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SALES 4th Batch

G.R. No. 134971 March 25, 2004

HERMINIO TAYAG, petitioner,


vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE COURT OF APPEALS,
respondents.

DECI SION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 and the Resolution2 of respondent Court of Appeals in CA-G.R. SP No. 44883.

The Case for the Petitioner

Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the
registered owners of three parcels of land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R,
and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were tenanted agricultural lands,4 were
administered by Renato Espinosa for the owner.

On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores,
Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto
Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,5 individually
executed in favor of the petitioner separate Deeds of Assignment6 in which the assignees assigned to the petitioner their respective rights as
tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was made
payable "when the legal impediments to the sale of the property to the petitioner no longer existed." The petitioner was also granted the exclusive
right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim,
the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts.

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their separate
agreements.7 However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not
attending the meeting and instead gave notice of their collective decision to sell all their rights and interests, as tenants/lessees, over the
landholding to the respondents.8 Explaining their reasons for their collective decision, they wrote as follows:

Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero
sinira ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.

Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang sinasaka sa landowner o sa mga pamilyang
Lacson, dahil ayaw naming magkaroon ng problema.

Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan kung ibebenta pa namin sa inyo ang aming lupang
sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.9

On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando, Pampanga, Branch 44, against the defendants-
tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the
defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction against the defendants and
the respondents therein.10 The case was docketed as Civil Case No. 10910.

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

4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose
Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are
original farmers or direct tillers of landholdings over parcels of lands covered by Transfer Certificate of Title Nos. 35922-R, 35923-R and 35925-R
which are registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino,
Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiam bao, Isidro
Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of land.

5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the plaintiff by which the defendants assigned
all their rights and interests on their landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants received from the
plaintiff partial payments in the amounts corresponding to their names. Subsequent payments were also received:

1st PAYMENT 2nd PAYMENT CHECK NO. TOTAL


1.Julio Tiamson - - - - - - P 20,000 P 10,621.54 231281 P 30,621.54
2. Renato Gozun - - - - - -
[son of Felix Gozun (deceased)] P 10,000 96,000 106,000.00
3. Rosita Hernandez - - - - P 5,000 14,374.24 231274 P 19,374.24
4. Bienvenido Tongol - - -
[Son of Abundio Tongol (deceased)] P 10,000 14,465.90 231285 24,465.90
5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271 56,648.40
6. Norma Quiambao - - - - P 10,000 41,501.10 231279 51,501.10
7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284 32,126.08
8. Jose Sosa - - - - - - - - - P 10,000 14,861.31 231291 24,861.31
9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283 34,237.62
10. Emiliano Laxamana - - P 10,000 ------ ------ ------
11. Ruben Torres - - - - - -

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[Son of Mariano Torres (deceased)] P 10,000 P 33,587.31 ------ P 43,587.31
12. Meliton Allanigue P 10,000 12,944.77 231269 P 22,944.77
13. Dominga Laxamana P 5,000 22,269.02 231275 27,269.02
14. Felicencia de Leon 10,000 ------ ------ ------
15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60
16. Felino G. Tolentino 10,000 ------ ------ ------
17. Rica Gozun 5,000 ------ ------ ------
18. Perla Gozun 10,000 ------ ------ ------
19. Benigno Tolentino 10,000 ------ ------ ------
20. Rodolfo Quiambao 10,000 ------ ------ ------
21. Roman Laxamana 10,000 ------ ------ ------
22. Eddie San Luis 10,000 ------ ------ ------
23. Ricardo Hernandez 10,000 ------ ------ ------
24. Nicenciana Miranda 10,000 ------ ------ ------
25. Jose Gozun 10,000 ------ ------ ------
26. Alfredo Sosa 5,000 ------ ------ ------
27. Jose Tiamson 10,000 ------ ------ ------
28. Augusto Tolentino 5,000 ------ ------ ------
29. Sixto Hernandez 10,000 ------ ------ ------
30. Alex Quiambao 10,000 ------ ------ ------
31. Isidro Tolentino 10,000 ------ ------ ------
32. Ceferino de Leon ------ 11,378.70 231270 ------
33. Alberto Hernandez 10,000 ------ ------ ------
34. Orlando Florez 10,000 ------ ------ ------
35. Aurelio Flores 10,000 ------ ------ ------
6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for a meeting regarding the negotiations/implementations
of the terms of their Deeds of Assignment;

7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they are no longer willing to pursue with the
negotiations, and instead they gave notice to the plaintiff that they will sell all their rights and interests to the registered owners (defendants
LACSONS).

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

8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON or with any third persons while their contracts with the
plaintiff are subsisting; defendants LACSONS are inducing or have induced the defendants TIAMSON, et. al., to violate their contracts with the
plaintiff;

9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the forms of mental anguish, mental torture and
serious anxiety which in the sum of P500,000.00 for which defendants should be held liable jointly and severally.11

In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his complaint:

11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from rescinding their contracts with the plaintiff, and the
defendants LACSONS should also be restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et al., in whatever
form, the latter’s rights and interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS should be restrained from
encumbering/alienating the subject properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando,
Pampanga;

12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are also bent on selling/alienating their rights and
interests over the subject properties to their co-defendants (LACSONS) or any other persons to the damage and prejudice of the plaintiff who
already invested much money, efforts and time in the said transactions;

13. That the plaintiff is entitled to the reliefs being demanded in the complaint;

14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and adequate remedy under the ordinary
course of law, it is essential that a Writ of Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al., from rescinding
their contracts with the plaintiff and from selling/alienating their properties to the LACSONS or other persons;

15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which the defendants would suffer should the
injunction prayed for and granted be found without basis.12

The petitioner prayed, that after the proceedings, judgment be rendered as follows:

1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining defendants Julio Tiamson, Renato Gozun,
Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana,
Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with the
plaintiff and from alienating their rights and interest over the aforementioned properties in favor of defendants LACSONS or any other third
persons; and prohibiting the defendants LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of
San Fernando, Pampanga.

2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a restraining order be issued restraining the
aforementioned defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating the subject properties to the
defendants LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from encumbering/selling the properties
covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

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SALES 4th Batch
3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants TI AMSON, et al., after the lapse of legal
impediment, if any.

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;

6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of P100,000.00 plus litigation expenses of P50,000.00;

Plaintiff prays for such other relief as may be just and equitable under the premises.13

In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica Vda. de Lacson had died on April 24,
1993; (b) twelve of the defendants were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was uncertain; (c)
they never induced the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely tenants-tillers, the defendants-
tenants had no right to enter into any transactions involving their properties without their knowledge and consent. They also averred that the
transfers or assignments of leasehold rights made by the defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and
Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).14 The respondents interposed counterclaims for damages against
the petitioner as plaintiff.

The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages, that the money each of them received from the
petitioner were in the form of loans, and that they were deceived into signing the deeds of assignment:

a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as they are material and relevant herein;

b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew that what they did sign is a Deed of
Assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted [to] them by the
plaintiff;

c) That the Deeds of Assignment were signed through the employment of fraud, deceit and false pretenses of plaintiff and made the defendants
believe that what they sign[ed] was a mere receipt for amounts received by way of loans;

d) That the documents signed in blank were filled up and completed after the defendants Tiamson, et al., signed the documents and their
completion and accomplishment was done in the absence of said defendants and, worst of all, defendants were not provided a copy thereof;

e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign all their rights and interests in the
properties or landholdings they were tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents were voluntarily
executed, the defendants Tiamson, et al., do not have any right to transfer their interest in the landholdings they are tilling as they have no right
whatsoever in the landholdings, the landholdings belong to their co-defendants, Lacson, et al., and therefore, the contract is null and void;

f) That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs, the same were received as approved loans
granted by plaintiff to the defendants Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by way of:…15

At the hearing of the petitioner’s plea for a writ of preliminary injunction, the respondents’ counsel failed to appear. In support of his plea for a writ
of preliminary injunction, the petitioner adduced in evidence the Deeds of Assignment,16 the receipts17 issued by the defendants-tenants for the
amounts they received from him; and the letter18 the petitioner received from the defendants-tenants. The petitioner then rested his case.

The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s plea for injunctive relief on the following grounds: (a) the
Deeds of Assignment executed by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the
petitioner failed to prove that the respondents induced the defendants-tenants to renege on their obligations under the "Deeds of Assignment;"
(c) not being privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the respondents had the absolute right to sell
and dispose of their property and to encumber the same and cannot be enjoined from doing so by the trial court.

The petitioner opposed the motion, contending that it was premature for the trial court to resolve his plea for injunctive relief, before the
respondents and the defendants-tenants adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal
evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the petitioner to establish
the requisites of a writ of preliminary injunction without any evidence on their part, and that they were not bound to adduce any evidence in
opposition to the petitioner’s plea for a writ of preliminary injunction.

On February 13, 1997, the court issued an Order19 denying the motion of the respondents for being premature. It directed the hearing to proceed
for the respondents to adduce their evidence. The court ruled that the petitioner, on the basis of the material allegations of the complaint, was
entitled to injunctive relief. It also held that before the court could resolve the petitioner’s plea for injunctive relief, there was need for a hearing to
enable the respondents and the defendants-tenants to adduce evidence to controvert that of the petitioner. The respondents filed a motion for
reconsideration, which the court denied in its Order dated April 16, 1997. The trial court ruled that on the face of the averments of the complaint,
the pleadings of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive relief unless the respondents and the
defendants-tenants adduced controverting evidence.

The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the nullification of the February 13, 1997 and April
16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that:

1. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16, 1997 as null and void;

2. An order be issued directing the respondent court to issue an order denying the application of respondent Herminio Tayag for the issuance of a
Writ of Preliminary Injunction and/or restraining order.

3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting it from issuing its own writ of injunction
against Petitioners, and thereafter making said injunction to be issued by this Court permanent.

Such other orders as may be deemed just & equitable under the premises also prayed for.20

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The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the petitioner were contrary to paragraph 13 of P.D.
No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for being null and
void. The respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening condition:

3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal impediments exist to the lot to effect the
smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE.21

The respondents argued that until such condition took place, the petitioner would not acquire any right to enforce the deeds by injunctive relief.
Furthermore, the petitioner’s plea in his complaint before the trial court, to fix a period within which to pay the balance of the amounts due to the
tenants under said deeds after the "lapse" of any legal impediment, assumed that the deeds were valid, when, in fact and in law, they were not.
According to the respondents, they were not parties to the deeds of assignment; hence, they were not bound by the said deeds. The issuance of
a writ of preliminary injunction would restrict and impede the exercise of their right to dispose of their property, as provided for in Article 428 of the
New Civil Code. They asserted that the petitioner had no cause of action against them and the defendants-tenants.

On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and setting aside the assailed orders of the trial court;
and permanently enjoining the said trial court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as follows:

However, even if private respondent is denied of the injunctive relief he demands in the lower court still he could avail of other course of action in
order to protect his interest such as the institution of a simple civil case of collection of money against TIAMSON, et al.

For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for having
been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is permanently enjoined
from proceeding with the case designated as Civil Case No. 10901.22

The CA ruled that the respondents could not be enjoined from alienating or even encumbering their property, especially so since they were not
privies to the deeds of assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the
landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled that the deeds of assignment
executed by the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.

On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for reconsideration.23

Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows:

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS
STILL THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24

II

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

III

THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET "AWARDEES OF THE
LAND REFORM.26

IV

THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF
THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING THE STATUS QUO.27

THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE
LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO
PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.28

VI

THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF THE NEW CIVIL CODE
AND FOR "DAMAGES" AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.29

The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding with Civil Case No. 10910. He opines that the
same was too drastic, tantamount to a dismissal of the case. He argues that at that stage, it was premature for the appellate court to determine
the merits of the case since no evidentiary hearing thereon was conducted by the trial court. This, the Court of Appeals cannot do, since neither
party moved for the dismissal of Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings, went beyond the
issue raised by the private respondents, namely, whether or not the trial court committed a grave abuse of discretion amounting to excess or lack
of jurisdiction when it denied the respondent’s motion for the denial/dismissal of the petitioner’s plea for a writ of preliminary injunction. He,
likewise, points out that the appellate court erroneously presumed that the leaseholders were not DAR awardees and that the deeds of
assignment were contrary to law. He contends that leasehold tenants are not prohibited from conveying or waiving their leasehold rights in his
favor. He insists that there is nothing illegal with his contracts with the leaseholders, since the same shall be effected only when there are no more
"legal impediments."

At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to determine the merits of his case since no
evidentiary hearing on the merits of his complaint had yet been conducted by the trial court.

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The Comment/Motion of the


Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.

Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioner’s plea for a writ of preliminary injunction after
the petitioner had adduced his evidence, testimonial and documentary, and had rested his case on the incident, was proper and timely. It bears
stressing that the petitioner had the burden to prove his right to a writ of preliminary injunction. He may rely solely on the material allegations of his
complaint or adduce evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ of preliminary injunction
against the respondents and the defendants-tenants and rested his case on the said incident. The respondents then had three options: (a) file a
motion to deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to prove the factual and legal basis for his plea
for a writ of preliminary injunction and, if the trial court denies his motion, for them to adduce evidence in opposition to the petitioner’s plea; (b)
forgo their motion and adduce testimonial and/or documentary evidence in opposition to the petitioner’s plea for a writ of preliminary injunction;
or, (c) waive their right to adduce evidence and submit the incident for consideration on the basis of the pleadings of the parties and the
evidence of the petitioner. The respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the petitioner’s
plea for a writ of preliminary injunction against them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court cannot
compel the respondents to adduce evidence in opposition to the petitioner’s plea if the respondents opt to waive their right to adduce such
evidence. Thus, the trial court should have resolved the respondents’ motion even without the latter’s opposition and the presentation of
evidence thereon.

The RTC Committed a Grave


Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders

In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of preliminary injunction against the respondents on the
basis of the material averments of the complaint. In its April 16, 1997 Order, the trial court denied the respondents’ motion for reconsideration of
the previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based on the material allegations of his
complaint, the evidence on record, the pleadings of the parties, as well as the applicable laws:

… For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis of the facts culled from the evidence presented, the
pleadings and the law applicable unswayed by the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code of
Judicial Ethics).30

Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ of preliminary injunction, thus:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance
of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to
the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual.

A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is generally availed of
to prevent actual or threatened acts, until the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a
transcendent remedy.31 While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court taking
cognizance of the case, extreme caution must be observed in the exercise of such discretion.32 Indeed, in Olalia v. Hizon,33 we held:

It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be extended
unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it.34

The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause of action and in the probability of irreparable
injury, inadequacy of pecuniary compensation and the prevention of the multiplicity of suits. Where facts are not shown to bring the case within
these conditions, the relief of injunction should be refused.35

For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a clear and
unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to
prevent serious damage.36 Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion.
Where the complainant’s right is doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting substantial
rights and interests. It is not designed to protect contingent or future rights. The possibility of irreparable damage without proof of adequate
existing rights is not a ground for injunction.37

We have reviewed the pleadings of the parties and found that, as contended by the respondents, the petitioner failed to establish the essential
requisites for the issuance of a writ of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion amounting to excess
or lack of jurisdiction in denying the respondents’ comment/motion as well as their motion for reconsideration.

First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling, disposing of and encumbering their property. As
the registered owners of the property, the respondents have the right to enjoy and dispose of their property without any other limitations than
those established by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property is the power of the owner to sell,

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encumber, transfer, and even destroy the property. Ownership also includes the right to recover the possession of the property from any other
person to whom the owner has not transmitted such property, by the appropriate action for restitution, with the fruits, and for indemnification for
damages.38 The right of ownership of the respondents is not, of course, absolute. It is limited by those set forth by law, such as the agrarian reform
laws. Under Article 1306 of the New Civil Code, the respondents may enter into contracts covering their property with another under such terms
and conditions as they may deem beneficial provided they are not contrary to law, morals, good conduct, public order or public policy.

The respondents cannot be enjoined from selling or encumbering their property simply and merely because they had executed Deeds of
Assignment in favor of the petitioner, obliging themselves to assign and transfer their rights or interests as agricultural farmers/laborers/sub-tenants
over the landholding, and granting the petitioner the exclusive right to buy the property subject to the occurrence of certain conditions. The
respondents were not parties to the said deeds. There is no evidence that the respondents agreed, expressly or impliedly, to the said deeds or to
the terms and conditions set forth therein. Indeed, they assailed the validity of the said deeds on their claim that the same were contrary to the
letter and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of the respondents,
and that he had not met any of them before he filed his complaint in the RTC. He did not even know that one of those whom he had impleaded
as defendant, Angelica Vda. de Lacson, was already dead.

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

A: Not yet, sir.

Q: Do you know that two (2) of the defendants are residents of the United States?

A: I do not know, sir.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?

A: I am aware of that, sir.39

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

We cannot see our way clear on how or why injunction should lie against petitioners. As owners of the lands being tilled by TIAMSON, et al.,
petitioners, under the law, have the right to enjoy and dispose of the same. Thus, they have the right to possess the lands, as well as the right to
encumber or alienate them. This principle of law notwithstanding, private respondent in the lower court sought to restrain the petitioners from
encumbering and/or alienating the properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of Deeds of San Fernando,
Pampanga. This cannot be allowed to prosper since it would constitute a limitation or restriction, not otherwise established by law on their right of
ownership, more so considering that petitioners were not even privy to the alleged transaction between private respondent and TIAMSON, et al.40

Second. A reading the averments of the complaint will show that the petitioner clearly has no cause of action against the respondents for the
principal relief prayed for therein, for the trial court to fix a period within which to pay to each of the defendants-tenants the balance of the
P50.00 per square meter, the consideration under the Deeds of Assignment executed by the defendants-tenants. The respondents are not parties
or privies to the deeds of assignment. The matter of the period for the petitioner to pay the balance of the said amount to each of the
defendants-tenants is an issue between them, the parties to the deed.

Third. On the face of the complaint, the action of the petitioner against the respondents and the defendants-tenants has no legal basis. Under the
Deeds of Assignment, the obligation of the petitioner to pay to each of the defendants-tenants the balance of the purchase price was
conditioned on the occurrence of the following events: (a) the respondents agree to sell their property to the petitioner; (b) the legal impediments
to the sale of the landholding to the petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he testified, the petitioner
admitted that the legal impediments referred to in the deeds were (a) the respondents’ refusal to sell their property; and, (b) the lack of approval
of the Department of Agrarian Reform:

Q : There is no specific agreement prior to the execution of those documents as when they will pay?

A : We agreed to that, that I will pay them when there are no legal impediment, sir.

Q : Many of the documents are unlattered (sic) and you want to convey to this Honorable Court that prior to the execution of these documents
you have those tentative agreement for instance that the amount or the cost of the price is to be paid when there are no legal impediment, you
are using the word "legal impediment," do you know the meaning of that?

A : When there are (sic) no more legal impediment exist, sir.

Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the unlettered defendants?

A : We have agreed to that, sir.

ATTY. OCAMPO:

May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted it.

COURT:

Just answer the question, Mr. Tayag.

WITNESS:

Yes, Your Honor.

ATTY. OCAMPO:

Q : Did you explain to them?

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A : Yes, sir.

Q : What did you tell them?

A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to sell their shares to me or to us it would be
hard to (sic) me to pay them in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the title that there is [a]
prohibited period of time before you can sell the property. I explained every detail to them.41

It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to the defendants-tenants the balance of
the P50.00 per square meter under the deeds of assignment. Thus:

2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the ASSIGNEE, who is given an exclusiv e and absolute
right to buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled
and possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR including commissions, taxes and all allowable deductions
relative to the sale of the subject properties.

3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to effect the
smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE;

4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of the said lot until
such time that full payment of the agreed purchase price had been made by the ASSIGNEE.42

There is no showing in the petitioner’s complaint that the respondents had agreed to sell their property, and that the legal impediments to the
agreement no longer existed. The petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of
Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner in his complaint, he was
yet to meet with the defendants-tenants to discuss the implementation of the deeds of assignment. Unless and until the Department of Agrarian
Reform approved the said deeds, if at all, the petitioner had no right to enforce the same in a court of law by asking the trial court to fix a period
within which to pay the balance of the purchase price and praying for injunctive relief.

We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option
contracts.43 An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property
at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the
right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions, or which giv es to the
owner of the property the right to sell or demand a sale. It imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.44 The second party gets in praesenti, not lands, not
an agreement that he shall have the lands, but the right to call for and receive lands if he elects.45 An option contract is a separate and distinct
contract from which the parties may enter into upon the conjunction of the option.46

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive
right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the
property. Not being the registered owners of the property, the defendants-tenants could not legally grant to the petitioner the option, much less
the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON HABET."

Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation that the latter induced or are inducing the
defendants-tenants to violate the deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads:

Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the pleader is burdened to prove the following: (1) the existence of a
valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third person in the contractual
relation without legal justification.

Where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in
wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious intermeddler.48

In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler. The only evidence
adduced by the petitioner to prove his claim is the letter from the defendants-tenants informing him that they had decided to sell their rights and
interests over the landholding to the respondents, instead of honoring their obligation under the deeds of assignment because, according to
them, the petitioner harassed those tenants who did not want to execute deeds of assignment in his favor, and because the sai d defendants-
tenants did not want to have any problem with the respondents who could cause their eviction for executing with the petitioner the deeds of
assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49 The defendants-tenants did not allege therein that the
respondents induced them to breach their contracts with the petitioner. The petitioner himself admitted when he testified that his claim that the
respondents induced the defendants-assignees to violate contracts with him was based merely on what "he heard," thus:

Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the Lacsons were inducing the defendants?

A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of fact, that is the reason why they sent me letter
that they will sell it to the Lacsons.

Q: Incidentally, do you knew (sic) these Lacsons individually?

A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the authority to sell the property.50

Even if the respondents received an offer from the defendants-tenants to assign and transfer their rights and interests on the landholding, the
respondents cannot be enjoined from entertaining the said offer, or even negotiating with the defendants-tenants. The respondents could not
even be expected to warn the defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under Section
22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are disqualified from becoming
beneficiaries.

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From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants execute the Deeds of Assignment in his
favor was to acquire the landholding without any tenants thereon, in the event that the respondents agreed to sell the property to him. The
petitioner knew that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the defendants-tenants shall have
preferential right to buy the same under reasonable terms and conditions:

SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural lessor desires to sell the landholding, the agricultural lessee shall have the
preferential right to buy the same under reasonable terms and conditions: Provided, That the entire landholding offered for sale must be pre-
empted by the Land Authority if the landowner so desires, unless the majority of the lessees object to such acquisition: Provided, further, That
where there are two or more agricultural lessees, each shall be entitled to said preferential right only to the extent of the area actually cultivated
by him. …51

Under Section 12 of the law, if the property was sold to a third person without the knowledge of the tenants thereon, the latter shall have the right
to redeem the same at a reasonable price and consideration. By assigning their rights and interests on the landholding under the deeds of
assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a beneficiary under Section 22
of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have to vacate the
property in favor of the petitioner upon full payment of the purchase price. Instead of acquiring ownership of the portions of the landholding
respectively tilled by them, the defendants-tenants would again become landless for a measly sum of P50.00 per square meter. The petitioner’s
scheme is subversive, not only of public policy, but also of the letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to
take effect in the future or ten years hence is not a justification. The respondents may well argue that the agrarian laws had been violated by the
defendants-tenants and the petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has implemented the deeds by
paying the defendants-tenants amounts of money and even sought their immediate implementation by setting a meeting with the defendants-
tenants. In fine, the petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the essence.

The Appellate Court Erred


In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.

We agree with the petitioner’s contention that the appellate court erred when it permanently enjoined the RTC from continuing with the
proceedings in Civil Case No. 10910. The only issue before the appellate court was whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction in denying the respondents’ motion to deny or dismiss the petitioner’s plea for a writ of
preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910 or to
dismiss the complaint. It bears stressing that the petitioner may still amend his complaint, and the respondents and the defendants-tenants may
file motions to dismiss the complaint. By permanently enjoining the trial court from proceeding with Civil Case No. 10910, the appellate court
acted arbitrarily and effectively dismissed the complaint motu proprio, including the counterclaims of the respondents and that of the
defendants-tenants. The defendants-tenants were even deprived of their right to prove their special and affirmative defenses.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996 and April
16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the RTC from further
proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to
continue with the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended.

SO ORDERED.

G.R. No. 111238 January 25, 1995

ADELFA PROPERTIES, INC., petitioner,


vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, respondents.

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. 347671 are (1) whether of 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)

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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 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 summons6 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 ". . . 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, 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;

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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 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 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 the 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 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 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 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 it 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 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 the 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

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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 w as 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 that than 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 specified time and
providing 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 contem plating 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
ids 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

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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 of 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 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 determination51 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 therefore, 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

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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' latter 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.

G.R. No. 97332 October 10, 1991

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,


vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES AND ROBERTO REYES, respondents.

Tranquilino F. Meris for petitioners.


Agripino G. Morga for private respondents.

MEDIALDEA, J.:

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

The facts of the case are as follows:

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

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

DEED OF OPTION

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

WITNESSETH

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

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

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

That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon the property covered thereby, upon
payment of the corresponding fees; and

That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of this Deed of Option.

IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the persons concerned, this 11th day of November,
1971.

JULIO VILLAMOR MACARIA LABINGISA

With My Conformity:

MARINA VILLAMOR ROBERTO REYES

Signed in the Presence Of:

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MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO

ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)


CITY OF MANILA ) S.S.

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

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

Doc. No. 1526;


Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by them to the Villamor spouses
but Marina Villamor refused and reminded them instead that the Deed of Option in fact gave them the option to purchase the remaining portion
of the lot.

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

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the dispositive portion of which states:

WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the
defendant MACARIA LABING-ISA REYES and ROBERTO REYES, to sell unto the plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds
of Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's fees and to pay the cost of suit.

The counterclaim is hereby DISMISSED, for LACK OF MERIT.

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

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on the following assignment of errors:

1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS
IS STILL VALID AND BINDING DESPITE THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;

2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST
THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND PREPARED THE SAME;

3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-APPELLEES;

4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE DEED
OF OPTION;

5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE DEFENDANT-APPELLANTS; and

6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S FEES.
(pp. 31-32, Rollo)

On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court and dismissing the complaint. The reversal
of the trial court's decision was premised on the finding of respondent court that the Deed of Option is void for lack of consideration.

The Villamor spouses brought the instant petition for review on certiorari on the following grounds:

I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR (PRIVATE
RESPONDENT) PART OR ON THE PART OF THE SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE DEED OF OPTION
DENOTES A SUSPENSIVE CONDITION;

II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN NOT
FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN FULFILLED;

Page 14 of 89
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III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS OFFER AND
ACCEPTANCE CONTAINED IN THE DEED OF OPTION;

IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR LACK OF CONSIDERATION;

V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION DESPITE THE
EXPRESS OFFER AND ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)

The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private respondents agreed to sell their lot to
petitioners "whenever the need of such sale arises, either on our part (private respondents) or on the part of Julio Villamor and Marina Villamor
(petitioners)." The court a quo, rule that the Deed of Option was a valid written agreement between the parties and made the following
conclusions:

xxx xxx xxx

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

The law provides that when the terms of an agreement have been reduced to writing it is to be considered as containing all such terms, and
therefore, there can be, between the parties and their successors in interest no evidence of their terms of the agreement, other than the contents
of the writing. ... (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible rule that wherever written instruments are
appointed either by the requirements of law, or by the contract of the parties, to be the repositories and memorials of truth, any other evidence is
excluded from being used, either as a substitute for such instruments, or to contradict or alter them. This is a matter both of principle and of policy;
of principle because such instruments are in their nature and origin entitled to a much higher degree of credit than evidence of policy, because it
would be attended with great mischief if those instruments upon which man's rights depended were liable to be impeached by loose collateral
evidence. Where the terms of an agreement are reduced to writing, the document itself, being constituted by the parties as the expositor of their
intentions, it is the only instrument of evidence in respect of that agreement which the law will recognize so long as it exists for the purpose of
evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis
supplied, pp. 126-127, Records).

The respondent appellate court, however, ruled that the said deed of option is void for lack of consideration. The appellate court made the
following disquisitions:

Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by them although the prevailing price at that time
was only P25.00 in consideration of the option to buy the remainder of the land. This does not seem to be the case. In the first place, the deed of
sale was never produced by them to prove their claim. Defendant-appellants testified that no copy of the deed of sale had ever been given to
them by the plaintiff-appellees. In the second place, if this was really the condition of the prior sale, we see no reason why it should be reiterated
in the Deed of Option. On the contrary, the alleged overprice paid by the plaintiff-appellees is given in the Deed as reason for the desire of the
Villamors to acquire the land rather than as a consideration for the option given to them, although one might wonder why they took nearly 13
years to invoke their right if they really were in due need of the lot.

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

The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of the sale to them of a portion of
defendant-appellant's lot does not necessarily prove that the prevailing market price at the time of the sale was P18.00 per square meter. (In fact
they claim it was P25.00). It is improbable that plaintiff-appellees should pay P52.00 per square meter for the privilege of buying when the value of
the land itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)

As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason which moves the contracting
parties to enter into the contract." The cause or the impelling reason on the part of private respondent executing the deed of option as appearing
in the deed itself is the petitioner's having agreed to buy the 300 square meter portion of private respondents' land at P70.00 per square meter
"which was greatly higher than the actual reasonable prevailing price." This cause or consideration is clear from the deed which stated:

That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor agreed to buy the said one-half portion at the above stated
price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining
one-half portion still owned by me ... (p. 26, Rollo)

The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969 the Villamor spouses bough an
adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square meter which the private respondents did not rebut. Thus, expressed
in terms of money, the consideration for the deed of option is the difference between the purchase price of the 300 square meter portion of the
lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically
stated in the deed of option, was ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option may, as opined by the
appellate court, be improbable but improbabilities does not invalidate a contract freely entered into by the parties.

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a privilege existing in one
person, for which he had paid a consideration and which gives him the right to buy, for example, certain merchandise or certain specified
property, from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If
We look closely at the "deed of option" signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square
meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the actual reasonable prevailing value
of the lands in that place at that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the said lot
at a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land.
Had the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to
buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a much
higher price. But, the "deed of option" went on and stated that the sale of the other half would be made "whenever the need of such sale arises,
either on our (Reyeses) part or on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was

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granted to the Villamors, the Reyeses were likewise granted an option to sell. In other words, it was not only the Villamors who were granted an
option to buy for which they paid a consideration. The Reyeses as well were granted an option to sell should the need for such sale on their part
arise.

In the instant case, the option offered by private respondents had been accepted by the petitioner, the promise, in the same document. The
acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes
obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of
the deed. 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 of consideration, the promisory is not bound by his promise and may,
accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price. From that moment, the parties may reciprocally demand perform of contracts." Since there was, between the
parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What was, however, left to be done
was for either party to demand from the other their respective undertakings under the contract. It may be demanded at any time either by the
private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel the private respondents to
deliver the property.

