Promisor If The Promise Is Supported by A Consideration Distinct From The Price
Promisor If The Promise Is Supported by A Consideration Distinct From The Price
Promisor If The Promise Is Supported by A Consideration Distinct From The Price
Facts:
1. On March 24, 1953, the Atlantic granted an option to Southwestern to buy its barge No. 10 for the sum of
P30,000 to be exercised within a period of ninety days.
2. On May 11, 1953, the Southwestern advised Atlantic that it wanted to exercise the option and requested that it
be notified as soon as the barge was available.
3. On June 25, 1953, citing the unavailability of the barge, Atlantic advised Southwestern that there is still further
work for it, and the barge could not be turned over to Southwestern.
4. On June 27, 1953, in view of the delay in the transaction, the Southwestern Company instituted a court action to
compel the Atlantic Gulf to sell the barge in accordance with the option, depositing with the court a check
covering the sum of P30,000.
5. On June 29, 1953, the Atlantic withdrew its offer of option with due notices to the Southwestern Company,
stating as reason therefor that the option was granted merely as a favor. Atlantic set up as a defense that the
option to sell made by it to the Southwestern Company is null and void because it is not supported by any
consideration.
6. The lower court ruled in favor of Southwestern and declared the sale valid.
Argument of Atlantic:
The option granted to Southwestern has no legal effect because it is not supported by any consideration and in
support Atlantic it invokes article 1479 of the Civil Code. This article provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.
Argument of Southwestern:
Even granting that the "offer of option” is not supported by any consideration, that option became binding on Atlantic
Gulf when the Southwestern gave notice to its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support, Atlantic Gulf invokes
article 1324 of the Civil Code which provides:
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
Ruling:
The Court ruled in favor of Atlantic, reversed the lower court’s decision, and declared the sale invalid because the
option is without consideration.
There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell",
as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if
supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding
effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted,
if the same is not supported by any consideration.
Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by Southwestern.
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.
ATKINS, KROLL and CO., INC.,
vs.
B. CUA HIAN TEK
FACTS:
Atkins Kroll & Co. sent a letter to B. Cu HianTek on September 13, 1951, offering cartons of Luneta
brand Sardines subject to reply by September 23, 1951. HianTek unconditionally accepted the said offer
through a letter delivered on September 21, 1951, but Atkins failed to deliver the commodities due to the
shortage of catch of sardines by the packers in California.
HianTek, therefore, filed an action for damages in the CFI of Manila which granted the same in his favor.
Atkins herein contends that there was no such contract of sale but only an option to buy, which was not
enforceable for lack of consideration because it is provided under the 2nd paragraph of Article 1479 of
the New Civil Code that "an accepted unilatateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration distinct
from the price.” Atkins also insisted that the offer was a mere offer of option, because the "firm offer"
was a continuing offer to sell until September 23.
ISSUE:
Whether a contract of sale was constituted between the parties or only a unilateral promise to buy.
COURT RULING:
SC held that there was a contract of sale between the parties. ATKIN’s argument assumed that only a
unilateral promise arose when the respondent accepted the offer is incorrect because a bilateral contract to
sell and to buy was created upon HIAN TEK’s acceptance.
B. CuaHianTek’s letter-reply to Atkins indicated that he accepted "the firm offer for the sale. After
accepting the promise and before he exercises his option, the holder of the option is not bound to buy. In
this case at bar, however, upon TEK’s acceptance of herein ATKIN's offer, a bilateral promise to sell and
to buy ensued, and the respondent had immediately assumed the obligations of a purchaser.
FACTS:
On September 13, 1951, petitioner Atkins Kroll & Co. (Atkins) sent a letter to respondent B. Cu Hian
Tek (Hian Tek) offering (a) 400 cartons of Luneta brand Sardines in Tomato Sauce 48 / 15-oz. Ovals at
$8.25 per carton, (b) 300 cartons of Luneta brand Sardines Natural 48/15 oz. talls at $6.25 per carton,
and (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 per carton, with
all of the offers subject to reply by September 23, 1951. Hian Tek unconditionally accepted the said
offer through a letter delivered on September 21, 1951, but Atkins failed to deliver the commodities
due to the shortage of catch of sardines by the packers in California.
Hian Tek, therefore, filed an action for damages in the CFI of Manila which granted the same in his
favor. Upon Atkins’ appeal, the Court of Appeals affirmed said decision but reduced the damages to
P3,240.15 representing unrealized profits. Atkins herein contends that there was no such contract of
sale but only an option to buy, which was not enforceable for lack of consideration because it is
provided under the 2nd paragraph of Article 1479 of the New Civil Code that "an accepted unilatateral
promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.” Atkins also insisted that the offer was
a mere offer of option, because the "firm offer" was a continuing offer to sell until September 23.
Was there a contract of sale between the parties or only a unilateral promise to buy?
COURT RULING:
The Supreme Court held that there was a contract of sale between the parties. Petitioner’s argument
assumed that only a unilateral promise arose when the respondent accepted the offer, which is
incorrect because a bilateral contract to sell and to buy was created upon respondent’s acceptance.
Had B. Cua Hian Tek backed out after accepting, by refusing to get the sardines and / or to pay for
their price, he could also be sued. But his letter-reply to Atkins indicated that he accepted "the firm
offer for the sale" and that "the undersigned buyer has immediately filed an application for import
license.” After accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. In this case at bar, however, upon respondent’s acceptance of herein petitioner's
offer, a bilateral promise to sell and to buy ensued, and the respondent had immediately assumed the
obligations of a purchaser
FEDERICO SERRA
vs.
COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION
NOCON, J.:
Facts: Serra is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate.
In 1975, RCBC, in its desire to put up a branch in Masbate, Masbate, negotiated with Serra for the
purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY
was instead forged by the parties. The contract provides that:
- RCBC shall occupy the land for 25 years from June 1, 1975 to June 1, 2000.
- RCBC shall have the option to purchase said parcel of land within a period of 10 years from the date of
the signing of the contract at a price not greater than P210.00 per square meter. For this purpose, Serra
should, within such ten-year period, register said parcel of land under the TORRENS SYSTEM and all
expenses appurtenant thereto shall be for his sole account.
- If, for any reason, the land is not registered under the TORRENS SYSTEM within the ten-year period, RCBC
shall have the right, upon termination of the lease to be paid by Serra the market value of the building and
improvements constructed on the land.
- RCBC shall pay Serra a monthly rental of P700.00.
- RCBC is authorized to construct at its sole expense a building and such other improvements on the land,
which it may need in the pursuance of its business and/or operations; but if RCBC shall fail to exercise its
option in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements, shall become the property of Serra after the
expiration of the 25-year lease period without right of reimbursement on the part of the RCBC.
Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the
contract, Serra complied with his part of the agreement by having the property registered and placed
under the TORRENS SYSTEM.
Serra alleges that as soon as he had the property registered, he kept on pursuing the manager of
the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984,
however, when the RCBC decided to exercise its option and informed Serra, through a letter, of its
intention to buy the property at the agreed price of not greater than P210 per square meter or a total of
P78,430. But much to the surprise of RCBC, Serra replied that he is no longer selling the property. A
complaint for specific performance and damages was filed by RCBC against Serra. Serra contended
that: (1) RCBC took undue advantage on him when it set in lopsided terms on the contract which was
prepared & drawn by RCBC,(2) the option was not supported by any consideration distinct from the price
and hence not binding upon him, (3) as a condition for the validity and/or efficacy of the option, it should
have been exercised within the reasonable time after the registration of the land under the Torrens System
and its delayed action on the option has forfeited whatever its claim to the same, and (4) extraordinary
inflation supervened resulting in the unusual decrease in the purchasing power of the currency rendering
the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. He also
alleges that the rental of P700 has become unrealistic and unreasonable, that justice and equity will
require its adjustment.
Initially, the trial court dismissed the complaint. Although it found the contract to be valid, the
court ruled that the option to buy is unenforceable because it lacked a consideration distinct from the
price and that RCBC did not exercise its option within reasonable time. But upon motion for
reconsideration of RCBC, the court reversed its decision and ordered Serra to transfer the ownership of the
property to RCBC. The Court of Appeals affirmed the trial court’s decision and held that: the contract is
valid; the option is supported by a distinct and separate consideration as embodied in the agreement;
and there is no basis in granting an adjustment in rental.
(1) Is the contract of lease with option to buy among the parties is valid? Or is the disputed contract a
contract of adhesion?
- There is no dispute that the contract is valid and existing between the parties, as found by both the
trial court and the appellate court.
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is
free to reject it entirely. Although, the SC will not hesitate to rule out blind adherence to terms where facts
and circumstances will show that it is basically one-sided.
The SC did not find the situation in the present case to be inequitable. Serra is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was
already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that
a man of his stature should have been more cautious in transactions he enters into, particularly where it
concerns valuable properties.
(2) Whether there was no consideration to support the option, distinct from the price, hence the option
cannot be exercised.
- Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the
buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative,
he may not be compelled to exercise the option to buy before the time expires.
On the other hand, what may be regarded as a consideration separate from the price is discussed
in the case of Vda. de Quirino v. Palarca wherein the facts are almost on all fours with the case at bar. The
said case also involved a lease contract with option to buy where we had occasion to say that "the
consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to
exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building
and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy said
premises."
In the present case, the consideration is even more onerous on the part of the lessee since it entails
transferring of the building and/or improvements on the property to petitioner, should respondent bank
fail to exercise its option within the period stipulated.
(3) Whether extraordinary inflation supervened resulting in the unusual decrease in the purchasing power
of the currency making the rental of P700 unrealistic and unreasonable, that justice and equity will require
its adjustment.
- There is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law
between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing
power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to
be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there is an
unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in
the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation.
Premises considered, the SC finds that the contract of "LEASE WITH OPTION TO BUY" between petitioner
and respondent bank is valid, effective and enforceable, the price being certain and that there was
consideration distinct from the price to support the option given to the lessee.
WHEREFORE, the petition was DISMISSED, and the decision of the appellate court was AFFIRMED.
Grimalt and Roman, through one Fernando Agustin Pastor, verbally agreed upon the sale of a
schooner. Roman accepted the plan of payment suggested and that from that date the vessel was at his
disposal, and offered to deliver the same at once to defendant if he so desired. The contract having been
closed and the vessel being ready for delivery to the purchaser, it was sunk about in the harbor of Manila
and is a total loss, as a result of a severe storm. Demand was made upon the defendant for the payment of
the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally
prayed that judgment be rendered in accordance with the prayer of his previous complaint. Defendant
alleged that plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating
that the vessel belonged to him and that it was then in a sea worthy condition. Defendant accepted the
offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a
seaworthy condition. The plaintiff promised to perfect his title and called on defendant to close the sale.
The defendant believing that plaintiff had perfected his title, wrote to him and set for the execution of the
contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he
would buy the vessel only when the title papers were perfected and the vessel duly inspected.
