CONTINUATION MIDTERM FIRST SET
OF CASES
Policitacion
1 Villegas vs CA, 499 SCRA 276 (2006)
2 Muslim and Christian Urban Poor
Association, Inc. vs BRYC-V Development
Corp., 594 SCRA 724 (2009)
3 Tuazon vs Del Rosario-Suarez, 637 SCRA
728 (2010) (in no separate condition too)
Option Contract
4 Carceller vs CA, 302 SCRA 718 (1999) (in
exercise of the option too)
5 Tayag vs Lacson, 426 SCRA 282 (2004)
Separation Consideration
6 Soriano vs Bautista, 6 SCRA 946 (1962)
7 Vasquez vs CA, 199 SCRA 102 (1991)
8 Nietes vs CA, 46 SCRA 654 (1972)
9 Dizon vs CA, 302 SCRA 288 (1999)
Right of First Refusal
10 Guzman, Bocaling and Co., vs Bonnevie,
206 SCRA 668 (1992)
11 Parañaque Kings Enterprises, Inc. vs CA,
268 SCRA 727, 741 (1997)
12 Vasquez vs Ayala Corp., 443 SCRA 231
(2004)
13 Riviera Filipina, Inv. vs CA, 380 SCRA 245
(2002)
14 Polytechnic University of the Philippines vs
Golden Horizon Realty Corp., 615 SCRA 478
(2010)
15 Estanislao vs Gudito, 693 SCRA 330 (2013)
16 Sadhwani vs CA, 281 SCRA 75 (1997)
POLICITACION
G.R. No. 111495. August 18, 2006. *
AGRIPINO VILLEGAS, ATANACIO
VILLEGAS (deceased), substituted by his wife
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 1 of 132
SOLEDAD OCAMPO VILLEGAS, ROSA N.
SAN-CHEZ, and CORAZON SANCHEZ,
petitioners, vs. THE COURT OF APPEALS,
VICENTE M. REYES, JULITA R. MAYLAD,
LORENZO M. REYES, LYDIA R.
FELICIANO represented by Attorney-in-Fact
VICTORIA F. HARPST, RUPERTA A.
REYES, ESTRELLITA CRISOSTOMO,
YOLANDA R. CHIU, VIRGILIO A. REYES,
CAR-LITO A. REYES, PACITA R.
BAUTISTA, and SPOUSES LITA SY and SY
BON SU, respondents.
G.R. No. 122404. August 18, 2006.
THE HEIRS OF ATANACIO VILLEGAS as
represented by SOLE-DAD DE OCAMPO,
AGRIPINO VILLEGAS, and OFELIA R.
TUN-GOL, petitioners, vs. THE COURT OF
APPEALS and SPOUSES LITA SY and SY
BON SU, respondents.
NATURE OF CASE:
PETITIONS for review of the decisions and
resolutions of the Court of Appeals.
Before the Court are the consolidated cases
docketed as G.R. No. 111495 and G.R. No.
122404. The consolidated cases involve a
parcel of land (“property”) located at
Evangelista Street, Quiapo, Manila.
The first case, G.R. No. 111495, is a petition for
review of the Deci-sion1dated 6 January 1993
and Resolution dated 17 August 1993 of the
Court of Appeals in CA-G.R. CV No. 25974.
The Court of Appeals affirmed the Decision of
the Regional Trial Court of Manila, Branch 2
(“RTC Branch 2”), declaring valid the sale of
75% undivided interest in the property to
Spouses Lita Sy and Sy Bon Su (“Spouses
Sy”).2
The second case, G.R. No. 122404, is a petition
for review of the Decision3 dated 25 April 1995
and Resolution dated 27 October 1995 of the
Court of Appeals in CA-G.R. CV No. 41931.
The Court of Ap-peals affirmed the Decision of
the Regional Trial Court of Manila, Branch 45
(“RTC Branch 45”), ordering the heirs of in the property. Although Lita Sy invoked her right
Atanacio Villegas to accept from Spouses Sy to redeem the property in the answer filed with the
the redemption price for the 25% portion of the RTC Branch 2, she failed to consign in court the
property. redemption price. Well-settled is the rule that a
formal offer to redeem must be accompanied by a
valid tender of the redemption price and that the
SYLLABUS: filing of a judicial action, plus the consignation of
the redemption price within the period of
Obligations and Contracts; Sales; Right of First
redemption, is equivalent to a formal offer to
Refusal; A right of first refusal is a contractual
redeem. As held by this Court in Tolentino v. Court
grant, not of the sale of a property, but of the first
of Appeals, 106 SCRA 513 (1981): [A] formal offer
priority to buy the property in the event the owner
to redeem, accompanied by a bona fidetender of the
sells the same; When a lease contains a right of
redemption price, although proper, is not essential
first refusal, the lessor has the legal duty to the
where, as in the instant case, the right to redeem is
lessee not to sell the leased property to anyone at
exercised thru the filing of a judicial action, which
any price until after the lessor has made an offer to
as noted earlier was made simultaneously with the
sell the property to the lessee and the lessee has
deposit of the redemption price with the Sheriff,
failed to accept it.—A right of first refusal is a
within the period of redemption. The formal offer to
contractual grant, not of the sale of a property, but
redeem, accompanied by a bona fidetender of the
of the first priority to buy the property in the event
redemption price within the period of redemption
the owner sells the same. The exercise of the right
prescribed by law, is only essential to preserve the
of first refusal is dependent not only on the owner’s
right of redemption for future enforcement even
eventual intention to sell the property but also on
beyond such period of redemption. The filing of the
the final decision of the owner as regards the terms
action itself, within the period of redemption, is
of the sale including the price. When a lease
equivalent to a formal offer to redeem. Should the
contains a right of first refusal, the lessor has the
court allow redemption, the redemptioners should
legal duty to the lessee not to sell the leased
then pay the amount already adverted to.
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 The facts are stated in the opinion of the Court.
lessee has failed to exercise his right of first priority
could the lessor sell the property to other buyers CARPIO, J.:
under the same terms and conditions offered to the
lessee, or under terms and conditions more The Facts
favorable to the lessor.
Vicente M. Reyes, Julita R. Maylad, Lorenzo
Same; Same; Same; Where a time is stated in an M. Reyes, Lydia R. Feliciano, Ruperta A.
offer for its acceptance, the offer is terminated at
Reyes, Estrellita Crisostomo, Yolanda R. Chiu,
the expiration of the time given for its acceptance.
—Where a time is stated in an offer for its
Virgilio A. Reyes, Carlito A. Reyes and Pacita
acceptance, the offer is terminated at the expiration R. Bautista (“respon-dent-heirs”), together with
of the time given for its acceptance. The offer may Lorenza R. Martinez, Ambrosio M. Reyes,
also be terminated when the person to whom the Concepcion Reyes-Ancheta and the heirs of
offer is made either rejects the offer outright or Mario M. Reyes (“other heirs”), were the
makes a counter-offer of his own. owners of the property located at Evangelista
Street, Quiapo, Manila. They inherited the
Sales; Co-Ownership; Redemption; Well-settled is property from their father, Dr. Lorenzo C.
the rule that a formal offer to redeem must be Reyes, who died on 29 December 1985. The
accompanied by a valid tender of the redemption property, which has an area of 406.5 square
price and the filing of a judicial action, plus the
meters, was covered by Transfer Certificate of
consignation of the redemption price within the
period of redemption, is equivalent to a formal offer
Title No. 182782.
to re-deem.—We hold that there was no valid and
effective offer to redeem the 25% undivided interest

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 2 of 132

Agripino Villegas, Atanacio Villegas, Rosa N.
Sanchez and Corazon Sanchez (“petitioner-
lessees”) were the lessees of the property since
1959. Petitioner-lessees owned the building and
improvements constructed on the property.
to exercise your rights of pre-emption, made in
writing within thirty (30) days upon receipt of
this letter. If however, we do not hear from you
after the lapse of the said period, we shall take it
to mean that you are not interested to purchase
the subject lot, which thereby give us the liberty
to offer it to other interested par-ties. (Emphasis
5

In a letter  dated 19 May 1988, the

4

supplied)
Administrative Committee of the heirs of Dr.
Lorenzo C. Reyes (“Administrative Petitioner-lessees replied to the Administrative
Committee”), composed of Dr. Vicente Reyes, Committee on 14 June 1988, requesting for an
Julita R. Maylad and Carlito A. Reyes, extension of 30 days to submit their bid for the
informed petitioner-lessees that the heirs have property. 6

decided to sell the property. The content of the

letter reads: On 13 July 1988, petitioner-lessees submitted
This is to inform you that by virtue of the Partial
their bid for the property to the Administrative
Compromise Agreement of the Estate belonging to
the late Lorenzo C. Reyes, as approved by Judge
Committee under the following terms and
Perlita Tria-Tirona, Regional Trial Judge, National conditions:
Capital Judicial Regions, Quezon City Branch No.
102, April 18, 1988, respectively, hereunder are the 1. Bid Price P4,000,000.00;
exclusive owners of the lot which you are presently 2. Upon the signing of the 
occupying under lease: Absolute Deed of Sale, 
we will pay you 80% of the 
Heirs of the Heirs of the Bid Price amounting to P3,200,000.00;
First Marriage Second 3. Upon delivery of the 
Marriage Transfer Certificate of 
Title to each of us, we 
1. Vicente M. 1. Ruperta will pay you the 20% 
Reyes A. Reyes balance amounting to 800,000.00. 7

2. Lorenza R. 2. Carlito A.
Martinez Reyes In a letter  dated July 1988, the Administrative
8

3. Ambrosio 3. Estrellita Committee informed petitioner-lessees of their

M. Reyes A. Reyes receipt of notice of the P4,000,000 bid price.
4. Concepcion 4. Yolanda The Administrative Committee wrote that they
Reyes-Ancheta [R.] Chiu requested petitioner-lessees to increase their bid
5. Julita R. 5. Virgilio for the property but the latter failed to make
Maylad A. Reyes another offer so the heirs have decided to sell to
6. Lorenzo M. 6. Pacita R. another buyer who offered a higher price.
Reyes, Jr. Bautista Nevertheless, the Administrative Committee
indicated in the letter that they would wait for a
7. Lydia R.  
reply within 15 days and that should the period
Feliciano lapse without any reply from petitioner-lessees,
8. Heirs of   it would mean that petitioner-lessees were no
Mario M. longer interested in buying the property.
Reyes
xxxx On 2 August 1988, petitioner-lessees sent a
reply,  advising the Administrative Committee
9

In this connection, we wish to inform you that we

that they were willing to make a nominal
are selling the lot under lease with you.
Accordingly, we are giving you the opportunity
increase to their bid price of P4,000,000.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 3 of 132
Petitioner-lessees requested the Administrative
Committee to state in writing their asking price
for the property.
On 3 August 1988, the Administrative
Committee sent a letter to petitioner-lessees
which reads:
Dear Sirs:
We are sorry for the oversight of the date of our
last letter. Inasmuch as you received it on the
26th of July, let us then consider it as the
official date of the letter.
It is the customary agreement with the late Dr.
Lorenzo C. Reyes that 15 years after the
improvement was put up in the property, the
said improvement reverts to the owner of the
lot. Since you have put up the existing
improvement in 1971, we feel that the said
improvement was already owned by the late
Lorenzo C. Reyes before his death.
As early as 1985 the said Dr. Reyes has been
paying real property taxes on the improvement;
which shows that he was already the rightful
owner of said improvement.
Since the structure is not of strong materials,
with the length of time of 17 yrs., we feel that
same is now fully depreciated.
We are also desirous of your buying the
property. We have an offer of P5 Million
which was submitted to us last month. If you
could offer the same amount we will be very
happy to accomodate you.
We are sending you a xerox copy of TCT No.
49857, Tax Declaration of Real Property and
the latest tax receipts.
May we receive you[r] offer on or before
Aug. 11, 1988. Please be guided
accordingly. (Emphasis supplied)
10
In their letter-reply  dated 11 August 1988,
11
petitioner-lessees insisted that they own the
improvements on the property. Petitioner-
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 4 of 132
lessees wrote that they were willing to
reimburse the realty tax paid on the
improvements by the late Dr. Lorenzo C.
Reyes. Petitioner-lessees requested for a
meeting with all the heirs to negotatiate the sale
of the property, and informed the
Administrative Committee that their final bid
price will be submitted during the meeting.
Petitioner-lessees sent their accountant,
Benjamin C. Miranda (“Miranda”), to represent
them in the conference to negotiate the sale of
the property. On the other hand, not all the heirs
of Dr. Lorenzo C. Reyes attended the
conference. During the conference, the parties
failed to agree on the price and terms for the
sale of the property. On 18 October 1988,
petitioner-lessees, excluding Rosa N. Sanchez,
wrote another letter to the Administrative
Committee which reads:
The Administrative Committee 
Heirs of Dr. Lorenzo C. Reyes 
#22 18th Street, New Manila 
Quezon City
Dear Sirs:
We waited for 68 days for your answer to our
letter dated August 11, 1988 which did not
come.
Considering various economic reasons, you will
be happy to hear from us (Lessees) that we
have finally accepted your asking price of
P5,000,000.00for your property located at
Evangelista Street, district of Sta. Cruz, Manila
covered by T.C.T. No. 49857 issued to Dr.
Lorenzo C. Reyes on September 3, 1936.
Please prepare all the necessary papers and
documents to make the sale legal for all intent
and purposes.
Any unpaid taxes such as income, estate,
realty and science education fund and
documentary stamps shall be for the account
of the Heirs including documentation
expenses.

Terms of Payment: 95% upon signing of the
documents; and 5% upon delivery of the
Transfer Certificate of Title in the name of
its individual Lessees.
Expecting to hear your final confirmation
soonest.  (Emphasis supplied)
12
On 3 November 1988, the Administrative
Committee replied:
Mr. Atanacio M. Villegas  Evangelista Street, Sta. Cruz, Manila, covered
Mr. Agripino M. Villegas  by TCT No. 49857, were no longer interested in
Mrs. Corazon Sanchez  selling the said property. On the other hand, we
654 Evangelista, Quiapo, Manila
Dear Sirs:
This is with reference to your letter dated
October 18, 1988.
Several times in the past two months, Mr.
Carlito A. Reyes and our other brothers and
sisters have informed you that some of the
co-owners of our property at the above-given
address are no longer agreeable to selling the
said property; however, other co-owners,
representing a 75% share thereof, were still
interested in selling their shares. It is,
therefore, very clear from the foregoing that
our offer to sell the entire property to you
was no longer effective.
Moreover, our offer was for the price of
P5,000,000.00 net to the co-owners. Your
letter of October 18, 1988 imposes the
condition that unpaid taxes shall still be
borne by us, which is unacceptable.
We therefore, leave it up to some of the co-
owners to negotiate for the sale of their shares
with you.  (Emphasis supplied)
13
Dear Sirs:
This is with reference to your letter dated
October 18, 1988 to the Administrative
Committee of the properties owned by the heirs
of Dr. Lorenzo C. Reyes.
You will recall that in the past two months,
some of us saw you and/or your representative,
Mr. Ben Miranda and explained to you that
some of the co-owners of the property at
the undersigned co-owners holding a 75%
share of the said property, were offering to
sell our shares to you at the price of 75% of
P5,000,000.00, or P3,750,000,000.00.
Moreover, the said price was to be net to us,
that is, all applicable taxes—capital gains
tax, documentary stamp tax, municipal
transfer tax and registration expenses—
should be borne by you.
It was obvious that our said offer superseded
that of our Administrative Committee, which
cannot convey the property to you without the
unanimous consent of all the co-owners.
We are reiterating our offer to sell our 75%
share to you. However, since there is a new
offer to purchase the entire property at
P5,100,000.00, we are now offering our said
75% share for the price of P3,825,000.00, net
to us.
If we do not hear from you within one week
from your receipt hereof, we shall feel free to
offer our said share to other
buyers. (Emphasis supplied)
14

Respondent-heirs, collectively owning 75% of

the property, also sent a letter dated 3 On 28 November 1988, respondent-heirs sold
November 1988 to petitioner-lessees: their 75% undivided interest in the property for
P3,825,000 to Lita Sy.  Lita Sy also issued a
15

Mr. Atanacio M. Villegas  check for P412,500 to Vicente M. Reyes as

Mr. Agripino M. Villegas  payment for taxes, agent’s commission and
Mrs. Corazon Sanchez  miscellaneous expenses. The corresponding
16

654 Evangelista, Quiapo, Manila title, Transfer Certificate of Title No.

183718  was issued on 28 De-cember 1988.
17

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 5 of 132

The Administrative Committee informed
petitioner-lessees of the sale in a letter dated 7
December 1988. 18
On 1 February 1989, the other heirs sold the
remaining 25% portion of the property to
Atanacio M. Villegas and Agripino M. Villegas
(“Villegas brothers”) for P1,250,000. 19
G.R. No. 111495
On 10 February 1989, petitioner-lessees filed an
action against re-spondent-heirs and Spouses
Sy for Annulment of Deed of Sale/Title,
Specific Performance, and Consignation of
Rentals with Damages.
On 26 February 1990, the RTC Branch 2
rendered a decision, the dispositive portion of
which reads:
“WHEREFORE, for all of the foregoing, judgment
is hereby rendered in
favor of the defendants and against the plaintiffs:
1.Dismissing the complaint;
2.Declaring the deed of sale executed by defendants
in favor of spouses Lita Sy and Sy Bon Su and
Transfer Certificate of Title No. 183718 issued as a
consequence of the deed of sale, valid;
3.Ordering the plaintiffs to vacate the premises and
surrender the possession thereof to the defendants;
4.Ordering the plaintiffs, jointly and severally, to
pay the de-fendants the sum of P1,000.00 as
expenses of litigation; P2,000.00 as attorney’s fees,
and to pay the costs.
SO ORDERED.” 20
On appeal, the Court of Appeals affirmed the
decision of the RTC Branch 2.
Upon motion for reconsideration, the Court of
Appeals affirmed its decision with
modification. The dispositive portion reads:
“In view of the foregoing, this Court’s decision
dated January 6, 1993, is AFFIRMED with the
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 6 of 132
modification that the record of this case is ordered
remanded to the court a quo for the parties to come
into an agreement before the said court as to what
portion and physical part of the building shall be
occupied by the appellants and the appellees, in
proportion to their respective shares in the property
involved and for other arrangements regarding the
matter. SO ORDERED.” 21
G.R. No. 122404
On 18 May 1990, Spouses Sy filed a complaint
for Specific Performance against the heirs of
Atanacio Villegas, as represented by Soledad de
Ocampo,  Agripino Villegas, and Ofelia R.
22
Tungol. 23
On 10 May 1993, the RTC Branch 45 rendered
a decision, the dis-positive portion of which
reads:
“WHEREFORE, judgment is hereby rendered
ordering defendants heirs of Atanacio Villegas to:
a) accept the redemption price of P1,250,000.00,
including interest thereon from February 1, 1989
until the plaintiffs exercised their right of
redemption;
b) to pay the sum of P10,000.00 as attorney’s fees
to the plaintiffs;
c) and to pay the costs of suit.
SO ORDERED.” 24
On appeal, the Court of Appeals affirmed the
decision of the RTC Branch 45.
In a resolution dated 9 June 1999, this Court
consolidated the two cases docketed as G.R.
Nos. 111495 and 122404. 25
The Issues
The issues in these consolidated cases can be
summarized as follows:
1.Whether the contract of sale between
respondent-heirs and Lita Sy violated the right
of first refusal of petitioner-lessees; and
2.Whether Lita Sy, as co-owner of the property,
validly and seasonably exercised her right to
redeem the 25% undivided interest in the
property, which undivided interest the other co-
owners had sold to Atanacio M. Villegas and
Agripino M. Villegas.
The Ruling of the Court  to agree on the price. There was therefore no
Right of First Refusal
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.  The exercise of the right of first
26
refusal is dependent not only on the owner’s
eventual intention to sell the property but also
on the final decision of the owner as regards the
terms of the sale including the price. 27
When a lease 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
28
favorable to the lessor.
The records show that the heirs of Dr. Lorenzo
C. Reyes did recognize the right of first refusal
of petitioner-lessees over the property. This is
29
clear from the letter dated 19 May 1988
informing petitioner-lessees that the property
they were leasing is for sale. There was an
exchange of letters between the Administrative
Committee and peti-tioner-lessees evidencing
the offer and counter-offer of both parties.
Petitioner-lessees insist that there was already a
perfected contract of sale when they accepted
the P5,000,000 offer for the property in their
letter dated 18 October 1988. Petitioner-lessees
allege that the contract of sale between
respondent-heirs and Lita Sy should be annuled
since it violated the right of first refusal of
petitioner-lessees.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 7 of 132
On the other hand, respondent-heirs maintain
that the P5,000,000 offer in their letter dated 3
August 1988 already lapsed because peti-tioner-
lessees did not accept the offer within the
period granted. Instead, petitioner-lessees opted
for a conference during which the parties failed
perfected contract of sale because there was no
meeting of minds between the parties.
We agree with respondent-heirs that there was
no meeting of the minds between the parties
Where a time is stated in an offer for its
acceptance, the offer is terminated at the
expiration of the time given for its acceptance.
The offer may also be terminated when the
person to whom the offer is made either rejects
the offer outright or makes a counter-offer of
his own.30
The offer of P5,000,000 in the letter dated 3
August 1988 already lapsed when petitioner-
lessees failed to accept it within the period
granted. The offer was superseded by the new
offer of respondent-heirs during the conference.
However, it appears from the records that no
settlement was reached between the parties
during their conference. Engr. Ariel Reyes, son
of Vicente M. Reyes, who was present in the
conference testified:
Q I am showing to you here
: a letter dated August 11,
1988 marked as Exhibit 6,
will you look at this
document Mr. Witness
and tell us what relation
has this letter to that
which you mentioned?
A Yes, sir, this is the letter
: that they were asking for
a conference, sir.
Q Now, in connection with
: that conference being
requested by the plaintiff,
did you have a conference
 with the plaintiffs, Mr.   All right continue.
Witness? ATTY. DELA CRUZ:
A Yes, sir, and I was in that Q All right Mr. Witness,
: conference. : will you please tell this
Q All right, who were Honorable Court what
: present in that conference, transpired during your
Mr. Witness? meeting with Mr.
A Two of the administrative Benjamin Miranda?
: committee Mrs. Maylad, A We discussed the price
Mr. Carlito Reyes, : that we wanted because
myself, the brothers and there was an offer much
sisters of Mr. Carlito better than what they
Reyes, sir. We had a were offering and it
meeting with a seems that we did not
representative of theirs. get nowhere with their
Q All right, were the discussions, sir.
: plaintiffs present during Q Why?
that conference? :
A No, they were not. The A They cannot come up
: plaintiffs were not present : with the price that the
at that time. others are offering, sir.
Q And who was present Q Would you mention
: during that meeting? : specifically the price Mr.
A He introduced himself as Witness?
: Mr. Miranda, sir. A We wanted P5.1 Million
Q And did you ask Mr. : for the property, all net
: Miranda why the of everything. Meaning,
plaintiffs were not around to all other expenses
in that conference? shall be borne by the
A I believe his answer was buyer like capital gains
: Mr. Villegas, the old tax, documentary
Villegas was in the stamps,etcetera.
hospital at that time. COURT:
COURT: Q All right, what was the
Q All right, what was the : last offer before that
: capacity of Mr. Miranda conference?
in that conference? A I think it was P4 Million,
A He said he represents the : your Honor.
: Villegases and including ATTY. DELA CRUZ:
the Sanchezes. The other Q Mr. Witness. . .
tenants of the property :
because there are two COURT:
tenants, Villegas and Q Is it not a fact that you
Sanchez, your honor. : made an earlier offer. . .
COURT: Is it not a fact that you

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 8 of 132

 made an offer after the
P4-Million in the
amount of P5-Million?
A Yes, your Honor.
: what you mean by P5.1-
Q So, before you made the
: offer of P5-Million 1
hundred thousand pesos,
your offer was P5-
Million?
A I believe what was in the
: letter was better than P5-
Million, your Honor.
Q I am asking you if you
: agreed with the plaintiff
that you made an offer
to the plaintiffs in the
amount of P5-Million
before you made an
offer of P5.1 Million in
that conference?
A I think so. I cannot
: remember because it
was a long time already.
  xxxx
ATTY. DELA CRUZ:
Q Will you just tell this
: Honorable Court Mr.
Witness what happened
to that conference which
you said you had with
Mr. Miranda?
A We did not agree on the
: price and terms of the
property that they
offered.
Q Well, how much was the
: price which you talked
about in that
conference?
A We informed the tenants
: that there was another
offer given to us and we
raised our price to P5.1-
Million net. It was
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 9 of 132
offered by another
buyer.
Q Would you explain to
: this Honorable Court
Million net?
A It is net of the capital
: gains and other taxes,
government taxes.
COURT:
Q Why did you make
: another offer of P5.1-
Million when your former
offer of P5-Million was
already accepted?
A Can I explain to you, with
: due respect, your Honor.
There was a letter given
to them; that there should
be an acceptance on or
before August 11, 1988.
What they replied is not
acceptance but a
conference. So, since that
was not met, or since that
was not ac-
  cepted, meaning, we did
not accept their offer,
what we said on August
11 is that, they should
come up with the money
or the payment of the
property and we will
prepare for the Deed of
Sale and documents
pertaining to the sale.
  xxxx
Q All right Mr. Witness.
: After that conference, you
had with Mr. Miranda, did
you receive any
communication from the
plaintiffs?
A Yes, sir, that was the time
: we received that Exhibit
 “H.” party, 75% share of the
Q All right, I am showing to property only, sir.
: you here a letter dated COURT:
October 18, 1988 which Q And one of the heirs
was marked as Exhibit : composing the 75% share
“A,” will you look at this of the vendors included
document and tell us what your father?
relation has this document A Yes, your Honor.
to that which you said you :
received after the COURT:
conference? Q All right, let me see
A Yes, sir, this is the letter, : Exhibit “9.” (Exhibits “9”
: sir, that they sent. and “10” was shown to
Q Now, what did you do the Court).
: after receiving this letter COURT:
coming from the Q All right, before the sale
plaintiffs? : of the 75% share, did
A There was a reply letter, you inform the plaintiffs
: sir. that you are selling the
Q You replied to this letter? 75% of the whole
: property?
A Yes, sir, we replied to that A During the conference,
: letter. : your Honor, because
Q If that reply letter to this during the conference. . .
: October 18, 1988 letter That’s why we did not
will be shown to you, agree.
would you be able to Q Just answer the question.
identify the same? :
A Yes, sir. A Yes, your Honor, we did.
: :
Q I am showing to you here Q Is it not a fact that you
: a letter dated November : only informed the
3, 1988previously marked plaintiffs, thru your letter
as Exhibit “9,” and of November 3, 1988,
Exhibit “10,” will you Exhibit “9”, that the
look at this letter Mr. vendors sold 75%?
Witness and tell us what A Are selling? Yes, sir.
relation has this letter to :
that which you Q Meaning, that when you
mentioned? : sent Exhibit “9,” the
A Yes, sir, this is the letter property was not yet
: informing them that sold?
some of the heirs have A Yes, your
sold their 75% shares to : Honor. (Emphasis
31

another interested supplied)

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 10 of 132

 Q And you will agree with
Even petitioner-lessees’ witness Miranda, who : me Mr. Witness that in
was their accountant since 1959, testified that your August 11, 1988
petitioner-lessees did not indicate their offer for letter, you did not make
the property in their letter dated 11 August any offer or a counter
1988 but instead requested for a conference
offer or what not to the
with all the heirs of Dr. Lorenzo C. Reyes.
Miranda admitted that the main reason for their letter of the defendants
request for a conference was because they knew heirs on August 3, 1988?
that not all the heirs of Dr. Lorenzo C. Reyes A You are referring to the
were interested in selling the property. Miranda : amount?
testified: Q Yes, you did not
: mention any?
ATTY. DELA CRUZ: A I did not mention the
Q All right, in this letter Mr. : offer but I requested
: Witness, there is in the them to have a 100%
dispositive portion of this attendance because I
letter the following know that the property
statement and which I being sold had a
quote for the problem even among the
records: “May we family heirs, there is a
received [sic] your offer problem that is why I
on or before August 11, wanted them to be
1988. Please be guided present so that if ever
accordingly.” You read who will buy the
this portion? property we will know
A Yes sir. (referring to where the lessees should
: August 3, 1988 letter) be placed out of the four
  xxxx doors because they are
Q And as reply to this all selling three doors.
: communication Mr. Another thing, that is an
Witness, you prepared inherited property. I
another letter dated requested them to show
August 11, 1988 me a copy of their estate
addressed to the tax because under the
Administrative internal revenue code,
Committee and which you cannot have a clean
was already marked as title unless the
Exhibit “G” for the corresponding estate tax
plaintiffs and Exhibit “6” on the property is paid.
for the defendants? Could That is why I made also
you look at this letter if that request, sir.
you are familiar with   xxxx
this? Q Now, in this August 11,
A Yes, sir. : 1988 letter, which is
: Exhibit “G” plaintiffs,

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 11 of 132

 you stated that you
required complete
attendance of the heirs
and you did not mention
yet a price?
A The bid price.
: Petitioner-lessees allege that the price offered to
Q What was your reason
: for doing that complete
attendance?
A Because I want to find
: out whether the four are
not interested in selling,
sir.
Q When you said four, are
: they the one
representing the
ownership of the 25%?
A Yes, sir.  (Emphasis
32
: supplied)
Petitioner-lessees admit that there was an
ongoing negotiation for the sale of the
property.  Precisely, the P5,000,000 price for
33
the property indicated by the Administrative
Committee in the letter dated 3 August 1988
was superseded by the subsequent offer of
respondent-heirs during the conference. Thus,
the letter dated 18 October 1988 of petitioner-
lessees is merely another counter-offer for the
property in their continuing negotiation for the
property. The latest offer of re-spondent-heirs
was contained in their letter dated 3 November
1988 wherein only the 75% undivided interest
of the property was for sale at
P3,825,000. When petitioner-lessees opted
not to respond to this offer, respondent-heirs
had the right to sell the property to other
buyers.
Petitioner-lessees already exercised their right
of first refusal when they refused to respond to
the latest offer of respondent-heirs, which
amounted to a rejection of the offer. Upon
petitioner-lessees’ failure to respond to this
latest offer of respondent-heirs, the latter could
validly sell the property to other buyers under
the same terms and conditions offered to
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 12 of 132
petitioner-lessees.  Thus, when respondent-
34
heirs sold the property to Lita Sy, respondent-
heirs did not violate the right of first refusal of
petitioner-lessees. Indeed, petitioner-lessees
were given more than ample opportunity to
purchase the property.
Lita Sy was lower than the price offered to
them. The records of the case reveal otherwise.
The last price which respondent-heirs offered to
petitioner-lessees was P3,825,000 for the 75%
undivided interest in the property. The price of
P3,825,000 was computed based on the price of
P5,100,000 for the entire property. Moreover,
capital gains tax, documentary stamp tax,
municipal transfer tax and registration expenses
should be paid by petitioner-lessees. However,
petitioner-lessees were only willing to pay
P5,000,000 for the entire property. Petitioner-
lessees also indicated in their letter dated 8
October 1988 that unpaid taxes such as income,
estate, realty & science education fund and
documentary stamps should be borne by the
heirs of Dr. Lorenzo C. Reyes.
On the other hand, Lita Sy paid P3,825,000 for
the 75% undivided interest in the property. This
is exclusive of the P412,500 which Lita Sy paid
to Vicente M. Reyes for taxes, agent’s
commission and miscellaneous expenses. Thus,
Lita Sy paid a total of P4,237,500. Clearly, this
amount is not lower than the price offered to
petitioner-lessees.
Legal Redemption
The Villegas brothers maintain that Lita Sy
failed to exercise her right of redemption within
the 30-day period prescribed under Article 1623
of the Civil Code. According to the Villegas
brothers, Lita Sy received on 17 February 1989
a copy of the Deed of Sale evidencing the sale
of the 25% portion of the property to the
Villegas brothers. However, it was only in a
demand letter dated 29 March 1990 that Lita Sy
invoked her right of redemption.
Articles 1620 and 1623 of the Civil Code
provide:
“Art. 1620. A co-owner of a thing may exercise the
right of redemption in case the shares of all the
other co-owners or of any of them, are sold to a
third person. If the price of the alienation is grossly
excessive, the redemp-tioner shall pay only a
reasonable one.
Should two or more co-owners desire to exercise the
right of redemption, they may only do so in
proportion to the share they may respectively have
in the thing owned in common.
Art. 1623. The right of legal pre-emption or
redemption shall not be exercised except within
thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in
the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that
of adjoining owners.”
The records reveal that on 17 February 1989,
Lita Sy received the complaint for Annulment
of Deed of Sale/Title, Specific Performance,
and Consignation of Rentals with Damages
filed by petitioner-lessees. On the same date,
Lita Sy also received together with the
complaint the Deed of Sale of the 25% portion
of the property.
Lita Sy and the other defendants in that case
filed their answer on 16 March 1989.  In their
35
answer, Lita Sy invoked her right to redeem the
property:
xxxx
13.That the Deed of Sale (Annex “N”) in favor of
the plaintiffs was based on a Transfer Certificate of
Title No. 183718 (Annex “M”) where defendant
Lita Sy is already a co-owner to the extent of 36/48
portion on the subject property, which circumstance
impliedly admits that defendants heirs have validly
and legally disposed the 75% portion to defendant
Lita Sy and plaintiffs are therefore estopped to deny
it;
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 13 of 132
14.That as a co-owner with the sellers of the 25%
portion of the subject lot, defendant Lita Sy has
the right to redeem the shares disposed by the
other co-owners in accordance with Art. 1620 of
the New Civil Code and hereby exercise the
same;
15.That the Deed of Sale (Annex “N”—Complaint)
allegedly executed by the other heirs constituting
twenty five (25%) percent of the subject property
cannot as yet vest full ownership over the same until
the co-owner defendant Lita Sy shall have failed or
waived her rights to redeem the aforesaid 25% of
the subject property in question;
xxxx
PRAYER
WHEREFORE, premises considered, it is
respectfully prayed that after hearing a judgment be
rendered dismissing the instant complaint for lack
of merit and order the plaintiffs jointly and
severally:
xxxx
e) To sell or execute a Deed of Sale in favor of
defendant Lita Sy covering the remaining 25%
portion of the subject property in full exercise of the
right of redemption under the law.
xxxx
Lita Sy claims that the answer filed with the
RTC Branch 2 is equivalent to a formal offer to
redeem the 25% undivided interest in the
property sold to the Villegas brothers. Lita Sy
also claims that since she offered to redeem the
property on 16 March 1989, which is within 30
days from her receipt of the notice of the sale
on 17 Febru-ary 1989, she has complied with
the condition fixed by law and may bring an
action to enforce the redemption.
We hold that there was no valid and effective
offer to redeem the 25% undivided interest in
the property. Although Lita Sy invoked her
right to redeem the property in the answer filed
with the RTC Branch 2, she failed to consign in
court the redemption price. Well-settled is the
rule that a formal offer to redeem must be
accompanied by a valid tender of the
redemption price and that the filing of a judicial
action, plus the consignation of the redemption
price within the period of redemption, is
equivalent to a formal offer to redeem. 36
As held by this Court in Tolentino v. Court of
Appeals:
“[A] formal offer to redeem, accompanied by
a bona fidetender of the redemption price, although
proper, is not essential where, as in the instant case,
the right to redeem is exercised thru the filing of a
judicial action, which as noted earlier was made
simultaneously with the deposit of the redemption
price with the Sheriff, within the period of
redemption. The formal offer to redeem,
accompanied by a bona fidetender of the
redemption price within the period of redemption
prescribed by law, is only essential to preserve the
right of redemption for future enforcement even
beyond such period of redemption. The filing of the
action itself, within the period of redemption, is
equivalent to a formal offer to redeem. Should the
court allow redemption, the redemptioners should
then pay the amount already adverted to.” 37
The importance of a valid tender or
consignation of the redemption price was
sufficiently explained by Justice J.B.L. Reyes
in Conejero v. Court of Appeals:
“It is not difficult to discern why the redemption
price should either be fully offered in legal tender or
else validly consigned in court. Only by such means
can the buyer become certain that the offer to
redeem is one made seriously and in good faith. A
buyer can not be expected to entertain an offer of
redemption without attendant evidence that the
redemptioner can, and is willing to, accomplish the
repurchase immediately. A different rule would
leave the buyer open to harassment by speculators
or crackpots, as well as to unnecessary prolongation
of the redemption period, contrary to the policy of
the law. While consignation of the tendered price is
not always necessary because legal redemption is
not made to discharge a pre-existing debt (Asturias
Sugar Central versus Cane Molasses Co., 60 Phil.
253), a valid tender is indispensable, for the reasons
already stated. Of course, consignation of the price
would remove all controversy as to the petitioner’s
ability to pay at the proper time.”
38
In Conejero, the Court held that to effectively
exercise the right of redemption, the offer to
redeem the property within the 30-day period
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 14 of 132
must be accompanied by a reasonable and valid
tender of the entire repurchase price. The Court
held:
“[Conejero] failed to make a valid tender of the
price of the sale paid by the Raffiñans within the
period fixed by law. Conejero merely offered a
check for P10,000, which was not even legal tender
and which the Raffiñans rejected, in lieu of the price
of P28,000 recited in the deed of sale. The factual
finding of the Court of Appeals to this effect is final
and conclusive. Nor were the vendees obligated to
accept Conejero’s promise to pay the balance by
means of a loan to be obtained in future from a
bank. Bona fide redemption necessarily imports a
reasonable and valid tender of the entire repurchase
price, and this was not done. There is no cogent
reason for requiring the vendee to accept payment
by installments from a redemptioner, as it would
ultimately result in an indefinite extension of the
30-day redemption period, when the purpose of the
law in fixing a short and definite term is clearly to
avoid prolonged and anti-economic uncertainty as to
ownership of the thing sold (cf Torrijos vs.
Crisologo, et al., G.R. No. L-1773, Sept. 29,
1962).”
39
In this case, Lita Sy failed to consign in court
the redemption price when she invoked her
right to redeem the 25% portion of the property
in the answer filed with the RTC Branch 2. The
evidence does not show that Lita Sy ever
tendered the redemption price to the Villegas
brothers. Even when Lita Sy’s lawyer sent a
letter dated 29 March 1990 reiterating the
demand for the Villegas brothers to resell the
25% interest in the property, still no tender of
the redemption price was made. There is
likewise no evidence that Lita Sy consigned the
redemption price in court when she filed on 18
May 1990 a complaint for Specific
Performance against the heirs of Atanacio
Villegas, as represented by Soledad de
Ocampo, Agripino Villegas, and Ofelia R.
Tungol.
Considering that there was no tender of the
redemption price, nor was there consignation of
the redemption price, we hold that there was no
valid exercise of the right of redemption.
FALLO: WHEREFORE, we DENY the
petition in G.R. No. 111495. We AFFIRM the
Decision dated 6 January 1993 of the Court of
Appeals in CA-G.R. CV No. 25974, as
modified by its Resolution dated 17 August
1993.
We GRANT the petition in G.R. No. 122404.
We SET ASIDE the Decision and Resolution of
the Court of Appeals in CA-G.R. CV No.
41931, and RENDER a new one:
1.Upholding the right of Atanacio M. Villegas
and Agripino M. Villegas over the 25%
undivided interest in the property; and
2.Denying the demand for legal redemption by
Spouses Lita Sy and Sy Bon Su.
No pronouncement on costs. SO ORDERED.
     