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

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The Deed of Option was executed on
November 11, 1971. The acceptance, as already mentioned, was also accepted in the same instrument. The complaint in this case was filed by
the petitioners on July 13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action had prescribed.
There were allegations by the petitioners that they demanded from the private respondents as early as 1984 the enforcement of their rights under
the contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. In the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the observations of the court a quo held, thus:

... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to Convey and Transfer as contained in Exhibits '1'
and '1-A', her failure or the abandonment of her right to file an action against Pulmano Molintas when he was still a co-owner of the on-half (1/2)
portion of the 10,000 square meters is now barred by laches and/or prescribed by law because she failed to bring such action within ten (10) years
from the date of the written agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when she filed the adverse claim through her
counsel in 1959 she had absolutely no more right whatsoever on the same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow the petitioner to demand the delivery of the
property subject of this case thirteen (13) years or seventeen (17) years after the execution of the deed at the price of only P70.00 per square
meter is inequitous. For reasons also of equity and in consideration of the fact that the private respondents have no other decent place to live, this
Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners' prayer.

ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED for reasons cited in this decision. Judgement is
rendered dismissing the complaint in Civil Case No. C-12942 on the ground of prescription and laches.

SO ORDERED.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee,


vs.
SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

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

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

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

Page 16 of 89
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This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

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

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

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff
agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted
on the margin.1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph
of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the
latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is
more, since Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel"2 of said pleading.

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

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

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

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

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

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

This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia Verde.5

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

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

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

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

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

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

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

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

We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article
1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been

Page 17 of 89
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exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot
adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.

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

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

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

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance
is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... .
(77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.)

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

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on contracts — and 1479 — on sales — of
the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is
that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 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 ordered.

G.R. No. L-51824 February 7, 1992

PERCELINO DIAMANTE, petitioner,


vs.
HON. COURT OF APPEALS and GERARDO DEYPALUBUS, respondents.

Hernandez, Velicaria, Vibar & Santiago for petitioner.

Amancio B. Sorongon for private respondent.

DAVIDE, JR., J.:

Assailed in this petition for review is the Resolution of the respondent Court of Appeals dated 21 March 1979 in C.A.-G.R. No. SP-04866 setting aside
its earlier decision therein, promulgated on 6 December 1978, which reversed the decision of the then Court of First Instance (now Regional Trial
Court) of Iloilo City. The latter nullified the Orders of the Secretary of the Department of Agriculture and Natural Resources (DANR) dated 29 August
1969, 20 November 1969 and 21 April 1970, declared binding the Fishpond Lease Agreement (FLA) issued to private respondent and disallowed
petitioner from repurchasing from private respondent a portion of the fishery lot located at Dumangas, Iloilo, covered by the FLA.

The pleadings of the parties and the decision of the respondent Court disclose the factual antecedents of this case.

A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the Cadastral Survey of Dumangas, Iloilo, was previously
covered by Fishpond Permit No. F-2021 issued in the name of Anecita Dionio. Upon Anecita's death, her heirs, petitioner Diamante and Primitivo
Dafeliz, inherited the property which they later divided between themselves; petitioner got 4.4. hectares while Dafeliz got 5 hectares. It is the
petitioner's share that is the subject of the present controversy. Primitivo Dafeliz later sold his share to private respondent.

On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in question for P8,000.00 with the right to repurchase
the same within three (3) years from said date.

On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated 12 July 1960, for a fishpond permit and a fishpond
lease agreement over the entire lot, submitting therewith the deeds of sale executed by Dafeliz and the petitioner.

Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights over the property in question to the private
respondent for P4,000.00.

Page 18 of 89
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On 25 October 1960, private respondent, with his wife's consent, executed in favor of the petitioner an Option to Repurchase the property in
question within ten (10) years from said date, with a ten-year grace period.

Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not, however, submit the Option to Repurchase.

Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond Permit No. 4953-Q; on 17 December 1962, it approved
FLA No. 1372 in the latter's favor.

On 11 December 1963, petitioner, contending that he has a valid twenty-year option to repurchase the subject property, requested the Bureau of
Fisheries to nullify FLA No. 1372 insofar as the said property is concerned. On 18 December 1964, his letter-complaint was dismissed. Petitioner then
sought a reconsideration of the dismissal; the same was denied on 29 April 1965. His appeal to the Secretary of the DANR was likewise dismissed on
30 October 1968. Again, on 20 November 1968, petitioner sought for a reconsideration; this time, however, he was successful. On 29 August 1969,
the DANR Secretary granted his motion in an Order cancelling FLA No. 1372 and stating, inter alia, that:

Evidently, the application as originally filed, could not be favorably acted upon by reason of the existing right of a third party over a portion
thereof. It was only the submission of the deed of absolute sale which could eliminate the stumbling block to the approval of the transfer and the
issuance of a permit or lease agreement. It was on the basis of this deed of sale, in fact, the one entitled "option to repurchase" executed barely a
week from the execution of the deed of absolute sale, (which) reverted, in effect, the status of the land in question to what it was after the
execution of the deed of sale with right to repurchase; that is, the land was again placed under an encumbrance in favor of a third party.
Circumstantially, there is a ground (sic) to believe that the deed of absolute sale was executed merely with the end in view of circumventing the
requirements for the approval of the transfer of leasehold rights of Diamante in favor of Deypalubos; and the subsequent execution of the "Option
to Repurchase" was made to assure the maintenance of a vendor a retro's rights in favor of Diamante. There was, therefore, a misrepresentation
of an essential or material fact committed by the lessee-appellee (Deypalubos) in his application for the permit and the lease agreement, without
which the same could not have been issued. 1

The Secretary based his action on Section 20 of Fisheries Administrative Order No. 60, the second paragraph of which reads:

Any and all of the statements made in the corresponding application shall be considered as essential conditions and parts of the permit or lease
granted. Any false statements in the application of facts or any alteration, change or modification of any or all terms and conditions made therein
shall ipso facto cause the cancellation of the permit or lease.

Private respondent moved for a reconsideration of this last Order arguing that the DANR Secretary's previous Order of 30 October 1968 dismissing
petitioner's letter-complaint had already become final on the ground that he (private respondent) was not served a copy of petitioner's 20
November 1968 motion for reconsideration. On 20 November 1969, private respondent's motion for reconsideration was denied; a second motion
for reconsideration was likewise denied on 20 April 1970.

On 5 May 1970, private respondent filed with the Court of First Instance of Iloilo City a special civil action for certiorari with preliminary injunction
(docketed as Civil Case No. 8209), seeking to annul the Secretary's Orders of 20 April 1970, 20 November 1969 and 29 August 1969 on the ground
that the Secretary: (1) gravely abused his discretion in not giving him the opportunity to be heard on the question of whether or not the Option to
Repurchase was forged; and (2) has no jurisdiction to set aside FLA No. 1372 as the Order of the Bureau of Fisheries dismissing petitioner's 11
December 1963 letter-complaint had already become final.

After issuing a temporary restraining order and a writ of preliminary injunction, the lower court tried the case jointly with Criminal Case No. 520
wherein both the petitioner and a certain Atty. Agustin Dioquino, the Notary Public who notarized the 25 October 1960 Option to Repurchase,
were charged with falsification of a public document.

After due trial, the lower court acquitted the accused in the criminal case and decided in favor of the private respondent in Civil Case No. 8209;
the court ruled that: (1) the DANR Secretary abused his discretion in issuing the questioned Orders, (2) petitioner cannot repurchase the property in
question as the Option to Repurchase is of doubtful validity, and (3) FLA No. 1372 in the name of private respondent is valid and binding.

Petitioner appealed to the respondent Court which, on 6 December 1978, reversed the decision of the trial court 2 on the ground that no grave
abuse of discretion was committed by respondent Secretary inasmuch as private respondent was given the opportunity to be heard on his claim
that the Option to Repurchase is spurious, and that the trial court merely indulged in conjectures in not upholding its validity. Said the respondent
Court:

With all the foregoing arguments appellee had exhaustively adduced to show the spuriousness of the deed of "Option to Repurchase", appellee
can hardly complain of not having been given an opportunity to be heard, which is all that is necessary in relation to the requirement of notice
and hearing in administrative proceedings. Moreover, appellee never asked for a formal hearing at the first opportunity that he had to do so, as
when he filed his first motion for reconsideration. He asked for a formal hearing only in his second motion for reconsideration evidently as a mere
afterthought, upon realizing that his arguments were futile without proofs to support them.

The only remaining question, therefore, is whether the Secretary acted with grave abuse of discretion in giving weight to the alleged execution by
appellee of the deed of Option to Repurchase, on the basis of the xerox copy of said deed as certified by the Notary Public, Agustin Dioquino.

With such documentary evidence duly certified by the Notary Public, which is in effect an affirmation of the existence of the deed of "Option of
Repurchase" (sic) and its due execution, the Secretary may not be said to have gravely abused his discretion in giving the document enough
evidentiary weight to justify his action in applying the aforequoted provisions of Fisheries Adm. Order No. 60. This piece of evidence may be
considered substantial enough to support the conclusion reached by the respondent Secretary, which is all that is necessary to sustain an
administrative finding of fact (Ortua vs. Encarnacion, 59 Phil. 635; Ang Tibay vs. CIR, 69 Phil. 635; Ramos vs. The Sec. of Agriculture and Natural
Resources, et al. L-29097, Jan. 28, 1974, 55 SCRA 330). Reviewing courts do not re-examine the sufficiency of the evidence in an administrative
case, if originally instituted as such, nor are they authorized to receive additional evidence that was not submitted to the administrative agency
concerned. For common sense dictates that the question of whether the administrative agency abused its discretion in weighing evidence should
be resolved solely on the basis of the proof that the administrative authorities had before them and no other (Timbancaya vs. Vicente, L-19100,
Dec. 27, 1963, 9 SCRA 852). In the instant case the evidence presented for the first time before the court a quo could be considered only for the
criminal case heard jointly with this case.

The lower court's action of acquitting the notary public, Agustin Dioquino, and appellant Diamante in Criminal Case No. 520 for falsification of
public document is in itself a finding that the alleged forgery has not been conclusively established. This finding is quite correct considering the

Page 19 of 89
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admission of the NBI handwriting expert that admission of the NBI handwriting expert that he cannot make any finding on the question of whether
appellee's signature on the deed of "Option to Repurchase" is forged or not, because of the lack of (sic) specimen signature of appellee for
comparative examination. The Secretary may have such signature in the application papers of appellee on file with the former's office upon
which to satisfy himself of (sic) the genuineness of appellee's signature. It would be strange, indeed, that appellee had not provided the NBI expert
with a specimen of his signature when his purpose was to have an expert opinion that his signature on the questioned document is forged.

On the other hand, as to the signature of his wife, the latter herself admitted the same to be her own. Thus —

Q There is a signature below the typewritten words "with my marital consent" and above the name Edelina Duyo, whose signature is this?

A That is my signature. (T.s.n., Crim. Case No. 520, April 5, 1971, p. 14).

In not finding in favor of the perfect validity of the "Option to Repurchase," the court a quo merely indulged in conjectures. Thus, believing the
testimony of appellee that the later (sic) could not have executed the deed of option to repurchase after spending allegedly P12,000.00, and
that if there was really a verbal agreement upon the execution of the deed of absolute sale, as alleged by appellant, that appellant's right to
repurchase, as was stipulated in the earlier deed of sale, shall be preserved, such agreement should have been embodied in the deed of sale of
October 17, 1960 (Exh. D), the court doubted the genuineness of the deed of Option to Repurchase (sic).

It is highly doubtful if appellee had spent P12,000.00 during the period from October 17, 1960 to October 25, 1960 when the deed of option was
executed. Likewise, the right to repurchase could not have been embodied in the deed of absolute sale since, as the Secretary of DANR found,
the purpose of the deed of absolute sale is to circumvent the law and insure the approval of appellee's application, as with his right to 4.4
hectares appearing to be subject to an encumbrance, his application would not have been given favorable action.

Above all, the speculation and conjectures as indulged in by the court a quo cannot outweigh the probative effect of the document itself, a
certified xerox copy thereof as issued by the Notary Public, the non-presentation of the original having been explained by its loss, as was the
testimony of the same Notary Public, who justly won acquittal when charged with falsification of public document at the instance of appellee.
The fact that the spaces for the document number, page and book numbers were not filled up in the photostatic copy presented by the
representative of the Bureau of Records Management does not militate against the genuineness of the document. It simply means that the copy
sent to the said Bureau happens to have those spaces unfilled up (sic). But the sending of a copy of the document to the Bureau of Records
Management attests strongly to the existence of such document, the original of which was duly executed, complete with the aforesaid data duly
indicated thereon, as shown by the xerox copy certified true by the Notary Public.

Indeed, in the absence of positive and convincing proof of forgery, a public instrument executed with the intervention of a Notary Public must be
held in high respect and accorded full integrity, if only upon the presumption of the regularity of official functions as in the nature of those upon
the presumption of the regularity of official functions as in the nature of those of a notary public (Bautista vs. Dy Bun Chin, 49 OG 179; El Hogar
Filipino vs. Olviga, 60 Phil. 17).

Subsequently, the respondent Court, acting on private respondent's motion for reconsideration, promulgated on 21 March 1979 the challenged
Resolution 3 setting aside the earlier decision and affirmed, in toto, the ruling of the trial court, thus:

. . . the respondent (DANR) Secretary had gone beyond his statutory authority and had clearly acted in abuse of discretion in giving due weight to
the alleged option to repurchase whose (sic) genuiness (sic) and due execution had been impugned and denied by petitioner-appellee
(Deypalubos). While the certified true copy of the option to repurchase may have been the basis of the respondent Secretary in resolving the
motion for reconsideration, the Court believes that he should have first ordered the presentation of evidence to resolve this factual issue
considering the conflicting claims of the parties. As earlier pointed out, all that was submitted to the Bureau of Fisheries and consequently to the
respondent Secretary, was a xerox copy of the questioned document which was certified to by a notary public to be a copy of a deed found in
his notarial file which did not bear any specimen of the signatures of the contracting parties. And assuming that a certification made by a notary
public as to the existence of a document should be deemed an affirmation that such document actually exists. Nevertheless, (sic) when such
claim is impugned, the one who assails the existence of a document should be afforded the opportunity to prove such claim, because, at most,
the presumption of regularity in the performance of official duties is merely disputable and can be rebutted by convincing and positive evidence
to the contrary.

His motion for reconsideration having been denied, the petitioner filed the instant petition for review.

Petitioner contends that the Rules of Court should not be strictly applied to administrative proceedings and that the findings of fact of
administrative bodies, absent a showing of arbitrariness, should be accorded respect.

While the petition has merit, petitioner's victory is hollow and illusory for, as shall hereafter be shown, even as We reverse the assailed resolution of
the respondent Court of Appeals, the questioned decision of the Secretary must, nevertheless, be set aside on the basis of an erroneous
conclusion of law with respect to the Option to Repurchase.

The respondent Court correctly held in its decision of 6 December 1978 that the respondent Secretary provided the private respondent sufficient
opportunity to question the authenticity of the Option to Repurchase and committed no grave abuse of discretion in holding that the same was in
fact executed by private respondent. We thus find no sufficient legal and factual moorings for respondent Court's sudden turnabout in its
resolution of 21 March 1979. That private respondent and his wife executed the Option to Repurchase in favor of petitioner on 25 October 1960 is
beyond dispute. As determined by the respondent Court in its decision of 6 December 1978, private respondent's wife, Edelina Duyo, admitted
having affixed her signature to the said document. Besides, the trial court itself in Criminal Case No. 520 which was jointly tried with the civil case,
acquitted both the petitioners and the notary public, before whom the Option to Repurchase was acknowledged, of the crime of falsification of
said document.

We hold, however, that the respondent Secretary gravely erred in holding that private respondent's non-disclosure and suppression of the fact
that 4.4 hectares of the area subject of the application is burdened with or encumbered by the Option to Repurchase constituted a falsehood or
a misrepresentation of an essential or material fact which, under the second paragraph of Section 29 of Fisheries Administrative Order No. 60
earlier quoted, "shall ipso facto cause the cancellation of the permit or lease." In short, the Secretary was of the opinion that the Option to
Repurchase was an encumbrance on the property which affected the absolute and exclusive character of private respondent's ownership over
the 4.4 hectares sold to him by petitioner. This is a clear case of a misapplication of the law on conventional redemption and a misunderstanding
of the effects of a right to repurchase granted subsequently in an instrument different from the original document of sale.

Article 1601 of the Civil Code provides:

Page 20 of 89
SALES 4th Batch

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the
provisions of article 1616 and other stipulations which may have been agreed upon.

In Villarica, et al. vs. Court of Appeals, et al., 4 decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated
its decision in this case, this Court, interpreting the above Article, held:

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the
same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer
reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of
repurchase but some other right like the option to buy in the instant case. . . .

In the earlier case of Ramos, et al. vs. Icasiano, et al., 5 decided in 1927, this Court had already ruled that "an agreement to repurchase becomes
a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold
absolutely, and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner
already of the object. In that case the vendor has not reserved to himself the right to repurchase."

In Vda. de Cruzo, et al. vs. Carriaga, et al., 6 this Court found another occasion to apply the foregoing principle.

Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by
Article 1479 of the Civil Code which reads as follows:

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.

A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the pleadings of the parties. This Court
cannot, therefore, properly rule on whether the promise was accepted and a consideration distinct from the price, supports the option.
Undoubtedly, in the absence of either or both acceptance and separate consideration, the promise to sell is not binding upon the promissor
(private respondent).

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.

xxx xxx xxx

. . . The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the
option, and a consideration for an optional contract is just as important as the consideration for any other kind of contract. Thus, a distinction
should be drawn between the consideration for the option to repurchase, and the consideration for the contract of repurchase itself.7

Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct consideration. 8

It may be true that the foregoing issues were not squarely raised by the parties. Being, however, intertwined with the issue of the correctness of the
decision of the respondent Secretary and, considering further that the determination of said issues is essential and indispensable for the rendition
of a just decision in this case, this Court does not hesitate to rule on them.

In Hernandez vs. Andal, 9 this Court held:

If the appellants' assignment of error be not considered a direct challenge to the decision of the court below, we still believe that the objection
takes a narrow view of practice and procedure contrary to the liberal spirit which pervades the Rules of Court. The first injunction of the new Rules
(Rule 1, section 2) is that they "shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy, and
inexpensive determination of every action and proceeding." In line with the modern trends of procedure, we are told that, "while an assignment of
error which is required by law or rule of court has been held essential to appellate review, and only those assigned will be considered, there are a
number of cases which appear to accord to the appellate court a broad discretionary power to waive the lack of proper assignm ent of errors
and consider errors not assigned. And an unassigned error closely related to an error properly assigned, or upon which the determination of the
question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as
error." (4 C.J.S., 1734; 3 C.J., 1341, footnote 77). At the least, the assignment of error, viewed in this light, authorizes us to examine and pass upon
the decision of the court below.

In Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd., 10 this Court ruled:

. . . (t)he Supreme Court has ample authority to review and resolve matter not assigned and specified as errors by either of the parties in the
appeal if it finds the consideration and determination of the same essential and indispensable in order to arrive at a just decision in the case. 11
This Court, thus, has the authority to waive the lack of proper assignment of errors if the unassigned errors closely relate to errors properly
pinpointed out or if the unassigned errors refer to matters upon which the determination of the questions raised by the errors properly assigned
depend. 12

The same also applies to issues not specifically raised by the parties. The Supreme Court, likewise, has broad discretionary power, in the resolution
of a controversy, to take into consideration matters on record which the parties fail to submit to the Court as specific questions for determination.
13 Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance and close relation
to the former and as long as they arise from matters on record, the Court has the authority to include them in its discussion of the controversy as
well as to pass upon them. In brief, in those cases wherein questions not particularly raised by the parties surface as necessary for the complete
adjudication of the rights and obligations of the parties and such questions fall within the issues already framed by the parties, the interests of
justice dictate that the Court consider and resolve them.

Page 21 of 89
SALES 4th Batch
WHEREFORE, the instant petition is GRANTED. The Resolution of respondent Court of Appeals of 21 March 1979 in C.A.-G.R. No. SP-04866 and the
Decision of the trial court in Civil Case No. 8209, insofar as they declare, for the reasons therein given, Fishpond Lease Agreement No. 1372, valid
and binding, are hereby REVERSED and SET ASIDE. The challenged Orders of the respondent Secretary of Agriculture and Natural Resources of 29
August 1969, 20 November 1969 and 21 April 1970 are likewise REVERSED and SET ASIDE and Fishpond Lease Agreement No. 1372 is ordered
REINSTATED.

No pronouncement as to costs.

IT IS SO ORDERED.

G.R. No. 126454 November 26, 2004

BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTE, petitioners,


vs.
COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA VILLANUEVA, respondents.

DECI SION

AZCUNA, J.:

This petition for review on certiorari seeks to annul the Decision1 dated August 7, 1996, of the Court of Appeals in CA-G.R. CV No. 45956, and its
Resolution2 dated September 12, 1996, denying reconsideration of the decision. In the questioned issuances, the Court of Appeals affirmed the
Decision3 dated June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in Civil Case No. 90-55437.

The antecedents are:

On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered into a contract of lease4 with Mr. & Mrs. Elmer Tito Medina Villanueva
(respondent spouses Villanueva). The latter are the registered owners of a property located at No. 2436 (formerly 2424) Leon Guinto St., Malate,
Manila. The pertinent stipulations in the lease contract were:

1. That the LESSOR lets and leases to the LESSEE a store space known as 2424 Leon Guinto Sr. St., Malate, Manila, of which property the LESSOR is
the registered owner in accordance with the Land Registration Act.

2. That the lease shall take effect on June 7, 1985 and shall be for the period of Fifteen (15) years.

3. That LESSEE shall pay the LESSOR within five (5) days of each calendar month, beginning Twelve (12) months from the date of this agreement, a
monthly rental of Ten Thousand Pesos (P10,000.00) Philippine Currency, plus 10% escalation clause per year starting on June 7, 1988.

4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said
sum is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of said property which is mortgaged by the
LESSOR.

5. That the title will remain in the safe keeping of the Bible Baptist Church, Malate, Metro Manila until the expiration of the lease agreement or the
leased premises be purchased by the LESSEE, whichever comes first. In the event that the said title will be lost or destroyed while in the possession
of the LESSEE, the LESSEE agrees to pay all costs involved for the re-issuance of the title.

6. That the leased premises may be renovated by the LESSEE, to the satisfaction of the LESSEE to be fit and usable as a Church.

7. That the LESSOR will remove all other tenants from the leased premises no later than March 15, 1986. It is further agreed that if those tenants are
not vacated by June 1, 1986, the rental will be lowered by the sum of Three Thousand Pesos (P3,000.00) per month until said tenants have left the
leased premises.

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the
premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment
agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.

x x x.5

The foregoing stipulations of the lease contract are the subject of the present controversy.

Although the same lease contract resulted in several cases6 filed between the same parties herein, petitioner submits, for this Court's review, only
the following errors allegedly committed by the Court of Appeals:

a) Respondent Court of Appeals erred in finding that the option to buy granted the petitioner Baptist Church under its contract of lease with the
Villanuevas did not have a consideration and, therefore, did not bind the latter;

b) [R]espondent court again also erred in finding that the option to buy did not have a fixed price agreed upon by the parties for the purchase of
the property; and

c) [F]inally, respondent court erred in not awarding petitioners Baptist Church and its pastor attorney's fees.7

In sum, this Court has three issues to resolve: 1) Whether or not the option to buy given to the Baptist Church is founded upon a consideration; 2)
Whether or not by the terms of the lease agreement, a price certain for the purchase of the land had been fixed; and 3) Whether or not the
Baptist Church is entitled to an award for attorney's fees.

Page 22 of 89
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The stipulation in the lease contract which purportedly gives the lessee an option to buy the leased premises at any time within the duration of the
lease, is found in paragraph 8 of the lease contract, viz:

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the
premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment
agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.

Under Article 1479 of the Civil Code, it is provided:

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

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

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option
contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.

In this case, petitioner Baptist Church seeks to buy the leased premises from the spouses Villanueva, under the option given to them. Petitioners
claim that the Baptist Church "agreed to advance the large amount needed for the rescue of the property but, in exchange, it asked the
Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million."8 They argue that the consideration supporting the
option was their agreement to pay off the Villanueva's P84,000 loan with the bank, thereby freeing the subject property from the mortgage
encumbrance. They state further that the Baptist Church would not have agreed to advance such a large amount as it did to rescue the property
from bank foreclosure had it not been given an enforceable option to buy that went with the lease agreement.

In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not pay a separate and specific sum of money to cover the option
alone. But the P84,000 it paid the Villanuevas in advance should be deemed consideration for the one contract they entered into – the lease with
option to buy."9 They rely on the case of Teodoro v. Court of Appeals10 to support their stand.

This Court finds no merit in these contentions.

First, petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas' property from the mortgage should be deemed the
separate consideration to support the contract of option. It must be pointed out that said amount was in fact apportioned into monthly rentals
spread over a period of one year, at P7,000 per month. Thus, for the entire period of June 1985 to May 1986, petitioner Baptist Church's monthly
rent had already been paid for, such that it only again commenced paying the rentals in June 1986. This is shown by the testimony of petitioner
Pastor Belmonte where he states that the P84,000 was advance rental equivalent to monthly rent of P7,000 for one year, such that for the entire
year from 1985 to 1986 the Baptist Church did not pay monthly rent.11

This Court agrees with respondents that the amount of P84,000 has been fully exhausted and utilized by their occupation of the premises and
there is no separate consideration to speak of which could support the option.12

Second, petitioners' reliance on the case of Teodoro v. Court of Appeals13 is misplaced. The facts of the Teodoro case reveal that therein
respondent Ariola was the registered lessee of a property owned by the Manila Railroad Co. She entered into an agreement whereby she
allowed Teodoro to occupy a portion of the rented property and gave Teodoro an option to buy the same, should Manila Railroad Co. decide to
sell the property to Ariola. In addition, Teodoro, who was occupying only a portion of the subject rented property, also undertook to pay the
Manila Railroad Co., the full amount of the rent supposed to be paid by the registered lessor Ariola. Consequently, unlike this case, Teodoro paid
over and above the amount due for her own occupation of a portion of the property. That amount, which should have been paid by Ariola as
lessor, and for her own occupation of the property, was deemed by the Court as sufficient consideration for the option to buy which Ariola gave
to Teodoro upon Ariola's acquiring the property.

Hence, in Teodoro, this Court was able to find that a separate consideration supported the option contract and thus, its enforcement may be
demanded. Petitioners, therefore, cannot rely on Teodoro, for the case even supports the respondents' stand that a consideration that is separate
and distinct from the purchase price is required to support an option contract.

Petitioners further insist that a consideration need not be a separate sum of money. They posit that their act of advancing the money to "rescue"
the property from mortgage and impending foreclosure, should be enough consideration to support the option.

In Villamor v. Court of Appeals,14 this Court defined consideration as "the why of the contracts, the essential reason which moves the contracting
parties to enter into the contract."15 This definition illustrates that the consideration contemplated to support an option contract need not be
monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the
same is an onerous contract for which the consideration must be something of value, although its kind may vary.

Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land was sold to the spouses Villamor for P70 per square meter, an amount much
higher than the reasonable prevailing price. Thereafter, a deed of option was executed whereby the sellers undertook to sell the other half to the
same spouses. It was stated in the deed that the only reason the spouses bought the first half of the parcel of land at a much higher price, was the
undertaking of the sellers to sell the second half of the land, also at the same price. This Court held that the cause or consideration for the option,
on the part of the spouses-buyers, was the undertaking of the sellers to sell the other half of the property. On the part of the sellers, the
consideration supporting the option was the much higher amount at which the buyers agreed to buy the property. It was explicit from the deed
therein that for the parties, this was the consideration for their entering into the contract.

It can be seen that the Court found that the buyer/optionee had parted with something of value, which was the amount he paid over and
above the actual prevailing price of the land. Such amount, different from the price of the land subject of the option, was deemed sufficient and
distinct consideration supporting the option contract. Moreover, the parties stated the same in their contract.

Villamor is distinct from the present case because, First, this Court cannot find that petitioner Baptist Church parted with anything of value, aside
from the amount of P84,000 which was in fact eventually utilized as rental payments. Second, there is no document that contai ns an agreement
between the parties that petitioner Baptist Church's supposed rescue of the mortgaged property was the consideration which the parties
contemplated in support of the option clause in the contract. As previously stated, the amount advanced had been fully utilized as rental

Page 23 of 89
SALES 4th Batch
payments over a period of one year. While the Villanuevas may have them to thank for extending the payment at a time of need, this is not the
separate consideration contemplated by law.

Noting that the option clause was part of a lease contract, this Court looked into its previous ruling in the early case of Vda. De Quirino v.
Palarca,17 where the Court did say that "in reciprocal contracts, like the one in question,18 the obligation or promise of each party is the
consideration for that of the other."19 However, it must be noted that in that case, it was also expressly stated in the deed that should there be
failure to exercise the option to buy the property, the optionee undertakes to sell the building and/or improvements he has made on the premises.
In addition, the optionee had also been paying an amount of rent that was quite high and in fact turned out to be too burdensome that there
was a subsequent agreement to reduce said rentals. The Court found that "the amount of rentals agreed upon x x x – which amount turned out to
be so burdensome upon the lessee, that the lessor agreed, five years later, to reduce it – as well as the building and/or improvements
contemplated to be constructed and/or introduced by the lessee, were, undoubtedly, part of the consideration for his option to purchase the
leased premises."20

Again, this Court notes that the parties therein clearly stipulated in their contract that there was an undertaking on the part of the optionee to sell
the improvements made on the property if the option was not exercised. Such is a valuable consideration that could support the option contract.
Moreover, there was the excessive rental payments that the optionee paid for five years, which the Court also took into account in deciding that
there was a separate consideration supporting the option.

To summarize the rules, an option contract needs to be supported by a separate consideration. The consideration need not be monetary but
could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view
of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration
must be clearly specified as such in the option contract or clause.

This Court also notes that in the present case both the Regional Trial Court and the Court of Appeals agree that the option was not founded upon
a separate and distinct consideration and that, hence, respondents Villanuevas cannot be compelled to sell their property to petitioner Baptist
Church.

The Regional Trial Court found that "[a]ll payments made under the contract of lease were for rentals. No money [was] ever exchanged for and in
consideration of the option." Hence, the Regional Trial Court found the action of the Baptist Church to be "premature and without basis to compel
the defendant to sell the leased premises." The Regional Trial Court consequently ruled:

WHEREFORE, judgment is rendered:

1) Denying plaintiffs' application for writ of injunction;

2) That defendant cannot be compelled to sell to plaintiffs the leased premises in accordance with par. 8 of the contract of lease;

3) Defendant is hereby ordered to reimburse plaintiffs the sum of P15, 919.75 plus 12% interest representing real estate taxes, plaintiffs paid the City
Treasurer's Office of Manila;

4) Declaring that plaintiff made a valid and legal consignation to the Court of the initial amount of P18,634.00 for the month of November and
December 1990 and every month thereafter.

All other claims of the plaintiffs are hereby dismissed for lack of merit.

No pronouncement as to costs.

SO ORDERED. 21

On appeal, the Court of Appeals agreed with the Regional Trial Court and found that the option to buy the leased premises was not binding upon
the Villanuevas for non-compliance with Article 1479. It found that said option was not supported by a consideration as "no money was ever really
exchanged for and in consideration of the option." In addition, the appellate court determined that in the instant case, "the price for the object is
not yet certain." Thus, the Court of Appeals affirmed the Regional Trial Court decision and dismissed the appeal for lack of merit.22

Having found that the option to buy granted to the petitioner Baptist Church was not founded upon a separate consideration, and hence, not
enforceable against respondents, this Court finds no need to discuss whether a price certain had been fixed as the purchase price.

Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the lease agreement that in the event of failure of either of the parties to
comply with any of the conditions of the agreement, the aggrieved party can collect reasonable attorney's fees.23

In view of this Court's finding that the option contract is not enforceable for being without consideration, the respondents Villanueva spouses'
refusal to comply with it cannot be the basis of a claim for attorney's fees.

Hence, this Court agrees with as the Court of Appeals, which affirmed the findings of the Regional Trial Court, that such claim is to be dismissed for
lack of factual and legal basis.

WHEREFORE, the Decision and Resolution of the Court of Appeals subject of the petition are hereby AFFIRMED.

No costs.

SO ORDERED.

G.R. No. 202050

PHILIPPINE NATIONAL OIL COMPANY and PNOC DOCKYARD & ENGINEERING CORPORATION, Petitioners
vs.
KEPPEL PHILIPPINES HOLDINGS, INC., Respondent

DECI SION

Page 24 of 89
SALES 4th Batch

BRION, J.:

Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of Court, appealing the decision dated 19 De.cember 20111
and resolution dated 14 May 20122 of the Court of Appeals (CA) in CA-G.R. CV No. 86830. These assailed CA rulings affirmed in toto the decision
dated 12 January 20063 of the Regional Trial Court (RTC) of Batangas City, Branch 84, in Civil Case No. 7364.

THE FACTS

The 1976 Lease Agreement and Option to Purchase

Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines Holdings, Inc.4 (Keppel) entered into a lease agreement5 (the
agreement) with Luzon Stevedoring Corporation (Lusteveco) covering 11 hectares of land located in Bauan, Batangas. The lease was for a period
of 25 years for a consideration of P2.1 million.6 At the option of Lusteveco, the rental fee could be totally or partially converted into equity shares in
Keppel.7

At the end of the 25-year lease period, Keppel was given the "firm and absolute option to purchase"8 the land for ₱4.09 million, provided that it
had acquired the necessary qualification to own land under Philippine laws at the time the option is exercised.9 Apparently, when the lease
agreement was executed, less than 60% of Keppel’s shareholding was Filipino-owned, hence, it was not constitutionally qualified to acquire
private lands in the country.10

If, at the end of the 25-year lease period (or in 2001), Keppel remained unqualified to own private lands, the agreement provided that the lease
would be automatically renewed for another 25 years.11 Keppel was further allowed to exercise the option to purchase the land up to the 30th
year of the lease (or in 2006), also on the condition that, by then, it would have acquired the requisite qualification to own land in the
Philippines.12

Together with Keppel’s lease rights and option to purchase, Lusteveco warranted not to sell the land or assign its rights to the land for the duration
of the lease unless with the prior written consent of Keppel.13 Accordingly, when the petitioner Philippine National Oil Corporation14 (PNOC)
acquired the land from Lusteveco and took over the rights and obligations under the agreement, Keppel did not object to the assignment so long
as the agreement was annotated on PNOC’s title.15 With PNOC’s consent and cooperation, the agreement was recorded as Entry No. 65340 on
PNOC’s Transfer of Certificate of Title No. T-50724.16

The Case and the Lower Court Rulings

On 8 December 2000, Keppel wrote PNOC informing the latter that at least 60% of its shares were now owned by Filipinos.17 Consequently, Keppel
expressed its readiness to exercise its option to purchase the land. Keppel reiterated its demand to purchase the land several times, but on every
occasion, PNOC did not favourably respond.18

To compel PNOC to comply with the Agreement, Keppel instituted a complaint for specific performance with the RTC on 26 Septem ber 2003
against PNOC.19 PNOC countered Keppel’s claims by contending that the agreement was illegal for circumventing the constitutional prohibition
against aliens holding lands in the Philippines.20 It further asserted that the option contract was void, as it was unsupported by a separate
valuable consideration.21 It also claimed that it was not privy to the agreement.22

After due proceedings, the RTC rendered a decision23 in favour of Keppel and ordered PNOC to execute a deed of absolute sale upon payment
by Keppel of the purchase price of ₱4.09 million.24

PNOC elevated the case to the CA to appeal the RTC decision.25 Affirming the RTC decision in toto, the CA upheld Keppel’s right to acquire the
land.26 It found that since the option contract was embodied in the agreement – a reciprocal contract – the consideration was the obligation
that each of the contracting party assumed.27 Since Keppel was already a Filipino-owned corporation, it satisfied the condition that entitled it to
purchase the land.28

Failing to secure a reconsideration of the CA decision,29 PNOC filed the present Rule 45 petition before this Court to assail the CA rulings.

THE PARTIES’ ARGUMENTS and THE ISSUES

PNOC argues that the CA failed to resolve the constitutionality of the agreement. It contends that the terms of the agreement amounted to a
virtual sale of the land to Keppel who, at the time of the agreement’s enactment, was a foreign corporation and, thus, violated the 1973
Constitution.

Specifically, PNOC refers to (a) the 25-year duration of the lease that was automatically renewable for another 25 years30; (b) the option to
purchase the land for a nominal consideration of ₱100.00 if the option is exercised anytime between the 25th and the 30th year of the lease31;
and (c) the prohibition imposed on Lusteveco to sell the land or assign its rights therein during the lifetime of the lease.32 Taken together, PNOC
submits that these provisions amounted to a virtual transfer of ownership of the land to an alien which act the 1973 Constitution prohibited.

PNOC claims that the agreement is no different from the lease contract in Philippine Banking Corporation v. Lui She,33 which the Court struck
down as unconstitutional. In Lui She, the lease contract allowed the gradual divestment of ownership rights by the Filipino owner-lessor in favour of
the foreigner-lessee.34 The arrangement in Lui She was declared as a scheme designed to enable the parties to circumvent the constitutional
prohibition.35 PNOC posits that a similar intent is apparent from the terms of the agreement with Keppel and accordingly should also be
nullified.36

PNOC additionally contends the illegality of the option contract for lack of a separate consideration, as required by Article 1479 of the Civil
Code.37 It claims that the option contract is distinct from the main contract of lease and must be supported by a consideration other than the
rental fees provided in the agreement.38

On the other hand, Keppel maintains the validity of both the agreement and the option contract it contains. It opposes the claim that there was
"virtual sale" of the land, noting that the option is subject to the condition that Keppel becomes qualified to own private lands in the Philippines.39
This condition ripened in 2000, when at least 60% of Keppel’s equity became Filipino-owned.

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Keppel contends that the agreement is not a scheme designed to circumvent the constitutional prohibition. Lusteveco was not proscribed from
alienating its ownership rights over the land but was simply required to secure Keppel’s prior written consent.40 Indeed, Lusteveco was able to
transfer its interest to PNOC without any objection from Keppel.41

Keppel also posits that the requirement of a separate consideration for an option to purchase applies only when the option is granted in a
separate contract.42 In the present case, the option is embodied in a reciprocal contract and, following the Court’s ruling in Vda. De Quirino v.
Palarca,43 the option is supported by the same consideration supporting the main contract.

From the parties’ arguments, the following ISSUES emerge:

First, the constitutionality of the Agreement, i.e., whether the terms of the Agreement amounted to a virtual sale of the land to Keppel that was
designed to circumvent the constitutional prohibition on aliens owning lands in the Philippines.

Second, the validity of the option contract, i.e., whether the option to purchase the land given to Keppel is supported by a separate valuable
consideration.

If these issues are resolved in favour of Keppel, a third issue emerges – one that was not considered by the lower courts, but is critical in terms of
determining Keppel’s right to own and acquire full title to the land, i.e., whether Keppel’s equity ownership meets the 60% Filipino-owned capital
requirement of the Constitution, in accordance with the Court’s ruling in Gamboa v. Teves.44

THE COURT’S RULING

I. The constitutionality of the Agreement

The Court affirms the constitutionality of the Agreement.

Preserving the ownership of land, whether public or private, in Filipino hands is the policy consistently adopted in all three of our constitutions.45
Under the 1935,46 1973,47 and 198748 Constitutions, no private land shall be transferred, assigned, or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain. Consequently, only Filipino citizens, or corporations or
associations whose capital is 60% owned by Filipinos citizens, are constitutionally qualified to own private lands.

Upholding this nationalization policy, the Court has voided not only outright conveyances of land to foreigners,49 but also arrangements where
the rights of ownership were gradually transferred to foreigners.50 In Lui Shui,51 we considered a 99-year lease agreement, which gave the
foreigner-lessee the option to buy the land and prohibited the Filipino owner-lessor from selling or otherwise disposing the land, amounted to –

a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus
fruendi, and jus abutendi) but also of the right to dispose of it (jus disponendi) — rights the sum total of which make up ownership.52 [emphasis
supplied]

In the present case, PNOC submits that a similar scheme is apparent from the agreement’s terms, but a review of the overall circumstances leads
us to reject PNOC’s claim.

The agreement was executed to enable Keppel to use the land for its shipbuilding and ship repair business.53 The industrial/commercial purpose
behind the agreement differentiates the present case from Lui She where the leased property was primarily devoted to residential use.54
Undoubtedly, the establishment and operation of a shipyard business involve significant investments. Keppel’s uncontested testimony showed that
it incurred P60 million costs solely for preliminary activities to make the land suitable as a shipyard, and subsequently introduced improvements
worth P177 million.55 Taking these investments into account and the nature of the business that Keppel conducts on the land, we find it
reasonable that the agreement’s terms provided for an extended duration of the lease and a restriction on the rights of Lusteveco.

We observe that, unlike in Lui She,56 Lusteveco was not completely denied its ownership rights during the course of the lease. It could dispose of
the lands or assign its rights thereto, provided it secured Keppel’s prior written consent.57 That Lusteveco was able to convey the land in favour of
PNOC during the pendency of the lease58 should negate a finding that the agreement’s terms amounted to a virtual transfer of ownership of the
land to Keppel.

II. The validity of the option contract

II.A An option contract must be supported by a separate consideration that is either clearly specified as such in the contract or duly proven by the
offeree/promisee.

An option contract is defined in the second paragraph of Article 1479 of the Civil Code:

Article 1479. x x x An accepted 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.

An option contract is a contract where one person (the offeror/promissor) grants to another person (the offeree/promisee) the right or privilege to
buy (or to sell) a determinate thing at a fixed price, if he or she chooses to do so within an agreed period.59

As a contract, it must necessarily have the essential elements of subject matter, consent, and consideration.60 Although an option contract is
deemed a preparatory contract to the principal contract of sale,61 it is separate and distinct therefrom,62 thus, its essential elements should be
distinguished from those of a sale.63

In an option contract, the subject matter is the right or privilege to buy (or to sell) a determinate thing for a price certain,64 while in a sales
contract, the subject matter is the determinate thing itself.65 The consent in an option contract is the acceptance by the offeree of the offeror’s
promise to sell (or to buy) the determinate thing, i.e., the offeree agrees to hold the right or privilege to buy (or to sell) within a specified period.
This acceptance is different from the acceptance of the offer itself whereby the offeree asserts his or her right or privilege to buy (or to sell), which
constitutes as his or her consent to the sales contract. The consideration in an option contract may be anything of value, unlike in a sale where the
purchase price must be in money or its equivalent.66 There is sufficient consideration for a promise if there is any benefit to the offeree or any
detriment to the offeror.67

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In the present case, PNOC claims the option contract is void for want of consideration distinct from the purchase price for the land.68 The option is
incorporated as paragraph 5 of the Agreement and reads as

5. If within the period of the first [25] years [Keppel] becomes qualified to own land under the laws of the Philippines, it has the firm and absolute
option to purchase the above property for a total price of [₱4,090,000.00] at the end of the 25th year, discounted at 16% annual for every year
before the end of the 25th year, which amount may be converted into equity of [Keppel] at book value prevailing at the time of sale, or paid in
cash at Lusteveco’s option.

However, if after the first [25] years, [Keppel] is still not qualified to own land under the laws of the Republic of the Philippines, [Keppel’s] lease of
the above stated property shall be automatically renewed for another [25] years, under the same terms and conditions save for the rental price
which shall be for the sum of ₱4,090,000.00... and which sum may be totally converted into equity of [Keppel] at book value prevailing at the time
of conversion, or paid in cash at Lusteveco’s option.

If anytime within the second [25] years up to the [30th] year from the date of this agreement, [Keppel] becomes qualified to own land under the
laws of the Republic of the Philippines, [Keppel] has the firm and absolute option to buy and Lusteveco hereby undertakes to sell the above
stated property for the nominal consideration of [₱100.00.00]...69

Keppel counters that a separate consideration is not necessary to support its option to buy because the option is one of the stipulations of the
lease contract. It claims that a separate consideration is required only when an option to buy is embodied in an independent contract.70 It relies
on Vda. de Quirino v. Palarca,71 where the Court declared that the option to buy the leased property is supported by the same consideration as
that of the lease itself: "in reciprocal contracts [such as lease], the obligation or promise of each party is the consideration for that of the other."72

In considering Keppel’s submission, we note that the Court’s ruling in 1969 in Vda. de Quirino v. Palarca has been taken out of context and
erroneously applied in subsequent cases. In 2004, through Bible Baptist Church v. CA,73 we revisited Vda. de Quirino v. Palarca and observed that
the option to buy given to the lessee Palarca by the lessor Quirino was in fact supported by a separate consideration: Palarca paid a higher
amount of rent and, in the event that he does not exercise the option to buy the leased property, gave Quirino the option to buy the
improvements he introduced thereon. These additional concessions were separate from the purchase price and deemed by the Court as
sufficient consideration to support the option contract.

Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the mere inclusion of an option contract in a reciprocal lease
contract provides it with the requisite separate consideration for its validity. The reciprocal contract should be closely scrutinized and assessed
whether it contains additional concessions that the parties intended to constitute as a consideration for the option contract, separate from that of
the purchase price.

In the present case, paragraph 5 of the agreement provided that should Keppel exercise its option to buy, Lusteveco could opt to convert the
purchase price into equity in Keppel. May Lusteveco’s option to convert the price for shares be deemed as a sufficient separate consideration for
Keppel’s option to buy?

As earlier mentioned, the consideration for an option contract does not need to be monetary and may be anything of value.74 However, when
the consideration is not monetary, the consideration must be clearly specified as such in the option contract or clause.75

In Villamor v. CA,76 the parties executed a deed expressly acknowledging that the purchase price of ₱70.00 per square meter "was greatly higher
than the actual reasonable prevailing value of lands in that place at that time."77 The difference between the purchase price and the prevailing
value constituted as the consideration for the option contract. Although the actual amount of the consideration was not stated, it was
ascertainable from the contract whose terms evinced the parties’ intent to constitute this amount as consideration for the option contract.78 Thus,
the Court upheld the validity of the option contract.79 In the light of the offeree’s acceptance of the option, the Court further declared that a
bilateral contract to sell and buy was created and that the parties’ respective obligations became reciprocally demandable.80

When the written agreement itself does not state the consideration for the option contract, the offeree or promisee bears the burden of proving
the existence of a separate consideration for the option.81 The offeree cannot rely on Article 1354 of the Civil Code,82 which presumes the
existence of consideration, since Article 1479 of the Civil Code is a specific provision on option contracts that explicitly requires the existence of a
consideration distinct from the purchase price.83

In the present case, none of the above rules were observed. We find nothing in paragraph 5 of the Agreement indicating that the grant to
Lusteveco of the option to convert the purchase price for Keppel shares was intended by the parties as the consideration for Keppel’s option to
buy the land; Keppel itself as the offeree presented no evidence to support this finding. On the contrary, the option to convert the purchase price
for shares should be deemed part of the consideration for the contract of sale itself, since the shares are merely an alternative to the actual cash
price.1âwphi1

There are, however cases where, despite the absence of an express intent in the parties’ agreements, the Court considered the additional
concessions stipulated in an agreement to constitute a sufficient separate consideration for the option contract.

In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the option to buy the land assumed the obligation to pay not only her rent as sub-
lessee, but also the rent of the sub-lessor (Ariola) to the primary lessor (Manila Railroad Company).85 In other words, Teodoro paid an amount over
and above the amount due for her own occupation of the property, and this amount was found by the Court as sufficient consideration for the
option contract.86

In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan with the bank, allowing the latter to foreclose the mortgage.88 Since the spouses
Dijamco did not exercise their right to redeem, the bank consolidated its ownership over the mortgaged property.89 The spouses Dijamco later
proposed to purchase the same property by paying a purchase price of ₱622,095.00 (equivalent to their principal loan) and a monthly amount of
₱13,478.00 payable for 12 months (equivalent to the interest on their principal loan). They further stated that should they fail to make a monthly
payment, the proposal should be automatically revoked and all payments be treated as rentals for their continued use of the property.90 The
Court treated the spouses Dijamco’s proposal to purchase the property as an option contract, and the consideration for which was the monthly
interest payments.91 Interestingly, this ruling was made despite the categorical stipulation that the monthly interest payments should be treated as
rent for the spouses Dijamco’s continued possession and use of the foreclosed property.

At the other end of the jurisprudential spectrum are cases where the Court refused to consider the additional concessions sti pulated in
agreements as separate consideration for the option contract.

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In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church) paid in advance ₱84,000.00 to the lessor in order to free the property from an
encumbrance. The lessee claimed that the advance payment constituted as the separate consideration for its option to buy the property.93 The
Court, however, disagreed noting that the ₱84,000.00 paid in advance was eventually offset against the rent due for the first year of the lease,
"such that for the entire year from 1985 to 1986 the [Bible Baptist Church] did not pay monthly rent."94 Hence, the Court refused to recognize the
existence of a valid option contract.95

What Teodoro, Dijamco, and Bible Baptist Church show is that the determination of whether the additional concessions in agreements are
sufficient to support an option contract, is fraught with danger; in ascertaining the parties’ intent on this matter, a court may read too much or too
little from the facts before it.

For uniformity and consistency in contract interpretation, the better rule to follow is that the consideration for the option contract should be clearly
specified as such in the option contract or clause. Otherwise, the offeree must bear the burden of proving that a separate consideration for the
option contract exists.

Given our finding that the Agreement did not categorically refer to any consideration to support Keppel’s option to buy and for Keppel’s failure to
present evidence in this regard, we cannot uphold the existence of an option contract in this case.

II.B. An option, though unsupported by a separate consideration, remains an offer that, if duly accepted, generates into a contract to sell where
the parties’ respective obligations become reciprocally demandable

The absence of a consideration supporting the option contract, however, does not invalidate an offer to buy (or to sell). An option unsupported
by a separate consideration stands as an unaccepted offer to buy (or to sell) which, when properly accepted, ripens into a contract to sell. This is
the rule established by the Court en banc as early as 1958 in Atkins v. Cua Hian Tek,96 and upheld in 1972 in Sanchez v. Rigos.97

Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the Civil Code, which are quoted below:

Article 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.

Article 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. [emphases supplied]

The Court en banc declared that there is no distinction between these two provisions because the scenario contemplated in the second
paragraph of Article 1479 is the same as that in the last clause of Article 1324.98 Instead of finding a conflict, Sanchez v. Rigos harmonised the two
provisions, consistent with the established rules of statutory construction.99

Thus, when an offer is supported by a separate consideration, a valid option contract exists, i.e., there is a contracted offer100 which the offeror
cannot withdraw from without incurring liability in damages.

On the other hand, when the offer is not supported by a separate consideration, the offer stands but, in the absence of a binding contract, the
offeror may withdraw it any time.101 In either case, once the acceptance of the offer is duly communicated before the withdrawal of the offer, a
bilateral contract to buy and sell is generated which, in accordance with the first paragraph of Article 1479 of the Civil Code, becomes
reciprocally demandable.102

Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v. AGPC,103 which declared that

a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration... In other words, an accepted unilateral
promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if
the same is not supported by any consideration.104 [emphasis supplied]

The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of the Civil Code is distinct from Article 1324 of the Civil Code and
is a provision that specifically governs options to buy (or to sell).105 As mentioned, Sanchez v. Rigos found no conflict between these two
provisions and accordingly abandoned the Southwestern Sugar doctrine.

Unfortunately, without expressly overturning or abandoning the Sanchez ruling, subsequent cases reverted back to the Southwestern Sugar
doctrine.106 In 2009, Eulogio v. Apeles107 referred to Southwestern Sugar v. AGPC as the controlling doctrine108 and, due to the lack of a
separate consideration, refused to recognize the option to buy as an offer that would have resulted in a sale given its timely acceptance by the
offeree. In 2010, Tuazon v. Del Rosario-Suarez109 referred to Sanchez v. Rigos but erroneously cited as part of its ratio decidendi that portion of the
Southwestern Sugar doctrine that Sanchez had expressly abandoned.110

Given that the issue raised in the present case involves the application of Article 1324 and 1479 of the Civil Code, it becomes imperative for the
Court [en banc] to clarify and declare here which between Sanchez and Southwestern Sugar is the controlling doctrine.

The Constitution itself declares that "no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be
modified or reversed except by the court sitting en banc."111 Sanchez v. Rigos was an en banc decision which was affirmed in 1994 in Asuncion v.
CA,112 also an en banc decision, while the decisions citing the Southwestern Sugar doctrine are all division cases.113 Based on the constitutional
rule (as well as the inherent logic in reconciling Civil Code provisions), there should be no doubt that Sanchez v. Rigos remains as the controlling
doctrine.

Accordingly, when an option to buy or to sell is not supported by a consideration separate from the purchase price, the option constitutes as an
offer to buy or to sell, which may be withdrawn by the offeror at any time prior to the communication of the offeree’s acceptance. When the
offer is duly accepted, a mutual promise to buy and to sell under the first paragraph of Article 1479 of the Civil Code ensues and the parties’
respective obligations become reciprocally demandable.

Applied to the present case, we find that the offer to buy the land was timely accepted by Keppel.

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As early as 1994, Keppel expressed its desire to exercise its option to buy the land. Instead of rejecting outright Keppel’s acceptance, PNOC
referred the matter to the Office of the Government Corporate Counsel (OGCC). In its Opinion No. 160, series of 1994, the OGCC opined that
Keppel "did not yet have the right to purchase the Bauan lands."114 On account of the OGCC opinion, the PNOC did not agree with Keppel’s
attempt to buy the land;115 nonetheless, the PNOC made no categorical withdrawal of the offer to sell provided under the Agreement.

By 2000, Keppel had met the required Filipino equity proportion and duly communicated its acceptance of the offer to buy to PNOC.116 Keppel
met with the board of directors and officials of PNOC who interposed no objection to the sale.117 It was only when the amount of purchase price
was raised that the conflict between the parties arose,118 with PNOC backtracking in its position and questioning the validity of the option.119

Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land stood, not having been withdrawn by PNOC. The offer
having been duly accepted, a contract to sell the land ensued which Keppel can rightfully demand PNOC to comply with.

III. Keppel’s constitutional right to acquire full title to the land

Filipinization is the spirit that pervades the constitutional provisions on national patrimony and economy. The Constitution has reserved the
ownership of public and private lands,120 the ownership and operation of public utilities,121 and certain areas of investment122 to Filipino citizens,
associations, and corporations. To qualify, sixty per cent (60%) of the association or corporation’s capital must be owned by Filipino citizens.
Although the 60% Filipino equity proportion has been adopted in our Constitution since 1935, it was only in 2011 that the Court interpreted what
the term capital constituted.

In Gamboa v. Teves,123 the Court declared that the "legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in
the hands of Filipino nationals."124 Clarifying the ruling, the Court decreed that the 60% Filipino ownership requirement applies separately to each
class of shares, whether with or without voting rights,125 thus:

Applying uniformly the 60-40 ownership requirement in favour of Filipino citizens to each class of shares, regardless of differences in voting rights,
privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by the Constitution.126

Although the ruling was made in the context of ownership and operation of public utilities, the same should be applied to the ownership of public
and private lands, since the same proportion of Filipino ownership is required and the same nationalist policy pervades.

The uncontested fact is that, as of November 2000, Keppel's capital is 60% Filipino-owned.127 However, there is nothing in the records showing the
nature and composition of Keppel' s shareholdings, i.e., whether its shareholdings are divided into different classes, and 60% of each share class is
legally and beneficially owned by Filipinos - understandably because when Keppel exercised its option to buy the land in 2000, the Gamboa
ruling had not yet been promulgated. The Court cannot deny Keppel its option to buy the land by retroactively applying the Gamboa ruling
without violating Keppel's vested right. Thus, Keppel's failure to prove the nature and composition of its shareholdings in 2000 could not prevent it
from validly exercising its option to buy the land.

Nonetheless, the Court cannot completely disregard the effect of the Gamboa ruling; the 60% Filipino equity proportion is a continuing
requirement to hold land in the Philippines. Even in Gamboa, the Court prospectively applied its ruling, thus enabling the public utilities to meet the
nationality requirement before the Securities and Exchange Commission commences administrative investigation and cases, and imposes
sanctions for noncompliance on erring corporations.128 In this case, Keppel must be allowed to prove whether it meets the required Filipino equity
ownership and proportion in accordance with the Gamboa ruling before it can acquire full title to the land.

In view of the foregoing, the Court AFFIRMS the decision dated 19 December 2011 and the resolution dated 14 May 2012 of the CA in CA-G.R. CV
No. 86830 insofar as these rulings uphold the respondent Keppel Philippines Holdings, Inc.' s option to buy the land, and REMANDS the case to the
Regional Trial Court of Batangas City, Branch 84, for the determination of whether the respondent Keppel Philippines Holdings, Inc. meets the
required Filipino equity ownership and proportion in accordance with the Court's ruling in Gamboa v. Teves, to allow it to acquire full title to the
land.

SO ORDERED.

POLYTECHNIC UNIVERSITY

OF THE PHILIPPINES,

Petitioner,

- versus -

GOLDEN HORIZON REALTY

CORPORATION,

Respondent.

G.R. No. 183612

x------------------------------------------x

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NATIONAL DEVELOPMENT

COMPANY,

Petitioner,

- versus -

GOLDEN HORIZON REALTY

CORPORATION,

Respondent.

G.R. No. 184260

Present:

PUNO, C.J., Chairperson,

CARPIO MORALES,

LEONARDO-DE CASTRO,

BERSAMIN, and

VILLARAMA, JR., JJ.

Promulgated:

March 15, 2010

x-----------------------------------------------------------------------------------------x

DECISION

VILLARAMA, JR., J.:

The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seek to reverse the Decision[1] dated
June 25, 2008 and Resolution dated August 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the Decision[2] dated
November 25, 2004 of the Regional Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.

The undisputed facts are as follows:

Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created under Commonwealth Act No.
182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the Philippines (PUP) is a public,
non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341.

In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known
as the NDC Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470.

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On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty Corporation (GHRC) over a portion of the
property, with an area of 2,407 square meters for a period of ten (10) years, renewable for another ten (10) years with mutual consent of the
parties.[3]

On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering 3,222.80 square meters, also renewable
upon mutual consent after the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted the option to purchase the
area leased, the price to be negotiated and determined at the time the option to purchase is exercised.[4]

Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less than the stipulated cost,
and other improvements which shall automatically belong to the NDC as lessor upon the expiration of the lease period. Accordi ngly, GHRC
introduced permanent improvements and structures as required by the terms of the contract. After the completion of the industrial complex
project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby generating hundreds
of jobs.[5]

On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC indicating its
exercise of the option to renew the lease for another ten (10) years. As no response was received from NDC, GHRC sent another letter on August
12, 1988, reiterating its desire to renew the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased
premises.[6] NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to remain in possession of the
property.

Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third party. On October 21, 1988,
GHRC filed in the RTC a complaint for specific performance, damages with preliminary injunction and temporary restraining order.[7]

In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989, ordering the transfer of the whole
NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at acquisition cost. The memorandum
order cited the serious need of PUP, considered the Poor Mans University, to expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its property. The order of conveyance of the
10.31-hectare property would automatically result in the cancellation of NDCs total obligation in favor of the National Government in the amount
of P57,193,201.64.[8]

On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, representatives, agents and any other persons
assisting it from proceeding with the sale and disposition of the leased premises.[9]

On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a purchaser pendente lite of a property subject of
litigation it is entitled to intervene in the proceedings. The RTC granted the said motion and directed PUP to file its Answer-in-Intervention.[10]

PUP also demanded that GHRC vacate the premises, insisting that the latters lease contract had already expired. Its demand letter unheeded by
GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.[11]

Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional defendants PUP, Honorable
Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-mentioned defendants from
prosecuting Civil Case No. 134416 for ejectment. A temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting
and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.[12]

In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a nullity, for being violative of the writ
of injunction issued by the trial court, apart from being an infringement of the Constitutional prohibition against impairment of obligation of
contracts, an encroachment on legislative functions and a bill of attainder. In the alternative, should the trial court adjudge the memorandum
order as valid, GHRC contended that its existing right must still be respected by allowing it to purchase the leased premises.[13]

Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case involving NDC, PUP and another
lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the RTC of Pasay City.[14]

On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the Philippines v. Court of Appeals) and
143590 (National Development Corporation v. Firestone Ceramics, Inc.),[15] which declared that the sale to PUP by NDC of the portion leased by
Firestone pursuant to Memorandum Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract with NDC. We
thus decreed:

WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first contract of lease fixed the area of the leased
premises at 2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground survey of the leased premises be immediately
conducted by a duly licensed, registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2) months from
the finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the
approved survey within which to exercise its right to purchase the leased property at P1,500.00 per square meter, and petitioner Polytechnic
University of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon
payment of the purchase price thereof.

SO ORDERED.[16]

The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on the merits ensued.[17]

On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC under its lease contract with NDC and
ordering PUP to reconvey the said portion of the property in favor of GHRC. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the plaintiff to cause
immediate ground survey of the premises subject of the leased contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407 and
3,222.8 square meters respectively, by a duly licensed and registered surveyor at the expense of the plaintiff within two months from receipt of this

Page 31 of 89
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Decision and thereafter, the plaintiff shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the
leased property at P554.74 per square meter. And finally, the defendant PUP, in whose name the property is titled, is hereby ordered to reconvey
the aforesaid property to the plaintiff in the exercise of its right of its option to buy or first refusal upon payment of the purchase price thereof.

The defendant NDC is hereby further ordered to pay the plaintiff attorneys fees in the amount of P100,000.00.

The case against defendant Executive Secretary is dismissed and this decision shall bind defendant Metropolitan Trial Court, Branch 20 of Manila.

With costs against defendants NDC and PUP.

SO ORDERED.[18]

NDC and PUP separately appealed the decision to the CA.[19] By Decision of June 25, 2008, the CA affirmed in toto the decision of the RTC.[20]

Both the RTC and the CA applied this Courts ruling in Polytechnic University of the Philippines v. Court of Appeals (supra), considering that GHRC is
similarly situated as a lessee of NDC whose right of first refusal under the lease contract was violated by the sale of the property to PUP without
NDC having first offered to sell the same to GHRC despite the latters request for the renewal of the lease and/or to purchase the leased premises
prior to the expiration of the second lease contract. The CA further agreed with the RTCs finding that there was an implied renewal of the lease
upon the failure of NDC to act on GHRCs repeated requests for renewal of the lease contract, both verbal and written, and continuing to accept
monthly rental payments from GHRC which was allowed to continue in possession of the leased premises.

