and laches
inasmuch as this resolution is sufficient to dispose the matter.”[6]

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling
of the trial court, and further reasoned that:

“x x x Appellant’s protestations that the P15 million price quoted by appellee

Santos was reduced to P9 million when she later resold the leased properties to
Raymundo has no valid legal moorings because appellant, as a prospective
buyer, cannot dictate its own price and forcibly ram it against appellee Santos, as
owner, to buy off her leased properties considering the total absence of any
stipulation or agreement as to the price or as to how the price should be
computed under paragraph 9 of the lease contract, x x x”[7]

Petitioner moved for reconsideration but was denied in an order dated August
20, 1993.[8]

Hence this petition. Subsequently, petitioner filed an “Urgent Motion for the
Issuance of Restraining Order and/or Writ of Preliminary Injunction and to
Hold Respondent David A. Raymundo in Contempt of Court.”[9] The motion
sought to enjoin respondent Raymundo and his counsel from pursuing the
ejectment complaint filed before the barangay captain of San Isidro, Parañaque,
Metro Manila; to direct the dismissal of said ejectment complaint or of any
similar action that may have been filed; and to require respondent Raymundo to
explain why he should not be held in contempt of court for forum-shopping.
The ejectment suit initiated by respondent Raymundo against petitioner arose
from the expiration of the lease contract covering the property subject of this
case. The ejectment suit was decided in favor of Raymundo, and the entry of
final judgment in respect thereof renders the said motion moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of “first option
or priority to buy” states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in
dismissing the complaint because it in fact had not just one but at least three (3)
valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal
founded in law, and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the
petition should be denied for not raising a question of law as the issue involved
is purely factual -- whether respondent Santos complied with paragraph 9 of the
lease agreement -- and for not having complied with Section 2, Rule 45 of the
Rules of Court, requiring the filing of twelve (12) copies of the petitioner’s brief.
Both maintain that the complaint filed by petitioner before the Regional Trial
Court of Makati stated no valid cause of action and that petitioner failed to
substantiate its claim that the lower courts decided the same “in a way not in
accord with law and applicable decisions of the Supreme Court”; or that the
Court of Appeals has “sanctioned departure by a trial court from the accepted
and usual course of judicial proceedings” so as to merit the exercise by this
Court of the power of review under Rule 45 of the Rules of Court.
Furthermore, they reiterate estoppel and laches as grounds for dismissal,
claiming that petitioner’s payment of rentals of the leased property to
respondent Raymundo from June 15, 1989, to June 30, 1990, was an
acknowledgment of the latter’s status as new owner-lessor of said property, by
virtue of which petitioner is deemed to have waived or abandoned its first
option to purchase.

Private respondents likewise contend that the deed of assignment of the lease
agreement did not include the assignment of the option to purchase.
Respondent Raymundo further avers that he was not privy to the contract of
lease, being neither the lessor nor lessee adverted to therein, hence he could not
be held liable for violation thereof.

The Court’s Ruling

Preliminary Issue: Failure to File Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly

petitioner’s failure to file twelve (12) copies of its brief. We have ruled that when
non-compliance with the Rules was not intended for delay or did not result in
prejudice to the adverse party, dismissal of appeal on mere technicalities – in
cases where appeal is a matter of right -- may be stayed, in the exercise of the
court’s equity jurisdiction.[10] It does not appear that respondents were unduly
prejudiced by petitioner’s nonfeasance. Neither has it been shown that such
failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents’ contention that the issue involved is purely
factual. The principal legal question, as stated earlier, is whether the complaint
filed by herein petitioner in the lower court states a valid cause of action. Since
such question assumes the facts alleged in the complaint as true, it follows that
the determination thereof is one of law, and not of facts. There is a question of
law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts, and there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts[11].

At the outset, petitioner concedes that when the ground for a motion to dismiss
is lack of cause of action, such ground must appear on the face of the
complaint; that to determine the sufficiency of a cause of action, only the facts
alleged in the complaint and no others should be considered; and that the test of
sufficiency of the facts alleged in a petition or complaint to constitute a cause of
action is whether, admitting the facts alleged, the court could render a valid
judgment upon the same in accordance with the prayer of the petition or
complaint.