Notes.—A lessee is not entitled to the right of
first refusal under PD 1517 where he was using
the premises not for residential but for business
purpose. (Chua vs. Court of Appeals, 356
SCRA 753 [2001])
The Urban Land Reform Law grants the right
of first refusal only to legitimate tenants who
have built their homes on the land they are
leasing—apartment dwellers are excluded from
the protective mantle of said law. (Arlegui vs.
Court of Appeals, 378 SCRA 322[2002])
The concept and interpretation of the right of
first refusal and the consequences of a breach
thereof evolved in Philippine juristic sphere
only within the last decade. (Riviera Filipina,
Inc. vs. Court of Ap-peals, 380 SCRA
245 [2002])
G.R. No. 179653. July 31, 2009.*
UNITED MUSLIM AND CHRISTIAN
URBAN POOR ASSOCIATION,
INC. represented by its President, MANUEL V.
BUEN, petitioner, vs. BRYC-V
DEVELOPMENT
CORPORATION represented by its President,
BENJAMIN QUIDILLA; and SEA FOODS
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 15 of 132
CORPORATION, represented by its Executive
Vice President, VICENTE T. HERNANDEZ,
respondents.
NATURE OF THE CASE:
PETITION for review on certiorari of a
decision of the Court of Appeals.
This petition for review on certiorari seeks to
set aside the Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 62557 which
affirmed in toto the Decision2 of the Regional
Trial Court (RTC), Branch 16, Zamboanga City
in Civil Case No. 467(4544).
SYLLABUS:
Remedial Law; Appeals; Factual findings of the
trial court, especially when affirmed by the
appellate court, are accorded the highest degree of
respect and are considered conclusive between the
parties; Exceptions.—Well-entrenched in
jurisprudence is the rule that factual findings of the
trial court, especially when affirmed by the
appellate court, are accorded the highest degree of
respect and are considered conclusive between the
parties. A review of such findings by this Court is
not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a
lower court’s inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion in the appreciation
of facts; (4) when the findings of the appellate court
go beyond the issues of the case, or fail to notice
certain relevant facts which, if properly considered,
would justify a different conclusion; (5) when there
is a misappreciation of facts; (6) when the findings
of fact are conclusions without mention of the
specific evidence on which they are based, or are
premised on the absence of evidence, or are
contradicted by evidence on record. None of the
foregoing exceptions necessitating a reversal of the
assailed decision obtain in this instance.
Civil Law; Contracts; Sales; The parties in the case
executed a Letter of Intent, which is neither a
contract to sell nor a conditional contract of sale.—
In the instant case, however, the parties executed a
Letter of Intent, which is neither a contract to sell
nor a conditional contract of sale. As found by the
RTC, and upheld by the CA, the Letter of Intent was
executed to accommodate UMCUPAI and facilitate
its loan application with NHMF.
Same; Same; Same; The Letter of Intent to Buy and
Sell is just that—a manifestation of Sea Foods
Corporation’s (SFC) intention to sell the property
and United Muslim and Christian Urban Poor
Association, Inc.’s (UMCUPAI) intention to
acquire the same.—Nowhere in the Letter of Intent
does it state that SFC relinquishes its title over the
subject property, subject only to the condition of
complete payment of the purchase price; nor, at the
least, that SFC, although expressly retaining
ownership thereof, binds itself to sell the property
exclusively to UMCUPAI. The Letter of Intent to
Buy and Sell is just that—a manifestation of SFC’s
intention to sell the property and UMCUPAI’s
intention to acquire the same. This is quite obvious
from the reference to the execution of an Absolute
Deed of Sale in paragraph three of the Letter of
Intent.
  
NACHURA, J.:
FACTS:
The facts are simple.
Respondent Sea Foods Corporation (SFC) is the
registered owner of Lot No. 300 located in
Lower Calainan, Zamboanga City and covered
by Transfer Certificate of Title (TCT) No. 3182
(T-576).
Sometime in 1991, petitioner United Muslim
and Christian Urban Poor Association, Inc.
(UMCUPAI), an organization of squatters
occupying Lot No. 300, through its President,
Carmen T. Diola, initiated negotiations with
SFC for the purchase thereof. UMCUPAI
expressed its intention to buy the subject
property using the proceeds of its pending loan
application with National Home Mortgage
Finance Corporation (NHMF). Thereafter, the
parties executed a Letter of Intent to Sell by
[SFC] and Letter of Intent to Purchase by
UMCUPAI, providing, in pertinent part:
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 16 of 132
“WHEREAS, [SFC] is the registered owner of a
parcel [of] land designated as Lot No. 300 situated
in Lower Calarian, Zamboanga City, consisting of
61,736 square meters, and more particularly
described in Transfer Certificate of Title No. 576 of
the Registry of Deeds of Zamboanga City;
WHEREAS, UMCUPAI, an association duly
registered with the SEC (Registration No. 403410)
and duly accredited with the Presidential
Commission for the Urban Poor, has approached
[SFC] and negotiated for the ACQUISITION of the
above-described property of [SFC];
WHEREAS, in pursuance to the negotiations
between [SFC] and UMCUPAI, the latter has taken
steps with the proper government authorities
particularly the Mayor of Zamboanga City and its
City Housing Board which will act as “Originator”
in the acquisition of said property which will enable
UMCUPAI to avail of its Community Mortgage
Program;
WHEREAS, it appears that UMCUPAI will
ultimately apply with the Home Mortgage and
Finance Corporation for a loan to pay the
acquisition price of said land;
WHEREAS, as one of the steps required by the
government authorities to initiate proceedings is to
receive a formal manifestation of Intent to Sell from
[SFC];727
NOW, THEREFORE, for and in consideration of
the foregoing premises, the parties hereto agree as
follows:
1.  [SFC] expressly declares its intention to sell
Lot No. 300 with an area of 61,736 square meters
situated in Lower Calarian, Zamboanga City and
covered by TCT No. 576 of the Registry of Deeds
of Zamboanga City to UMCUPAI at the price of
P105.00 per square meter, free from all liens,
charges and encumbrances;
2. That UMCUPAI hereby expressly declares its
intention to buy the aforesaid property and shall
endeavor to raise the necessary funds to acquire
same at the abovementioned price of P105.00 per
square meter;
3.  That the Absolute Deed of Sale shall be
executed, signed and delivered together with the
title and all other pertinent documents upon full
payment of the purchase price;

4.  That [SFC] shall pay the capital gains tax and
documentary stamps, Registration, transfer tax and
other expenses shall be paid by the UMCUPAI.” 3
However, the intended sale was derailed due to
UMCUPAI’s inability to secure the loan from
NHMF as not all its members occupying Lot
No. 300 were willing to join the undertaking.
Intent on buying the subject property,
UMCUPAI, in a series of conferences with
SFC, proposed the subdivision of Lot No. 300
to allow the squatter-occupants to purchase a
smaller portion thereof.
Consequently, sometime in December 1994,
Lot No. 300 was subdivided into three (3) parts
covered by separate titles:
1. Lot No. 300-A with an area of 41,460
square meters under TCT No. T-117,448;
2. Lot No. 300-B with an area of 1,405 square
meters under TCT No. T-117,449; and
3. Lot No. 300-C with an area of 18,872
square meters under TCT No. T-117,450.
On January 11, 1995, UMCUPAI purchased
Lot No. 300-A for P4,350,801.58. In turn, Lot
No. 300-B was constituted as road right of way
and donated by SFC to the local government.
UMCUPAI failed to acquire Lot No. 300-C for
lack of funds. On March 5, 1995, UMCUPAI
negotiated anew with SFC and was given by the
latter another three months to purchase Lot No.
300-C. However, despite the extension, the
three-month period lapsed with the sale not
consummated because UMCUPAI still failed to
obtain a loan from NHMF. Thus, on July 20,
1995, SFC sold Lot No. 300-C for
P2,547,585.00 to respondent BRYC-V
Development Corporation (BRYC).
A year later, UMCUPAI filed with the RTC a
complaint against respondents SFC and BRYC
seeking to annul the sale of Lot No. 300-C, and
the cancellation of TCT No. T-121,523.
UMCUPAI alleged that the sale between the
respondents violated its valid and subsisting
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 17 of 132
agreement with SFC embodied in the Letter of
Intent. According to UMCUPAI, the Letter of
Intent granted it a prior, better, and preferred
right over BRYC in the purchase of Lot No.
300-C.
In refutation, BRYC said that UMCUPAI’s
complaint did not state a cause of action since
UMCUPAI had unequivocally recognized its
ownership of Lot No. 300-C when UMCUPAI
likewise sent BRYC a Letter of Intent dated
August 18, 1995 imploring BRYC to re-sell the
subject lot.
In a separate Answer, SFC countered that the
Letter of Intent dated October 4, 1991 is not,
and cannot be considered, a valid and subsisting
contract of sale. On the contrary, SFC averred
that the document was drawn and executed
merely to accommodate UMCUPAI and enable
it to comply with the loan documentation
requirements of NHMF. In all, SFC maintained
that the Letter of Intent dated October 4, 1991
was subject to a condition i.e., payment of the
acquisition price, which UMCUPAI failed to do
when it did not obtain the loan from NHMF.
After trial, the RTC dismissed UMCUPAI’s
complaint. The lower court found that the
Letter of Intent was executed to facilitate the
approval of UMCUPAI’s loan from NHMF for
its intended purchase of Lot No. 300.
According to the RTC, the Letter of Intent was
simply SFC’s declaration of intention to sell,
and not a promise to sell, the subject lot. On the
whole, the RTC concluded that the Letter of
Intent was neither a promise, nor an option
contract, nor an offer contemplated under
Article 1319 of the Civil Code, or a bilateral
contract to sell and buy.
As previously adverted to, the CA, on appeal,
affirmed in toto the RTC’s ruling.
Hence, this recourse by UMCUPAI positing a
sole issue for our resolution:
IS THE LETTER OF INTENT TO SELL AND
LETTER OF INTENT TO BUY A BILATERAL
RECIPROCAL CONTRACT WITHIN THE
MEANING OR CONTEMPLATION OF
ARTICLE 1479, FIRST PARAGRAPH, CIVIL
CODE OF THE PHILIPPINES? 4
The petition deserves scant consideration. We
completely agree with the lower courts’ rulings.
Well-entrenched in jurisprudence is the rule
that factual findings of the trial court, especially
when affirmed by the appellate court, are
accorded the highest degree of respect and are
considered conclusive between the parties.5 A
review of such findings by this Court is not
warranted except upon a showing of highly
meritorious circumstances, such as: (1) when
the findings of a trial court are grounded
entirely on speculation, surmises or conjectures;
(2) when a lower court’s inference from its
factual findings is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond
the issues of the case, or fail to notice certain
relevant facts which, if properly considered,
would justify a different conclusion; (5) when
there is a misappreciation of facts; (6) when the
findings of fact are conclusions without
mention of the specific evidence on which they
are based, or are premised on the absence of
evidence, or are contradicted by evidence on
record.6 None of the foregoing exceptions
necessitating a reversal of the assailed decision
obtain in this instance.
UMCUPAI is adamant, however, that the CA
erred when it applied the second paragraph of
Article 1479 of the Civil Code instead of the
first paragraph thereof. UMCUPAI urges us
that the first paragraph of Article 1479
contemplates a bilateral reciprocal contract
which is binding on the parties. Yet,
UMCUPAI is careful not to designate the Letter
of Intent as a Contract to Sell. UMCUPAI
simply insists that the Letter of Intent is not a
unilateral promise to sell or buy which has to be
supported by a consideration distinct from the
price for it to be binding on the promissor. In
short, UMCUPAI claims that the Letter of
Intent did not merely grant the parties the
option to respectively sell or buy the subject
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 18 of 132
property. Although not stated plainly,
UMCUPAI claims that the Letter of Intent is
equivalent to a conditional contract of sale
subject only to the suspensive condition of
payment of the purchase price.
UMCUPAI appears to labor under a cloud of
confusion. The first paragraph of Article 1479
contemplates the bilateral relationship of a
contract to sell as distinguished from a contract
of sale which may be absolute or conditional
under Article 14587 of the same code. It reads:
“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 case of Coronel v. Court of Appeals8 is
illuminating and explains the distinction
between a conditional contract of sale under
Article 1458 of the Civil Code and a bilateral
contract to sell under Article 1479 of the same
code:
“A contract to sell may thus be defined as a bilateral
contract whereby the prospective seller, while
expressly reserving the ownership of the subject
property despite delivery thereof to the prospective
buyer, binds himself to sell the said property
exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
A contract to sell as defined hereinabove, may not
even be considered as a conditional contract of sale
where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional
contract of sale, the first element of consent is
present, although it is conditioned upon the
happening of a contingent event which may or may
not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive
condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been
previous delivery of the property subject of the sale
to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without
any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the
suspensive condition which is the full payment of
the purchase price, ownership will not automatically
transfer to the buyer although the property may have
been previously delivered to him. The prospective
seller still has to convey title to the prospective
buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to
sell and a conditional contract of sale specially in
cases where the subject property is sold by the
owner not to the party the seller contracted with, but
to a third person, as in the case at bench. In a
contract to sell, there being no previous sale of the
property, a third person buying such property
despite the fulfillment of the suspensive condition
such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double
sale in such case. Title to the property will transfer
to the buyer after registration because there is no
defect in the owner-seller’s title per se, but the
latter, of course, may be sued for damages by the
intending buyer.
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the
seller’s title thereto. In fact, if there had been
previous delivery of the subject property, the
seller’s ownership or title to the property is
automatically transferred to the buyer such that, the
seller will no longer have any title to transfer to any
third person. Applying Article 1544 of the Civil
Code, such second buyer of the property who may
have had actual or constructive knowledge of such
defect in the seller’s title, or at least was charged
with the obligation to discover such defect, cannot
be a registrant in good faith.  Such second buyer
cannot defeat the first buyer’s title. In case a title is
issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.”
In the instant case, however, the parties
executed a Letter of Intent, which is neither a
contract to sell nor a conditional contract of
sale. As found by the RTC, and upheld by the
CA, the Letter of Intent was executed to
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 19 of 132
accommodate UMCUPAI and facilitate its loan
application with NHMF. The 4th and 5th
paragraphs of the recitals (whereas clauses)
specifically provide:733
“WHEREAS, it appears that UMCUPAI will
ultimately apply with the Home Mortgage and
Finance Corporation for a loan to pay the
acquisition price of said land;
WHEREAS, as one of the steps required by the
government authorities to initiate proceedings is to
receive a formal manifestation of Intent to Sell from
[SFC].”
Nowhere in the Letter of Intent does it state that
SFC relinquishes its title over the subject
property, subject only to the condition of
complete payment of the purchase price; nor, at
the least, that SFC, although expressly retaining
ownership thereof, binds itself to sell the
property exclusively to UMCUPAI. The Letter
of Intent to Buy and Sell is just that—a
manifestation of SFC’s intention to sell the
property and UMCUPAI’s intention to acquire
the same. This is quite obvious from the
reference to the execution of an Absolute Deed
of Sale in paragraph three9 of the Letter of
Intent.
As the CA did, we quote with favor the RTC’s
disquisition:
“The Decision in this case hinges on the legal
interpretation of the Agreement entered into by SFC
and UMCUPAI denominated as “Letter of Intent to
Sell by Landowner and Letter of Intent to Purchase
by United Muslim and Christian Urban Poor
Association, Inc.”
Black’s Law Dictionary says that a Letter of Intent
is customarily employed to reduce to writing a
preliminary understanding of parties who intend to
enter into contract. It is a phrase ordinarily used to
denote a brief memorandum of the preliminary
understanding of parties who intend to enter into a
contract. It is a written statement expressing the
intention of the parties to enter into a formal
agreement especially a business arrangement or
transaction.
In their Agreement, SFC expressly declared its
“intention” to sell and UMCUPAI expressly
declared its “intention” to buy subject property. An
intention is a mere idea, goal, or plan. It simply
signifies a course of action that one proposes to
follow. It simply indicates what one proposes to do
or accomplish. A mere “intention” cannot give rise
to an obligation to give, to do or not to do (Article
1156, Civil Code). One cannot be bound by what he
proposes or plans to do or accomplish. A Letter of
Intent is not a contract between the parties thereto
because it does not bind one party, with respect to
the other, to give something, or to render some
service (Art. 1305, Civil Code).
x x x   x x x  x x x
The Letter of Intent/Agreement between SFC and
UMCUPAI is merely a written preliminary
understanding of the parties wherein they declared
their intention to enter into a contract of sale. It is
subject to the condition that UMCUPAI will “apply
with the Home Mortgage and Finance Corporation
for a loan to pay the acquisition price of said land.”
One of the requirements for such loan is “a formal
manifestation of Intent to Sell” from SFC. Thus, the
Letter of Intent to Sell fell short of an “offer”
contemplated in Article 1319 of the Civil Code
because it is not a certain and definite proposal to
make a contract but merely a declaration of SFC’s
intention to enter into a contract. UMCUPAI’s
declaration of intention to buy is also not certain
and definite as it is subject to the condition that
UMCUPAI shall endeavor to raise funds to acquire
subject land. The acceptance of the offer must be
absolute; it must be plain and unconditional.
Moreover, the Letter of Intent/Agreement does not
contain a promise or commitment to enter into a
contract of sale as it merely declared the intention of
the parties to enter into a contract of sale upon
fulfillment of a condition that UMCUPAI could
secure a loan to pay for the price of a land.
The Letter of Intent/Agreement is not an “option
contract” because aside from the fact that it is
merely a declaration of intention to sell and to buy
subject to the condition that UMCUPAI shall raise
the necessary funds to pay the price of the land, and
does not contain a binding promise to sell and buy,
it is not supported by a distinct consideration
distinct from the price of the land intended to be
sold and to be bought x x x No option was granted
to UMCUPAI under the Letter of Intent/Agreement
to buy subject land to the exclusion of all others
within a fixed period nor was SFC bound under said
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 20 of 132
Agreement to Sell exclusively to UMCUPAI only
the said land within the fixed period.
Neither can the Letter of Intent/Agreement be
considered a bilateral reciprocal contract to sell and
to buy contemplated under Article 1479 of the Civil
Code which is reciprocally demandable. The Letter
of Intent/Agreement does not contain a PROMISE
to sell and to buy subject property. There was no
promise or commitment on the part of SFC to sell
subject land to UMCUPAI, but merely a declaration
of its intention to buy the land, subject to the
condition that UMCUPAI could raise the necessary
funds to acquire the same at the price of P105.00
per square meter x x x
While UMCUPAI succeeded in raising funds to
acquire a portion of Lot No. 300-A, it failed to raise
funds to pay for Lot No. 300-C. From October 4,
1991 when the Letter of Intent was signed to June,
1995, UMCUPAI had about three (3) years and
eight (8) months within which to pursue its
intention to buy subject land from SFC. Within that
period, UMCUPAI had ample time within which to
acquire Lot No. 300-C, as in fact it had acquired Lot
No. 300-A which is much bigger than Lot No. 300-
C and occupied by more members of UMCUPAI.
The failure of UMCUPAI to acquire Lot No. 300-C
before it was sold to BRYC-V cannot be blamed on
SFC because all that UMCUPAI had to do was to
raise funds to pay for Lot No. 300-C which it did
with respect to Lot No. 300-A. SFC had nothing to
do with SFC’s unilateral action through Mrs.
Antonina Graciano to “postpone” the processing of
the acquisition of Lot No. 300-C, which it referred
to as Phase II, until after the payment to SFC of the
acquisition price for Lot No. 300-A or Phase I x x
x.”
FALLO: WHEREFORE, premises considered,
the petition is hereby DENIED. The Decision
of the Court of Appeals in CA-G.R. CV No.
62557 and the Regional Trial Court in Civil
Case No. 467(4544) are AFFIRMED. Costs
against the petitioner. SO ORDERED.
Note.—As a general rule, when the findings of
both courts are in agreement, this Court will not
reverse their findings of fact. (Gonzales, Jr. vs.
People, 515 SCRA 480 [2007])
G.R. No. 168325. December 13, 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.
NATURE OF THE CASE:
PETITION for review on certiorari of a
decision of the Court of Appeals.
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.
SYLLABUS:
Civil Law; Option Contract; Right of First Refusal;
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.—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.
Same; Same; Same; If the option is without any
consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at
any time before acceptance; if it is founded upon a
consideration, the offeror cannot withdraw his offer
before the lapse of the period agreed upon.—It is
clear from the provision of Article 1324 0that there
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 21 of 132
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.
Same; Same; Same; 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.
—In this case, it is undisputed that Roberto did not
accept the terms stated in the letter of Lourdes as he
negotiated for a much lower price. Roberto’s act of
negotiating for a much lower price was a counter-
offer and is therefore not an acceptance of the offer
of Lourdes. Article 1319 of the Civil Code provides:
“Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute.
A qualified acceptanceconstitutes a counter-
offer.” (Emphasis supplied.)
DEL CASTILLO, J.:
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 letter6 dated January 2,
1995 to Roberto where she offered to sell to the
latter subject parcel of land. She pegged the
price at P37,541,000.00 and gave him two years
from January 2, 1995 to decide on the said
offer.
On June 19, 1997, or more than four months
after the expiration of the Contract of Lease,
Lourdes sold subject parcel of land to her only
child, Catalina Suarez-De Leon, her son-in-law
Wilfredo De Leon, and her two grandsons,
Miguel Luis S. De Leon and Rommel S. De
Leon (the De Leons), for a total consideration
of only P2,750,000.00 as evidenced by a Deed
of Absolute 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 November 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
Order13declaring 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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 22 of 132
After trial, the court a quo rendered a Decision
declaring the Deed of Absolute Sale made by
Lourdes in favor of the De Leons as valid and
binding. The offer made by Lourdes to Roberto
did not ripen into a contract to sell because the
price offered by the former was not acceptable
to the latter. The offer made by Lourdes is no
longer binding and effective at the time she
decided to sell the subject lot to the De Leons
because the same was not accepted by Roberto.
Thus, in a Decision dated November 18, 2002,
the trial court dismissed the complaint. Its
dispositive portion reads:
“WHEREFORE, premises considered, judgment is
hereby rendered dismissing the above-entitled
Complaint for lack of merit, and ordering the
Plaintiff to pay the Defendants, the following:
1. the amount of P30,000.00 as moral damages;
2. the amount of P30,000.00 as exemplary
damages;
3. the amount of P30,000.00 as attorney’s fees;
and
4. cost of the litigation.
SO ORDERED.” 16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision
dismissing Roberto’s appeal and affirming the
Decision of the RTC.
Hence, this Petition for Review
on Certiorari filed by Roberto advancing the
following arguments:
I. THE TRIAL COURT AND THE COURT OF
APPEALS HAD DECIDED THAT THE “RIGHT
OF FIRST REFUSAL” EXISTS ONLY WITHIN
THE PARAMETERS OF AN “OPTION TO BUY,”
AND DID NOT EXIST WHEN THE PROPERTY
WAS SOLD LATER TO A THIRD PERSON,
UNDER FAVORABLE TERMS AND
CONDITIONS WHICH THE FORMER BUYER
CAN MEET.
II. WHAT IS THE STATUS OR SANCTIONS OF
AN APPELLEE IN THE COURT OF APPEALS
WHO HAS NOT FILED OR FAILED TO FILE
AN APPELLEE’S BRIEF? 17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right
to buy subject property under the principle of
“right of first refusal” by not giving him
“notice” and the opportunity to buy the property
under the same terms and conditions or
specifically based on the much lower price paid
by the De Leons.
Roberto further contends that he is enforcing
his “right of first refusal” based on Equatorial
Realty Development, Inc. v. Mayfair Theater,
Inc.18 which is the leading case on the “right of
first refusal.”
Respondents’ Arguments
On the other hand, respondents posit that this
case is not covered by the principle of “right of
first refusal” but an unaccepted unilateral
promise to sell or, at best, a contract of option
which was not perfected. The letter of Lourdes
to Roberto clearly embodies an option contract
as it grants the latter only two years to exercise
the option to buy the subject property at a price
certain of P37,541,000.00. As an option
contract, the said letter would have been
binding upon Lourdes without need of any
consideration, had Roberto accepted the offer.
But in this case there was no acceptance made
neither was there a distinct consideration for the
option contract.
Our Ruling
The petition is without merit.
This case involves an option contract
and not a contract of a right of first
refusal
In Beaumont v. Prieto,19the nature of an option
contract is explained thus:
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 23 of 132
“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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 24 of 132
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box
of sweet grapes and ham, fit for a king’s party.
Thanks very much.
I am getting very old (79 going 80 yrs. old) and
wish to live in the U.S.A. with my only family. I
need money to buy a house and lot and a farm with
a little cash to start.
I am offering you to buy my 1211 square
meter at P37,541,000.00 you can pay me in dollars
in the name of my daughter. I never offered it to
anyone. Please shoulder the expenses for the
transfer. I wish the Lord God will help you buy my
lot easily and you will be very lucky forever in this
place. You have all the time to decide when you
can, but not for 2 years or more.
I wish you long life, happiness, health, wealth and
great fortune always!
I hope the Lord God will help you be the recipient
of multi-billion projects aid from other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an
option contract as it grants Roberto a fixed
period of only two years to buy the subject
property at a price certain of P37,541,000.00. It
being an option contract, the rules applicable
are found in Articles 1324 and 1479 of the Civil
Code which provide:
“Art. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as
something paid or promised.
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price.”

It is clear from the provision of Article 1324
that there is a great difference between the
effect of an option which is without a
consideration from one which is founded upon
a consideration. If the option is without any
consideration, the offeror may withdraw his
offer by communicating such withdrawal to the
offeree at anytime before acceptance; if it is
founded upon a consideration, the offeror
cannot withdraw his offer before the lapse of
the period agreed upon.
The second paragraph of Article 1479 declares
that “an accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from the
price.” Sanchez v. 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.”
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 25 of 132
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.
x x x x
Even if the promise was accepted, private
respondent was not bound thereby in the absence
of a distinct consideration.” (Emphasis ours.)
In this case, it is undisputed that Roberto did
not accept the terms stated in the letter of
Lourdes as he negotiated for a much lower
price. Roberto’s act of negotiating for a much
lower price was a counter-offer and is therefore
not an acceptance of the offer of Lourdes.
Article 1319 of the Civil Code provides:
“Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute.
A qualified acceptanceconstitutes a counter-
offer.” (Emphasis supplied.)
The counter-offer of Roberto for a much lower
price was not accepted by Lourdes. There is
therefore no contract that was perfected
between them with regard to the sale of subject
property. Roberto, thus, does not have any right
to demand that the property be sold to him at
the price for which it was sold to the De Leons
neither does he have the right to demand that
said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc. is not applicable
here
It is the position of Roberto that the facts of this
case and that of Equatorial are similar in nearly
all aspects. Roberto is a lessee of the property
like Mayfair Theater in Equatorial. There was
an offer made to Roberto by Lourdes during the
effectivity of the contract of lease which was
also the case in Equatorial. There were
negotiations as to the price which did not bear
fruit because Lourdes sold the property to the
De Leons which was also the case
in Equatorial wherein Carmelo and Bauermann
sold the property to Equatorial. The existence
of the lease of the property is known to the De
Leons as they are related to Lourdes while
in Equatorial, the lawyers of Equatorial studied
the lease contract of Mayfair over the property.
The property in this case was sold by Lourdes
to the De Leons at a much lower price which is
also the case in Equatorial  where Carmelo and
Bauerman sold to Equatorial at a lesser price. It
is Roberto’s conclusion that as in the case
of Equatorial, there was a violation of his right
of first refusal and hence annulment or
rescission of the Deed of Absolute Sale is the
proper remedy.
Roberto’s reliance in Equatorial is misplaced.
Despite his claims, the facts
in Equatorial radically differ from the facts of
this case. Roberto overlooked the fact that
in Equatorial, there was an express provision in
the Contract of Lease that—
“(i)f the LESSOR should desire to sell the leased
properties, the LESSEE shall be given 30-days
exclusive option to purchase the same.”
There is no such similar provision in the
Contract of Lease between Roberto and
Lourdes. What is involved here is a separate
and distinct offer made by Lourdes through a
letter dated January 2, 1995 wherein she is
selling the leased property to Roberto for a
definite price and which gave the latter a
definite period for acceptance. Roberto was not
given a right of first refusal. The letter-offer of
Lourdes did not form part of the Lease Contract
because it was made more than six months after
the commencement of the lease.
It is also very clear that in Equatorial, the
property was sold within the lease period. In
this case, the subject property was sold not only
after the expiration of the period provided in the
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 26 of 132
letter-offer of Lourdes but also after the
effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was
accepted by Roberto, still the former is not
bound thereby because of the absence of a
consideration distinct and separate from the
price. The argument of Roberto that the
separate consideration was the liberality on the
part of Lourdes cannot stand. A perusal of the
letter-offer of Lourdes would show that what
drove her to offer the property to Roberto was
her immediate need for funds as she was
already very old. Offering the property to
Roberto was not an act of liberality on the part
of Lourdes but was a simple matter of
convenience and practicality as he was the one
most likely to buy the property at that time as
he was then leasing the same.
All told, the facts of the case, as found by the
RTC and the CA, do not support Roberto’s
claims that the letter of Lourdes gave him a
right of first refusal which is similar to the one
given to Mayfair Theater in the case
of Equatorial. Therefore, there is no
justification to annul the deed of sale validly
entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to
file her appellee’s brief at the CA?
Lastly, Roberto argues that Lourdes should be
sanctioned for her failure to file her appellee’s
brief before the CA.
Certainly, the appellee’s failure to file her brief
would not mean that the case would be
automatically decided against her. Under the
circumstances, the prudent action on the part of
the CA would be to deem Lourdes to have
waived her right to file her appellee’s brief. De
Leon v. Court of Appeals,23 is instructive when
this Court decreed:
“On the second issue, we hold that the Court of
Appeals did not commit grave abuse of discretion in
considering the appeal submitted for decision. The
proper remedy in case of denial of the motion to
dismiss is to file the appellee’s brief and proceed
with the appeal. Instead, petitioner opted to file a
motion for reconsideration which, unfortunately,
was pro forma. All the grounds raised therein have
been discussed in the first resolution of the
respondent Court of Appeals. There is no new
ground raised that might warrant reversal of the
resolution. A cursory perusal of the motion would
readily show that it was a near verbatim repetition
of the grounds stated in the motion to dismiss;
hence, the filing of the motion for reconsideration
did not suspend the period for filing the appellee’s
brief. Petitioner was therefore properly deemed
to have waived his right to file appellee’s brief.”
(Emphasis supplied.)
In the above cited case, De Leon was the
plaintiff in a Complaint for a sum of money in
the RTC. He obtained a favorable judgment and
so defendant went to the CA. The appeal of
defendant-appellant was taken cognizance of by
the CA but De Leon filed a Motion to Dismiss
the Appeal with Motion to Suspend Period to
file Appellee’s Brief. The CA denied the
Motion to Dismiss. De Leon filed a Motion for
Reconsideration which actually did not suspend
the period to file the appellee’s brief. De Leon
therefore failed to file his brief within the
period specified by the rules and hence he was
deemed by the CA to have waived his right to
file appellee’s brief.
The failure of the appellee to file his brief
would not result to the rendition of a decision
favorable to the appellant. The former is
considered only to have waived his right to file
the Appellee’s Brief. The CA has the
jurisdiction to resolve the case based on the
Appellant’s Brief and the records of the case
forwarded by the RTC. The appeal is therefore
considered submitted for decision and the CA
properly acted on it.
FALLO: 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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 27 of 132
OPTION CONTRACTS
G.R. No. 124791. February 10, 1999. *
JOSE RAMON CARCELLER,
petitioner, vs.COURT OF APPEALS and
STATE INVESTMENT HOUSES, INC.,
respondents.
NATURE OF THE CASE:
PETITION for review on certiorari of a
decision and resolution of the Court of Appeals.
Before us is a petition for review of the
Decision1 dated September 21, 1995 of the
Court of Appeals2 in CA-G.R. CV No. 37520,
as well as its Resolution3 dated April 25, 1996,
denying both parties’ motion for partial
reconsideration or clarification. The assailed
decision affirmed with modification the
judgment4of the Regional Trial Court of Cebu
City, Branch 5, in Civil Case No. CEB 4700,
and disposed of the controversy as follows:
“However, We do not find it just that the
appellee, in exercising his option to buy, should
pay appellant SIHI only P1,800,000.00. In
fairness to appellant SIHI, the purchase price
must be based on the prevailing market price of
real property in Bulacao, Cebu City.”
(Emphasis supplied)
SYLLABUS:
Civil Law; Contracts; An option is a separate
agreement distinct from the contract which the
parties may enter into upon the consummation of
the option.—An option is a preparatory contract in
which one party grants to the other, for a fixed
period and under specified conditions, the power to
decide, whether or not to enter into a principal
contract. It binds the party who has given the
option, not to enter into the principal contract with
any other person during the period designated, and,
within that period, to enter into such contract with
the one to whom the option was granted, if the latter
should decide to use the option. It is a separate
agreement distinct from the contract which the
parties may enter into upon the consummation of
the option.