The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first refusal, said right pertained only to the
second lease contract, C-12-78 covering 3,222.80 square meters, and not to the first lease contract, C-33-77 covering 2,407 square meters, which
had already expired. It sustained the RTCs finding that the two (2) lease contracts were interrelated because each formed part of GHRCs
industrial complex, such that business operations would be rendered useless and inoperative if the first contract were to be detached from the
other, as similarly held in the afore-mentioned case of Polytechnic University of the Philippines v. Court of Appeals.

Petitioner PUP argues that respondents right to exercise the option to purchase had expired with the termination of the original contract of lease
and was not carried over to the subsequent implied new lease between respondent and petitioner NDC. As testified to by their witnesses Leticia
Cabantog and Atty. Rhoel Mabazza, there was no agreement or document to the effect that respondents request for extension or renewal of the
subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent can no longer exercise the option to purchase
the leased premises when the same were conveyed to PUP pursuant to Memorandum Order No. 214 dated January 6, 1989, long after the
expiration of C-33-77 and C-12-78 in September 1988.[21]

Petitioner PUP further contends that while it is conceded that there was an implied new lease between respondent and petitioner NDC after the
expiration of the lease contracts, the same did not include the right of first refusal originally granted to respondent. The CA should have applied
the ruling in Dizon v. Magsaysay[22] that the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of
the lease contract. With the implicit renewal of the 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 Civil Code are only those terms which are germane to the lessees right of continued enjoyment of
the property leased. 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. Consequently, as in this case, respondents right of opti on to purchase the
leased premises was not violated despite the impliedly renewed contract of lease with NDC. Respondent cannot favorably invoke the decision in
G.R. Nos. 143513 and 143590 (Polytechnic University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said
cases, the contracts of lease of respondent with NDC were not mutually extended or renewed for another ten (10) years. Thus, when the leased
premises were conveyed to PUP, respondent did not any more have any right of first refusal, which incidentally appears only in the second lease
contract and not in the first lease contract.[23]

On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for another ten (10)-year period. The
provisions of C-33-77 and C-12-78 clearly state that the lessee is granted the option to renew for another ten (10) years with the mutual consent of
both parties. As regards the continued receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed
lease was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as held in Dizon v. Magsaysay.[24]

Petitioner NDC further faults the CA in sustaining the RTCs decision which erroneously granted respondent the option to purchase the leased
premises at the rate of P554.74 per square meter, the same rate for which NDC sold the property to petitioner PUP and/or the National
Government, which is the mere acquisition cost thereof. It must be noted that such consideration or rate was imposed by Memorandum Order
No. 214 under the premise that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended merely
as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this case, merely returning to the
petitioner/transferor the cost of acquisition thereof, as appearing on its accounting books. It does not in any way reflect the true and fair market
value of the property, nor was it a price a willing seller would demand and accept for parting with his real property. Such benefit, therefore,
cannot be extended to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National
Government.[25]

The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies in this case involving
another lessee of NDC who claimed that the option to purchase the portion leased to it was similarly violated by the sale of the NDC Compound
in favor of PUP pursuant to Memorandum Order No. 214.

We rule in the affirmative.

The second lease contract contained the following provision:

Page 32 of 89
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III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of ten (10) years counted from the
effectivity of the payment of rental as provided under sub-paragraph (b) of Article I, with option to renew for another ten (10) years with the
mutual consent of both parties. In no case should the rentals be increased by more than 100% of the original amount fixed.

Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is
exercised. [EMPHASIS SUPPLIED]

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the formers
property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall
have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which
gives to the owner of the property the right to sell or demand a sale.[26] 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.[27]

Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the
event the owner sells the same.[28] As distinguished from an option contract, in a right of first refusal, while the object might be made
determinate, the exercise of the right of first refusal would be dependent not only on the owners eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that are yet to be firmed up.[29]

As the option to purchase clause in the second lease contract has no definite period within which the leased premises will be offered for sale to
respondent lessee and the price is made subject to negotiation and determined only at the time the option to buy is exercised, it is obviously a
mere right of refusal, usually inserted in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell the
same. That respondent was granted a right of first refusal under the second lease contract appears not to have been disputed by petitioners.
What petitioners assail is the CAs erroneous conclusion that such right of refusal subsisted even after the expiration of the original lease period,
when respondent was allowed to continue staying in the leased premises under an implied renewal of the lease and without the right of refusal
carried over to such month-to-month lease. Petitioners thus maintain that no right of refusal was violated by the sale of the property in favor of PUP
pursuant to Memorandum Order No. 214.

Petitioners position is untenable.

When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any
price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failed
to exercise his right of first priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or
under terms and conditions more favorable to the lessor.[30]

Records showed that during the hearing on the application for a writ of preliminary injunction, respondent adduced in evidence a letter of
Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive Secretary Catalino
Macaraeg, reviewing a proposed memorandum order submitted to President Corazon C. Aquino transferring the whole NDC Compound,
including the premises leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent to prove the existence of
documents as of that date and even prior to the expiration of the second lease contract or the lapse of the ten (10)-year period counted from
the effectivity of the rental payment -- that is, one hundred and fifty (150) days from the signing of the contract (May 4, 1978), as provided in Art. I,
paragraph (b) of C-12-78, or on October 1, 1988.

Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC had been negotiating through the
National Government for the sale of the property in favor of PUP as early as July 15, 1988 without first offering to sell it to respondent and even
when respondent communicated its desire to exercise the option to purchase granted to it under the lease contract, it is clear that NDC violated
respondents right of first refusal. Under the premises, the matter of the right of refusal not having been carried over to the impliedly renewed
month-to-month lease after the expiration of the second lease contract on October 21, 1988 becomes irrelevant since at the time of the
negotiations of the sale to a third party, petitioner PUP, respondents right of first refusal was still subsisting.

Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic University of the Philippines v. Court of
Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is different because the lease contract therein had not yet expired while in
this case respondents lease contracts have already expired and never renewed. The date of the expiration of the lease contract in said case is
December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In contrast, respondents lease contracts had
already expired (September 1988) at the time said memorandum order was issued.[31]

Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third party was not the issuance of
Memorandum Order No. 214 on January 6, 1989 but the commencement of such negotiations as early as July 1988 when respondents right of first
refusal was still subsisting and the lease contracts still in force. Petitioner NDC did not bother to respond to respondents letter of June 13, 1988
informing it of respondents exercise of the option to renew and requesting to discuss further the matter with NDC, nor to the subsequent letter of
August 12, 1988 reiterating the request for renewing the lease for another ten (10) years and also the exercise of the option to purchase under the
lease contract. Petitioner NDC had dismissed these letters as mere informative in nature, and a request at its best.[32]

Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely informative, thus:

August 12, 1988

HON. ANTONIO HENSON

Page 33 of 89
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General Manager

NATIONAL DEVELOPMENT COMPANY

377 Se(n). Gil J. Puyat Avenue

Makati, Metro Manila

REF: Contract of Lease

Nos. C-33-77 & C-12-78

Dear Sir:

This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our intention to exercise our option for another ten (10)
years. Should the National Development Company opt to sell the property covered by said leases, we also request for priority to negotiate for its
purchase at terms and/or conditions mutually acceptable.

As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property by constructing bodega-type
buildings which presently house all legitimate trading and manufacturing concerns. These business are substantial taxpayers, employ not less than
300 employees and contribute even foreign earnings.

It is in this context that we are requesting for the extension of the lease contract to prevent serious economic disruption and dislocation of the
business concerns, as well as provide ourselves, the lessee, an opportunity to recoup our investments and obtain a fair return thereof.

Your favorable consideration on our request will be very much appreciated.

very truly yours,

TIU HAN TENG

President[33]

As to petitioners argument that respondents right of first refusal can be invoked only with respect to the second lease contract which expressly
provided for the option to purchase by the lessee, and not in the first lease contract which contained no such clause, we sustain the RTC and CA
in finding that the second contract, covering an area of 3,222.80 square meters, is interrelated to and inseparable from the first contract over
2,407 square meters. The structures built on the leased premises, which are adjacent to each other, form part of an integrated system of a
commercial complex leased out to manufacturers, fabricators and other businesses. Petitioners submitted a sketch plan and pictures taken of the
driveways, in an effort to show that the leased premises can be used separately by respondent, and that the two (2) lease contracts are distinct
from each other.[34] Such was a desperate attempt to downplay the commercial purpose of respondents substantial improvements which
greatly contributed to the increased value of the leased premises. To prove that petitioner NDC had considered the leased premises as a single
unit, respondent submitted evidence showing that NDC issued only one (1) receipt for the rental payments for the two portions.[35] Respondent
further presented the blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the structures on the
leased premises, to show the building concept as a one-stop industrial site and integrated commercial complex.[36]

In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale in Polytechnic University of the
Philippines v. Court of Appeals in the case of respondent who was similarly prejudiced by petitioner NDCs sale of the property to PUP, as to entitle
the respondent to exercise its option to purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the
lease for another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises for a price to be
negotiated and determined at the time such option was exercised by respondent. It is to be noted that Memorandum Order No. 214 itself
declared that the transfer is subject to such liens/leases existing [on the subject property]. Thus:

...we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal over the property. Such right was
expressly stated by NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22 December 1978 which, as found
by the courts a quo, was interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August 1965 and their
second contract denominated as C-26-68 executed on 8 January 1969. Thus -

Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension thereof, the LESSOR shall first give to the
LESSEE, which shall have the right of first option to purchase the leased premises subject to mutual agreement of both parties.

Page 34 of 89
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In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract.
The consideration for the right is built into the reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was no
consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease
making the consideration for the lease the same as that for the option.

It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell
to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has
a right that the lessors first offer shall be in his favor.

The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE which, in view of the total amount of its
investments in the property, wanted to be assured that it would be given the first opportunity to buy the property at a price for which it would be
offered. Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior
to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP.[37]
[EMPHASIS SUPPLIED]

As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and following an earlier ruling in Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc.,[38] the execution of such right consists in directing the grantor to comply with his obligation
according to the terms at which he should have offered the property in favor of the grantee and at that price when the offer should have been
made. We then determined the proper rate at which the leased portion should be reconveyed to respondent by PUP, to whom the lessor NDC
sold it in violation of respondent lessees right of first refusal, as follows:

It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the sale at P1,500.00 per square meter.
In contracts of sale, the basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective
buyer. Only after the lessee-grantee fails to exercise its right under the same terms and within the period contemplated can the owner validly
offer to sell the property to a third person, again, under the same terms as offered to the grantee. It appearing that the whole NDC compound
was sold to PUP for P554.74 per square meter, it would have been more proper for the courts below to have ordered the sale of the property also
at the same price. However, since FIRESTONE never raised this as an issue, while on the other hand it admitted that the value of the property
stood at P1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts a quo that the leased premises be
sold at that price.[39] [EMPHASIS SUPPLIED]

In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00 per
square meter actual value of NDCs property at that time it was sold to PUP at P554.74 per square meter, as duly considered by this Court in the
Firestone case, should be bound by such determination. Accordingly, the price at which the leased premises should be sold to respondent in the
exercise of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should
be adjusted to P1,500.00 per square meter, which more accurately reflects its true value at that time of the sale in favor of petitioner PUP.

Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration.[40]
We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first refusal if such grant is
embodied in the same contract of lease. Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the
consideration for the grant of the right of first refusal. In entering into the contract, the lessee 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, the lessee shall be
given the right to match the offered purchase price and to buy the property at that price.[41]

We have further stressed that not even the avowed public welfare or the constitutional priority accorded to education, invoked by petitioner PUP
in the Firestone case, would serve as license for us, and any party for that matter, to destroy the sanctity of binding obligations. While education
may be prioritized for legislative and budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the
right of first refusal granted to a lessee of petitioner NDC.[42] Clearly, no reversible error was committed by the CA in sustaining respondents
contractual right of first refusal and ordering the reconveyance of the leased portion of petitioner NDCs property in its favor.

WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial Court of Makati City, Branch 144 in Civil Case
No. 88-2238, as affirmed by the Court of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED with
MODIFICATION in that the price to be paid by respondent Golden Horizon Realty Corporation for the leased portion of the NDC Compound under
Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,


vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.

Antonio M. Albano for petitioners.

Page 35 of 89
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Umali, Soriano & Associates for private respondent.

VITUG, J.:

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

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

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu
Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that
plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the
lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are
giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a
counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in
reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to
specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs
were compelled to file the complaint to compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that
defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the
proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their
property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states:

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

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in


CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices
Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for
specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable
ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine
issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The
court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of
Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to
grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6,
1991 "for insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following
terms and conditions:

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

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

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was
issued in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding
Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

Page 36 of 89
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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 issued another order, the dispositive portion of which reads:

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

SO ORDERED.

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

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.

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

We affirm the decision of the appellate court.

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

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the
essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations
(law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to
do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive
(obligor) subjects.

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

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A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract
itself, the failure of the condition would prevent such perfection.3 If the condition is imposed on the obligation of a party which is not fulfilled, the
other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code).4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obl igatory 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. . . .

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

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

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer
before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of 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 13199 of the same
Code. An option or an offer would require, among other things,10 a clear certainty on both the object and the cause or consideration of the
envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price,
that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by,
among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance
without thereby negating the indispensable element of consensuality in the perfection of contracts.11 It is not to say, however, that the right of first
refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 1912 of the Civil Code, can warrant a recovery for damages.

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

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

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

Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the
price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC,
143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).

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

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of
the court a quo. Costs against petitioners.

SO ORDERED.

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.

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".

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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:

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Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with
paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was therefore a definite refusal on the part of the plaintiff to accept
the offer of defendant Santos. For in acquiring the said properties back to her name, and in so making the offers to sell both by herself (attorney-in-
fact) and through her counsel, defendant Santos was indeed conscientiously complying with her obligation under paragraph 9 of the Lease
Agreement. . . . .

xxx xxx xxx

This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized itself by its subsequent
averments which erased or extinguished its earlier allegations of an impending wrong. Consequently, absent any actionable wrong in the very
face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or devoid of any meaning or purpose. . . . .

The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually does not contain any valid
cause of action and should therefore be as it is hereby ordered DISMISSED. The Court finds no further need to consider the other grounds of
estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. 6

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned that:

. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when she later resold the leased
properties to Raymundo has no valid legal moorings because appellant, as a prospective buyer, cannot dictate its own price and forcibly ram it
against appellee Santos, as owner, to buy off her leased properties considering the total absence of any stipulation or agreement as to the price
or as to how the price should be computed under paragraph 9 of the lease contract, . . . . 7

Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8

Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order and/or Writ of Preliminary Injunction and
to Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion sought to enjoin respondent Raymundo and his counsel from
pursuing the ejectment complaint filed before the barangay captain of San Isidro, 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, cl aiming 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

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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 600,000.00 to
be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman
was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another
for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well.
Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under
the same terms and conditions previously offered to the Bonnevies.

Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority, "all things and conditions
being equal." This Court interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and
all other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso
if the right of first refusal (or the first option to buy) is not to be rendered illusory.

From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer.
Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly
offer to sell the property to a third person, again, under the same terms as offered to the optionee.

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court upheld
the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair
every opportunity to negotiate within the 30-day stipulated period" (emphasis supplied).

In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without
priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating the right of first
option of Mayfair, and Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the
contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.

No cause of action
under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right of first refusal. It claims to be
covered under said law, being the "rightful occupant of the land and its structures" since it is the lawful lessee thereof by reason of contract. Under
the lease contract, petitioner would have occupied the property for fourteen (14) years at the end of the contractual period.

Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal to purchase shall be determined by
the Urban Zone Expropriation and Land Management Committee. Hence, . . . . certain prerequisites must be complied with by anyone who wishes
to avail himself of the benefits of the decree." 19 There being no allegation in its complaint that the prerequisites were complied with, it is clear
that the complaint did fail to state a cause of action on this ground.

Page 42 of 89
SALES 4th Batch

Deed of Assignment included


the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to petitioner did not include the option
to purchase. The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between
Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises afore-
described, . . . . 20 (emphasis supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President
Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, . . . . 21 (emphasis supplied)

One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's right of first option or priority to buy
the properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific
as to which rights and obligations were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and
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.

G.R. No. 140479 March 8, 2001

ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners,


vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.

GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision1 of the Court of Appeals dated June 25,
1999 in CA-G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of the
Regional Trial Court of Quezon City in Civil Case No. Q-93-18582.1âwphi1.nêt

The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and Federico Bantugan, herein respondents, against
Rosencor Development Corporation (hereinafter "Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for
annulment of absolute deed of sale but was later amended to one for rescission of absolute deed of sale. A complaint-for intervention was
thereafter filed by respondents Fernando Magbanua and Danna Lizza Tiangco. The complaint-in-intervention was admitted by the trial court in an
Order dated May 4, 1994.3

The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:

"This action was originally for the annulment of the Deed of Absolute Sale dated September 4, 1990 between defendants Rosencor and Eufrocina
de Leon but later amended (sic) praying for the rescission of the deed of sale.

Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story residential apartment located at No. 150 Tomas
Morato Ave., Quezon City covered by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not covered by any

Page 43 of 89
SALES 4th Batch
contract. The lessees were renting the premises then for P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive right
to purchase the property if ever they decide to sell the same.

Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to their heirs who were represented by
Eufrocina de Leon. The lessees were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had knowledge that
this right was extended to the former by the late spouses Tiangcos. The lessees continued to stay in the premises and allegedly spent their own
money amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from the rentals which already increased
to P1,000.00.

In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the premises so that the dem olition of the
building be undertaken. They refused to leave the premises. In that same month, de Leon refused to accept the lessees’ rental payment claiming
that they have run out of receipts and that a new collector has been assigned to receive the payments. Thereafter, they received a letter from
Eufrocina de Leon offering to sell to them the property they were leasing for P2,000,000.00. xxx.

The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon told them that she will be submitting the offer to
the other heirs. Since then, no answer was given by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came
to the leased premises introducing himself as its new owner.

In January 1991, the lessees again received another letter from Atty. Aguila demanding that they vacate the premises. A month thereafter, the
lessees received a letter from de Leon advising them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The
following month Atty. Aguila wrote them another letter demanding the rental payment and introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.

The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late Tiangcos have promised them. They also
asked for a copy of the deed of sale between her and the new owners thereof but she refused to heed their request. In the sam e manner, when
they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote them several letters
demanding that they vacate the premises. The lessees offered to tender their rental payment to de Leon but she refused to accept the same.

In April 1992 before the demolition can be undertaken by the Building Official, the barangay interceded between the parties herein after which
Rosencor raised the issue as to the rental payment of the premises. It was also at this instance that the lessees were furnished with a copy of the
Deed of Sale and discovered that they were deceived by de Leon since the sale between her and Rene Joaquin/Rosencor took place in
September 4, 1990 while de Leon made the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The
lessees also noted that the property was sold only for P726,000.00.

The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional P274,000.00 to complete their P1,000.000.00 earlier offer.
When their offer was refused, they filed the present action praying for the following: a) rescission of the Deed of Absolute Sale between de Leon
and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and c) de
Leon be ordered to reimburse the plaintiffs for the repairs of the property, or apply the said amount as part of the price for the purchase of the
property in the sum of P100,000.00."4

After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996 dismissing the complaint. The tri al court held that the
right of redemption on which the complaint. The trial court held that the right of redemption on which the complaint was based was merely an
oral one and as such, is unenforceable under the law. The dispositive portion of the May 13, 1996 Decision is as follows:

"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their
respective monthly rental of P1,000.00 per month reckoned from May 1990 up to the time they leave the premises. No costs.

SO ORDERED."6

Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated June 3, 1996. On the same date, the trial court
issued an Order for the elevation of the records of the case to the Court of Appeals. On August 8, 1997, respondents filed their appellate brief
before the Court of Appeals.

On June 25, 1999, the Court of Appeals rendered its decision7 reversing the decision of the trial court. The dispositive portion of the June 25, 1999
decision is as follows:

"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon City in Case
No. Q-93-18582 is hereby REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:

(1) The rescission of the Deed of Absolute Sale executed between the appellees on September 4, 1990;

(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;

(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to afford the appellants thirty days within which to exercise
their right of first refusal by paying the amount of ONE MILLION PESOS (P1,000,000.00) for the subject property; and

(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time this decision is promulgated.

No pronouncement as to costs.

SO ORDERED".8

Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the same was denied in a Resolution dated
October 15, 1999.9

Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation and Rene Joaquin raise the following
assignment of errors10:

I.

Page 44 of 89
SALES 4th Batch

THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR.

II.

THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.

III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE
PETITIONERS’ RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.

Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did not appeal the decision of the Court of
Appeals.

At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article 1403 of the New Civil Code, more specifically the
provisions on the statute of frauds, in coming out with their respective decisions. The trial court, in denying the petition for reconveyance, held that
right of first refusal relied upon by petitioners was not reduced to writing and as such, is unenforceable by virtue of the said article. The Court of
Appeals, on the other hand, also held that the statute of frauds governs the "right of first refusal" claimed by respondents. However, the appellate
court ruled that respondents had duly proven the same by reason of petitioners’ waiver of the protection of the statute by reason of their failure to
object to the presentation of oral evidence of the said right.

Both the appellate court and the trial court failed to discuss, however, the threshold issue of whether or not a right of first refusal is indeed covered
by the provisions of the New Civil Code on the statute of frauds. The resolution of the issue on the applicability of the statute of frauds is important
as it will determine the type of evidence which may be considered by the trial court as proof of the alleged right of first refusal.

The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the
parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render
it enforceable. Thus, they are included in the provisions of the New Civil Code regarding unenforceable contracts, more particularly Art. 1403,
paragraph 2. Said article provides, as follows:

"Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

a) An agreement that by its terms is not to be performed within a year from the making thereof;

b) A special promise to answer for the debt, default, or miscarriage of another;

c) An agreement made in consideration of marriage, other than a mutual promise to marry;

d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind
of property sold, terms of sale, price, names of purchasers and person on whose account the sale is made, it is a sufficient memorandum;

e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest therein;

f) A representation to the credit of a third person."

The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted
memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.11 Moreover, the statute of frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not
enumerated therein.12 The application of such statute presupposes the existence of a perfected contract.13

The question now is whether a "right of first refusal" is among those enumerated in the list of contracts covered by the Statute of Frauds. More
specifically, is a right of first refusal akin to "an agreement for the leasing of a longer period than one year, or for the sale of real property or of an
interest therein" as contemplated by Article 1403, par. 2(e) of the New Civil Code.

We have previously held that not all agreements "affecting land" must be put into writing to attain enforceability.14 Thus, we have held that the
setting up of boundaries,15 the oral partition of real property16, and an agreement creating a right of way17 are not covered by the provisions of
the statute of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403 of the New Civil Code.

A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e)
of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of
the real property involved, but of the right of first refusal over the property sought to be sold19.

It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not be
written to be enforceable and may be proven by oral evidence.

The next question to be ascertained is whether or not respondents have satisfactorily proven their right of first refusal over the property subject of
the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon.

Page 45 of 89
SALES 4th Batch

On this point, we agree with the factual findings of the Court of Appeals that respondents have adequately proven the existence of their right of
first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and
Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell the
same. Moreover, respondents presented a letter20 dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to buy the disputed property for P2,000,000.00 and offered to sell the same to the
respondents at the same price if they were interested. Verily, if Eufrocina de Leon did not recognize respondents’ right of first refusal over the
property they were leasing, then she would not have bothered to offer the property for sale to the respondents.

It must be noted that petitioners did not present evidence before the trial court contradicting the existence of the right of first refusal of
respondents over the disputed property. They only presented petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted
having no personal knowledge of the details of the sales transaction between Rosencor and the heirs of the spouses Tiangco21. They also
dispensed with the testimony of Eufrocina de Leon22 who could have denied the existence or knowledge of the right of first refusal. As such, there
being no evidence to the contrary, the right of first refusal claimed by respondents was substantially proven by respondents before the lower
court.

Having ruled upon the question as to the existence of respondents’ right of first refusal, the next issue to be answered is whether or not the Court of
Appeals erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in
decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right of first refusal. In other words, may a contract
of sale entered into in violation of a third party’s right of first refusal be rescinded in order that such third party can exercise said right?

The issue is not one of first impression.

In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower court ordering the rescission of a deed of sale which
violated a right of first refusal granted to one of the parties therein. The Court held:

"xxx 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 reparations 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 that 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 occupying the subject property at the time it was sold to it. Al though 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 without 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."

Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the Court, en banc, with three justices dissenting,26
ordered the rescission of a contract entered into in violation of a right of first refusal. Using the ruling in Guzman Bocali ng & Co., Inc. vs. Bonnevie
as basis, the Court decreed that since respondent therein had a right of first refusal over the said property, it could only exercise the said right if the
fraudulent sale is first set aside or rescinded. Thus:

"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 that to be a purchaser in good faith, and, therefore, rescission lies.

XX X

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 or 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.

Page 46 of 89
SALES 4th Batch
Since Mayfair had 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. The sale of the subject real property 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 stipulate periond.27

In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that the 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 enforceable by an action for specific
performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the nature of and concomitant rights and obligations
of parties under a right of first refusal. Thus:

"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 P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should have likewise been 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. In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority"
to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully
paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We
held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower
price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same
terms and conditions previously offered to the Bonnevies.

X X X

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 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"

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 or knowingly violating the right of first
option of Mayfair, and Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the
contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.

In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale
made therein in violation of a right of first refusal embodied in a mortgage contract, was rescissible. Thus:

"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as paragraph 9 thereof is
concerned. Said paragraph 9 grants upon L&R Corporation the right of first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this provision. The right of first refusal has long been recognized as valid in our jurisdiction. The
consideration for the loan mortgage includes the consideration for the right of first refusal. L&R Corporation is in effect stating that it consents to
lend out money to the spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L&R Corporation shall be
given the right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every right to sell
their mortgaged property to PWHAS without securing the prior written consent of L&R Corporation, they had the obligation under paragraph 9,
which is a perfectly valid provision, to notify the latter of their intention to sell the property and give it priority over other buyers. It is only upon the
failure of L&R Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to the others, under the
same terms and conditions offered to L&R Corporation.

What then is the status of the sale made to PWHAS in violation of L & R Corporation’s contractual right of first refusal? On this score, we agree with
the Amended Decision of the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co. v. Bonnevie is
instructive on this point.

X X X

It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the
Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have
been notified thereof by registration, which equates to notice to the whole world.

X X X

All things considered, what then are the relative rights and obligations of the parties? To recapitulate: the sale between the spouses Litonjua and
PWHAS is valid, notwithstanding the absence of L & R Corporation’s prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its
offer to redeem and its tender of the redemption price, as successor-in-interest of the spouses Litonjua, within the one-year period should have
been accepted as valid by the L & R Corporation. However, while the sale is, indeed, valid, the same is rescissible because i t ignored L & R
Corporation’s right of first refusal."

Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in violation of a right of first refusal of another
person, while valid, is rescissible.

Page 47 of 89
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There is, however, a circumstance which prevents the application of this doctrine in the case at bench. In the cases cited above, the Court
ordered the rescission of sales made in violation of a right of first refusal precisely because the vendees therein could not have acted in good faith
as they were aware or should have been aware of the right of first refusal granted to another person by the vendors therein. The rationale for this is
found in the provisions of the New Civil Code on rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a contract validly
agreed upon may be rescinded if it is "undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them."
Moreover, under Article 1385, rescission shall not take place "when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith."30

It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case was an oral one given to
respondents by the deceased spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad
faith, there must be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or by
the heirs of the spouses Tiangco.

It is axiomatic that good faith is always presumed unless contrary evidence is adduced.31 A purchaser in good faith is one who buys the property
of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of some other person in the property.32 In this regard, the rule on constructive notice
would be inapplicable as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less
registered with the Registry of Deeds. In fact, even the lease contract by which respondents derive their right to possess the property involved was
an oral one.

On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sal e over the
disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on
September 4, 1990, petitioners were aware or had notice of the oral right of first refusal.

Respondents point to the letter dated June 1, 199033 as indicative of petitioners’ knowledge of the said right. In this letter, a certain Atty. Erlinda
Aguila demanded that respondent Irene Guillermo vacate the structure they were occupying to make way for its demolition.

We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is made of the right of first refusal granted to
respondents. The name of petitioner Rosencor or any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was
writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco.
Moreover, even assuming that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at
that time that such a right of first refusal existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty. Aguila of their right of first refusal
over the property. Respondents did not try to communicate with Atty. Aguila and inform her about their preferential right over the disputed
property. There is even no showing that they contacted the heirs of the spouses Tiangco after they received this letter to remind them of their right
over the property.

Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the right of first refusal of respondents,
as indicative of the bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of
petitioners and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal. It does not show that
petitioners were likewise aware of the existence of the said right. Moreover, the letter was made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no showing that prior to the date
of the execution of the said Deed, petitioners were put on notice of the existence of the right of first refusal.

Clearly, if there was any indication of bad faith based on respondents’ evidence, it would only be on the part of Eufrocina de Leon as she was
aware of the right of first refusal of respondents yet she still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de
Leon does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute
Sale, petitioners were made aware or put on notice of the existence of the oral right of first refusal. Thus, absent clear and convincing evidence to
the contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the disputed
property.

Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in ordering the rescission of the
Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor
of the property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in
lawful possession of the subject of the contract and that it did not act in bad faith.34

This does not mean however that respondents are left without any remedy for the unjustified violation of their right of first refusal. Their remedy
however is not an action for the rescission of the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal35.

WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The Decision dated May
13, 1996 of the Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the Deed of
Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned from May 1990 up to the
time respondents leave the premises.

SO ORDERED.

G.R. No. 149734 November 19, 2004

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,


vs.
AYALA CORPORATION, respondent.

DECI SION

Page 48 of 89
SALES 4th Batch
TINGA, J.:

The rise in value of four lots in one of the country's prime residential developments, Ayala Alabang Village in Muntinlupa City, over a period of six
(6) years only, represents big money. The huge price difference lies at the heart of the present controversy. Petitioners insist that the lots should be
sold to them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be the selling price.

Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari2 dated October 11, 2001 assailing the Decision3 of the Court
of Appeals dated September 6, 2001 which reversed the Decision4 of the Regional Trial Court (RTC) and dismissed their complai nt for specific
performance and damages against Ayala Corporation.

Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents:5

On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into a Memorandum of Agreement
(MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latter's shares of stock in Conduit
Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then
being developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente Village." The
development was then being undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP Construction).

Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained Area" consisting of 18,736 square meters. This
"Retained Area" was to be retained by the Vazquez spouses. The area to be developed by Ayala was called the "Remaining Area". In this
"Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez spouses at the
prevailing price at the time of purchase. The relevant provisions of the MOA on this point are:

"5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential subdivision of the same class as its New
Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of
this Agreement. x x x"

5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the "Retained Area" at the prevailing market price
at the time of the purchase."

The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduit's development plan, but Ayala's amended
development plan which was still to be formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the
Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a year later, it was in the third phase, or Phase
II-c.

Under the MOA, the Vasquez spouses made several express warranties, as follows:

"3.1. The SELLERS shall deliver to the BUYER:

xxx

3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing:

xxx

D. A list of all persons and/or entities with whom the Company has pending contracts, if any.

xxx

3.1.5. Audited financial statements of the Company as at Closing date.

4. Conditions Precedent

All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing, of the following conditions:

4.1. The representations and warranties by the SELLERS contained in this Agreement shall be true and correct at the time of Closing as though such
representations and warranties were made at such time; and

xxx

6. Representation and Warranties by the SELLERS

The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution of this Agreement and at the Closing:

xxx

6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS, threatened against or affecting the SELLERS with
respect to the Shares or the Property; and

7. Additional Warranties by the SELLERS

7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance with Par. 3.1.5 above, the SELLER jointly
and severally warrant to the BUYER that:

7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the "Remaining Property", free from all
liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction &
Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Par. 2 of this
Agreement.

