Sales Cases Set 2 Atty Busmente

FIRST DIVISION
[G.R. No. L-7382. June 29, 1955.]
SOUTHWESTERN SUGAR AND MOLASSES COMPANY , plaintiff-

appellee, vs . ATLANTIC GULF & PACIFIC COMPANY , defendant-
appellant.
Arturo A. Alafriz and A. B. Alcera for appellant.

Mariano Agoncillo for appellee.
SYLLABUS
1. CONTRACTS; OFFER AND ACCEPTANCE; RULE ON WITHDRAWAL OF

OFFER. — While it is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offer or 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period to accept, "the offer may be withdrawn at any time before acceptance" except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 this general rule must be interpreted as
modified by the provision of article 1479 which applies to "a promise to buy and sell"
specifically. This rule requires that a promise to sell to be valid must be supported by a
consideration distinct from the price, which means that the option can still be
withdrawn, even if accepted, if the same is not supported by any consideration.
DECISION
BAUTISTA ANGELO , J : p
This is an action for specific performance.

On March 24, 1953, the Atlantic Gulf & Paci c Company of Manila, hereafter
called Atlantic Gulf for short, granted an option to Southwestern Sugar & Molasses Co.
(Far East) Inc., hereafter called Southwestern Company, to buy its barge No. 10 for the
sum of P30,000 to be exercised within a period of ninety days.
On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the
latter that it wanted "to exercise our option at your earliest convenience" and requested
that it be notified as soon as the barge was available.
On May 12, 1953, the Atlantic Gulf replied stating that their understanding was
that the "offer of option" is to be a cash transaction and to be effected "at the time the
lighter is available", and, on June 25, 1953, reiterating the unavailability of the barge, it
further advised the Southwestern Company that since there is still further work for it,
and as this situation still applies" the barge could not be turned over to the latter
company.
On June 27, 1953, in view if such vacillating attitude, the Southwestern Company
instituted the present action to compel the Atlantic Gulf to sell the barge in line with the
option, depositing with the court a check covering the sum of P30,000. This check
however was later withdrawn with the approval of the court.
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On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices
to the Southwestern Company stating as reason therefor that the option was granted
merely as a favor. The Atlantic Gulf set up as a defense the option to sell made by it to
the Southwestern Company is null and void because it is not supported by any
consideration.
After due trial, the lower court rendered judgment granting plaintiff's prayer for
speci c performance. It further ordered the defendant to pay damages in an amount
equivalent to 6 per centum per annum on the sum of P30,000 from the date of the ling
of the complaint, and to pay the sum of P600 as attorney's fees, plus the costs of
action.
The case is before us on the assertion that the only issue involved is one of law.
The option granted by appellant to appellee is contained in a letter dated March
24, 1953 which reads as follows:
"March 24, 1953
"Southwestern Sugar & Molasses Co. Far East, Inc.
"145 Muelle de Binondo"
Manila, Philippines
"Gentlemen:
"This is to confirm our conversion of today whereby we offer you our Barge
No. 10, which is 120' 00" long by 44"-0 wide and 9'-0" deep, for the sum of
P30,000. Barge to be cleaned of creosote and fuel oil.
"This option is to be good for ninety (90) days, or until June 30, 1953.
Yours very truly,
ATLANTIC, GULF & PACIFIC CO. OF MANILA
(Sgd.) W. H. SCHOENING
Marine Department"
The main contention of appellant is that the option granted to appellee to sell to
it barge No. 10 for the sum of P30,000 under the terms stated above has no legal
effect because it is not supported by any consideration and in support thereof it
invokes article 1479 of the new Civil Code. This article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
"An accepted unilateral promise to buy or 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."
On the other hand, appellee contends that, even granting that the "offer of option"
is not supported by any consideration, that option became binding on appellant when
the appellee gave notice to it its acceptance, and that having accepted it within the
period of option, the offer can no longer be withdrawn and in any event such withdrawal
is ineffective. In support of this contention, appellee invokes article 1324 of the Civil
Code which provides:
"ART. 1324. hen the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to
sell", or "a promise to buy or to sell", as used in said article, to be valid must be
"supported by a consideration distinct from the price." This is clearly inferred from the
context of said article that a unilateral promise to buy or to sell, 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 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
modi ed by the provision of article 1479 above referred to, which applies to "a promise
to buy and sell" specifically. As already stated, this rule requires that a promise to sell to
be valid must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold that an
offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not
by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule
applicable to offer and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the speci c provision embodied in article
1479. While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in accordance
with its terms, and there appears to be no valid or justi able reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the
matter is clear. Our imperative duty is to apply it unless modified by Congress.
Wherefore, the decision appealed from is reversed, with out pronouncement as
to costs.
Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion
and Reyes, J.B.L., JJ., concur.

FIRST DIVISION
[G.R. No. L-9871. January 31, 1958.]
ATKINS, KROLL & CO., INC. , petitioner, vs . B. CUA HIAN TEK ,

respondent.
Ross, Selph, Carrascoso & Janda for petitioner.

Ponciano T. Castro for respondent.
SYLLABUS
1. OBLIGATION AND CONTRACTS; SALES; OFFER TO SELL A DETERMINATE

THING FOR A PRICE CERTAIN; ACCEPTANCE OF OFFER; EFFECT OF; LIABILITY OF THE
OFFEROR AND OFFEREE. — The acceptance of an offer to sell a determinate thing for a
price certain creates a bilateral contract to sell and to but. The offeree, upon
acceptance, ipso facto assumes the obligations of a purchaser. On the other hand, the
offeror would be liable for damages if he fails to deliver the thing he had offered for
sale.
2. ID.; ID.; ID.; ID.; OPTION WITHOUT CONSIDERATION. — If an option is given
without, it is mere offer of contract of sale, which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it constitute a binding contract of
sale, even though the option was not supported by a sufficient consideration.
3. PLEADING AND PRACTICE; APPEAL; CHANGE OF THEORY ON APPEAL
NOT PERMITTED. —Where. a deliberately adopts a certain theory, and the case is tried
and decided upon that theory in the court below, he will not be permitted to change his
theory on appeal.
DECISION
BENGZON , J : p
Review of a Court of Appeals' decision.

For its failure to deliver one thousand cartons of sardines, which it had sold to B.
Cua Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of
rst instance to pay damages, which on appeal was reduced by the Court of Appeals to
P3,240.15 representing unrealized profits.
There was no such contract of sale, says petitioner, but only an option to buy,
which was not enforceable for lack of consideration because in accordance with Art.
1479 of the New Civil Code "an accepted unilateral 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."
Simple are the facts of this case: Dated September 13, 1951, petitioner sent to
respondent a letter of the following tenor:

"Sir(s)/Madam:
We are pleased to make you herewith the following firm offer, subject to
reply by September 23, 1951:
Quantity and Commodity:
400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz.
Ovals at $8.25 Ctn.
300 Ctns. Luneta brand Sardines Natural 48/15 oz. talls at
$6.25 Ctn.
300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls
at $7.48 Ctn.
Price(s):
All prices are C and F Manila Consular Fees of $6.00 to
be added.
Shipment:
During September/October from US Ports.
Supplier:
Atkins, Kroll & Co., San Francisco, Cal. U.S.A.
We are looking forward to receive your valued order and remain
Very truly yours,"
The court of rst instance and the Court of Appeals 1 found that B. Cua Hian Tek
accepted the offer unconditionally and delivered his letter of acceptance Exh. B on
September 21, 1951. However, due to shortage of catch of sardines by the packers in
California, Atkins, Kroll & Co., Inc., failed to deliver the commodities it had offered for
sale. There are other details to which reference shall not be made, as they touch the
question whether the acceptance had been handed on time; and on that issue the Court
of Appeals definitely found for plaintiff.
Anyway, in presenting its case before this Court petitioner does not dispute such
timely acceptance. It merely raises the point that the acceptance only created an
option, which, lacking consideration, had no obligatory force.
The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for
a price certain. Upon its acceptance by respondent, the offer became an accepted
unilateral promise to sell a determinate thing for a price certain. Inasmuch as there was
no consideration to support the promise to sell distinct from the price, it follows that
under Art. 1479 aforequoted, the promise is not binding on the petitioner even if it was
accepted by respondent." (p. 12 brief of petitioner.)
The argument, manifestly assumes that only a unilateral promise arose when the
offeree accepted. Such assumption is a mistake, because a bilateral contract to sell
and to buy was created upon acceptance. So much so that B. Cua Hian Tek could be
sued, had he backed out after accepting, by refusing to get the sardines and/or to pay
for their price. Indeed, the word "option" is found neither in the offer nor in the
acceptance. On the contrary Exh. B accepted "the rm offer for the sale" and adds, "the
undersigned buyer has immediately led an application for import license . . . ." (Italics
Ours.)
Petitioner, however, insists the offer was a mere offer of option, because the
" rm offer" Exh. A was a continuing offer to sell until September 23, and "an option is
nothing more than a continuing offer" for a speci ed time. In our opinion, an option
implies more than that: it implies the legal obligation to keep the offer open for the time
specified. 2 Yet the letter Exh. A did not by itself produce the legal obligation of keeping
the offer open up to September 23. It could be withdrawn before acceptance, because
it is admitted, there was no consideration for it.
"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." (n) (New Civil Code.)
"Ordinarily an offer to buy or sell may be withdrawn or countermanded
before acceptance, even though the offer provides that it will not be withdrawn or
countermanded, or allows the offeree a certain time within which to accept it,
unless such provision or agreement in supported by an independent
consideration. . . ." (77 Corpus Juris Secundum p. 636.)
Furthermore, an option is unilateral: a promise to sell 3 at the price xed
whenever the offeree should decide to exercise his option within the speci ed time.
After accepting the promise and before he exercises his option, the holder of the option
is not bound to buy. He is free either to buy or not to buy later. In this case, however,
upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued,
and the respondent ipso facto assumed the obligations of a purchaser. He did not just
get the right subsequently to buy or not to buy. It was not a mere option then; it was
bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack
of consideration, the authorities hold that
"If the option is given without a consideration, it is a mere offer of a
contract of sale, which is not binding until accepted.
If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale, even though the option was not supported by a sufficient
consideration. . . .." (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case
Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendants, that the
option contract was not valid for lack of consideration. But it was, at least, an
offer to sell, which was accepted by letter, and of this acceptance the offerer had
knowledge before said offer was withdrawn. The concurrence of both acts — the
offer and the acceptance—could at all events have generated a contract, if none
there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44
Phil. 331.)
One additional observation should be made before closing this opinion. The
defense in the court of rst instance rested on the proposition or propositions that the
offer had not been accepted in due time, and/or that certain conditions precedent had
not been ful lled. This option-without-consideration idea was never mentioned in the
answer. A change of theory in the appellate courts is not permitted.
"In order that a question may be raised on appeal, it is essential that it be
within the issues made by the parties in their pleadings. Consequently, when a
party deliberately adopts a certain theory, and the case is tried and decided upon
that theory in the court below, he will not be permitted to change his theory on
appeal because, to permit him to, do so, would be unfair to the adverse party."
(Rules of Court by Moran' — 1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38
Phil. 424; American Express Company vs. Natividad, 46 Phil. 207; San Agustin vs.
Barrios, 68 Phil. 475, 480; Toribio vs. Dacasa, 55 Phil. 461.)
We must therefore hold, as the lower courts have held that there was a contract
of sale between the parties. And as no legal excuse has been proven, the seller's failure
to comply therewith gave ground to an award for damages, which has been xed by the
Court of Appeals at P3,240.15 — amount which petitioner does not dispute in this nal
instance.
Consequently, the decision under review should be, and it is hereby af rmed, with
costs against petitioner.
Paras, C. J., Padilla, Montemayor, Reyes, A., Concepcion, Reyes, J. B. L., Endencia
and Felix, JJ., concur.
Bautista Angelo, J., concurs in the result.
Footnotes
1. p. 6 brief of petitioner.
2. Morase vs. Burleigh 170 La. 270, 127 So. 624.
3. Or to buy as the case may be.