Same; Same; Statutory Construction; Analysis and
construction should not be limited to the words used
in the contract, as they may not accurately reflect
the parties’ true intent.—The contracting parties’
primary intent in entering into said lease contract
with option to purchase confirms, in our view, the
correctness of respondent court’s ruling. Analysis
and construction, however, should not be limited to
the words used in the contract, as they may not
accurately reflect the parties’ true intent. The
reasonableness of the result obtained, after said
analysis, ought likewise to be carefully considered.
Same; Same; Same; It is well-settled that in
construing a written agreement, the reason behind
and the circumstances surrounding its execution
are of paramount importance.—It is well-settled in
both law and jurisprudence, that contracts are the
law between the contracting parties and should be
fulfilled, if their terms are clear and leave no room
for doubt as to the intention of the contracting
parties. Further, it is well-settled that in construing a
written agreement, the reason behind and the
circumstances surrounding its execution are of
paramount importance. Sound construction requires
one to be placed mentally in the situation occupied
by the parties concerned at the time the writing was
executed. Thereby, the intention of the contracting
parties could be made to prevail, because their
agreement has the force of law between them.
Same; Same; Same; To ascertain the intent of the
parties in a contractual relationship, it is
imperative that the various stipulations provided for
in the contract be construed together, consistent
with the parties’ contemporaneous and subsequent
acts as regards the execution of the contract.—
Moreover, to ascertain the intent of the parties in a
contractual relationship, it is imperative that the
various stipulations provided for in the contract be
construed together, consistent with the parties’
contemporaneous and subsequent acts as regards the
execution of the contract. And once the intention of
the parties has been ascertained, that element is
deemed as an integral part of the contract as though
it has been originally expressed in unequivocal
terms.
Same; Same; Same; Court found the delay neither
“substantial” nor “fundamental” and did not
amount to a breach that would defeat the intention
of the parties when they executed the lease contract
with option to purchase.—The lease contract
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 28 of 132
provided that to exercise the option, petitioner had
to send a letter to SIHI, manifesting his intent to
exercise said option within the lease period ending
January 30, 1986. However, what petitioner did was
to request on January 15, 1986, for a six-month
extension of the lease contract, for the alleged
purpose of raising funds intended to purchase the
property subject of the option. It was only after the
request was denied on February 14, 1986, that
petitioner notified SIHI of his desire to exercise the
option formally. This was by letter dated February
18, 1986. In private respondent’s view, there was
already a delay of 18 days, fatal to petitioner’s
cause. But respondent court found the delay neither
“substantial” nor “fundamental” and did not amount
to a breach that would defeat the intention of the
parties when they executed the lease contract with
option to purchase.
QUISUMBING, J.:
FACTS:
The factual background of this case is quite
simple.
Private respondent State Investment Houses,
Inc. (SIHI) is the registered owner of two (2)
parcels of land with a total area of 9,774 square
meters, including all the improvements thereon,
located at Bulacao, Cebu City, covered by
Transfer Certificate of Titles Nos. T-89152 and
T-89153 of the Registry of Deeds of Cebu City.
On January 10, 1985, petitioner and SIHI
entered into a lease contract with option to
purchase  over said two parcels of land, at a
5
monthly rental of Ten Thousand (P10,000.00)
pesos for a period of eighteen (18) months,
beginning on August 1, 1984 until January 30,
1986. The pertinent portion of the lease contract
subject of the dispute reads in part:
“4. As part of the consideration of this agreement,
the LESSOR hereby grants unto the LESSEE the
exclusive right, option and privilege to purchase,
within the lease period, the leased premises thereon
for the aggregate amount of P1,800,000.00 payable
as follows:
a. Upon the signing of the Deed of Sale, the
LESSEE shall immediately pay P360,000.00.

b. The balance of P1,440,000.00 shall be paid in
equal installments of P41,425.87 over sixty (60)
consecutive months computed with interest at 24%
per annum on the diminishing balance; Provided,
that the LESSEE shall have the right to accelerate
payments at anytime in which event the stipulated
interest for the remaining installments shall no
longer be imposed.
. . . The option shall be exercised by a written notice
to the LESSOR at anytime within the option period
and the document of sale over the afore-described
properties has to be consummated within the month
immediately following the month when the
LESSEE exercised his option under this contract.”
On January 7, 1986, or approximately three (3)
weeks before the expiration of the lease
contract, SIHI notified petitioner of the
impending termination of the lease agreement,
and of the short period of time left within which
he could still validly exercise the option. It
likewise requested petitioner to advise them of
his decision on the option, on or before January
20, 1986. 7
In a letter dated January 15, 1986, which was
received by SIHI on January 29, 1986,
petitioner requested for a six-month extension
of the lease contract, alleging that he needs
ample time to raise sufficient funds in order to
exercise the option. To support his request,
petitioner averred that he had already made a
substantial investment on the property, and had
been punctual in paying his monthly rentals. 8
On February 14, 1986, SIHI notified petitioner
that his request was disapproved. Nevertheless,
it offered to lease the same property to
petitioner at the rate of Thirty Thousand
(P30,000.00) pesos a month, for a period of one
(1) year. It further informed the petitioner of its
decision to offer for sale said leased property to
the general public. 9
On February 18, 1986, petitioner notified SIHI
of his decision to exercise the option to
purchase the property and at the same time he
made arrangements for the payment of the
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 29 of 132
downpayment thereon in the amount of Three
Hundred Sixty Thousand (P360,000.00) pesos. 10
On February 20, 1986, SIHI sent another letter
to petitioner, reiterating its previous stand on
the latter’s offer, stressing that the period within
which the option should have been exercised
had already lapsed. SIHI asked petitioner to
vacate the property within ten (10) days from
notice, and to pay rental and penalty due. 11
Hence, on February 28, 1986, a complaint for
specific performance and damages was filed by
12
petitioner against SIHI before the Regional
6
Trial Court of Cebu City, to compel the latter to
honor its commitment and execute the
corresponding deed of sale.
After trial, the court a quo promulgated its
decision dated April 1, 1991, the dispositive
portion of which reads:
“In the light of the foregoing considerations, the
Court hereby renders judgment in Civil Case No.
CEB 4700, ordering the defendant to execute a deed
of sale in favor of the plaintiff, covering the parcels
of land together with all the improvements thereon,
covered by Transfer Certificates of Title Nos. 89152
and 89153 of the Registry of Deeds of Cebu City, in
accordance with the lease contract executed on
January 10, 1984 between the plaintiff and the
defendant, but the purchase price may be by “one
shot payment” of P1,800,000.00; and the defendant
to pay attorney’s fee of P20,000.00.
No damages awarded.” 13
Not satisfied with the judgment, SIHI elevated
the case to the Court of Appeals by way of a
petition for review.
On September 21, 1995, respondent court
rendered its decision, affirming the trial court’s
judgment, but modified the basis for assessing
the purchase price. While respondent court
affirmed appellee’s option to buy the property,
it added that, “the purchase price must be based
on the prevailing market price of real property
in Bulacao, Cebu City.” 14
Baffled by the modification made by
respondent court, both parties filed a motion for
reconsideration and/or clarification, with
petitioner, on one hand, praying that the
prevailing market price be the value of the
property in February 1986, the time when the
sale would have been consummated. SIHI, on
the other hand, prayed that the market price of
the property be based on the prevailing price
index at least 10 years later, that is, 1996.
Respondent court conducted further hearings to
clarify the matter, but no agreement was
reached by the parties. Thus, on April 25, 1996,
respondent court promulgated the assailed
resolution, which denied both parties’ motions,
and directed the trial court to conduct further
hearings to ascertain the prevailing market
value of real properties in Bulacao, Cebu City
and fix the value of the property subject of the
controversy. 14a
Hence, the instant petition for review.
The fundamental issue to be resolved is, should
petitioner be allowed to exercise the option to
purchase the leased property, despite the
alleged delay in giving the required notice to
private respondent?
An option is a preparatory contract in which
one party grants to the other, for a fixed period
and under specified conditions, the power to
decide, whether or not to enter into a principal
contract. It binds the party who has given the
option, not to enter into the principal contract
with any other person during the period
designated, and, within that period, to enter into
such contract with the one to whom the option
was granted, if the latter should decide to use
the option.  It is a separate agreement distinct
15
from the contract which the parties may enter
into upon the consummation of the option. 16
Considering the circumstances in this case, we
find no reason to disturb the findings of
respondent court, that petitioner’s letter to SIHI,
dated January 15, 1986, was fair notice to the
latter of the former’s intent to exercise the
option, despite the request for the extension of
the lease contract. As stated in said letter to
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 30 of 132
SIHI, petitioner was requesting for an extension
(of the contract) for six months “to allow us to
generate sufficient funds in order to exercise
our option to buy the subject property.”  The 17
analysis by the Court of Appeals of the
evidence on record and the process by which it
arrived at its findings on the basis thereof,
impel this Court’s assent to said findings. They
are consistent with the parties’ primary intent,
as hereafter discussed, when they executed the
lease contract. As respondent court ruled:
“We hold that the appellee [herein petitioner] acted
with honesty and good faith. Verily, We are in
accord with the trial court that he should be allowed
to exercise his option to purchase the lease property.
In fact, SIHI will not be prejudiced. A contrary
ruling, however, will definitely cause damage to the
appellee, it appearing that he has introduced
considerable improvements on the property and has
borrowed huge loan from the Technology Resources
Center.” 17a
The contracting parties’ primary intent in
entering into said lease contract with option to
purchase confirms, in our view, the correctness
of respondent court’s ruling. Analysis and
construction, however, should not be limited to
the words used in the contract, as they may not
accurately reflect the parties’ true intent. The
reasonableness of the result obtained, after said
analysis, ought likewise to be carefully
considered.
It is well-settled in both law and jurisprudence,
that contracts are the law between the
contracting parties and should be fulfilled, if
their terms are clear and leave no room for
doubt as to the intention of the contracting
parties. Further, it is well-settled that in
18
construing a written agreement, the reason
behind and the circumstances surrounding its
execution are of paramount importance. Sound
construction requires one to be placed mentally
in the situation occupied by the parties
concerned at the time the writing was executed.
Thereby, the intention of the contracting parties
could be made to prevail, because their
agreement has the force of law between them. 19
Moreover, to ascertain the intent of the parties
in a contractual relationship, it is imperative
that the various stipulations provided for in the
contract be construed together, consistent with
the parties’ contemporaneous and subsequent
acts as regards the execution of the
contract.  And once the intention of the parties
20
has been ascertained, that element is deemed as
an integral part of the contract as though it has
been originally expressed in unequivocal terms.
As sufficiently established during the trial,
SIHI, prior to its negotiation with petitioner,
was already beset with financial problems. SIHI
was experiencing difficulty in meeting the
claims of its creditors. Thus, in order to
reprogram the company’s financial investment
plan and facilitate its rehabilitation and
viability, SIHI, being a quasi-banking financial
institution, had been placed under the
supervision and control of the Central Bank
(CB). It was in dire need of liquidating its
assets, so to speak, in order to stay afloat
financially.
Thus, SIHI was compelled to dispose some of
its assets, among which is the subject leased
property, to generate sufficient funds to
augment its badly-depleted financial resources.
This then brought about the execution of the
lease contract with option to purchase between
SIHI and the petitioner.
The lease contract provided that to exercise the
option, petitioner had to send a letter to SIHI,
manifesting his intent to exercise said option
within the lease period ending January 30,
1986. However, what petitioner did was to
request on January 15, 1986, for a six-month
extension of the lease contract, for the alleged
purpose of raising funds intended to purchase
the property subject of the option. It was only
after the request was denied on February 14,
1986, that petitioner notified SIHI of his desire
to exercise the option formally. This was by
letter dated February 18, 1986. In private
respondent’s view, there was already a delay of
18 days, fatal to petitioner’s cause. But
respondent court found the delay neither
“substantial” nor “fundamental” and did not
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 31 of 132
amount to a breach that would defeat the
intention of the parties when they executed the
lease contract with option to purchase.20a
In allowing petitioner to exercise the option,
however, both lower courts are in accord in
their decision, rationalizing that a contrary
ruling would definitely cause damage to the
petitioner, as he had the whole place renovated
to make the same suitable and conducive for the
business he established there. Moreover,
judging from the subsequent acts of the parties,
it is undeniable that SIHI really intended to
dispose of said leased property, which
petitioner indubitably intended to buy.
SIHI’s agreement to enter first into a lease
contract with option to purchase with herein
petitioner, is a clear proof of its intent to
promptly dispose said property although the full
financial returns may materialize only in a
year’s time. Furthermore, its letter dated
January 7, 1986, reminding the petitioner of the
short period of time left within which to
consummate their agreement, clearly showed its
desire to sell that property. Also, SIHI’s letter
dated February 14, 1986 supported the
conclusion that it was bent on disposing said
property. For this letter made mention of the
fact that, “said property is now for sale to the
general public.”
Petitioner’s determination to purchase said
property is equally indubitable. He introduced
permanent improvements on the leased
property, demonstrating his intent to acquire
dominion in a year’s time. To increase his
chances of acquiring the property, he secured
an P8 Million loan from the Technology
Resources Center (TRC), thereby augmenting
his capital. He averred that he applied for a loan
since he planned to pay the purchase price in
one single payment, instead of paying in
installment, which would entail the payment of
additional interest at the rate of 24% per annum,
compared to 7 3/4% per annum interest for the
TRC loan. His letter earlier requesting
extension was premised, in fact, on his need for
time to secure the needed financing through a
TRC loan.
In contractual relations, the law allows the
parties reasonable leeway on the terms of their
agreement, which is the law between
them.  Note that by contract SIHI had given
21
petitioner 4 periods: (a) the option to purchase
the property for P1,800,000.00 within the lease
period, that is, until January 30, 1986; (b) the
option to be exercised within the option period
by written notice at anytime; (c) the “document
of sale . . . to be consummated within the month
immediately following the month” when
petitioner exercises the option; and (d) the
payment in equal installments of the purchase
price over a period of 60 months. In our view,
petitioner’s letter of January 15, 1986 and his
formal exercise of the option on February 18,
1986 were within a reasonable time-frame
consistent with periods given and the known
intent of the parties to the agreement dated
January 10, 1985. A contrary view would be
harsh and inequituous indeed.
In Tuason, Jr., etc. vs. De Asis,  this Court
22
opined that “in a contract of lease, if the lessor
makes an offer to the lessee to purchase the
property on or before the termination of the
lease, and the lessee fails to accept or make the
purchase on time, the lessee losses the right to
buy the property later on the terms and
conditions set in the offer.” Thus, on one hand,
petitioner herein could not insist on buying the
said property based on the price agreed upon in
the lease agreement, even if his option to
purchase it is recognized. On the other hand,
SIHI could not take advantage of the situation
to increase the selling price of said property by
nearly 90% of the original price. Such leap in
the price quoted would show an opportunistic
intent to exploit the situation as SIHI knew for
a fact that petitioner badly needed the property
for his business and that he could afford to pay
such higher amount after having secured an P8
Million loan from the TRC. If the courts were
to allow SIHI to take advantage of the situation,
the result would have been an injustice to
petitioner, because SIHI would be unjustly
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 32 of 132
enriched at his expense. Courts of law, being
also courts of equity, may not countenance such
grossly unfair results without doing violence to
its solemn obligation to administer fair and
equal justice for all.
FALLO: WHEREFORE, the appealed decision
of respondent court, insofar as it affirms the
judgment of the trial court in granting petitioner
the opportunity to exercise the option to
purchase the subject property, is hereby
AFFIRMED. However, the purchase price
should be based on the fair market value of real
property in Bulacao, Cebu City, as of February
1986, when the contract would have been
consummated. Further, petitioner is hereby
ordered to pay private respondent SIHI legal
interest on the said purchase price beginning
February 1986 up to the time it is actually paid,
as well as the taxes due on said property,
considering that petitioner have enjoyed the
beneficial use of said property. The case is
hereby remanded to Regional Trial Court of
Cebu, Branch 5, for further proceedings to
determine promptly the fair market value of
said real property as of February 1986, in
Bulacao, Cebu City. Costs against private
respondent. SO ORDERED.
Note.—In order to judge the intention of the
contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
(Matanguihan vs. Court of Appeals, 275 SCRA
380[1997])
G.R. No. 134971. March 25, 2004. *
HERMINIO TAYAG, petitioner, vs. AMANCIA
LACSON, ROSENDO LACSON, ANTONIO
LACSON, JUAN LACSON, TEODOSIA
LACSON-ESPINOSA and THE COURT OF
APPEALS, respondents.
NATURE OF THE CASE:
PETITION for review on certiorari of a decision of
the Court of Appeals.
Before us is a petition for review on certiorari of the
Decision1 and the Resolution2of respondent Court
of Appeals in CA-G.R. SP No. 44883.

SYLLABUS:
Remedial Law; Injunction; 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.—A
preliminary injunction is an extraordinary event
calculated to preserve or maintain the status quo of
things ante litemand 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.
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.
Same; Same; Requisites for the issuance of a writ
of preliminary injunction; The possibility of
irreparable damage without proof of adequate
existing rights is not a ground for injunction.—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. 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.
Civil Law; Contracts; Options; Words and
Phrases; 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; An option contract
is a separate and distinct contract from which the
parties may enter into upon the conjunction of the
option.—We do not agree with the contention of the
petitioner that the deeds of assignment executed by
the defendants-tenants are perfected option
contracts. An option is a contract by which the
owner of the property agrees with another person
that he shall have the right to buy his property at a
fixed price within a certain time. It is a condition
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 33 of 132
offered or contract by which the owner stipulates
with another that the latter shall have the right to
buy the property at a fixed price within a certain
time, or under, or in compliance with certain terms
and conditions, or which gives to the owner of the
property the right to sell or demand a sale. It
imposes no binding obligation on the person
holding the option, aside from the consideration for
the offer. Until accepted, it is not, properly
speaking, treated as a contract. 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. An option contract is a
separate and distinct contract from which the parties
may enter into upon the conjunction of the option.
Same; Same; Damages; Requisites before Art.
1314 of the Civil Code may apply.—In So Ping Bun
v. Court of Appeals, 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.
The facts are stated in the opinion of the Court.
CALLEJO, SR., J.:
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de
Lacson, and her children Amancia, Antonio,
3
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, were administered by Renato
4
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, individually executed in favor of the
5
petitioner separate Deeds of Assignment  in 6
which the assignees assigned to the petitioner
their respective rights as tenants/tillers of the
landholdings possessed and tilled by them for
and in consideration of P50.00 per square
meter. The said amount was made payable
“when the legal impediments to the sale of the
property to the petitioner no longer existed.”
The petitioner was also granted the exclusive
right to buy the property if and when the
respondents, with the concurrence of the
defendants-tenants, agreed to sell the property.
In the interim, the petitioner gave varied sums
of money to the tenants as partial payments, and
the latter issued receipts for the said amounts.
On July 24, 1996, the petitioner called a
meeting of the defendants-tenants to work out
the implementation of the terms of their
separate agreements.  However, on August 8,
7 are original farmers or direct tillers of landholdings
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.  Explaining their reasons for their
8
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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 34 of 132
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. The case was docketed as Civil Case
10
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
over parcels of lands covered by TransferCertificate
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 Quiambao, 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 CHEC 1st PAYMENT 2nd CHEC
PAYMENT K NO. PAYMENT K NO.
       Ramos
1. Julio P20,000 P10,621.54 231281
16. Felino 10,000 -------- --------
Tiamson G.
2. Renato P10,000 96,000   Tolentino
Gozun 17. Rica 5,000 -------- -------- --------
     [son of Felix Gozun (deceased)] Gozun
3. Rosita P5,000 14,374.24 231274
18. Perla 10,000 -------- -------- --------
Hernande Gozun
z 19. 10,000 -------- -------- --------
4. P10,000 14,465.90 231285
Benigno
Bienvenid Tolentino
o Tongol 20. 10,000 -------- -------- --------
     [son of Abundio Tongol (deceased)] Rodolfo
5. Alfonso P30,000 26,648.40 231271
Quiambao
Flores
21. 10,000 -------- -------- --------
6. Norma P10,000 41,501.10 231279
Roman
Quiambao
Laxamana
7. Rosita P10,000 22,126.08 231284
22. Eddie 10,000 -------- -------- --------
Tolentino
San Luis
8. Jose P10,000 14,861.31 231291
Sosa 23. 10,000 -------- -------- --------
9. P10,000 24,237.62 Ricardo
231283
Francisco Hernande
Tolentino, z
Sr. 24. 10,000 -------- -------- --------
10. P10,000 -------- Nicencian
--------
Emiliano a Miranda
Laxamana 25. Jose 10,000 -------- -------- --------
11. Ruben P10,000 P33,587.31 Gozun
--------
Torres 26. 5,000 -------- -------- --------
     [son of Mariano Torres (deceased)] Alfredo
12. P10,000 12,944.77 Sosa
231269
Meliton 27. Jose 10,000 -------- -------- --------
Allanigue Tiamson
13. P5,000 22.269.02 231275
28. 5,000 -------- -------- --------
Dominga Augusto
Laxamana Tolentino
14. 10,000 -------- --------
29. Sixto 10,000 -------- -------- --------
Felicencia Hernande
de Leon z
15. 5,000 18,869.60 231280
30. Alex 10,000 -------- -------- --------
Emiliano Quiambao
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 35 of 132
                 
1st PAYMENT 2nd CHECIn support of his plea for injunctive relief, the
PAYMENT petitioner, as plaintiff, also alleged the
K NO.
31. Isidro 10,000 -------- -------- following in his complaint:
--------
Tolentino 11.That to maintain the status quo, the defendants
32. ---------- 11,378.7 231270 --------
TIAMSON, et al., should be restrained from
Ceferino 0 rescinding their contracts with the plaintiff, and the
de Leon defendants LACSONS should also be restrained
from accepting any offer of sale or alienation with
33. 10,000 -------- -------- --------
the defendants TIAMSON, et al., in whatever form,
Alberto the latter’s rights and interests in the properties
Hernande mentioned in paragraph 4 hereof; further, the
z LACSONS should be restrained from
34. 10,000 -------- -------- encumbering/alienating
-------- the subject properties
covered by TCT No. 35922-R, 35923-R and TCT
Orlando No. 35925-R, Registry of Deeds of San Fernando,
Florez Pampanga;
35. -------- -------- -------- --------
Aurelio 12.That the defendants TIAMSON, et al., threaten
Flores to rescind their contracts with the plaintiff and are
also bent on selling/alienating their rights and
10,000 interests over the subject properties to their co-
defendants (LACSONS) or any other persons to the
6.That on July 24, 1996, the plaintiff wrote the damage and prejudice of the plaintiff who already
defendants TIAM-SON, et al., inviting them for a invested much money, efforts and time in the said
meeting regarding the negotiations/implementations transactions;
of the terms of their Deeds of Assignment;
13.That the plaintiff is entitled to the reliefs being
7.That on August 8, 1996, the defendants demanded in the complaint;
TIAMSON, et al., through Joven Mariano, replied
that they are no longer willing to pursue with the 14.That to prevent irreparable damages and
negotiations, and instead they gave notice to the prejudice to the plaintiff, as the latter has no speedy
plaintiff that they will sell all their rights and and adequate remedy under the ordinary course of
interests to the registered owners (defendants law, it is essential that a Writ of Preliminary
LACSONS). Injunction be issued enjoining and restraining the
A copy of the letter is hereto attached as Annex defendants TIAMSON, et al., from rescinding their
“A” etc.; contracts with the plaintiff and from
selling/alienating their properties to the LACSONS
8.That the defendants TIAMSON, et al., have no or other persons;
right to deal with the defendants LACSON or with
any third persons while their contracts with the 15.That the plaintiff is willing and able to put up a
plaintiff are subsisting; defendants LACSONS are reasonable bond to answer for the damages which
inducing or have induced the defendants the defendants would suffer should the injunction
TIAMSON, et al., to violate their contracts with the prayed for and granted be found without basis. 12

plaintiff; The petitioner prayed, that after the

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
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

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 36 of 132

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.
3.Fixing the period within which plaintiff shall pay
the balance of the purchase price to the defendants
TIAMSON, 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 37 of 132
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).  The respondents interposed
14
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,  the receipts  issued by the
16 17
defendants-tenants for the amounts they
received from him; and the letter  the petitioner
18
received from the defendants-tenants. The
petitioner then rested his case.
The respondents, thereafter, filed a petitioner, the latter was entitled to injunctive
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 38 of 132
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
Order denying the motion of the respondents
19
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
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
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 39 of 132
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:
I 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
V 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 40 of 132
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.
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 41 of 132
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. While 31
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.  Indeed, in Olalia v.
32
Hizon,  we held:
33
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.  Thus, in
36
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, 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.  The right of ownership of the
38
respondents is not, of course, absolute. It is
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 42 of 132
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 events: (a) the respondents agree to sell their
: property to the petitioner; (b) the legal
impediments to the sale of the landholding to
We are one of the Court of Appeals in its ruling the petitioner no longer exist; and, (c) the
that: petitioner decides to buy the property. When he
testified, the petitioner admitted that the legal
We cannot see our way clear on how or why impediments referred to in the deeds were (a)
injunction should lie against petitioners. As the respondents’ refusal to sell their property;
owners of the lands being tilled by and, (b) the lack of approval of the Department
TIAMSON, et al, petitioners, undeer the law, of Agrarian Reform:
have the right to enjoy and dispose of the same
Thus, they have the right to possess the lands, Q There is no specific
as well as the right to encumber or alienate : agreement prior to the
them. This principle of law notwithstanding, execution of those
private respondent in the lower court sought to documents as when they
restrain the petitioners from encumbering will pay?
and/or alienating the properties covered by TCT A We agreed to that, that I
No. 35922-R, 35923-R and TCT No. 35925-R : will pay them when there
of the Registry of Deeds of San Fernando,
are no legal impediment,
Pampanga. This cannot be allowed to prosper
since it would constitute a limitation or sir.
restriction, not otherwise established by law on Q Many of the documents
their right of ownership, more so considering : are unlattered (sic) and
that petitioners were not even privy to the you want to convey to
alleged transaction between private respondent this Honorable Court that
and TIAMSON, et al. 40
prior to the execution of
these documents you have
Second. A reading the averments of the those tentative agreement
complaint will show that the petitioner clearly for instance that the
has no cause of action against the respondents amount or the cost of the
for the principal relief prayed for therein, for price is to be paid when
the trial court to fix a period within which to
there are no legal
pay to each of the defendants-tenants the
balance of the P50.00 per square meter, the impediment, you are
consideration under the Deeds of Assignment using the word “legal
executed by the defendants-tenants. The impediment,” do you
respondents are not parties or privies to the know the meaning of
deeds of assignment. The matter of the period that?
for the petitioner to pay the balance of the said A When there are (sic) no
amount to each of the defendants-tenants is an : more legal impediment
issue between them, the parties to the deed. exist, sir.
Q Did you make how (sic)
Third. On the face of the complaint, the action : to the effect that the
of the petitioner against the respondents and the meaning of that phrase
defendants-tenants has no legal basis. Under the
that you used the
Deeds of Assignment, the obligation of the
petitioner to pay to each of the defendants- unlettered defendants?
tenants the balance of the purchase price was A We have agreed to that,
conditioned on the occurrence of the following : sir.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 43 of 132
ATTY. OCAMPO: tilled and possessed by the ASSIGNOR, less
  May I ask, Your Honor, whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable
that the witness please deductions relative to the sale of the subject
answer my question not properties.
to answer in the way he
wanted it. 3.That this exclusive and absolute right given to the
COURT: ASSIGNEE shall be exercised only when no legal
  Just answer the question, impediments exist to the lot to effect the smooth
transfer of lawful ownership of the lot/property in
Mr. Tayag. the name of the ASSIGNEE;
WITNESS:
  Yes, Your Honor. 4.That the ASSIGNOR will remain in peaceful
ATTY. OCAMPO: possession over the said property and shall enjoy
Q Did you explain to them? 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

A Yes, sir.
: There is no showing in the petitioner’s
Q What did you tell them? complaint that the respondents had agreed to
: sell their property, and that the legal
A I explain[ed] to them, sir, impediments to the agreement no longer
: that the legal impediment existed. The petitioner and the defendants-
then especially if the tenants had yet to submit the Deeds of
Lacsons will not agree to Assignment to the Department of Agrarian
sell their shares to me or Reform which, in turn, had to act on and
to us it would be hard to approve or disapprove the same. In fact, as
alleged by the petitioner in his complaint, he
(sic) me to pay them in
was yet to meet with the defendants-tenants to
full. And those covered discuss the implementation of the deeds of
by DAR. I explain[ed] to assignment. Unless and until the Department of
them and it was clearly Agrarian Reform approved the said deeds, if at
stated in the title that all the petitioner had no right to enforce the
there is [a] prohibited same in a court of law by asking the trial court
period of time before you to fix a period within which to pay the balance
can sell the property. I of the purchase price and praying for injunctive
explained every detail to relief.
them. 41

We do not agree with the contention of the

It is only upon the occurrence of the foregoing petitioner that the deeds of assignment executed
conditions that the petitioner would be obliged by the defendants-tenants are perfected option
to pay to the defendants-tenants the balance of contracts.  An option is a contract by which the
43

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 exclusive 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 44 of 132
owner of the property agrees with another
person that he shall have the right to buy his
property at a fixed price within a certain time. It
is a condition offered or contract by which the
owner stipulates with another that the latter
shall have the right to buy the property at a
fixed price within a certain time, or under, or in
compliance with certain terms and conditions,
or which gives to the owner of the property the
right to sell or demand a sale. It imposes no
binding obligation on the person holding the
option, aside from the consideration for the
offer. Until accepted, it is not, properly
speaking, treated as a contract.  The second
44
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.  An option contract is a separate and
45
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,  we held
47
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 45 of 132
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 said 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.  The defendants-
49
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.
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 46 of 132
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.
FALLO: 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.
Note.—The sole purpose of injunction is not to
correct a wrong of the past, in the sense of
redress for injury already sustained, but to
prevent further injury. (Paramount Insurance
Corporation vs. Court of Appeals, 310 SCRA
377[1999])
SEPARATE CONSIDERATION
No. L-15752. December 29, 1962.
RUPERTO SORIANO, ET AL., plaintiffs-
appellees, vs.BASILIO BAUTISTA, ET AL.,
defendants. BASILIO BAUTISTA and SOFIA
DE ROSAS, defendants-appellants.
No. L-17457. December 29, 1962.
BASILIO BAUTISTA, ET AL., plaintiffs,
BASILIO BAUTISTA and SOFIA DE ROSAS,
plaintiffs-appellants, vs. RUPERTO SORIANO,
ET AL., defendants-appellees.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 47 of 132
NATURE OF THE CASE:
APPEAL from a. judgment of the Court of First
Instance of Rizal.
The judgment appealed from, rendered on
March 10, 1959 by the Court of First Instance
of Rizal, after a joint trial of both cases
mentioned in the caption, orders “the spouses
Basilio Bautista and Sofia de Rosas to execute a
deed of sale covering the property in question
in favor of Ruperto Soriano and Olimpia de
Jesus upon payment by the latter of P1,650.00
which is the balance of the price agreed upon,
that is P3,900.00, and the amount previously
received by way of loan by the said spouses
from the said Ruperto Soriano and Olimpia de
Jesus, to pay the sum of P500.00 by way of
attorney’s fees, and to pay the costs.
SYLLABUS:
Mortgages; Stipulation which renders mortgagor’s
right to redeem defeasible at mortgagee’s election;
Stipulation merely an option to buy sanctioned by
law.—The stipulation in a deed of mortgage which
renders the mortgagor’s right to redeem defeasible
at the election of the mortgagee is not illegal or
immoral, being merely an option to buy sanctioned
by Article 1479 of the Civil Code, when supported
by a consideration distinct from the purchase price.
MAKALINTAL, J.:
FACTS:
Appellants Basilio Bautista and Sofia de Rosas
have adopted in their appeal brief the following
factual findings of the trial court:
‘‘Spouses Basilio Bautista and Sofia de Rosas are
the absolute and registered owners of a parcel of
land, situated in the municipality of Teresa,
province of Rizal, covered by Original Certificate of
Title No. 3905, of the Register of Deeds of Rizal
and particularly described as follows:
‘A parcel of land (Lot No. 4980) of the Cadastral Survey
of Teresa; situated in the municipality of Teresa; bounded
on the NE. by Lot No. 5004; on the SE. by Lots Nos.
5003 and 4958; on the SW. by Lot 4949; and the W. and said land to Ruperto Soriano and Olimpia de Jesus
NW. by a creek x x x. Containing the area of THIRTY who have been and are still in possession of the said
THOUSAND TWO HUNDRED TWENTY TWO property and have since that date been and are
(30,222) square meters, more or less. Date of Survey, cultivating the said land and have enjoyed and are
December 1913-June, 1914. (Full technical description
still enjoying the produce thereof to the exclusion of
appears on Original Certificate of Title No. 3905.)
all other persons. Sometimes after May 30, 1956,
the spouses Basilio Bautista and Sofia de Rosas
“That, on May 30, 1956, the said spouses for and in
received from Ruperto Soriano and Olimpia de
consideration of the sum of P1,800, signed a
Jesus, the sum of P450.00 pursuant to the conditions
document entitled ‘Kasulatan Ng Sanglaan’ in favor
agreed upon in the aforementioned document for
of Ruperto Soriano and Olimpia de Jesus, under the
which no receipt was issued and which was returned
following terms and conditions:
by the spouses sometime on May 31, 1958. On May
13, 1958, a certain Atty. Angel O. Ver wrote a letter
“1. Na, ang sanglaang ito ay magpapatuloy lamang
to the spouses Bautista whose letter has been
hanggang dalawang (2) taon pasimula sa araw na
marked Annex ‘B’ of the stipulation of facts
lagdaan ang kasunduang ito, at magpapalampas ng
informing the said spouses that his clients Ruperto
dalawang pa-nahong ani o ani agricola.
Soriano and Olimpia de Jesus have decided to buy
the parcel of land in question pursuant to paragraph
“2. Na, ang aanihin ng bukid na isinangla ay
5 of the document in question, Annex ‘A’.
mapupunta sa pinagsanglaan bilang pakinabang ng
“The spouses inspite of the receipt of the letter
nabanggit na halagang inutang.
refused to comply with the demand contained
therein. On May 31, 1958, Ruperto Soriano and
“3. Na, ang buwis sa pamahalaan ng lupang ito ay
Olimpia de Jesus filed before this Court Civil Case
ang magbabayad ay ang Nagsangla o mayari.
No. 5023, praying that plaintiffs be allowed to
consign or deposit with the Clerk of Court the sum
“4. Na, ang lupang nasanglang ito ay hindi na
of P1,650.00 as the balance of the purchase price of
maaaring isangla pang muli sa ibang tao ng walang
the parcel of land in question and that after due
pahintulot ang Unang Pinagsanglaan.
hearing, judgment be rendered ordering the
defendants to execute an absolute deed of sale of the
“5. Na, pinagkasunduan din naman na sakaling
said property in their favor, plus damages.
magkaroon ng kakayahan ang Pinagsanglaan ay
maaaring bilhin ng patuluyan ng lupang nasanglang
“On June 9, 1958, spouses Basilio Bautista and
ito kahit anong araw sa loob ng taning na dalawang
Sofia de Rosas, filed a complaint against Ruperto
taon ng sanglaan sa halagang Tatlong Libo at Siam
Soriano and Olimpia de Jesus marked as Annexed
na Raan Piso (P3,900.00), salaping Pilipino na
‘B’ of the Stipulation of Facts, which case after
pinagkaisahan.
hearing was dismissed for lack of jurisdiction. On
August 5, 1959, the spouses Bautista and De Rosas
“6. Na, sakaling ang pagkakataon na ipinagkaloob
again filed a case in the Court of First Instance
ng Nagsangla sa sinundang talata ay hindi
against Soriano and De Jesus asking this Court to
maisagawa ng Pinagsanglaan sa Kawalan ng
order the defendants to accept the payment of the
maibayad at gayon din naman ang Nagsangla na
principal obligation and release the mortgage and to
hindi maibalik ang halagang inutang sa taning na
make an accounting of the harvest for the two
panahon, ang sanglaan ito ay lulutasin alinsunod sa
harvest seasons (1956-1957). The two cases, were
itinatagubilin ng batas sa bagay-bagay ng sanglaan,
by agreement of the parties assigned to one branch
na ito ay ang tinatawag na (FORECLOSURE OF
so that they can be tried jointly.”
MORTGAGES, JUDICIAL OR EXTRA
JUDICIAL). Maaring makapili ng hakbang ang
Pinagsanglaan, alinsunod sa batas o kaya naman ay The principal issue in this case is whether,
pagusapan ng dalawang parte ang mabuting paraan having seasonably advised appellants that they
ng paglutas ng bagay na ito.” had decided to buy the land in question
pursuant to paragraph 5 of the instrument of
‘That simultaneously with the signing of the mortgage, appellees are entitled to specific
aforementioned deed, the spouses Basilio Bautista performance consisting of the execution by
and Sofia de Rosas transferred the possession of the appellants of the corresponding deed of sale. As
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 48 of 132
translated, paragraph 5 states: “That it has
likewise been agreed that if the financial
condition of the mortgagees will permit, they
may purchase said land absolutely on any date
within the two-year term of this mortgage at the
agreed price of P3,900.00.”
Appellants contend that, being mortgagors, they
can not be deprived of the right to redeem the
mortgaged property, because such right is
inherent in and inseparable from this kind of
contract. The premise of the contention is not
entirely accurate. While the transaction is
undoubtedly a mortgage and contains the
customary stipulation concerning redemption, it
carries the added special provision aforequoted,
which renders the mortgagors’ right to redeem
defeasible at the election of the mortgagees.
There is nothing illegal or immoral in this. It is
simply an option to buy, sanctioned by Article
1479 of the Civil Code, which states: “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 this case the mortgagor’s promise to sell is
supported by the same consideration as that of
the mortgage itself, which is distinct from that
which would support the sale, an additional
amount having been agreed upon to make up
the entire price of P3,900.00, should the option
be exercised. The mortgagors’ promise was in
the nature of a continuing offer, non-
withdrawable during a period of two years,
which upon acceptance by the mortgagees gave
rise to a perfected contract of purchase and sale.
Appellants cite the case of Iñigo vs. Court of
Appeals. L-5572, O.G. No. 11, 5281, where we
held that a stipulation in a contract of mortgage
to sell the property to the mortgagee does not
bind the same but creates only a personal
obligation on the part of the mortgagor. The ci
tation, instead of sustaining appellant’s
position, confirms that of appellees, who are not
here enforcing any real right to the disputed
land but are rather seeking to obtain specific
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 49 of 132
performance of a personal obligation, namely,
the execution of a deed of sale for the price
agreed upon, the corresponding amount to
cover which was duly deposited in court upon
the filing of the complaint.
Reference is made in appellants’ brief to the
fact that they tendered the sum of P1,800.00 to
redeem the mortgage before they filed their
complaint in civil case No. 99 in the Justice of
the Peace Court of Morong, Rizal. That tender
was ineffective for the purpose intended. In the
first place it must have been made after the
option to purchase had been exercised by
appellees (Civil Case No. 99 was filed on June
9, 1958, only to be dismissed for lack of
jurisdiction); and secondly, appellants’ offer to
redeem could be defeated by appellees’
preemptive right to purchase within the period
of two years from May 30, 1956. As already
noted, such right was availed of and appellants
were accordingly notified by letter dated May
13, 1958, which was received by them on the
following May 22. Offer and acceptance
converged and gave rise to a perfected and
binding contract of purchase and sale.
FALLO: The judgment appealed from is
affirmed, with costs.
     