A cause of action exists if the following elements are present: (1) a right in favor
of the plaintiff by whatever means and under whatever law it arises or is created;
(2) an obligation on the part of the named defendant to respect or not to violate
such right, and (3) an act or omission on the part of such defendant violative of
the right of plaintiff or constituting a breach of the obligation of defendant to
the plaintiff for which the latter may maintain an action for recovery of
damages.[12]

In determining whether allegations of a complaint are sufficient to support a

cause of action, it must be borne in mind that the complaint does not have to
establish or allege facts proving the existence of a cause of action at the outset;
this will have to be done at the trial on the merits of the case. To sustain a
motion to dismiss for lack of cause of action, the complaint must show that the
claim for relief does not exist, rather than that a claim has been defectively
stated, or is ambiguous, indefinite or uncertain.[13]

Equally important, a defendant moving to dismiss a complaint on the ground of

lack of cause of action is regarded as having hypothetically admitted all the
averments thereof.[14]

A careful examination of the complaint reveals that it sufficiently alleges an

actionable contractual breach on the part of private respondents. Under
paragraph 9 of the contract of lease between respondent Santos and petitioner,
the latter was granted the “first option or priority” to purchase the leased
properties in case Santos decided to sell. If Santos never decided to sell at all,
there can never be a breach, much less an enforcement of such “right.” But on
September 21, 1988, Santos sold said properties to Respondent Raymundo
without first offering these to petitioner. Santos indeed realized her error, since
she repurchased the properties after petitioner complained. Thereafter, she
offered to sell the properties to petitioner for P15 million, which petitioner,
however, rejected because of the “ridiculous” price. But Santos again appeared
to have violated the same provision of the lease contract when she finally resold
the properties to respondent Raymundo for only P9 million without first
offering them to petitioner at such price. Whether there was actual breach which
entitled petitioner to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each party can
present evidence to prove their respective allegations and defenses.[15]

The trial and appellate courts based their decision to sustain respondents’
motion to dismiss on the allegations of Parañaque Kings Enterprises that Santos
had actually offered the subject properties for sale to it prior to the final sale in
favor of Raymundo, but that the offer was rejected. According to said courts,
with such offer, Santos had verily complied with her obligation to grant the right
of first refusal to petitioner.

We hold, however, that in order to have full compliance with the contractual
right granting petitioner the first option to purchase, the sale of the properties
for the amount of P9 million, the price for which they were finally sold to
respondent Raymundo, should have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and
obligations under, a right of first refusal in the case of Guzman, Bocaling & Co.
vs. Bonnevie.[16] In that case, under a contract of lease, the lessees (Raul and
Christopher Bonnevie) were given a “right of first priority” to purchase the
leased property in case the lessor (Reynoso) decided to sell. The selling price
quoted to the Bonnevies was P600,000.00 to be fully paid in cash, less a
mortgage lien of P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was to be paid only when
the property was cleared of occupants. We held that even if the Bonnevies could
not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell
it to another for a lower price and under more favorable terms and conditions
without first offering said favorable terms and price to the Bonnevies as well.
Only if the Bonnevies failed to exercise their right of first priority could
Reynoso thereafter lawfully sell the subject property to others, and only under
the same terms and conditions previously offered to the Bonnevies.

Of course, under their contract, they specifically stipulated that the Bonnevies
could exercise the right of first priority, “all things and conditions being equal.”
This Court interpreted this proviso to mean that there should be identity of
terms and conditions to be offered to the Bonnevies and all other prospective
buyers, with the Bonnevies to enjoy the right of first priority. We hold that the
same rule applies even without the same proviso if the right of first refusal (or
the first option to buy) is not to be rendered illusory.

From the foregoing, the basis of the right of 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***.