THIRD DIVISION
[G.R. No. 73573. May 23, 1991.]
SPOUSES TRINIDAD AND EPIFANIO NATINO , petitioners, vs. THE

INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR,
INC. AND THE PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN ,
respondents.
Jose P. Villamor for petitioners.

Oscar A. Benzon for private respondents.
Bitty G. Viliran for Rural Bank of Aguilar, Inc.
SYLLABUS
1. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF INTERMEDIATE APPELLATE

COURT RESPECTED.— We find the petition to be devoid of merit. Petitioners have failed to
demonstrate that the conclusion made by the respondent Intermediate Appellate Court
from the proven facts is wrong. We agree with said Court, and, therefore, set aside the
contrary conclusion of the trial court, that the attempts to redeem the property were done
after the expiration of the redemption period and that no extension of that period was
granted to petitioners. If indeed the offer was made within the redemption period, but the
Bank refused to accept the redemption money, petitioners should have made the tender to
the sheriff who made the sale and who then had the duty to accept the tender sale and
execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escaño, 38 Phil. 657,
cited in II Moran, Comments on the Rules of Court, 1979 Ed., pp. 326-327).
2. CIVIL LAW; CONTRACTS; SALE; OPTION OR PROMISE, UNSUPPORTED BY
CONSIDERATION DISTINCT FROM PURCHASE PRICE NOT BINDING UPON PROMISOR. —
The Bank was not bound by the promise made by Mrs. Brodeth not only because it was
not approved or ratified by the Board of Directors but also because, and more decisively, it
was a promise unsupported by a consideration distinct from the re-purchase price. The
second paragraph of Article 1479 of the Civil Code expressly provides: . . ."An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the PROMISSOR if the promise is supported by a consideration distinct from the price."
Thus in Rural Bank of Parañaque Inc. vs. Remolado, et al., a commitment by the bank to
resell a property, within a specified period, although accepted by the party in whose favor it
was made, was considered an option not supported by a consideration distinct from the
price and, therefore, not binding upon the PROMISSOR. Pursuant to Southwestern Sugar
and Molasses Co. vs. Atlantic Gulf and Pacific Company, it was void.
DECISION
DAVIDE, JR. , J : p
Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of
the then Intermediate Appellate Court (IAC) in A.C.-G.R. CV No. 69539 1 which, respectively,
reversed the decision of the then Court of First Instance of Pangasinan, Branch II, of 1
December 1981 in Civil Case No. 15573, and denied the motion for the reconsideration of
the 4 June 1985 decision, petitioners filed with this Court the instant petition to seek
reversal thereof. They submit one principal issue: whether or not the conclusion drawn by
the Intermediate Appellate Court from proven facts is correct. 2
The following facts are not disputed:
On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent
bark as security for a loan of P2,000.00. Petitioners failed to pay the loan on due date. The
bank applied for the extrajudicial foreclosure of the mortgage. At the foreclosure sale on
11 December 1974 the respondent bank was the highest and winning bidder with a bid of
P2,945.11. A certificate of sale was executed in its favor by the sheriff and the same was
registered with the Office of the Register of Deeds on 29 January 1975. The certificate of
sale, a copy of which was furnished the petitioners by registered mail, expressly provided
that the redemption period shall be two years from the registration thereof. llcd
Since no redemption was made by petitioners within the two-year period, which expired on
29 January 1977, the sheriff issued a Final Deed of Sale on 15 February 1977.
Petitioners, however, claimed that they were granted by respondent bank an extension of
the redemption period; but the latter denied it.
On 22 November 1979 respondent bank file a petition for a writ of possession, which
petitioners later opposed on the ground that they had consigned the redemption money of
P4,000.00 on 12 December 1979. The court rejected the opposition and issued the writ of
possession. However, to prevent its execution, petitioners instituted with the then Court of
First Instance of Pangasinan a complaint against respondent bank and the Ex-Officio
Provincial Sheriff for the annulment of the aforementioned final deed of sale and for the
issuance of a writ of preliminary injunction. The case was docketed as Civil Case No.
15573 which was raffled to Branch II thereof In their complaint petitioners alleged that the
final deed of sale was prematurely issued since they were granted an extension of time to
redeem the property.
In resolving the issue of extension of the redemption period, the trial court, in its Decision
of 1 December 1981, made the following findings and conclusion:
xxx xxx xxx
"From the bank's evidence, it is difficult to believe that the plaintiffs who are
personally known to the president and manager herself, and from whom she had
to hire trucks, would not have made any move or offer to redeem the property
within the redemption period. The presumption is that they exercised ordinary
care of their concerns (Sc. 5 (d), Rule 131, Rules of Court, Cabigao vs. Lim, 50
Phil. 844). If indeed, the plaintiffs made no such offer during the redemption
period, the defendant bank should have presented evidence rebutting the
plaintiffs' evidence. But it did not. While the plaintiff testified that the tender was
made to Mr. Salgado, loan clerk, and Mr. Madrid, Acting Manager of the Bank and
also board members Dr. Jing Zarate and Mr. Rosario, none of them were
presented to rebut plaintiffs' evidence. Hence, the presumption that if their
testimony were produced, it would be adverse to the defendant bank under Sec.
5(e) Rule 131 of the Rules of Court, would apply.
Furthermore, the very evidence of the defendant bank shows that there was
indeed an extension of the period to redeem the property. The statutory period of
redemption granted the mortgagor in the certificate of sale registered on January
29, 1975 was 2 years. The period should have terminated on January 29, 1977.
However, the Sheriff's Certificate of Final Sale was only executed on February 15,
1977 and registered only on November 14, 1979 which registration date is the
effective date of the confirmation of the sale which cuts off redemption. Such
extension of nearly 3 years strengthens the plaintiffs' claim that indeed, there was
an agreement to extend the redemption date.
The plaintiffs' evidence has shown that there was an agreement between them
and the defendant bank through its personnel and its president and manager,
acting as its agents to extend the period for redemption for the plaintiffs.
However, the plaintiffs were not given a specific time to pay and redeem but were
given by the President and Manager of the bank such time when their means
permit them to do so. This created an obligation with a period under Art. 1180 of
the Civil Code of the Philippines, which provides:
'Art. 1180. When the debtor binds himself to pay when his
means permit him to do so, the obligation shall be deemed to be one with a
period, subject to the provisions of Article 1197.'
This does not mean that the condition was exclusively dependent of the will of
the plaintiffs, for they had already promised payment. It therefore became
necessary, under Article 1197 for the Court to fix the term in order that the
condition may be fulfilled. Any action to recover before this is done is considered
premature (Patente vs. Omega, 93 Phil. 218).
That agreement or contract entered into between the President and Manager of
the bank was not in writing is of no moment since under Article 1315 of the Civil
Code," contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which according to their nature, may be in keeping
with good faith, usage and law." The defendant's claim that the agreement must
be in writing citing the ruling in the case of Pornellosa vs. Land Tenure
Administration, 1 SCRA 375, only applies to executory contracts, not to those
either totally or partially performed, (Inigo vs. Estate of Maloto, 21 SCRA 246). In
this case, the bank had already partially performed its obligation thereunder by
extending the period of redemption from January 29, 1977 to November 14, 1979.
The agreement does not novate the original contract of mortgage but only
changes one of its conditions, that which concerns the period of redemption. The
period of redemption may be extended by the parties under special circumstances
(Lichauco vs. Olegario, 43 Phil. 540, 542). This the parties may do, since the right
of the mortgagee to demand compliance within the 2 year period of redemption
may be waived, unless the waiver is contrary to the public order, public policy,
morals or good customs or prejudicial to a third person with a right recognized by
law. None of the inhibitions enumerated are present in this case.
Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to
the fixing of the period within which the plaintiffs had to pay was not in order by
reason of the extension of the period of redemption without a term. Not being in
order, the period for redemption by the plaintiffs still exists but has to be set." 3
and on the basis thereof, decreed to (a) annul the Sheriff's Final Deed of Sale, dated 15
February 1977 and its registration of 17 March 1979, (b) x the period of redemption
to ninety (90) days from receipt of the decision by petitioners, (c) order petitioners to
pay the respondent bank, within ninety (90) days from receipt of the decision the
amount of P2,945.11, the purchase price, with 1% interest per month from 11
December 1974 to 14 December 1979, together with any amount representing
assessment or taxes which the bank may have paid after 11 December 1974, with
interest thereon at 1% per month up to 14 December 1979, (d) order the Bank to
receive and credit the petitioners with such amounts, restore petitioners to the property
and to deliver to them a certi cate of redemption, and to pay petitioners the sum of
P2,000.00 as attorney's fees and the costs. 4
Respondent bank appealed from said Decision to the then Intermediate Appellate Court
which docketed the appeal as C.A.-G.R. CV No. 69539.
In support of its appeal, respondent bank assigned the following errors:
"-I-
THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE
APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF
REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE
MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE
SHERIFF.
-II-
THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED
THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF
THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE.
-III-
THE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF

EVIDENCE FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY
EVIDENCE PRESENTED BY THEM IS THE SOLE TESTIMONY OF EPIFANIO
NATINO, WHICH IS NOT ONLY UNCORROBORATED, BUT IS EVEN CONTRARY TO
THE IMPORT OF HIS DECLARATIONS AND ADMISSIONS MADE IN OPEN COURT;
AS AGAINST THE TESTIMONY OF THE APPELLANTS' WITNESS WHICH IS
CORROBORATED, NOT ONLY BY DOCUMENTARY EVIDENCE, BUT EVEN BY THE
IMPORT OF PLAINTIFF-APPELLEES' TESTIMONY.
-IV-
THE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-

APPELLEE WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE
REGLEMENTARY PERIOD IN AN AUTHENTIC MANNER AS REQUIRED BY THE
LAW, RULES AND JURISPRUDENCE.
-V-
THE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-
APPELLEE ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD
INASMUCH AS IT IS NOT IN A PUBLIC DOCUMENT OR AT LEAST IN AN
AUTHENTIC WRITING.
-VI-
THE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE
CIVIL CODE, BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE
CASE AT BAR.
-VII-
ASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE
APPELLANT BANK MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN
RECOVER THE LAND IN QUESTION, AS TESTIFIED BY THE PLAINTIFF-APPELLEE,
THE LOWER COURT ERRED IN HOLDING THAT SUCH OFFICERS ACTED AS
AGENTS OF THE APPELLANT-BANK.
CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE
ACTION BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER.
-VIII-
THE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED
OF FINAL SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES
MAY STILL REDEEM THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS
1% INTEREST PER MONTH, DESPITE THE LAPSE OF THE PERIOD OF
REDEMPTION.
-IX-
THE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF THE
APPELLANTS AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO
THE APPELLANTS HEREIN." 5
Herein petitioners, as appellees, did not file their Brief.