Note.—In the broad sense of the term, property
includes, among other things, “an option”
(Limjoco v. Fragante, L-770, April 27, 1948).
An option as a unilateral promise to sell must
be supported by consideration distinct from the
price (Navarro v. Sugar Producers Marketing
Association, Inc., L-12888, April 29, 1961, 1
SCRA 1180).
NO SEPARATE CONSIDERATION
G.R. No. 168325. December 13, 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.
NATURE OF THE CASE:
PETITION for review on certiorari of a
decision of the Court of Appeals.
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.
SYLLABUS:
Civil Law; Option Contract; Right of First Refusal;
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.—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.
Same; Same; Same; If the option is without any
consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at
any time before acceptance; if it is founded upon a
consideration, the offeror cannot withdraw his offer
before the lapse of the period agreed upon.—It is
clear from the provision of Article 1324 0that 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,
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 50 of 132
the offeror cannot withdraw his offer before the
lapse of the period agreed upon.
Same; Same; Same; 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.
—In this case, it is undisputed that Roberto did not
accept the terms stated in the letter of Lourdes as he
negotiated for a much lower price. Roberto’s act of
negotiating for a much lower price was a counter-
offer and is therefore not an acceptance of the offer
of Lourdes. Article 1319 of the Civil Code provides:
“Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute.
A qualified acceptanceconstitutes a counter-
offer.” (Emphasis supplied.)
DEL CASTILLO, J.:
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 letter6 dated January 2,
1995 to Roberto where she offered to sell to the
latter subject parcel of land. She pegged the
price at P37,541,000.00 and gave him two years
from January 2, 1995 to decide on the said
offer.
On June 19, 1997, or more than four months
after the expiration of the Contract of Lease,
Lourdes sold subject parcel of land to her only
child, Catalina Suarez-De Leon, her son-in-law
Wilfredo De Leon, and her two grandsons,
Miguel Luis S. De Leon and Rommel S. De
Leon (the De Leons), for a total consideration
of only P2,750,000.00 as evidenced by a Deed
of Absolute 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 November 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
Order13declaring 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 51 of 132
did not ripen into a contract to sell because the
price offered by the former was not acceptable
to the latter. The offer made by Lourdes is no
longer binding and effective at the time she
decided to sell the subject lot to the De Leons
because the same was not accepted by Roberto.
Thus, in a Decision dated November 18, 2002,
the trial court dismissed the complaint. Its
dispositive portion reads:
“WHEREFORE, premises considered, judgment is
hereby rendered dismissing the above-entitled
Complaint for lack of merit, and ordering the
Plaintiff to pay the Defendants, the following:
1. the amount of P30,000.00 as moral damages;
2. the amount of P30,000.00 as exemplary
damages;
3. the amount of P30,000.00 as attorney’s fees;
and
4. cost of the litigation.
SO ORDERED.” 16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision
dismissing Roberto’s appeal and affirming the
Decision of the RTC.
Hence, this Petition for Review
on Certiorari filed by Roberto advancing the
following arguments:
I.THE TRIAL COURT AND THE COURT OF
APPEALS HAD DECIDED THAT THE “RIGHT
OF FIRST REFUSAL” EXISTS ONLY WITHIN
THE PARAMETERS OF AN “OPTION TO BUY,”
AND DID NOT EXIST WHEN THE PROPERTY
WAS SOLD LATER TO A THIRD PERSON,
UNDER FAVORABLE TERMS AND
CONDITIONS WHICH THE FORMER BUYER
CAN MEET.
II. WHAT IS THE STATUS OR SANCTIONS OF
AN APPELLEE IN THE COURT OF APPEALS
WHO HAS NOT FILED OR FAILED TO FILE
AN APPELLEE’S BRIEF? 17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right
to buy subject property under the principle of
“right of first refusal” by not giving him
“notice” and the opportunity to buy the property
under the same terms and conditions or
specifically based on the much lower price paid
by the De Leons.
Roberto further contends that he is enforcing
his “right of first refusal” based on Equatorial
Realty Development, Inc. v. Mayfair Theater,
Inc.18 which is the leading case on the “right of
first refusal.”
Respondents’ Arguments
On the other hand, respondents posit that this
case is not covered by the principle of “right of
first refusal” but an unaccepted unilateral
promise to sell or, at best, a contract of option
which was not perfected. The letter of Lourdes
to Roberto clearly embodies an option contract
as it grants the latter only two years to exercise
the option to buy the subject property at a price
certain of P37,541,000.00. As an option
contract, the said letter would have been
binding upon Lourdes without need of any
consideration, had Roberto accepted the offer.
But in this case there was no acceptance made
neither was there a distinct consideration for the
option contract.
Our Ruling
The petition is without merit.
This case involves an option contract
and not a contract of a right of first
refusal
In Beaumont v. Prieto,19the 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.)’
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 52 of 132
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:                                                    Art. 1479. A promise to buy and sell a
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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 53 of 132
I am getting very old (79 going 80 yrs. old) and
wish to live in the U.S.A. with my only family. I
need money to buy a house and lot and a farm with
a little cash to start.
I am offering you to buy my 1211 square
meter at P37,541,000.00 you can pay me in dollars
in the name of my daughter. I never offered it to
anyone. Please shoulder the expenses for the
transfer. I wish the Lord God will help you buy my
lot easily and you will be very lucky forever in this
place. You have all the time to decide when you
can, but not for 2 years or more.
I wish you long life, happiness, health, wealth and
great fortune always!
I hope the Lord God will help you be the recipient
of multi-billion projects aid from other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an
option contract as it grants Roberto a fixed
period of only two years to buy the subject
property at a price certain of P37,541,000.00. It
being an option contract, the rules applicable
are found in Articles 1324 and 1479 of the Civil
Code which provide:
“Art. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as
something paid or promised.
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 54 of 132
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.
x x x x
Even if the promise was accepted, private
respondent was not bound thereby in the absence
of a distinct consideration.” (Emphasis ours.)
In this case, it is undisputed that Roberto did
not accept the terms stated in the letter of
Lourdes as he negotiated for a much lower
price. Roberto’s act of negotiating for a much
lower price was a counter-offer and is therefore
not an acceptance of the offer of Lourdes.
Article 1319 of the Civil Code provides:
“Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute.
A qualified acceptanceconstitutes a counter-
offer.” (Emphasis supplied.)
The counter-offer of Roberto for a much lower
price was not accepted by Lourdes. There is
therefore no contract that was perfected
between them with regard to the sale of subject
property. Roberto, thus, does not have any right
to demand that the property be sold to him at
the price for which it was sold to the De Leons
neither does he have the right to demand that
said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc. is not applicable
here
It is the position of Roberto that the facts of this
case and that of Equatorial are similar in nearly
all aspects. Roberto is a lessee of the property
like Mayfair Theater in Equatorial. There was
an offer made to Roberto by Lourdes during the
effectivity of the contract of lease which was
also the case in Equatorial. There were
negotiations as to the price which did not bear
fruit because Lourdes sold the property to the
De Leons which was also the case
in Equatorial wherein Carmelo and Bauermann
sold the property to Equatorial. The existence
of the lease of the property is known to the De
Leons as they are related to Lourdes while
in Equatorial, the lawyers of Equatorial studied
the lease contract of Mayfair over the property.
The property in this case was sold by Lourdes
to the De Leons at a much lower price which is
also the case in Equatorial  where Carmelo and
Bauerman sold to Equatorial at a lesser price. It
is Roberto’s conclusion that as in the case
of Equatorial, there was a violation of his right
of first refusal and hence annulment or
rescission of the Deed of Absolute Sale is the
proper remedy.
Roberto’s reliance in Equatorial is misplaced.
Despite his claims, the facts
in Equatorial radically differ from the facts of
this case. Roberto overlooked the fact that
in Equatorial, there was an express provision in
the Contract of Lease that—
“(i)f the LESSOR should desire to sell the leased
properties, the LESSEE shall be given 30-days
exclusive option to purchase the same.”
There is no such similar provision in the
Contract of Lease between Roberto and
Lourdes. What is involved here is a separate
and distinct offer made by Lourdes through a
letter dated January 2, 1995 wherein she is
selling the leased property to Roberto for a
definite price and which gave the latter a
definite period for acceptance. Roberto was not
given a right of first refusal. The letter-offer of
Lourdes did not form part of the Lease Contract
because it was made more than six months after
the commencement of the lease.
It is also very clear that in Equatorial, the
property was sold within the lease period. In
this case, the subject property was sold not only
after the expiration of the period provided in the
letter-offer of Lourdes but also after the
effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was
accepted by Roberto, still the former is not
bound thereby because of the absence of a
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 55 of 132
consideration distinct and separate from the
price. The argument of Roberto that the
separate consideration was the liberality on the
part of Lourdes cannot stand. A perusal of the
letter-offer of Lourdes would show that what
drove her to offer the property to Roberto was
her immediate need for funds as she was
already very old. Offering the property to
Roberto was not an act of liberality on the part
of Lourdes but was a simple matter of
convenience and practicality as he was the one
most likely to buy the property at that time as
he was then leasing the same.
All told, the facts of the case, as found by the
RTC and the CA, do not support Roberto’s
claims that the letter of Lourdes gave him a
right of first refusal which is similar to the one
given to Mayfair Theater in the case
of Equatorial. Therefore, there is no
justification to annul the deed of sale validly
entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to
file her appellee’s brief at the CA?
Lastly, Roberto argues that Lourdes should be
sanctioned for her failure to file her appellee’s
brief before the CA.
Certainly, the appellee’s failure to file her brief
would not mean that the case would be
automatically decided against her. Under the
circumstances, the prudent action on the part of
the CA would be to deem Lourdes to have
waived her right to file her appellee’s brief. De
Leon v. Court of Appeals,23 is instructive when
this Court decreed:
“On the second issue, we hold that the Court of
Appeals did not commit grave abuse of discretion in
considering the appeal submitted for decision. The
proper remedy in case of denial of the motion to
dismiss is to file the appellee’s brief and proceed
with the appeal. Instead, petitioner opted to file a
motion for reconsideration which, unfortunately,
was pro forma. All the grounds raised therein have
been discussed in the first resolution of the
respondent Court of Appeals. There is no new
ground raised that might warrant reversal of the
resolution. A cursory perusal of the motion would
readily show that it was a near verbatim repetition
of the grounds stated in the motion to dismiss;
hence, the filing of the motion for reconsideration
did not suspend the period for filing the appellee’s
brief. Petitioner was therefore properly deemed
to have waived his right to file appellee’s
brief.”(Emphasis supplied.)
In the above cited case, De Leon was the
plaintiff in a Complaint for a sum of money in
the RTC. He obtained a favorable judgment and
so defendant went to the CA. The appeal of
defendant-appellant was taken cognizance of by
the CA but De Leon filed a Motion to Dismiss
the Appeal with Motion to Suspend Period to
file Appellee’s Brief. The CA denied the
Motion to Dismiss. De Leon filed a Motion for
Reconsideration which actually did not suspend
the period to file the appellee’s brief. De Leon
therefore failed to file his brief within the
period specified by the rules and hence he was
deemed by the CA to have waived his right to
file appellee’s brief.
The failure of the appellee to file his brief
would not result to the rendition of a decision
favorable to the appellant. The former is
considered only to have waived his right to file
the Appellee’s Brief. The CA has the
jurisdiction to resolve the case based on the
Appellant’s Brief and the records of the case
forwarded by the RTC. The appeal is therefore
considered submitted for decision and the CA
properly acted on it.
FALLO: 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.
EXERCISE OF THE OPTION (CASES ARE
THOSE PREVIOUS FIRST SET)
RIGHT OF FIRST REFUSAL
G.R. No. 83759. July 12, 1991. *
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 56 of 132
SPOUSES CIPRIANO VASQUEZ and
VALERIANA GAYANELO, petitioners, vs.
HONORABLE COURT OF APPEALS and
SPOUSES MARTIN VALLEJERA and
APOLONIA OLEA, respondents.
NATURE OF THE CASE:
PETITION for review from the decision and
resolution of the Court of Appeals.
This petition seeks to reverse the decision of the
Court of Appeals which affirmed the earlier
decision of the Regional Trial Court, 6th
Judicial Region, Branch 56, Himamaylan,
Negros Occidental in Civil Case No. 839 (for
specific performance and damages) ordering the
petitioners (defendants in the civil case) to
resell Lot No. 1860 of the Cadastral Survey of
Himamaylan, Negros Occidental to the
respondents (plaintiffs in the civil case) upon
payment by the latter of the amount of
P24,000.00 as well as the appellate court’s
resolution denying a motion for
reconsideration. In addition, the appellate court
ordered the petitioners to pay the amount of
P5,000.00 as necessary and useful expenses in
accordance with Article 1616 of the Civil Code.
SYLLABUS:
Sales; Right to Repurchase; The promisee has the
burden of proving that the right to repurchase was
supported by a consideration distinct from the
price.—In the instant case and contrary to the
appellate court’s finding, it is clear that the right to
repurchase was not supported by a consideration
distinct from the price. The rule is that the promisee
has the burden of proving such consideration.
Unfortunately, the private respondents, promisees in
the right to repurchase failed to prove such
consideration. They did not even allege the
existence thereof in their complaint. (See Sanchez v.
Rigos supra) Therefore, in order that the Sanchez
case can be applied, the evidence must show that the
private respondents accepted the right to repurchase.
Same; Same; The annotation and registration of
the right to repurchase at the back of the certificate
of title of the petitioners cannot be considered as
acceptance of the right to repurchase.—The
annotation and registration of the right to repurchase
at the back of the certificate of title of the petitioners
cannot be considered as acceptance of the right to
repurchase. Annotation at the back of the certificate
of title of registered land is for the purpose
of binding purchasers of such registered land. Thus,
we ruled in the case of Bel Air Village Association,
Inc. v. Dionisio (174 SCRA 589 [1989]),
citing Tanchoco v. Aquino (154 SCRA 1 [1987]),
and Constantino v. Espiritu (45 SCRA 557 [1972])
that purchasers of a registered land are bound by the
annotations found at the back of the certificate of
title covering the subject parcel of land. In effect,
the annotation of the right to repurchase found at the
back of the certificate of title over the subject parcel
of land of the private respondents only served as
notice of the existence of such unilateral promise of
the petitioners to resell the same to the private
respondents. This, however, cannot be equated with
acceptance of such right to repurchase by the private
respondent.
Same; Same; The signature of the petitioners in the
document called right to repurchase does not
signify acceptance of the right to repurchase.—
Neither can the signature of the petitioners in the
document called “right to repurchase” signify
acceptance of the right to repurchase. The
respondents did not sign the offer. Acceptance
should be made by the promisee, in this case, the
private respondents and not the promisors, the
petitioners herein. It would be absurd to require the
promisor of an option to buy to accept his own offer
instead of the promisee to whom the option to buy
is given.
GUTIERREZ, JR., J.:
FACTS:
The facts of the case are not in dispute. They
are summarized by the appellate court as
follows:
“On January 15, 1975, the plaintiffs-spouses
(respondents herein) filed this action against the
defendants-spouses (petitioners herein) seeking to
redeem Lot No. 1860 of the Himamaylan Cadastre
which was previously sold by plaintiffs to
defendants on September 21, 1964.
“The said lot was registered in the name of
plaintiffs. On October 1959, the same was leased by
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 57 of 132
plaintiffs to the defendants up to crop year 1966-67,
which was extended to crop year 1968-69. After the
execution of the lease, defendants took possession
of the lot, up to now and devoted the same to the
cultivation of sugar.
On September 21, 1964, the plaintiffs sold the lot to
the defendants under a Deed of Sale for the amount
of P9,000.00. The Deed of Sale was duly ratified
and notarized. On the same day and along with the
execution of the Deed of Sale, a separate
instrument, denominated as Right to Repurchase
(Exh. E), was executed by the parties granting
plaintiffs the right to repurchase the lot for
P12,000.00, said Exh. E likewise duly ratified and
notarized. By virtue of the sale, defendants secured
TCT No. T-58898 in their name. On January 2,
1969, plaintiffs sold the same lot to Benito
Derrama, Jr., after securing the defendants’ title, for
the sum of P12,000.00. Upon the protestations of
defendant, assisted by counsel, the said second sale
was cancelled after the payment of P12,000.00 by
the defendants to Derrama.
Defendants resisted this action for redemption on
the premise that Exh. E is just an option to buy
since it is not embodied in the same document of
sale but in a separate document, and since such
option is not supported by a consideration distinct
from the price, said deed for right to repurchase is
not binding upon them.
After trial, the court below rendered judgment
against the defen-dants, ordering them to resell lot
No. 1860 of the Himamaylan Ca-dastre to the
plaintiffs for the repurchase price of P24,000.00,
which amount combines the price paid for the first
sale and the price paid by defendants to Benito
Derrama, Jr.
Defendants moved for, but were denied
reconsideration. Except-ing thereto, defendants-
appealed, x x x.” (Rollo, pp. 44-45)
The petition was given due course in a
resolution dated February 12, 1990.
The petitioners insist that they can not be
compelled to resell Lot No. 1860 of the
Himamaylan Cadastre. They contend that the
nature of the sale over the said lot between
them and the private respondents was that of an
absolute deed of sale and that the right
thereafter granted by them to the private
respondents (Right to Repurchase, Exhibit “E”)
can only be either an option to buy or a mere
promise on their part to resell the property.
They opine that since the “RIGHT TO
REPURCHASE” was not supported by any
consideration distinct from the purchase price it
is not valid and binding on the petitioners
pursu-ant to Article 1479 of the Civil Code.
The document denominated as “RIGHT TO
REPURCHASE” (Exhibit E) provides:
“RIGHT TO REPURCHASE KNOW ALL MEN
BY THESE PRESENTS:
I, CIPRIANO VASQUEZ, x x x x, do hereby grant
the spouses Martin Vallejera and Apolonia Olea,
their heirs and assigns, the right to repurchase said
Lot No. 1860 for the sum of TWELVE
THOUSAND PESOS (P12,000.00), Philippine
Currency, within the period TEN (10) YEARS from
the agricultural year 1969-1970 when my contract
of lease over the property shall expire and until the
agricultural year 1979-1980.
IN WITNESS WHEREOF, I have hereunto signed
my name at Binalbagan, Negros Occidental, this
21st day of September, 1964.
SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ      SGD.
FRANCISCO SANICAS” 
(Rollo, p. 47)
The Court of Appeals, applying the principles
laid down in the case of Sanchez v. Rigos, 45
SCRA 368 [1972] decided in favor of the
private respondents.
In the Sanchez case, plaintiff-appellee Nicolas
Sanchez and defendant-appellant Severino
Rigos executed a document entitled “Option to
Purchase,” whereby Mrs. Rigos “agreed,
promised and committed x x x to sell” to
Sanchez for the sum of P1,510.00, a registered
parcel of land within 2 years from execution of
the document with the condition that said
option shall be deemed “terminated and
lapsed,” if “Sanchez shall fail to exercise his
right to buy the property” within the stipulated
period. In the same document, Sanchez” x x
x hereby agree and conform with all the
conditions set forth in the option to purchase
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 58 of 132
executed in my favor, that I bind myself with all
the terms and conditions.” (Emphasis supplied)
The notarized document was signed both by
Sanchez and Rigos.
After several tenders of payment of the agreed
sum of P1,510.00 made by Sanchez within the
stipulated period were rejected by Rigos, the
former deposited said amount with the Court of
First Instance of Nueva Ecija and filed an
action for specific performance and damages
against Rigos.
The lower court rendered judgment in favor of
Sanchez and ordered Rigos to accept the sum
judicially consigned and to execute in Sanchez’
favor the requisite deed of conveyance. Rigos
appealed the case to the Court of Appeals
which certified to this Court on the ground that
it involves a pure question of law.
This Court after deliberating on two conflicting
principles laid down in the cases
of Southwestern Sugar and Molasses Co. v.
Atlantic Gulf and Pacific Co., (97 Phil.
249[1955]) and Atkins, Kroll & Co., Inc. v.
Cua Hian Tek, 102 Phil. 948 [1958]) arrived at
the conclusion that Article 1479 of the 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.”
and Article 1324 thereof which provides:
“ART. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as
something paid or promised should be reconciled
and harmonized to avoid a conflict between the
two provisions. In effect, the Court abandoned
the ruling in the Southwestern Sugar and
Molasses Co. case and reiterated the ruling in
the Atkins, Kroll and Co. case, to wit:

“However, this Court itself, in the case of Atkins,
Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948,
951-952) decided later than Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific
Co., (supra) 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 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 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. x x x.’ (77 Corpus Juris Secundum p. 652.
See also 27 Ruling Case Law 339 and cases cited.)”
This Court affirmed the lower court’s decision
although the promise to sell was not supported
by a consideration distinct from the price. It
was obvious that Sanchez, the promisee,
accepted the option to buy before Rigos, the
promisor, withdrew the same. Under such
circumstances, the option to purchase was
converted into a bilateral contract of sale which
bound both parties.
In the instant case and contrary to the appellate
court’s finding, it is clear that the right to
repurchase was not supported by a
consideration distinct from the price. The rule is
that the promisee has the burden of proving
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 59 of 132
such consideration. Unfortunately, the private
respondents, promisees in the right to
repurchase failed to prove such consideration.
They did not even allege the existence thereof
in their complaint. (See Sanchez v.
Rigos supra)
Therefore, in order that the Sanchez case can be
applied, the evidence must show that the private
respondents accepted the right to repurchase.
The record, however, does not show that the
private respondents accepted the “Right to
Repurchase” the land in question. We disagree
with the appellate court’s finding that the
private respondents accepted the “right to
repurchase” under the following circumstances:
x x as evidenced by the annotation and
registration of the same on the back of the
transfer of certificate of title in the name of
appellants. As vividly appearing therein, it was
signed by appellant himself and witnessed by
his wife so that for all intents and purposes the
Vasquez spouses are estopped from
disregarding its obvious purpose and intention.”
The annotation and registration of the right to
repurchase at the back of the certificate of title
of the petitioners can not be considered as
acceptance of the right to repurchase.
Annotation at the back of the certificate of title
of registered land is for the purpose
of bindingpurchasers of such registered land.
Thus, we ruled in the case of Bel Air Village
Association, Inc. v. Dionisio (174 SCRA
589[1989]), citing Tanchoco v. Aquino (154
SCRA 1 [1987]), and Constantino v.
Espiritu(45 SCRA 557 [1972]) that purchasers
of a registered land are bound by the
annotations found at the back of the certificate
of title covering the subject parcel of land. In
effect, the annotation of the right to repurchase
found at the back of the certificate of title over
the subject parcel of land of the private
respondents only served as notice of the
existence of such unilateral promise of the
petitioners to resell the same to the private
respondents. This, however, can not be equated
with acceptance of such right to repurchase by
the private respondent.
Neither can the signature of the petitioners in
the document called “right to repurchase”
signify acceptance of the right to repurchase.
The respondents did not sign the offer.
Acceptance should be made by the promisee, in
this case, the private respondents and not the
promisors, the petitioners herein. It would be
absurd to require the promisor of an option to
buy to accept his own offer instead of the
promisee to whom the option to buy is given.
Furthermore, the actions of the private
respondents—(a) filing a complaint to compel
re-sale and their demands for resale prior to
filing of the complaint cannot be considered
acceptance. As stated in Vda. de Zulueta v.
Octaviano(121 SCRA 314 [1983]):
“And even granting, arguendo that the sale was
a pacto de retro sale, the evidence shows that
Olimpia, through her lawyer, opted to repurchase
the land only on 16 February 1962, approximately
two years beyond the stipulated period, that is, ‘not
later than May, 1960.’
If Olimpia could not locate Aurelio, as she
contends, and based on her allegation that the
contract between her was one of sale with right to
repurchase, neither, however, did she tender the
redemption price to private respondent Isauro, but
merely wrote him letters expressing her readiness to
repurchase the property.
‘It is clear that the mere sending of letters by the
vendor expressing his desire to repurchase the
property without accompanying tender of the
redemption price fell short of the requirements of
law.’ (Lee v. Court of Appeals, 68 SCRA
197 [1972])
Neither did petitioner make a judicial consignation
of the repurchase price within the agreed period.
‘In a contract of sale with a right of repurchase, the
redemptioner who may offer to make the repurchase
on the option date of redemption should deposit the
full amount in court x x x.’ (Rumbaoa v. Arzaga, 84
Phil. 812 [1949])
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 60 of 132
‘To effectively exercise the right to repurchase the
vendor a retro must make an actual and
simultaneous tender of payment or consig-nation.’
(Catangcatang v. Legayada, 84 SCRA 51[1978])
The private respondents’ ineffectual acceptance
of the option to buy validated the petitioner’s
refusal to sell the parcel which can be
considered as a withdrawal of the option to buy.
We agree with the petitioners that the case
of Vda. de Zulueta v. Octaviano, (supra) is in
point.
Stripped of non-essentials the facts of
the Zulueta case are as follows: On November
25, 1952 (Emphasis supplied) Olimpia
Fernandez Vda. de Zulueta, the registered
owner of a 5.5 hectare riceland sold the lot to
private respondent Aurelio B. Octaviano for
P8,600.00 subject to certain terms and
conditions. The contract was an absolute and
definite sale. On the same day, November 25,
1952,(Emphasis supplied) the vendee, Aurelio
signed another document giving the vendor
Zulueta the “option to repurchase” the property
at anytime after May 1958 but not later than
May 1960. When, however, Zulueta tried to
exercise her “option to buy” the property,
Aurelio resisted the same prompting Zulueta to
commence suit for recovery of ownership and
possession of the property with the then Court
of First Instance of Iloilo.
The trial court ruled in favor of Zulueta. Upon
appeal, however, the Court of Appeals reversed
the trial court’s decision.
We affirmed the appellate court’s decision and
ruled:
“The nature of the transaction between Olimpia and
Aurelio, from the context of Exhibit “E” is not a
sale with right to repurchase. Conventional
redemption takes 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. (Article 1601, Civil Code).
In this case, there was no reservation made by the
vendor, Olimpia, in the document Exhibit “E”. The
‘option to repurchase’ was contained in a
subsequent document and was made by the vendee,
Aurelio. Thus, it was more of an option to buy or a
mere promise on the part of the vendee, Aurelio, to
resell the property to the vendor, Olimpia. (10
Manresa, p. 311 cited in Padilla’s Civil Code
Annotated, Vol. V, 1974 ed., p. 467) As held
in Villarica v. Court of Appeals (26 SCRA
189[1968]):
“ ‘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. x x x’
(Italics our)”
The appellate court rejected the application of
the Zulueta case by stating:
“x x x [A]s found by the trial court from which we
quote with approval below, the said cases involve
the lapse of several days for the execution of
separate instruments after the execution of the deed
of sale, while the instant case involves the execution
of an instrument, separate as it is, but executed on
the same day, and notarized by the same notary
public, to wit:
“A close examination of Exh. “E” reveals that
although it is a separate document in itself, it is far
different from the document which was pronounced
as an option by the Supreme Court in the Villarica
case. The option in the Villarica case was executed
several days after the execution of the deed of sale.
In the present case, Exh. “E” was executed and
ratified by the same notary public and the Deed of
Sale of Lot No. 1860 by the plaintiffs to the
defendants were notarized by the same notary
public and entered in the same page of the same
notarial register x x x.”
The latter case (Vda. de Zulueta v.
Octaviano, supra), likewise involved the execution
of the separate document after an intervention of
several days and the question of laches was decided
therein, which is not present in the instant case. That
distinction is therefore crucial and We are of the
opinion that the appellee’s right to repurchase has
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 61 of 132
been adequately provided for and reserved in
conformity with Article 1601 of the Civil Code,
which states:
“ ‘Conventional redemption shall take place when
the vendor reserves the right to repurchase the thing
sold, with the obligation to comply with the
provision of Article 1616 and other stipulations
which may have been agreed upon.’ ” (Rollo, pp.
46-47)
Obviously, the appellate court’s findings are not
reflected in the cited decision. As in the instant
case, the option to repurchase involved in the
Zulueta case was executed in a separate
document but on the same date that the deed of
definite sale was executed.
While it is true that this Court in the Zulueta
case found Zulueta guilty of laches, this,
however, was not the primary reason why this
Court disallowed the redemption of the
property by Zulueta. It is clear from the
decision that the ruling in the Zulueta case was
based mainly on the finding that the transaction
between Zulueta and Octaviano was not a sale
with right to repurchase and that the “option to
repurchase was but an option to buy or a mere
promise on the part of Octaviano to resell the
property to Zulueta.
In the instant case, since the transaction
between the petitioners and private respondents
was not a sale with right to repurchase, the
private respondents cannot avail of Article 1601
of the Civil Code which provides for
conventional redemption.
FALLO: WHEREFORE, the petition is
GRANTED. The questioned decision and
resolution of the Court of Appeals are hereby
REVERSED and SET ASIDE. The complaint
in Civil Case No. 839 of the then Court of First
Instance of Negros Occidental 12th Judicial
District Branch 6 is DISMISSED. No costs. SO
ORDERED.
     
Note.—Since the case at bar involves the
exercise of the right to repurchase, as showing
that petitioner made a valid tender of payment
is sufficient. (Legaspi vs. Court of Appeals, 142
SCRA 82.)
No. L-32873. August 18, 1972.
AQUILINO NIETES, petitioner, vs. H ON.
COURT OF APPEALS & DR.PABLO C.
GARCIA, respondents.
NATURE OF THE CASE:
PETITION FOR REVIEW by certiorari of a
decision of the Court of Appeals.
Petitioner Aquilino Nietes seeks a review on
certiorari of a decision of the Court of Appeals.
SYLLABUS:
Remedial law; Witnesses; A Doctor of Medicine
and school owner is not expected to doubt his
signatures.—The claim that he did not know
whether the signatures on Exhibits B and C were his
and that he was doubtful about it is manifestly
incredible coming from a man of his intelligence—
A Doctor of Medicine and the owner of an
educational institution.
Civil law; Sales; Option to buy is governed by
provision on reciprocal obligations.—In the case of
an option to buy, the creditor may validly and
effectively exercise his right by merely advising the
debtor of the former’s decision to buy and
expressing his readiness to pay the stipulated price,
provided that the same is available and actually
delivered to the debtor upon execution and delivery
by him of the corresponding deed of sale. Unless
and until the debtor shall have done this, the creditor
is not and cannot be in default in the discharge of
his obligation to pay. In other words, notice of the
creditor’s decision to exercise his option to buy
need not be coupled with actual payment of the
price, so long as this is delivered to the owner of the
property upon performance of his part of the
agreement.
Same; Same; Option to buy exercised by payment
of sum in excess of rental.—There is a valid and
effective exercise of the option to buy a property
leased where the lessor acknowl-edges receipt from
the lessee of sum in excess of the monthly rentals
due and describes such payment as “partial payment
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 62 of 132
on the purchase of the property” described in the
contract of lease with option to buy.
The facts are stated in the opinion of the Court.
     
CONCEPCION, CJ.:
FACTS:
It appears that, on October 19, 1959, -said
petitioner and respondent Dr. Pablo C. Garcia
entered into a “Contract of Lease with Option
to Buy/’ pursuant to the terms and conditions
set forth in the deed Exhibits A and A-1, (also,
marked as Exhibit 2) namely:
“That the LESSOR is an owner of the ANGELES
EDUCATIONAL INSTITUTE situated at Angeles,
Pampanga, a school which is duly recognized by the
Government;
“That the lessor agrees to lease the above stated
school to the LESSEE under the following terms
and conditions:
“1. That the term will be for a period of five (5)
years;
“2. That the price cf the rent is FIVE THOUSAND
PESOS (P5,000) per year payable in the following
manners:
a. That the amount of FIVE THOUSAND FIVE
HUNDRED PESOS (F5,500) will be paid upon the
execu-tion of this Contract of Lease;
b. That the amount of FOUR THOUSAND FIVE
HUNDRED PESOS (P4.500) is payable on or
before the 30th day of October, 1959;
c. That the remaining balance of FIFTEEN
THOUSAND PESOS (P15.000) will be paid on or
before March 30, 1960;
“3. That all improvements made during: the lease by
the LESSEE will be owned by the LESSOR after
Ihe expiration of the term of this Contract of Lease;
“4. That the LESSOR agrees to Rive the LESSEE
an option to buy the land and the school building,
for a price of ONE HUNDRED THOUSAND
PESOS (F100,000) within the period of the
Contract of Lease;
“5. That should the LESSEE buy the lot, land and
the school building within the stipulated period, the
unused payment for the Contract of Lease will be
considered as part payment for the sale of the land
and school;
“6. That an inventory of all properties in the school
will be made on March 31, 1960;
“6A. That the term of this Contract will commence
in June 1960 and will terminate in June 1965;
“7. That the LESSEE will be given full control and
responsibilities over all the properties of the school
and over all the supervisions and administrations of
the school;
“8. That the LESSEE agrees to help the LESSOR to
collect the back accounts of students incurred before
the execution of this contract.”
Instead of paying the lessor in the manner set
forth in paragraph 2 of said contract, Nietes
had, as of August 4, 1961, made payments as
follows:
October 6, 1960 F18.957.00
November 23, 1960 300.00
December 21, 1960 200.00
January 14, 1961 . 500.00
February 16, 1961 3,000.00
March 12, 1961 1,000.00
March 13, 1961 700.00
August 4, 1961 100.00
     TOTAL
Moreover, Nietes maintains that, on September
4, 1961, and December 13, 1962, he paid
Garcia the additional sums of P3,000 and
P2,200, respectively, for which Garcia issued
receipts Exhibit B and C, reading:
“Received the amount of (F3.000.00) Three
Thousand Pesos from Mrs. Nietes as per advance
pay for the school, the contract of lease being paid.
(Sgd.) PABLO GARCIA” 
(Exh. B)      under the circumstances, is not only entitled to
“To Whom it May Concern:
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 63 of 132
“This is to certify that I received the sum of Two
Thousand Two Hundred Pesos, Philippine
Currency, from Mrs. Catherine, R. Nietes as the
partial payment on the purchase of the property as
specified on the original contract of ‘Contract of
Lease with the First Option to Buy’ originally
contracted and duly signed.
(Sgd.) DR. PABLO GARCIA” 
(Exh. C)     
On or about July 31, 1964, Dr. Garcia’s counsel
wrote to Nietes the letter Exhibit 1 (also Exhibit
V) stating:
“The Director 
Philippine Institute of Electronics 
Angeles, Pampanga
Sir:
“I regret to inform you that our client, Dr. Pablo
Garcia, desires to rescind your contract, dated
19 October 1959 because of the following:
“1. That you Jrad not maintained the building,
subject of the lease contract in good condition.
“2. That you had not been using the original name
of the school—Angeles Institute, thereby
extinguishing its existence in the eyes of the public
and injuring its prestige.
“3. That through your fault, no inventory has been
made of all properties of the school.
“4. That up to this time, you had not collected or
much less helped in the collection of back accounts
of farmer students.
“This is to remind you that the foregoing
obligations had been one, if not, the principal
moving factors which had induced the lessor in
agreeing with the terms embodied in your
contract of lease, without which fulfillment,
said contract could not have come into
existence. It is not simply one of those
reminders that we make mention, that our client
a rescission of the contract. He is likewise
entitled to damages—actual, compensatory and
exemplary.
“In view of the serious nature of the breach
which warrant and sanction drastic legal
remedies against you, we earnestly request you
to please see the undersigned at the above-
named address two days from receipt hereof.
Otherwise, if we shall not hear from you, the
foregoing will serve notice on your part to
vacate the premises within five (5) days to be
counted from date of notice.
Very truly yours,       August 12, 1965, after the checks had been
(Sgd.) VICTOR T. LLAMAS, JR.”
to which counsel for Nietes replied in the following
language:
“Atty. Victor T. Llamas, Jr.  leased property, free from any lien or
Victor Llamas Law Office  encumbrance whatsoever, he having meanwhile
Corner Rivera-Zamora Streets  mortgaged it to the People’s Bank and Trust
Dagupan City
“Dear Sir:
“Your letter dated July 31, 1964 addressed to
my client, the Director of the Philippine
Institute of Electronics, Angeles City, has been
referred to me and in reply, please, be informed
that my client has not violated any provision of
the CONTRACT OF LEASE WITH OPTION
TO BUY, executed by him as LESSEE and Dr.
Pablo Garcia as LESSOR. For this reason, there
is no basis for rescission of the contract nor of
the demands contained in your letter.
“In this connection, I am also serving this
formal notice upon your client Dr. Pablo
Garcia, thru you, that my client Mr.
AQUILINO T. NIETES will exercise his
OPTION to buy the land and buildingsubject
matter of the lease and that my said client is
ready to pay the balance of the purchase price
in accordance with the contract. Please, inform
Dr. Pablo Garcia to make available the land title
and execute the corresponding Deed of Sale
pursuant to this notice, and that if he fails ta do
so within fifteen (15) days from the receipt of
this letter we shall take the corresponding
action to enforce the agreement.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 64 of 132
“Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO 
Counsel for Mr. Aquilino T. Nietes 
Angeles City”
On July 26, 1965, Nietes deposited with the
branch office of the Agro-Industrial Bank in
Angeles City checks amounting to F84,860.50,
as balance of the purchase price of the property,
but he withdrew said sum of P84,860.50 on
cleared. On August 2, 1965, he commenced the
present action, in the Court of First Instance of
Pampanga, for specific performance of Dr.
Garcia’s alleged obligation to execute in his
(Nietes’) favor a deed of absolute sale of the
Company, and to compel him (Garcia) to accept
whatever balance of the purchase price is due
him, as well as to recover from him the
aggregate sum of P90,000 by way of damages,
apart from attorney’s fees and the costs.
Dr. Garcia filed an answer admitting some
allegations of the complaint and denying other
allegations thereof, as well as setting up a
counterclaim for damages in the sum of
P150,000.
After due trial, said court rendered its decision,
the dispositive part of which reads:
“WHEREFORE, in view of the preponderance of
evidence in favor of the plaintiff and against the
defendant, judgment is hereby rendered ordering the
latter to execute the Deed of Absolute Sale of
property originally leased together with the school
building and other improvements thereon which are
covered by the contract, Annex ‘A’, upon payment
of the former of the balance (whatever be the
amount) of the stipulated purchase price; to free the
said property from any mortgage or encumbrance
and deliver the title thereto to the plaintiff free from
any lien or encumbrance, and should said defendant
fail to do so, the proceeds from the purchase price
be applied to the payment of the encumbrance so
that the title may be conveyed to the plaintiff; to pay
the plaintiff the sum of f 1,000.00 as attorney’s fees,
and the cost of this suit/’
Both parties appealed to the Court of Appeals,
Dr. Garcia insofar as the trial court had neither
dismissed the complaint nor upheld his
counterclaim and failed to order Nietes to
vacate the property in question, and Nietes
insofar as the trial court had granted him no
more than nominal damages in the sum of
Fl,000, as attorney’s fees.
After appropriate proceedings, a special
division of the Court of Appeals rendered its
decision, on October 18, 1969, affirming, in
effect, that of the trial court, except as regards
said attorney’s fees, which were eliminated.
The dispositive part of said decision of the
Court of Appeals reads:
“WHEREFORE, with the modification that the
attorney’s fees awarded by the trial court in
favor of the plaintiff is eliminated, the appealed
judgment is hereby affirmed in all other
respects, and the defendant is ordered to
execute the corresponding deed of sale for the
school building and lot in question in favor of
the plaintiff upon the latter’s full payment of
the balance of the purchase price. The costs of
this proceedings shall be taxed against the
defendant-appellant.”
On motion for reconsideration of defendant
Garcia, said special division set aside its
aforementioned decision and rendered another
one, promulgated on March 10, 1970, reversing
the appealed decision of the court of first
instance, and dismissing the complaint of
Nietes, with costs against him. Hence, the
present petition of Nietes for review on
certiorari of the second decision of the Court of
Appeals, dated March 10,1970, to which
petition We gave due course.
Said decision of the Court of Appeals, reversing
that of the Court of First Instance, is mainly
predicated upon the theory that, under the
contract between the parties, “the full purchase
price must be paid before the option could be
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 65 of 132
exercised/’ because “there was no need nor
sense in providing that ‘the unused payment for
the Contract of Lease will be considered as part
payment for the sale of the land and school’”
inasmuch as “otherwise there is no substantial
amount from which such unused rental could be
deducted”; that the statement in the letter,
Exhibit L, of Nietes, dated August 7, 1964, to
the effect that he “will exercise his OPTION to
buy the land and building,” indicates that he did
not consider the receipts, Exhibits B and C. for
P3,000 and P2,200, respectively, “as an
effective exercise of his option to buy”; that the
checks for P84,860.50 deposited by Nietes with
the Agro-Industrial Development Bank, did not
constitute a proper tender of payment, which, at
any rate, was “made beyond the stipulated 5-
year period’’; that such deposit “was not
seriously made, because on August 12, 1965,
the same was withdrawn from the Bank and
ostensibly remains in the lessee’s hand”; and
that “the fact that such deposit was made by the
lessee shows that he himself believed that he
should have paid the entire amount of the
purchase price before he could avail of the
option to buy, otherwise, the deposit was a
senseless gesture x x x.”
Dr. Garcia, in turn, maintained in his answer
“that the sums paid” to him “were part of the
price of the contract of lease between the
parties which were paid late and not within the
periods and/or schedules fixed by the contract
(Annex A).” What is more, on the witness
stand, Garcia claimed that he did “not know”
whether the signatures on Exhibits B and C—
the receipt for P3,000 and P2,200, respectively
—were his, and even said that he was “doubtf
ul’f about it.
This testimony is manifestly incredible, for a
man of his intelligence—a Doctor of Medicine
and the owner of an educational institution—
could not possibly “not know” or entertain
doubts as to whether or not the aforementioned
signatures are his and the payments therein
acknowledged had been received by him. His
dubious veracity becomes even more apparent
when we consider the allegations in paragraph
(4) of his answer—referring to paragraphs 5 is notand cannot be in default in the discharge
and 6 of the complaint alleging, inter alia, the of his obligation to pay.  In other words, notice
2