This principle was reiterated in the very recent case of Equatorial Realty vs.
Mayfair Theater, Inc.[17]which was decided en banc. This Court upheld the right
of first refusal of the lessee Mayfair, and rescinded the sale of the property by
the lessor Carmelo to Equatorial Realty “considering that Mayfair, which had
substantial interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period” (underscoring supplied).

In that case, two contracts of lease between Carmelo and Mayfair provided “that
if the LESSOR should desire to sell the leased premises, the LESSEE shall be
given 30 days exclusive option to purchase the same.” Carmelo initially offered
to sell the leased property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked the 30-day
period. Nothing was heard thereafter from Carmelo. Four years later, the latter
sold its entire Recto Avenue property, including the leased premises, to
Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court
held that both Carmelo and Equatorial acted in bad faith: Carmelo for
knowingly violating the right of first refusal* of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In
addition to rescission of the contract of sale, the Court ordered Carmelo to
allow Mayfair to buy the subject property at the same price of P11,300,000.00.

No cause of action under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land
Reform Law, as another source of its right of first refusal. It claims to be
covered under said law, being the “rightful occupant of the land and its
structures” since it is the lawful lessee thereof by reason of contract. Under the
lease contract, petitioner would have occupied the property for fourteen (14)
years at the end of the contractual period.

Without probing into whether petitioner is rightfully a beneficiary under said

law, suffice it to say that this Court has previously ruled that under Section 6[18]
of P.D. 1517, “the terms and conditions of the sale in the exercise of the lessee’s
right of first refusal to purchase shall be determined by the Urban Zone
Expropriation and Land Management Committee. Hence, x x x certain
prerequisites must be complied with by anyone who wishes to avail himself of
the benefits of the decree.”[19] There being no allegation in its complaint that the
prerequisites were complied with, it is clear that the complaint did fail to state a
cause of action on this ground.

Deed of Assignment included the option to purchase

Neither do we find merit in the contention of respondent Santos that the

assignment of the lease contract to petitioner did not include the option to
purchase. The provisions of the deeds of assignment with regard to matters
assigned were very clear. Under the first assignment between Frederick Chua as
assignor and Lee Ching Bing as assignee, it was expressly stated that:

“x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein

ASSIGNEE, all his rights, interest and participation over said premises afore-
described, x x x”[20](underscoring supplied)

And under the subsequent assignment executed between Lee Ching Bing as
assignor and the petitioner, represented by its Vice President Vicenta Lo
Chiong, as assignee, it was likewise expressly stipulated that:

“x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest
and participation over said leased premises, x x x”[21] (underscoring supplied)

One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessee’s right of first option or priority to buy the
properties subject of the lease, as provided in paragraph 9 of the assigned lease
contract. The deed of assignment need not be very specific as to which rights
and obligations were passed on to the assignee. It is understood in the general
provision aforequoted that all specific rights and obligations contained in the
contract of lease are those referred to as being assigned. Needless to state,
respondent Santos gave her unqualified conformity to both assignments of
rights.

Respondent Raymundo privy to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to

the lease contract, not being the lessor nor the lessee referred to therein, he
could thus not have violated its provisions, but he is nevertheless a proper party.
Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of
his purchase, he assumed all the obligations of the lessor under the lease
contract. Moreover, he received benefits in the form of rental payments.
Furthermore, the complaint, as well as the petition, prayed for the annulment of
the sale of the properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by petitioner of its right
of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was
a necessary, if not indispensable, party to the case.[22] A favorable judgment for
the petitioner will necessarily affect the rights of respondent Raymundo as the
buyer of the property over which petitioner would like to assert its right of first
option to buy.

Having come to the conclusion that the complaint states a valid cause of action
for breach of the right of first refusal and that the trial court should thus not
have dismissed the complaint, we find no more need to pass upon the question
of whether the complaint states a cause of action for damages or whether the
complaint is barred by estoppel or laches. As these matters require presentation
and/or determination of facts, they can be best resolved after trial on the merits.