ISSUE:
Whether or not the sale has been perfected that the buyer should bear the loss.’
HELD:
No. The sale of the schooner was not perfected and the purchaser did not consent to the execution
of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and
not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the
vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the
vessel. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by
its owner and not by a party who only intended to purchase it and who was unable to do so on account of
failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the
contract of sale.
A sale shall be considered perfected and binding as between vendor and vendee when they have
agreed as to the thing which is the object of the contract and as to the price, even though neither has been
actually delivered. (Art. 1450 of the Civil Code.) When the sale is made by means of a public instrument
the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract.
(Art. 1462 of the Civil Code.)
FACTS:
Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to respondent
Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair made known its interest to buy
the property but only to the extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.
ISSUE:
WON the sale of the property to Equatorial is valid.
HELD:
The sale of the property should be rescinded because Mayfair has the right of first refusal. Both
Equatorial and Carmelo are in bad faith because they knew of the stipulation in the contract regarding the
right of first refusal.
The stipulation is a not an option contract but a right of first refusal and as such the requirement of a
separate consideration for the option, has no applicability in the instant case. The consideration is built in
the reciprocal obligation of the parties.
In reciprocal contract, the obligation or promise of each party is the consideration for that of the other.
(Promise to lease in return of the right to first refusal)
With regard to the impossibility of performance, only Carmelo can be blamed for not including the entire
property in the right of first refusal. Court held that Mayfair may not have the option to buy the property.
Not only the leased area but the entire property.
FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M.
Recto Avenue, Manila, and covered by TCT No. 18529.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20
years. The lease covered a portion of the second floor and mezzanine of a two-storey building
with about 1,610 square meters of floor area, which respondent used as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for
another portion of the latter’s property this time, a part of the second floor of the two-storey
building, and two store spaces on the ground floor. In that space, Mayfair put up another movie
house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.
Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject
properties. Sadly, on July 30, 1978 - within the 20-year-lease term -- the subject properties
were sold by Carmelo to Equatorial Realty Development, Inc. for eleven million smackers,
without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before
the Regional Trial Court of Manila for the recission of the Deed of Absolute Sale between
Carmelo and Equatorial, specific performance, and damages. RTC decided for Carmelo and
Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What
happened is that the contract did get rescinded, Equatorial got its money back and asserted
that Mayfair have the right to purchase the lots for 11 million bucks.
Decision became final and executory, so Mayfair deposited with the clerk the 11M (less
847grand withholding) payment for the properties (Carmelo somehow disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for
Execution, Equatorial demanded from Mayfair backrentals and reasonable compensation for
the Mayfair’s continued use of the subject premises after its lease contracts expired.
Remember that Mayfair was still occupying the premises during all this hullabaloo.
ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy the
fruits and rentals.
HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to
deliver the property to the buyer. Compound this with the fact that the sale was even
rescinded.
The court went on to assert that rent is a civil fruit that belonged to the owner of the property
producing it by right of accession. Hence, the rentals that fell due from the time of the
perfection of the sale to petitioner until its rescission by final judgment should belong to the
owner of the property during that period.
We remember from SALES that in a contract of sale, “one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate thing and the other to pay
therefor a price certain in money or its equivalent.”
Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the
thing to him “in any of the ways specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.” This
right is transferred, not by contract alone, but by tradition or delivery. There is delivery if and
when the thing sold “is placed in the control and possession of the vendee.”
While execution of a public instrument of sale is recognized by law as equivalent to the delivery
of the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by
the failure of the vendee to take actual possession of the land sold.
For property to be delivered, we need two things. Delivery of property or title, and transfer of
control or custody to the buyer.
Possession was never acquired by the petitioner. It therefore had no rights to rent.
SOUTHWESTERN SUGAR AND MOLASSES COMPANY vs.
ATLANTIC GULF & PACIFIC COMPANY
G.R. No. L-7382, June 29, 1955
Facts:
7. On March 24, 1953, the Atlantic granted an option to Southwestern to buy its barge No. 10 for the sum of
P30,000 to be exercised within a period of ninety days.
8. On May 11, 1953, the Southwestern advised Atlantic that it wanted to exercise the option and requested that it
be notified as soon as the barge was available.
9. On June 25, 1953, citing the unavailability of the barge, Atlantic advised Southwestern that there is still further
work for it, and the barge could not be turned over to Southwestern.
10. On June 27, 1953, in view of the delay in the transaction, the Southwestern Company instituted a court action to
compel the Atlantic Gulf to sell the barge in accordance with the option, depositing with the court a check
covering the sum of P30,000.
11. On June 29, 1953, the Atlantic withdrew its offer of option with due notices to the Southwestern Company,
stating as reason therefor that the option was granted merely as a favor. Atlantic set up as a defense that the
option to sell made by it to the Southwestern Company is null and void because it is not supported by any
consideration.
12. The lower court ruled in favor of Southwestern and declared the sale valid.
Argument of Atlantic:
The option granted to Southwestern has no legal effect because it is not supported by any consideration and in
support Atlantic it invokes article 1479 of the Civil Code. This article provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.
Argument of Southwestern:
Even granting that the "offer of option” is not supported by any consideration, that option became binding on Atlantic
Gulf when the Southwestern gave notice to its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support, Atlantic Gulf invokes
article 1324 of the Civil Code which provides:
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
Ruling:
The Court ruled in favor of Atlantic, reversed the lower court’s decision, and declared the sale invalid because the
option is without consideration.
There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell",
as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if
supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding
effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted,
if the same is not supported by any consideration.
Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by Southwestern.
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.
ATKINS, KROLL and CO., INC.,
vs.
B. CUA HIAN TEK
FACTS:
Atkins Kroll & Co. sent a letter to B. Cu HianTek on September 13, 1951, offering cartons of Luneta
brand Sardines subject to reply by September 23, 1951. HianTek unconditionally accepted the said offer
through a letter delivered on September 21, 1951, but Atkins failed to deliver the commodities due to the
shortage of catch of sardines by the packers in California.
HianTek, therefore, filed an action for damages in the CFI of Manila which granted the same in his favor.
Atkins herein contends that there was no such contract of sale but only an option to buy, which was not
enforceable for lack of consideration because it is provided under the 2nd paragraph of Article 1479 of
the New Civil Code that "an accepted unilatateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration distinct
from the price.” Atkins also insisted that the offer was a mere offer of option, because the "firm offer"
was a continuing offer to sell until September 23.
ISSUE:
Whether a contract of sale was constituted between the parties or only a unilateral promise to buy.
COURT RULING:
SC held that there was a contract of sale between the parties. ATKIN’s argument assumed that only a
unilateral promise arose when the respondent accepted the offer is incorrect because a bilateral contract to
sell and to buy was created upon HIAN TEK’s acceptance.
B. CuaHianTek’s letter-reply to Atkins indicated that he accepted "the firm offer for the sale. After
accepting the promise and before he exercises his option, the holder of the option is not bound to buy. In
this case at bar, however, upon TEK’s acceptance of herein ATKIN's offer, a bilateral promise to sell and
to buy ensued, and the respondent had immediately assumed the obligations of a purchaser.
FACTS:
On September 13, 1951, petitioner Atkins Kroll & Co. (Atkins) sent a letter to respondent B. Cu Hian
Tek (Hian Tek) offering (a) 400 cartons of Luneta brand Sardines in Tomato Sauce 48 / 15-oz. Ovals at
$8.25 per carton, (b) 300 cartons of Luneta brand Sardines Natural 48/15 oz. talls at $6.25 per carton,
and (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 per carton, with
all of the offers subject to reply by September 23, 1951. Hian Tek unconditionally accepted the said
offer through a letter delivered on September 21, 1951, but Atkins failed to deliver the commodities
due to the shortage of catch of sardines by the packers in California.
Hian Tek, therefore, filed an action for damages in the CFI of Manila which granted the same in his
favor. Upon Atkins’ appeal, the Court of Appeals affirmed said decision but reduced the damages to
P3,240.15 representing unrealized profits. Atkins herein contends that there was no such contract of
sale but only an option to buy, which was not enforceable for lack of consideration because it is
provided under the 2nd paragraph of Article 1479 of the New Civil Code that "an accepted unilatateral
promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.” Atkins also insisted that the offer was
a mere offer of option, because the "firm offer" was a continuing offer to sell until September 23.
Was there a contract of sale between the parties or only a unilateral promise to buy?
COURT RULING:
The Supreme Court held that there was a contract of sale between the parties. Petitioner’s argument
assumed that only a unilateral promise arose when the respondent accepted the offer, which is
incorrect because a bilateral contract to sell and to buy was created upon respondent’s acceptance.
Had B. Cua Hian Tek backed out after accepting, by refusing to get the sardines and / or to pay for
their price, he could also be sued. But his letter-reply to Atkins indicated that he accepted "the firm
offer for the sale" and that "the undersigned buyer has immediately filed an application for import
license.” After accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. In this case at bar, however, upon respondent’s acceptance of herein petitioner's
offer, a bilateral promise to sell and to buy ensued, and the respondent had immediately assumed the
obligations of a purchaser
FEDERICO SERRA
vs.
COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION
NOCON, J.:
Facts: Serra is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate.
In 1975, RCBC, in its desire to put up a branch in Masbate, Masbate, negotiated with Serra for the
purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY
was instead forged by the parties. The contract provides that:
- RCBC shall occupy the land for 25 years from June 1, 1975 to June 1, 2000.
- RCBC shall have the option to purchase said parcel of land within a period of 10 years from the date of
the signing of the contract at a price not greater than P210.00 per square meter. For this purpose, Serra
should, within such ten-year period, register said parcel of land under the TORRENS SYSTEM and all
expenses appurtenant thereto shall be for his sole account.
- If, for any reason, the land is not registered under the TORRENS SYSTEM within the ten-year period, RCBC
shall have the right, upon termination of the lease to be paid by Serra the market value of the building and
improvements constructed on the land.
- RCBC shall pay Serra a monthly rental of P700.00.
- RCBC is authorized to construct at its sole expense a building and such other improvements on the land,
which it may need in the pursuance of its business and/or operations; but if RCBC shall fail to exercise its
option in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements, shall become the property of Serra after the
expiration of the 25-year lease period without right of reimbursement on the part of the RCBC.
Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the
contract, Serra complied with his part of the agreement by having the property registered and placed
under the TORRENS SYSTEM.
Serra alleges that as soon as he had the property registered, he kept on pursuing the manager of
the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984,
however, when the RCBC decided to exercise its option and informed Serra, through a letter, of its
intention to buy the property at the agreed price of not greater than P210 per square meter or a total of
P78,430. But much to the surprise of RCBC, Serra replied that he is no longer selling the property. A
complaint for specific performance and damages was filed by RCBC against Serra. Serra contended
that: (1) RCBC took undue advantage on him when it set in lopsided terms on the contract which was
prepared & drawn by RCBC,(2) the option was not supported by any consideration distinct from the price
and hence not binding upon him, (3) as a condition for the validity and/or efficacy of the option, it should
have been exercised within the reasonable time after the registration of the land under the Torrens System
and its delayed action on the option has forfeited whatever its claim to the same, and (4) extraordinary
inflation supervened resulting in the unusual decrease in the purchasing power of the currency rendering
the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. He also
alleges that the rental of P700 has become unrealistic and unreasonable, that justice and equity will
require its adjustment.