aforementioned partial payments of P3,000 and of the creditor’s decision to exercise his option
1*2,200, on account of the stipulated sale price to buy need not be coupled with actual payment
—to the effect that said sums “paid to the of the price, so long as this is delivered to the
herein defendant were part of the price of the owner of the property’ upon performance of his
contract of lease.” In other words, payment of part of the agreement. Nietes need not have
said sums of P3,000 and P2,200 is admitted in deposited, therefore, with the Agro-Industria]
said answer. Besides^ the rentals for the whole Bank checks amounting altogether to
period of the lease aggregated P25,000 only, P84,860.50 on July 26, 1965, and the
whereas said sums of P3,000 and P2,200, when withdrawal thereof soon after does not and
added to the payments previously made by cannot affect his cause of action in the present
Nietes, give a grand total of P29,957.00, or case. In making such deposit, he may have had
P4,957 in excess of the agreed rentals for the the intent to show his ability to pay the balance
entire period of five years. Thus, Dr. Garcia of the sum due to Dr. Garcia as the sale price of
was less than truthful when he tried to cast his property. In short, said deposit and its
doubt upon the fact of payment of said sums of subsequent withdrawal cannot affect the result
13,000 and P2,200, as well as when he claimed of the present case.
that the same were part of the rentals
collectible by him. Nietes was entitled to exercise his option to buy
“within the period of the Contract of Lease,”
We, likewise, find ourselves unable to share the which—pursuant to paragraph 6-A of said
view taken by the Court of Appeals. Neither the contract—commenced “in June 1960” and was
tenor of the contract Exhibits A and A-1 (also to “terminate in June 1965/’ As early as
Exhibit 2) nor the behaviour of Dr. Garcia—as September 4, 1961, or well “within the period
reflected in the receipts Exhibits B and C— of the Contract of Lease/’Nietes had paid Dr.
justifies such view. The contract does not say Garcia the following sums:
that Nietes had to pay the stipulated price of
P100,000 before exercising his option to buy October 6, P18,957.00
the property in question. Accordingly, said 1960 ................................ (Ex h. D )
option is governed by the general principles on .....
obligations, pursuants to which: November 28, 300.00 ( E
1960 ............................. xh.E)
“In reciprocal obligations, neither party incurs
December 21, 200.00
in delay if the other does not comply or is not
ready to comply in a proper manner with what 1960 .............................. (Exh. F )
is incumbent upon him. From the moment one January 14, 500.00
of the parties fulfills his obligation, delay by the 1961 ............................... (Exh. G)
other begins/1 February 16, 3,000.00
1961................................. (Exh. H )
In the case of an option to buy, the creditor may March 12 , 1 96 1,000.00
validly and effectively exercise his right by 1 .................................... (Exh. I )
merely advising the debtor of the former’s March 13, 700.00
decision to buy and expressing his readiness to 1961 ................................ (ExJi. J )
pay the stipulated price, provided that the same ....
is available and actually delivered to the debtor August 4 , 100.00 ( E
upon execution and delivery by him of the
1961 ................................ xh,K)
corresponding deed of sale. Unless and until the
debtor shall have done this the creditor ...
September 4, 3,000.00
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 66 of 132
1961 ............................... (Exh. B )
     TOTAL ...................... P27,757.00
...................
It is true that Nietes was bound, under the
contract, to pay P5,500 on October 19, 1959,
1*4,500 on or before October 30, 1959, and
P15,000 on or before March 30, 1960, or the
total sum of P25,000, from October 19, 1959 to
March 80, 1960, whereas his first payment was
not made until October 10, 1960, when he
delivered the sum of P18,957 to Dr. Garcia, and
the latter had by August 4, 1961, received from
the former the aggregate sum of P24/757. This
is, however, P243.00 only less than the P25,000
due as of March 30, 1960, so that Nietes may
be considered as having complied substantially
with the terms agreed upon. Indeed, Dr. Garcia
seems to have either agreed thereto or not
considered that Nietes had thereby violated the
contract, because the letter of the former, dated
July 31,1964, demanding rescission of the
contract, did not mention said acts or omissions
of Nietes among his alleged violations thereof
enumerated in said communication. In fact,
when, on September 4, 1961, Mrs. Nietes
turned over the sum of P3,000 to Dr. Garcia, he
issued the receipt Exhibit B, stating that said
payment had been made “as per advance pay
for the school, the Contract of Lease being
paid”—in other words, in accordance or
conformity with said contract. Besides, when,
on December 13, 1962, Mrs. Nietes delivered
the additional sum of P2,200, Dr. Garcia issued
a receipt accepting said amount “as the partial
payment on the purchase price of the
property as specified on the original
contract” thus further indicating that the
payment, in his opinion, conformed with said
contract, and that, accordingly, the same was in
full force and effect.
In any event, it is undisputed that, as of
September 4, 1901, Dr. Garcia had received the
total sum of P27/757, or P2,757 in excess of the
P25,000 representing the rentals for the entire
period of the lease, and over P21,2G0 in excess
of the rentals for the unexpired portion of the
lease, from September 4, 1961 to June 1965.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 67 of 132
This circumstance indicates clearly that Nietes
had, on September 4, 1961, chosen to exercise
and did exercise then his option to buy. What is
more, this is borne out by the receipt issued by
Dr. Garcia for the payment of P2,200, on
December 13, 1962, to which he referred
therein as a “partial payment on the purchase of
the property as specified on the original
contract of ‘Contract of Lease with the First
Option to Buy’ x x x.”
Further confirmation is furnished by the letter
of Nietes, Exhibit L, of August 1964—also,
within the period of the lease—stating that he
“will exercise his OPTION to buy the land and
building subject matter of the lease/’ It is not
correct to construe this expression—as did the
appealed decision—as implying that the option
had not been or was not yet being exercised, or
as a mere announcement of the intent to avail of
it at some future time. This interpretation takes
said expression out of the context of Exhibit L,
which positively states, also, that Nietes “is
ready to pay the balance of the purchase price
in accordance with the contract,” and requests
counsel for Dr. Garcia to inform or advise him
“to make available the land title and execute the
corresponding Deed of Sale pursuant to this
notice, and that if he fails to do so within
fifteen ‘(15) days x x x we shall take the
corresponding action to enforce the agreement.”
Such demand and said readiness to pay the
balance of the purchase price leave no room for
doubt that, as stated in Exhibit L, the same is “a
formal notice” that Nietes had exercised his
option, and expected Dr. Garcia to comply,
within fifteen (lo) days, with his part of the
bargain. Surely, there would have been no point
for said demand and readiness to pay, if Nietes
had not yet exercised his option to buy.
The provision in paragraph 5 of the Contract, to
the effect that “should the LESSEE” choose to
make use of his option to buy “the unused
payment for the Contract of Lease will be
considered as payment for the sale of the land
and school, “simply means that the 3*ental paid
for the unused portion of the lease shall be
applied to and deducted from the sale price of
P100,000 to be paid by Nietes at the proper
time—in other words, simultaneouslywith the
delivery to him of the corresponding deed of
sale, duly executed by Dr. Garcia.
It is, consequently, Our considered opinion that
Nietes had validly and effectively exercised his
option to buy the property of Dr. Garcia, at
least, on December 13, 1962, when he
acknowledged receipt from Mrs. Nietes of the
sum of P2,200 then delivered by her “in partial
payment on the purchase of the property”
described in the “Contract of Lease with Option
to Buy”; that from the aggregate sum of
P29,957.00 paid to him up to that time, the sum
of P12,-708.33 should be deducted as rental for
the period from June 1960 to December 13,
1962, or roughly thirty (30) months and a half,
thereby leaving a balance of P17,248.67?
consisting of P12,29L67, representing the
rentals for the unused period of the lease, plus
P4,957.00 paid in excess of said rental and
advanced solely on account of the purchase
price; that deducting said sum of P17,248.67
from the agreed price of 1*100,000.00, there
results a balance of P82,751.33 which should
be paid by Nietes to Dr. Garcia, upon execution
by the latter of the corresponding deed of
absolute sale of the property in question, free
from any lien or encumbrance whatsoever, in
favor of Nietes, and the delivery to him of said
deed of sale, as well as of the owner’s duplicate
of the certificate of title to said property; and
that Dr. Garcia should indemnify Nietes in the
sum of P2,500 as and. for attorney’s fees.
FALLO: Thus modified, the decision of the
Court of First Instance of Pampanga is hereby
affirmed in all other respects, and that of the
Court of Appeals reversed, with costs against
respondent herein, Dr. Pablo C. Garcia. It is so
ordered.
     