While the lower courts erred in dismissing the complaint, private respondents,
however, cannot be denied their day in court. While, in the resolution of a
motion to dismiss, the truth of the facts alleged in the complaint are
theoretically admitted, such admission is merely hypothetical and only for the
purpose of resolving the motion. In case of denial, the movant is not to be
deprived of the right to submit its own case and to submit evidence to rebut the
allegations in the complaint. Neither will the grant of the motion by a trial court
and the ultimate reversal thereof by an appellate court have the effect of stifling
such right.[23] So too, the trial court should be given the opportunity to evaluate
the evidence, apply the law and decree the proper remedy. Hence, we remand
the instant case to the trial court to allow private respondents to have their day
in court.

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial

court and Court of Appeals are hereby REVERSED and SET ASIDE. The
case is REMANDED to the Regional Trial Court of Makati for further
proceedings.
SO ORDERED.

Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
 THIRD DIVISION
G.R. No. 173166, March 13, 2013
PURIFICACION ESTANISLAO AND RUPERTO ESTANISLAO,
PETITIONERS, VS. SPOUSES NORMA GUDITO AND DAMIANO
GUDITO, RESPONDENTS.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court which seeks the reversal of the Decision[1] dated October 25, 2005, and
Resolution[2] dated June 16, 2006 of the Court of Appeals (CA) in CA-G.R. SP
No. 46323.

The factual antecedents are as follows:

Respondents are the owners of a residential lot being leased by petitioners on a

month-to-month basis. Petitioners had been renting and occupying the subject
lot since 1934 and were the ones who built the house on the subject lot in
accordance with their lease agreement with one Gaspar Vasquez. When Gaspar
Vasquez died, the portion of the lot on which petitioners’ house was erected
was inherited by his son Victorino Vasquez, married to Ester Vasquez (Vasquez
couple).

In the 1980’s, the Vasquez couple wanted the Estanislao family and the other
tenants to vacate the said property, but the tenants refused because of laws
allegedly prohibiting their ejectment therefrom. Resultantly, the Vasquez couple
refused to accept their rental payments. Thus, petitioner Purificacion Estanislao,
with due notice to Ester Vasquez, deposited the amount of her monthly rentals
at Allied Banking Corporation under a savings account in the name of Ester
Vasquez as lessor.

In the interim, a Deed of Donation was executed by the Vasquez couple in

favor of respondent Norma Vasquez Gudito. Hence, in October 1994,
respondents notified petitioners to remove their house and vacate the premises
within three months or up to January 31, 1995, because of their urgent need of
the residential lot. In a letter dated March 5, 1995, respondents reiterated the
demand and gave petitioners another three months or up to June 30, 1995,
within which to remove their house, vacate the subject lot and pay the rental
arrearages. However, petitioners failed to comply.

Accordingly, on November 10, 1995, respondents filed a Complaint for

Unlawful Detainer/Ejectment against petitioners before the Metropolitan Trial
Court (MeTC) of Manila.

On March 6, 1996, the MeTC of Manila rendered a Decision[3] in favor of

respondents, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

against the defendants ordering:
(1) The defendants and all persons claiming rights under them to immediately
vacate the subject premises known as 2351 Pasig Line, Sta. Ana, Manila, and
surrender its peaceful possession to the plaintiffs;
(2) The defendants to pay reasonable compensation for the use and occupancy
of the subject premises in the amount of P500.00 a month beginning
October 1985 and every month thereafter until they shall have finally and
actually vacated the subject premises;
(3) To pay the plaintiffs the sum of P5,000.00 for and as attorney’s fees;
(4) To pay the costs of suit.

SO ORDERED.[4]

Thereafter, petitioners elevated the case before the Regional Trial Court (RTC)
of Manila.