In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned
errors as follows:
xxx xxx xxx
"The bank has assigned eight (8) errors in the decision but the determinants are
the first and the second. But before going into their merits We must take note of
the failure of the appellees to file their brief. Appellees did not file any motion for
reconsideration. It has to be stated there that, generally, appellee's failure to file
brief is considered as equivalent to a confession of error, warranting, although not
necessarily requiring a reversal, but any doubt entertained by the appellate court
as to what disposition should be made of the case will be resolved against the
appellee (4 CJS 1832, cited in Francisco, the Revised Rules of Court Civil
Procedure, Vol. III, p. 638).
Re the first error —

THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS
BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE
PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF
FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL
SALE BY THE SHERIFF.
It will take better proofs than appellees' mere declaration for the Court to believe
that they had tendered the redemption money within the redemption period which
was refused by the bank. There would have been no valid reason for a refusal; it
is an obligation imposed by law on every purchaser at public auction that admits
of redemption, to accept tender of redemption money. And should there be
refusal, the correlative duty of the mortgagor is clear: he must deposit the money
with the sheriff. The evidence does not show that appellees complied with this
duty.
All that was shown by way of compliance was the deposit made with the Clerk of
Court of the sum of P4,000.00. This deposit is a belated and last ditch attempt to
exercise a right that had long expired. It was made only on December 12, 1979, or
after the redemption period of two (2) years from January 29, 1977 when the
sheriff's certificate of sale was registered and after sheriff's final sale which was
registered on November 14, 1979. And, it is clear that the late deposit was utilized
to defeat the bank's vested right which it sought to enforce by its petition for a
writ of possession. The lower court correctly ruled against any validity to it.
The right to redeem becomes functus officio on the date of its expiry, and its
exercise after the period is not really one of redemption but a repurchase.
Distinction must be made because redemption is by force of law; the purchaser at
public auction is bound to accept redemption. Repurchase however of foreclosed
property, after redemption period, imposes no such obligation. After expiry, the
purchaser may or may not re-sell the property but no law will compel him to do so.
And, he is not bound by the bid price; it is entirely within his discretion to set a
higher price, for after all, the property already belongs to him as owner.
This brings Us to the second error —
THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS

GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE
REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE
FORECLOSURE SALE.
Appellees' main premise is the alleged assurances of the bank's officers that they
could redeem the property. From the testimony of Epifanio Natino, however, it is
clear that these assurances were given before expiry of redemption (tsn, pp. 15 &
16). Such assurances were not at all necessary since the right to redeem was still
in existence. Those assurances however could not and did not extend beyond the
redemption period.
It seems clear from testimony elicited on cross-examination of the president and
manager of the bank that the latter offered to re-sell the property for P30,000.00
but after the petition for a writ of possession had already been filed, and well after
expiry of the period to redeem. Appellants failed to accept the offer; they
deposited only P4,000.00. There was therefore no meeting of the minds, and
accordingly, appellants may no longer be heard. 6
and in the light thereof, REVERSED and SET ASIDE the appealed decision. Their motion
to reconsider the same having been denied in the resolution of 23 December 1985, 7
petitioners have come to Us on appeal by certiorari raising the sole issue stated in the
beginning of this decision.
We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the
conclusion made by the respondent Intermediate Appellate Court from the proven facts is
wrong. We agree with said Court, and, therefore, set aside the contrary conclusion of the
trial court, that the attempts to redeem the property were done after the expiration of the
redemption period and that no extension of that period was granted to petitioners.
The contrary conclusion made by the trial court is drawn from inferences which are not
supported by adequate or sufficient facts or is based on erroneous assumptions. We note
that its decision is remarkably silent as to the dates when petitioner Epifanio Natino went
to the respondent bank to talk with a bank personnel to offer to pay the loan. If indeed the
offer was made within the redemption period, but the Bank refused to accept the
redemption money, petitioners should have made the tender to the sheriff who made the
sale and who then had the duty to accept the tender and execute the certificate of
redemption. (Enage vs. Vda. de Hijos de Escano, 38 Phil. 657, cited in II MORAN,
Comments on the Rules of Court, 1979 Ed., pp. 326-327).
There was no such tender to the Sheriff.
Again, if indeed this occurred during the redemption period, then, as correctly pointed out
by respondent IAC, it was not necessary to ask for extension of the period to redeem.
In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of
the Bank, sometime In May of 1978 to the effect that petitioners can redeem the property
as soon as they have the money, it is obvious that this took place after the expiration of the
redemption period. As correctly pointed out by the respondent IAC, this could only relate
to the matter of resale of the property, not redemption.
Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the
assurance, the same could bind the bank only if its Board of Directors approved or ratified
it. No evidence was offered to prove such action by the Board. Moreover, Mrs. Brodeth
denied that during that meeting in May 1978 she made the assurance; according to her
petitioner Epifanio neither mentioned the loan nor offered to redeem, although earlier he
was told that to "redeem" the property he should pay P30,000.00. The latter statement
supports the conclusion of respondent IAC that this was the Bank's offer for the re-sell
(not redemption of the property), which, logically took place after the expiration of the
redemption period.
Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy
the property at any time they have the money, the Bank was not bound by the promise not
only because it was not approved or ratified by the Board of Directors but also because,
and more decisively, it was a promise unsupported by a consideration distinct from the re-
purchase price.
The second paragraph of Article 1479 of the Civil Code expressly provides:
xxx xxx xxx

"An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price."
Thus in Rural Bank of Parañaque Inc. vs. Remolado, et al., 8 a commitment by the bank to
resell a property, within a specified period, although accepted by the party in whose favor it
was made, was considered an option not supported by a consideration distinct from the
price and, therefore, not binding upon the promissor. Pursuant to Southwestern Sugar and
Molasses Co. vs. Atlantic Gulf and Pacific Company, 9 it was void.
WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
Footnotes
1. Entitled Spouses Trinidad Natino and Epifanio Natino, plaintiffs-appellees, versus Rural
Bank of Aguilar and the Provincial Sheriff Ex-Officio of Pangasinan, defendants-
appellants.
2. Petition, 1; Rollo, 4.
3. Pp. 5-7, Annex "A" of Petition; Rollo, 20-22.
4. P. 7, Annex "A" of Petition, Rollo, 22.

5. P. 5-7, Petition; Rollo, 8-10.
6. Annex "B" of Petition; Rollo, 24-27.
7. Annex "C" of Petition; Rollo, 28.
8. 135 SCRA 409.
9. 97 Phil. 249.

SECOND DIVISION
[G.R. No. 103338. January 4, 1994.]
FEDERICO SERRA , petitioner, vs . THE HON. COURT OF APPEALS AND

RIZAL COMMERCIAL BANKING CORPORATION , respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; CONTRACT OF ADHESION; CONSTRUED; CASE AT

BAR NOT A CASE OF. — A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely a xes
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, this Court will not hesitate to rule out blind adherence to terms where
facts and circumstances will show that it is basically one-sided. We do not nd the
situation in the present case to be inequitable. Petitioner 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. He is amply equipped to
drive a hard bargain if he would be so minded to.
2. ID.; ID.; PROMISE TO BUY AND SELL A DETERMINATE THING FOR A PRICE;
DISTINGUISHED FROM ACCEPTED UNILATERAL PROMISE TO BUY OR SELL A
DETERMINATE THING FOR A PRICE. — 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 promisor if the promise is
supported by a consideration distinct from the price. (Article 1479, New Civil Code) The
rst is a mutual promise and each has the right to demand from the other the ful llment of
the obligation. While the second is merely an offer of one to another, which if accepted,
would create an obligation to the offeror to make good his promise, provided the
acceptance is supported by a consideration distinct from the price. Article 1324 of the
Civil Code provides that when an offeror has allowed the offeree a certain period to accept,
the offer may be withdrawn at anytime before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as something paid or
promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral
promise to buy and 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. In a
unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by the debtor, there is already
a meeting of the minds of the parties as to the thing which is determinate and the price
which is certain. In which case, the parties may then reciprocally demand performance.
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 xed price. This being his prerogative, he may not be compelled to exercise the option to
buy before the time expires.

3. ID.; ID.; ID.; ID.; APPLICATION IN CASE AT BAR; VDA. DE QUIRINO v. PALARCA
(29 SCRA 1), CITED. — What may be regarded as a consideration separate from the price is
discussed in the case of Vda. de Quirino v. Palarca (29 SCRA 1) 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. The bugging question then is whether the price "not
greater than TWO HUNDRED PESOS" is certain or de nite. A price is considered certain if it
is so with reference to another thing certain or when the determination thereof is left to the
judgment of a speci ed person or persons. And generally, gross inadequacy of price does
not affect a contract of sale. Contracts are to be construed according to the sense and
meaning of the terms which the parties themselves have used. In the present dispute,
there is evidence to show that the intention of the parties is to peg the price at P210 per
square meter. Moreover, by his subsequent acts of having the land titled under the Torrens
System, and in pursuing the bank manager to effect the sale immediately, means that he
understood perfectly well the terms of the contract. He even had the same property
mortgaged to the respondent bank sometime in 1979, without the slightest hint of
wanting to abandon his offer to sell the property at the agreed price P210 per square
meter.
4. ID.; ID.; EXTRAORDINARY INFLATION; WHEN CONSIDERED. — We agree with
the courts a quo that 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 in ation. Extraordinary in ation exists when there is an unimaginable
increase or decrease of the purchasing power of the Philippine currency, or uctuation in
the value of pesos manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.
DECISION
NOCON , J : p
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 promisor if the promise is supported by a consideration
distinct from the price. (Article 1479, New Civil Code) The rst is a mutual promise and
each has the right to demand from the other the ful llment of the obligation. While the
second is merely an offer of one to another, which if accepted, would create an obligation
to the offeror to make good his promise, provided the acceptance is supported by a
consideration distinct from the price. LibLex

Disputed in the present case is the e cacy of a "Contract of Lease with Option to
Buy," entered into between petitioner Federico Serra and private respondent Rizal
Commercial Banking Corporation. (RCBC).
Petitioner is the owner of a 374 square meter parcel of land located at Quezon St.,
Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in
Masbate, Masbate, negotiated with petitioner 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 pertinent portion of which reads:
"1. The LESSOR leases unto the LESSEE, and the LESSEE hereby
accepts in lease, the parcel of land described in the first WHEREAS clause, to have
and to hold the same for a period of twenty- ve (25) years commencing from
June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to
purchase said parcel of land within a period of ten (10) years from the date of the
signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS
(P210.00) per square meter. For this purpose, the LESSOR undertakes, within such
ten-year period, to register said parcel of land under the TORRENS SYSTEM and
all expenses appurtenant thereto shall be for his sole account.
"If, for any reason, said parcel of land is not registered under the TORRENS
SYSTEM within the aforementioned ten-year period, the LESSEE shall have the
right, upon termination of the lease to be paid by the LESSOR the market value of
the building and improvements constructed on said parcel of land. cdll
"The LESSEE is hereby appointed attorney-in-fact for the LESSOR to

register said parcel of land under the TORRENS SYSTEM in case the LESSOR, for
any reason, fails to comply with his obligation to effect said registration within a
reasonable time after the signing of this Agreement, and all expenses appurtenant
to such registration shall be charged by the LESSEE against the rentals due to the
LESSOR.
"2. During the period of the lease, the LESSEE covenants to pay the
LESSOR, at the latter's residence, a monthly rental of SEVEN HUNDRED PESOS
(P700.00), Philippine Currency, payable in advance on or before the fth (5th) day
of every calendar month, provided that the rentals for the rst four (4) months
shall be paid by the LESSEE in advance upon the signing of this Contract.
"3. The LESSEE is hereby authorized to construct at its sole expense a
building and such other improvements on said parcel of land, which it may need
in the pursuance of its business and/or operations; provided, that if for any
reason the LESSEE shall fail to exercise its option mentioned in paragraph (1)
above 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 the LESSOR after the expiration of the 25-year lease
period without right of reimbursement on the part of the LESSEE. The authority
herein granted does not, however, extend to the making or allowing any unlawful,
improper or offensive use of the leased premises, or any use thereof, other than
banking and o ce purposes. The maintenance and upkeep of such building,
structure and improvements shall likewise be for the sole account of the LESSEE.
1
The foregoing agreement was subscribed before Notary Public Romeo F. Natividad. prcd
Pursuant to said contract, a building and other improvements were constructed on

the land which housed the branch o ce of RCBC in Masbate, Masbate. Within three years
from the signing of the contract, petitioner complied with his part of the agreement by
having the property registered and placed under the TORRENS SYSTEM, for which Original
Certi cate of Title No. 0-232 was issued by the Register of Deeds of the Province of
Masbate.
Petitioner 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 respondent bank decided to exercise
its option and informed petitioner, through a letter, 2 of its intention to buy the property at
the agreed price of not greater than P210.00 per square meter or a total of P78,430.00.
But much to the surprise of the respondent, petitioner replied that he is no longer selling
the property. 3
Hence, on March 14, 1985, a complaint for speci c performance and damages was
led by respondent against petitioner. In the complaint, respondent alleged that during the
negotiations it made clear to petitioner that it intends to stay permanently on the property
once its branch o ce is opened unless the exigencies of the business requires otherwise.
Aside from its prayer for speci c performance, it likewise asked for an award of
P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the cost of the
suit. 4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it took
undue advantage on him when it set in lopsided terms.
2. That the option was not supported by any consideration distinct
from the price and hence not binding upon him. cdphil
3. That as a condition for the validity and/or e cacy of the option, it

should have been exercised within the reasonable time after the registration of the
land under the Torrens System; that its delayed action on the option has forfeited
whatever its claim to the same.
4. That extraordinary in ation supervened resulting in the unusual
decrease in the purchasing power of the currency that could not reasonably be
foreseen or was manifestly beyond the contemplation of the parties at the time of
the establishment of the obligation, thus, rendering the terms of the contract
unenforceable, inequitable and to the undue enrichment of RCBC. 5
and as counterclaim petitioner alleged that:

1. The rental of P700.00 has become unrealistic and unreasonable,
that justice and equity will require its adjustment.
2. By the institution of the complaint he suffered moral damages
which may be assessed at P100,000.00; and award of attorney's fee of
P25,000.00 and exemplary damages at P100,000.00. 6
Initially, after trial on the merits, the court dismissed the complaint. Although it
found the contract to be valid, the court nonetheless 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. The prayer for readjustment of rental was
denied, as well as that for moral and exemplary damages. 7
Nevertheless, upon motion for reconsideration of respondent, the court in the order
of January 9, 1989, reversed itself, the dispositive portion reads:
"WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and
hereby renders judgment as follows:
"1. The defendant is hereby ordered to execute and deliver the proper
deed of sale in favor of plaintiff selling, transferring and conveying the property
covered and described in the Original Certificate of Title 0-232 of the Registry of
Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty
Pesos (P78,540,00), Philippine Currency; LLpr
"2. Defendant is ordered to pay plaintiff the sum of Five Thousand

(P5,000.00) Pesos as attorney's fees;
"3. The counter claim of defendant is hereby dismissed; and
"4. Defendant shall pay the costs of suit." 8
In a decision promulgated on September 19, 1991, 9 the Court of Appeals a rmed

the findings of the trial court that:
1. The contract is valid and that the parties perfectly understood the
contents thereof;
2. The option is supported by a distinct and separate consideration as
embodied in the agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like us to consider
mainly the following:
1. The disputed contract is a contract of adhesion.
2. There was no consideration to support the option, distinct from the
price, hence the option cannot be exercised.
3. Respondent court gravely abused its discretion in not granting
currency adjustment on the already eroded value of the stipulated rentals for
twenty-five years.
The petition is devoid of merit.

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. Neither do we nd the terms of the
contract unfairly lopsided to have it ignored.
A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely a xes 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, this
Court will not hesitate to rule out blind adherence to terms where facts and circumstances
will show that it is basically one-sided. 10
We do not nd the situation in the present case to be inequitable. Petitioner 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. He is amply equipped to drive a hard bargain if he would be so minded to.
Petitioner contends that the doctrines laid down in the cases of Atkins Kroll v. Cua
Hian Tek , 1 1 Sanchez v. Rigos , 1 2 and Vda. de Quirino v. Palarca 1 3 were misapplied in the
present case, because 1) the option given to the respondent bank was not supported by a
consideration distinct from the price; and 2) that the stipulated price of "not greater than
P210.00 per square meter" is not certain or definite. cdrep
Article 1324 of the Civil Code provides that when an offeror has allowed the offeree
a certain period to accept, the offer may be withdrawn at anytime before acceptance by
communicating such withdrawal, except when the option is founded upon consideration,
as something paid or promised. On the other hand, Article 1479 of the Code provides that
an accepted unilateral promise to buy and 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.
In a unilateral promise to sell, where the debtor fails to withdraw the promise before
the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to
buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is
already a meeting of the minds of the parties as to the thing which is determinate and the
price which is certain. 1 4 In which case, the parties may then reciprocally demand
performance. llcd
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 xed price. This being his prerogative, he may not be compelled to exercise the option to
buy before the time expires. 15
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 1 6 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."17
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.
18
The bugging question then is whether the price "not greater than TWO HUNDRED
PESOS" is certain or de nite. A price is considered certain if it is so with reference to
another thing certain or when the determination thereof is left to the judgment of a
speci ed person or persons. 1 9 And generally, gross inadequacy of price does not affect a
contract of sale. 20
Contracts are to be construed according to the sense and meaning of the terms
which the parties themselves have used. In the present dispute, there is evidence to show
that the intention of the parties is to peg the price at P210 per square meter. This was
confirmed by petitioner himself in his testimony, as follows:
Q. Will you please tell this Court what was the offer?
A. It was an offer to buy the property that I have in Quezon City (sic).
Q. And did they give you a specific amount?
xxx xxx xxx
A. Well, there was an offer to buy the property at P210 per square
meters (sic).
Q. And that was in what year?
A. 1975, sir.
Q. And did you accept the offer?
A. Yes, sir. 21
Moreover, by his subsequent acts of having the land titled under the Torrens System,
and in pursuing the bank manager to effect the sale immediately, means that he
understood perfectly well the terms of the contract. He even had the same property
mortgaged to the respondent bank sometime in 1979, without the slightest hint of
wanting to abandon his offer to sell the property at the agreed price of P210 per square
meter. 22
Finally, we agree with the courts a quo that 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 in ation. Extraordinary in ation
exists when there in an unimaginable increase or decrease of the purchasing power of the
Philippine currency, or uctuation in the value of pesos manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation. 23
Premises considered, we nd 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, this petition is hereby DISMISSED, and the decision of the appellate
court is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
Footnotes
1. Annex "A" of the Complaint, Original Records, pp. 8-9.

2. Annex "C" of the Complaint, Original Records, p. 14.
3. Annex "D" of the Complaint, Original Records, p. 15.
4. Rizal Commercial Banking Corporation v. Federico A. Serra, Civil Case No. 10054, Judge
Ignacio M. Capulong, presiding judge, Regional Trial Court, Branch 134, National
Capital Judicial Region, Makati.
5. Answer to the Complaint, Original Records, pp. 23-24.
6. Id. at 24.
7. Rollo, pp. 41, 44.
8. Rollo, p. 49.
9. CA-G.R. CV No. 25693, Justice Celso L. Magsino, ponente, Justices Serafin Camilo and
Artemon Luna, concurring, Rollo, pp. 50-63.
10. Pan American World Airways, Inc., v. Rapadas, G.R. No. 60673, 19 May 1992; BPI
Credit Corporation v. Court of Appeals, G.R. No. 96755, 204 SCRA 601.
11. 102 Phil. 948.
12. 45 SCRA 368.

13. 29 SCRA 1.
14. Padilla, Ambrosio; Civil Code, Vol. 3, 6th Ed., 1974 at pp. 179-180, quoting from Aguirre
v. Salazar, 13 CA rep. 297.
15. Padilla, at p. 179, quoting from Filipinas Colleges Inc. v. Timbang, et al., (CA) 52 O.G.
3624; De la Cevada v. Diaz, 37 Phil. 982; Villamor v. C.A., G.R. No. 97332, 202 SCRA
607.
16. Supra.
17. Ibid., at p. 4-5.
18. As explicitly stated in the provision #3 of the contract:
". . . provided, that if for any reason the LESSEE shall fail to exercise its option
mentioned in paragraph (1) above 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 the LESSOR after the expiration of the 25-
year lease period without right of reimbursement on the part of the LESSEE."
19. Article 1469, New Civil Code.
20. Article 1470, New Civil Code.

21. TSN, July 28, 1986, pp. 4-5.
22. TSN, July 28, 1986, p. 13.
23. Filipino Pipe and Foundry Corp. v. NAWASA, G.R. No. L-43446, 161 SCRA 32.

FIRST DIVISION
[G.R. No. 2412. April 11, 1906.]
PEDRO ROMAN , plaintiff-appellant, vs . ANDRES GRIMALT , defendant-

appellee.
Alberto Barretto, for appellant.

Chicote, Miranda & Sierra, for appellee.
SYLLABUS
1. CONTRACT, VALIDITY OF. — The provision contained in article 1278 of the

Civil Code to the effect that a contract shall be considered binding whatever may be the
form in which it was executed if it complies with the essential conditions and
circumstances attending each particular contract and the nature of the proof required
to establish its existence.
2. ID.; ID.; PARTIES TO CONTRACT; CONSENT. — No contract shall be
considered valid and binding which does not contain the essential elements prescribed
in article 1261 of the Civil Code, the consent of the parties being the first such
elements.
3. ID.; PARTIES; PROPOSAL, CONSENT; CONSIDERATION. — When there is no
proof that parties have agreed as to the thing should be the subject of the contract and
that one has accepted the terms propose by the other, it can not be said that the
contracting parties have given their mutual consent as to the consideration of the
contract.
4. ID.; SALE. — Where no valid contract of sale exists it create no mutual
rights or obligations by between the alleged purchaser and seller, nor any label relation
legal relation binding upon them.
5. ID.; ID.; LOST PROPERTY. — The disapperance or loss of property which
the owner intended or attempted to sell can only interest the owner, who should suffer
the loss, and not a third party who has acquired no rights nor incurred any liability with
respect thereto.
DECISION
TORRES , J : p
On July 2, 1904, counsel for Pedro Roman led a complaint in the Court of First
Instance of this city against Andres Grimalt, praying that judgment be entered in his
favor and against the defendant (1) for the purchase price of the schooner Santa
Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by
installments in the manner stipulated; (2) for legal interest on the installments due on
the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other
and further remedy as might be considered just and equitable.
On October 24 of the same year the court made an order sustaining the demurer
led by defendant to the complaint and allowing plaintiff ten days within which to
amend his complaint. To this order the plaintiff duly excepted.
Counsel for plaintiff on November 5 amended his complaint and alleged that
between the 13th and the 23rd day of June, 1904, both parties, through one Fernando
Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant
in a letter dated June 23 had agreed to purchase the said schooner and of offered to
pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15,
and November 15, adding in his letter that if the plaintiff accepted the plan of payment
suggested by him the sale would become effective on the following day; that plaintiff
on or about the 24th of the same month had noti ed the defendant through Agustin
Pastor that he accepted the plan of payment suggested by him 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; that the contract having been closed and the vessel being ready for
delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of
Manila and is a total loss, as a result of a severe storm; and that on the 30th of the
same month 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 nally
prayed that judgment be rendered in accordance with the prayer of his previous
complaint.
Defendant in his answer asked that the complaint be dismissed with costs to the
plaintiff, alleging that on or about June 13 both parties met in a public establishment of
this city and the 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; that 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;
that both parties then called on Calixto Reyes, a notary public, who, after examining the
documents, informed them that they were insuf cient to show the ownership of the
vessel and to transfer title thereto; that plaintiff then promised to perfect his title and
about June 23 called on defendant to close the sale, and the defendant believing that
plaintiff had perfected his title, wrote to him on the 23d of June and set the following
day 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.
Defendant also denied the other allegations of the complaint inconsistent with
his own allegations and further denied the statement contained in paragraph 4 of the
complaint to the effect that the contract was completed as to the vessel; that the
purchase price and method of payment had been agreed upon; that the vessel was
ready for delivery to the purchaser and that an attempt had been made to deliver the
same, but admitted, however, the allegations contained in the last part of the said
paragraph.
The court below found that the parties had not arrived at a de nite
understanding. We think that this nding is supported by the evidence introduced at the
trial.
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.)
Ownership is not considered transmitted until the property is actually delivered
and the purchaser has taken possession of the value and paid the price agreed upon, in
which case the sale is considered perfected.
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.)
Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several
days negotiating for the purchase of the schooner Santa Marina — from the 13th to the
23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos,
payable in three installments, provided the title papers to the vessel were in proper
form. It is so stated in the letter written by the purchaser to the owner on the 23rd of
June.
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.
The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during
a severe storm and before the owner had complied with the condition exacted by the
proposed purchaser, to wit, the production of the proper papers showing that the
plaintiff was in fact the owner of the vessel in question.
The defendant was under no obligation to pay the price of the vessel, the
purchase of which had not been concluded. The conversations had between the parties
and the letter written by defendant to plaintiff did not establish a contract suf cient in
itself to create reciprocal rights between the parties.
It follows, therefore, that article 1452 of the Civil Code relative to the injury or
bene t of the thing sold after a contract has been perfected and articles 1096 and
1182 of the same code relative to the obligation to deliver a speci ed thing and the
extinction of such obligation when the thing is either lost or destroyed, are not
applicable to the case at bar.
The rst paragraph of article 1460 of the Civil Code and section 335 of the Code
of Civil Procedure are not applicable. These provisions contemplate the existence of a
perfected contract which can not, however, be enforced on account of the entire loss of
the thing or made the basis of an action in court through failure to conform to the
requisites provided by law.
The judgment of the court below is af rmed and the complaint is dismissed with
costs against the plaintiff. After the expiration of twenty days from the date hereof let
judgment be entered in accordance herewith and ten days thereafter let the case be
remanded to the Court of First Instance for proper action. So ordered.
Arellano, C. J., Mapa, Johnson, Carson and Willard, JJ., concur.