Page 49 of 89
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7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER,
the Company as of the date thereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, incl uding, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Company's income prior to
Closing or arising out of transactions or state of facts existing prior thereto.

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at closing or any liability of
any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to
BUYER.

xxx xxx xxx

7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of
the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS
know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the
Company.

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term,
covenant or condition of any instrument or agreement to which the company is a party or by which it is bound, and no condition exists which,
with notice or lapse of time or both, will constitute such default or breach."

After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala then recei ved a letter from
one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction...

G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit and
Ayala in the then Court of First Instance of Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P.
Construction and Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was terminated only on February
19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.

Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area" within 3 years from the date of the MOA, the
Vasquez spouses sent several "reminder" letters of the approaching so-called deadline. However, no demand after April 23, 1984, was ever made
by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla,
categorically stated that they expected "development of Phase 1 to be completed by February 19, 1990, three years from the settlement of the
legal problems with the previous contractor."

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were then offered to be sold to the
Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to
the suit below.

After trial, the court a quo rendered its decision, the dispositive portion of which states:

"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering defendant to sell to plaintiffs the relevant lots
described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering
defendant to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to pay the cost of the suit."

In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the potential claims of GP Construction,
Lancer and Del Rosario; Ayala's accountants should have opened the records of Conduit to find out all claims; the warranty against suit is with
respect to "the shares of the Property" and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated to develop within
3 years; to say that Ayala was under no obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala did not develop
because of a slump in the real estate market; the MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to
purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA where the parties had prestations
to each other. [Emphasis supplied]

Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their warranties under the MOA6
dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject of the option to purchase are located within three (3)
years from the date of the MOA; that it was in delay; and that the option to purchase was valid because it was incorporated in the MOA and the
consideration therefor was the commitment by Ayala Corporation to petitioners embodied in the MOA.

As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court, Ayala Corporation was never
informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981
from G.P. Construction's lawyers. The Court of Appeals thus held that petitioners violated their warranties under the MOA when they failed to
disclose Lancer's claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question within three
(3) years from the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer.

Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed to develop the first phase of its
own amended development plan and not Conduit's development plan. Nowhere does the MOA provide that Ayala Corporation shall follow
Conduit's development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the property it will develop.

Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a demand for Ayala Corporation to
sell the subject lots to them. According to the appellate court, what petitioners sent were mere reminder letters the last of which was dated prior
to April 23, 1984 when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in fact waived the three
(3)-year period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they "expect that the development of Phase I will be
completed by 19 February 1990, three years from the settlement of the legal problems with the previous contractor."7

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first refusal there being no separate
consideration therefor. Since petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990 price of P5,000.00 per square
meter, they have effectively waived their right to buy the same.

Page 50 of 89
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In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their warranties under the MOA; that Ayala
Corporation was not obliged to develop the "Remaining Property" within three (3) years from the execution of the MOA; that Ayala was not in
delay; and that paragraph 5.15 of the MOA is a mere right of first refusal. Additionally, petitioners insist that the Court should review the factual
findings of the Court of Appeals as they are in conflict with those of the trial court.

Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002, contending that the petition raises questions of fact and seeks a
review of evidence which is within the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract between GP
Construction, with whom Conduit contracted for the development of the property under a Construction Contract dated October 10, 1980, and
Lancer was not disclosed by petitioners during the negotiations. Neither was the liability for Lancer's claim included in the Audited Financial
Statements submitted by petitioners after the signing of the MOA. These justify the conclusion that petitioners breached their warranties under the
afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within which Ayala
Corporation committed to develop the property should only be counted thence. Thus, when it offered the subject lots to petitioners in 1990, Ayala
Corporation was not yet in delay.

In response to petitioners' contention that there was no action or proceeding against them at the time of the execution of the MOA on April 23,
1981, Ayala Corporation avers that the facts and circumstances which gave rise to the Lancer claim were already extant then. Petitioners
warranted that their representations under the MOA shall be true and correct at the time of "Closing" which shall take place within four (4) weeks
from the signing of the MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was approximately the third week of May 1981. Hence,
Lancer's claims, articulated in a letter which Ayala Corporation received on May 4, 1981, are among the liabilities warranted against under
paragraph 7.1.2 of the MOA.

Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all kinds of liabilities not reflected in
the Audited Financial Statements. It cannot be faulted for relying on the express warranty that except for billings payable to GP Construction and
advances made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that
Ayala Corporation should have examined and investigated the Audited Financial Statements of Conduit and should now assume all its obligations
and liabilities including the Lancer suit and the cross-claim of GP Construction.

Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of the property within three (3) years
from the execution of the MOA. The provision refers to a mere declaration of intent to develop the first phase of its (Ayala Corporation's) own
development plan and not Conduit's. True to its intention, Ayala Corporation did complete the development of the first phase (Phase II-A) of its
amended development plan within three (3) years from the execution of the MOA. However, it is not obliged to develop the third phase (Phase II-
C) where the subject lots are located within the same time frame because there is no contractual stipulation in the MOA therefor. It is free to
decide on its own the period for the development of Phase II-C. If petitioners wanted to impose the same three (3)-year timetable upon the third
phase of the amended development plan, they should have filed a suit to fix the time table in accordance with Article 119710 of the Civil Code.
Having failed to do so, Ayala Corporation cannot be declared to have been in delay.

Ayala Corporation further contends that no demand was made on it for the performance of its alleged obligation. The letter dated October 4,
1983 sent when petitioners were already aware of the Lancer suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it
requested Ayala Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry
as to the date when the development of Phase 1 will be completed. More importantly, their letter dated June 27, 1988 through Engr. Eduardo
Turla expressed petitioners' expectation that Phase 1 will be completed by February 19, 1990.

Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option contract.

Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their Petition and contending further that they did not violate their
warranties under the MOA because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of
the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's claim before the "Closing" date. It therefore had all the time to
rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation of petitioners'
warranty.

Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit to be conducted by Ayala
Corporation. Thus, the latter bought Conduit with "open eyes."

Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the execution of the MOA. Further,
the MOA makes Ayala Corporation liable for the payment of all billings of GP Construction. Since Lancer's claim was actually a claim against GP
Construction being its sub-contractor, it is Ayala Corporation and not petitioners which is liable.

Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan, it is obliged under the MOA to
develop the entire area where the subject lots are located in three (3) years.

They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA. Apart from their reminder letters
dated January 24, February 18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a categorical demand for Ayala
Corporation to comply with the provisions of the MOA.

The parties were required to submit their respective memoranda in the Resolution12 dated November 18, 2002. In compliance with this directive,
petitioners submitted their Memorandum13 dated February 14, 2003 on even date, while Ayala Corporation filed its Memorandum14 dated
February 14, 2003 on February 17, 2003.

We shall first dispose of the procedural question raised by the instant petition.

It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition for review under Rule 45 is
limited to reviewing or revising errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of general principle.
However, since in the instant case there is a conflict between the factual findings of the trial court and the appellate court, particularly as regards
the issues of breach of warranty, obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such
factual issues as an exception to the general rule.15 In any event, the submitted issue relating to the categorization of the right to purchase
granted to petitioners under the MOA is legal in character.

The next issue that presents itself is whether petitioners breached their warranties under the MOA when they failed to disclose the Lancer claim.
The trial court declared they did not; the appellate court found otherwise.

Page 51 of 89
SALES 4th Batch

Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed to disclose the Lancer claim:

a) Clause 7.1.1. – that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04, and for advances made by Daniel
Vazquez;

b) Clause 7.1.2. – that except as reflected in the audited financial statements Conduit had no other liabilities whether accrued, absolute,
contingent or otherwise;

c) Clause 7.2. – that there is no basis for any assertion against Conduit of any liability of any value not reflected or reserved in the financial
statements, and those disclosed to Ayala;

d) Clause 7.6.3. – that Conduit is not threatened with any legal action or other proceedings; and

e) Clause 7.6.4. – that Conduit had not breached any term, condition, or covenant of any instrument or agreement to which it is a party or by
which it is bound.16

The Court is convinced that petitioners did not violate the foregoing warranties.

The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala Corporation of the Lancer claim or
the possibility thereof during the period of negotiations for the sale of Conduit.

In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the
completion of the sale of Conduit, Ayala Corporation asked for and was given information that GP Construction sub-contracted, presumably to
Lancer, a greater percentage of the project than it was allowed. Petitioners gave this information to Ayala Corporation because the latter
intimated a desire to "break the contract of Conduit with GP." Ayala Corporation did not deny this. In fact, Mr. Duarte's letter18 dated March 6,
1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit. Ayala Corporation even
admitted that it "tried to explore…legal basis to discontinue the contract of Conduit with GP" but found this "not feasible when information
surfaced about the tacit consent of Conduit to the sub-contracts of GP with Lancer."

At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA. Lancer's letter19 dated April 30, 1981
informing Ayala Corporation of its unsettled claim with GP Construction was received by Ayala Corporation on May 4, 1981, well before the
"Closing"20 which occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23, 1981.

The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters pertaining to the liabilities of Conduit
were disclosed by petitioners to Ayala Corporation although the specifics thereof were no longer included in the MOA:

7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the "Remaining Property", free from all
liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction &
Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Paragraph 2 of this
Agreement.

7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER,
the Company as of the date hereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Company's i ncome prior to
Closing or arising out of transactions or state of facts existing prior thereto.

7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at Closing of any liability of
any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to
BUYER.

xxx xxx xxx

7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of
the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS
know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the
Company.

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term,
covenant or condition of any instrument or agreement to which the Company is a party or by which it is bound, and no condition exists which,
with notice or lapse of time or both, will constitute such default or breach."21 [Emphasis supplied]

Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with any legal action or proceeding is qualified by Ayala
Corporation's actual knowledge of the Lancer claim which was disclosed to Ayala Corporation before the "Closing."

At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances made by petitioner Daniel Vazquez.
Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for the payment of all
billings of the contractor GP Construction & Development Corporation after the first billing and any payments made by the com pany and/or
SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87."22

The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP Construction is liable. Proof of this is Ayala
Corporation's letter23 to GP Construction dated before "Closing" on May 4, 1981, informing the latter of Ayala Corporation's receipt of the Lancer
claim embodied in the letter dated April 30, 1981, acknowledging that it is taking over the contractual responsibilities of Conduit, and requesting
copies of all sub-contracts affecting the Conduit property. The pertinent excerpts of the letter read:

Page 52 of 89
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In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D. Del Rosario, President of Lancer General
Builders Corporation apprising us of the existence of subcontracts that they have with your corporation. They have also furnished us with a copy of
their letter to you dated 30 April 1981.

Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that it is necessary, at this point in time, that you
furnish us with copies of all your subcontracts affecting the property of Conduit, not only with Lancer General Builders Corporation, but all
subcontracts with other parties as well…24

Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated July 9, 1992 a copy of the letter26 dated May 28, 1981 of GP
Construction's counsel addressed to Conduit furnishing the latter with copies of all sub-contract agreements entered into by GP Construction.
Since it was addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of the letter thereby disclosing
to the latter the existence of the Lancer sub-contract.

The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer sub-contract and claim were substantially
disclosed to Ayala Corporation before the "Closing" date of the MOA. Ayala Corporation cannot disavow knowledge of the claim.

Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer suit as an obstacle to its
development of the property, it never actually brought up nor sought redress for petitioners' alleged breach of warranty for failure to disclose the
Lancer claim until it filed its Answer27 dated February 17, 1992.

We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a commitment or a mere intent on the part
of Ayala Corporation to develop the property within three (3) years from date thereof? Paragraph 5.7 provides:

5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential subdivision of the same class as its New
Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of
this Agreement….28

Notably, while the first phrase of the paragraph uses the word "commits" in reference to the development of the "Remaining Property" into a first
class residential subdivision, the second phrase uses the word "intends" in relation to the development of the first phase of the property within three
(3) years from the date of the MOA. The variance in wording is significant. While "commit"29 connotes a pledge to do something, "intend"30
merely signifies a design or proposition.

Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who assisted in drafting the MOA, testified:

COURT

You only ask what do you mean by that intent. Just answer on that point.

ATTY. BLANCO

Don't talk about standard.

WITNESS

A Well, the word intent here, your Honor, was used to emphasize the tentative character of the period of development because it will be noted
that the sentence refers to and I quote "to complete the first phase under its amended development plan within three (3) years from the date of
this agreement, at the time of the execution of this agreement, your Honor." That amended development plan was not yet in existence because
the buyer had manifested to the seller that the buyer could amend the subdivision plan originally belonging to the seller to conform with its own
standard of development and second, your Honor, (interrupted)31

It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporation's part to complete the first phase under its
amended development plan within three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to
misunderstand its import is deplorable.

More focal to the resolution of the instant case is paragraph 5.7's clear reference to the first phase of Ayala Corporation's amended development
plan as the subject of the three (3)-year intended timeframe for development. Even petitioner Daniel Vazquez admitted on cross-examination
that the paragraph refers not to Conduit's but to Ayala Corporation's development plan which was yet to be formulated when the MOA was
executed:

Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: "The Buyer hereby commits that to develop the remaining
property into a first class residential subdivision of the same class as New Alabang Subdivision, and that they intend to complete the first phase
under its amended development plan within three years from the date of this agreement."

Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan here is the amended development plan of
Ayala?

A: Yes, sir.

Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?

A: No, it is not.

Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981?

A: Yes, sir.

Q: And point of fact during your direct examination as of the date of the agreement, this amended development plan was still to be formulated
by Ayala?

Page 53 of 89
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A: Yes, sir.32

As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to petitioners were in the first phase of
the Conduit development plan, they were in the third or last phase of the Ayala Corporation development plan. Hence, even assuming that
paragraph 5.7 expresses a commitment on the part of Ayala Corporation to develop the first phase of its amended development plan within
three (3) years from the execution of the MOA, there was no parallel commitment made as to the timeframe for the development of the third
phase where the subject lots are located.

Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the subject lots for sale to petitioners within three (3)
years from the execution of the MOA. It is not that Ayala Corporation committed or intended to develop the first phase of its amended
development plan within three (3) years. Whether it did or did not is actually beside the point since the subject lots are not located in the first
phase anyway.

We now come to the issue of default or delay in the fulfillment of the obligation.

Article 1169 of the Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or
the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper m anner with what is
incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.33

Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be demandable only when that day
comes. However, no such day certain was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three (3) year period
fixed by the MOA for the development of the first phase of the property since this is not the same period contemplated for the development of
the subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners should have petitioned the court to
fix the period in accordance with Article 119734 of the Civil Code. As no such action was filed by petitioners, their complaint for specific
performance was premature, the obligation not being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to
have delayed performance of the obligation.

Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three (3) years from date thereof,
Ayala Corporation could still not be held to have been in delay since no demand was made by petitioners for the performance of its obligation.

As found by the appellate court, petitioners' letters which dealt with the three (3)-year timetable were all dated prior to April 23, 1984, the date
when the period was supposed to expire. In other words, the letters were sent before the obligation could become legally demandable.
Moreover, the letters were mere reminders and not categorical demands to perform. More importantly, petitioners waived the three (3)-year
period as evidenced by their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three (3)-year period should be
counted from the termination of the case filed by Lancer. The letter reads in part:

I. Completion of Phase I

As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves to complete the development of Phase I
within three (3) years. Dr. & Mrs. Vazquez were made to understand that you were unable to accomplish this because of legal problems with the
previous contractor. These legal problems were resolved as of February 19, 1987, and Dr. & Mrs. Vazquez therefore expect that the development
of Phase I will be completed by February 19, 1990, three years from the settlement of the legal problems with the previous contractor. The reason
for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till the surrounding area (which is
Phase I) is developed and occupied. They have been anxious to build their residence for quite some time now, and would like to receive
assurance from your goodselves regarding this, in compliance with the agreement.

II. Option on the adjoining lots

We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their option to purchase the two lots on each
side (a total of 4 lots) adjacent to their "Retained Area". They are concerned that although over a year has elapsed since the settlement of the
legal problems, you have not presented them with the size, configuration, etc. of these lots. They would appreciate being provided with these at
your earliest convenience.35

Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in the development of Phase I was due to the legal problems
with GP Construction, but also their acquiescence to the completion of the development of Phase I at the much later date of February 19, 1990.
More importantly, by no stretch of semantic interpretation can it be construed as a categorical demand on Ayala Corporation to offer the
subject lots for sale to petitioners as the letter merely articulates petitioners' desire to exercise their option to purchase the subject lots and concern
over the fact that they have not been provided with the specifications of these lots.

The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23, 198436 and February 18, 198437 can also not be
considered categorical demands on Ayala Corporation to develop the first phase of the property within the three (3)-year period much less to
offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in part:

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You will understand our interest in the completion of the roads to our property, since we cannot develop it till you have constructed the same.
Allow us to remind you of our Memorandum of Agreement, as per which you committed to develop the roads to our property "as per the original
plans of the company", and that

1. The back portion should have been developed before the front portion – which has not been the case.

2. The whole project – front and back portions be completed by 1984.38

The letter dated February 18, 1984 is similarly worded. It states:

In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which states respectively:…39

Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a categorical demand for Ayala Corporation to offer the subject
lots for sale on or before April 23, 1984. The letter reads in part:

…and that we expect from your goodselves compliance with our Memorandum of Agreement, and a definite date as to when the road to our
property and the development of Phase I will be completed.41

At best, petitioners' letters can only be construed as mere reminders which cannot be considered demands for performance because it must
appear that the tolerance or benevolence of the creditor must have ended.42

The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an option contract or a right of first
refusal. Paragraph 5.15 states:

5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the "Retained Area" at the prevailing market price at
the time of the purchase.43

The Court has clearly distinguished between an option contract and a right of first refusal. An option is a preparatory contract in which one party
grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal
contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated,
and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is
a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by
consideration.44

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only
on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be
firmed up.45

Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract. Although the paragraph has a
definite object, i.e., the sale of subject lots, the period within which they will be offered for sale to petitioners and, necessarily, the price for which
the subject lots will be sold are not specified. The phrase "at the prevailing market price at the time of the purchase" connotes that there is no
definite period within which Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither is
there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with
reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.46

Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at the price which Ayala Corporation
would be willing to accept when it offers the subject lots for sale. It is not supported by an independent consideration. As such it is not governed
by Articles 1324 and 1479 of the Civil Code, viz:

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

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

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.

Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal to the other party.47

In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market price for
the property when the offer was made on June 18, 1990.48 Insisting on paying for the lots at the prevailing market price in 1984 of P460.00/square
meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and
instead made a counter-offer in the amount of P2,000.00/square meter.49 Ayala Corporation rejected petitioners' counter-offer. With this
rejection, petitioners lost their right to purchase the subject lots.

It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal and should be compelled by an action for specific
performance to sell the subject lots to petitioners at the prevailing market price in 1984.

WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 140182. April 12, 2005

TANAY RECREATION CENTER AND DEVELOPMENT CORP., Petitioners,


vs.
CATALINA MATIENZO FAUSTO* and ANUNCIACION FAUSTO PACUNAYEN, Respondents.

DECI SION

Page 55 of 89
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AUSTRIA-MARTINEZ, J.:

Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay,
Rizal, owned by Catalina Matienzo Fausto,1 under a Contract of Lease executed on August 1, 1971. On this property stands the Tanay Coliseum
Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The
contract also provided that should Fausto decide to sell the property, petitioner shall have the "priority right" to purchase the same.2

On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease.3 However, it was Fausto’s daughter, respondent
Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the
property.4 It appears that Fausto had earlier sold the property to Pacunayen on August 8, 1990, for the sum of ₱10,000.00 under a "Kasulatan ng
Bilihan Patuluyan ng Lupa,"5 and title has already been transferred in her name under Transfer Certificate of Title (TCT) No. M-35468.6

Despite efforts, the matter was not resolved. Hence, on September 4, 1991, petitioner filed an Amended Complaint for Annulment of Deed of Sale,
Specific Performance with Damages, and Injunction, docketed as Civil Case No. 372-M.7

In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her
ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not
demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises.8

After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78), rendered judgment extending the period of the lease for another
seven years from August 1, 1991 at a monthly rental of ₱10,000.00, and dismissed petitioner’s claim for damages.9

On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed with modifications the trial court’s judgment per its Decision
dated June 14, 1999.10 The dispositive portion of the decision reads:

WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED AS DISCUSSED.

Furthermore, we resolved:

1.0. That TRCDC VACATE the leased premises immediately;

2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount of ₱320,000.00, deposited according to records, with this court.

3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the amounts it had already deposited (for unpaid rentals for the extended
period of seven [7] years of the contract of lease). In case it had not yet completed its deposit, to immediately pay the remaining balance to
Pacunayen.

4.0. To order TRCDC to PAY the amount of ₱10,000.00 as monthly rental, with regard to its continued stay in the leased premises even after the
expiration of the extended period of seven (7) years, computed from August 1, 1998, until it finally vacates therefrom.

SO ORDERED.11

In arriving at the assailed decision, the CA acknowledged the priority right of TRCDC to purchase the property in question. However, the CA
interpreted such right to mean that it shall be applicable only in case the property is sold to strangers and not to Fausto’s relative. The CA stated
that "(T)o interpret it otherwise as to comprehend all sales including those made to relatives and to the compulsory heirs of the seller at that would
be an absurdity," and "her (Fausto’s) only motive for such transfer was precisely one of preserving the property within her bloodline and that
someone administer the property."12 The CA also ruled that petitioner already acknowledged the transfer of ownership and is deemed to have
waived its right to purchase the property.13 The CA even further went on to rule that even if the sale is annulled, petitioner could not achieve
anything because the property will be eventually transferred to Pacunayen after Fausto’s death.14

Petitioner filed a motion for reconsideration but it was denied per Resolution dated September 14, 1999.15

Dissatisfied, petitioner elevated the case to this Court on petition for review on certiorari, raising the following grounds:

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT THE CONTRACTUAL STIPULATION GIVING PETITIONER
THE PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO STRANGERS;

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT PETITIONER’S PRIORITY RIGHT TO PURCHASE THE
LEASED PREMISES IS INCONSEQUENTIAL.16

The principal bone of contention in this case refers to petitioner’s priority right to purchase, also referred to as the right of first refusal.

Petitioner’s right of first refusal in this case is expressly provided for in the notarized "Contract of Lease" dated August 1, 1971, between Fausto and
petitioner, to wit:

7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same;17

When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he
has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall
be in his favor.18 Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole
contract. The consideration for the lease includes the consideration for the right of first refusal19 and is built into the reciprocal obligations of the
parties.

It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative.20 When the terms of an
agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties
and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the
true intent and agreement of the parties.21 In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and
unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the

Page 56 of 89
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lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only
when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal
duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a
certain price and said offer was rejected by petitioner. Pursuant to their contract, it was essential that Fausto should have first offered the property
to petitioner before she sold it to respondent. It was only after petitioner failed to exercise its right of first priority could Fausto then lawfully sell the
property to respondent.

The rule is that a sale made in violation of a right of first refusal is valid. However, it may be rescinded, or, as in this case, may be the subject of an
action for specific performance.22 In Riviera Filipina, Inc. vs. Court of Appeals,23 the Court discussed the concept and interpretation of the right of
first refusal and the consequences of a breach thereof, to wit:

. . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a proviso granting the lessee the right of
first priority "all things and conditions being equal" meant that there should be identity of the terms and conditions to be offered to the lessee and
all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be
deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of
Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code.

Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals, the Court en banc departed from the doctrine laid down in Guzman,
Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated the right of first refusal. The Court held that the so-called "right
of first refusal" cannot be deemed a perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed
under a final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in a proper
forum for the purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., the Court en banc reverted back to the doctrine in Guzman
Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract.

Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of Appeals, the Court affirmed the nature of and the concomitant rights and
obligations of parties under a right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc., held that in order to have full compliance with the contractual right granting petitioner the first option
to purchase, the sale of the properties for the price for which they were finally sold to a third person should have likewise been first offered to the
former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be
rendered illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective
buyer.

The prevailing doctrine therefore, is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other
prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.24

It was also incorrect for the CA to rule that it would be useless to annul the sale between Fausto and respondent because the property would still
remain with respondent after the death of her mother by virtue of succession, as in fact, Fausto died in March 1996, and the property now belongs
to respondent, being Fausto’s heir.25

For one, Fausto was bound by the terms and conditions of the lease contract. Under the right of first refusal clause, she was obligated to offer the
property first to petitioner before selling it to anybody else. When she sold the property to respondent without offering it to petitioner, the sale while
valid is rescissible so that petitioner may exercise its option under the contract.

With the death of Fausto, whatever rights and obligations she had over the property, including her obligation under the lease contract, were
transmitted to her heirs by way of succession, a mode of acquiring the property, rights and obligation of the decedent to the extent of the value
of the inheritance of the heirs. Article 1311 of the Civil Code provides:

ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent.

A lease contract is not essentially personal in character.26 Thus, the rights and obligations therein are transmissible to the heirs. The general rule is
that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law.27

In this case, the nature of the rights and obligations are, by their nature, transmissible. There is also neither contractual stipulation nor provision of
law that makes the rights and obligations under the lease contract intransmissible. The lease contract between petitioner and Fausto is a property
right, which is a right that passed on to respondent and the other heirs, if any, upon the death of Fausto.

In DKC Holdings Corporation vs. Court of Appeals,28 the Court held that the Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with DKC Holdings Corporation was binding upon her sole heir, Victor, even after her demise and it subsists even after her
death. The Court ruled that:

. . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his
mother had and what is valid and binding against her is also valid and binding as against him. This is clear from Parañaque Kings Enterprises vs.
Court of Appeals, where this Court rejected a similar defense-

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. 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.29 (Emphasis supplied)

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Likewise in this case, the contract of lease, with all its concomitant provisions, continues even after Fausto’s death and her heirs merely stepped
into her shoes.30 Respondent, as an heir of Fausto, is therefore bound to fulfill all its terms and conditions.

There is no personal act required from Fausto such that respondent cannot perform it. Fausto’s obligation to deliver possession of the property to
petitioner upon the exercise by the latter of its right of first refusal may be performed by respondent and the other heirs, if any. Similarly,
nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.31

The CA likewise found that petitioner acknowledged the legitimacy of the sale to respondent and it is now barred from exercising its right of first
refusal. According to the appellate court:

Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease contract, it was Pacunayen who answered the letter on June
19, 1991. In that letter Pacunayen demanded that TRCDC vacate the leased premises within sixty (60) days and informed it of her ownership of the
leased premises. The pertinent portion of the letter reads:

Furtherly, please be advised that the land is no longer under the absolute ownership of my mother and the undersigned is now the real and
absolute owner of the land.

Instead of raising a howl over the contents of the letter, as would be its expected and natural reaction under the circumstances, TRCDC
surprisingly kept silent about the whole thing. As we mentioned in the factual antecedents of this case, it even invited Pacunayen to its special
board meeting particularly to discuss with her the renewal of the lease contract. Again, during that meeting, TRCDC did not m ention anything
that could be construed as challenging Pacunayen’s ownership of the leased premises. Neither did TRCDC assert its priority right to purchase the
same against Pacunayen.32

The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of material facts or at least
calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge,
actual or constructive, of the real facts.33

The records are bereft of any proposition that petitioner waived its right of first refusal under the contract such that it i s now estopped from
exercising the same. In a letter dated June 17, 1991, petitioner wrote to Fausto asking for a renewal of the term of lease.34 Petitioner cannot be
faulted for merely seeking a renewal of the lease contract because obviously, it was working on the assumption that title to the property is still in
Fausto’s name and the latter has the sole authority to decide on the fate of the property. Instead, it was respondent who replied, advising
petitioner to remove all the improvements on the property, as the lease is to expire on the 1st of August 1991. Respondent also informed petitioner
that her mother has already sold the property to her.35 In order to resolve the matter, a meeting was called among petitioner’s stockholders,
including respondent, on July 27, 1991, where petitioner, again, proposed that the lease be renewed. Respondent, however, declined. While
petitioner may have sought the renewal of the lease, it cannot be construed as a relinquishment of its right of first refusal. Estoppel must be
intentional and unequivocal.36

Also, in the excerpts from the minutes of the special meeting, it was further stated that the possibility of a sale was likewise considered.37 But
respondent also refused to sell the land, while the improvements, "if for sale shall be subject for appraisal."38 After respondent refused to sell the
land, it was then that petitioner filed the complaint for annulment of sale, specific performance and damages.39 Petitioner’s acts of seeking all
possible avenues for the amenable resolution of the conflict do not amount to an intentional and unequivocal abandonment of its right of first
refusal.

Respondent was well aware of petitioner’s right to priority of sale, and that the sale made to her by her mother was merely for her to be able to
take charge of the latter’s affairs. As admitted by respondent in her Appellee’s Brief filed before the CA, viz.:

After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the corporation. . . . In the same meeting, Pacunayen’s attention
was called to the provision of the Contract of Lease had by her mother with TRCDC, particularly paragraph 7 thereof, which states:

7. That should the lessor decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same.

Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that the sale made in her favor by her mother was just a
formality so that she may have the proper representation with TRCDC in the absence of her parents, more so that her father had already passed
away, and there was no malice in her mine (sic) and that of her mother, or any intention on their part to deceive TRCDC. All these
notwithstanding, and for her to show their good faith in dealing with TRCDC, Pacunayen started the ground work to reconvey ownership over the
whole land, now covered by Transfer Certificare (sic) of Title No. M-259, to and in the name of her mother (Fausto), but the latter was becoming
sickly, old and weak, and they found no time to do it as early as they wanted to.40 (Emphasis supplied)

Given the foregoing, the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990 between Fausto and respondent must be rescinded.
Considering, however, that Fausto already died on March 16, 1996, during the pendency of this case with the CA, her heirs should have been
substituted as respondents in this case. Considering further that the Court cannot declare respondent Pacunayen as the sole heir, as it is not the
proper forum for that purpose, the right of petitioner may only be enforced against the heirs of the deceased Catalina Matienzo Fausto,
represented by respondent Pacunayen.

In Parañaque Kings Enterprises, Inc. vs. Court of Appeals,41 it was ruled that 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. It is 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. The circumstances of this case, however, dictate the application of a different ruling. An offer of the property to petitioner under
identical terms and conditions of the offer previously given to respondent Pacunayen would be inequitable. The subject property was sold in 1990
to respondent Pacunayen for a measly sum of ₱10,000.00. Obviously, the value is in a small amount because the sale was between a mother and
daughter. As admitted by said respondent, "the sale made in her favor by her mother was just a formality so that she may have the proper
representation with TRCDC in the absence of her parents…"42 Consequently, the offer to be made to petitioner in this case should be under
reasonable terms and conditions, taking into account the fair market value of the property at the time it was sold to respondent.