On November 28, 1997, the RTC of Manila rendered a Decision[5] reversing the
MeTC’s decision. The fallo states:

WHEREFORE, premises considered, the Decision dated March 6, 1996

rendered by the court a quo is hereby REVERSED and SET ASIDE and a new
judgment is hereby rendered as follows:
(1) The instant complaint filed by the Guditos is hereby DISMISSED;
 (2) The “Guditos” are hereby enjoined to respect the lease agreement as
well as the possession of the “Estanislaos” over the leased premises.
Should the “Guditos” decide to sell or otherwise dispose of the same
property to third parties, the “Estanislaos” are given the right of first
refusal pursuant to PDs 1517 and 2018 or; should the “Guditos” need
the same property for residential purposes, they can avail of the
remaining 205.50 square meters of the same lot wherein they can build
their house.
(3) The present monthly rental is hereby fixed at P500 per month;
(4) Attorney’s fees at P20,000 plus the cost of suit; and
(5) Other claims and counter-claims are hereby dismissed for lack of merit.

SO ORDERED.[6]
Dissatisfied, respondents interposed an appeal before the CA.

In a Decision[7] dated October 25, 2005, the CA annulled and set aside the
RTC’s decision and reinstated the MeTC’s decision. It held as follows:

WHEREFORE, the Decision of Branch 47 of the Regional Trial Court of

Manila, in Civil Case No. 96-77804 dated November 28, 1998 is hereby
ANNULLED and SET ASIDE. Consequently, the Decision of Branch 11 of
the Metropolitan Trial Court of Manila in Civil Case No. 149805-CV dated
March 6, 1996 is hereby REINSTATED with the MODIFICATION that the
respondents are ordered to pay reasonable compensation for the use and
occupancy of the subject premises in the amount of Five Hundred Pesos a
month beginning November 1995, and every month thereafter until they have
finally vacated the subject premises.

SO ORDERED.[8]

Hence, petitioners filed the instant petition raising the following issues for our
resolution:

1. Whether or not the assailed decision of the Court of Appeals

violates Presidential Decree No. 2016, in relation to
Presidential Decree No. 1517, expressly prohibiting the
eviction of legitimate tenants from land proclaimed as Areas
for Priority Development or as Urban Land Reform Zones.
 2. Whether or not Batas Pambansa Blg. 877, relied upon by the
Court of Appeals in its decision, can prevail over P.D. 2016,
in relation to P.D. No. 1517, a special law and a later
enactment, considering that P.D. No. 2016 expressly repeals,
amends or modifies accordingly any law inconsistent with it.

3. Whether or not a legitimate tenant covered by P.D. Nos.

1517 and 2016 can be evicted if the owner of the leased land
does not intend to sell his property as affirmatively held by
the Court of Appeals.

4. Whether or not respondents as lessors can adequately use the

leased lot for the alleged personal need without ejecting
petitioners who occupy only a very small portion thereof.

5. Whether or not the donation of the leased lot to respondents

can defeat petitioners’ protected right under P.D. Nos. 1517
and 2016.[9]

The pertinent issue in this case is who has the better right of possession over the
subject property.

Petitioners strongly argue that respondents cannot evict them from the subject
property pursuant to Presidential Decree (P.D.) 1517, in relation to P.D. 2016,
as the subject property is allegedly within one of the 245 Proclaimed Area for
Priority Development and/or Urban Land Reform No. 1967, as amended by
Presidential Proclamation No. 2284. Petitioners further contend that they were
not aware that the subject property had been acquired by respondents via a
Deed of Donation executed by the Vasquez couple. Thus, they assail that said
donation was merely simulated in order to deprive them of their right of first
refusal to buy the subject property.

Conversely, respondents maintain P.D. 1517 cannot be appropriately applied to

the present case, since the same applies only to a case where the owners intend
to sell the property to a third party. They argue that in the instant case they are
seeking the eviction of petitioners solely on the ground that they need the
property for residential purposes. Lastly, they assert that they have sufficiently
established a better right of possession over the disputed property than the
petitioners.

We deny the petition.