EN BANC
[G.R. No. 106063. November 21, 1996.]
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &

BAUERMANN, INC. , petitioners, vs . MAYFAIR THEATER, INC. ,
respondent.
Romulo, Mabanta, Buenaventura Sayoc & De los Angeles for Equatorial Realty
Development, Inc.
Emiliano S. Samson, E. Balderama for Samson and Mary Anne B. Samson and
Carmelo & Bauermann, Inc.
De Borja, Medialdea, Ata Bello, Guevarra & Serapio for respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OPTION CONTRACT;

PARAGRAPH 8 OF THE LEASE CONTRACT GRANTS TO MAYFAIR THE RIGHT OF FIRST
REFUSAL, NOT AN OPTION. — We agree with the respondent Court of Appeals that the
aforecited contractual stipulation provides for a right of rst refusal in favor of Mayfair. It
is not an option clause or an option contract. It is a contract of a right of rst refusal.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of
rst refusal to Mayfair and is not an option contract. It also correctly reasoned that as
such, the requirement of a separate consideration for the option, has no applicability in the
instant case. There is nothing in the identical paragraphs "8" of the June 1, 1967 and March
31, 1969 contracts which would bring them into the ambit of the usual offer or option
requiring an independent consideration. An option is a contract granting a privilege to buy
or sell within an agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the consummation of the option.
It must be supported by consideration. In the instant case, the right of rst refusal is an
integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties. To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer or
Article 1479 on promise to buy and sell would render ineffectual or "inutile" the provisions
on right of rst refusal so commonly inserted in leases of real estate nowadays. The Court
of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of
lease for the bene t of Mayfair which wanted to be assured that it shall be given the rst
crack or the rst option to buy the property at the price which Carmelo is willing to accept.
It is not also correct to say that there is no consideration in an agreement of right of rst
refusal. The stipulation is part and parcel of the entire contract of lease. The consideration
for the lease includes the consideration for the right of rst refusal. Thus, Mayfair is in
effect stating that it consents to lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the leased property, then, Mayfair
shall be given the right to match the offered purchase price and to buy the property at that
price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or
promise of each party is the consideration for that of the other. cdasia
2. ID.; ID.; SINCE PETITIONER IS A BUYER IN BAD FAITH, THE SALE TO IT OF

CD Technologies Asia, Inc. 2018 cdasiaonline.com
THE PROPERTY IN QUESTION IS RESCISSIBLE. — Since Equatorial is a buyer in bad faith,
this nding renders the sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that Equatorial was aware of
the lease contracts because its lawyers had, prior to the sale, studied the said contracts.
As such Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies. Petitioners assert the alleged impossibility of performance because the
entire property is indivisible property. It was petitioner Carmelo which xed the limits of
the property it was leasing out. Common sense and fairness dictate that instead of
nullifying the agreement on that basis, the stipulation should be given effect by including
the indivisible appurtenances in the sale of the dominant portion under the right of rst
refusal. A valid and legal contract where the ascendant or the more important of the two
parties is the landowner should be given effect, if possible, instead of being nulli ed on a
sel sh pretext posited by the owner. Following the arguments of petitioners and the
participation of the owner in the attempt to strip Mayfair of its rights, the right of rst
refusal should include not only the property speci ed in the contracts but also the
appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible.
Carmelo acted in bad faith when it sold the entire property to Equatorial without informing
Mayfair, a clear violation of Mayfair's rights. While there was a series of exchanges of
letters evidencing the offer and counter-offers between the parties, Carmelo abandoned
the negotiations without giving Mayfair full opportunity to negotiate within the 30-day
period.
3. ID.; ID.; THE RIGHT OF FIRST REFUSAL SHOULD BE ENFORCED ACCORDING
TO THE LAW ON CONTRACTS INSTEAD OF THE CODAL PROVISIONS ON HUMAN
RELATIONS. — Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated
that there was nothing to execute because a contract over the right of rst refusal belongs
to a class of preparatory juridical relations governed not by the law on contracts but by the
codal provisions on human relations. This may apply here if the contract is limited to the
buying and selling of the real property. However, the obligation of Carmelo to rst offer the
property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of rst refusal
which created the obligation. It should be enforced according to the law on contracts
instead of the panoramic and inde nite rule on human relations . The latter remedy
encourages multiplicity of suits. There is something to execute and that is for Carmelo to
comply with its obligation to the property under the right of the rst refusal according to
the terms at which they should have been offered then to Mayfair, at the price when that
offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is
not amorphous nor is it merely preparatory. Paragraph 8 of the two leases can be
executed according to their terms. HATEDC
PADILLA, J., separate opinion:

CIVIL LAW; OBLIGATIONS AND CONTRACTS; DAMAGES; WHILE MAYFAIR'S RIGHT
OF FIRST REFUSAL SHOULD BE UPHELD, IT SHOULD NOT BE REQUIRED TO PAY A
COMPOUNDED INTEREST OF 12% PER ANNUM UNDER ITS CONTRACT OF LEASE. — I am
of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should
categorically recognize Mayfair's right of rst refusal under its contract of lease with
Carmelo and Bauermann, Inc. (hereafter, Carmelo) and, because of Carmelo's and
Equatorial's bad faith in riding "roughshod" over Mayfair's right of rst refusal, the Court
should order the rescission of the sale of the Claro M. Recto property by the latter to
Equatorial (Arts. 1380-1381[3], Civil Code). I do not agree with the proposition that, in
addition to the aforesaid purchase price, Mayfair should be required to pay a compounded
interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil
Code, a party to a contract may recover interest as indemnity for damages in the following
instances: "Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum. Art. 2210. Interest may, in
the discretion of the court, be allowed upon damages awarded for breach of contract."
There appears to be no basis in law for adding 12% per annum compounded interest to the
purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such
stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly,
because Mayfair neither incurred in delay in the performance of its obligation nor
committed any breach of contract. Indeed, why should Mayfair be penalized by way of
making it pay 12% per annum compounded interest when it was Carmelo which violated
Mayfair's right of first refusal under the contract?HCEcAa
PANGANIBAN, J., separate concurring opinion:

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSION OF CONTRACT;
SALE OF AN IMMOVABLE IN BREACH OF A RIGHT OF FIRST REFUSAL; MAYFAIR, NOT
BEING A PARTY TO THE SALE OF THE PROPERTY, HAD NO PERSONALITY TO SUE FOR ITS
ANNULMENT; BUT THE FACTS IN THIS CASE MAKE OUT A CASE FOR RESCISSION UNDER
ART. 1177, IN RELATION TO ART. 1381(3), OF THE CIVIL CODE. — With respect to the sale
of the property, Mayfair was not a party. It therefore had no personality to sue for its
annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action for the
annulment of contracts may be instituted by all who are thereby obliged principally or
subsidiarily." But the facts as alleged and proved clearly in the case at bar make out a case
for rescission under Art. 1177, in relation to Art 1381(3), of the Civil Code, which
pertinently reads as follows: "Art. 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are inherent in his person;
they may also impugn the acts which the debtor may have done to defraud them." "Art.
1381. The following contracts are rescissible: . . . (3) Those undertaken in fraud of
creditors when the latter cannot in any other manner collect the claims due them; . . . " The
term "creditors" as used in these provisions of the Civil Code is broad enough to include
the obligee under an option contract as well as under a right of rst refusal, sometimes
known as a right of rst priority. Thus, in Nietes, the Supreme Court, speaking through then
Mr. Chief Justice Roberto Concepcion, repeatedly referred to the grantee or optionee as
"the creditor" and to the grantor or optioner as "the debtor." In any case, the personal
elements of an obligation are the active and passive subjects thereof, the former being
known as creditors or obligees and the latter as debtors or obligors. Insofar as the right of
first refusal is concerned, Mayfair is the obligee or creditor.
2. ID.; SPECIFIC PERFORMANCE; A PROPER REMEDY TO ENFORCE A RIGHT OF
FIRST REFUSAL; THE PRINCIPLE OF CONSENSUALITY OF A CONTRACT OF SALE SHOULD
BE DEEMED SATISFIED IN THE CASE AT BAR; REASON. — The inescapable conclusion
from all of the foregoing is not only that rescission is the proper remedy but also — and
more importantly — that speci c performance was actually used and given free rein as an
effective remedy to enforce a right of rst refusal in the wake of its violation, in the cited
case of Guzman. The consensuality required for a contract of sale is distinct from, and
should not be confused with, the consensuality attendant to the right of rst refusal itself.
While indeed, prior to the actual sale of the property to Equatorial and the filing of Mayfair's
complaint for speci c performance, no perfected contract of sale involving the property
ever existed between Carmelo as seller and Mayfair as buyer, there already was, in law and
in fact, a perfected contract between them which established a right of rst refusal, or of
first priority. Worth stressing at this juncture is the fact that Mayfair had the right to require
that the offer to sell the property be sent to it by Carmelo, and not to anybody else. This
was violated when the offer was made to Equatorial. Under its covenant with Carmelo,
Mayfair had the right, at that point, to sue for either speci c performance or rescission,
with damages in either case, pursuant to Arts. 1165 and 1191, Civil Code. An action for
speci c performance and damages seasonably led, forti ed by a writ of preliminary
injunction, would have enabled Mayfair to prevent the sale to Equatorial from taking place
and to compel Carmelo to sell the property to Mayfair for the same terms and price, for
the reason that the ling of the action for speci c performance may juridically be
considered as a solemn, formal, and unquali ed acceptance by Mayfair of the speci c
terms of the offer of sale. Note that by that time, the price and other terms of the
proposed sale by Carmelo had already been determined, being set forth in the offer of sale
that had wrongfully been directed to Equatorial. The act of promptly filing this suit, coupled
with the fact that it is one for speci c performance, indicates beyond cavil or doubt
Mayfair's unquali ed acceptance of the misdirected offer of sale , giving rise, thereby, to a
demandable obligation on the part of Carmelo to execute the corresponding document of
sale upon the payment of the price of P11,300,000.00. In other words, the principle of
consensuality of a contract of sale should be deemed satis ed. The aggrieved party's
consent to, or acceptance of, the misdirected offer of sale should be legally presumed in
the context of the proven facts. To say, therefore, that the wrongful breach of a right of
rst refusal does not sanction an action for speci c performance simply because,
factually, there was no meeting of the minds as to the particulars of the sale since
ostensibly no offer was ever made to, let alone accepted by, Mayfair, is to ignore the
proven fact of presumed consent. To repeat, that consent was deemed given by Mayfair
when it sued for invalidation of the sale and for speci c performance of Carmelo's
obligation to Mayfair. Nothing in the law as it now stands will be violated, or even simply
emasculated, by this holding. AEITDH
ROMERO, J., concurring and dissenting opinion:

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LEASE; RIGHT OF FIRST
REFUSAL; OPTION; THE RIGHT OF FIRST REFUSAL IS UNLIKE AN OPTION WHICH
REQUIRES A CERTAINTY AS TO THE OBJECT AND CONSIDERATION OF THE
ANTICIPATED CONTRACT. — An option is a privilege granted to buy a determinate thing at
a price certain within a speci ed time and is usually supported by a consideration which is
why, it may be regarded as a contract in itself. The option results in a perfected contract of
sale once the person to whom it is granted decides to exercise it. The right of rst refusal
is unlike an option which requires a certainty as to the object and consideration of the
anticipated contract. When the right of the rst refusal is exercised, there is no perfected
contract of sale because the other terms of the sale have yet to be determined. Hence, in
case the offeror reneges on his promise to negotiate with offeree, the latter may only
recover damages in the belief that a contract could have been perfected under Article 19
of the New Civil Code. CTDHSE
2. ID.; RESCISSION OF CONTRACT; THE CONTRACT OF SALE ENTERED INTO BY

CARMELO AND BAUERMANN, INC. AND EQUATORIAL REALTY, INC. SHOULD NOT BE
RESCINDED; REASON. — I beg to disagree, however, with the majority opinion that the
contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty, Inc.,
should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground for rescission
apparently relied on the case of Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668
[1992]) where the offeree was likened to the status of a creditor. The case, in citing
Tolentino, stated that rescission is a remedy granted by law to 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 restoration of things to their condition prior to
celebration of the contract. It is my opinion that "third persons" should be construed to
refer to the wards, creditors, absentees, heirs and others enumerated under the law who
are prejudiced by the contract sought to be rescinded. It should be borne in mind that
rescission is an extreme remedy which may be exercised only in the speci c instances
provided by law. Article 1381 (3) speci cally refers to contracts undertaken in fraud of
creditors when the latter cannot in any manner collect the claims due them. If rescission
were allowed for analogous cases, the law would have so stated. While Article 1381 (5)
itself says that rescission may be granted to all other contracts specially declared by law
to be subject to rescission, there is nothing in the law that states that an offeree who failed
to exercise his right of refusal because of bad faith on the part of the offeror may rescind
the subsequent contract entered into by the offeror and a third person. Hence, there is no
legal justi cation to rescind the contract between Carmelo and Bauermann, Inc. and
Equatorial Realty. DHITcS
VITUG, J., dissenting opinion:

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSION OF CONTRACT;
RIGHT OF FIRST REFUSAL; A "BREACH" OF THE RIGHT OF FIRST REFUSAL CAN ONLY GIVE
RISE TO AN ACTION FOR DAMAGES BUT NOT TO AN ACTION FOR SPECIFIC
PERFORMANCE. — The concept of a right of rst refusal as a simple juridical relation, and
so governed (basically) by the Civil Code's title on "Human Relations," is not altered by the
fact alone that it might be among the stipulated items in a separate document or even in
another contract. A "breach" of the right of rst refusal can only give rise to an action for
damages primarily under Article 19 of the Civil Code, as well as its related provisions, but
not to an action for speci c performance set out under Book IV of the Code on
"Obligations and Contracts." That right, standing by itself, is far distant from being the
obligation referred to in Article 1159 of the Code which would have the force of law
sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor
relation between the parties. If, as it is rightly so, a right of rst refusal cannot even be
properly classed as an offer or as an option, certainly, and with much greater reason, it
cannot be the equivalent of, nor be given the same legal effect as, a duly perfected
contract. It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court
of Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection
of contracts. It is basic that without mutual consent on the object and on the cause, a
contract cannot exist (Art. 1305, Civil Code); corollary to it, no one can be forced, least of
all perhaps by a court, into a contract against his will or compelled to perform thereunder.
2. ID.; A RIGHT OF FIRST REFUSAL CANNOT BE DEEMED A PERFECTED
CONTRACT OF SALE UNDER ART. 1458 OF THE CIVIL CODE; REASON. — It would be
perilous a journey, rst of all, to try to seek out a common path for such juridical relations
as contracts, options, and rights of rst refusal since they differ, substantially enough, in
their concepts, consequences and legal implications. Very brie y, in the area on sales
particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc,
which held: "In the law on sales, the so-called 'right of rst 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 rst 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 inde nite and inconclusive) but by, among
other laws of general application, the pertinent scattered provisions of the Civil Code on
human conduct." An obligation, and so a conditional obligation as well ( albeit subject to
the occurrence of the condition), in its context under Book IV of the Civil Code, can only be
"a juridical necessity to give, to do or not to do" (Art. 1156, Civil Code), and one that is
constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil
Code) which all have their respective legal signi cance rather well settled in law. The law
certainly must have meant to provide congruous, albeit contextual, consequences to its
provisions. Interpretare et concordore legibus est optimus interpretendi. As a valid source
of an obligation, a contract must have the concurrence of (a) consent of the contracting
parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil
Code). These requirements, clearly de ned, are essential. The consent contemplated by
the law is that which is manifested by the meeting of the offer and of the acceptance upon
the object and the cause of the obligation. The offer must be certain and the acceptance
absolute (Article 1319 of the Civil Code). Thus, a right of rst refusal cannot have the
effect of a contract because, by its very essence, certain basic terms would have yet to be
determined and xed . How its "breach" be also its perfection escapes me. It is only when
the elements concur that the juridical act would have the force of law between the
contracting parties that must be complied with in good faith (Article 1159 of the Civil
Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the
creditor or obligee (the passive subject) to invoke the remedy that speci cally appertains
to it. AaDSEC
DECISION
HERMOSISIMA , JR ., J : p
Before us is a petition for review of the decision 1 of the Court of Appeals 2 involving
questions in the resolution of which the respondent appellate court analyzed and
interpreted particular provisions of our laws on contracts and sales. In its assailed
decision, the respondent court reversed the trial court 3 which, in dismissing the complaint
for speci c performance with damages and annulment of contract, 4 found the option
clause in the lease contracts entered into by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be
impossible of performance and unsupported by a consideration and the subsequent sale
of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter,
Equatorial) to have been made without any breach of or prejudice to, the said lease
contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration,
we note, is almost verbatim the basis of the statement of facts as rendered by the
petitioners in their pleadings:

"Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila, and covered by
TCT No. 18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for
the latter's lease of a portion of Carmelo's property particularly described, to wit:
'A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a oor area of 1,610 square
meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a oor area of 150 square
meters,
for use by Mayfair as a motion picture theater and for a term of twenty
(20) years. Mayfair hereafter constructed on the leased property a movie house
known as Maxim Theatre.
Two years later, on March 31, 1969, Mayfair entered into a second contract
of lease with Carmelo for the lease of another portion of Carmelo's property, to
wit:
'A PORTION OF THE SECOND FLOOR of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a oor area of 1,064 square
meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a oor area of 300 square meters and bearing street numbers
1871 and 1875,'
for similar use as a movie theater and for a similar term of twenty (20)
years. Mayfair put up another movie house known as 'Miramar Theatre' on this
leased property.
Both contracts of lease provides (sic) identically worded paragraph 8,
which reads:
'That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the lessor is bound and obligated, as it hereby
binds and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.’
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr.
Henry Yang, President of Mayfair, through a telephone conversation that Carmelo
was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr.
Yang that a certain Jose Araneta was offering to buy the whole property for US
Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy
the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On
August 23, 1974, Mayfair replied through a letter stating as follows:
'It appears that on August 19, 1974 your Mr. Henry Pascal informed
our client's Mr. Henry Yang through the telephone that your company
desires to sell your above-mentioned C.M Recto Avenue property.
Under your company's two lease contracts with our client, it is
uniformly provided:
'8. That if the LESSOR should desire to sell the leased
premises the LESSEE shall be given 30-days exclusive option to
purchase the same. In the event, however, that the leased premises
is sold to someone other than the LESSEE, the LESSOR is bound
and obligated, as it is (sic) herebinds (sic) and obligates itself, to
stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by and the terms and conditions
hereof (sic).'
Carmelo did no reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting
to express interest in acquiring not only the leased premises but the entire
building and other improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing the
'Maxim' and 'Miramar' theatres, to Equatorial by virtue of a Deed of Absolute Sale,
for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for speci c
performance and annulment of the sale of the leased premises to Equatorial. In
its Answer, Carmelo alleged as special and a rmative defense (a) that it had
informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered that it was interested only in
buying the areas under lease, which was impossible since the property was not a
condominium; and (b) that the option to purchase invoked by Mayfair is null and
void for lack of consideration. Equatorial, in its Answer, pleaded as special and
a rmative defense that the option is void for lack of considertion (sic) and is
unenforceable by reason of its impossibility of performance because the leased
premises could not be sold separately from the other portions of the land and
building. It counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary devaluation of the
currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:
'1. That there was a deed of sale of the contested premises by
the defendant Carmelo . . . in favor of defendant Carmelo . . . in favor of
defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the
stipulation granting the plaintiff exclusive option to purchase the leased
premises should the lessor desire to sell the same (admitted subject to the
contention that the stipulation is null and void);

3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3
(a) and (b) of the contracts of lease constitute the consideration for the
plaintiff's occupancy of the leased premises, subject of the same contracts
of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration speci ed in the option to
buy embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;
8. That the leased premises constitute only the portions actually
occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant
Equatorial Realty is the land and the two buildings erected thereon.'
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann
P40,000.00 by way of attorneys’s fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty
P35,000.00 per month as reasonable compensation for the use of areas
not covered by the contract (sic) of lease from July 31, 1979 until plaintiff
vacates said area (sic) plus legal interest from July 31, 1978; P70,000.00
per month as reasonable compensation for the use of the premises
covered by the contracts (sic) of lease dated (June 1, 1967 from June 1,
1987 until plaintiff vacates the premises plus legal interest from .June 1,
1987; P55,000.00 per month as reasonable compensation for the use of
the premises covered by the contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the premises plus legal interest from
March 30, 1989; and P40,000.00 as attorney’s fees;
(4) Dismissing defendant Equatorial’s crossclaim against
defendant Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are
declared expired and all persons claiming rights under these contracts are
directed to vacate the premises'." 6
The trial court adjudged the identically worded paragraph 8 found in both aforecited
lease contracts to be an option clause which however cannot be deemed to be binding on
Carmelo because of lack of distinct consideration therefor.
The court a quo ratiocinated.
"Signi cantly, during the pre-trial, it was admitted by the parties that the
option in the contract of lease is not supported by a separate consideration.
Without a consideration, the option is therefore not binding on defendant Carmelo
& Bauermann to sell the C.M. Recto property to the former. The option invoked by
the plaintiff appears in the contracts of lease . . . in effect there is no option, on
the ground that there is no consideration. Article 1352 of the Civil Code, provides:
'Contracts without cause or with unlawful cause, produce no

effect whatever. The cause is unlawful if it is contrary to law,
morals, good custom, public order or public policy.'
Contracts therefore without consideration produce no effect whatsoever.
Article 1324 provides:
'When the offeror has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised.'
in relation with Article 1479 of the same Code:

'A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing

for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price.'
The plaintiff cannot compel defendant Carmelo to comply with the
promise unless the former establishes the existence of a distinct consideration. In
other words, the promisee has the burden of proving the consideration. The
consideration cannot be presumed as in Article 1354:
'Although the cause is not stated in the contract, it is presumed that
it exists and is lawful unless the debtor proves the contrary.'
where consideration is legally presumed to exist. Article 1354 applies to

contracts in general, whereas when it comes to an option it is governed
particularly and more speci cally by Article 1479 whereby the promisee has the
burden of proving the existence of consideration distinct from the price. Thus, in
the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
'(1) Article 1354 applies to contracts in general, whereas the
second paragraph of Article 1479 refers to sales in particular, and, more
speci cally, to an accepted unilateral promise to buy or to sell. In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon
the promisor, Article 1479 requires the concurrence of a condition, namely,
that the promise be supported by a consideration distinct from the price.
Accordingly, the promisee cannot compel the promisor to comply
with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.' 7

It follows that plaintiff cannot compel defendant Carmelo & Bauermann to
sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted
to the respondent Court of Appeals. Respondent appellate court reversed the court a quo
and rendered judgment:
"1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and
return to Equatorial the amount of P11,300,000.00 within fteen (15) days from
notice of this Decision, and ordering Equatorial Realty Development, Inc. to accept
such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial
Realty Development, Inc. to execute the deeds and documents necessary for the
issuance and transfer of ownership to Mayfair of the lot registered under TCT
Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the
amount as adjudged, declaring the Deed of Absolute Sale between the
defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding upon all the parties.” 8
Rereading the law on the matter of sales and option contracts, respondent Court of
Appeals differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed
their application to the facts of this case, and concluded that since paragraph 8 of the two
lease contracts does not state a xed price for the purchase of the leased premises, which
is an essential element for a contract of sale to be perfected, what paragraph 8 is, must be
a right of first refusal and not an option contract. It explicated:
"Firstly, the court a quo misapplied the provisions of Articles 1324 and
1479, second paragraph, of the Civil Code.
Article 1324 speaks of an 'offer' made by an offeror which the offeree may
or may not accept within a certain period. Under this article, the offer may be
withdrawn by the offeror before the expiration of the period and while the offeree
has not yet accepted the offer. However, the offer cannot be withdrawn by the
offeror within the period if a consideration has been promised or given by the
offeree in exchange for the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price which is part of the
offer. The contract that arises is known as option. In the case of Beaumont vs.
Prieto, 41 Phil. 670, the Supreme Court, citing Bouvier, de ned an option as
follows: 'A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from or selling to B, certain
securities or properties within a limited time at a specified price.' (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an

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

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

purchase' cannot be legally categorized as an option, it is, nevertheless, a valid
and binding stipulation. What the trial court failed to appreciate was the intention
of the parties behind the questioned proviso.
xxx xxx xxx

The provision in question is not of the pro-forma type customarily found in
a contract of lease. Even appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the initiative and behest of Mayfair.
Evidently, the stipulation was intended to bene t and protect Mayfair in its rights
as lessee in case Carmelo should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in two ways in
accordance with the stipulation. The rst is by giving Mayfair '30-days exclusive
option to purchase' the leased property. The second is, in case Mayfair would opt
not to purchase the leased property, 'that the purchaser (the new owner of the
leased property) shall recognize the lease and be bound by all the terms and
conditions thereof.’
In other words, paragraph 8 of the two Contracts of Lease, particularly the
stipulation giving Mayfair '30 days exclusive option to purchase the (leased
premises),' was meant to provide Mayfair the opportunity to purchase and acquire
the leased property in the event that Carmelo should decide to dispose of the
property. In order to realize this intention, the implicit obligation of Carmelo once it
had decided to sell the leased property, was not only to notify Mayfair of such
decision to sell the property, but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair and reasonable opportunity to
accept or reject the offer, before offering to sell or selling the leased property to
third parties. The right vested in Mayfair is analogous to the right of rst refusal,
which means that Carmelo should have offered the sale of the leased premises to
Mayfair before offering it to other parties, or, if Carmelo should receive any offer
from third parties to purchase the leased premises, then Carmelo must rst give
Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of
rst refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal
thus testified:
'Q: Can you tell this Honorable Court how you made the offer to Mr. Henry
Yang by telephone?
A: I have an offer from another party to buy the property and having the offer
we decided to make an offer to Henry Yang on a rst-refusal basis.' (TSN
November 8, 1983, p. 12.).
and on cross-examination:

'Q. When you called Mr. Yang on August 1974 can you remember exactly
what you have told him in connection with that matter, Mr. Pascal?
A. More or less, I told him that I received an offer from another party to buy
the property and I was offering him rst choice of the entire property.'
(TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual
the intention of the parties. " 9
Besides the ruling that paragraph 8 vests in Mayfair the right of rst refusal as to
which the requirement of distinct consideration indispensable in an option contract, has no
application, respondent appellate court also addressed the claim of Carmelo and
Equatorial that assuming arguendo that the option is valid and effective, it is impossible of
performance because it covered only the leased premises and not the entire Claro M.
Recto property, while Carmelo's offer to sell pertained to the entire property in question.
The Court of Appeals ruled as to this issue in this wise:
"We are not persuaded by the contentions of the defendants-appellees. It is
to be noted that the Deed of Absolute Sale between Carmelo and Equatorial
covering the whole Claro M. Recto property, made reference to four titles: TCT
Nos. 17350, 118612, 60936 and 52571. Based on the information submitted by
Mayfair in its appellant’s Brief (pp. 5 and 46) which has not been controverted by
the appellees, and which We, therefore, take judicial notice of the two theaters
stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq.
m. and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four
separate parcels of land covering the whole Recto property demonstrates the
legal and physical possibility that each parcel of land, together with the buildings
and improvements thereon, could have been sold independently of the other
parcels.
At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the theaters were to
be constructed in relation to the remainder of the whole Recto property. The
peculiar language of the stipulation would tend to limit Mayfair’s right under
paragraph 8 of the Contract of Lease to the acquisition of the leased areas only.
Indeed, what is being contemplated by the questioned stipulation is a departure
from the customary situation wherein the buildings and improvements are
included in and form part of the sale of the subjacent land. Although this
situation is not common, especially considering the non-condominium nature of
the buildings, the sale would be valid and capable of being performed. A sale
limited to the leased premises only, if hypothetically assumed, would have
brought into operation the provisions of co-ownership under which Mayfair would
have become the exclusive owner of the leased premises and at the same time a
co-owner with Carmelo of the subjacent land in proportion to Mayfair’s interest
over the premises sold to it." 1 0
Carmelo and Equatorial now comes before us questioning the correctness and legal
basis for the decision of respondent Court of Appeals on the basis of the following
assigned errors:
"I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION
CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST
REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE
CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR
STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS

ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN
(18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS
RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS
LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED
IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT
GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE
ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION
XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE 'COMPLETION PROCESS' AND TO STILL RESOLVE THE
MERITS OF THE CASE IN THE 'DECISION STAGE.' " 1 1
We shall rst dispose of the fourth assigned error respecting alleged irregularities in
the ra e of this case in the Court of Appeals. Su ce it to say that in our Resolution, 1 2
dated December 9, 1992, we already took note of this matter and set out the proper
applicable procedure to be the following:
"On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging certain
irregularities and infractions committed by certain lawyers, and Justices of the
Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918
(now G.R. No. 106063). This partakes of the nature of an administrative
complaint for misconduct, against members of the judiciary. While the letter-
complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No.
106063), the disposition thereof should be separate and independent from Case
G.R No. 106063. However, for purposes of receiving the requisite pleadings
necessary in disposing of the administrative complaint, this Division shall
continue to have control of the case. Upon completion thereof, the same shall be
referred to the Court En Banc for proper disposition." 1 3
This court having ruled the procedural irregularities raised in the fourth assigned
error of Carmelo and Equatorial, to be an independent and separate subject for an
administrative complaint based on misconduct by the lawyers and justices implicated
therein, it is the correct, prudent and consistent course of action not to pre-empt the
administrative proceedings to be undertaken respecting the said irregularities. Certainly, a
discussion thereupon by us in this case would entail a nding on the merits as to the real
nature of the questioned procedures and the true intentions and motives of the players
therein.
In essence, our task is two-fold: (1) to de ne the true nature, scope and e cacy of
paragraph 8 stipulated in the two contracts of lease between Carmelo and Mayfair in the
face of connecting ndings by the trial court and the Court of Appeals; and (2) to
determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8,
which reads:
"That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it is hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof." 1 4
We agree with the respondent Court of Appeals that the aforecited contractual
stipulation provides for a right of rst refusal in favor of Mayfair. It is not an option clause
or an option contact. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 1 5 unequivocal was our
characterization of an option contract as one necessarily invoking the choice granted to
another for a distinct and separate consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.
"It is unquestionable that, by means of the document Exhibit E, to wit, the
letter of December 4, 1911, quoted at the beginning of this decision, the defendant
Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda
belonging to Benito Legarda, during the period of three months and for its
assessed valuation, a grant which necessarily implied the offer or obligation on
the part of the defendant Valdes to sell to Borck the said hacienda during the
period and for the price mentioned, . . . There was, therefore, a meeting of minds
on the part of the one and the other, with regard to the stipulations made in the
said document. But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our holding that the
stipulations contained in Exhibit E is a contract of option, for, . . . there can be no
contract without the requisite, among others, of the cause for the obligation to be
established.
In his Law Dictionary, edition of 1897, Bouvier de nes 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 speci ed 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 xed 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 de nitions above cited refer to the contract of option, or, what
amounts to the same thing, to the case where there was cause or consideration
for the obligation, the subject of the agreement made by the parties; while in the
case at bar there was no such cause or consideration." 1 6 (Italics ours.)
The rule so early established in this jurisdiction is that the deed of option or option
clause in a contract, in order to be valid and enforceable, must, among other things,
indicate the definite price at which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the purchase within the
time speci ed; 1 7 in one other case we freed the landowner from her promise to sell her
land if the prospective buyer could raise P4,500.00 in three weeks because such option
was not supported by a distinct consideration; 1 8 in the same vein in yet one other case,
we also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the
sum of P1,510.00 because of lack of consideration; 1 9 and as an exception to the doctrine
enumerated in the two preceding cases, in another case, we ruled that the option to buy
the leased premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of each party
is the consideration for that of the other. 2 0 In all these cases, the selling price of the
object thereof is always predetermined and speci ed in the option clause in the contract
or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu
Asuncion vs. Court of Appeals 2 1 that:
". . . In sales, particularly, to which the topic for discussion about the case
at bench belongs, the contract is perfected when a person, called the seller,
obligates himself for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees. Article 1458
of the Civil Code provides:
'Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.'
When the sale is not absolute but conditional, such as in a 'Contract to Sell'
where invariably the ownership of the thing sold is retained until the ful llment of
a positive suspensive condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force. . .
An unconditional mutual promise to buy and sell, as long as the object is

made determinate and the price is xed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.