Notes.—Characteristics of Reciprocal
Obligations.—Under Article 1191 of the Civil
Code, in case of reciprocal obligations, the
power to rescind the contract where a party
incur in default, is impliedly given to the
injured party. Froilan vs. Pan Oriental
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 68 of 132
Shipping Co,,L-11897, October 31, 1964, 12
SCRA 276.
In reciprocal contracts, the obligation or
promise of each party is the consideration for
that of the other. Vda. de Qidrino vs.
Palarca, L-28269, August 15, 1969, 29 SCRA
1.
A rescission for breach of contract under
Article 1191 of the Civil Code is not predicated
on injury to economic interests of the party
plaintiff but on the breach of faith by the
defendant, that violates the reciprocity between
the parties. Universal Food Corporation vs.
Court of Appeals, L-29155, May 13, 1970, 33
SCRA 1,
Where the obligation is reciprocal and with a
period, neither party could demand
performance nor incur delay before the
expiration of the period. Abesamis vs.
Woodcraft Works, Ltd., L-18916, November 28,
1969 30 SCRA 372.
G.R. No. 122544. January 28, 1999. *
REGINA P. DIZON, AMPARO D.
BARTOLOME, FIDELINA D. BALZA,
ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners, vs. COURT OF APPEALS and
OVERLAND EXPRESS LINES, INC.,
respondents.
G.R. No. 124741. January 28, 1999. *
REGINA P. DIZON, AMPARO D.
BARTOLOME, FIDELINA D. BALZA,
ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners, vs. COURT OF APPEALS,
HON. MAXIMIANO C. ASUNCION, and
OVERLAND EXPRESS LINES, INC.,
respondents.
NATURE OF THE CASE:
PETITIONS for review on certiorari of the cannot enforce its option to purchase anymore.
decisions and resolutions of the Court of Moreover, even assuming arguendo that the right to
Appeals. exercise the option still subsists at the time private
respondent tendered the amount on June 20, 1975,
the suit for specific performance to enforce the
SYLLABUS:
option to purchase was filed only on October 7,
1985 or more than ten (10) years after accrual of the
Actions; Leases; Where the rentals are paid
cause of action as provided under Article 1144 of
monthly, the lease, even if verbal may be deemed to
the New Civil Code.
be on a monthly basis, expiring at the end of every
month pursuant to Article 1687, in relation to
Contracts; Leases; Options to Purchase; The other
Article 1673 of the Civil Code, and in such case, a
terms of the original contract of lease which are
demand to vacate is not even necessary for judicial
revived in the implied new lease under Article 1670
action after the expiration of every month.—
of the New Civil Code are only those terms which
Admittedly, no definite period beyond the one-year
are germane to the lessee’s right of continued
term of lease was agreed upon by petitioners and
enjoyment of the property leased—an implied new
private respondent. However, since the rent was
lease does not ipso facto carry with it any implied
paid on a monthly basis, the period of lease is
revival of any option to purchase the leased
considered to be from month to month in
premises.—In this case, there was a contract of
accordance with Article 1687 of the New Civil
lease for one (1) year with option to purchase. The
Code. Where the rentals are paid monthly, the lease,
contract of lease expired without the private
even if verbal may be deemed to be on a monthly
respondent, as lessee, purchasing the property but
basis, expiring at the end of every month pursuant
remained in possession thereof. Hence, there was an
to Article 1687, in relation to Article 1673 of the
implicit renewal of the contract of lease on a
Civil Code. In such case, a demand to vacate is not
monthly basis. The other terms of the original
even necessary for judicial action after the
contract of lease which are revived in the implied
expiration of every month.
new lease under Article 1670 of the New Civil Code
are only those terms which are germane to the
Same; Same; Options to
lessee’s right of continued enjoyment of the
Purchase; Ejectment; Specific
property leased. Therefore, an implied new lease
Performance; Jurisdiction; The filing by the lessee
does not ipso factocarry with it any implied revival
of a suit with the Regional Trial Court for specific
of private respondent’s option to purchase (as lessee
performance to enforce the option to purchase does
thereof) the leased premises. The provision entitling
not divest the then City Court of its jurisdiction to
the lessee the option to purchase the leased premises
take cognizance of the ejectment case.—When
is not deemed incorporated in the impliedly
private respondent failed to pay the increased rental
renewed contract because it is alien to the
of P8,000.00 per month in June 1976, the petitioners
possession of the lessee.
had a cause of action to institute an ejectment suit
against the former with the then City Court. In this
Same; Same; Same; Presumptions; If the presumed
regard, the City Court (now MTC) had exclusive
will of the parties refers to the enjoyment of
jurisdiction over the ejectment suit. The filing by
possession the presumption covers the other terms
private respondent of a suit with the Regional Trial
of the contract related to such possession, such as
Court for specific performance to enforce the option
the amount of rental, the date when it must be paid,
to purchase did not divest the then City Court of its
the care of the property, the responsibility for
jurisdiction to take cognizance over the ejectment
repairs, etc., but no such presumption may be
case. Of note is the fact that the decision of the City
indulged in with respect to special agreements
Court was affirmed by both the Intermediate
which by nature are foreign to the right of
Appellate Court and this Court.
occupancy or enjoyment inherent in a contract of
lease.—Private respondent’s right to exercise the
Same; Same; Same; Where a lessee fails to
option to purchase expired with the termination of
exercise the option to purchase within the stipulated
the original contract of lease for one year. The
period, he cannot enforce such option anymore.—
rationale of this Court is that: “This is a reasonable
Having failed to exercise the option within the
construction of the provision, which is based on the
stipulated one-year period, private respondent
presumption that when the lessor allows the lessee
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 69 of 132
to continue enjoying possession of the property for
fifteen days after the expiration of the contract he is
willing that such enjoyment shall be for the entire
period corresponding to the rent which is
customarily paid—in this case up to the end of the
month because the rent was paid monthly.
Necessarily, if the presumed will of the parties
refers to the enjoyment of possession the
presumption covers the other terms of the contract
related to such possession, such as the amount of
rental, the date when it must be paid, the care of the
property, the responsibility for repairs, etc. But no
such presumption may be indulged in with respect
to special agreements which by nature are foreign to
the right of occupancy or enjoyment inherent in a
contract of lease.”
Same; Sales; Sale is a consensual contract and he
who alleges it must show its existence by competent
proof.—Under Article 1475 of the New 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.” Thus, the
elements of a contract of sale are consent, object,
and price in money or its equivalent. It bears
stressing that the absence of any of these essential
elements negates the existence of a perfected
contract of sale. Sale is a consensual contract and he
who alleges it must show its existence by competent
proof.
Same; Same; Agency; The basis for agency is
representation and a person dealing with an agent
is put upon inquiry and must discover upon his peril
the authority of the agent.—In an attempt to
resurrect the lapsed option, private respondent gave
P300,000.00 to petitioners (thru Alice A. Dizon) on
the erroneous presumption that the said amount
tendered would constitute a perfected contract of
sale pursuant to the contract of lease with option to
buy. There was no valid consent by the petitioners
(as co-owners of the leased premises) on the
supposed sale entered into by Alice A. Dizon, as
petitioners’ alleged agent, and private respondent.
The basis for agency is representation and a person
dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent.
As provided in Article 1868 of the New Civil Code,
there was no showing that petitioners consented to
the act of Alice A. Dizon nor authorized her to act
on their behalf with regard to her transaction with
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 70 of 132
private respondent. The most prudent thing private
respondent should have done was to ascertain the
extent of the authority of Alice A. Dizon. Being
negligent in this regard, private respondent cannot
seek relief on the basis of a supposed agency.
MARTINEZ, J.:
FACTS:
Two consolidated petitions were filed before us
seeking to set aside and annul the decisions and
resolutions of respondent Court of Appeals.
What seemed to be a simple ejectment suit was
juxtaposed with procedural intricacies which
finally found its way to this Court.
G.R. No. 122544:
On May 23, 1974, private respondent Overland
Express Lines, Inc. (lessee) entered into a
Contract of Lease with Option to Buy with
petitioners  (lessors) involving a 1,755.80
1
square meter parcel of land situated at corner
MacArthur Highway and South “H” Street,
Diliman, Quezon City. The term of the lease
was for one (1) year commencing from May 16,
1974 up to May 15, 1975. During this period,
private respondent was granted an option to
purchase for the amount of P3,000.00 per
square meter. Thereafter, the lease shall be on a
per month basis with a monthly rental of
P3,000.00.
For failure of private respondent to pay the
increased rental of P8,000.00 per month
effective June 1976, petitioners filed an action
for ejectment (Civil Case No. VIII-29155) on
November 10, 1976 before the then City Court
(now Metropolitan Trial Court) of Quezon City,
Branch VIII. On November 22, 1982, the City
Court rendered judgment  ordering private
2
respondent to vacate the leased premises and to
pay the sum of P624,000.00 representing
rentals in arrears and/or as damages in the form
of reasonable compensation for the use and
occupation of the premises during the period of
illegal detainer from June 1976 to November
1982 at the monthly rental of P8,000.00, less
payments made, plus 12% interest per annum
from November 18, 1976, the date of filing of
the complaint, until fully paid, the sum of
P8,000.00 a month starting December 1982,
until private respondent fully vacates the
premises, and to pay P20,000.00 as and by way
of attorney’s fees.
Private respondent filed a certiorari petition
praying for the issuance of a restraining order
enjoining the enforcement of said judgment and
dismissal of the case for lack of jurisdiction of
the City Court.
On September 26, 1984, the then Intermediate
Appellate Court  (now Court of Appeals)
3
rendered a decision  stating that:
4
“x x x, the alleged question of whether petitioner
was granted an extension of the option to buy the
property; whether such option, if any, extended the
lease or whether petitioner actually paid the alleged
P300,000.00 to Fidela Dizon, as representative of
private respondents in consideration of the option
and, whether petitioner thereafter offered to pay the
balance of the supposed purchase price, are all
merely incidental and do not remove the unlawful
detainer case from the jurisdiction of respondent
court. In consonance with the ruling in the case of
Teodoro, Jr. vs. Mirasol (supra), the above matters
may be raised and decided in the unlawful detainer
suit as, to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original
Records, pp. 38-39).”
The motion for reconsideration was denied. On
review, this Court dismissed the petition in a
resolution dated June 19, 1985 and likewise
denied private respondent’s subsequent motion
for reconsideration in a resolution dated
September 9, 1985. 5
On October 7, 1985, private respondent filed
before the Regional Trial Court (RTC) of
Quezon City (Civil Case No. Q-45541) an
action for Specific Performance and Fixing of
Period for Obligation with prayer for the
issuance of a restraining order pending hearing
on the prayer for a writ of preliminary
injunction. It sought to compel the execution of
a deed of sale pursuant to the option to purchase
and the receipt of the partial payment, and to fix
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 71 of 132
the period to pay the balance. In an Order dated
October 25, 1985, the trial court denied the
issuance of a writ of preliminary injunction on
the ground that the decision of the then City
Court for the ejectment of the private
respondent, having been affirmed by the then
Intermediate Appellate Court and the Supreme
Court, has become final and executory.
Unable to secure an injunction, private
respondent also filed before the RTC of Quezon
City, Branch 102 (Civil Case No. Q-46487) on
November 15, 1985 a complaint for Annulment
of and Relief from Judgment with injunction
and damages. In its decision  dated May 12,
6
1986, the trial court dismissed the complaint for
annulment on the ground of res judicata, and
the writ of preliminary injunction previously
issued was dissolved. It also ordered private
respondent to pay P3,000.00 as attorney’s fees.
As a consequence of private respondent’s
motion for reconsideration, the preliminary
injunction was reinstated, thereby restraining
the execution of the City Court’s judgment on
the ejectment case.
The two cases were thereafter consolidated
before the RTC of Quezon City, Branch 77. On
April 28, 1989, a decision  was rendered
7
dismissing private respondent’s complaint
in Civil Case No. Q-45541(specific
performance case) and denying its motion for
reconsideration in Civil Case No.
46487 (annulment of the ejectment case). The
motion for reconsideration of said decision was
likewise denied.
On appeal,  respondent Court of Appeals
8
rendered a decision  upholding the jurisdiction
9
of the City Court of Quezon City in the
ejectment case. It also concluded that there was
a perfected contract of sale between the parties
on the leased premises and that pursuant to the
option to buy agreement, private respondent
had acquired the rights of a vendee in a contract
of sale. It opined that the payment by private
respondent of P300,000.00 on June 20, 1975 as
partial payment for the leased property, which
petitioners accepted (through Alice A. Dizon)
and for which an official receipt was issued,
was the operative act that gave rise to a
perfected contract of sale, and that for failure of
petitioners to deny receipt thereof, private
respondent can therefore assume that Alice A.
Dizon, acting as agent of petitioners, was
authorized by them to receive the money in
their behalf. The Court of Appeals went further
by stating that in fact, what was entered into
was a “conditional contract of sale” wherein
ownership over the leased property shall not
pass to the private respondent until it has fully
paid the purchase price. Since private
respondent did not consign to the court the
balance of the purchase price and continued to
occupy the subject premises, it had the
obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the
purchase price. The dispositive portion of said
decision reads:
“WHEREFORE, the appealed decision in Case No.
46487 is AFFIRMED. The appealed decision in
Case No. 45541 is, on the other hand, ANNULLED
and SET ASIDE. The defendants-appellees are
ordered to execute the deed of absolute sale of the
property in question, free from any lien or
encumbrance whatsoever, in favor of the plaintiff-
appellant, and to deliver to the latter the said deed of
sale, as well as the owner’s duplicate of the
certificate of title to said property upon payment of
the balance of the purchase price by the plaintiff-
appellant. The plaintiff-appellant is ordered to pay
P1,700.00 per month from June 1976, plus 6%
interest per annum, until payment of the balance of
the purchase price, as previously agreed upon by the
parties. SO ORDERED.”
Upon denial of the motion for partial
reconsideration (Civil Case No. Q-45541) by
respondent Court of Appeals,  petitioners 10
elevated the case via petition for certiorari
questioning the authority of Alice A. Dizon as
agent of petitioners in receiving private
respondent’s partial payment amounting to
P300,000.00 pursuant to the Contract of Lease
with Option to Buy. Petitioners also assail the
propriety of private respondent’s exercise of the
option when it tendered the said amount on
June 20, 1975 which purportedly resulted in a
perfected contract of sale.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 72 of 132
G.R. No. 124741:
Petitioners filed with respondent Court of
Appeals a motion to remand the records
of Civil Case No. 38-29155 (ejectment case) to
the Metropolitan Trial Court (MTC), then City
Court of Quezon City, Branch 38, for execution
of the judgment dated November 22, 1982
11
which was granted in a resolution dated June
29, 1992. Private respondent filed a motion to
reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition
for certiorari, prohibition with preliminary
injunction and/or restraining order with this
Court (G.R. Nos. 106750-51) which was
dismissed in a resolution dated September 16,
1992 on the ground that the same was a refiled
case previously dismissed for lack of merit. On
November 26, 1992, entry of judgment was
issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-
parte motion for execution of the decision
in Civil Case No. 38-29155 with the MTC of
Quezon City, Branch 38. On September 13,
1993, the trial court ordered the issuance of a
third alias writ of execution. In denying private
respondent’s motion for reconsideration, it
ordered the immediate implementation of the
third writ of execution without delay.
On December 22, 1993, private respondent
filed with the Regional Trial Court (RTC) of
Quezon City, Branch 104 a petition
for certiorari and prohibition with preliminary
injunction/restraining order (SP. PROC. No.
93-18722) challenging the enforceability and
validity of the MTC judgment as well as the
order for its execution.
On January 11, 1994, RTC of Quezon City,
Branch 104 issued an order granting the
12
issuance of a writ of preliminary injunction
upon private respondent’s posting of an
injunction bond of P50,000.00.
Assailing the aforequoted order after denial of
their motion for partial reconsideration,
petitioners filed a petition  for certiorariand
13
prohibition with a prayer for a temporary
restraining order and/or preliminary injunction
with the Court of Appeals. In its decision,  the 14
Court of Appeals dismissed the petition and
ruled that:
“The avowed purpose of this petition is to enjoin the
public respondent from restraining the ejectment of
the private respondent. To grant the petition would
be to allow the ejectment of the private respondent.
We cannot do that now in view of the decision of
this Court in CA-G.R. CV Nos. 25153-54.
Petitioners’ alleged right to eject private respondent
has been demonstrated to be without basis in the
said civil case. The petitioners have been shown,
after all, to have no right to eject private
respondents.
WHEREFORE, the petition is DENIED due course
and is accordingly DISMISSED.
SO ORDERED.”
15
Petitioners’ motion for reconsideration was
denied in a resolution  by the Court of Appeals
16
stating that:
“This court in its decision in CA-G.R. CV Nos.
25153-54declared that the plaintiff-appellant
(private respondent herein) acquired the rights of a
vendee in a contract of sale, in effect, recognizing
the right of the private respondent to possess the
subject premises. Considering said decision, we
should not allow ejectment; to do so would disturb
the status quo of the parties since the petitioners are
not in possession of the subject property. It would
be unfair and unjust to deprive the private
respondent of its possession of the subject property
after its rights have been established in a subsequent
ruling.
WHEREFORE, the motion for reconsideration is
DENIED for lack of merit. SO ORDERED.” 17
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to
evict private respondent from the subject
premises for non-payment of rentals. The term
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 73 of 132
of the Contract of Lease with Option to Buy
was for a period of one (1) year (May 16, 1974
to May 15, 1975) during which the private
respondent was given an option to purchase
said property at P3,000.00 per square meter.
After the expiration thereof, the lease was for
P3,000.00 per month.
Admittedly, no definite period beyond the one-
year term of lease was agreed upon by
petitioners and private respondent. However,
since the rent was paid on a monthly basis, the
period of lease is considered to be from month
to month in accordance with Article 1687 of the
New Civil Code. Where the rentals are paid
18
monthly, the lease, even if verbal may be
deemed to be on a monthly basis, expiring at
the end of every month pursuant to Article
1687, in relation to Article 1673 of the Civil
Code.  In such case, a demand to vacate is not
19
even necessary for judicial action after the
expiration of every month.
20
When private respondent failed to pay the
increased rental of P8,000.00 per month in June
1976, the petitioners had a cause of action to
institute an ejectment suit against the former
with the then City Court. In this regard, the City
Court (now MTC) had exclusive jurisdiction
over the ejectment suit. The filing by private
respondent of a suit with the Regional Trial
Court for specific performance to enforce the
option to purchase did not divest the then City
Court of its jurisdiction to take cognizance over
the ejectment case. Of note is the fact that the
decision of the City Court was affirmed by both
the Intermediate Appellate Court and this
Court.
Second. Having failed to exercise the option
within the stipulated one-year period, private
respondent cannot enforce its option to
purchase anymore. Moreover, even
assuming arguendo that the right to exercise the
option still subsists at the time private
respondent tendered the amount on June 20,
1975, the suit for specific performance to
enforce the option to purchase was filed only on
October 7, 1985 or more than ten (10) years
after accrual of the cause of action as provided
under Article 1144 of the New Civil Code. 21
In this case, there was a contract of lease for
one (1) year with option to purchase. The
contract of lease expired without the private
respondent, as lessee, purchasing the property
but remained in possession thereof. Hence,
there was an implicit renewal of the contract of
lease on a monthly basis. The other terms of the
original contract of lease which are revived in
the implied new lease under Article 1670 of the
New Civil Code  are only those terms which are
22
germane to the lessee’s right of continued
enjoyment of the property leased.  Therefore,
23
an implied new lease does not ipso facto carry
with it any implied revival of private
respondent’s option to purchase (as lessee
thereof) the leased premises. The provision
entitling the lessee the option to purchase the
leased premises is not deemed incorporated in
the impliedly renewed contract because it is
alien to the possession of the lessee. Private
respondent’s right to exercise the option to
purchase expired with the termination of the
original contract of lease for one year. The
rationale of this Court is that:
“This is a reasonable construction of the provision,
which is based on the presumption that when the
lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the
expiration of the contract he is willing that such
enjoyment shall be for the entire period
corresponding to the rent which is customarily paid
—in this case up to the end of the month because
the rent was paid monthly. Necessarily, if the
presumed will of the parties refers to the enjoyment
of possession the presumption covers the other
terms of the contract related to such possession,
such as the amount of rental, the date when it must
be paid, the care of the property, the responsibility
for repairs, etc. But no such presumption may be
indulged in with respect to special agreements
which by nature are foreign to the right of
occupancy or enjoyment inherent in a contract of
lease.”
24
Third. There was no perfected contract of sale
between petitioners and private respondent.
Private respondent argued that it delivered the
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 74 of 132
check of P300,000.00 to Alice A. Dizon who
acted as agent of petitioners pursuant to the
supposed authority given by petitioner Fidela
Dizon, the payee thereof. Private respondent
further contended that petitioners’ filing of the
ejectment case against it based on the contract
of lease with option to buy holds petitioners in
estoppel to question the authority of petitioner
Fidela Dizon. It insisted that the payment of
P300,000.00 as partial payment of the purchase
price constituted a valid exercise of the option
to buy.
Under Article 1475 of the New 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.”
Thus, the elements of a contract of sale are
consent, object, and price in money or its
equivalent. It bears stressing that the absence of
any of these essential elements negates the
existence of a perfected contract of sale. Sale is
a consensual contract and he who alleges it
must show its existence by competent proof. 25
In an attempt to resurrect the lapsed option,
private respondent gave P300,000.00 to
petitioners (thru Alice A. Dizon) on the
erroneous presumption that the said amount
tendered would constitute a perfected contract
of sale pursuant to the contract of lease with
option to buy. There was no valid consent by
the petitioners (as co-owners of the leased
premises) on the supposed sale entered into by
Alice A. Dizon, as petitioners’ alleged agent,
and private respondent. The basis for agency is
representation and a person dealing with an
agent is put upon inquiry and must discover
upon his peril the authority of the agent.  As
26
provided in Article 1868 of the New Civil
Code,  there was no showing that petitioners
27
consented to the act of Alice A. Dizon nor
authorized her to act on their behalf with regard
to her transaction with private respondent. The
most prudent thing private respondent should
have done was to ascertain the extent of the
authority of Alice A. Dizon. Being negligent in
this regard, private respondent cannot seek
relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of
Appeals,  we explained the rule in dealing with
28
an agent:
“Every person dealing with an agent is put upon
inquiry and must discover upon his peril the
authority of the agent. If he does not make such
inquiry, he is chargeable with knowledge of the
agent’s authority, and his ignorance of that authority
will not be any excuse. Persons dealing with an
assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if
they would hold the principal, to ascertain not only
the fact of the agency but also the nature and extent
of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.”
For the long years that private respondent was
able to thwart the execution of the ejectment
suit rendered in favor of petitioners, we now
write finis to this controversy and shun further
delay so as to ensure that this case would really
attain finality.
FALLO: WHEREFORE, in view of the
foregoing, both petitions are GRANTED. The
decision dated March 29, 1994 and the
resolution dated October 19, 1995 in CA-G.R.
CV Nos. 25153-54, as well as the decision
dated December 11, 1995 and the resolution
dated April 23, 1997 in CA-G.R. SP No. 33113
of the Court of Appeals are hereby
REVERSED and SET ASIDE.
Let the records of this case be remanded to the
trial court for immediate execution of the
judgment dated November 22, 1982 in Civil
Case No. VIII-29155 of the then City Court
(now Metropolitan Trial Court) of Quezon City,
Branch VIII as affirmed in the decision dated
September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in
the resolution dated June 19, 1985 of this Court.
However, petitioners are ordered to REFUND
to private respondent the amount of
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 75 of 132
P300,000.00 which they received through Alice
A. Dizon on June 20, 1975. SO ORDERED.
Notes.—Tacit renewal under Art. 1670 of the
Civil Code is limited only to the terms of the
contract which are germane to the lessee’s right
of continued enjoyment of the property and
does not extend to alien matters, like the option
to buy the leased premises. (Vda. de Chua vs.
Intermediate Appellate Court, 229 SCRA
99 [1994])
A lessor’s acquiescence to lessee’s continued
possession of a personal property is in effect a
continuation of the contract under the concept
of an implied new lease on a month to month
basis under Article 1670 of the Civil Code.
(Manahan, Jr. vs. Court of Appeals, 255 SCRA
202 [1996])
G.R. No. 86150. March 2, 1992. *
GUZMAN, BOCALING & CO.,
petitioner, vs. RAOUL S.V. BONNEVIE,
respondent.
NATURE OF THE CASE:
PETITION for review from the decision of the
Court of Appeals.
SYLLABUS:
Contracts; Interpretation.—Even if the letter had
indeed been sent to and received by the private
respondents and they did not exercise their right of
first priority, Reynoso would still be guilty of
violating Paragraph 20 of the Contract of Lease
which specifically stated that the private
respondents could exercise the right of first priority,
“all things and conditions being equal.” The Court
reads this to mean that there should be identity of
the terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the
Bonnevies to enjoy the right of first priority. The
selling price quoted to the Bonnevies was
P600,000.00, to be fully paid in cash less only the
mortgage lien of P100,000.00. On the other hand,
the selling price offered to and accepted by the
petitioner was only P400,000.00, and only
P137,500.00 was paid in cash while the balance of
P272,500.00 was to be paid “when the property
(was) cleared of tenants or occupants.” The fact that
the Bonnevies had financial problems at that time
was no justification for denying them the first
option to buy the subject property. Even if the
Bonnevies could not buy it at the price quoted,
Reynoso could not sell it to another for a lower
price and under more favorable terms and
conditions. Only if the Bonnevies failed to exercise
their right of first priority could Reynoso lawfully
sell the subject property to others, and at that
only under the same terms and conditions offered to
the Bonnevies.
Same; Settlement of estates; Powers of
administration; Approval of probate court not
necessary for contract of lease not exceeding one
year.—The Court agrees with the respondent court
that it was not necessary to secure the approval by
the probate court of the Contract of Lease because it
did not involve an alienation of real property of the
estate nor did the term of the lease exceed one year
so as to make it fall under Article 1878(8) of the
Civil Code. Only if Paragraph 20 of the Contract of
Lease was activated and the said property was
intended to be sold would it be required of the
administratrix to secure the approval of the probate
court pursuant to Rule 89 of the Rules of Court.
Same; Statute of frauds; Rescissible
contracts; Contract of sale in question not voidable
under statute of frauds but rescissible under
Articles 1380 to 1381(3).—The petitioner argues
that assuming the Contract of Sale to be voidable,
only the parties thereto could bring an action to
annul it pursuant to Article 1397 of the Civil Code.
It is stressed that private respondents are strangers
to that agreement and therefore have no personality
to seek its annulment. The respondent court
correctly held that the Contract of Sale was not
voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise
valid may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the
Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property
to the petitioner without recognizing their right of
first priority under the Contract of Lease.
Same; Rescissible contracts; Petitioner not deemed
purchaser in good faith.—A purchaser in good faith
and for value is one who buys the property of
another without notice that some other person has a
right to or interest in such property and pays a full
and fair price for the same at the time of such
purchase or before he has notice of the claim or
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 76 of 132
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.
CRUZ, J.:
FACTS:
The subject of the controversy is a parcel of
land measuring six hundred (600) square
meters, more or less, with two buildings
constructed thereon, belonging to the Intestate
Estate of Jose L. Reynoso.
This property was leased to Raoul S. Bonnevie
and Christopher Bonnevie by the
administratrix, Africa Valdez de Reynoso, for a
period of one year beginning August 8, 1976, at
a monthly rental of P4,000.00.
The Contract of lease contained the following
stipulation:
20.—In case the LESSOR desires or decides to sell
the leased property, the LESSEES shall be given a
first priority to purchase the same, all things and
considerations being equal.
On November 3, 1976, according to Reynoso,
she notified the private respondents by
registered mail that she was selling the leased
premises for P600,000.00 less a mortgage loan
of P100,000.00, and was giving them 30 days
from receipt of the letter within which to
exercise their right of first priority to purchase
the subject property. She said that in the event
that they did not exercise the said right, she
would expect them to vacate the property not
later than March, 1977.
On January 20, 1977, Reynoso sent another
letter to private respondents advising them that
in view of their failure to exercise their right of
first priority, she had already sold the property.
Upon receipt of this letter, the private
respondents wrote Reynoso informing her that
neither of them had received her letter dated
November 3, 1976; that they had advised her
agent to inform them officially should she
decide to sell the property so negotiations could
be initiated; and that they were “constrained to
refuse (her) request for the termination of the
lease.”
On March 7, 1977, the leased premises were
formally sold to petitioner Guzman, Bocaling &
Co. The Contract of Sale provided for
immediate payment of P137,500.00 on the
purchase price, the balance of P262,500.00 to
be paid only when the premises were vacated.
On April 12, 1977, Reynoso wrote a letter to
the private respondents demanding that they
vacate the premises within 15 days for their
failure to pay the rentals for four months. When
they refused, Reynoso filed a complaint for
ejectment against them which was docketed
as Civil Case No. 043851-CV in the then City
Court of Manila.
On September 25, 1979, the parties submitted a
Compromise Agreement, which provided inter
aliathat “the defendant Raoul S.V. Bonnevie
shall vacate the premises subject of the Lease
Contract, voluntarily and peacefully not later
than October 31, 1979.”
This agreement was approved by the City Court
and became the basis of its decision. However,
as the private respondents failed to comply with
the above-quoted stipulation, Reynoso filed a
motion for execution of the judgment by
compromise, which was granted on November
8, 1979.
On November 12, 1979, private respondent
Raoul S. Bonnevie filed a motion to set aside
the decision of the City Court as well as the
Compromise Agreement on the sole ground that
Reynoso had not delivered to him the “records
of payments and receipts of all rentals by or for
the account of defendants xxx.” The motion
was denied and the case was elevated to the
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 77 of 132
then Court of First Instance. That Court
remanded the case to the City Court of Manila
for trial on the merits after both parties had
agreed to set aside the Compromise Agreement.
On April 29, 1980, while the ejectment case
was pending in the City Court, the private
respondents filed an action for annulment of the
sale between Reynoso and herein petitioner
Guzman, Bocaling & Co. and cancellation of
the transfer certificate of title in the name of the
latter. They also asked that Reynoso be required
to sell the property to them under the same
terms and conditions agreed upon in the
Contract of Sale in favor of the petitioner. This
complaint was docketed as Civil Case No.
131461 in the then Court of First Instance of
Manila.
On May 5, 1980, the City Court decided the
ejectment case, disposing as follows:
WHEREFORE, judgment is hereby rendered
ordering defendants and all persons holding under
them to vacate the premises at No. 658 Gen. Malvar
Street, Malate, Manila, subject of this action, and
deliver possession thereof to the plaintiff, and to pay
to the latter: (1) The sum of P4,000.00 a month
from April 1, 1977 to August 8, 1977; (2) The sum
of P7,000.00 a month, as reasonable compensation
for the continued unlawful use and occupation of
said premises, from August 9, 1977 and every
month thereafter until defendants actually vacate
and deliver possession thereof to the plaintiff; (3)
The sum of P1,000.00 as and for attorney’s fees;
and (4) The costs of suit.
The decision was appealed to the then Court of
First Instance of Manila, docketed as Civil Case
No. 132634and consolidated with Civil Case
No. 131461. In due time, Judge Tomas P.
Maddela, Jr. decided the two cases as follows:
WHEREFORE, premises considered, this Court
in Civil Case No. 132634 hereby modifies the
decision of the lower court as follows:
1.Ordering defendants Raoul S.V. Bonnevie and
Christopher Bonnevie and all persons holding under
them to vacate the premises at No. 658 Gen. Malvar
St., Malate, Manila, subject of this action and
deliver possessions thereof to the plaintiff; and
2.To pay the latter the sum of P4,000.00 a month
from April 1, 1977 up to September 21, 1980 (when
possession of the premises was turned over to the
Sheriff) after deducting whatever payments were
made and accepted by Mrs. Africa Valdez Vda. de
Reynoso during said period, without
pronouncement as to costs.
As to Civil Case No. 131461, the Court hereby
renders judgment in favor of the plaintiff Raoul
Bonnevie as against the defendants Africa Valdez
Vda. de Reynoso and Guzman and Bocaling & Co.,
declaring the deed of sale with mortgage executed
by defendant Africa Valdez Vda. de Reynoso in
favor of defendant Guzman and Bocaling null and
void; cancelling the Certificate of Title No. 125914
issued by the Register of Deeds of Manila in the
name of Guzman and Bocaling & Co.,; ordering the
defendant Africa Valdez Vda. de Reynoso to
execute in favor of the plaintiff Raoul Bonnevie a
deed of sale with mortgage over the property leased
by him in the amount of P400,000.00 under the
same terms and conditions should there be any other
occupants or tenants in the premises; ordering the
defendants jointly and severally to pay the plaintiff
Raoul Bonnevie the amount of P50,000.00 as
temperate damages; to pay the plaintiff jointly and
severally the amount of P2,000.00 per month from
the time the property was sold to defendant Guzman
and Bocaling by defendant Africa Valdez Vda. de
Reynoso on March 7, 1977, up to the execution of a
deed of sale of the property by defendant Africa
Valdez Vda. de Reynoso in favor of plaintiff
Bonnevie; to pay jointly and severally the plaintiff
Bonnevie the amount of P20,000.00 as exemplary
damages, for attorney’s fees in the amount of
P10,000.00, and to pay the costs of suit.
Both Reynoso and the petitioner company filed
with the Court of Appeals a petition for review
of this decision. The appeal was eventually
resolved against them in a decision
promulgated on March 16, 1988, where the
respondent court substantially affirmed the
conclusions of the lower court but reduced the
award of damages. 1
Its motion for reconsideration having been
denied on December 14, 1986, the petitioner
has come to this Court, asserting inter alia that
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 78 of 132
the respondent court erred in ruling that the
grant of first priority to purchase the subject
properties by the judicial administratrix needed
no authority from the probate court; holding
that the Contract of Sale was not voidable but
rescissible; considering the petitioner as a buyer
in bad faith; ordering Reynoso to execute the
deed of sale in favor of the Bonnevies; and not
passing upon the counterclaim. Reynoso has not
appealed.
The Court has examined the petitioner’s
contentions and finds them to be untenable.
Reynoso claimed to have sent the November 3,
1976 letter by registered mail, but the registry
return card was not offered in evidence. What
she presented instead was a copy of the said
letter with a photocopy of only the face of a
registry return card claimed to refer to the said
letter. A copy of the other side of the card
showing the signature of the person who
received the letter and the date of the receipt
was not submitted. There is thus no satisfactory
proof that the letter was received by the
Bonnevies.
Even if the letter had indeed been sent to and
received by the private respondents and they
did not exercise their right of first priority,
Reynoso would still be guilty of violating
Paragraph 20 of the Contract of Lease which
specifically stated that the private respondents
could exercise the right of first priority, “all
things and conditions being equal.” The Court
reads this to mean that there should be identity
of the terms and conditions to be offered to the
Bonnevies and all other prospective buyers,
with the Bonnevies to enjoy the right of first
priority.
The selling price quoted to the Bonnevies was
P600,000.00, to be fully paid in cash less only
the mortgage lien of P100,000.00.  On the other
2
hand, the selling price offered to and accepted
by the petitioner was only P400,000.00, and
only P137,500.00 was paid in cash while the
balance of P272,500.00 was to be paid “when
the property (was) cleared of tenants or
occupants.” 3
The fact that the Bonnevies had financial
problems at that time was no justification for
denying them the first option to buy the subject
property. Even if the Bonnevies could not buy
it at the price quoted, Reynoso could not sell it
to another for a lower price and under more
favorable terms and conditions. Only if the
Bonnevies failed to exercise their right of first
priority could Reynoso lawfully sell the subject
property to others, and at that only under the
same terms and conditions offered to the
Bonnevies.
The Court agrees with the respondent court that
it was not necessary to secure the approval by
the probate court of the Contract of Lease
because it did not involve an alienation of real
property of the estate nor did the term of the
lease exceed one year so as to make it fall under
Article 1878(8) of the Civil Code. Only if
Paragraph 20 of the Contract of Lease was
activated and the said property was intended to
be sold would it be required of the
administratrix to secure the approval of the
probate court pursuant to Rule 89 of the Rules
of Court.
As a strict legal proposition, no judgment of the
probate court was reviewed and eventually
annulled collaterally by the respondent court as
contended by the petitioner. The order
authorizing the sale in its favor was duly issued
by the probate court, which thereafter approved
the Contract of Sale resulting in the eventual
issuance of title in favor of the petitioner. That
order was valid insofar as it recognized the
existence of all the essential elements of a valid
contract of sale, but without regard to the
special provision in the Contract of Lease
giving another party the right of first priority.
Even if the order of the probate court was valid,
the private respondents still had a right to
rescind the Contract of Sale because of the
failure of Reynoso to comply with her duty to
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 79 of 132
give them the first opportunity to purchase the
subject property.
The petitioner argues that assuming the
Contract of Sale to be voidable, only the parties
thereto could bring an action to annul it
pursuant to Article 1397 of the Civil Code. It is
stressed that private respondents are strangers
to that agreement and therefore have no
personality to seek its annulment.
The respondent court correctly held that the
Contract of Sale was not voidable
but rescissible.Under Article 1380 to 1381(3)
of the Civil Code, a contract otherwise valid
may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors.
The status of creditors could be validly
accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the
subject property to the petitioner without
recognizing their right of first priority under the
Contract of Lease.
According to Tolentino, rescission is a remedy
granted by law to the contracting parties and
even to third persons, to secure reparation for
damages caused to them by a contract, even if
this should be valid, by means of the restoration
of things to their condition at the moment prior
to the celebration of said contract.  It is a relief
4
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 5
implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to
someone that justifies its invalidation for
reasons of equity. 6
It is true that the acquisition by a third person of
the property subject of the contract is an
obstacle to the action for its rescission where it
is shown that such third person is in lawful
possession of the subject of the contract and
that he did not act in bad faith. However, this
7
rule is not applicable in the case before us
because the petitioner is not considered a third
party in relation to the Contract of Sale nor may
its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was
the vendee in the Contract of Sale. Moreover,
the petitioner cannot be deemed a purchaser in
good faith for the record shows that it
categorically admitted it was aware of the lease
in favor of the Bonnevies, who were actually
occupying the subject property at the time it
was sold to it. Although the Contract of Lease
was not annotated on the transfer certificate of
title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny
actual knowledge of such lease which was
equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one
who buys the property of another without
notice that some other person has a right to or
interest in such property and pays a full and fair
price for the same at the time of such purchase
or before he has notice of the claim or interest
of some other person in the property.  Good 8
faith connotes an honest intention to abstain
from taking unconscientious advantage of
another.  Tested by these principles, the
9
petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge
should have cautioned it to look deeper into the
agreement to determine if it involved
stipulations that would prejudice its own
interests.
The petitioner insists that it was not aware of
the right of first priority granted by the Contract
of Lease. Assuming this to be true, we
nevertheless agree with the observation of the
respondent court that:
If Guzman-Bocaling failed to inquire about the
terms of the Lease Contract, which includes Par. 20
on priority right given to the Bonnevies, it had only
itself to blame. Having known that the property it
was buying was under lease, it behooved it as a
prudent person to have required Reynoso or the
broker to show to it the Contract of Lease in which
Par. 20 is contained.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 80 of 132
Finally, the petitioner also cannot invoke the
Compromise Agreement which it says canceled
the right of first priority granted to the
Bonnevies by the Contract of Lease. This
agreement was set aside by the parties thereto,
resulting in the restoration of the original rights
of the private respondents under the Contract of
Lease. The Joint Motion to Remand filed by
Reynoso and the private respondents clearly
declared inter alia:
That without going into the merits of instant
petition, the parties have agreed to SET ASIDE the
compromise agreement, dated September 24, 1979
and remand Civil Case No. 043851 of the City
Court of Manila to Branch IX thereof for trial on the
merits.
10
We find, in sum, that the respondent court did
not commit the errors imputed to it by the
petitioner. On the contrary, its decision is
conformable to the established facts and the
applicable law and jurisprudence and so must
be sustained.
FALLO: WHEREFORE, the petition is
DENIED, with costs against the petitioner. The
challenged decision is AFFIRMED in toto. It is
so ordered.
Note.—Fact that private respondents did not
investigate the title to the properties offered as
collaterals does not constitute convincing
evidence to rebut the presumption that they are
in good faith. (Abando vs. Lozada, 178 SCRA
509).
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.
NATURE OF THE CASE:
PETITION for review on certiorari of a decision of
the Court of Appeals.
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
Decision1 of the Court of Appeals2 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 order3 of
September 2, 1991, of the Regional Trial Court of
Makati, Branch 57,4dismissing Civil Case No. 91-
786 for lack of a valid cause of action.
SYLLABUS:
Actions; Pleadings and Practice; Procedural
Rules; When noncompliance 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.—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. It does
not appear that respondents were unduly prejudiced
by petitioner’s nonfeasance. Neither has it been
shown that such failure was intentional.
Same; Words and Phrases; Questions of Law and
Questions of Fact; 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.—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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 81 of 132
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.
Same; Cause of Action, Elements of.—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.
Same; Same; To sustain a motion to dismiss for
lack of cause of action, the complaint must show
that the claim does not exist, rather than that a
claim has been defectively stated, or is ambiguous,
indefinite or uncertain.—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.
Contracts; Sales; Right of First Refusal; In order
to have full compliance with the contractual right
granting a party 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.—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.
Same; Same; Same; There should be identity of
terms and conditions to be offered to the buyer
holding a right of first refusal (or the first option to
buy) if such right is not to be rendered illusory.—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.
Same; Same; Same; 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.—
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.
Statutes; Urban Land Reform Law (P.D. 1517); In
the absence of allegations in the complaint that the
prerequisites for the availment of benefits under
P.D. 1517 have been complied with, the complaint
fails to state a cause of action.—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 of P.D. 1517,
“the terms and conditions of the sale in the exercise
of the lessee’s right of first refusal to purchase shall
be determined by the Urban Zone Expropriation and
Land Management Committee. Hence, x x x certain
prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the
decree.” 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.
Contracts; Assignments; A deed of assignment
need not be very specific as to which rights and
obligations were passed on to the assignee if it is
understood in the general provision that all specific
rights and obligations contained in the contract of
lease are those referred to as being assigned.—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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 82 of 132
assignee. It is understood in the general provision
aforequoted that all specific rights and
obligationscontained 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.
Actions; Pleadings and Practice; Motions to
Dismiss; 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 deprived of the right to submit its
own case and to submit evidence to rebut the
allegations in the complaint, and 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.—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. 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.
PANGANIBAN, J.:
Facts of the Case
On March 19, 1991, herein petitioner filed
before the Regional Trial Court of Makati a
complaint,  which is reproduced in full below:
5
“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, Dasmariñas 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’;
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 83 of 132
7. On September 21, 1988, defendant Santos sold
the eight parcels of land subject of the lease to
defendant David Raymundo for a consideration of
FIVE MILLION (P5,000,000.00) PESOS. The said
sale was in contravention of the contract of lease,
for the first option or priority to buy was not offered
by defendant Santos to the plaintiff. Xerox copy of
the deed of sale is hereto attached as Annex ‘M.’
8. On March 5, 1989, Defendant Santos wrote a
letter to the plaintiff informing the same of the sale
of the properties to defendant Raymundo, the said
letter was personally handed by the attorney-in-fact
of defendant Santos. Xerox copy of the letter is
hereto attached as Annex ‘N.’
9. Upon learning of this fact plaintiff’s
representative wrote a letter to defendant Santos,
requesting her to rectify the error and consequently
realizing the error, she had it reconveyed to her for
the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter
and the deed of reconveyance are hereto attached as
Annexes ‘O’ and ‘P.’
10. Subsequently the property was offered for sale
to plaintiff by the defendant for the sum of
FIFTEEN MILLION (P15,000,000.00) PESOS.
Plaintiff was given ten (10) days to make good of
the offer, but therefore (sic) the said period expired
another letter came from the counsel of defendant
Santos, containing the same tenor of (sic) the former
letter. Xerox copies of the letters are hereto attached
as Annexes ‘Q’ and ‘R.’
11. On May 8, 1989, before the period given in the
letter offering the properties for sale expired,
plaintiff’s counsel wrote counsel of defendant
Santos offering to buy the properties for FIVE
MILLION (P5,000,000.00) PESOS. Xerox Copy of
the letter is hereto attached as Annex ‘S.’
12. On May 15, 1989, before they replied to the
offer to purchase, another deed of sale was executed
by defendant Santos (in favor of) defendant
Raymundo for a consideration of NINE MILLION
(P9,000,000.00) PESOS. Xerox copy of the second
deed of sale is hereto attached as Annex ‘T.’
13. Defendant Santos violated again paragraph 9 of
the contract of lease by executing a second deed of
sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant
Santos replied to the letter of the plaintiff’s offer to
buy or two days after she sold her properties. In her
reply she stated among others that the period has
lapsed and the plaintiff is not a privy (sic) to the
contract. Xerox copy of the letter is hereto attached
as Annex ‘U.’
15. On June 28, 1989, counsel for plaintiff informed
counsel of defendant Santos of the fact that plaintiff
is the assignee of all rights and interest of the
former lessor. Xerox copy of the letter is hereto
attached as Annex ‘V.’
16. On July 6, 1989, counsel for defendant Santos
informed the plaintiff that the new owner is
defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex ‘W.’
17. From the preceding facts it is clear that the sale
was simulated and that there was a collusion
between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a
letter to defendant Santos to rectify the error, she
immediately have (sic) the property reconveyed it
(sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who
represented both of them in their exchange of
communication with plaintiff’s counsel, a fact that
led to the conclusion that a collusion exist (sic)
between the defendants.
19. When the property was still registered in the
name of defendant Santos, her collector of the rental
of the leased properties was her brother-in-law
David Santos and when it was transferred to
defendant Raymundo the collector was still David
Santos up to the month of June, 1990. Xerox copies
of cash vouchers are hereto attached as Annexes ‘X’
to ‘HH,’ respectively.
20. The purpose of this unholy alliance between
defendants Santos and Raymundo is to mislead the
plaintiff and make it appear that the price of the
leased property is much higher than its actual value
of FIVE MILLION (P5,000,000.00) PESOS, so that
plaintiff would purchase the properties at a higher
price.
21. Plaintiff has made considerable investments in
the said leased property by erecting a two (2) storey,
six (6) doors commercial building amounting to
THREE MILLION (P3,000,000.00) PESOS. This
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 84 of 132
considerable improvement was made on the belief
that eventually the said premises shall be sold to the
plaintiff.
22. As a consequence of this unlawful act of the
defendants, plaintiff will incurr (sic) total loss of
THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants
should be charged of the same amount for actual
damages.
23. As a consequence of the collusion, evil design
and illegal acts of the defendants, plaintiff in the
process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff
to moral damages in the amount of FIVE MILLION
(P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner and as a
deterrent to the commission of similar acts, they
should be made to answer for exemplary damages,
the amount left to the discretion of the Court.
25. Plaintiff demanded from the defendants to
rectify their unlawful acts that they committed, but
defendants refused and failed to comply with
plaintiffs just and valid and (sic) demands. Xerox
copies of the demand letters are hereto attached as
Annexes ‘KK’ to ‘LL,’ respectively.
26. Despite repeated demands, defendants failed and
refused without justifiable cause to satisfy
plaintiff’s claim, and was constrained to engaged
(sic) the services of undersigned counsel to institute
this action at a contract fee of P200,000.00, as and
for attorney’s fees, exclusive of cost and expenses
of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that
judgment be rendered in favor of the plaintiff and
against defendants and ordering that:
a. The Deed of Sale between defendants dated May
15, 1989, be annulled and the leased properties be
sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of
P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as
moral damages;
d. Defendants pay exemplary damages left to the
discretion of the Court;
e. Defendants pay the sum of not less than
P200,000.00 as attorney’s fees.
Plaintiff further prays for other just and equitable
reliefs plus cost of suit.”
Instead of filing their respective answers,
respondents filed motions to dismiss anchored
on the grounds of lack of cause of action,
estoppel and laches.
On September 2, 1991, the trial court issued the
order dismissing the complaint for lack of a
valid cause of action. It ratiocinated thus:
“Upon the very face of the plaintiff’s Complaint
itself, it therefore indubitably appears that the
defendant Santos had verily complied with
paragraph 9 of the Lease Agreement by twice
offering the properties for sale to the plaintiff for
P15 M. The said offers, however, were plainly
rejected by the plaintiff which scorned the said offer
as “RIDICULOUS.” There was therefore a definite
refusal on the part of the plaintiff to accept the offer
of defendant Santos. For in acquiring the said
properties back to her name, and in so making the
offers to sell both by herself (attorney-in-fact) and
through her counsel, defendant Santos was indeed
conscientiously complying with her obligation
under paragraph 9 of the Lease Agreement. x x x x
x x      x x x      x x x
This is indeed one instance where a Complaint, after
barely commencing to create a cause of action,
neutralized itself by its subsequent averments which
erased or extinguished its earlier allegations of an
impending wrong. Consequently, absent any
actionable wrong in the very face of the Complaint
itself, the plaintiff’s subsequent protestations of
collusion is bereft or devoid of any meaning or
purpose. x x x
The inescapable result of the foregoing
considerations point to no other conclusion than that
the Complaint actually does not contain any valid
cause of action and should therefore be as it is
hereby ordered DISMISSED. The Court finds no
further need to consider the other grounds of
estoppel and laches inasmuch as this resolution is
sufficient to dispose the matter.”6
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 85 of 132
Petitioners appealed to the Court of Appeals
which affirmed in toto the ruling of the trial
court, and further reasoned that:
“x x x Appellant’s protestations that the P15 million
price quoted by appellee Santos was reduced to P9
million when she later resold the leased properties
to Raymundo has no valid legal moorings because
appellant, as a prospective buyer, cannot dictate its
own price and forcibly ram it against appellee
Santos, as owner, to buy off her leased properties
considering the total absence of any stipulation or
agreement as to the price or as to how the price
should be computed under paragraph 9 of the lease
contract, x x x.”
7
Petitioner moved for reconsideration but was
denied in an order dated August 20, 1993. 8
Hence this petition. Subsequently, petitioner
filed an “Urgent Motion for the Issuance of
Restraining Order and/or Writ of Preliminary
Injunction and to Hold Respondent David A.
Raymundo in Contempt of Court.”  The motion
9
sought to enjoin respondent Raymundo and his
counsel from pursuing the ejectment complaint
filed before the barangay captain of San Isidro,
Parañaque, Metro Manila; to direct the
dismissal of said ejectment complaint or of any
similar action that may have been filed; and to
require respondent Raymundo to explain why
he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by
respondent Raymundo against petitioner arose
from the expiration of the lease contract
covering the property subject of this case. The
ejectment suit was decided in favor of
Raymundo, and the entry of final judgment in
respect thereof renders the said motion moot
and academic.
Issue
The principal legal issue presented before us for
resolution is whether the aforequoted complaint
alleging breach of the contractual right of “first
option or priority to buy” states a valid cause of
action.
Petitioner contends that the trial court as well as
the appellate tribunal erred in dismissing the
complaint because it in fact had not just one but
at least three (3) valid causes of action, to wit:
(1) breach of contract, (2) its right of first
refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their
separate comments, aver that the petition should
be denied for not raising a question of law as
the issue involved is purely factual—whether
respondent Santos complied with paragraph 9
of the lease agreement—and for not having
complied with Section 2, Rule 45 of the Rules
of Court, requiring the filing of twelve (12)
copies of the petitioner’s brief. Both maintain
that the complaint filed by petitioner before the
Regional Trial Court of Makati stated no valid
cause of action and that petitioner failed to
substantiate its claim that the lower courts
decided the same “in a way not in accord with
law and applicable decisions of the Supreme
Court”; or that the Court of Appeals has
“sanctioned departure by a trial court from the
accepted and usual course of judicial
proceedings” so as to merit the exercise by this
Court of the power of review under Rule 45 of
the Rules of Court. Furthermore, they reiterate
estoppel and laches as grounds for dismissal,
claiming that petitioner’s payment of rentals of
the leased property to respondent Raymundo
from June 15, 1989, to June 30, 1990, was an
acknowledgment of the latter’s status as new
owner-lessor of said property, by virtue of
which petitioner is deemed to have waived or
abandoned its first option to purchase.
Private respondents likewise contend that the
deed of assignment of the lease agreement did
not include the assignment of the option to
purchase. Respondent Raymundo further avers
that he was not privy to the contract of lease,
being neither the lessor nor lessee adverted to
therein, hence he could not be held liable for
violation thereof.
The Court’s Ruling
Preliminary Issue: Failure to File  elements are present: (1) a right in favor of the
Sufficient Copies of Brief
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 86 of 132
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.  It
10
does not appear that respondents were unduly
prejudiced by petitioner’s nonfeasance. Neither
has it been shown that such failure was
intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents’ contention
that the issue involved is purely factual. The
principal legal question, as stated earlier, is
whether the complaint filed by herein petitioner
in the lower court states a valid cause of action.
Since such question assumes the facts alleged in
the complaint as true, it follows that the
determination thereof is one of law, and not of
facts. There is a question of law in a given case
when the doubt or difference arises as to what
the law is on a certain state of facts, and there is
a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged
facts.
11
At the outset, petitioner concedes that when the
ground for a motion to dismiss is lack of cause
of action, such ground must appear on the face
of the complaint; that to determine the
sufficiency of a cause of action, only the facts
alleged in the complaint and no others should
be considered; and that the test of sufficiency of
the facts alleged in a petition or complaint to
constitute a cause of action is whether,
admitting the facts alleged, the court could
render a valid judgment upon the same in
accordance with the prayer of the petition or
complaint.
A cause of action exists if the following
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 87 of 132
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.  In 16
that case, under a contract of lease, the lessees
(Raul and Christopher Bonnevie) were given a
“right of first priority” to purchase the leased
property in case the lessor (Reynoso) decided to
sell. The selling price quoted to the Bonnevies
was P600,000.00 to be fully paid in cash, less a
mortgage lien of P100,000.00. On the other
hand, the selling price offered by Reynoso to
and accepted by Guzman was only P400,000.00
of which P137,500.00 was to be paid in cash
while the balance was to be paid only when the
property was cleared of occupants. We held that
even if the Bonnevies could not buy it at the
price quoted (P600,000.00), nonetheless,
Reynoso could not sell it to another for
a lower price and under more favorable terms
and conditions without first offering said
favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise
their right of first priority could Reynoso
thereafter lawfully sell the subject property to
others, and only under the same terms and
conditions previously offered to the Bonnevies.
Of course, under their contract, they
specifically stipulated that the Bonnevies could
exercise the right of first priority, “all things
and conditions being equal.” This Court
interpreted this proviso to mean that there
should be identity of terms and conditions to be
offered to the Bonnevies and all other
prospective buyers, with the Bonnevies to enjoy
the right of first priority. We hold that the same
rule applies even without the same proviso if
the right of first refusal (or the first option to
buy) is not to be rendered illusory.
From the foregoing, the basis of the right of
first refusal  must be the currentoffer 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.  which was decided en banc. This Court
17
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” (italics 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.”
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 88 of 132
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  of P.D. 1517, “the terms and
18
conditions of the sale in the exercise of the
lessee’s right of first refusal to purchase shall
be determined by the Urban Zone Expropriation
and Land Management Committee. Hence, x x
x certain prerequisites must be complied with
by anyone who wishes to avail himself of the
benefits of the decree.”  There being no
19
allegation in its complaint that the prerequisites
were complied with, it is clear that the
complaint did fail to state a cause of action on
this ground.
Deed of Assignment included the option to
purchase

Neither do we find merit in the contention of
respondent Santos that the assignment of the
lease contract to petitioner did not include the
option to purchase. The provisions of the deeds
of assignment with regard to matters assigned
were very clear. Under the first assignment
between Frederick Chua as assignor and Lee
Ching Bing as assignee, it was expressly stated
that:
“x x x the ASSIGNOR hereby CEDES,
TRANSFERS and ASSIGNS to herein
ASSIGNEE, all his rights, interest and participation
over said premises afore-described, x x x”  (italics
20
supplied)
And under the subsequent assignment executed
between Lee Ching Bing as assignor and the
petitioner, represented by its Vice President
Vicenta Lo Chiong, as assignee, it was likewise
expressly stipulated that:
“x x x the ASSIGNOR hereby sells, transfers and
assigns all his rights, interest and participation over
said leased premises, x x x”  (italics supplied)
21
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 89 of 132
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
22
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.  So
23
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.
FALLO: 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.
Note.—A reasonable reading of Section 2(d) of
R.A. 7181 is that it merely gives a right of first
refusal by the small investors vis-a-vis the 10%
block of shares in a corporation to be privatized
—and the offer may be made before, after or
simultaneous with the offer of the shares to
strategic partners or major investors depending
on the prevailing conditions of the market.
(Bagatsing vs. Committee on Privatization, 246
SCRA 334 [1995])
G.R. No. 149734. November 19, 2004. *
DR. DANIEL VAZQUEZ and MA. LUIZA M.
VAZQUEZ, petitioners, vs. AYALA
CORPORATION, respondent.
NATURE OF THE CASE:
PETITION for review on certiorari of a
decision of the Court of Appeals.
SYLLABUS:
Civil Law; Contracts; Default; Requirements; In
order that the debtor may be in default it is
necessary that the following requisites be present.—
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.
Same; Same; Sales; Option Contract; Right of
First Refusal; Distinguished; The Court has clearly
distinguished between an option 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 90 of 132
sell, or to decide whether or not to enter into a
principal contract. It binds the party who has given
the option not to enter into the principal contract
with any other person during the period designated,
and within that period, to enter into such contract
with the one to whom the option was granted, if the
latter should decide to use the option. It is a separate
and distinct contract from that which the parties
may enter into upon the consummation of the
option. It must be supported by consideration. In a
right of first refusal, on the other hand, while the
object might be made determinate, the exercise of
the right would be dependent not only on the
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.
TINGA, J.:
FACTS:
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
Vazquez  filed this Petition for Review on
1
Certiorari  dated October 11, 2001 assailing
2
the Decision of the Court of Appeals dated
3
September 6, 2001 which reversed
the Decision of the Regional Trial Court (RTC)
4
and dismissed their complaint 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 91 of 132
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;andx x x
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:x x
x
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.
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, including,
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.
x x x      x x x      x x x
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 received a letter from one
Maximo Del Rosario of Lancer General Builder
Corporation informing Ayala that he was claiming
the amount of P1,509,558.80 as the subcontractor of
G.P. Construction . . .
G.P. Construction not being able to reach an
amicable settlement with Lancer, on March 22,
1982, Lancer sued G.P. Construction, Conduit and
Ayala in the then 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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 92 of 132
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 quorendered 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
MOA  dated April 23, 1981; that it was obliged
6
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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 93 of 132
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.
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
Petition dated March 26, 2002, contending that
8
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.  Since the MOA was signed on April 23,
9
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 94 of 132
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
1197  of the Civil Code. Having failed to do so,
10
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 Reply  dated August 15,
11
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 Resolution  dated
12
November 18, 2002. In compliance with this
directive, petitioners submitted
their Memorandum  dated February 14, 2003 on
13
even date, while Ayala Corporation filed
its Memorandum  dated February 14, 2003 on
14
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 95 of 132
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.  In 15
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.
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 letter  dated March 5, 1984, petitioner
17
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 letter  dated March 6, 1984
18
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 letter  dated April 30,
19
1981 informing Ayala Corporation of its
unsettled claim with GP Construction was
received by Ayala Corporation on May 4, 1981,
well before the “Closing” which occurred four
20
(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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 96 of 132
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 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 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.
x x x      x x x      x x x
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.”  [Emphasis supplied]
21
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
company 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 letter  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:
...
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 Brief  dated July 9,
25
1992 a copy of the letter  dated May 28, 1981
26
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 97 of 132
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 subcontract 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
23
brought up nor sought redress for petitioners’
alleged breach of warranty for failure to
disclose the Lancer claim until it filed
its Answer  dated February 17, 1992.
27
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”  connotes a pledge to do
29
something, “intend” merely signifies a design
30
or proposition.
Atty. Leopoldo Francisco, former Vice Indeed, this paragraph is so plainly worded that
President of Ayala Corporation’s legal division to misunderstand its import is deplorable.
who assisted in drafting the MOA, testified:
More focal to the resolution of the instant case
COURT is paragraph 5.7’s clear reference to the first
  You only ask what do phase of Ayala Corporation’s amended
you mean by that intent. development plan as the subject of the three
Just answer on that point. (3)-year intended timeframe for development.
ATTY. BLANCO Even petitioner Daniel Vazquez admitted on
cross-examination that the paragraph refers not
      Don’t talk about
to Conduit’s but to Ayala Corporation’s
standard. development plan which was yet to be
WITNESS formulated when the MOA was executed:
A Well, the word intent
here, your Honor, was Q Now, turning to Section
used to emphasize the : 5.7 of this Memorandum
tentative character of the of Agreement, it is stated
period of development as follows: “The Buyer
because it will be noted hereby commits that to
that the sentence refers to develop the remaining
and I quote “to complete property into a first class
the first phase under its residential subdivision of
amended development the same class as New
plan within three (3) Alabang Subdivision, and
years from the date of that they intend to
this agreement, at the complete the first phase
time of the execution of under its amended
this agreement, your development plan within
Honor.” That amended three years from the date
development plan was of this agreement.”
not yet in existence   Now, my question to you,
because the buyer had Dr. Vasquez is that there
manifested to the seller is no dispute that the
that the buyer could amended development
amend the subdivision plan here is the amended
plan originally belonging development plan of
to the seller to conf orm Ayala?
with its own standard of A Yes, sir.
development and second, :
your Honor. Q In other words, it is not
(interrupted)31
: Exhibit “D-5” which is
the original plan of
It is thus unmistakable that this paragraph Conduit?
merely expresses an intention on Ayala
A No, it is not.
Corporation’s part to complete the first phase
under its amended development plan within :
three (3) years from the execution of the MOA. Q This Exhibit “D-5” was