In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the name of respondent Pacunayen,43 which was issued by the
Register of Deeds of Morong on February 7, 1991.44 Under ordinary circumstances, this would be the logical effect of the rescission of the
"Kasulatan ng Bilihan Patuluyan ng Lupa" between the deceased Fausto and respondent Pacunayen. However, the circumstances in this case

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are not ordinary. The buyer of the subject property is the seller’s own daughter. If and when the title (TCT No. M-35468) in respondent Pacunayen’s
name is cancelled and reinstated in Fausto’s name, and thereafter negotiations between petitioner and respondent Pacunayen for the purchase
of the subject property break down, then the subject property will again revert to respondent Pacunayen as she appears to be one of Fausto’s
heirs. This would certainly be a winding route to traverse. Sound reason therefore dictates that title should remain in the name of respondent
Pacunayen, for and in behalf of the other heirs, if any, to be cancelled only when petitioner successfully exercises its right of first refusal and
purchases the subject property.

Petitioner further seeks the award of the following damages in its favor: (1) ₱100,000.00 as actual damages; (2) ₱1,100,000.00 as compensation for
lost goodwill or reputation; (3) ₱100,000.00 as moral damages; (4) ₱100,000.00 as exemplary damages; (5) ₱50,000.00 as attorney’s fees; (6)
₱1,000.00 appearance fee per hearing; and (7) the costs of suit.45

According to petitioner, respondent’s act in fencing the property led to the closure of the Tanay Coliseum Cockpit and petitioner was unable to
conduct cockfights and generate income of not less than ₱100,000.00 until the end of September 1991, aside from the expected rentals from the
cockpit space lessees in the amount of ₱11,000.00.46

Under Article 2199 of the Civil Code, it is provided that:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved. Such compensation is referred to as actual or compensatory damages. (Emphasis supplied)

The rule is that actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot
rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have
been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts, which
could afford a basis for measuring whatever compensatory or actual damages are borne.47

In the present case, there is no question that the Tanay Coliseum Cockpit was closed for two months and TRCDC did not gain any income during
said period. But there is nothing on record to substantiate petitioner’s claim that it was bound to lose some ₱111,000.00 from such closure. TRCDC’s
president, Ambrosio Sacramento, testified that they suffered income losses with the closure of the cockpit from August 2, 1991 until it re-opened on
October 20, 1991.48 Mr. Sacramento, however, cannot state with certainty the amount of such unrealized income.49 Meanwhile, TRCDC’s
accountant, Merle Cruz, stated that based on the corporation’s financial statement for the years 1990 and 1991,50 they derived the amount of
₱120,000.00 as annual income from rent.51 From said financial statement, it is safe to presume that TRCDC generated a monthly income of
₱10,000.00 a month (₱120,000.00 annual income divided by 12 months). At best therefore, whatever actual damages that petitioner suffered from
the cockpit’s closure for a period of two months can be reasonably summed up only to ₱20,000.00.

Such award of damages shall earn interest at the legal rate of six percent (6%) per annum, which shall be computed from the time of the filing of
the Complaint on August 22, 1991, until the finality of this decision. After the present decision becomes final and executory, the rate of interest shall
increase to twelve percent (12%) per annum from such finality until its satisfaction, this interim period being deemed to be equivalent to a
forbearance of credit.52 This is in accord with the guidelines laid down by the Court in Eastern Shipping Lines, Inc. vs. Court of Appeals,53
regarding the manner of computing legal interest, viz.:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court
is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.54

Petitioner also claims the amount of ₱1,100,000.00 as compensation for lost goodwill or reputation. It alleged that "with the unjust and wrongful
conduct of the defendants as above-described, plaintiff stands to lose its goodwill and reputation established for the past 20 years."55

An award of damages for loss of goodwill or reputation falls under actual or compensatory damages as provided in Article 2205 of the Civil Code,
to wit:

Art. 2205. Damages may be recovered:

(1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury;

(2) For injury to the plaintiff’s business standing or commercial credit.

Even if it is not recoverable as compensatory damages, it may still be awarded in the concept of temperate or moderate damages.56 In arriving
at a reasonable level of temperate damages to be awarded, trial courts are guided by the ruling that:

. . . There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that
there has been such loss. For instance, injury to one's commercial credit or to the goodwill of a business firm is often hard to show certainty in terms
of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather
than that the plaintiff should suffer, without redress from the defendant's wrongful act. (Araneta v. Bank of America, 40 SCRA 144, 145)57

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In this case, aside from the nebulous allegation of petitioner in its amended complaint, there is no evidence on record, whether testimonial or
documentary, to adequately support such claim. Hence, it must be denied.

Petitioner’s claim for moral damages must likewise be denied. The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system.58 Petitioner being
a corporation,59 the claim for moral damages must be denied.

With regard to the claim for exemplary damages, it is a requisite in the grant thereof that the act of the offender must be accompanied by bad
faith or done in wanton, fraudulent or malevolent manner.60 Moreover, where a party is not entitled to actual or moral damages, an award of
exemplary damages is likewise baseless.61 In this case, petitioner failed to show that respondent acted in bad faith, or in wanton, fraudulent or
malevolent manner.

Petitioner likewise claims the amount of ₱50,000.00 as attorney’s fees, the sum of ₱1,000.00 for every appearance of its counsel, plus costs of suit. It
is well settled that no premium should be placed on the right to litigate and not every winning party is entitled to an autom atic grant of attorney's
fees. The party must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code. In this case, since petitioner was
compelled to engage the services of a lawyer and incurred expenses to protect its interest and right over the subject property, the award of
attorney’s fees is proper. However there are certain standards in fixing attorney's fees, to wit: (1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the nature and importance of the litigation and business in which the services were rendered;
(4) the responsibility imposed; (5) the amount of money and the value of the property affected by the controversy or involved in the employment;
(6) the skill and the experience called for in the performance of the services; (7) the professional character and the social standing of the
attorney; and (8) the results secured, it being a recognized rule that an attorney may properly charge a much larger fee when it is contingent
than when it is not.62 Considering the foregoing, the award of ₱10,000.00 as attorney’s fees, including the costs of suit, is reasonable under the
circumstances.

WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The Court of Appeals’ Decision dated June 14, 1999 in CA-G.R. CV No. 43770 is
MODIFIED as follows:

(1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990 between Catalina Matienzo Fausto and respondent Anunciacion Fausto
Pacunayen is hereby deemed rescinded;

(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed substituted as respondents, represented by respondent
Anunciacion Fausto Pacunayen, are ORDERED to recognize the obligation of Catalina Matienzo Fausto under the Contract of Lease with respect
to the priority right of petitioner Tanay Recreation Center and Development Corp. to purchase the subject property under reasonable terms and
conditions;

(3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent Anunciacion Fausto Pacunayen, which shall be cancelled in
the event petitioner successfully purchases the subject property;

(4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and Development Corporation the amount of Twenty Thousand Pesos
(₱20,000.00) as actual damages, plus interest thereon at the legal rate of six percent (6%) per annum from the filing of the Complaint until the
finality of this Decision. After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its
satisfaction; and,

(5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos (₱10,000.00) as attorney’s fees, and to pay the costs of suit.

(6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for further proceedings on the determination of the
"reasonable terms and conditions" of the offer to sell by respondents to petitioner, without prejudice to possible mediation between the parties.

The rest of the unaffected dispositive portion of the Court of Appeals’ Decision is AFFIRMED.

SO ORDERED.

G.R. No. 168325 December 8, 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.

DECI SION

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 Certiorari1 assails the Decision2 dated May 30, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 78870, which
affirmed the Decision3 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-561184
issued by the Registry of Deeds of Quezon City.

On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a Contract of Lease5 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

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letter6 dated January 2, 1995 to Roberto where she offered to sell to the latter subject parcel of land. She pegged the price at ₱37,541,000.00 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 ₱2,750,000.00 as evidenced by a Deed of Absolute Sale7 executed by the parties. TCT No. 1779868 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 Decision9 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 Complaint10 for Annulment of Deed
of Absolute Sale, Reconveyance, Damages and Application for Preliminary Injunction against Lourdes and the De Leons. On Novem ber 13, 2000,
Roberto filed a Notice of Lis Pendens11 with the Registry of Deeds of Quezon City.

On January 8, 2001, respondents filed An Answer with Counterclaim12 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 Order13 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 Order15 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. I ts 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 ₱30,000.00 as moral damages;

2. the amount of ₱30,000.00 as exemplary damages;

3. the amount of ₱30,000.00 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 ₱37,541,000.00. 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

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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 ₱37,541,000.00 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

Page 62 of 89
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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 ₱37,541,000.00. 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. Rigos21 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 m uch 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 i s 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.

Page 63 of 89
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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.)lawphi1

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.

G.R. No. 177783 January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D. IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE, all surnamed
ZUNIGA, Respondents.

DECI SION

VILLARAMA, JR., J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 dated July 18, 2006 and Resolution2 dated May 2, 2007
of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed the Decision3 dated June 15, 1999 of the Regional Trial Court (RTC) of
Pasig City, Branch 151 in Civil Case No. 58980.

The factual antecedents:

In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home Savings Bank and Trust Company, the predecessor of
respondent Home Bankers Savings and Trust Company, as security for the ₱500,000.00 loan extended to him by said bank. These properties which
are located in Cabuyao, Laguna are covered by Transfer Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350 containing an area of
83,303 square meters and 120,110 square meters, respectively.4

When petitioner defaulted in the payment of his loan obligation, respondent bank proceeded to foreclose the real estate mortgage. At the
foreclosure sale held on January 26, 1983, respondent bank was the highest bidder for the sum of ₱764,984.67. On February 8, 1983, the Certificate
of Sale issued to respondent bank was registered with the Registry of Deeds of Calamba, Laguna. With the failure of petitioner to redeem the
foreclosed properties within one year from such registration, title to the properties were consolidated in favor of respondent bank. Consequently,
TCT Nos. T-8595 and T-8350 were cancelled and TCT Nos. 111058 and 111059 were issued in the name of respondent bank.5

Despite the lapse of the redemption period and consolidation of title in respondent bank, petitioner offered to repurchase the properties. While
the respondent bank considered petitioner's offer to repurchase, there was no repurchase contract executed. The present controversy was
fuelled by petitioner's stance that a verbal repurchase/compromise agreement was actually reached and implemented by the parties.

In the meantime, respondent bank made the following dispositions of the foreclosed properties already titled in its name:

TCT No. 111059 (Subdivided into six lots with individual titles - TCT Nos. 117771, 117772, 117773, 117774, 117775 and 117776)

Page 64 of 89
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A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under Deed of Absolute Sale dated May 23, 1984 for the price of
₱150,000.00

B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions

1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr. Edilberto Torres and Dra. Rebecca Amores under Deed of
Absolute Sale dated April 17, 1985 for the price of ₱150,000.00

2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions -

Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of Absolute Sale dated March 23, 1987 for the price of ₱150,000.00

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale dated March 23, 1987 for the price of ₱150,000.00

Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -

C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale dated June 4, 1984 for the price of ₱150,000.00

The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772 were shouldered by petitioner who likewise negotiated the
above-mentioned sale transactions. The properties covered by TCT Nos. T-117774 to 117776 are still registered in the name of respondent bank.6

In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his willingness to pay the amount of ₱600,000.00 in full, as
balance of the repurchase price, and requested respondent bank to release to him the remaining parcels of land covered by TCT Nos. 111058
and T-154658 ("subject properties").7 Respondent bank however, turned down his request. This prompted petitioner to cause the annotation of an
adverse claim on the said titles on September 18, 1989.8

Prior to the annotation of the adverse claim, on August 24, 1989, the property covered by TCT No. 154658 was sold by respondent bank to
respondent spouses Phillip and Thelma Rodriguez, without informing the petitioner. On October 6, 1989, again without petitioner's knowledge,
respondent bank sold the property covered by TCT No T-111058 to respondents Phillip and Thelma Rodriguez, Catherine M. Zuñiga, Reynold M.
Zuñiga and Jeannette M. Zuñiga.9

On December 27, 1989, petitioner filed an action for specific performance and damages in the RTC against the respondent bank. As principal
relief, petitioner sought in his original complaint the reconveyance of the subject properties after his payment of ₱600,000.00.10 Respondent bank
filed its Answer denying the allegations of petitioner and asserting that it was merely exercising its right as owner of the subject properties when the
same were sold to third parties.

For failure of respondent bank to appear during the pre-trial conference, it was declared as in default and petitioner was allowed to present his
evidence ex parte on the same date (September 3, 1990). Petitioner simultaneously filed an "Ex-Parte Consignation" tendering the amount of
₱235,000.00 as balance of the repurchase price.11 On September 7, 1990, the trial court rendered judgment in favor of petitioner. Said decision,
as well as the order of default, were subsequently set aside by the trial court upon the filing of a motion for reconsideration by the respondent
bank.12

In its Order dated November 19, 1990, the trial court granted the motion for intervention filed by respondents Phillip and Thelma Rodriguez,
Catherine Zuñiga, Reynold Zuñiga and Jeannette Zuñiga. Said intervenors asserted their status as innocent purchasers for value who had no
notice or knowledge of the claim or interest of petitioner when they bought the properties already registered in the name of respondent bank.
Aside from a counterclaim for damages against the petitioner, intervenors also prayed that in the event respondent bank is ordered to reconvey
the properties, respondent bank should be adjudged liable to the intervenors and return all amounts paid to it.13

On July 8, 1991, petitioner amended his complaint to include as alternative relief under the prayer for reconveyance the payment by respondent
bank of the prevailing market value of the subject properties "less whatever remaining obligation due the bank by reason of the mortgage under
the terms of the compromise agreement.14

On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by preponderance of evidences adduced, judgment is hereby rendered
in favor of the plaintiff and against the defendant and intervenors by:

1. Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors as null and void and the Register of Deeds in Calamba,
Laguna is ordered to cancel and/or annul the two Transfer Certificate of Titles No. T-154658 and TCT No. T-111058 issued to the intervenors.

2. Ordering the defendant to refund the amount of ₱1,004,250.00 to the intervenors as the consideration of the sale of the two properties.

3. Ordering the defendant to execute the appropriate Deed of Reconveyance of the two (2) properties in favor of the plaintiff after the plaintiff
pays in full the amount of ₱600,000.00 as balance of the repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum of ₱50,000.00 as attorney's fees.

5. Dismissing the counterclaim of the defendant and intervenors against the plaintiff.

Costs against the defendant.

SO ORDERED.15

The trial court found that respondent bank deliberately disregarded petitioner's substantial payments on the total repurchase consideration.
Reference was made to the letter dated March 22, 1984 (Exhibit "I")16 as the authority for petitioner in making the installment payments directly to
the Universal Properties, Inc. (UPI), respondent bank's collecting agent. Said court concluded that the compromise agreement amounts to a valid
contract of sale between petitioner, as Buyer, and respondent bank, as Seller. Hence, in entertaining other buyers for the same properties already
sold to petitioner with intention to increase its revenues, respondent bank acted in bad faith and is thus liable for damages to the petitioner.
Intervenors were likewise found liable for damages as they failed to exercise due diligence before buying the subject properties.

Page 65 of 89
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Respondent bank appealed to the CA which reversed the trial court's ruling, as follows:

WHEREFORE, the foregoing premises considered, the instant appeal is hereby GRANTED. Accordingly, the assailed decision is hereby REVERSED
and SET ASIDE.

SO ORDERED.17

The CA held that by modifying the terms of the offer contained in the March 22, 1984 letter of respondent bank, petitioner effectively rejected the
original offer with his counter-offer. There was also no written conformity by respondent bank's officers to the amended conditions for repurchase
which were unilaterally inserted by petitioner. Consequently, no contract of repurchase was perfected and respondent bank acted well within its
rights when it sold the subject properties to herein respondents-intervenors.

As to the receipts presented by petitioner allegedly proving the installment payments he had completed, the CA said that these were not
payments of the repurchase price but were actually remittances of the payments made by petitioner's buyers for the purchase of the foreclosed
properties already titled in the name of respondent bank. It was noted that two of these receipts (Exhibits "K" and "K-1")18 were issued to Fermin
Salvador and Rizalina Pedrosa, the vendees of two subdivided lots under separate Deeds of Absolute Sale executed in their favor by the
respondent bank. In view of the attendant circumstances, the CA concluded that petitioner acted merely as a broker or middlem an in the sales
transactions involving the foreclosed properties. Lastly, the respondents-intervenors were found to be purchasers who bought the properties in
good faith without notice of petitioner's interest or claim. Nonetheless, since there was no repurchase contract perfected, the sale of the subject
properties to respondents-intervenors remains valid and binding, and the issue of whether the latter were innocent purchasers for value would be
of no consequence.

Petitioner's motion for reconsideration was likewise denied by the appellate court.

Hence, this petition alleging that:

A.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT THERE WAS A
PERFECTED CONTRACT TO REPURCHASE BETWEEN PETITIONER AND RESPONDENT-BANK.

B.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT PETITIONER
DID NOT ACT AS BROKER IN THE SALE OF THE FORECLOSED PROPERTIES AND THUS FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS ISSUED
IN THE NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS ACCOUNT.

C.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT
RESPONDENT-BANK DID NOT HAVE THE RIGHT TO DISPOSE THE SUBJECT PROPERTIES.

D.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT
RESPONDENTS-INTERVENORS ARE NOT INNOCENT PURCHASERS FOR VALUE IN GOOD FAITH.19

It is to be noted that the above issues raised by petitioner alleged grave abuse of discretion committed by the CA, which is proper in a petition for
certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended, but not in the present petition for review on certiorari under Rule 45.

The core issue for resolution is whether a contract for the repurchase of the foreclosed properties was perfected between petitioner and
respondent bank.

The Court sustains the decision of the CA.

Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.20 The requisite acceptance of the offer is expressed in Article 1319 of the Civil Code which states:

ART. 1319. 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.

In Palattao v. Court of Appeals,21 this Court held that if the acceptance of the offer was not absolute, such acceptance is insufficient to generate
consent that would perfect a contract. Thus:

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment, a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the
offer.22

The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.23 Where a party sets a
different purchase price than the amount of the offer, such acceptance was qualified which can be at most considered as a counter-offer; a
perfected contract would have arisen only if the other party had accepted this counter-offer.24 In Villanueva v. Philippine National Bank25 this
Court further elucidated on the meaning of unqualified acceptance, as follows:

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…While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to those points in the offer
which, under the operative facts of each contract, are not only material but motivating as well. Anything short of that level of mutuality produces
not a contract but a mere counter-offer awaiting acceptance. More particularly on the matter of the consideration of the contract, the offer and
its acceptance must be unanimous both on the rate of the payment and on its term. An acceptance of an offer which agrees to the rate but
varies the term is ineffective.26 (Emphasis supplied)

Petitioner submitted as evidence of a perfected contract of repurchase the March 22, 1984 letter (Exhibit "I")27 from Rita B. Manuel, then President
of UPI, a corporation formed by respondent bank to dispose of its acquired assets, with notations handwritten by petitioner himself. Said letter
reads:

March 22, 1984

Honorable Judge Fausto Ignacio


412 Bagumbayan Street, Pateros
Metro Manila

Dear Judge Ignacio:

Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna consisting of a total area of 203,413 square meters has been
favorably considered subject to the following terms and conditions:

1) Total Selling Price shall be ₱950,000.00

2) Downpayment of ₱150,00000 with the balance


Payable in Three (3) equal installments
as follows:

1st Installment - P 266,667 - on or before May 31, '84

2nd Installment - P 266,667 - on or before Sept. 31, '84

3rd Installment - P 266,666 - on or before Jan. 30, '85

TOTAL - P 800,000.00

3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110 square meters shall be for your account.

Thank you,

Very truly yours,

RITA B. MANUEL
President

According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro, the representative of Mrs. Manuel (President), and a
certain Mr. Fajardo, which notations supposedly represent their "compromise agreement."28 These notations indicate that the repurchase price
would be ₱900,000.00 which shall be paid as follows: ₱150,000 - end of May '84; ₱150,000 - end of June '84; Balance - "Depending on financial
position". Petitioner further alleged the following conditions of the verbal agreement: (1) respondent bank shall release the equivalent land area
for payments made by petitioner who shall shoulder the expenses for subdivision of the land; (2) in case any portion of the subdivided land is sold
by petitioner, a separate document of sale would be executed directly to the buyer; (3) the remaining portion of the properties shall not be
subject of respondent bank's transaction without the consent and authority of petitioner; (4) the petitioner shall continue in possession of the
properties and whatever portion still remaining, and attending to the needs of its tenants; and (5) payments shall be made directly to UPI.29

The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms and conditions for the repurchase of the foreclosed
properties was not absolute. Petitioner set a different repurchase price and also modified the terms of payment, which even contained a
unilateral condition for payment of the balance (₱600,000), that is, depending on petitioner's "financial position." The CA thus considered the
qualified acceptance by petitioner as a counter-proposal which must be accepted by respondent bank. However, there was no evidence of any
document or writing showing the conformity of respondent bank's officers to this counter-proposal.

Petitioner contends that the receipts issued by UPI on his installment payments are concrete proof -- despite denials to the contrary by respondent
bank -- that there was an implied acceptance of his counter-proposal and that he did not merely act as a broker for the sale of the subdivided
portions of the foreclosed properties to third parties. Since all these receipts, except for two receipts issued in the name of Fermin Salvador and
Rizalina Pedrosa, were issued in the name of petitioner instead of the buyers themselves, petitioner emphasizes that the payments were made for
his account. Moreover, petitioner asserts that the execution of the separate deeds of sale directly to the buyers was in pursuance of the perfected
repurchase agreement with respondent bank, such an arrangement being "an accepted practice to save on taxes and shortcut paper works."

The Court is unconvinced.

In Adelfa Properties, Inc. v. CA,30 the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to the offeror, it may be 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.31

Even assuming that the bank officer or employee whom petitioner claimed he had talked to regarding the March 22, 1984 letter had acceded to
his own modified terms for the repurchase, their supposed verbal exchange did not bind respondent bank in view of its corporate nature. There
was no evidence that said Mr. Lazaro or Mr. Fajardo was authorized by respondent bank's Board of Directors to accept petitioner's counter-

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proposal to repurchase the foreclosed properties at the price and terms other than those communicated in the March 22, 1984 letter. As this Court
ruled in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.32

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly

delegate some of its functions to individual officers or agents appointed by it.1âwphi1 Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are held not binding on the corporation.33

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when
authorized by a board resolution or its by-laws.34

In the absence of conformity or acceptance by properly authorized bank officers of petitioner's counter-proposal, no perfected repurchase
contract was born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to
compel respondent bank to accept the ₱600,000 being tendered by him as payment for the supposed balance of repurchase price.

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract.35 When the contract of sale is not perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation between the parties.36

In sum, we find the ruling of the CA more in accord with the established facts and applicable law and jurisprudence. Petitioner's claim of utmost
accommodation by respondent bank of his own terms for the repurchase of his foreclosed properties are simply contrary to normal business
practice. As aptly observed by the appellate court:

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and defendant-appellant, how come not a single signature
of the representative of the defendant-appellant was affixed thereto. Second, it is inconceivable that an agreement of such great importance,
involving two personalities who are both aware and familiar of the practical and legal necessity of reducing agreements into writing, the plaintiff-
appellee, being a lawyer and the defendant-appellant, a banking institution, not to formalize their repurchase agreement. Third, it is quite absurd
and unusual that the defendant-appellant could have acceded to the condition that the balance of the payment of the repurchase price would
depend upon the financial position of the plaintiff-appellee. Such open[-]ended and indefinite period for payment is hardly acceptable to a
banking institution like the defendant-appellant whose core existence fundamentally depends upon its financial arrangements and transactions
which, most, if not all the times are intended to bear favorable outcome to its business. Last, had there been a repurchase agreement, then, there
should have been titles or deeds of conveyance issued in favor of the plaintiff-appellee. But as it turned out, the plaintiff-appellee never had any
land deeded or titled in his name as a result of the alleged repurchase agreement. All these, reinforce the conclusion that the counter-proposal
was unilaterally made and inserted by the plaintiff-appellee in Exhibit "I" and could not have been accepted by the defendant-appellant, and
that a different agreement other than a repurchase agreement was perfected between them.37

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by his heirs, namely: Marfel D. Ignacio-Manalo, Milfa D.
Ignacio-Manalo and Faustino D. Ignacio.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 18, 2006 and Resolution dated May 2, 2007 of the Court of
Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.

G.R. No. L-26872 July 25, 1975

VILLONCO REALTY COMPANY, plaintiff-appellee and EDITH PEREZ DE TAGLE, intervenor-appellee,


vs.
BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES, defendants-appellants. Meer, Meer & Meer for plaintiff-appellee.

J. Villareal, Navarro and Associates for defendants-appellants.

P. P. Gallardo and Associates for intervenor-appellee.

AQUINO, J.:

This action was instituted by Villonco Realty Company against Bormaheco, Inc. and the spouses Francisco N. Cervantes and Rosario N. Cervantes
for the specific performance of a supposed contract for the sale of land and the improvements thereon for one million four hundred thousand
pesos. Edith Perez de Tagle, as agent, intervened in order to recover her commission. The lower court enforced the sale. Bormaheco, Inc. and the
Cervantes spouses, as supposed vendors, appealed.

This Court took cognizance of the appeal because the amount involved is more than P200,000 and the appeal was perfected before Republic
Act No. 5440 took effect on September 9, 1968. The facts are as follows:

Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of lots 3, 15 and 16 located at 245 Buendia Avenue, Makati,
Rizal with a total area of three thousand five hundred square meters (TCT Nos. 43530, 43531 and 43532, Exh. A, A-1 and A-2). The lots were
mortgaged to the Development Bank of the Phil (DBP) on April 21, 1959 as security for a loan of P441,000. The mortgage debt was fully paid on
July 10, 1969.

Page 68 of 89
SALES 4th Batch
Cervantes is the president of Bormaheco, Inc., a dealer and importer of industrial and agricultural machinery. The entire lots are occupied by the
building, machinery and equipment of Bormaheco, Inc. and are adjacent to the property of Villonco Realty Company situated at 219 Buendia
Avenue.

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

In the course of the negotiations, the brothers Romeo Villonco and Teofilo Villonco conferred with Cervantes in his office to discuss the price and
terms of the sale. Later, Cervantes "went to see Villonco for the same reason until some agreement" was arrived at. On a subsequent occasion,
Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of the sale with Villonco.

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

Bormaheco, Inc., through Cervantes, made a written offer dated February 12, 1964, to Romeo Villonco for the sale of the property. The offer reads
(Exh. B):

BORMAHECO, INC.

February 12,1964

Mr. Romeo
Villonco Villonco Building
Buendia Avenue
Makati, Rizal.

Dear Mr. Villonco:

This is with reference to our telephone conversation this noon on the matter of the sale of our property located at Buendia Avenue, with a total
area of 3,500 sq. m., under the following conditions:

(1) That we are offering to sell to you the above property at the price of P400.00 per square meter;

(2) That a deposit of P100,000.00 must be placed as earnest money on the purchase of the above property which will become part
payment of the property in the event that the sale is consummated;

(3) That this sale is to be consummated only after I shall have also consummated my purchase of another property located at Sta. Ana,
Manila;

(4) That if my negotiations with said property will not be consummated by reason beyond my control, I will return to you your deposit of
P100,000 and the sale of my property to you will not also be consummated; and

(5) That final negotiations on both properties can be definitely known after 45 days.

If the above terms is (are) acceptable to your Board, please issue out the said earnest money in favor of Bormaheco, Inc., and deliver the same
thru the bearer, Miss Edith Perez de Tagle.

Very truly yours,

SGD. FRANCISCO N. CERVANTES


President

The property mentioned in Bormaheco's letter was the land of the National Shipyards & Steel Corporation (Nassco), with an area of twenty
thousand square meters, located at Punta, Sta. Ana, Manila. At the bidding held on January 17, 1964 that land was awarded to Bormaheco, Inc.,
the highest bidder, for the price of P552,000. The Nassco Board of Directors in its resolution of February 18, 1964 authorized the General Manager to
sign the necessary contract (Exh. H).

On February 28, 1964, the Nassco Acting General Manager wrote a letter to the Economic Coordinator, requesting approval of that resolution.
The Acting Economic Coordinator approved the resolution on March 24, 1964 (Exh. 1).

In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued their negotiations for the sale of the Buendia Avenue property.
Cervantes and Teofilo Villonco had a final conference on February 27, 1964. As a result of that conference Villonco Realty Company, through
Teofilo Villonco, in its letter of March 4, 1964 made a revised counter- offer (Romeo Villonco's first counter-offer was dated February 24, 1964, Exh.
C) for the purchase of the property. The counter-offer was accepted by Cervantes as shown in Exhibit D, which is quoted below:

VILLONCO REALTY COMPANY


V. R. C. Building
219 Buendia Avenue, Makati,
Rizal, Philippines

March 4, 1964

Mr. Francisco Cervantes.


Bormaheco, Inc.
245 Buendia Avenue
Makati, Rizal

Page 69 of 89
SALES 4th Batch
Dear Mr. Cervantes:

In reference to the letter of Miss E. Perez de Tagle dated February 12th and 26, 1964 in respect to the terms and conditions on the purchase of your
property located at Buendia Ave., Makati, Rizal, with a total area of 3,500 sq. meters., we hereby revise our offer, as follows:

1. That the price of the property shall be P400.00 per sq. m., including the improvements thereon;

2. That a deposit of P100,000.00 shall be given to you as earnest money which will become as part payment in the event the sale is
consummated;

3. This sale shall be cancelled, only if your deal with another property in Sta. Ana shall not be consummated and in such case, the P100,000-
00 earnest money will be returned to us with a 10% interest p.a. However, if our deal with you is finalized, said P100,000.00 will become as part
payment for the purchase of your property without interest:

4. The manner of payment shall be as follows:

a. P100,000.00 earnest money and


650,000.00 as part of the down payment, or
P750,000.00 as total down payment

b. The balance is payable as follows:


P100,000.00 after 3 months
125,000.00 -do-
212,500.00 -do-
P650,000.00 Total

As regards to the other conditions which we have discussed during our last conference on February 27, 1964, the same shall be finalized upon
preparation of the contract to sell.*

If the above terms and conditions are acceptable to you, kindly sign your conformity hereunder. Enclosed is our check for ONE HUNDRED
THOUSAND (P100,000.00) PESOS, MBTC Check No. 448314, as earnest money.

Very truly yours,

VILLONCO REALTY COMPANY


(Sgd.) TEOFILO VILLONCO

CONFORME:

BORMAHECO, INC.
(Sgd.) FRANCISCO CERVANTES

That this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating.

(Sgd.) FRANCISCO CERVANTES

The check for P100,000 (Exh. E) mentioned in the foregoing letter-contract was delivered by Edith Perez de Tagle to Bormaheco, Inc. on March 4,
1964 and was received by Cervantes. In the voucher-receipt evidencing the delivery the broker indicated in her handwriting that the earnest
money was "subject to the terms and conditions embodied in Bormaheco's letter" of February 12 and Villonco Realty Company's letter of March 4,
1964 (Exh. E-1; 14 tsn).

Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days after the signing of the contract of sale, Exhibit D, Cervantes returned the
earnest money, with interest amounting to P694.24 (at ten percent per annum). Cervantes cited as an excuse the circumstance that "despite the
lapse of 45 days from February 12, 1964 there is no certainty yet" for the acquisition of the Punta property (Exh. F; F-I and F-2). Villonco Realty
Company refused to accept the letter and the checks of Bormaheco, Inc. Cervantes sent them by registered mail. When he rescinded the
contract, he was already aware that the Punta lot had been awarded to Bormaheco, Inc. (25-26 tsn).