To begin with, the only question that the courts must resolve in an unlawful
detainer or ejectment suit is - who between the parties is entitled to the physical
or material possession of the property in dispute.[10]

In the case under review, respondents have overwhelmingly established their

right of possession by virtue of the Deed of Donation made in their favor.
Moreover, they have complied with the provisions of the law in order for them
to legally eject the petitioners. Section 5 (c) of Batas Pambansa Blg. 25 states:

Sec. 5. Grounds for judicial ejectment. – Ejectment shall be allowed on the following
grounds:

xxxx

(c) Legitimate need of owner/ lessor to repossess his property for his own use
or for the use of any immediate member of his family as a residential unit, such
owner or immediate member not being the owner of any other available
residential unit within the same city or municipality: Provided, however, that the
lease for a definite period has expired: Provided, further, that the lessor has
given the lessee formal notice within three (3) months in advance of the lessor’s
intention to repossess the property: Provided, finally, that the owner/ lessor is
prohibited from leasing the residential unit or allowing its use by a third party
for at least one year.

Here, it is undisputed that respondents do not own any other lot or real
property except the herein subject lot. They have urgent need of the same to
build their own house to be used as their residence. Also, petitioners had already
been asked to leave the premises as early as 1982, but sternly refused, hence, its
former owners refused to accept their rental payments. When the same property
was donated to respondents, petitioners were allowed to continue occupying the
subject lot since respondents did not as yet have the money to build a house of
their own. But now that respondents have sufficient money to build their own
house, petitioners still rebuff respondents’ demand to vacate the premises and
to remove or demolish their house. Clearly, since respondents have complied
with the requirements of the law, their right to possess the subject property for
their own use as family residence cannot be denied.

It is also worthy to note that petitioners have failed to prove that the transfer of
the subject property was merely a ploy designed to defeat and circumvent their
right of first refusal under the law. As emphasized by the CA, the Deed of
Donation executed in favor of respondents was signed by the parties and their
witnesses, and was even notarized by a notary public.

Veritably, it is a settled rule in our jurisdiction that a notarized document has in

its favor the presumption of regularity and it carries the evidentiary weight
conferred upon it with respect to its due execution. It is admissible in evidence
and is entitled to full faith and credit upon its face.[11] Having been prepared and
acknowledged before a notary public, the said Deed is vested with public
interest, the sanctity of which deserves to be upheld unless overwhelmed by
clear and convincing evidence.[12] Thus, the donation made by the Vasquez
couple is a valid exercise of their right as owners of the subject property and
respondents are legally entitled to the said property as donees.

By the same token, this Court is not persuaded with petitioners’ insistence that
they cannot be evicted in view of Section 6 of P.D. 1517, which states –

SECTION 6. Land Tenancy in Urban Land Reform Areas. – Within the Urban
Zones legitimate tenants who have resided on the land for ten years or more
who have built their homes on the land and residents who have legally occupied
the lands by contract, continuously for the last ten years shall not be
dispossessed of the land and shall be allowed the right of first refusal to
purchase the same within a reasonable time and at reasonable prices, under
terms and conditions to be determined by the Urban Zone Expropriation and
Land Management Committee created by Section 8 of this Decree. (Emphasis
and underscoring supplied)

As can be gleaned from the foregoing, petitioners cannot use P.D. 1517 as a
shield to deny respondents of their inherent right to possess the subject
property. The CA correctly opined that “under P.D. 1517, in relation to P.D.
2016, the lessee is given the right of first refusal over the land they have leased
and occupied for more than ten years and on which they constructed their
houses. But the right of first refusal applies only to a case where the owner of
the property intends to sell it to a third party. If the owner of the leased
premises do not intend to sell the property in question but seeks to eject the
tenant on the ground that the former needs the premises for residential
purposes, the tenant cannot invoke the land reform law.”[13]

Clearly, the circumstances required for the application of P.D. 1517 are lacking
in this case, since respondents had no intention of selling the subject property to
third parties, but seek the eviction of petitioners on the valid ground that they
need the property for residential purposes.

WHEREFORE, premises considered, the Decision dated October 25, 2005,

and Resolution dated June 16, 2006 of the Court of Appeals in CA-G.R. SP No.
46323 are hereby AFFIRMED.

SO ORDERED.

Leonardo-De Castro,* Abad, Mendoza, and Leonen, JJ., concur.

Peralta, (Acting Chairperson).**