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 98 of 132

 : the plan that was being
followed by GP
Construction in 1981?
A Yes, sir.
: declares; or
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?
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.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 99 of 132
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
(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 manner 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 1197  of the
34
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 100 of 132
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,
1984  and February 18, 1984  can also not be
36 37
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:
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’ letter  dated
40
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 101 of 132
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.  Insisting on paying for the
48
lots at the prevailing market price in 1984 of
P460.00/square meter, petitioners rejected the
offer. Ayala Corporation reduced the price to
P5,000.00/square meter but again, petitioners
rejected the offer and instead made a counter-
offer in the amount of P2,000.00/square
meter. Ayala Corporation rejected petitioners’
49
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.
FALLO: WHEREFORE, the instant petition is
DENIED. No pronouncement as to costs. SO
ORDERED.
Note.—Delay in the performance of an
obligation is looked upon with disfavor because
when a party to a contract incurs delay, the
other party who performs his part of the
contract suffers damages thereby. (Arwood
Industries, Inc. vs. D.M. Consunji, Inc., 394
SCRA 11[2002])
G.R. No. 117355. April 5, 2002. * the original special civil action of certiorari. Appeal
RIVIERA FILIPINA,
INC.petitioner, vs. COURT OF APPEALS,
JUAN L. REYES (now deceased), substituted
by his heirs, namely, Estefania B. Reyes,
Juanita R. de la Rosa, Juan B. Reyes, Jr. and
Fidel B. Reyes, PHILIPPINE CYPRESS
CONSTRUCTION & DEVELOPMENT
CORPORATION, CORNHILL TRADING
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 102 of 132
CORPORATION and URBAN
DEVELOPMENT BANK, respondents.
NATURE OF THE CASE:
PETITION for review on certiorari of a
decision of the Court of Appeals.
Before us is a petition for review on certiorari
of the Decision1 of the Court of Appeals2 dated
June 6, 1994 in CA-G.R. CV No.
26513affirming the Decision3 dated March 20,
1990 of the Regional Trial Court of Quezon
City, Branch 89 dismissing Civil Case No. Q-
89-3371.
SYLLABUS:
Appeals; Certiorari; Pleadings and Practice; The
distinctions between Rule 45 and Rule 65 are far
and wide, the most notable of which is that errors of
jurisdiction are best reviewed in a special civil
action for certiorari under Rule 65, while errors of
judgment are corrective only by appeal in a petition
for review under Rule 45.—The distinctions
between Rule 45 and 65 are far and wide, the most
notable of which is that errors of jurisdiction are
best reviewed in a special civil action for certiorari
under Rule 65, while errors of judgment are
correctible only by appeal in a petition for review
under Rule 45. The rationale for the distinction is
simple. When a court exercises its jurisdiction an
error committed while so engaged does not deprive
it of the jurisdiction being exercised when the error
is committed. If it did, every error committed by a
court would deprive it of its jurisdiction and every
erroneous judgment would be a void judgment. This
cannot be allowed. The administration of justice
would not countenance such a rule. Thus, an error
of judgment that the court may commit in the
exercise of its jurisdiction is not correctible through
from a final disposition of the Court of Appeals, as
in the case at bar, is by way of a petition for review
under Rule 45.
Contracts; Sales; Leases; Right of First
Refusal; The concept and interpretation of the right
of first refusal and the consequences of a breach
thereof evolved in Philippine juristic sphere only
within the last decade.—The concept and
interpretation of the right of first refusal and the
consequences of a breach thereof evolved in
Philippine juristic sphere only within the last
decade. 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 bancreverted 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.
Same; Same; Same; Same; Rescission; The
prevailing doctrine 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.—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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 103 of 132
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. Thus, the prevailing doctrine 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.
Same; Same; Same; Interpretation of
Contracts; Statutory Construction; General
propositions do not decide specific cases—laws are
interpreted in the context of the peculiar factual
situation of each proceeding; The court must read a
contract as the average person would read it and
should not give it a strained or forced construction
—where the parties to a contract have given it a
practical construction by their conduct as by acts in
partial performance, such construction may be
considered by the court in construing the contract,
determining its meaning and ascertaining the
mutual intention of the parties at the time for
contracting.—However, we must remember that
general propositions do not decide specific cases.
Rather, laws are interpreted in the context of the
peculiar factual situation of each proceeding. Each
case has its own flesh and blood and cannot be ruled
upon on the basis of isolated clinical classroom
principles. Analysis and construction should not be
limited to the words used in the contract, as they
may not accurately reflect the parties’ true intent.
The court must read a contract as the average person
would read it and should not give it a strained or
forced construction. In the case at bar, the Court
finds relevant and significant the cardinal rule in the
interpretation of contracts that the intention of the
parties shall be accorded primordial consideration
and in case of doubt, their contemporaneous and
subsequent acts shall be principally considered.
Where the parties to a contract have given it a
practical construction by their conduct as by acts in
partial performance, such construction may be
considered by the court in construing the contract,
determining its meaning and ascertaining the mutual
intention of the parties at the time for contracting.
The parties’ practical construction of their contract
has been characterized as a clue or index to, or as
evidence of, their intention or meaning and as an
important, significant, convincing, persuasive, or
influential factor in determining the proper
construction of the contract.
Same; Same; Same; Same; Fraud; Silence or
concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain
facts, or unless according to good faith and the
usages of commerce the communication should be
made.—Nary a howl of protest or shout of defiance
spewed forth from Riviera’s lips, as it were, but a
seemingly whimper of acceptance when the counsel
of Reyes strongly expressed in a letter dated
December 5, 1989 that Riviera had lost its right of
first refusal. Riviera cannot now be heard that had it
been informed of the offer of Five Thousand Three
Hundred Pesos (P5,300.00) of Cypress and Cornhill
it would have matched said price. Its stubborn
approach in its negotiations with Reyes showed
crystal-clear that there was never any need to
disclose such information and doing so would be
just a futile effort on the part of Reyes. Reyes was
under no obligation to disclose the same. Pursuant
to Article 1339 of the New Civil Code, silence or
concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain
facts, or unless according to good faith and the
usages of commerce the communication should be
made. We apply the general rule in the case at bar
since Riviera failed to convincingly show that either
of the exceptions are relevant to the case at bar.
Same; Same; Same; Same; Neither abstract justice
nor the rule of liberal construction justifies the
creation of a contract for the parties which they did
not make themselves or the imposition upon one
party to a contract of an obligation not assumed.—
The Court would be rewriting the contract of Reyes
and Riviera under the guise of construction were we
to interpret the right of first refusal as Riviera
propounds it, despite a contrary construction as
exhibited by its actions. A court, even the Supreme
Court, has no right to make new contracts for the
parties or ignore those already made by them,
simply to avoid seeming hardships. Neither abstract
justice nor the rule of liberal construction justifies
the creation of a contract for the parties which they
did not make themselves or the imposition upon one
party to a contract of an obligation not assumed.
Actions; Parties; Substitution of Parties; Death of
a Party; The failure of a counsel to comply with his
duty under Section 16 of Rule 3 of the Revised Rules
of Court, to inform the court of the death of his
client and no substitution of such is effected, will
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 104 of 132
not invalidate the proceedings and the judgment
thereon if the action survives the death of such
party; The purpose behind the rule on substitution
of parties is the protection of the right of every
party to due process.—Section 16 and 17 of Rule 3
of the Revised Rules of Court, upon which Riviera
anchors its argument, has already been amended by
the 1997 Rules of Civil Procedure. Even applying
the old Rules, the failure of a counsel to comply
with his duty under Section 16 of Rule 3 of the
Revised Rules of Court, to inform the court of the
death of his client and no substitution of such is
effected, will not invalidate the proceedings and the
judgment thereon if the action survives the death of
such party, as this case does, since the death of
Reyes did not extinguish his civil personality. The
appellate court was well within its jurisdiction to
proceed as it did with the case since the death of a
party is not subject to its judicial notice. Needless to
stress, the purpose behind the rule on substitution of
parties is the protection of the right of every party to
due process. This purpose has been adequately met
in this case since both parties argued their respective
positions through their pleadings in the trial court
and the appellate court. Besides, the Court has
already acquired jurisdiction over the heirs of Reyes
by voluntarily submitting themselves to our
jurisdiction.
DE LEON, JR., J.:
FACTS:
Civil Case No. Q-89-3371is a suit instituted by
Riviera Filipina, Inc. (Riviera) on August 31,
1989 to compel the defendants therein Juan L.
4
Reyes, now deceased, Philippine Cypress
Construction & Development Corporation
(Cypress), Cornhill Trading Corporation
(Cornhill) and Urban Development Bank to
transfer the title covering a 1,018 square meter
parcel of land located along EDSA, Quezon
City for alleged violation of Riviera’s right of
first refusal.
It appears that on November 23, 1982,
respondent Juan L. Reyes (Reyes, for brevity)
executed a Contract of Lease with Riviera. The
ten-year (10) renewable lease of Riviera, which
started on August 1, 1982, involved a 1,018
square meter parcel of land located along Edsa,
Quezon City, covered and described in Transfer
Certificate of Title No. 186326 of the Registry
of Deeds of Quezon City in the name of Juan L.
Reyes.5
The said parcel of land was subject of a Real
Estate Mortgage executed by Reyes in favor of
Prudential Bank. Since the loan with Prudential
Bank remained unpaid upon maturity, the
mortgagee bank extrajudicially foreclosed the
mortgage thereon. At the public auction sale,
the mortgagee bank emerged as the highest
bidder. The redemption period was set to expire
on March 7, 1989. Realizing that he could not
possibly raise in time the money needed to
redeem the subject property, Reyes decided to
sell the same.6
Since paragraph 11 of the lease contract
expressly provided that the “LESSEE shall
have the right of first refusal should the
LESSOR decide to sell the property during the
term of the lease,” Reyes offered to sell the
7
subject property to Riviera, through its
President Vicente C. Angeles, for Five
Thousand Pesos (P5,000.00) per square meter.
However, Angeles bargained for Three
Thousand Five Hundred Pesos (P3,500.00) per
square meter. Since Reyes was not amenable to
the said price and insisted on Five Thousand
Pesos (P5,000.00) per square meter, Angeles
requested Reyes to allow him to consult the
other members of the Board of Directors of
Riviera. 8
Seven (7) months later, or sometime in October
1988, Angeles communicated with Reyes
Riviera’s offer to purchase the subject property
for Four Thousand Pesos (P4,000.00) per
square meter. However, Reyes did not accept
the offer. This time he asked for Six Thousand
Pesos (P6,000.00) per square meter since the
value of the property in the area had
appreciated in view of the plans of Araneta to
develop the vicinity.
9
In a letter dated November 2, 1988, Atty. Irineo
S. Juan, acting as counsel for Reyes, informed
Riviera that Reyes was selling the subject
property for Six Thousand Pesos (P6,000.00)
per square meter, net of capital gains and
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 105 of 132
transfer taxes, registration fees, notarial fees
and all other attendant charges. He further
stated therein that:
In this connection, conformably to the provisions
stipulated in Paragraph/Item No. 11 of your
CONTRACT OF LEASE (Doc. No. 365, Page No.
63, Book No. X, Series of 1982, of the Notarial
Registry of Notary Public Leovillo S. Agustin),
notice is served upon your goodselves for you to
exercise “the right of first refusal” in the sale of said
property, for which purpose you are hereby given a
period of ten (10) days from your receipt hereof
within which to thus purchase the same under the
terms and conditions aforestated, and failing which
you shall be deemed to have thereby waived such
pre-emptive right and my client shall thereafter be
absolutely free to sell the subject property to
interested buyers. 10
To answer the foregoing letter and confirm their
telephone conversation on the matter, Riviera
sent a letter dated November 22, 1988 to Atty.
Juan, counsel for Reyes, expressing Riviera’s
interest to purchase the subject property and
that Riviera is already negotiating with Reyes
which will take a couple of days to
formalize. Riviera increased its offer to Five
11
Thousand Pesos (P5,000.00) per square meter
but Reyes did not accede to said price as it was
still lower than his quoted price of Six
Thousand Pesos (P6,000.00) per square
meter.  Angeles asked Reyes to give him until
12
the end of November 1988 for Riviera’s final
decision.
In a letter dated December 2, 1988, Angeles
wrote Reyes confirming Riviera’s intent to
purchase the subject property for the fixed and
final  price of Five Thousand Pesos (P5,000.00)
13
per square meter, complete payment within
sixty (60) to ninety (90) days which “offer is
what we feel should be the market price of your
property.” Angeles asked that the decision of
Reyes and his written reply to the offer be given
within fifteen (15) days since there are also
other properties being offered to them at the
moment. 14
In response to the foregoing letter, Atty. Juan
sent a letter to Riviera dated December 5, 1988
informing Riviera that Riviera’s offer is not
acceptable to his client. He further
expressed, “let it be made clear that, much as it
is the earnest desire of my client to really give
you the preference to purchase the subject
property, you have unfortunately failed to take
advantage of such opportunity and thus lost
your right of first refusal in sale of said
property.”15
Meanwhile, on December 4, 1988, Reyes
confided to Rolando P. Traballo, a close family
friend and President of Cypress, his
predicament about the nearing expiry date of
the redemption period of the foreclosed
mortgaged property with Prudential Bank, the
money for which he could not raise on time
thereby offering the subject property to him for
Six Thousand Pesos (P6,000.00) per square
meter. Traballo expressed interest in buying the
said property, told Reyes that he will study the
matter and suggested for them to meet the next
day.16
They met the next day, December 5, 1988, at
which time Traballo bargained for Five
Thousand Three Hundred Pesos (P5,300.00)
per square meter. After considering the reasons
cited by Traballo for his quoted price, Reyes
accepted the same. However, since Traballo did
not have the amount with which to pay Reyes,
he told the latter that he will look for a partner
for that purpose.  Reyes told Traballo that he
17
had already afforded Riviera its right of first
refusal but they cannot agree because Riviera’s
final offer was for Five Thousand Pesos
(P5,000.00) per square meter. 18
Sometime in January 1989, apprehensive of the
impending expiration in March 1989 of the
redemption period of the foreclosed mortgaged
property with Prudential Bank and the deal
between Reyes and Traballo was not yet
formally concluded, Reyes decided to approach
anew Riviera. For this purpose, he requested his
nephew, Atty. Estanislao Alinea, to approach
Angeles and find out if the latter was still
interested in buying the subject property and
ask him to raise his offer for the purchase of the
said property a little higher. As instructed, Atty.
Alinea met with Angeles and asked the latter to
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 106 of 132
increase his offer of Five Thousand Pesos
(P5,000.00) per square meter but Angeles said
that his offer is Five Thousand Pesos
(P5,000.00) per square meter. 19
Following the meeting, Angeles sent a letter
dated February 4, 1989 to Reyes, through Atty.
Alinea, that his offer is Five Thousand Pesos
(P5,000.00) per square meter payment of which
would be fifty percent (50%) down within
thirty (30) days upon submission of certain
documents in three (3) days, the balance
payable in five (5) years in equal monthly
installments at twelve percent (12%) interest in
diminishing balance.  With the terms of this
20
second offer, Angeles admittedly downgraded
the previous offer of Riviera on December 2,
1988.21
Atty. Alinea conveyed to Reyes Riviera’s offer
of Five Thousand Pesos (P5,000.00) per square
meter but Reyes did not agree. Consequently,
Atty. Alinea contacted again Angeles and asked
him if he can increase his price. Angeles,
however, said he cannot add anymore.  Reyes22
did not expressly offer his subject property to
Riviera at the price of Five Thousand Three
Hundred Pesos (P5,300.00) per square meter. 23
Sometime in February 1989, Cypress and its
partner in the venture, Cornhill Trading
Corporation, were able to come up with the
amount sufficient to cover the redemption
money, with which Reyes paid to the Prudential
Bank to redeem the subject property.  On May
24
1, 1989, a Deed of Absolute Sale covering the
subject property was executed by Reyes in
favor of Cypress and Cornhill for the
consideration of Five Million Three Hundred
Ninety Five Thousand Four Hundred Pesos
(P5,395,400.00).  On the same date, Cypress
25
and Cornhill mortgaged the subject property to
Urban Development Bank for Three Million
Pesos (P3,000,000.00). 26
Thereafter, Riviera sought from Reyes, Cypress
and Cornhill a resale of the subject property to
it claiming that its right of first refusal under
the lease contract was violated. After several
unsuccessful attempts.  Riviera filed the suit to
27
compel Reyes, Cypress, Cornhill and Urban
Development Bank to transfer the disputed title
to the land in favor of Riviera upon its payment
of the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court
dismissed the complaint of Riviera as well as
the counterclaims and cross-claims of the other
parties. It ruled that the defendants therein did
28
not violate Riviera’s right of first refusal,
ratiocinating in this wise:
Resolving the first issue, this Court takes note that
since the beginning of the negotiation between the
plaintiff and defendant Reyes for the purchase of the
property, in question, the plaintiff was firm and
steadfast in its position, expressed in writing by its
President Vicente Angeles, that it was not willing to
buy the said property higher than P5,000.00, per
square meter, which was far lower than the asking
price of defendant Reyes for P6,000.00, per square
meter, undoubtedly, because, in its perception, it
would be difficult for other parties to buy the
property, at a higher price than what it was offering,
since it is in occupation of the property, as lessee,
the term of which was to expire after about four (4)
years more.
On the other hand, it was obvious, upon the basis of
the last ditch effort of defendant Reyes, thru his
nephew, Atty. Alinea, to have the plaintiff buy the
property, in question, that he was willing to sell the
said property at a price less than P6,000.00 and a
little higher than P5,000.00, per square meter,
precisely, because Atty. Alinea, in behalf of his
uncle, defendant Reyes, sought plaintiffs Angeles
and asked him to raise his price a little higher,
indicating thereby the willingness of defendant
Reyes to sell said property at less than his offer of
P6,000.00, per square meter.
This being the case, it can hardly be validly said by
the plaintiff that he was deprived of his right of first
refusal to buy the subject property at a price of
P5,300.00, per square meter which is the amount
defendants Cypress/Cornhill bought the said
property from defendant Reyes. For, it was again
given such an opportunity to exercise its right of
first refusal by defendant Reyes had it only signified
its willingness to increase a little higher its purchase
price above P5,000.00, per square meter, when its
President, Angeles, was asked by Atty. Alinea to do
so, instead of adamantly sticking to its offer of only
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 107 of 132
P5,000.00 per square meter, by reason of which,
therefore, the plaintiff had lost, for the second time,
its right of first refusal, even if defendant Reyes did
not expressly offer to sell to it the subject land at
P5,300.00, per square meter, considering that by the
plea of Atty. Alinea, in behalf of defendant Reyes,
for it to increase its price a little, the plaintiff is to
be considered as having forfeited again its right of
first refusal, it having refused to budged from its
regid (sic) offer to buy the subject property at no
more than P5,000.00, per square meter.
As such, this Court holds that it was no longer
necessary for the defendant Reyes to expressly and
categorically offer to the plaintiff the subject
property at P5,300.00, per square meter, in order
that he can comply with his obligation to give first
refusal to the plaintiff as stipulated in the Contract
of Lease, the plaintiff having had already lost its
right of first refusal, at the first instance, by refusing
to buy the said property at P6,000.00, per square
meter, which was the asking price of defendant
Reyes, since to do so would be a useless ceremony
and would only be an exercise in futility,
considering the firm and unbending position of the
plaintiff, which defendant Reyes already knew, that
the plaintiff, at any event, was not amenable to
increasing its price at over P5,000.00, per square
meter.
Dissatisfied with the decision of the trial court,
both parties appealed to the Court of
Appeals.  However, the appellate court, through
29
its Special Seventh Division, rendered a
Decision dated June 6, 1994 which affirmed the
decision of the trial court in its entirety.  In 30
sustaining the decision of the trial court, the
Court of Appeals adopted the above-quoted
ratiocination of the trial court and further
added:
To put things in its proper perspective in accordance
with the peculiar attendant circumstances herein,
particular stress should be given to RIVIERA’s
uncompromising counter offer of only P5,000.00
per square meter on all the occasions when REYES
offered the subject property to it. RIVIERA, in its
letter to REYES dated December 2, 1988 (Exhibit
“D”, p. 68, Rollo) justified its rigid offer by saying
that “the above offer is what we feel should be the
market price of your property.” If that be the case,
We are convinced, the same manner that REYES
was, that RIVIERA was unwilling to increase its
counter offer at any present or future time.
RIVIERA’s unilateral valuation of the subject
property thus binds him, it cannot now be heard to
claim that it could have upped its offer had it been
informed of CYPRESS’ and CORNHILL’S offer of
P5,000.00 (sic) per square meter. Defendants
CYPRESS and CORNHILL were therefore right in
saying that:
On the basic assumption that RIVIERA really meant
what it said in its letter, DR. REYES could not be faulted
for believing that RIVIERA was definitely NOT
WILLING TO PAY MORE THAN P5,000.00 PER
SQUARE METER ON HIS PROPERTY. The fault lies
with the deceptive and insincere words of RIVIERA.
Injustice (sic) and equity, RIVIERA must be deemed in
estoppel in now belatedly asserting that it would have
been willing to pay a price higher than P5,000.00 x x x.”
(Defendants-Appellees Cypress’ and Cornhill’s Brief, p.
8)
For this reason, no adverse inference can be drawn
from REYES’ failure to disclose to RIVIERA the
intervening counter-offer of CYPRESS and
CORNHILL.
It would have been far different had REYES’ non-
disclosure of CYPRESS’ and CORNHILL’s
counter-offer to RIVIERA resulted in the sale of the
subject property at equal or less than RIVIERA’s
offer; in which case, REYES would have been
rightly accused of cunningly circumventing
RIVIERA’s right of first refusal. But the
incontrovertible antecedents obtaining here clearly
reveal REYES’ earnest efforts in respecting
RIVIERA’s contractual right to initially purchase
the subject property. Not only once—but twice—
did REYES approach RIVIERA, the last one being
the most telling indication of REYES’ sincerest
intention in RIVIERA eventually purchasing the
subject property if only the latter would increase a
little its offer of P5,000.00 per square meter. And to
this REYES was desperately willing to accede to
despite the financial quandary he was then in as the
expiration of the redemption period drew closer and
closer, and despite the better offer of CYPRESS and
CORNHILL. REYES unquestionably had displayed
good faith. Can the same be said of RIVIERA? We
do not think so. It appears that RIVIERA all along
was trying to push REYES’ back against the wall,
for RIVIERA was well-aware of REYES’
precarious financial needs at that time, and by
clinging to its offer, REYES might eventually
succumb to its offer out of sheer desperation.
RIVIERA was, to be frank, whimsically exercising
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 108 of 132
its contractual right to the prejudice of REYES who
had commendably given RIVIERA extra leeway in
exercising it. And to this We say that no amount of
jurisprudence RIVIERA might avail of for the
purpose of construing the right of first refusal
however enlightening and persuasive they may be,
will cover-up for its arrogant exercise of its right as
can be gleaned from the factual premises. Equity in
this case tilts in favor of defendants REYES,
CYPRESS and CORNHILL that the consummated
sale between them concerning the subject property
be given this Court’s imprimatur, for if RIVIERA
lost its opportunity to acquire it, it has only itself to
blame. For after all, REYES’ fundamental and
intrinsic right of ownership which necessarily
carries with it the exclusive right to dispose of it to
whoever he pleases, must ultimately prevail over
RIVIERA’s right of first refusal which it
unscrupulously tried to exercise.
From this decision, Riviera filed a motion for
reconsideration,  but the appellate court denied
31
the same in a Resolution dated September 22,
1994. 32
Hence, Riviera interposed the instant petition
anchored on the following errors: 33
I THE HONORABLE COURT OF APPEALS
COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN RULING
THAT PETITIONER RIVIERA FILIPINA, INC.
ALREADY LOST ITS RIGHT OF FIRST
REFUSAL.
II THE HONORABLE COURT OF APPEALS
COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN NOT
FINDING THAT IT WAS THE PETITIONER,
NOT RESPONDENT JUAN L. REYES, WHICH
HAD BEEN THOROUGHLY DECEIVED BY
THE LATTER OUT OF ITS RIGHTS TO ITS
CONTINUING PREJUDICE.
III THE HONORABLE COURT OF APPEALS
COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN DENYING
RECONSIDERATION.
IV THE HONORABLE COURT OF APPEALS
COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN DECIDING
PETITIONER’S APPEAL AT A TIME WHEN
THE PRINCIPAL APPELLEE IS ALLEGEDLY
DEAD AND NO PROPER SUBSTITUTION OF
THE ALLEGED DECEASED PARTY HAS BEEN
MADE; HENCE, THE DECISION OF THE
COURT OF APPEALS AND ITS RESOLUTION
DENYING RECONSIDERATION, IS NULL AND
VOID.
At the outset, we note that, while Riviera
alleges that the Court of Appeals committed
grave abuse of discretion amounting to lack or
excess of jurisdiction, the instant petition is, as
it should be, treated as a petition for review
under Rule 45 and not as a special civil action
for certiorari under Rule 65 of the Revised
Rules of Court, now the 1997 Rules of Civil
Procedure.
The distinctions between Rule 45 and 65 are far
and wide, the most notable of which is that
errors of jurisdiction are best reviewed in a
special civil action for certiorari under Rule 65,
while errors of judgment are correctible only by
appeal in a petition for review under Rule
45. The rationale for the distinction is simple.
34
When a court exercises its jurisdiction an error
committed while so engaged does not deprive it
of the jurisdiction being exercised when the
error is committed. If it did, every error
committed by a court would deprive it of its
jurisdiction and every erroneous judgment
would be a void judgment. This cannot be
allowed. The administration of justice would
not countenance such a rule. Thus, an error of
judgment that the court may commit in the
exercise of its jurisdiction is not correctible
through the original special civil action of
certiorari. Appeal from a final disposition of the
35
Court of Appeals, as in the case at bar, is by
way of a petition for review under Rule 45. 36
In the petition at bar, Riviera posits the view
that its right of first refusal was totally
disregarded or violated by Reyes by the latter’s
sale of the subject property to Cypress and
Cornhill. It contends that the right of first
refusal principally amounts to a right to match
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 109 of 132
in the sense that it needs another offer for the
right to be exercised.
The concept and interpretation of the right of
first refusal and the consequences of a breach
thereof evolved in Philippine juristic sphere
only within the last decade. It all started in 1992
with Guzman, Bocaling & Co. v.
Bonnevie where the Court held that a lease with
37
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
38
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
39
Court en banc reverted back to the doctrine
in Guzman Bocaling & Co. v. Bonneviestating
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
40
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.
Thus, the prevailing doctrine 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.
However, we must remember that general
propositions do not decide specific cases.
Rather, laws are interpreted in the context of the
peculiar factual situation of each proceeding.
Each case has its own flesh and blood and
cannot be ruled upon on the basis of isolated
clinical classroom principles.  Analysis and
41
construction should not be limited to the words
used in the contract, as they may not accurately
reflect the parties’ true intent.  The court must
42
read a contract as the average person would
read it and should not give it a strained or
forced construction. 43
In the case at bar, the Court finds relevant and
significant the cardinal rule in the interpretation
of contracts that the intention of the parties
shall be accorded primordial consideration and
in case of doubt, their contemporaneous and
subsequent acts shall be principally
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 110 of 132
considered. Where the parties to a contract have
44
given it a practical construction by their
conduct as by acts in partial performance, such
construction may be considered by the court in
construing the contract, determining its
meaning and ascertaining the mutual intention
of the parties at the time for contracting. The
parties’ practical construction of their contract
has been characterized as a clue or index to, or
as evidence of, their intention or meaning and
as an important, significant, convincing,
persuasive, or influential factor in determining
the proper construction of the contract. 45
An examination of the attendant particulars of
the case do not persuade us to uphold Riviera’s
view. As clearly shown by the records and
transcripts of the case, the actions of the parties
to the contract of lease, Reyes and Riviera,
shaped their understanding and interpretation of
the lease provision “right of first refusal” to
mean simply that should the lessor Reyes
decide to sell the leased property during the
term of the lease, such sale should first be
offered to the lessee Riviera. And that is what
exactly ensued between Reyes and Riviera, a
series of negotiations on the price per square
meter of the subject property with neither party,
especially Riviera, unwilling to budge from his
offer, as evidenced by the exchange of letters
between the two contenders.
It can clearly be discerned from Riviera’s letters
dated December 2, 1988 and February 4, 1989
that Riviera was so intractable in its position
and took obvious advantage of the knowledge
of the time element in its negotiations with
Reyes as the redemption period of the subject
foreclosed property drew near. Riviera strongly
exhibited a “take-it or leave-it” attitude in its
negotiations with Reyes. It quoted its “fixed
and final” price as Five Thousand Pesos
(P5,000.00) and not any peso more. It voiced
out that it had other properties to consider so
Reyes should decide and make known its
decision “within fifteen days.” Riviera, in its
letter dated February 4, 1989, admittedly, even
downgraded its offer when Reyes offered anew
the property to it, such that whatever amount
Reyes initially receives from Riviera would
absolutely be insufficient to pay off the
redemption price of the subject property.
Naturally, Reyes had to disagree with Riviera’s
highly disadvantageous offer.
Nary a howl of protest or shout of defiance
spewed forth from Riviera’s lips, as it were, but
a seemingly whimper of acceptance when the
counsel of Reyes strongly expressed in a letter
dated December 5, 1989 that Riviera had lost its
right of first refusal. Riviera cannot now be
heard that had it been informed of the offer of
Five Thousand Three Hundred Pesos
(P5,300.00) of Cypress and Cornhill it would
have matched said price. Its stubborn approach
in its negotiations with Reyes showed crystal-
clear that there was never any need to disclose
such information and doing so would be just a
futile effort on the part of Reyes. Reyes was
under no obligation to disclose the same.
Pursuant to Article 1339  of the New Civil
46
Code, silence or concealment, by itself, does
not constitute fraud, unless there is a special
duty to disclose certain facts, or unless
according to good faith and the usages of
commerce the communication should be
made.  We apply the general rule in the case at
47
bar since Riviera failed to convincingly show
that either of the exceptions are relevant to the
case at bar.
In sum, the Court finds that in the interpretation
of the right of first refusal as understood by the
parties herein, the question as to what is to be
included therein or what is meant by the same,
as in all other provisions of the contract, is for
the parties and not for the court to determine,
and this question may not be resolved by what
the parties might have provided had they
thought about it, which is evident from Riviera
claims, or by what the court might conclude
regarding abstract fairness.
48
The Court would be rewriting the contract of
Reyes and Riviera under the guise of
construction were we to interpret the right of
first refusal as Riviera propounds it, despite a
contrary construction as exhibited by its
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 111 of 132
actions. A court, even the Supreme Court, has
no right to make new contracts for the parties or
ignore those already made by them, simply to
avoid seeming hardships. Neither abstract
justice nor the rule of liberal construction
justifies the creation of a contract for the parties
which they did not make themselves or the
imposition upon one party to a contract of an
obligation not assumed. 49
On the last error attributed to the Court of
Appeals which is the effect on the jurisdiction
of the appellate court of the non-substitution of
Reyes, who died during the pendency of the
appeal, the Court notes that when Riviera filed
its petition with this Court and assigned this
error, it later filed on October 27, 1994 a
Manifestation  with the Court of Appeals
50
stating that it has discovered that Reyes is
already dead, in view of which the appellate
court issued a Resolution dated December 16,
1994 which noted the manifestation of Riviera
and directed the counsel of Reyes to submit a
copy of the latter’s death certificate and to file
the proper motion for substitution of
party. Complying therewith, the necessary
51
motion for substitution of deceased Reyes, who
died on January 7, 1994, was filed by the heirs,
namely, Estefania B. Reyes, Juanita R. de la
Rosa, Juan B. Reyes, Jr. and Fidel B.
Reyes.  Acting on the motion for substitution,
52
the Court of Appeals granted the same. 53
Notwithstanding the foregoing, Section 16  and 54
17  of Rule 3 of the Revised Rules of Court,
55
upon which Riviera anchors its argument, has
already been amended by the 1997 Rules of
Civil Procedure.  Even applying the old Rules,
56
the failure of a counsel to comply with his duty
under Section 16 of Rule 3 of the Revised
Rules of Court, to inform the court of the death
of his client and no substitution of such is
effected, will not invalidate the proceedings and
the judgment thereon if the action survives the
death of such party,  as this case does, since the
57
death of Reyes did not extinguish his civil
personality. The appellate court was well within
its jurisdiction to proceed as it did with the case
since the death of a party is not subject to its
judicial notice. Needless to stress, the purpose
behind the rule on substitution of parties is the
protection of the right of every party to due
process. This purpose has been adequately met
in this case since both parties argued their
respective positions through their pleadings in
the trial court and the appellate court. Besides,
the Court has already acquired jurisdiction over
the heirs of Reyes by voluntarily submitting
themselves to our jurisdiction.58
In view of all the foregoing, the Court is
convinced that the appellate court committed no
reversible error in its challenged Decision.
FALLO: WHEREFORE, the instant petition is
hereby DENIED, and the Decision of the Court
of Appeals dated June 6, 1994 in CA-G.R. CV
No. 26513 is AFFIRMED. No pronouncement
as to costs. SO ORDERED.
Notes.—The duty of informing the court of the
death of a party is on the counsel of the
deceased. (Ang Kek Chen vs. Andrade, 318
SCRA 11 [1999])
The prevailing doctrine is that a contract of sale
entered into in violation of a right of first
refusal of another person is rescissible.
(Conculada vs. Court of Appeals, 367 SCRA
164[2001])
G.R. No. 183612. March 15, 2010.*
POLYTECHNIC UNIVERSITY OF THE
PHILIPPINES, petitioner, vs. GOLDEN
HORIZON REALTY CORPORATION,
respondent.
G.R. No. 184260. March 15, 2010.*
NATIONAL DEVELOPMENT COMPANY,
petitioner, vs.GOLDEN HORIZON REALTY
CORPORATION, respondent.
NATURE OF THE CASE:
PETITIONS for review on certiorari of the
decision and resolution of the Court of Appeals.
The above-titled consolidated petitions filed
under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, seek to reverse the
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 112 of 132
Decision1 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 Decision2 dated November 25,
2004 of the Regional Trial Court (RTC) of
Makati City, Branch 144 in Civil Case No. 88-
2238.
SYLLABUS:
Civil Law; Contracts; Sales; Option; Right of First
Refusal; Words and Phrases; 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 former’s property at a fixed price
within a certain time; 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; 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 owner’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.—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 former’s
property at a fixed price within a certain time. It is a
condition offered or contract by which the owner
stipulates with another that the latter shall have the
right to buy the property at a fixed price within a
certain time, or under, or in compliance with certain
terms and conditions; or which gives to the owner
of the property the right to sell or demand a sale. It
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. 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. 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 owner’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.
Same; Same; Same; Same; Where 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 the 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; 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.—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 CA’s 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.
Same; Same; Same; Same; Basic is the rule that a
party to a contract cannot unilaterally withdraw a
right of first refusal that stands upon valuable
consideration.—Basic is the rule that a party to a
contract cannot unilaterally withdraw a right of first
refusal that stands upon valuable consideration. We
have categorically ruled that it is not correct to say
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 113 of 132
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.
Same; Education; Not even the avowed public
welfare or the constitutional priority accorded to
education, invoked by petitioner Polytechnic
University of the Philippines (PUP) in National
Development Corporation v. Firestone Ceramics,
Inc., 368 SCRA 691 (2001), would serve as license
for the Court, 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.—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. Clearly, no reversible
error was committed by the CA in sustaining
respondent’s contractual right of first refusal and
ordering the reconveyance of the leased portion of
petitioner NDC’s property in its favor.
VILLARAMA, JR., J.:
FACTS:
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.
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.
Accordingly, 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 114 of 132
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 Man’s
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 NDC’s 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 latter’s 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 115 of 132
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 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 attorney’s 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 Court’s
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
latter’s 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 RTC’s finding that
there was an implied renewal of the lease upon
the failure of NDC to act on GHRC’s 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 RTC’s finding that the two (2) lease
contracts were interrelated because each formed
part of GHRC’s industrial complex, such that
business operations would be rendered useless
and inoperative if the first contract were to be
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 116 of 132
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 respondent’s 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 respondent’s 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.
Magsaysay22 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 lessee’s 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, respondent’s right
of option 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 RTC’s 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 117 of 132
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:
“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 former’s
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
owner’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.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