Initially, the trial court dismissed the complaint. Although it found the contract to be valid, the
court ruled that the option to buy is unenforceable because it lacked a consideration distinct from the
price and that RCBC did not exercise its option within reasonable time. But upon motion for
reconsideration of RCBC, the court reversed its decision and ordered Serra to transfer the ownership of the
property to RCBC. The Court of Appeals affirmed the trial court’s decision and held that: the contract is
valid; the option is supported by a distinct and separate consideration as embodied in the agreement;
and there is no basis in granting an adjustment in rental.
(1) Is the contract of lease with option to buy among the parties is valid? Or is the disputed contract a
contract of adhesion?
- There is no dispute that the contract is valid and existing between the parties, as found by both the
trial court and the appellate court.
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is
free to reject it entirely. Although, the SC will not hesitate to rule out blind adherence to terms where facts
and circumstances will show that it is basically one-sided.
The SC did not find the situation in the present case to be inequitable. Serra is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was
already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that
a man of his stature should have been more cautious in transactions he enters into, particularly where it
concerns valuable properties.
(2) Whether there was no consideration to support the option, distinct from the price, hence the option
cannot be exercised.
- Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the
buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative,
he may not be compelled to exercise the option to buy before the time expires.
On the other hand, what may be regarded as a consideration separate from the price is discussed
in the case of Vda. de Quirino v. Palarca wherein the facts are almost on all fours with the case at bar. The
said case also involved a lease contract with option to buy where we had occasion to say that "the
consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to
exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building
and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy said
premises."
In the present case, the consideration is even more onerous on the part of the lessee since it entails
transferring of the building and/or improvements on the property to petitioner, should respondent bank
fail to exercise its option within the period stipulated.
(3) Whether extraordinary inflation supervened resulting in the unusual decrease in the purchasing power
of the currency making the rental of P700 unrealistic and unreasonable, that justice and equity will require
its adjustment.
- There is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law
between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing
power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to
be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there is an
unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in
the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation.
Premises considered, the SC finds that the contract of "LEASE WITH OPTION TO BUY" between petitioner
and respondent bank is valid, effective and enforceable, the price being certain and that there was
consideration distinct from the price to support the option given to the lessee.
WHEREFORE, the petition was DISMISSED, and the decision of the appellate court was AFFIRMED.
Grimalt and Roman, through one Fernando Agustin Pastor, verbally agreed upon the sale of a
schooner. Roman accepted the plan of payment suggested and that from that date the vessel was at his
disposal, and offered to deliver the same at once to defendant if he so desired. The contract having been
closed and the vessel being ready for delivery to the purchaser, it was sunk about in the harbor of Manila
and is a total loss, as a result of a severe storm. Demand was made upon the defendant for the payment of
the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally
prayed that judgment be rendered in accordance with the prayer of his previous complaint. Defendant
alleged that plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating
that the vessel belonged to him and that it was then in a sea worthy condition. Defendant accepted the
offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a
seaworthy condition. The plaintiff promised to perfect his title and called on defendant to close the sale.
The defendant believing that plaintiff had perfected his title, wrote to him and set for the execution of the
contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he
would buy the vessel only when the title papers were perfected and the vessel duly inspected.
ISSUE:
Whether or not the sale has been perfected that the buyer should bear the loss.’
HELD:
No. The sale of the schooner was not perfected and the purchaser did not consent to the execution
of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and
not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the
vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the
vessel. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by
its owner and not by a party who only intended to purchase it and who was unable to do so on account of
failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the
contract of sale.
A sale shall be considered perfected and binding as between vendor and vendee when they have
agreed as to the thing which is the object of the contract and as to the price, even though neither has been
actually delivered. (Art. 1450 of the Civil Code.) When the sale is made by means of a public instrument
the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract.
(Art. 1462 of the Civil Code.)
FACTS:
Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to respondent
Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair made known its interest to buy
the property but only to the extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.
ISSUE:
WON the sale of the property to Equatorial is valid.
HELD:
The sale of the property should be rescinded because Mayfair has the right of first refusal. Both
Equatorial and Carmelo are in bad faith because they knew of the stipulation in the contract regarding the
right of first refusal.
The stipulation is a not an option contract but a right of first refusal and as such the requirement of a
separate consideration for the option, has no applicability in the instant case. The consideration is built in
the reciprocal obligation of the parties.
In reciprocal contract, the obligation or promise of each party is the consideration for that of the other.
(Promise to lease in return of the right to first refusal)
With regard to the impossibility of performance, only Carmelo can be blamed for not including the entire
property in the right of first refusal. Court held that Mayfair may not have the option to buy the property.
Not only the leased area but the entire property.
FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M.
Recto Avenue, Manila, and covered by TCT No. 18529.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20
years. The lease covered a portion of the second floor and mezzanine of a two-storey building
with about 1,610 square meters of floor area, which respondent used as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for
another portion of the latter’s property this time, a part of the second floor of the two-storey
building, and two store spaces on the ground floor. In that space, Mayfair put up another movie
house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.
Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject
properties. Sadly, on July 30, 1978 - within the 20-year-lease term -- the subject properties
were sold by Carmelo to Equatorial Realty Development, Inc. for eleven million smackers,
without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before
the Regional Trial Court of Manila for the recission of the Deed of Absolute Sale between
Carmelo and Equatorial, specific performance, and damages. RTC decided for Carmelo and
Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What
happened is that the contract did get rescinded, Equatorial got its money back and asserted
that Mayfair have the right to purchase the lots for 11 million bucks.
Decision became final and executory, so Mayfair deposited with the clerk the 11M (less
847grand withholding) payment for the properties (Carmelo somehow disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for
Execution, Equatorial demanded from Mayfair backrentals and reasonable compensation for
the Mayfair’s continued use of the subject premises after its lease contracts expired.
Remember that Mayfair was still occupying the premises during all this hullabaloo.
ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy the
fruits and rentals.
HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to
deliver the property to the buyer. Compound this with the fact that the sale was even
rescinded.
The court went on to assert that rent is a civil fruit that belonged to the owner of the property
producing it by right of accession. Hence, the rentals that fell due from the time of the
perfection of the sale to petitioner until its rescission by final judgment should belong to the
owner of the property during that period.
We remember from SALES that in a contract of sale, “one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate thing and the other to pay
therefor a price certain in money or its equivalent.”
Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the
thing to him “in any of the ways specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.” This
right is transferred, not by contract alone, but by tradition or delivery. There is delivery if and
when the thing sold “is placed in the control and possession of the vendee.”
While execution of a public instrument of sale is recognized by law as equivalent to the delivery
of the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by
the failure of the vendee to take actual possession of the land sold.
For property to be delivered, we need two things. Delivery of property or title, and transfer of
control or custody to the buyer.
Possession was never acquired by the petitioner. It therefore had no rights to rent.
SOUTHWESTERN SUGAR AND MOLASSES COMPANY vs.
ATLANTIC GULF & PACIFIC COMPANY
G.R. No. L-7382, June 29, 1955
Facts:
13. On March 24, 1953, the Atlantic granted an option to Southwestern to buy its barge No. 10 for the sum of
P30,000 to be exercised within a period of ninety days.
14. On May 11, 1953, the Southwestern advised Atlantic that it wanted to exercise the option and requested that it
be notified as soon as the barge was available.
15. On June 25, 1953, citing the unavailability of the barge, Atlantic advised Southwestern that there is still further
work for it, and the barge could not be turned over to Southwestern.
16. On June 27, 1953, in view of the delay in the transaction, the Southwestern Company instituted a court action to
compel the Atlantic Gulf to sell the barge in accordance with the option, depositing with the court a check
covering the sum of P30,000.
17. On June 29, 1953, the Atlantic withdrew its offer of option with due notices to the Southwestern Company,
stating as reason therefor that the option was granted merely as a favor. Atlantic set up as a defense that the
option to sell made by it to the Southwestern Company is null and void because it is not supported by any
consideration.
18. The lower court ruled in favor of Southwestern and declared the sale valid.
Argument of Atlantic:
The option granted to Southwestern has no legal effect because it is not supported by any consideration and in
support Atlantic it invokes article 1479 of the Civil Code. This article provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.
Argument of Southwestern:
Even granting that the "offer of option” is not supported by any consideration, that option became binding on Atlantic
Gulf when the Southwestern gave notice to its acceptance, and that having accepted it within the period of option, the
offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support, Atlantic Gulf invokes
article 1324 of the Civil Code which provides:
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
Ruling:
The Court ruled in favor of Atlantic, reversed the lower court’s decision, and declared the sale invalid because the
option is without consideration.
There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell",
as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if
supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding
effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted,
if the same is not supported by any consideration.
Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by Southwestern.
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.
ATKINS, KROLL and CO., INC.,
vs.
B. CUA HIAN TEK
FACTS:
Atkins Kroll & Co. sent a letter to B. Cu HianTek on September 13, 1951, offering cartons of Luneta
brand Sardines subject to reply by September 23, 1951. HianTek unconditionally accepted the said offer
through a letter delivered on September 21, 1951, but Atkins failed to deliver the commodities due to the
shortage of catch of sardines by the packers in California.
HianTek, therefore, filed an action for damages in the CFI of Manila which granted the same in his favor.
Atkins herein contends that there was no such contract of sale but only an option to buy, which was not
enforceable for lack of consideration because it is provided under the 2nd paragraph of Article 1479 of
the New Civil Code that "an accepted unilatateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promisor if the promise is supported by a consideration distinct
from the price.” Atkins also insisted that the offer was a mere offer of option, because the "firm offer"
was a continuing offer to sell until September 23.
ISSUE:
Whether a contract of sale was constituted between the parties or only a unilateral promise to buy.
COURT RULING:
SC held that there was a contract of sale between the parties. ATKIN’s argument assumed that only a
unilateral promise arose when the respondent accepted the offer is incorrect because a bilateral contract to
sell and to buy was created upon HIAN TEK’s acceptance.
B. CuaHianTek’s letter-reply to Atkins indicated that he accepted "the firm offer for the sale. After
accepting the promise and before he exercises his option, the holder of the option is not bound to buy. In
this case at bar, however, upon TEK’s acceptance of herein ATKIN's offer, a bilateral promise to sell and
to buy ensued, and the respondent had immediately assumed the obligations of a purchaser.
