CASE TITLE: Equatorial Realty Dev’t. Inc. & Carmelo &  In 1974, Mr. Pascual of Carmelo informed Mr.
cual of Carmelo informed Mr. Yang of
Bauermann, Inc. v. Mayfair Theatre, Inc.
GR No. 106063 – J. HERMOSISIMA
DATE: November 21, 1996
DOCTRINE: An option contract is a choice granted to another for
a distinct and separate consideration as to whether or not to
purchase a determinate thing at a predetermined fixed price.
CODAL PROVISION: footnotes provided
FACTS:
 Petitioner Carmelo owned a parcel of land, upon which
stood two 2-storey buildings, on C.M. Recto Ave., Manila,
under TCT No. 18529.
o In June of 1967, Carmelo leased portions of the
second floor and mezzanine of the first building to
respondent Mayfair. Two years later, Carmelo
also leased portions of the second floor, the
mezzanine, as well as storage space on the
ground floor to Mayfair.
o The former was used by Mayfair as the “Maxim
Theatre,” whereas the latter was the “Miramar
Theatre.”
o Both contracts of lease included a provision which
stipulated that, in the event that Carmelo opted to
sell the property, Mayfair had a 30-day “exclusive
option” period to purchase the same for itself. The
clause also provided that any third-party buyer
would have to respect Mayfair’s rights as lessee.
1 2
When the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon consideration,
as something paid or promised. (emphasis added)
Mayfair that Jose Araneta was interested in purchasing
the property for $1,200,00.00, and in the same
communication Mr. Pascual offered Mr. Yang the property
at a price of six to seven million pesos. Four days later,
Mayfair wrote to Mr. Pascual, reminding him of the 30-day
“exclusive option” period prior to any sale to a third party.
Carmelo made no reply or action on this letter.
 In 1978, Carmelo sold both properties, and the buildings
thereon, to its co-petitioner herein Equatorial Realty, for
the sum of PhP 11.3 million.
 For this reason, Mayfair instituted an action for specific
performance to compel Carmelo (and, by extension,
Equatorial) to recognize its right to purchase.
o In response, Carmelo averred that it had informed
Mayfair of its intent to sell four years prior, but
Mayfair had only been interested in procuring the
property leased, which was not possible as the
same was not a condominium.
o Both petitioners also averred that the option
period, being without compensation, was void ab
initio, and could not therefore vest Mayfair with
any right over the property.
 Mayfair’s complaint was dismissed by the RTC, ruling that
the clause on the option to purchase was not binding,
being wholly without compensation therefor, under Art.
1324,1 cf. Art. 1479.2
 On appeal, the CA reversed the RTC decision, ruling that
the sale should be reversed, and a Deed of Sale issued
as between Carmelo & Mayfair, with the Carmelo-
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or to sell a
determine thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price. (emphasis
added)
 Equatorial sale to later be validated should Mayfair be o Pursuant to this, the Court held both petitioners in
unable to pay the price of the property. bad faith, since the records also make clear that
o The CA differentiated Arts. 1324 & Art. 1479 from Equatorial was aware of the lease contracts,
the case at hand, since the clause in the Carmelo- since they had copies of the same for study prior
Mayfair lease contracts contained no “price to the sale.
certain,” as required by statute, the same could
not be considered an option to buy or offer to sell
under the aforementioned provisions.
DISPOSITIVE PORTION: Wherefore, the CA decision was
o Rather, the CA held that the same was merely a affirmed.
contractual stipulation between the parties, which
it categorized, nonetheless, as being a “valid &
binding” right of first refusal.

ISSUE:
Whether or not the stipulation embodied in the contract between
the parties was an option contract

HELD: No.

RULE:
The SC defined an option contract as a contract involving a
“choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate
thing at a predetermined fixed price.”
o The clause in the Carmelo-Mayfair lease contract
was inserted so that Mayfair might have “first
crack” at purchasing the property, before any
other purchaser. It was not intended to give a
mere option to purchase, but to give protection to
Mayfair against parties who might affect their
lease & their possession thereunder.
 The SC noted that Carmelo’s failure to reply to Mayfair’s
letter invoking the 30-day period was indicative of bad
faith on Carmelo’s part (i.e. to “lay low” and let the period
expire, before selling the same to another party).