CA’s 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 118 of 132
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
respondent’s 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, respondent’s 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 respondent’s 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,
respondent’s 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
respondent’s right of first refusal was still
subsisting and the lease contracts still in force.
Petitioner NDC did not bother to respond to
respondent’s letter of June 13, 1988 informing
it of respondent’s 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
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 119 of 132
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
President33
As to petitioners’ argument that respondent’s
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
respondent’s 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.35Respondent 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 NDC’s 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 purchasethe leased premises subject to
mutual agreement of both parties.
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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 120 of 132
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 lessor’s 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.”  [EMPHASIS
37
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 lessee’s 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.”  [EMPHASIS SUPPLIED]
39
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
NDC’s 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
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 121 of 132
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.42Clearly, no reversible error was
committed by the CA in sustaining
respondent’s contractual right of first refusal
and ordering the reconveyance of the leased
portion of petitioner NDC’s property in its
favor.
FALLO: 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.
G.R. No. 173166. March 13, 2013.*
PURIFICACION ESTANISLAO and
RUPERTO ESTANISLAO, petitioners, vs.
SPOUSES NORMA GUDITO and DAMIANO
GUDITO, respondents.
NATURE OF THE CASE:
Before us is a Petition for Review on Certiorari
under Rule 45 of the Rules of Court which
seeks the reversal of the Decision1 dated
October 25, 2005, and Resolution2dated June
16, 2006 of the Court of Appeals (CA) in CA-
G.R. SP No. 46323.
SYLLABUS:
Civil Law; Unlawful Detainer; Ejectment;
Possession; The only question that the courts must
resolve in an unlawful detainer or ejectment suit is
—who between the parties is entitled to the physical
or material possession of the property in dispute.—
The only question that the courts must resolve in an
unlawful detainer or ejectment suit is—who
between the parties is entitled to the physical or
material possession of the property in dispute. In the
case under review, respondents have
overwhelmingly established their right of
possession by virtue of the Deed of Donation made
in their favor. Moreover, they have complied with
the provisions of the law in order for them to legally
eject the petitioners. Section 5 (c) of Batas
Pambansa Blg. 25 states: Sec. 5. Grounds for
judicial ejectment.—Ejectment shall be allowed on
the following grounds: x x x x (c) Legitimate need
of owner/lessor to repossess his property for his
own use or for the use of any immediate member of
his family as a residential unit, such owner or
immediate member not being the owner of any other
available residential unit within the same city or
municipality: Provided, however, that the lease for a
definite period has expired: Provided, further, that
the lessor has given the lessee formal notice within
three (3) months in advance of the lessor’s intention
to repossess the property: Provided, finally, that the
owner/lessor is prohibited from leasing the
residential unit or allowing its use by a third party
for at least one year.
Remedial Law; Evidence; Notarized Documents;
Presumption of Regularity; It is a settled rule in our
jurisdiction that a notarized document has in its
favor the presumption of regularity and it carries
the evidentiary weight conferred upon it with
respect to its due execution.—Veritably, it is a
settled rule in our jurisdiction that a notarized
document has in its favor the presumption of
regularity and it carries the evidentiary weight
conferred upon it with respect to its due execution.
It is admissible in evidence and is entitled to full
faith and credit upon its face. Having been prepared
and acknowledged before a notary public, the said
Deed is vested with public interest, the sanctity of
which deserves to be upheld unless overwhelmed by
clear and convincing evidence. Thus, the donation
made by the Vasquez couple is a valid exercise of
their right as owners of the subject-property and
respondents are legally entitled to the said property
as donees.
Civil Law; Property; Right of First Refusal; The
right of first refusal applies only to a case where the
owner of the property intends to sell it to a third
party. If the owner of the leased premises do not
intend to sell the property in question but seeks to
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 122 of 132
eject the tenant on the ground that the former needs
the premises for residential purposes, the tenant
cannot invoke the land reform law.—Petitioners
cannot use P.D. 1517 as a shield to deny
respondents of their inherent right to possess the
subject property. The CA correctly opined that
“under P.D. 1517, in relation to P.D. 2016, the
lessee is given the right of first refusal over the land
they have leased and occupied for more than ten
years and on which they constructed their houses.
But the right of first refusal applies only to a case
where the owner of the property intends to sell it to
a third party. If the owner of the leased premises do
not intend to sell the property in question but seeks
to eject the tenant on the ground that the former
needs the premises for residential purposes, the
tenant cannot invoke the land reform law.”
PERALTA, J.:
FACTS:
The factual antecedents are as follows:
Respondents are the owners of a residential lot
being leased by petitioners on a month-to-
month basis. Petitioners had been renting and
occupying the subject lot since 1934 and were
the ones who built the house on the subject lot
in accordance with their lease agreement with
one Gaspar Vasquez. When Gaspar Vasquez
died, the portion of the lot on which petitioners’
house was erected was inherited by his son
Victorino Vasquez, married to Ester Vasquez
(Vasquez couple).
In the 1980’s, the Vasquez couple wanted the
Estanislao family and the other tenants to
vacate the said property, but the tenants refused
because of laws allegedly prohibiting their
ejectment therefrom. Resultantly, the Vasquez
couple refused to accept their rental payments.
Thus, petitioner Purificacion Estanislao, with
due notice to Ester Vasquez, deposited the
amount of her monthly rentals at Allied
Banking Corporation under a savings account
in the name of Ester Vasquez as lessor.
In the interim, a Deed of Donation was
executed by the Vasquez couple in favor of
respondent Norma Vasquez Gudito. Hence, in
October 1994, respondents notified petitioners
to remove their house and vacate the premises
within three months or up to January 31, 1995,
because of their urgent need of the residential
lot. In a letter dated March 5, 1995, respondents
reiterated the demand and gave petitioners
another three months or up to June 30, 1995,
within which to remove their house, vacate the
subject lot and pay the rental arrearages.
However, petitioners failed to comply.
Accordingly, on November 10, 1995,
respondents filed a Complaint for Unlawful
Detainer/Ejectment against petitioners before
the Metropolitan Trial Court (MeTC) of
Manila.
On March 6, 1996, the MeTC of Manila
rendered a Decision3 in favor of respondents,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiffs and against the
defendants ordering:
(1) The defendants and all persons claiming
rights under them to immediately vacate the
subject premises known as 2351 Pasig Line,
Sta. Ana, Manila, and surrender its peaceful
possession to the plaintiffs;
(2) The defendants to pay reasonable
compensation for the use and occupancy of the
subject premises in the amount of P500.00 a
month beginning October 1985 and every
month thereafter until they shall have finally
and actually vacated the subject premises;
(3) To pay the plaintiffs the sum of P5,000.00
for and as attorney’s fees;
(4) To pay the costs of suit.
SO ORDERED.4
Thereafter, petitioners elevated the case before
the Regional Trial Court (RTC) of Manila.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 123 of 132
On November 28, 1997, the RTC of Manila
rendered a Decision5 reversing the MeTC’s
decision. The fallo states:
WHEREFORE, premises considered, the
Decision dated March 6, 1996 rendered by the
court a quo is hereby REVERSED and SET
ASIDE and a new judgment is hereby rendered
as follows:
(1) The instant complaint filed by the Guditos
is hereby DISMISSED;
(2) The “Guditos” are hereby enjoined to
respect the lease agreement as well as the
possession of the “Estanislaos” over the leased
premises. Should the “Guditos” decide to sell or
otherwise dispose of the same property to third
parties, the “Estanislaos” are given the right of
first refusal pursuant to PDs 1517 and 2018 or;
should the “Guditos” need the same property
for residential purposes, they can avail of the
remaining 205.50 square meters of the same lot
wherein they can build their house.
(3) The present monthly rental is hereby fixed
at P500 per month;
(4) Attorney’s fees at P20,000 plus the cost of
suit; and
(5) Other claims and counter-claims are
hereby dismissed for lack of merit.
SO ORDERED.6
Dissatisfied, respondents interposed an appeal
before the CA.
In a Decision7 dated October 25, 2005, the CA
annulled and set aside the RTC’s decision and
reinstated the MeTC’s decision. It held as
follows:
WHEREFORE, the Decision of Branch 47 of the
Regional Trial Court of Manila, in Civil Case No.
96-77804 dated November 28, 1998 is
hereby ANNULLED and SET ASIDE.
Consequently, the Decision of Branch 11 of the
Metropolitan Trial Court of Manila in Civil Case
No. 149805-CV dated March 6, 1996 is hereby
REINSTATED with the MODIFICATION that the
respondents are ordered to pay reasonable
compensation for the use and occupancy of the
subject premises in the amount of Five Hundred
Pesos a month beginning November 1995, and
every month thereafter until they have finally
vacated the subject premises. SO ORDERED. 8
Hence, petitioners filed the instant petition
raising the following issues for our resolution:
1. Whether or not the assailed decision of the Court of
Appeals violates Presidential Decree No. 2016, in relation to
Presidential Decree No. 1517, expressly prohibiting the eviction
of legitimate tenants from land proclaimed as Areas for Priority
Development or as Urban Land Reform Zones.
2. Whether or not Batas Pambansa Blg. 877, relied upon by
the Court of Appeals in its decision, can prevail over P.D. 2016,
in relation to P.D. No. 1517, a special law and a later
enactment, considering that P.D. No. 2016 expressly repeals,
amends or modifies accordingly any law inconsistent with it.
3. Whether or not a legitimate tenant covered by P.D. Nos.
1517 and 2016 can be evicted if the owner of the leased land
does not intend to sell his property as affirmatively held by the
Court of Appeals.
4. Whether or not respondents as lessors can adequately use
the leased lot for the alleged personal need without ejecting
petitioners who occupy only a very small portion thereof.
5. Whether or not the donation of the leased lot to respondents
can defeat petitioners’ protected right under P.D. Nos. 1517 and
2016.9
The pertinent issue in this case is who has the
better right of possession over the subject
property.
Petitioners strongly argue that respondents
cannot evict them from the subject property
pursuant to Presidential Decree (P.D.) 1517, in
relation to P.D. 2016, as the subject property is
allegedly within one of the 245 Proclaimed
Area for Priority Development and/or Urban
Land Reform No. 1967, as amended by
Presidential Proclamation No. 2284. Petitioners
further contend that they were not aware that
the subject property had been acquired by
respondents via a Deed of Donation executed
by the Vasquez couple. Thus, they assail that
said donation was merely simulated in order to
deprive them of their right of first refusal to buy
the subject property.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 124 of 132
Conversely, respondents maintain P.D. 1517
cannot be appropriately applied to the present
case, since the same applies only to a case
where the owners intend to sell the property to a
third party. They argue that in the instant case
they are seeking the eviction of petitioners
solely on the ground that they need the property
for residential purposes. Lastly, they assert that
they have sufficiently established a better right
of possession over the disputed property than
the petitioners.
We deny the petition.
To begin with the only question that the courts
must resolve in an unlawful detainer or
ejectment suit is—who between the parties is
entitled to the physical or material possession of
the property in dispute.10
In the case under review, respondents have
overwhelmingly established their right of
possession by virtue of the Deed of Donation
made in their favor. Moreover, they have
complied with the provisions of the law in order
for them to legally eject the petitioners. Section
5 (c) of Batas Pambansa Blg. 25 states:
Sec. 5. Grounds for judicial ejectment.—
Ejectment shall be allowed on the following
grounds:
x x x x
(c) Legitimate need of owner/lessor to repossess
his property for his own use or for the use of any
immediate member of his family as a residential
unit, such owner or immediate member not being
the owner of any other available residential unit
within the same city or municipality: Provided,
however, that the lease for a definite period has
expired: Provided, further, that the lessor has given
the lessee formal notice within three (3) months in
advance of the lessor’s intention to repossess the
property: Provided, finally, that the owner/lessor is
prohibited from leasing the residential unit or
allowing its use by a third party for at least one year.
Here, it is undisputed that respondents do not
own any other lot or real property except the
herein subject lot. They have urgent need of the
same to build their own house to be used as
their residence. Also, petitioners had already
been asked to leave the premises as early as
1982, but sternly refused, hence, its former
owners refused to accept their rental payments.
When the same property was donated to
respondents, petitioners were allowed to
continue occupying the subject lot since
respondents did not as yet have the money to
build a house of their own. But now that
respondents have sufficient money to build
their own house, petitioners still rebuff
respondents’ demand to vacate the premises
and to remove or demolish their house. Clearly,
since respondents have complied with the
requirements of the law, their right to possess
the subject property for their own use as family
residence cannot be denied.
It is also worthy to note that petitioners have
failed to prove that the transfer of the subject
property was merely a ploy designed to defeat
and circumvent their right of first refusal under
the law. As emphasized by the CA, the Deed of
Donation executed in favor of respondents was
signed by the parties and their witnesses, and
was even notarized by a notary public.
Veritably, it is a settled rule in our jurisdiction
that a notarized document has in its favor the
presumption of regularity and it carries the
evidentiary weight conferred upon it with
respect to its due execution. It is admissible in
evidence and is entitled to full faith and credit
upon its face.11Having been prepared and
acknowledged before a notary public, the said
Deed is vested with public interest, the sanctity
of which deserves to be upheld unless
overwhelmed by clear and convincing
evidence.12Thus, the donation made by the
Vasquez couple is a valid exercise of their right
as owners of the subject-property and
respondents are legally entitled to the said
property as donees.
By the same token, this Court is not persuaded
with petitioners’ insistence that they cannot be
evicted in view of Section 6 of P.D. 1517,
which states—
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 125 of 132
SECTION 6. Land Tenancy in Urban Land
Reform Areas.—Within the Urban Zones legitimate
tenants who have resided on the land for ten years
or more who have built their homes on the land and
residents who have legally occupied the lands by
contract, continuously for the last ten years shall not
be dispossessed of the land and shall be allowed
the right of first refusal to purchase the same
within a reasonable time and at reasonable prices,
under terms and conditions to be determined by the
Urban Zone Expropriation and Land Management
Committee created by Section 8 of this Decree.
(Emphasis and underscoring supplied)
As can be gleaned from the foregoing,
petitioners cannot use P.D. 1517 as a shield to
deny respondents of their inherent right to
possess the subject property. The CA correctly
opined that “under P.D. 1517, in relation to
P.D. 2016, the lessee is given the right of first
refusal over the land they have leased and
occupied for more than ten years and on which
they constructed their houses. But the right of
first refusal applies only to a case where the
owner of the property intends to sell it to a third
party. If the owner of the leased premises do
not intend to sell the property in question but
seeks to eject the tenant on the ground that the
former needs the premises for residential
purposes, the tenant cannot invoke the land
reform law.”13
Clearly, the circumstances required for the
application of P.D. 1517 are lacking in this
case, since respondents had no intention of
selling the subject property to third parties, but
seek the eviction of petitioners on the valid
ground that they need the property for
residential purposes.
FALLO: WHEREFORE, premises considered,
the Decision dated October 25, 2005, and
Resolution dated June 16, 2006 of the Court of
Appeals in CA-G.R. SP No. 46323 are hereby
AFFIRMED. SO ORDERED.
Notes.—Accion publiciana is also used to refer
to an ejectment suit where the cause of
dispossession is not among the grounds for
forcible entry and unlawful detainer, or when
possession has been lost for more than one year
and can no longer be maintained under Rule 70
of the Rules of Court. (Padilla vs. Velasco, 576
SCRA 219 [2009])
A petition for relief from judgment in forcible
entry and unlawful detainer cases is a
prohibited pleading. (Afdal vs. Carlos, 636
SCRA 389 [2010])
G.R. No. 128119. October 17, 1997. * original records are filed in the Court of Appeals are
MURLI SADHWANI, GOBIND SADHWANI,
HARESH SADHWANI and NARESH
SADHWANI, petitioner, vs. THE
HONORABLE COURT OF APPEALS,
ORIENT ELECTRONICS CORP.,
HOMOBONO SAWIT, (represented by the
heirs), and SILVER SWAN
MANUFACTURING CO., INC., respondents.
NATURE OF THE CASE:
PETITION for review on certiorari of a decision of
the Court of Appeals.
This is a petition for review, filed by Murli
Sadhwani, Gobind Sadhwani, Haresh Sadhwani and
Naresh Sadhwani, of the decision dated August 13,
1996 of the Court of Appeals, reversing the decision
of the Regional Trial Court, Branch 164, Pasig,
Metro Manila rendered in petitioners’ favor and the
resolution dated February 18, 1997 denying
petitioners’ motion for reconsideration.
SYLLABUS:
Actions; Appeals; Pleadings and Practice; Under
the 1964 Rules of Court, in the generality of cases,
the appeal was by record on appeal, but when the
Judiciary Reorganization Act of 1980 took effect on
August 14, 1981, the rule was reversed—instead of
record on appeal, the general requirement is that
the original record shall be transmitted.—The
provision in question is not new, being Rule 46,
§16(h) of the 1964 Rules of Court. The only
difference between the present provision and its
counterpart in the 1964 Rules being as to the cases
in which appeal was “not brought by record on
appeal.” Under the 1964 Rules, in the generality of
cases, the appeal was by record on appeal. The only
instances where appeal was not by record on appeal
were: (1) in certiorari, prohibition mandamus, quo
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 126 of 132
warranto and employee’s liability cases, (2) in
habeas corpus cases and (3) in cases decided by the
Social Security Commission and the then Court of
Agrarian Relations. In such cases, instead of a
record on appeal, the original record of the case was
transmitted to the appellate court. When the
Judiciary Reorganization Act of 1980 took effect on
August 14, 1981, the rule was reversed. Instead of
record on appeal, the general requirement is that the
original record shall be transmitted. The only
instances in which records on appeal in lieu of the
in appeals in special proceedings and in cases where
multiple appeals are allowed.
Same; Same; Same; If the appellant’s brief does
not contain a copy of the decision appealed from,
appellee or his counsel must apply to the appellate
court for an order directing the appellant to comply
with the rule, and this he must do before he files his
brief, otherwise he will be deemed to have waived
his objection.—But whether under the 1964 Rules
or the present one, a copy of the appealed decision
is made available to the appellate court because it is
contained either in the record on appeal or in the
original record transmitted to it. It is therefore error
for respondent Silver Swan Mfg. to contend that the
requirement that a copy of the decision must be
appended to the brief of the appellant is a
superfluity because anyway in appeals not brought
by record on appeal the original record is
transmitted to the Court of Appeals. As far as the
appellate court is concerned, the requirement in
Rule 46, §16 is for its convenience. But it is
appellee’s counsel who may have need for a copy of
the decision and it is for him that the requirement is
made. Appellee’s counsel needs a copy of the trial
court’s decision to enable him to prepare his brief.
However, appellee or his counsel must apply to the
appellate court for an order directing the appellant
to comply with the rule if the appellant’s brief does
not contain a copy of the decision appealed from.
He must ask the appellate court for such an order
before he files his brief, otherwise he will be
deemed to have waived his objection.
Contracts; Leases; It is a fundamental principle in
contract law that a contract binds only the parties
to it; The lessor does not need to give his consent to
a sublease because when in the contract of lease
there is no express prohibition, the lessee may
sublet the thing leased.—The ultimate question
which this Court must confront is whether under
their contracts with Orient Electronics, petitioners
have a right of first refusal in the event the leased
property was sold. To begin with, it is a
fundamental principle in contract law that a contract
binds only the parties to it. The right of first refusal
was embodied in the contract of lease between
respondents Sawit and Orient Electronics.
Petitioners were not parties to that contract. While
their contracts with respondent Orient Electronics
made the lease contract “an integral part” of the
contracts of sublease, there is no proof that
respondent Sawit consented to an assignment of the
lease to the petitioners. What Sawit had agreed to
was simply to give Orient Electronics the right to
sublease the property. For that matter, Sawit did not
have to give his consent to the sublease because
under Art. 1650 of the Civil Code, when in the
contract of lease there is no express prohibition, the
lessee may sublet the thing leased.
Same; Same; Assignments; Novation; The consent
of the lessor to the assignment of a lease is
necessary because the assignment involves the
transfer not only of rights but also of obligations,
constituting novation by substitution of one of the
parties, i.e., the lessee.—The rule is different,
however, with respect to assignments of lease. Art.
1649 provides that “the lessee cannot assign the
lease without the consent of the lessor, unless there
is a stipulation to the contrary.” Petitioners have not
cited any provision of the contract of lease between
respondents Homobono Sawit and Orient
Electronics giving Orient Electronics the right to
assign the contract. Petitioners’ efforts to bind
respondent Sawit by invoking a whereas clause in
their contracts with Orient Electronics must thus
fail. For the fact is that respondent Sawit is not a
party to those contracts. Indeed, the consent of the
lessor is necessary because the assignment of lease
would involve the transfer not only of right but also
of obligations. Such assignment would constitute
novation by the substitution of one of the
parties, i.e., the lessee.
Actions; Evidence; Mere allegation or claim is not
proof.—Indeed, the alleged offer made to petitioners
rests solely on their allegation. But mere allegation
or claim is not proof. Aside from the testimony of
petitioner Gobind Sadhwani, there is no other proof
that Lydia Sawit offered the property to them for P4
million. As the party claiming affirmative reliefs
from the courts of law, it is incumbent upon the
petitioners to convincingly prove their claim. They
failed to do so.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 127 of 132
MENDOZA, J.:
FACTS:
The facts are as follows:
Respondent Homobono Sawit was the
registered owner of a 2,030 square-meter lot,
located at No. 102 E. Rodriguez, Ugong, Pasig,
Metro Manila, on which two buildings are built.
Under a contract effective from June 16, 1981
to June 15, 1986, Sawit leased his property to
respondent Orient Electronics Corporation
(Orient Electronics). By agreement of the
parties, the lease was subsequently extended to
June 14, 1989. Among other things, the lessor
gave the lessee, herein respondent Orient
Electronics, the right of first refusal in the event
the lessor decided to sell his property. The
contract provided:
The LESSEE hereby expressly recognizes the
absolute right of LESSOR to sell the leased
property to any person or entity at any time.
However, the LESSEE is hereby given the right of
FIRST REFUSAL. This contract is binding with
whoever is [the] new owner.
In addition, respondent Orient Electronics was
granted the right to sublease the property.
Accordingly, it entered into a contract with
petitioners Sadhwanis, first, on June 18, 1984
for the sublease of one building and again, on
November 17, 1987, for the sublease of the
other building, for periods coinciding with the
date of expiration of the Sawit-Orient lease
contract. The whereas clauses of the two
contracts of sublease in pertinent parts recited:
WHEREAS, the SUB-LESSOR is the lessee in a
Contract of Lease dated . . . with MR.
HOMOBONO SAWIT as lessor, a copy of which is
attached herewith as Annex “A” and made an
integral part hereof.
WHEREAS, under the Contract of Lease, the lessee
therein SUB-LESSOR herein, has the right to
sublease the . . . building of the property situated at
102 E. Rodriguez Ave., Pasig, Metro Manila, more
particularly described as follows:
....
WHEREAS, the SUB-LESSOR wishes to sublease
said building to the SUB-LESSEE and the SUB-
LESSEE wishes to sublease the same from the
SUB-LESSOR.
In December 1988, i.e., six (6) months before
the expiration of both the lease and sublease
contracts, respondent Sawit sold his property to
respondent Silver Swan Manufacturing Co.,
Inc. (Silver Swan Mfg.). Petitioners protested
the sale, claiming they had the right of first
refusal because their contracts of sublease with
Orient Electronics expressly incorporated the
Sawit-Orient lease contract as “integral part” of
such contracts. They further claimed that in a
meeting with the representatives of respondents
Sawit, Orient Electronics, and Silver Swan
Mfg., it was agreed upon that petitioners could
buy back the property from Silver Swan Mfg.
for the same price which the latter had paid in
the amount of P4.5 million, provided another
property could be found for Silver Swan Mfg.
As nothing materialized out of the alleged
agreement, petitioners alleged that they had to
bring this action for the annulment of contract
of sale, cancellation of title and specific
performance.
The action was brought against respondents
Orient Electronics, Sawit and Silver Swan Mfg.
in the Regional Trial Court of Pasig, Metro
Manila. Respondent Orient Electronics was
declared in default because while it filed an
answer, it failed to serve a copy on petitioners.
Orient Electronics appealed the order to the
Court of Appeals, but its appeal was dismissed
on February 28, 1991.
On June 3, 1994, the trial court  rendered 1
judgment sustaining petitioners’ claim of right
of first refusal. It held that the parties’ intention,
as revealed particularly in the whereas clauses
of the sublease contracts, was to assign the
entire lease, with all the rights and obligations
of respondent Orient Electronics, to the
petitioners as sublessees. Accordingly, the trial
court ordered respondent Silver Swan Mfg. to
execute a deed of absolute sale over the
subleased property in favor of petitioners within
30 days from receipt of the decision and to pay
moral and exemplary damages as well as
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 128 of 132
attorney’s fees. Orient Electronics was absolved
from civil liability to the petitioners.
Respondents Sawit and Silver Swan Mfg.
appealed to the Court of Appeals which, on
August 13, 1996, reversed the decision of the
trial court and dismissed the complaint.  The
2
appellate court ruled that there was no
assignment of Orient Electronics’ right of first
refusal to the petitioners and that, even if there
was, the right to buy the property was forfeited
by petitioners by their failure to pay P4 million
unconditionally and instead making a
counteroffer of P3.5 million. Petitioners moved
for a reconsideration of the decision, but their
motion was denied in a resolution dated
February 18, 1997 of the Court of Appeals.
Hence, this petition. Petitioners contend:
I. THE COURT OF APPEALS GRIEVOUSLY
ERRED IN NOT DIRECTING SEPARATE
APPELLANTS SAWIT AND SILVER SWAN TO
ATTACH TO THEIR APPEAL BRIEFS, A COPY
OF THE TRIAL COURT’S DECISION IN
COMPLIANCE WITH THE RULES.
II. THE COURT OF APPEALS GRIEVOUSLY
ERRED IN NOT ENFORCING PETITIONERS’
RIGHT OF FIRST REFUSAL.
III. THE COURT OF APPEALS GRIEVOUSLY
ERRED IN NOT RESCINDING THE SALE BY
SAWIT TO SILVER SWAN OF THE LEASED
PREMISES SUBJECT OF THE RIGHT OF FIRST
REFUSAL AND IN NOT FINDING SAWIT AND
SILVER SWAN TO BE IN BAD FAITH.
IV. THE COURT OF APPEALS GRIEVOUSLY
ERRED IN NOT ORDERING SAWIT TO SELL
THE PROPERTY TO THE PETITIONERS AT
THE PURCHASE PRICE OF P4 MILLION
WITHOUT INTEREST.
V. THE COURT OF APPEALS GRIEVOUSLY
ERRED IN NOT AFFIRMING THE JUDGMENT
OF THE TRIAL COURT EXCEPT AS MODIFIED
BY THE FOREGOING ASSIGNED ERRORS IN
ACCORDANCE WITH JURISPRUDENCE.
The assignment of errors raise three basic
issues, namely: (1) whether the Court of
Appeals erred in
not dismissing the appeal of
Sawit and SilverSwan Mfg. because of their
failure to append a copy of the trial court’s
decision to their respective appellants’ briefs,
(2) whether the Court of Appeals erred in
holding that petitioners did not have the right of
first refusal and in not ordering respondent
Sawit to sell the said property to them, and (3)
whether nevertheless petitioners were offered
by Homobono Sawit the property in question
but, in bad faith, the latter sold the property to
Silver Swan Mfg.
First. Petitioners point out that respondents
Sawit and Silver Swan Mfg. failed to append a
copy of the trial court’s decision to their appeal
briefs in the Court of Appeals as required in
Rule 46, §16(h) of the Rules of Court,  but 3
despite the fact that they called the attention of
the Court of Appeals to this failure, the
appellate court did nothing. This provision
states:
SEC. 16. Contents of appellant’s brief.—The
appellant’s brief shall contain in the order herein
indicated the following:
....
(h) In cases not brought up by record on appeal, the
appellant’s brief shall contain, as an appendix, a
copy of the judgment or order appealed from.
Petitioners contend that the appellate court
should have required respondents Sawit and
Silver Swan Mfg. to comply with this provision
and, in the event they failed to do so, dismiss
their appeals. On the other hand, respondent
Silver Swan Mfg. argues that this requirement
is a superfluity because anyway the original
record of the trial court, containing a copy of its
decision, was elevated to the Court of Appeals.
We find both contentions to be without merit,
although we hold that the Court of Appeals
committed no reversible error in doing nothing
about petitioners’ complaint, it appearing that
respondent Silver Swan Mfg. immediately
responded by submitting a copy of the trial
court’s decision.
The provision in question is not new, being
Rule 46, §16(h) of the 1964 Rules of Court.
The only difference between the present
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 129 of 132
provision and its counterpart in the 1964 Rules
being as to the cases in which appeal was “not
brought by record on appeal.” Under the 1964
Rules, in the generality of cases, the appeal was
by record on appeal.  The only instances where
4
appeal was not by record on appeal were: (1) in
certiorari, prohibition mandamus, quo warranto
and employee’s liability cases,  (2) in habeas
5
corpus cases  and (3) in cases decided by the
6
Social Security Commission and the then Court
of Agrarian Relations.  In such cases, instead of
7
a record on appeal, the original record of the
case was transmitted to the appellate court.
When the Judiciary Reorganization Act of
1980 took effect on August 14, 1981, the rule
8
was reversed. Instead of record on appeal, the
general requirement is that the original record
shall be transmitted. The only instances in
which records on appeal in lieu of the original
records are filed in the Court of Appeals are in
appeals in special proceedings and in cases
where multiple appeals are allowed. 9
But whether under the 1964 Rules or the
present one, a copy of the appealed decision is
made available to the appellate court because it
is contained either in the record on appeal or in
the original record transmitted to it. It is
therefore error for respondent Silver Swan Mfg.
to contend that the requirement that a copy of
the decision must be appended to the brief of
the appellant is a superfluity because anyway in
appeals not brought by record on appeal the
original record is transmitted to the Court of
Appeals. As far as the appellate court is
concerned, the requirement in Rule 46, § 16 is
for its convenience. But it is appellee’s counsel
who may have need for a copy of the decision
and it is for him that the requirement is made.
Appellee’s counsel needs a copy of the trial
court’s decision to enable him to prepare his
brief.
However, appellee or his counsel must apply to
the appellate court for an order directing the
appellant to comply with the rule if the
appellant’s brief does not contain a copy of the
decision appealed from. He must ask the
appellate court for such an order before he files
his brief, otherwise he will be deemed to have
waived his objection.
In the case at bar, petitioners called the
appellate court’s attention to Silver Swan Mfg.
and Sawit’s failure to comply with the rule only
in petitioners’ brief, by way of pointing out that
the dispositive portion of the trial court, as
quoted in the Sawit’s appellant’s brief, was not
“exactly a verbatim reproduction of the said
dispositive portion.” The fact that they could
say the quotation was not a “verbatim
reproduction” could only mean they had access
to the trial court’s decision. They should have
earlier filed a separate motion in the appellate
court for an order to respondents Sawit and
Silver Swan Mfg. to append to their brief
copies of the decision appealed from instead of
doing so only in their appellees’ brief. The
record of the Court of Appeals shows, however,
that as soon as this was pointed out by
petitioners, respondent Silver Swan Mfg. lost
no time submitting a copy of the decision of the
trial court. Given this fact, there was nothing
else for the Court of Appeals to do.
Second. The ultimate question which this Court
must confront is whether under their contracts
with Orient Electronics, petitioners have a right
of first refusal in the event the leased property
was sold. To begin with, it is a fundamental
principle in contract law that a contract binds
only the parties to it. The right of first refusal
10
was embodied in the contract of lease between
respondents Sawit and Orient Electronics.
Petitioners were not parties to that contract.
While their contracts with respondent Orient
Electronics made the lease contract “an integral
part” of the contracts of sublease, there is no
proof that respondent Sawit consented to an
assignment of the lease to the petitioners. What
Sawit had agreed to was simply to give Orient
Electronics the right to sublease the property.
For that matter, Sawit did not have to give his
consent to the sublease because under Art. 1650
of the Civil Code, when in the contract of lease
there is no express prohibition, the lessee may
sublet the thing leased.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 130 of 132
The rule is different, however, with respect to
assignments of lease. Art. 1649 provides that
“the lessee cannot assign the lease without the
consent of the lessor, unless there is a
stipulation to the contrary.” Petitioners have
not cited any provision of the contract of lease
between respondents Homobono Sawit and
Orient Electronics giving Orient Electronics the
right to assign the contract. Petitioners’ efforts
to bind respondent Sawit by invoking a whereas
clause in their contracts with Orient Electronics
must thus fail. For the fact is that respondent
Sawit is not a party to those contracts.
Indeed, the consent of the lessor is necessary
because the assignment of lease would involve
the transfer not only of rights but also of
obligations. Such assignment would constitute
novation by the substitution of one of the
parties, i.e., the lessee.
11
There is no evidence in this case to show that
respondent Sawit subsequently agreed to a
substitution of petitioners in place of
respondent Orient Electronics as lessees of the
premises. Petitioners claim that Jose Protacio
collected the rentals from them in behalf of
respondent Sawit. They cite the following
testimony of Protacio: 12
Yes, Sir, I used to help him [Sawit] when he asked
me to collect rentals from his tenant Orient
Electronics Corporation which is incidentally also
one of my clients.
As respondent Silver Swan Mfg. points out in
its comment,  however, Protacio never stated
13
that in collecting rentals from petitioners he was
acting in behalf of respondent Sawit. What he
stated was that he collected rents from Orient
Electronics for Sawit.
It is true Protacio said that Orient Electronics
was also his client but it would be reading
things into his statement to say that after Orient
Electronics had subleased the property to
petitioners, he continued collecting rents for
Sawit. The rents from petitioners were payable
to Orient Electronics and if Protacio collected
rents from petitioners, the presumption is that
he did so in behalf of Orient Electronics, which
was his client. At all events, petitioners should
have presented receipts issued to them for
payments made by them for possible indication
of the party in whose behalf the collection was
made. For their failure to show otherwise,
petitioners must be presumed to have paid their
rent to Orient Electronics, as their lessor.
Petitioners claim that they spend P400,000.00
in repairing the damaged portion of one of the
subleased buildings which had been destroyed
by fire. Again, not only is there no document to
prove this allegation but even if it is true, the
Court cannot see how this could show that
petitioners had become the primary lessee since
the repair of the leased property is not an
obligation of the lessee but of the lessor.
14
Petitioners also cite the recent decision
in Equatorial Development, Inc. v. Mayfair
Theater  to support their claim of right. In
15
the Equatorial case, the Court upheld the right
of first refusal expressly granted to Mayfair
Theater as lessee of a property after finding that
the property had been improperly sold by the
owner-lessor, Carmelo and Bauermann, Inc. to
a third party (Equatorial Development, Inc.).
But in that case, there was no dispute as to the
existence of the right of first refusal of Mayfair
Theater. On the other hand, in this case, the
existence of the right is doubtful. As already
stated, there was no assignment to the
petitioners of either the SawitOrient lease
contract or the right of first refusal which was
solely granted to respondent Orient Electronics.
Hence, the remedy of rescission, which was
successfully invoked by Mayfair Theater in that
case, is not available to herein petitioners. It is
noteworthy that the party to whom the right of
first refusal was given in this case (Orient
Electronics) did not invoke this right or seek the
rescission of the sale to respondent Silver Swan
Mfg. nor did it join cause with petitioners in
bringing this case.
Third. Petitioners claim that respondent Sawit’s
sister-in-law Lydia Sawit offered to sell the
property to them for P4 million late in 1987.
CONTINUATION MIDTERM FIRST SET SCRA CASES Page 131 of 132
They claim that they offered to buy the property
for P3.5 million and that Lydia Sawit promised
to consider their offer. They further allege that
when they did not hear from Lydia Sawit, they
called her up in the United States on December
3 and 6, 1988 and they were advised by her to
directly communicate their offer to Sawit, but
when they did so, they were ignored.
Petitioners contend that because the negotiation
between them and respondent Sawit was going
on at the time the property was sold to
respondent Silver Swan Mfg., respondents
Sawit and Silver Swan Mfg. acted in bad faith.
The sale of the property to respondent Silver
Swan Mfg. should be rescinded and respondent
Sawit should be ordered to sell the property to
them for P4 million without interest.
On this point, the Court of Appeals held that
even if there was no assignment of lease,
respondent Sawit nonetheless offered to sell his
property to petitioners for P4 million, but
because petitioners were willing to give only
P3.5 million for the property, petitioners
forfeited whatever option had been extended to
them by respondent Sawit.
It is really unnecessary to pass upon this claim
because there is nothing in the record to show
that either Protacio or Lydia Sawit was
authorized to negotiate the sale of the property
by Sawit. As petitioners themselves state in
their petition,  Lydia Sawit told them to
16
communicate their counteroffer directly to
respondent Sawit himself. This could only
mean either that Lydia Sawit was not
respondent Sawit’s agent or that if she was, her
agency had already been terminated when
petitioners made their counteroffer. The fact
that respondent Sawit ignored their offer could
only mean that he was not interested in selling
the property to the petitioners.
Indeed, the alleged offer made to petitioners
rests solely on their allegation. But mere
allegation or claim is not proof. Aside from the
testimony of petitioner Gobind Sadhwani, there
is no other proof that Lydia Sawit offered the
property to them for P4 million. As the party
claiming affirmative reliefs from the courts of
law, it is incumbent upon the petitioners to
convincingly prove their claim. They failed to
do so.

FALLO: WHEREFORE, the petition is

DENIED for lack of merit and the decision of
the Court of Appeals is AFFIRMED. SO
ORDERED

Notes.—The lessor of the property is a stranger

in a contract of sublease between the
lessee/sublessor and the sublessee. (Rodriguez
vs. Project 6 Market Service Cooperative,
Inc., 247 SCRA 528 [1995])

It is unlikely that, in entering into the 30-year

lease contract in the instant case, the parties
contemplated imposing restrictions on the
lessee’s rights of ownership of the building, by
prohibiting even the lease of the building
constructed by the lessee—the most natural and
the most logical construction of the “no
sublease” provision is that it refers only to the
land leased but not to the building or factory
which the lessee was authorized to construct on
the land. (San Andres vs. Court of Appeals,265
SCRA 368 [1996])

CONTINUATION MIDTERM FIRST SET SCRA CASES Page 132 of 132