FACTS:
On September 13, 1951, petitioner Atkins Kroll & Co. (Atkins) sent a letter to respondent B. Cu Hian
Tek (Hian Tek) offering (a) 400 cartons of Luneta brand Sardines in Tomato Sauce 48 / 15-oz. Ovals at
$8.25 per carton, (b) 300 cartons of Luneta brand Sardines Natural 48/15 oz. talls at $6.25 per carton,
and (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 per carton, with
all of the offers subject to reply by September 23, 1951. Hian Tek unconditionally accepted the said
offer through a letter delivered on September 21, 1951, but Atkins failed to deliver the commodities
due to the shortage of catch of sardines by the packers in California.
Hian Tek, therefore, filed an action for damages in the CFI of Manila which granted the same in his
favor. Upon Atkins’ appeal, the Court of Appeals affirmed said decision but reduced the damages to
P3,240.15 representing unrealized profits. Atkins herein contends that there was no such contract of
sale but only an option to buy, which was not enforceable for lack of consideration because it is
provided under the 2nd paragraph of Article 1479 of the New Civil Code that "an accepted unilatateral
promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.” Atkins also insisted that the offer was
a mere offer of option, because the "firm offer" was a continuing offer to sell until September 23.
Was there a contract of sale between the parties or only a unilateral promise to buy?
COURT RULING:
The Supreme Court held that there was a contract of sale between the parties. Petitioner’s argument
assumed that only a unilateral promise arose when the respondent accepted the offer, which is
incorrect because a bilateral contract to sell and to buy was created upon respondent’s acceptance.
Had B. Cua Hian Tek backed out after accepting, by refusing to get the sardines and / or to pay for
their price, he could also be sued. But his letter-reply to Atkins indicated that he accepted "the firm
offer for the sale" and that "the undersigned buyer has immediately filed an application for import
license.” After accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. In this case at bar, however, upon respondent’s acceptance of herein petitioner's
offer, a bilateral promise to sell and to buy ensued, and the respondent had immediately assumed the
obligations of a purchaser
FEDERICO SERRA
vs.
COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION
NOCON, J.:
Facts: Serra is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate.
In 1975, RCBC, in its desire to put up a branch in Masbate, Masbate, negotiated with Serra for the
purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY
was instead forged by the parties. The contract provides that:
- RCBC shall occupy the land for 25 years from June 1, 1975 to June 1, 2000.
- RCBC shall have the option to purchase said parcel of land within a period of 10 years from the date of
the signing of the contract at a price not greater than P210.00 per square meter. For this purpose, Serra
should, within such ten-year period, register said parcel of land under the TORRENS SYSTEM and all
expenses appurtenant thereto shall be for his sole account.
- If, for any reason, the land is not registered under the TORRENS SYSTEM within the ten-year period, RCBC
shall have the right, upon termination of the lease to be paid by Serra the market value of the building and
improvements constructed on the land.
- RCBC shall pay Serra a monthly rental of P700.00.
- RCBC is authorized to construct at its sole expense a building and such other improvements on the land,
which it may need in the pursuance of its business and/or operations; but if RCBC shall fail to exercise its
option in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements, shall become the property of Serra after the
expiration of the 25-year lease period without right of reimbursement on the part of the RCBC.
Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the
contract, Serra complied with his part of the agreement by having the property registered and placed
under the TORRENS SYSTEM.
Serra alleges that as soon as he had the property registered, he kept on pursuing the manager of
the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984,
however, when the RCBC decided to exercise its option and informed Serra, through a letter, of its
intention to buy the property at the agreed price of not greater than P210 per square meter or a total of
P78,430. But much to the surprise of RCBC, Serra replied that he is no longer selling the property. A
complaint for specific performance and damages was filed by RCBC against Serra. Serra contended
that: (1) RCBC took undue advantage on him when it set in lopsided terms on the contract which was
prepared & drawn by RCBC,(2) the option was not supported by any consideration distinct from the price
and hence not binding upon him, (3) as a condition for the validity and/or efficacy of the option, it should
have been exercised within the reasonable time after the registration of the land under the Torrens System
and its delayed action on the option has forfeited whatever its claim to the same, and (4) extraordinary
inflation supervened resulting in the unusual decrease in the purchasing power of the currency rendering
the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. He also
alleges that the rental of P700 has become unrealistic and unreasonable, that justice and equity will
require its adjustment.
Initially, the trial court dismissed the complaint. Although it found the contract to be valid, the
court ruled that the option to buy is unenforceable because it lacked a consideration distinct from the
price and that RCBC did not exercise its option within reasonable time. But upon motion for
reconsideration of RCBC, the court reversed its decision and ordered Serra to transfer the ownership of the
property to RCBC. The Court of Appeals affirmed the trial court’s decision and held that: the contract is
valid; the option is supported by a distinct and separate consideration as embodied in the agreement;
and there is no basis in granting an adjustment in rental.
(1) Is the contract of lease with option to buy among the parties is valid? Or is the disputed contract a
contract of adhesion?
- There is no dispute that the contract is valid and existing between the parties, as found by both the
trial court and the appellate court.
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is
free to reject it entirely. Although, the SC will not hesitate to rule out blind adherence to terms where facts
and circumstances will show that it is basically one-sided.
The SC did not find the situation in the present case to be inequitable. Serra is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was
already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that
a man of his stature should have been more cautious in transactions he enters into, particularly where it
concerns valuable properties.
(2) Whether there was no consideration to support the option, distinct from the price, hence the option
cannot be exercised.
- Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the
buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative,
he may not be compelled to exercise the option to buy before the time expires.