Edith Perez de Tagle, the broker, in a letter to Cervantes dated March 31, 1964 articulated her shock and surprise at Bormaheco's turnabout. She
reviewed the history of the deal and explained why Romeo Villonco could not agree to the rescission of the sale (Exh. G).**

Cervantes in his letter of April 6, 1964, a reply to Miss Tagle's letter, alleged that the forty-five day period had already expired and the sale to
Bormaheco, Inc. of the Punta property had not been consummated. Cervantes said that his letter was a "manifestation that we are no longer
interested to sell" the Buendia Avenue property to Villonco Realty Company (Annex I of Stipulation of Facts). The latter was furnished with a copy
of that letter.

In a letter dated April 7, 1964 Villonco Realty Company returned the two checks to Bormaheco, Inc., stating that the condition for the cancellation
of the contract had not arisen and at the same time announcing that an action for breach of contract would be filed against Bormaheco, Inc.
(Annex G of Stipulation of Facts).1äwphï1.ñët

On that same date, April 7, 1964 Villonco Realty Company filed the complaint (dated April 6) for specific performance against Bormaheco, Inc.
Also on that same date, April 7, at eight-forty-five in the morning, a notice of lis pendens was annotated on the titles of the said lots.

Bormaheco, Inc. in its answers dated May 5 and 25, 1964 pleaded the defense that the perfection of the contract of sale was subject to the
conditions (a) "that final acceptance or not shall be made after 45 days" (sic) and (b) that Bormaheco, Inc. "acquires the Sta. Ana property".

On June 2, 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to Bormaheco, Inc., advising it that the Board of
Directors and the Economic Coordinator had approved the sale of the Punta lot to Bormaheco, Inc. and requesting the latter to send its duly
authorized representative to the Nassco for the signing of the deed of sale (Exh. 1).

Page 70 of 89
SALES 4th Batch
The deed of sale for the Punta land was executed on June 26, 1964. Bormaheco, Inc. was represented by Cervantes (Exh. J. See Bormaheco, Inc.
vs. Abanes, L-28087, July 31, 1973, 52 SCRA 73).

In view of the disclosure in Bormaheco's amended answer that the three lots were registered in the names of the Cervantes spouses and not in the
name of Bormaheco, Inc., Villonco Realty Company on July 21, 1964 filed an amended complaint impleading the said spouses as defendants.
Bormaheco, Inc. and the Cervantes spouses filed separate answers.

As of January 15, 1965 Villonco Realty Company had paid to the Manufacturers' Bank & Trust Company the sum of P8,712.25 as interests on the
overdraft line of P100,000 and the sum of P27.39 as interests daily on the same loan since January 16, 1965. (That overdraft line was later settled by
Villonco Realty Company on a date not mentioned in its manifestation of February 19, 1975).

Villonco Realty Company had obligated itself to pay the sum of P20,000 as attorney's fees to its lawyers. It claimed that it was damaged in the sum
of P10,000 a month from March 24, 1964 when the award of the Punta lot to Bormaheco, Inc. was approved. On the other hand, Bormaheco, Inc.
claimed that it had sustained damages of P200,000 annually due to the notice of lis pendens which had prevented it from constructing a multi-
story building on the three lots. (Pars. 18 and 19, Stipulation of Facts).1äwphï1.ñët

Miss Tagle testified that for her services Bormaheco, Inc., through Cervantes, obligated itself to pay her a three percent commission on the price of
P1,400,000 or the amount of forty-two thousand pesos (14 tsn).

After trial, the lower court rendered a decision ordering the Cervantes spouses to execute in favor of Bormaheco, Inc. a deed of conveyance for
the three lots in question and directing Bormaheco, Inc. (a) to convey the same lots to Villonco Realty Company, (b) to pay the latter, as
consequential damages, the sum of P10,000 monthly from March 24, 1964 up to the consummation of the sale, (c) to pay Edith Perez de Tagle the
sum of P42,000 as broker's commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109).

Bormaheco, Inc. and the Cervantes spouses appealed. Their principal contentions are (a) that no contract of sale was perfected because
Cervantes made a supposedly qualified acceptance of the revised offer contained in Exhibit D, which acceptance amounted to a counter-offer,
and because the condition that Bormaheco, inc. would acquire the Punta land within the forty-five-day period was not fulfilled; (2) that
Bormaheco, Inc. cannot be compelled to sell the land which belongs to the Cervantes spouses and (3) that Francisco N. Cervantes did not bind
the conjugal partnership and his wife when, as president of Bormaheco, Inc., he entered into negotiations with Villonco Realty Company
regarding the said land.

We hold that the appeal, except as to the issue of damages, is devoid of merit.

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

"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. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts"
(Art. 1475, Ibid.).

"Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law" (Art. 1315, Civil
Code).

"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" (Art. 1319, Civil Code). "An acceptance
may be express or implied" (Art. 1320, Civil Code).

Bormaheco's acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue property, as shown in Teofilo Villonco's letter
dated March 4, 1964 (Exh. D), indubitably proves that there was a meeting of minds upon the subject matter and consideration of the sale.
Therefore, on that date the sale was perfected. (Compare with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1 Phil. 490). Not
only that Bormaheco's acceptance of the part payment of one hundred ,thousand pesos shows that the sale was conditionally consummated or
partly executed subject to the purchase by Bormaheco, Inc. of the Punta property. The nonconsummation of that purchase would be a negative
resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil. 873).

On February 18, 1964 Bormaheco's bid for the Punta property was already accepted by the Nassco which had authorized its General Manager to
sign the corresponding deed of sale. What was necessary only was the approval of the sale by the Economic Coordinator and a request for that
approval was already pending in the office of that functionary on March 4, 1964.

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

That contention is not well-taken. It should be stressed that there is no evidence as to what changes were made by Cervantes in Villonco's revised
offer. And there is no evidence that Villonco Realty Company did not assent to the supposed changes and that such assent was never made
known to Cervantes.

What the record reveals is that the broker, Miss Tagle, acted as intermediary between the parties. It is safe to assume that the alleged changes or
qualifications made by Cervantes were approved by Villonco Realty Company and that such approval was duly communicated to Cervantes or
Bormaheco, Inc. by the broker as shown by the fact that Villonco Realty Company paid, and Bormaheco, Inc. accepted, the sum of P100,000 as
earnest money or down payment. That crucial fact implies that Cervantes was aware that Villonco Realty Company had accepted the
modifications which he had made in Villonco's counter-offer. Had Villonco Realty Company not assented to those insertions and annotations,
then it would have stopped payment on its check for P100,000. The fact that Villonco Realty Company allowed its check to be cashed by
Bormaheco, Inc. signifies that the company was in conformity with the changes made by Cervantes and that Bormaheco, Inc. was aware of that
conformity. Had those insertions not been binding, then Bormaheco, Inc. would not have paid interest at the rate of ten percent per annum, on
the earnest money of P100,000.

The truth is that the alleged changes or qualifications in the revised counter — offer (Exh. D) are not material or are mere clarifications of what the
parties had previously agreed upon.

Page 71 of 89
SALES 4th Batch

Thus, Cervantes' alleged insertion in his handwriting of the figure and the words "12th and" in Villonco's counter-offer is the same as the statement
found in the voucher-receipt for the earnest money, which reads: "subject to the terms and conditions embodied in Bormaheco's letter of Feb. 12,
1964 and your letter of March 4, 1964" (Exh. E-1).

Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of Villonco's revised counter-offer and substituted for it the word "another" so
that the original phrase, "Nassco's property in Sta. Ana", was made to read as "another property in Sta. Ana". That change is trivial. What Cervantes
did was merely to adhere to the wording of paragraph 3 of Bormaheco's original offer (Exh. B) which mentions "another property located at Sta.
Ana." His obvious purpose was to avoid jeopardizing his negotiation with the Nassco for the purchase of its Sta. Ana property by unduly publicizing
it.

It is noteworthy that Cervantes, in his letter to the broker dated April 6, 1964 (Annex 1) or after the Nassco property had been awarded to
Bormaheco, Inc., alluded to the "Nassco property". At that time, there was no more need of concealing from the public that Bormaheco, Inc. was
interested in the Nassco property.

Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after the word "interest" in that same paragraph 3 of the revised counter-offer
(Exh. D) could not be categorized as a major alteration of that counter-offer that prevented a meeting of the minds of the parties. It was
understood that the parties had contemplated a rate of ten percent per annum since ten percent a month or semi-annually would be usurious.

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

That contention is not correct. There is no incompatibility between Bormaheco's offer of February 12, 1964 (Exh. B) and Villonco's counter-offer of
March 4, 1964 (Exh. D). The revised counter-offer merely amplified Bormaheco's original offer.

The controlling fact is that there was agreement between the parties on the subject matter, the price and the mode of payment and that part of
the price was paid. "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract" (Art. 1482, Civil Code).

"It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. 'So long as it
is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a
contract is formed.' " (Stuart vs. Franklin Life Ins. Co., 165 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

Thus, it was held that the vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer,
does not amount to a rejection of the offer and the tender of a counter-offer (Stuart vs. Franklin Life Ins. Co., supra).

The instant case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985, 63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In
those two cases the acceptance radically altered the offer and, consequently, there was no meeting of the minds of the parties.

Thus, in the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for P1,000,000 on condition that the price be paid in cash,
or, if not paid in cash, the price would be payable within three years provided security is given for the payment of the balance within three years
with interest. Zayco, instead of unconditionally accepting those terms, countered that he was going to make a down payment of P100,000, that
Serra's mortgage obligation to the Philippine National Bank of P600,000 could be transferred to Zayco's account and that he (plaintiff) would give
a bond to secure the payment of the balance of the price. It was held that the acceptance was conditional or was a counter-offer which had to
be accepted by Serra. There was no such acceptance. Serra revoked his offer. Hence, there was no perfected contract.

In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by Benito Legarda, who had empowered Valdes
to sell it. Borck was given three months from December 4, 1911 to buy the hacienda for P307,000. On January 17, 1912 Borck wrote to Valdes,
offering to purchase the hacienda for P307,000 payable on May 1, 1912. No reply was made to that letter. Borck wrote other letters modifying his
proposal. Legarda refused to convey the property.

It was held that Borck's January 17th letter plainly departed from the terms of the offer as to the time of payment and was a counter-offer which
amounted to a rejection of Valdes' original offer. A subsequent unconditional acceptance could not revive that offer.

The instant case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the written offer to sell was revoked by the offer or
before the offeree's acceptance came to the offeror's knowledge.

Appellants' next contention is that the contract was not perfected because the condition that Bormaheco, Inc. would acquire the Nassco land
within forty-five days from February 12, 1964 or on or before March 28, 1964 was not fulfilled. This contention is tied up with the following letter of
Bormaheco, Inc. (Exh. F):

BORMAHECO, INC.

March 30, 1964

Villonco Realty Company


V.R.C. Building
219 Buendia Ave.,
Makati, Rizal

Gentlemen:

We are returning herewith your earnest money together with interest thereon at 10% per annum. Please be informed that despite the lapse of the
45 days from February 12, 1964 there is no certainty yet for us to acquire a substitute property, hence the return of the earnest money as agreed
upon.

Very truly yours,

Page 72 of 89
SALES 4th Batch
SGD. FRANCISCO N. CERVANTES
President

Encl.: P.N.B. Check No. 112994 J


P.N.B. Check No. 112996J

That contention is predicated on the erroneous assumption that Bormaheco, Inc. was to acquire the Nassco land within forty-five days or on or
before March 28, 1964.

The trial court ruled that the forty-five-day period was merely an estimate or a forecast of how long it would take Bormaheco, Inc. to acquire the
Nassco property and it was not "a condition or a deadline set for the defendant corporation to decide whether or not to go through with the sale
of its Buendia property".

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

Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale of the Buendia lots would be consummated after he had
consummated the purchase of the Nassco property. Then, in paragraph 5 of the same offer he stated "that final negotiations on both properties
can be definitely known after forty-five days" (See Exh. B).

It is deducible from the tenor of those statements that the consummation of the sale of the Buendia lots to Villonco Realty C ompany was
conditioned on Bormaheco's acquisition of the Nassco land. But it was not spelled out that such acquisition should be effected within forty-five
days from February 12, 1964. Had it been Cervantes' intention that the forty-five days would be the period within which the Nassco land should be
acquired by Bormaheco, then he would have specified that period in paragraph 3 of his offer so that paragraph would read in this wise: "That this
sale is to be consummated only after I shall have consummated my purchase of another property located at Sta. Ana, Manila within forty-five
days from the date hereof ." He could have also specified that period in his "conforme" to Villonco's counter-offer of March 4, 1964 (Exh. D) so that
instead of merely stating "that this sale shall be subject to favorable consummation of a property in Sta. Ana we are negotiating" he could have
said: "That this sale shall be subject to favorable consummation within forty-five days from February 12, 1964 of a property in Sta. Ana we are
negotiating".

No such specification was made. The term of forty-five days was not a part of the condition that the Nassco property should be acquired. It is
clear that the statement "that final negotiations on both property can be definitely known after 45 days" does not and cannot mean that
Bormaheco, Inc. should acquire the Nassco property within forty-five days from February 12, 1964 as pretended by Cervantes. It is simply a surmise
that after forty-five days (in fact when the forty-five day period should be computed is not clear) it would be known whether Bormaheco, Inc.
would be able to acquire the Nassco property and whether it would be able to sell the Buendia property. That aforementioned paragraph 5 does
not even specify how long after the forty-five days the outcome of the final negotiations would be known.

It is interesting to note that in paragraph 6 of Bormaheco's answer to the amended complaint, which answer was verified by Cervantes, it was
alleged that Cervantes accepted Villonco's revised counter-offer of March 4, 1964 subject to the condition that "the final negotiations
(acceptance) will have to be made by defendant within 45 days from said acceptance" (31 Record on Appeal). If that were so, then the
consummation of Bormaheco's purchase of the Nassco property would be made within forty-five days from March 4, 1964.

What makes Bormaheco's stand more confusing and untenable is that in its three answers it invariably articulated the incoherent and vague
affirmative defense that its acceptance of Villonco's revised counter-offer was conditioned on the circumstance "that final acceptance or not
shall be made after 45 days" whatever that means. That affirmative defense is inconsistent with the other aforequoted incoherent statement in its
third answer that "the final negotiations (acceptance) will have to be made by defendant within 45 days from said acceptance" (31 Record on
Appeal).1äwphï1.ñët

Thus, Bormaheco's three answers and paragraph 5 of his offer of February 12, 1964 do not sustain at all its theory that the Nassco property should
be acquired on or before March 28, 1964. Its rescission or revocation of its acceptance cannot be anchored on that theory which, as articulated
in its pleadings, is quite equivocal and unclear.

It should be underscored that the condition that Bormaheco, Inc. should acquire the Nassco property was fulfilled. As admitted by the appellants,
the Nassco property was conveyed to Bormaheco, Inc. on June 26, 1964. As early as January 17, 1964 the property was awarded to Bormaheco,
Inc. as the highest bidder. On February 18, 1964 the Nassco Board authorized its General Manager to sell the property to Bormaheco, Inc. (Exh. H).
The Economic Coordinator approved the award on March 24, 1964. It is reasonable to assume that had Cervantes been more assiduous in
following up the transaction, the Nassco property could have been transferred to Bormaheco, Inc. on or before March 28, 1964, the supposed last
day of the forty-five-day period.

The appellants, in their fifth assignment of error, argue that Bormaheco, Inc. cannot be required to sell the three lots in question because they are
conjugal properties of the Cervantes spouses. They aver that Cervantes in dealing with the Villonco brothers acted as president of Bormaheco,
Inc. and not in his individual capacity and, therefore, he did not bind the conjugal partnership nor Mrs. Cervantes who was allegedly opposed to
the sale.

Those arguments are not sustainable. It should be remembered that Cervantes, in rescinding the contract of sale and in returning the earnest
money, cited as an excuse the circumstance that there was no certainty in Bormaheco's acquisition of the Nassco property (Exh. F and Annex 1).
He did not say that Mrs. Cervantes was opposed to the sale of the three lots. He did not tell Villonco Realty Company that he could not bind the
conjugal partnership. In truth, he concealed the fact that the three lots were registered "in the name of FRANCISCO CERVANTES, Filipino, of legal
age, married to Rosario P. Navarro, as owner thereof in fee simple". He certainly led the Villonco brothers to believe that as president of
Bormaheco, Inc. he could dispose of the said lots. He inveigled the Villoncos into believing that he had untrammelled control of Bormaheco, Inc.,
that Bormaheco, Inc. owned the lots and that he was invested with adequate authority to sell the same.

Thus, in Bormaheco's offer of February 12, 1964, Cervantes first identified the three lots as "our property" which "we are offering to sell ..." (Opening
paragraph and par. 1 of Exh. B). Whether the prounoun "we" refers to himself and his wife or to Bormaheco, Inc. is not clear. Then, in paragraphs 3
and 4 of the offer, he used the first person and said: "I shall have consummated my purchase" of the Nassco property; "... my negotiations with said
property" and "I will return to you your deposit". Those expressions conveyed the impression and generated the belief that the Villoncos did not
have to deal with Mrs. Cervantes nor with any other official of Bormaheco, Inc.

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The pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and studiously avoided making the allegation that Cervantes was not
authorized by his wife to sell the three lots or that he acted merely as president of Bormaheco, Inc. That defense was not interposed so as not to
place Cervantes in the ridiculous position of having acted under false pretenses when he negotiated with the Villoncos for the sale of the three
lots.

Villonco Realty Company, in paragraph 2 of its original complaint, alleged that "on February 12, 1964, after some prior negotiations, the defendant
(Bormaheco, Inc.) made a formal offer to sell to the plaintiff the property of the said defendant situated at the abovenamed address along
Buendia Avenue, Makati, Rizal, under the terms of the letter-offer, a copy of which is hereto attached as Annex A hereof", now Exhibit B (2 Record
on Appeal).

That paragraph 2 was not, repeat, was not denied by Bormaheco, Inc. in its answer dated May 5, 1964. It did not traverse that paragraph 2.
Hence, it was deemed admitted. However, it filed an amended answer dated May 25, 1964 wherein it denied that it was the owner of the three
lots. It revealed that the three lots "belong and are registered in the names of the spouses Francisco N. Cervantes and Rosario N. Cervantes."

The three answers of Bormaheco, Inc. contain the following affirmative defense:

13. That defendant's insistence to finally decide on the proposed sale of the land in question after 45 days had not only for its purpose the
determination of its acquisition of the said Sta. Ana (Nassco) property during the said period, but also to negotiate with the actual and registered
owner of the parcels of land covered by T.C.T. Nos. 43530, 43531 and 43532 in question which plaintiff was fully aware that the same were not in
the name of the defendant (sic; Par. 18 of Answer to Amended Complaint, 10, 18 and 34, Record on Appeal).

In that affirmative defense, Bormaheco, Inc. pretended that it needed forty- five days within which to acquire the Nassco property and "to
negotiate" with the registered owner of the three lots. The absurdity of that pretension stands out in bold relief when it is borne in mind that the
answers of Bormaheco, Inc. were verified by Cervantes and that the registered owner of the three lots is Cervantes himself. That affirmative
defense means that Cervantes as president of Bormaheco, Inc. needed forty-five days in order to "negotiate" with himself (Cervantes).

The incongruous stance of the Cervantes spouses is also patent in their answer to the amended complaint. In that answer they disclaimed
knowledge or information of certain allegations which were well-known to Cervantes as president of Bormaheco, Inc. and which were admitted in
Bormaheco's three answers that were verified by Cervantes.

It is significant to note that Bormaheco, Inc. in its three answers, which were verified by Cervantes, never pleaded as an affirmative defense that
Mrs. Cervantes opposed the sale of the three lots or that she did not authorize her husband to sell those lots. Likewise, it should be noted that in
their separate answer the Cervantes spouses never pleaded as a defense that Mrs. Cervantes was opposed to the sale of three lots or that
Cervantes could not bind the conjugal partnership. The appellants were at first hesitant to make it appear that Cervantes had committed the
skullduggery of trying to sell property which he had no authority to alienate.

It was only during the trial on May 17, 1965 that Cervantes declared on the witness stand that his wife was opposed to the sale of the three lots, a
defense which, as already stated, was never interposed in the three answers of Bormaheco, Inc. and in the separate answer of the Cervantes
spouses. That same viewpoint was adopted in defendants' motion for reconsideration dated November 20, 1965.

But that defense must have been an afterthought or was evolved post litem motam since it was never disclosed in Cervantes' letter of rescission
and in his letter to Miss Tagle (Exh. F and Annex 1). Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had already
been waived for not having been pleaded (See sec. 2, Rule 9, Rules of Court).

Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact that the three lots were entirely occupied by
Bormaheco's building, machinery and equipment and were mortgaged to the DBP as security for its obligation, and considering that appellants'
vague affirmative defenses do not include Mrs. Cervantes' alleged opposition to the sale, the plea that Cervantes had no authority to sell the lots
strains the rivets of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331; Riobo vs. Hontiveros, 21 Phil. 31).

"Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith" (Art. 1159,
Civil Code). Inasmuch as the sale was perfected and even partly executed, Bormaheco, Inc., and the Cervantes spouses, as a matter of justice
and good faith, are bound to comply with their contractual commitments.

Parenthetically, it may be observed that much misunderstanding could have been avoided had the broker and the buyer taken the trouble of
making some research in the Registry of Deeds and availing themselves of the services of a competent lawyer in drafting the contract to sell.

Bormaheco, Inc. and the Cervantes spouses in their sixth assignment of error assail the trial court's award to Villonco Realty Company of
consequential damage amounting to ten thousand pesos monthly from March 24, 1964 (when the Economic Coordinator approved the award of
the Nassco property to Bormaheco, Inc.) up to the consummation of the sale. The award was based on paragraph 18 of the stipulation of facts
wherein Villonco Realty Company "submits that the delay in the consummation of the sale" has caused it to suffer the aforementioned damages.

The appellants contend that statement in the stipulation of facts simply means that Villonco Realty Company speculates that it has suffered
damages but it does not mean that the parties have agreed that Villonco Realty Company is entitled to those damages.

Appellants' contention is correct. As rightly observed by their counsel, the damages in question were not specifically pleaded and proven and
were "clearly conjectural and speculative".

However, appellants' view in their seventh assignment of error that the trial court erred in ordering Bormaheco, Inc. to pay Villonco Realty
Company the sum of twenty thousand pesos as attorney's fees is not tenable. Under the facts of the case, it is evident that Bormaheco, Inc. acted
in gross and evident bad faith in refusing to satisfy the valid and just demand of Villonco Realty Company for specific performance. It compelled
Villonco Realty Company to incure expenses to protect its interest. Moreover, this is a case where it is just and equitable that the plaintiff should
recover attorney's fees (Art. 2208, Civil Code).

The appellants in their eighth assignment of error impugn the trial court's adjudication of forty-two thousand pesos as three percent broker's
commission to Miss Tagle. They allege that there is no evidence that Bormaheco, Inc. engaged her services as a broker in the projected sale of
the three lots and the improvements thereon. That allegation is refuted by paragraph 3 of the stipulation of facts and by the documentary
evidence. It was stipulated that Miss Tagle intervened in the negotiations for the sale of the three lots. Cervantes in his original offer of February 12,
1964 apprised Villonco Realty Company that the earnest money should be delivered to Miss Tagle, the bearer of the letter-offer. See also Exhibit G
and Annex I of the stipulation of facts.

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We hold that the trial court did not err in adjudging that Bormaheco, Inc. should pay Miss Tagle her three percent commission.

WHEREFORE, the trial court's decision is modified as follows:

1. Within ten (10) days from the date the defendants-appellants receive notice from the clerk of the lower court that the records of this
case have been received from this Court, the spouses Francisco N. Cervantes and Rosario P. Navarra-Cervantes should execute a deed
conveying to Bormaheco, Inc. their three lots covered by Transfer Certificate of Title Nos. 43530, 43531 and 43532 of the Registry of Deeds of Rizal.

2. Within five (5) days from the execution of such deed of conveyance, Bormaheco, Inc. should execute in favor of Villonco Realty
Company, V. R. C. Building, 219 Buendia Avenue, Makati, Rizal a registerable deed of sale for the said three lots and all the improvements
thereon, free from all lien and encumbrances, at the price of four hundred pesos per square meter, deducting from the total purchase price the
sum of P100,000 previously paid by Villonco Realty Company to Bormaheco, Inc.

3. Upon the execution of such deed of sale, Villonco Realty Company is obligated to pay Bormaheco, Inc. the balance of the price in the
sum of one million three hundred thousand pesos (P1,300,000).

4. Bormaheco, Inc. is ordered (a) to pay Villonco Realty Company twenty thousand pesos (P20,000) as attorney's fees and (b) to pay Edith
Perez de Tagle the sum of forty-two thousand pesos (P42,000) as commission. Costs against the defendants-appellants.

SO ORDERED.

G.R. No. 166862 December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner,


REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECI SION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision2 of
the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by
petitioner Manila Metal Container Corporation (MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered
by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent
Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit
accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property.
On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus
interests and other charges.5

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold
at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.

After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the
winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was
annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the
property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for
appropriate action and recommendation.9

In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to
redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment.11 Meanwhile, some PNB
Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption."12

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of
respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's
obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty
taxes, registration expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account, petitioner remitted
P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15

In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for
P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the
recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent
PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would
be sold to other interested buyers.16

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Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a
reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the
property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase
the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner
declared that it had already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and that was why it had paid P725,000.00.
Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.18

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property,
but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On page two of the letter was a space above the typewritten name
of petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely
indicated therein that he had received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an
amended offer to repurchase.

Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for
P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase
price of the property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected
petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22

On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title,
or Specific Performance with Damages." To support its cause of action for specific performance, it alleged the following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the
redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time
that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition
which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a
condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its
own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila
Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following arguments:

36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of
counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to
pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which
defendant PNB is liable for moral damages of at least P50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of
the plaintiff by way of example or correction for the public good of at least P30,000.00.23

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect.

b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void.

c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in
paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question
at the back of the TCT No. 37025 described in paragraph 4 of this Complaint.

d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025 described in paragraph 4 of this Complaint to the
plaintiff Manila Metal.

e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary damages in the aggregate amount of
not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and
attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24

In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property
after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem
the property had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties agreed to limit the issues to the
following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally
enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant
in its letter dated June 4, 1985.

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

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While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from
notice,27 but petitioners refused to do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however rejected by respondent PNB, in a
letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of
policy, it could not sell the property for less than its market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00
in cash.30 The offer was again rejected by respondent PNB on September 13, 1993.31

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered
respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court ruled that there was no perfected contract of sale
between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that
respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June
4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was
way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent
PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money.

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

THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER
TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE.

II

THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-
APPELLEE.

III

THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO
CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR
PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF
REPURCHASE.

VI

THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.

VII

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

VIII

THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND
LITIGATION EXPENSES.33

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

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously never agreed to the selling
price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47.
Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a
counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations did
not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of
respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was
presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB
merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the
balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.

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

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

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I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETI TIONER
AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN
EARNEST MONEY.

III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS
CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT
OF SALE BETWEEN THE PARTIES.

IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED
PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY
ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993,
OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38

The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the
property from respondent.

Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property for P1,574,560.00. When the
acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt
No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to
repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to
purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no
longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of
sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer
ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for
P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise
maintains that, although the P725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the
amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v.
Bormaheco39 and Topacio v. Court of Appeals.40

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as
fixed by respondent within the 60-day period from notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a
rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In
any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract.

Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise
the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it,
in accordance with Section 27, Rule 130 of the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the
repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite
agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of
sale. There was no such agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon the
fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of
which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles
governing "suspensive conditions."

According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a
recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer
since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties'
Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit
to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be
approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute.
Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering,
managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or
otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondent's
Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized
the SAMD, or made it appear to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition,
among others, "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already
deposited)

within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's claim to be P1,931,389.53
less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the
property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein.
This qualified acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return.

The Ruling of the Court

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The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some
service.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established.

Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.42 Once perfected, they bind other contracting parties and the obligations arising therefrom have the form
of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly
stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.43

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other
to pay therefor a price certain in money or its equivalent.44 The absence of any of the essential elements will negate the existence of a perfected
contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects
the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of
the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by
the other, gives rise to a perfected sale.46

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract.47 When the contract of sale is not perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation between the parties.48

In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as follows: (1) negotiation, covering
the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object
of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.

A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its
manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be pl ain,
unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the Court ruled
that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party
that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts,
conduct, or words of a party recognizing the existence of the contract of sale.52

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is
considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis.53
Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects
with that of the offer so as to produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for
more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties.55 The request, which was made
through a letter dated August 25, 1983, was referred to the respondent's main branch for appropriate action.56 Before respondent could act on
the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year
grave period requested for.57

When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's President reiterating its offer to
purchase the property.59 There was no response to petitioner's letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was P1,574,560.47 cannot be
considered an unqualified acceptance to petitioner's offer to purchase the property. The statement is but a computation of the amount which
petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium,
advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for
P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs.
Diesehuan Freight Services, Inc.:60

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate

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some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of
such director, are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when
authorized by a board resolution or its by-laws.61

It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond
the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price.
Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recomm ended by the
SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of
petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected
contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for
reconsideration would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money" which could be considered
as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads:

ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the
contract.

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

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's
total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the
condition that the purchase price is still subject to the approval of the PNB Board.62

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would
approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until the
respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential
elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for
P1,931,389.53. However, this amounted to an amendment of respondent's qualified acceptance, or an amended counter-offer, because while
the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions:

1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable
in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval;

2. The Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the
nature and extent of said rights, interests and participation and waive your right to warranty against eviction.

3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science
stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you;

4. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any;

5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit
shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties.

6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.64

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested
respondent to reconsider its amended counter-offer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00
deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property.

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

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.

SO ORDERED.

G.R. No. 199648 January 28, 2015

FIRST OPTIMA REALTY CORPORATION, Petitioner,


vs.
SECURITRON SECURITY SERVICES, INC., Respondent.

DECI SION

DEL CASTILLO, J.:

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In a potential sale transaction, the prior payment of earnest money even before the property owner can agree to sell his property is irregular, and
cannot be used to bind the owner to the obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliche, the
carriage cannot be placed before the horse. The property owner-prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter's employment of questionable practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective seller's rights of ownership over his property, an anomaly which the Court
will certainly not condone.

This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30, 2011 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 93715
affirming the February 16, 2009 Decision' of the Regional Trial Court (RTC) of Pasay City, Branch 115 in Civil Case No. 06-0492 CFM; and 2) the CA’s
December 9, 2011 Resolution4 denying the herein petitioner’s Motion for Reconsideration5 of the assailed judgment.

Factual Antecedents

Petitioner First Optima Realty Corporation is a domestic corporation engaged in the real estate business. It is the registered owner of a 256-square
meter parcel of land with improvements located in Pasay City, covered by Transfer Certificate of Title No. 125318 (the subject property).6
Respondent Securitron Security Services, Inc., on the other hand, is a domestic corporation with offices located beside the subject property.

Looking to expand its business and add toits existing offices, respondent – through its General Manager, Antonio Eleazar (Eleazar) – sent a
December 9, 2004 Letter7 addressed to petitioner – through its Executive Vice-President, Carolina T. Young (Young) – offering to purchase the
subject property at ₱6,000.00 per square meter. A series of telephone calls ensued, but only between Eleazar and Young’s secretary;8 Eleazar
likewise personally negotiated with a certain Maria Remoso (Remoso), who was an employee of petitioner.9 At this point, Eleazar was unable to
personally negotiate with Young or the petitioner’s board of directors.

Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay for the subject property in cash, which he already brought with
him. However, Young declined to accept payment, saying that she still needed to secure her sister’s advice on the matter.10 She likewise
informed Eleazar that prior approval of petitioner’s Board of Directors was required for the transaction, to which remark Eleazar replied that
respondent shall instead await such approval.11

On February 4, 2005, respondent sent a Letter12 of even date to petitioner. It was accompanied by Philippine National Bank Check No. 24677 (the
subject check), issued for ₱100,000.00 and made payable to petitioner. The letter states thus:

Gentlemen:

As agreed upon, we are making a deposit of ONE HUNDRED THOUSAND PESOS (Php 100,000.00) as earnest money for your property at the corner
of Layug St., & Lim-An St., Pasay City as per TCT No. 125318 with an area of 256 sq. m. at 6,000.00/ sq. m. for a total of ONE MILLION FIVE HUNDRED
THIRTY SIX THOUSAND PESOS (Php 1,536,000.00).

Full payment upon clearing of the tenants at said property and signing of the Deed of Sale.

(signed)
ANTONIO S. ELEAZAR13

Despite the delicate nature of the matter and large amount involved, respondent did not deliver the letter and check directly to Young or her
office; instead, they were coursed through an ordinary receiving clerk/receptionist of the petitioner, who thus received the same and therefor
issued and signed Provisional Receipt No. 33430.14 The said receipt reads:

Received from x x x Antonio Eleazar x x x the sum of Pesos One Hundred Thousand x x x

IN PAYMENT OF THE FOLLOWING x x x

Earnest money or Partial payment of

Pasay Property Layug & Lim-an St. x x x.

Note: This is issued to transactions not


yet cleared but subsequently an OfficialReceipt will be issued. x x x15

The check was eventually deposited with and credited to petitioner’s bank account.

Thereafter, respondent through counsel demanded in writing that petitioner proceed with the sale of the property.16 In a March 3, 2006 Letter17
addressed to respondent’s counsel, petitioner wrote back:

Dear Atty. De Jesus:

Anent your letter dated January 16, 2006 received on February 20, 2006, please be informed of the following:

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

2. It tendered an earnest money despite the fact that we are still undecided to sell the said property;

3. Our Board of Directors failed to pass a resolution to date whether it agrees to sell the property;

4. We have no Contract for the earnest money nor Contract to Sell the said property with your client;

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

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Very truly yours,

(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18

Ruling of the Regional Trial Court of Pasay City

On April 18, 2006, respondent filed with the Pasay RTC a civil case against petitioner for specific performance with damages to compel the latter
to consummate the supposed sale of the subject property. Docketed as Civil Case No. 06-0492 CFM and assigned to Branch 115 of the Pasay RTC,
the Complaint19 is predicated on the claim that since a perfected contract of sale arose between the parties after negotiations were conducted
and respondent paid the ₱100,000.00 supposed earnest money – which petitioner accepted, the latter should be compelled to sell the subject
property to the former. Thus, respondent prayed that petitioner be ordered to comply with its obligation as seller, accept the balance of the
purchase price, and execute the corresponding deed of sale in respondent’s favor; and that petitioner be made to pay ₱200,000.00 damages for
its breach and delay in the performance of its obligations, ₱200,000.00 by way of attorney's fees, and costs of suit.

In its Answer with Compulsory Counterclaim,20 petitioner argued that it never agreed to sell the subject property; that its board of directors did not
authorize the sale thereof to respondent, as no corresponding board resolution to such effect was issued; that the respondent’s ₱100,000.00 check
payment cannot be considered as earnest money for the subject property, since said payment was merely coursed through petitioner’s receiving
clerk, who was forced to accept the same; and that respondent was simply motivated by a desire to acquire the subject property at any cost.
Thus, petitioner prayed for the dismissal of the case and, by way of counterclaim, it sought the payment of moral damages in the amount of
₱200,000.00; exemplary damages in the amount of ₱100,000.00; and attorney’s fees and costs of suit.

In a Reply,21 respondent countered that authorization by petitioner’s Board of Directors was not necessary since it is a real estate corporation
principally engaged in the buying and selling of real property; that respondent did not force nor intimidate petitioner’s receiving clerk into
accepting the February 4, 2005 letter and check for ₱100,000.00; that petitioner’s acceptance of the check and its failure – for more than a year –
to return respondent’s payment amounts to estoppel and a ratification of the sale; and that petitioner is not entitled to its counterclaim.

After due proceedings were taken, the Pasay RTC issued its Decision dated February 16, 2009, decreeing as follows:

WHEREFORE, defendant First Optima Realty Corporation is directed to comply with its obligation by accepting the remaining balance of One
Million Five Hundred Thirty-Six Thousand Pesos and Ninety-Nine Centavos (₱1,536,000.99), and executing the corresponding deed of sale in favor of
the plaintiff Securitron Security Services, Inc. over the subject parcel of land.

No costs.

SO ORDERED.22

In ruling for the respondent, the trial court held that petitioner’s acceptance of ₱100,000.00 earnest money indicated the existence of a perfected
contract of sale between the parties; that there is no showing that when respondent gave the February 4, 2005 letter and check to petitioner’s
receiving clerk, the latter was harassed or forced to accept the same; and that for the sale of the subject property, no resolution of petitioner’s
board of directors was required since Young was "free to represent" the corporation in negotiating with respondent for the sale thereof. Ruling of
the Court of Appeals

Petitioner filed an appeal with the CA. Docketed as CA-G.R. CV No. 93715, the appeal made out a case that no earnest money can be
considered to have been paid to petitioner as the supposed payment was received by a mere receiving clerk, who was not authorized to accept
the same; that the required board of directors resolution authorizing the sale of corporate assets cannot be dispensed with in the case of
petitioner; that whatever negotiations were held between the parties only concerned the possible sale, not the sale itself, of the subject property;
that without the written authority of petitioner’s board of directors, Young cannot enter into a sale of its corporate property; and finally, that there
was no meeting of the minds between the parties in the first place.

On September 30, 2011, the CA issued the assailed Decision affirming the trial court’s February 16, 2009Decision, pronouncing thus:

Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and (3) cause of the obligation established.

A careful perusal of the records of the case show[s] that there was indeed a negotiation between the parties as regards the sale of the subject
property, their disagreement lies on whether they have arrived on an agreement regarding said sale. Plaintiff-appellee avers that the parties have
already agreed on the sale and the price for it and the payment of earnest money and the remaining balance upon clearing of the property of
unwanted tenants. Defendant-appellant on the other hand disputes the same and insists that there was no concrete agreement between the
parties.

Upon a careful consideration of the arguments of the parties and the records of the case, we are more inclined to sustain the arguments of the
plaintiff-appellee and affirm the findings of the trial court that there was indeed a perfected contract of sale between the parties. The following
instances militate against the claim of the defendant-appellant: First. The letter of the plaintiff-appellee dated February 4, 2005 reiterating their
agreement as to the sale of the realty for the consideration of Php 1,536,000.00 was not disputed nor replied to by the defendant-appellant, the
said letter also provides for the payment of the earnest money of Php 100,000.00 and the full payment upon the clearing of the property of
unwanted tenants, if the defendant-appellant did not really agree on the sale of the property it could have easily replied to the said letter
informing the plaintiff-appellee that it is not selling the property or that the matter will be decided first by the board of directors, defendant-
appellant’s silence or inaction on said letter shows its conformity or consent thereto; Second. In addition to the aforementioned letter, defendant-
appellant’s acceptance of the earnest money and the issuance of a provisional receipt clearly shows that there was indeed an agreement
between the parties and we do not subscribe to the argument of the defendant-appellant that the check was merely forced upon its employee
and the contents of the receipt was just dictated by the plaintiff-appellee’s employee because common sense dictates that a person would not
issue a receipt for a check with a huge amount if she does not know what that is for and similarly would not issue [a] receipt which would bind her
employer if she does not have prior instructions to do [so] from her superiors; Third. The said check for earnest money was deposited in the bank by
defendant-appellant and not until after one year did it offer to return the same. Defendant-appellant cannot claim lack of knowledge of the
payment of the check since there was a letter for it, and it is just incredible that a big amount of money was deposited in [its] account [without
knowing] about it [or] investigat[ing] what [it was] for. We are more inclined to believe that their inaction for more than one year on the earnest

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money paid was due to the fact that after the payment of earnest money the place should be cleared of unwanted tenants before the full
amount of the purchase price will be paid as agreed upon as shown in the letter sent by the plaintiff-appellee.

As stated above the presence of defendant-appellant’s consent and, corollarily, the existence of a perfected contract between the parties are
evidenced by the payment and receipt of Php 100,000.00 as earnest money by the contracting parties’ x x x. Under the law on sales, specifically
Article 1482 of the Civil Code, it provides that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and
proof of the perfection of the contract. Although the presumption is not conclusive, as the parties may treat the earnest money differently, there is
nothing alleged in the present case that would give rise to a contrary presumption.

We also do not find merit in the contention of the defendant-appellant that there is a need for a board resolution for them to sell the subject
property since it is a corporation, a juridical entity which acts only thru the board of directors. While we agree that said rule is correct, we must also
point out that said rule is the general rule for all corporations [but] a corporation [whose main business is buying and selling real estate] like herein
defendant-appellant, is not required to have a board resolution for the sale of the realty in the ordinary course of business, thus defendant-
appellant’s claim deserves scant consideration.

Furthermore, the High Court has held that "a corporate officer or agent may represent and bind the corporation in transactions with third persons
to the extent that the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and
also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred,
powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has
caused persons dealing with the officer or agent to believe that it was conferred."

In the case at bench, it is not disputed and in fact was admitted by the defendant-appellant that Ms. Young, the Executive Vice-President was
authorized to negotiate for the possible sale of the subject parcel of land. Therefore, Ms. Young can represent and bind defendant-appellant in
the transaction.

Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of her position, was authorized to sell the property of the corporation. Selling of
realty is not foreign to [an] executive vice[-]president’s function, and the real estate sale was shown to be a normal business activity of defendant-
appellant since its primary business is the buy and sell of real estate. Unmistakably, its Executive Vice-President is cloaked with actual or apparent
authority to buy or sell real property, an activity which falls within the scope of her general authority.

Furthermore, assuming arguendo that a board resolution was indeed needed for the sale of the subject property, the defendant-appellant is
estopped from raising it now since, [it] did not inform the plaintiff-appellee of the same, and the latter deal (sic) with them in good faith. Also it
must be stressed that the plaintiff-appellee negotiated with one of the top officer (sic) of the company thus, any requirement on the said sale
must have been known to Ms. Young and she should have informed the plaintiff-appellee of the same.

In view of the foregoing we do not find any reason to deviate from the findings of the trial court, the parties entered into the contract freely, thus
they must perform their obligation faithfully. Defendant-appellant’s unjustified refusal to perform its part of the agreement constitutes bad faith
and the court will not tolerate the same.

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Pasay City Branch 115, in Civil Case No. 06-0492 CFM is hereby
AFFIRMED.

SO ORDERED.23

Petitioner moved for reconsideration,24 but in a December 9, 2011 Resolution, the CA held its ground. Hence, the present Petition.

Issues

In an October 9,2013 Resolution,25 this Court resolved to give due course to the Petition, which raises the following issues:

THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE MONEY RESPONDENT DELIVERED TO PETITIONER WAS
EARNEST MONEY THEREBY PROVIDING A PERFECTED CONTRACT OF SALE.

II

THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE TIME THAT LAPSED IN RETURNING THE MONEY AND IN
REPLYING TO THE LETTER IS PROOF OF ACCEPTANCE OF EARNEST MONEY.

III

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND GRAVE ERROR WHEN IT IGNOREDTHE RESERVATION IN THE PROVISIONAL RECEIPT –
"Note: This is issued to transactions not yet cleared but subsequently an Official Receipt will be issued."26

Petitioner’s Arguments

In its Petition and Reply27 seeking to reverse and set aside the assailed CA dispositions and in effect to dismiss Civil Case No. 06-0492 CFM,
petitioner argues that respondent failed to prove its case that a contract of sale was perfected between the parties. It particularly notes that,
contrary to the CA’s ruling, respondent’s delivery of the February 4, 2005 letter and check; petitioner’s failure to respond to said letter; petitioner’s
supposed acceptance of the check by depositing the same in its account; and its failure to return the same after more than one year from its
tender – these circumstances do not at all prove that a contract of sale was perfected between the parties. It claims that there was never an
agreement in the first place between them concerning the sale of the subject property, much less the payment of earnest money therefor; that
during trial, Eleazar himself admitted that the check was merely a "deposit";28 that the February 4, 2005 letter and check were delivered not to
Young, but to a mere receiving clerk of petitioner who knew nothing about the supposed transaction and was simply obliged to accept the same
without the prerogative to reject them; that the acceptance of respondent’s supposed payment was not cleared and was subject to approval
and issuance of the corresponding official receipt as noted in Provisional Receipt No. 33430; that respondent intentionally delivered the letter and
check in the manner that it did in order to bind petitioner to the supposed sale with or without the latter’s consent; that petitioner could not be

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faulted for receiving the check and for depositing the same as a matter of operational procedure with respect to checks received in the course
of its day-to-day business.

Petitioner argues that ultimately, it cannot be said that it gave its consent to any transaction with respondent or to the payment made by the
latter. Respondent’s letter and check constitute merely an offer which required petitioner’s acceptance in order to give rise to a perfected sale;
"[o]therwise, a buyer can easily bind any unsuspecting seller to a contract of sale by merely devising a way that prevents the latter from acting on
the communicated offer."29

Petitioner thus theorizes that since it had no perfected agreement with the respondent, the latter’s check should be treated not as earnest
money, but as mere guarantee, deposit or option money to prevent the prospective seller from backing out from the sale,30 since the payment of
any consideration acquires the character of earnest money only after a perfected sale between the parties has been arrived at.31

Respondent’s Arguments

In its Comment,32 respondent counters that petitioner’s case typifies a situation where the seller has had an undue change of mind and desires to
escape the legal consequences attendant to a perfected contract of sale. It reiterates the appellate court’s pronouncements that petitioner’s
failure to reply to respondent’s February 4, 2005 letter indicates its consent to the sale; that its acceptance of the check as earnest money and the
issuance of the provisional receipt prove that there is a prior agreement between the parties; that the deposit of the check in petitioner’s account
and failure to timely return the money to respondent militates against petitioner’s claim of lack of knowledge and consent. Rather they indicate
petitioner’s decision to sell subject property as agreed. Respondent adds that contrary to petitioner’s claim, negotiations were in fact held
between the parties after it sent its December 9, 2004 letter-offer, which negotiations precisely culminated in the preparation and issuance of the
February4, 2005 letter; that petitioner’s failure to reply to its February 4, 2005 letter meant that it was amenable to respondent’s terms; that the
issuance of a provisional receipt does not prevent the perfection of the agreement between the parties, since earnest money was already paid;
and that petitioner cannot pretend to be ignorant of respondent’s check payment, as it involved a large sum of money that was deposited in the
former’s bank account.

Our Ruling

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

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

Thus, the trial and appellate courts failed to appreciate that respondent’s offer to purchase the subject property was never accepted by the
petitioner at any instance, even after negotiations were held between them. Thus, as between them, there is no sale to speak of. "When there is
merely an offer by one party without acceptance of the other, there is no contract."33 To borrow a pronouncement in a previously decided case,

The stages of a contract of sale are: (1) negotiation, starting from the time the prospective contracting parties indicate interest in the contract to
the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale; and (3)
consummation, which commences when the parties perform their respective undertakings under the contract of sale, culminating in the
extinguishment of the contract.

In the present case, the parties never got past the negotiation stage. Nothing shows that the parties had agreed on any final arrangement
containing the essential elements of a contract of sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter
of the contract; and (3) price or consideration of the sale.34

Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner – without awaiting the approval of petitioner’s board of
directors and Young’s decision, or without making a new offer – constitutes a mere reiteration of its original offer which was already rejected
previously; thus, petitioner was under no obligation to reply to the February 4, 2005 letter. It would be absurd to require a party to reject the very
same offer each and every time it is made; otherwise, a perfected contract of sale could simply arise from the failure to rej ect the same offer
made for the hundredth time.1âwphi1 Thus, said letter cannot be considered as evidence of a perfected sale, which does not exist in the first
place; no binding obligation on the part of the petitioner to sell its property arose as a consequence. The letter made no new offer replacing the
first which was rejected.

Since there is no perfected sale between the parties, respondent had no obligation to make payment through the check; nor did it possess the
right to deliver earnest money to petitioner in order to bind the latter to a sale. As contemplated under Art. 1482 of the Civil Code, "there must first
be a perfected contract of sale before we can speak of earnest money."35 "Where the parties merely exchanged offers and counter-offers, no
contract is perfected since they did not yet give their consent to such offers. Earnest money applies to a perfected sale."36

This Court is inclined to accept petitioner’s explanation that since the check was mixed up with all other checks and correspondence sent to and
received by the corporation during the course of its daily operations, Young could not have timely discovered respondent’s check payment;
petitioner’s failure to return the purported earnest money cannot mean that it agreed to respondent’s offer.

Besides, respondent’s payment of supposed earnest money was made under dubious circumstances and in disregard of sound business practice
and common sense. Indeed, respondent must be faulted for taking such a course of action that is irregular and extraordinary: common sense and
logic dictate that if any payment is made under the supposed sale transaction, it should have been made directly to Young or coursed directly
through her office, since she is the officer directly responsible for negotiating the sale, as far as respondent is concerned and considering the
amount of money involved; no other ranking officer of petitioner can be expected to know of the ongoing talks covering the subject property.
Respondent already knew, from Eleazar’s previous meeting with Young, that it could only effectively deal with her; more than that, it should know
that corporations work only through the proper channels. By acting the way it did – coursing the February 4, 2005 letter and check through
petitioner’s mere receiving clerk or receptionist instead of directly with Young’s office, respondent placed itself under grave suspicion of putting
into effect a premeditated plan to unduly bind petitioner to its rejected offer, in a manner which it could not achieve through negotiation and
employing normal business practices. It impresses the Court that respondent attempted to secure the consent needed for the sale by depositing
part of the purchase price and under the false pretense that an agreement was already arrived at, even though there was none. Respondent
achieved the desired effect up to this point, but the Court will not be fooled.

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Thus, as between respondent’s irregular and improper actions and petitioner’s failure to timely return the ₱100,000.00 purported earnest money,
this Court sides with petitioner. In a manner of speaking, respondent cannot fault petitioner for not making a refund since it is equally to blame for
making such payment under false pretenses and irregular circumstances, and with improper motives. Parties must come to court with clean
hands, as it were.

In a potential sale transaction, the prior payment of earnest money even before the property owner can agree to sell his property is irregular, and
cannot be used to bind the owner to the obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliché, the
carriage cannot be placed before the horse. The property owner-prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter’s employment of questionable practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective seller’s rights of ownership over his property, an anomaly which the Court
will certainly not condone. An agreement where the prior free consent of one party thereto is withheld or suppressed will be struck down, and the
Court shall always endeavor to protect a property owner’s rights against devious practices that put his property in danger of being lost or unduly
disposed without his prior knowledge or consent. As this ponente has held before, "[t]his Court cannot presume the existence of a sale of land,
absent any direct proof of it."37

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

Finally, since there is nothing in legal contemplation which petitioner must perform particularly for the respondent, it should follow that Civil Case
No. 06-0492 CFM for specific performance with damages is left with no leg. to stand on; it must be dismissed.

With the foregoing view, there is no need to resolve the other specific issues and arguments raised by the petitioner, as they do not materially
affect the rights and obligations of the parties - the Court having declared that no agreement exists between them; nor do they have the effect
of altering the outcome of the case.

WHEREFORE, the Petition is GRANTED. The September 30, 2011 Decision and December 9, 2011 Resolution of the Court of Appeals in CA-G.R. CV
No. 93715, as well as the February 16, 2009 Decision of the Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 06-0492 CFM are
REVERSED and SET ASIDE. Civil Case No. 06-0492 CFM is ordered DISMISSED. , Petitioner First Optima Realty Corporation is ordered to REFUND the
amount of ₱100,000.00 to respondent Securitron Security Services, Inc. without interest, unless petitioner has done so during the course of the
proceedings.

SO ORDERED.

G.R. No. 157493 February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, al l surnamed
OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.

DECI SION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside
the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta,
Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as modified by its Resolution2 dated 4 March 2003, declaring the
Contract to Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners,
namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute the Deed of
Absolute Sale concerning their 6/8 share over the subject parcels of land in favor of herein respondent Paraiso Development Corporation, and to
pay the latter the attorney’s fees plus costs of the suit. The assailed Decision, as modified, likewise ordered the respondent to tender payment to
the petitioners in the amount of ₱3,216,560.00 representing the balance of the purchase price of the subject parcels of land.

The facts of the case are as follows:

Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus
Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land situated in
Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of
14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano Oesmer and
Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration No. 34383 (cancelled by I.D. No. 6064-A) for Lot 720 and
Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus,
acquired the lots as heirs of the former by right of succession.

Respondent Paraiso Development Corporation is known to be engaged in the real estate business.

Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet
with a certain Sotero Lee, President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the
purpose of brokering the sale of petitioners’ properties to respondent corporation.

Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners
Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the amount of ₱100,000.00, payable to Ernesto, was given as option
money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo
and Jesus, did not sign the document.

On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989, respondent brought the same to a
notary public for notarization.

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In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of their intention to rescind the
Contract to Sell and to return the amount of ₱100,000.00 given by respondent as option money.

Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo and Jesus, filed a Complaint7 for
Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC) of Bacoor,
Cavite. The said case was docketed as Civil Case No. BCV-91-49.

During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,8 dated 16 September 1992, to the effect that the
deceased petitioner be substituted by his surviving spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer.
However, the name of Rizalino was retained in the title of the case both in the RTC and the Court of Appeals.

After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of the respondent, the dispositive portion of which
reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed
Contract to Sell is valid and binding only to the undivided proportionate share of the signatory of this document and recipient of the check,
[herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8
share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorney’s fees in the sum of Ten
Thousand (₱10,000.00) Pesos plus costs of suit.

The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10

Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate court rendered a Decision
modifying the Decision of the court a quo by declaring that the Contract to Sell is valid and binding with respect to the undivided proportionate
shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The decretal portion of the said Decision states that:

WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate
share of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject
two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the attorney’s fees in the sum of Ten Thousand Pesos
(₱10,000.00) plus costs of suit.11

Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July 2002. Acting on petitioners’
Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002, with the
modification that respondent tender payment to petitioners in the amount of ₱3,216,560.00, representing the balance of the purchase price of
the subject parcels of land. The dispositive portion of the said Resolution reads:

WHEREFORE, premises considered, the assailed Decision is hereby modified.1awphi1.net Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate
shares of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject
two parcels of land in favor of herein [respondent] corporation, and to pay the latter attorney’s fees in the sum of Ten Thousand Pesos (₱10,000.00)
plus costs of suit. Respondent is likewise ordered to tender payment to the above-named [petitioners] in the amount of Three Million Two Hundred
Sixteen Thousand Five Hundred Sixty Pesos (₱3,216,560.00) representing the balance of the purchase price of the subject two parcels of land. 12

Hence, this Petition for Review on Certiorari.

Petitioners come before this Court arguing that the Court of Appeals erred:

I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding upon petitioner Ernesto Oesmer’s co-owners
(herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora).

II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void altogether considering that respondent itself did not
sign it as to indicate its consent to be bound by its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from
the price, and hence, void.

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

Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of Appeals, is not couched in simple
language.

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

The Petition is bereft of merit.

It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not
confer authority on petitioner Ernesto as agent authorized to sell their respective shares in the questioned properties because of Article 1874 of the
Civil Code, which expressly provides that:

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Art. 1874. 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.

The law itself explicitly requires a written authority before an agent can sell an immovable. The conferment of such an authority should be in
writing, in as clear and precise terms as possible. It is worth noting that petitioners’ signatures are found in the Contract to Sell. The Contract is
absolutely silent on the establishment of any principal-agent relationship between the five petitioners and their brother and co-petitioner Ernesto
as to the sale of the subject parcels of land. Thus, the Contract to Sell, although signed on the margin by the five petitioners, is not sufficient to
confer authority on petitioner Ernesto to act as their agent in selling their shares in the properties in question.

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

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

The Court also finds untenable the following arguments raised by petitioners to the effect that the Contract to Sell is not binding upon them,
except to Ernesto, because: (1) the signatures of five of the petitioners do not signify their consent to sell their shares i n the questioned properties
since petitioner Enriqueta merely signed as a witness to the said Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora,
and Bibiano, Jr., did not understand the importance and consequences of their action because of their low degree of education and the
contents of the aforesaid contract were not read nor explained to them; and (2) assuming that the signatures indicate consent, such consent was
merely conditional, thus, the effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval by all the co-
owners of the sale.

It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. Fr om that
moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly,
the acceptance can be withdrawn or revoked before it is made known to the offeror.13

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

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

Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract to Sell. As the Court of Appeals
mentioned in its Decision,14 the records of the case speak of the fact that petitioner Ernesto, together with petitioner Enriqueta, met with the
representatives of the respondent in order to finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said
contract when the same was drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto made in
connection with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract to Sell, she updated the payment of the
real property taxes and transferred the Tax Declarations of the questioned properties in her name.15 Hence, it cannot be gainsaid that she merely
signed the Contract to Sell as a witness because she did not only actively participate in the negotiation and execution of the same, but her
subsequent actions also reveal an attempt to comply with the conditions in the said contract.

With respect to the other petitioners’ assertion that they did not understand the importance and consequences of their action because of their
low degree of education and because the contents of the aforesaid contract were not read nor explained to them, the same cannot be
sustained.

We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of this issue. Thus,

First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and understand. The terms of the Contract,
specifically the amount of ₱100,000.00 representing the option money paid by [respondent] corporation, the purchase price of ₱60.00 per square
meter or the total amount of ₱3,316,560.00 and a brief description of the subject properties are well-indicated thereon that any prudent and
mature man would have known the nature and extent of the transaction encapsulated in the document that he was signing.

Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of the case clearly indicate the
[petitioners’] intention to be bound by the stipulations chronicled in the said Contract to Sell.

As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property as he in fact was the one who
initiated the negotiation process and culminated the same by affixing his signature on the Contract to Sell and by taking receipt of the amount of
₱100,000.00 which formed part of the purchase price.

xxxx

As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a document written in a language
(English) that he purportedly does not understand. He testified that the document was just brought to him by an 18 year old niece named Baby
and he was told that the document was for a check to be paid to him. He readily signed the Contract to Sell without consulting his other siblings.
Thereafter, he exerted no effort in communicating with his brothers and sisters regarding the document which he had signed, did not inquire what
the check was for and did not thereafter ask for the check which is purportedly due to him as a result of his signing the said Contract to Sell. (TSN,
28 September 1993, pp. 22-23)

The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p. 19). As such, he is expected to act with that
ordinary degree of care and prudence expected of a good father of a family. His unwitting testimony is just divinely disbelieving.

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The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to Sell. The theory adopted by the [petitioners]
that because of their low degree of education, they did not understand the contents of the said Contract to Sell is devoid of merit. The [appellate
court] also notes that Adolfo (one of the co-heirs who did not sign) also possess the same degree of education as that of the signing co-heirs (TSN,
15 October 1991, p. 19). He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and has even accompanied Rogelio
Paular to the Assessor’s Office to locate certain missing documents which were needed to transfer the titles of the subject properties. (TSN, 28
January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate that they can be extricated
from their obligations under the Contract to Sell which they voluntarily and knowingly entered into with the [respondent] corporation.

The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil.
711), instructively ruled as follows:

"The Court does not accept the petitioner’s claim that she did not understand the terms and conditions of the transactions because she only
reached Grade Three and was already 63 years of age when she signed the documents. She was literate, to begin with, and her age did not
make her senile or incompetent. x x x.

At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere has it been proven that she is unable to read or
that the contracts were written in a language not known to her. It was her responsibility to inform herself of the meaning and consequence of the
contracts she was signing and, if she found them difficult to comprehend, to consult other persons, preferably lawyers, to explain them to her.
After all, the transactions involved not only a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos.

As the Court has held:

x x x The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the
ground that if such persons are unable to read, they are negligent if they fail to have the contract read to them. If a person cannot read the
instrument, it is as much his duty to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it before
he signed it if he were able to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from avoiding it on
the ground that he was ignorant of its contents."16

That the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective of whether or not all of the heirs
consented to the said Contract to Sell, was unveiled by Adolfo’s testimony as follows:

ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody will agree, the properties would not
be sold, was that agreement in writing?

WITNESS: No sir.

ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign that agreement which had been
marked as [Exhibit] "D", your brothers and sisters were grossly violating your agreement.

WITNESS: Yes, sir, they violated what we have agreed upon.17

We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such consent was merely conditional, and
that, the effectivity of the alleged Contract to Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The
Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulation shall control.18 The terms of the Contract to Sell made no
mention of the condition that before it can become valid and binding, a unanimous consent of all the heirs is necessary. Thus, when the language
of the contract is explicit, as in the present case, leaving no doubt as to the intention of the parties thereto, the literal meaning of its stipulation is
controlling.

In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can dispose of their shares even without the
consent of all the co-heirs. Article 493 of the Civil Code expressly provides:

Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore
alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of
the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the
termination of the co-ownership. [Emphases supplied.]

Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid and binding with respect to the 6/8
proportionate shares of the petitioners, as properly held by the appellate court.

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

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

The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation. Respondent corporation’s consent
to be bound by the terms of the contract is shown in the uncontroverted facts which established that there was partial performance by
respondent of its obligation in the said Contract to Sell when it tendered the amount of ₱100,000.00 to form part of the purchase price, which was
accepted and acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the payment to enforce the
terms of the contract. Accordingly, despite the absence of respondent’s signature in the Contract to Sell, the former cannot evade its obligation
to pay the balance of the purchase price.

As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it used the word option money
when it referred to the amount of ₱100,000.00, which also form part of the purchase price.

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SALES 4th Batch
Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking
to the words they used to project that intention in their contract, all the words, not just a particular word or two, and words in context, not words
standing alone.19

In the instant case, the consideration of ₱100,000.00 paid by respondent to petitioners was referred to as "option money." However, a careful
examination of the words used in the contract indicates that the money is not option money but earnest money. "Earnest money" and "option
money" are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a
distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale
not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy, but may even forfeit it depending on the terms of the option.20

The sum of ₱100,000.00 was part of the purchase price. Although the same was denominated as "option money," it is actually in the nature of
earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral
promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions.

WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of Appeals dated 26 April 2002 and 4
March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell is DECLARED valid and binding with respect to the undivided proportionate
shares in the subject parcels of land of the six signatories of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the amount of ₱3,216,560.00 representing the
balance of the purchase price for the latter’s shares in the subject parcels of land; and (c) petitioners are further ORDERED to execute in favor of
respondent the Deed of Absolute Sale covering their shares in the subject parcels of land after receipt of the balance of the purchase price, and
to pay respondent attorney’s fees plus costs of the suit. Costs against petitioners.

SO ORDERED.

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