On the other hand, what may be regarded as a consideration separate from the price is discussed
in the case of Vda. de Quirino v. Palarca wherein the facts are almost on all fours with the case at bar. The
said case also involved a lease contract with option to buy where we had occasion to say that "the
consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to
exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building
and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy said
premises."
In the present case, the consideration is even more onerous on the part of the lessee since it entails
transferring of the building and/or improvements on the property to petitioner, should respondent bank
fail to exercise its option within the period stipulated.
(3) Whether extraordinary inflation supervened resulting in the unusual decrease in the purchasing power
of the currency making the rental of P700 unrealistic and unreasonable, that justice and equity will require
its adjustment.
- There is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law
between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing
power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to
be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there is an
unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in
the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation.
Premises considered, the SC finds that the contract of "LEASE WITH OPTION TO BUY" between petitioner
and respondent bank is valid, effective and enforceable, the price being certain and that there was
consideration distinct from the price to support the option given to the lessee.
WHEREFORE, the petition was DISMISSED, and the decision of the appellate court was AFFIRMED.
Grimalt and Roman, through one Fernando Agustin Pastor, verbally agreed upon the sale of a
schooner. Roman accepted the plan of payment suggested and that from that date the vessel was at his
disposal, and offered to deliver the same at once to defendant if he so desired. The contract having been
closed and the vessel being ready for delivery to the purchaser, it was sunk about in the harbor of Manila
and is a total loss, as a result of a severe storm. Demand was made upon the defendant for the payment of
the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally
prayed that judgment be rendered in accordance with the prayer of his previous complaint. Defendant
alleged that plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating
that the vessel belonged to him and that it was then in a sea worthy condition. Defendant accepted the
offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a
seaworthy condition. The plaintiff promised to perfect his title and called on defendant to close the sale.
The defendant believing that plaintiff had perfected his title, wrote to him and set for the execution of the
contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he
would buy the vessel only when the title papers were perfected and the vessel duly inspected.
ISSUE:
Whether or not the sale has been perfected that the buyer should bear the loss.’
HELD:
No. The sale of the schooner was not perfected and the purchaser did not consent to the execution
of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and
not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the
vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the
vessel. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by
its owner and not by a party who only intended to purchase it and who was unable to do so on account of
failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the
contract of sale.
A sale shall be considered perfected and binding as between vendor and vendee when they have
agreed as to the thing which is the object of the contract and as to the price, even though neither has been
actually delivered. (Art. 1450 of the Civil Code.) When the sale is made by means of a public instrument
the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract.
(Art. 1462 of the Civil Code.)
FACTS:
Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to respondent
Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair made known its interest to buy
the property but only to the extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.
ISSUE:
WON the sale of the property to Equatorial is valid.
HELD:
The sale of the property should be rescinded because Mayfair has the right of first refusal. Both
Equatorial and Carmelo are in bad faith because they knew of the stipulation in the contract regarding the
right of first refusal.
The stipulation is a not an option contract but a right of first refusal and as such the requirement of a
separate consideration for the option, has no applicability in the instant case. The consideration is built in
the reciprocal obligation of the parties.
In reciprocal contract, the obligation or promise of each party is the consideration for that of the other.
(Promise to lease in return of the right to first refusal)
With regard to the impossibility of performance, only Carmelo can be blamed for not including the entire
property in the right of first refusal. Court held that Mayfair may not have the option to buy the property.
Not only the leased area but the entire property.
FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M.
Recto Avenue, Manila, and covered by TCT No. 18529.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20
years. The lease covered a portion of the second floor and mezzanine of a two-storey building
with about 1,610 square meters of floor area, which respondent used as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for
another portion of the latter’s property this time, a part of the second floor of the two-storey
building, and two store spaces on the ground floor. In that space, Mayfair put up another movie
house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.
Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject
properties. Sadly, on July 30, 1978 - within the 20-year-lease term -- the subject properties
were sold by Carmelo to Equatorial Realty Development, Inc. for eleven million smackers,
without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before
the Regional Trial Court of Manila for the recission of the Deed of Absolute Sale between
Carmelo and Equatorial, specific performance, and damages. RTC decided for Carmelo and
Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What
happened is that the contract did get rescinded, Equatorial got its money back and asserted
that Mayfair have the right to purchase the lots for 11 million bucks.
Decision became final and executory, so Mayfair deposited with the clerk the 11M (less
847grand withholding) payment for the properties (Carmelo somehow disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for
Execution, Equatorial demanded from Mayfair backrentals and reasonable compensation for
the Mayfair’s continued use of the subject premises after its lease contracts expired.
Remember that Mayfair was still occupying the premises during all this hullabaloo.
ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy the
fruits and rentals.
HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to
deliver the property to the buyer. Compound this with the fact that the sale was even
rescinded.
The court went on to assert that rent is a civil fruit that belonged to the owner of the property
producing it by right of accession. Hence, the rentals that fell due from the time of the
perfection of the sale to petitioner until its rescission by final judgment should belong to the
owner of the property during that period.
We remember from SALES that in a contract of sale, “one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate thing and the other to pay
therefor a price certain in money or its equivalent.”
Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the
thing to him “in any of the ways specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.” This
right is transferred, not by contract alone, but by tradition or delivery. There is delivery if and
when the thing sold “is placed in the control and possession of the vendee.”
While execution of a public instrument of sale is recognized by law as equivalent to the delivery
of the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by
the failure of the vendee to take actual possession of the land sold.
For property to be delivered, we need two things. Delivery of property or title, and transfer of
control or custody to the buyer.
Possession was never acquired by the petitioner. It therefore had no rights to rent.