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

for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price (1451a).'
Observe, however, that the option is not the contract of sale itself. The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere institutions to make
offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a

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

deemed perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract by
itself, and it is to be distinguished from the projected main agreement (subject
matter of the option) which it obviously yet to be concluded. If, in fact, the
optioner-offeror withdraws the offer before its acceptance (exercise of the option)
by the optionee-offeree, the latter may not sue for speci c performance on the
proposed contract ('object' of the option) since it has failed to reach its own stage
of perfection. The optioner-offeror, however, renders himself liable for damages
for breach of the option. . . ."
In the light of the foregoing disquisition and in view of the wording of the questioned
provision in the two lease contracts involved in the instant case, we so hold that no option
to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code,
has been granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the
right of rst refusal to Mayfair and is not an option contract. It also correctly reasoned that
as such, the requirement of a separate consideration for the option, has no applicability in
the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31,
1969 contracts which would bring them into the ambit of the usual offer or option
requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and
at a determined price. It is a separate and distinct contract from that which the parties
may enter into upon the consummation of the option. It must be supported by
consideration. 2 2 In the instant case, the right of rst refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the
contracts is governed by Article 1324 on withdrawal of the offer on Article 1479 on
promise to buy and sell would render ineffectual or "inutile" the provisions on right of rst
refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is
correct in stating that Paragraph 8 was incorporated into the contracts of lease for the
bene t of Mayfair which wanted to be assured that it shall be given the rst crack or the
rst option to buy the property at the price which Carmelo is willing to accept. It is not also
correct to say that there is no consideration in an agreement of right of rst refusal. The
stipulation is part and parcel of the entire contract of lease. The consideration for the lease
includes the consideration for the right of rst refusal. Thus, Mayfair is in effect stating
that it consents to lease the premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property, then, Mayfair shall be given the
right to match the offered purchase price and to buy the property at that price. As stated in
Vda. De Quirino vs. Palarca, 2 3 in reciprocal contract, the obligation or promise of each
party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the
aforecited paragraph 8 to be that of a contractual grant of the right of rst refusal to
Mayfair.
We shall now determine the consequential rights, obligations and liabilities of
Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an ampli cation of the
precedent in Ang Yu Asuncion vs. Court of Appeals. 2 4
First and foremost is that the petitioners acted in bad faith to render Paragraph 8
"inutile."
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that
Mayfair will have the right of rst refusal in the event Carmelo sells the leased premises. It
is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of
its intention to sell the said property in 1974. There was an exchange of letters evidencing
the offer and counter-offers made by both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized Mayfair's right of rst refusal,
Carmelo violated such right when without affording its negotiations with Mayfair the full
process to ripen to at least an interface of a de nite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low pro le for some time, and then sold, without prior notice to
Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this nding renders the sale to it of the
property in question rescissible. We agree with respondent Appellate Court that the
records bear out the fact that Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot
tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
". . . Contract of Sale was not voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise 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 rst priority under the
Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the

contracting parties and even to third persons, to secure reparation for damages
caused to them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right created by the
contract. Rescission implies a contract which, even if initially valid, produces a
lesion or pecuniary damage to someone that justi es its invalidation for reasons
of equity.
It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that such
third person is in lawful possession of the subject of the contract and that he did
not act in bad faith. However, this rule is not applicable in the case before us
because the petitioner is not considered a third party in relation to the Contract of
Sale nor may its possession of the subject property be regarded as acquired
lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was aware of the lease in favor of
the Bonnevies, who were actually occupying the subject property at the time it
was sold to it. Although the Contract of Lease was not annotated on the transfer
certi cate 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 who buys the property of another
without notice that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person in the property. Good
faith connotes an honest intention to abstain from taking unconscientious
advantage of another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by
the Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice its own
interests.
The petitioner insists that it was not aware of the right of rst 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." 2 5
Petitioners assert the alleged impossibility of performance because the entire

property is indivisible property. It was petitioner Carmelo which xed the limits of the
property it was leasing out. Common sense and fairness dictate that instead of nullifying
the agreement on that basis, the stipulation should be given effect by including the
indivisible appurtenances in the sale of the dominant portion under the right of first refusal.
A valid and legal contract where the ascendant or the more important of the two parties is
the landowner should be given effect, if possible, instead of being nulli ed on a sel sh
pretext posited by the owner. Following the arguments of petitioners and the participation
of the owner in the attempt to strip Mayfair of its rights; the right of rst refusal should
include not only the property speci ed in the contracts but also the appurtenant portions
sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in bad
faith when it sold the entire property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of exchanges of letters evidencing
the offer and counter-offers between the parties, Carmelo abandoned the negotiations
without giving Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of rst refusal, this Court should also
order that Mayfair be authorized to exercise its right of rst refusal under the contract to
include the entirety of the indivisible property. The boundaries of the property sold should
be the boundaries of the offer under the right of rst refusal . As to the remedy to enforce
Mayfair's right, the Court disagrees to a certain extent with the concluding part of the
dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court
of Appeals should be modified, if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of
and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations therein should have cautioned it to look further
into the agreement to determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent
sale is rst set aside or rescinded. All of these matters are now before us and so there
should be no piecemeal determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of justice and equity
require that we order rescission here and now. Rescission is a relief allowed for the
protection of one of the contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and preferred right by
the contract. 2 6 The sale of the subject real property by Carmelo to Equatorial should now
be rescinded considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject property to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period. 2 7
This Court has always been against multiplicity of suits where all remedies
according to the facts and the law can be included. Since Carmelo sold the property for
P11,300,000.00 to Equatorial, the price at which Mayfair could have purchased the
property is, therefore, xed. It can neither be more nor less. There is no dispute over it. The
damages which Mayfair suffered are in terms of actual injury and lost opportunities. The
fairest solution would be to allow Mayfair to exercise its right of rst refusal at the price
which it was entitled to accept or reject which is P11,300,000.00. This is clear from the
records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations
for the sale to the latter of the disputed property would be unjust and unkind to Mayfair
because it is once more compelled to litigate to enforce its right. It is not proper to give it
an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking a
sh if it would accept the choice of being thrown back into the river. Why should Carmelo
be rewarded for and allowed to pro t from, its wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for P11,300,000.00, why should it be given
another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there
was nothing to execute because a contract over the right of rst refusal belongs to a class
of preparatory juridical relations governed not by the law on contracts but by the codal
provisions on human relations. This may apply here if the contract is limited to the buying
and selling of the real property. However, the obligation of Carmelo to rst offer the
property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of rst refusal
which created the obligation. It should be enforced according to the law on contracts
instead of the panoramic and inde nite rule on human relations . The latter remedy
encourages multiplicity of suits. There is something to execute and that is for Carmelo to
comply with its obligation to the property under the right of the rst refusal according to
the terms at which they should have been offered then to Mayfair, at the price when that
offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is
not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be
executed according to their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it
must be borne in mind that both Carmelo and Equatorial acted in bad faith. Carmelo
knowingly and deliberately broke a contract entered into with Mayfair. It sold the property
to Equatorial with purpose and intend to withhold any notice or knowledge of the sale
coming to the attention of Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the
property with notice and full knowledge that Mayfair had a right to or interest in the
property superior to its own. Carmelo and Equatorial took unconscientious advantage of
Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which
might warrant the grant of interests. The vendor received as payment from the vendee
what, at the time, was a full and fair price for the property. It has used the P11,300,000.00
all these years earning income or interest from the amount. Equatorial, on the other hand,
has received rents and otherwise pro ted from the use of the property turned over to it by
Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is
under no obligation to pay any interests arising from this judgment to either Carmelo or
Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated
June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is
hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price. The latter is directed to
execute the deeds and documents necessary to return ownership to Carmelo &
Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza, and Francisco, JJ .,
concur.
Padilla and Panganiban, JJ ., concur in separate opinion.
Romero, J ., concurs and dissents in a separate opinion.
Vitug and Torres, Jr., JJ ., dissent in separate opinion.
Narvasa, C .J ., took no part.
Separate Opinions
PADILLA , J ., concurring :
I am of the considered view (like Mr Justice Jose A. R Melo) that the Court in this
case should categorically recognize Mayfair's right of rst refusal under its contract of
lease with Carmelo and Bauermann, Inc (hereafter, Carmelo) and, because of Carmelo's
and Equatorial's bad faith in riding "roughshod" over Mayfair's right of rst refusal, the
Court should order the rescission of the sale of the Claro M Recto property by the latter to
Equatorial (Art. 1380-1381[3] Civil Code). The Court should, in this same case, to avoid
multiplicity of suits, likewise allow Mayfair to effectively exercise said right of rst refusal,
by paying Carmelo the sum of P11,300,000 00 for the entire subject property, without any
need of instituting a separate action for damages against Carmelo and/or Equatorial.
I do not agree with the proposition that, in addition to the aforesaid purchase price,
Mayfair should be required to pay a compounded interest of 12% per annum of said
amount computed from 1 August 1978. Under the Civil Code, a party to a contract may
recover interest as indemnity for damages in the following instances:
"Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and
in the absence of stipulation, the legal interest, which is six per cent per annum.
Art. 2210. Interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract."
There appears to be no basis in law for adding 12% per annum compounded interest to the
purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such
stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly,
because Mayfair neither incurred in delay in the performance of its obligation nor
committed any breach of contract Indeed, why should Mayfair be penalized by way of
making it pay 12% per annum compounded interest when it was Carmelo which violated
Mayfair's right of first refusal under the contract?
The equities of the case support the foregoing legal disposition. During the
intervening years between 1 August 1978 and this date, Equatorial (after acquiring the
C.M Recto property for the price of P11,300,000.00) had been leasing the property and
deriving rental income therefrom. In fact, one of the lessees in the property was
Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investment-wise
and/or operation-wise in its own business.
It may appear, at rst blush, that Mayfair is unduly favored by the solution submitted
by this opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the
exercise of its right of first refusal, has been subjected to the inroads of inflation so that its
purchasing power today is less than when the same amount was paid by Equatorial to
Carmelo. But then it cannot be overlooked that it was Carmelo's breach of Mayfair's right
of rst refusal that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo
at about the same time the amount was paid by Equatorial to Carmelo Moreover, it cannot
be ignored that Mayfair had also incurred consequential or "opportunity" losses by reason
of its failure to acquire and use the property under its right of rst refusal. In ne, any loss
in purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on
account of its bad faith in breaching Mayfair's contractual right of rst refusal to the
subject property.
ACCORDINGLY, I vote to order the rescission of the contract of sale between
Carmelo and Equatorial of the Claro M. Recto property in question, so that within thirty (30)
days from the nality of the Court's decision, the property should be retransfered and
delivered by Equatorial to Carmelo with the latter simultaneously returning to Equatorial
the sum of P11,300,000.00.
I also vote to allow Mayfair to exercise its right of rst refusal, by paying to Carmelo
the sum of P11,300,000.00 without interest for the entire subject property, within thirty
(30) days from re-acquisition by Carmelo of the titles to the property, with the
corresponding obligation of Carmelo to sell and transfer the property to Mayfair within the
same period of thirty (30) days.
PANGANIBAN , J., separate concurring :
In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice
Regino C. Hermosisima, Jr., especially with the following doctrinal pronouncements:
1. That while no option to purchase within the meaning of the second
paragraph of Article 1479 of the Civil Code was given to Mayfair Theater,
Inc. ("Mayfair"), under the two lease contracts a right of rst refusal was in
fact granted, for which no separate consideration is required by law to be
paid or given so as to make it binding upon Carmelo & Bauermann, Inc.
("Carmelo");
2. That such right was violated by the latter when it sold the entire property to
Equatorial Realty Development, Inc. ("Equatorial") on July 30, 1978, for the
sum of P11,300,000.00;
3. That Equatorial is a buyer in bad faith as it was aware of the lease
contracts, its own lawyers having studied said contracts prior to the sale;
4. That, consequently, the contract of sale is rescissible; and

5. That, nally, under the proven facts, the right of rst refusal may be
enforced by an action for specific performance.
There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are
concerned. It is in items 4 and 5 that there is a marked divergence of opinion. Hence, I shall
limit the discussion in this Separate Concurring Opinion to such issues, namely: Is the
contract of sale between Carmelo and Equatorial rescissible, and corollarily may the right
of first refusal granted to Mayfair be enforced by an action for specific performance?
It is with a great amount of trepidation that I respectfully disagree with the legal
proposition espoused by two equally well-respected colleagues, Mme. Justice Flerida Ruth
P. Romero and Mr. Justice Jose C. Vitug — who are both acknowledged authorities on Civil
Law — that a breach of the covenanted right of rst refusal, while warranting a suit for
damages under Article 19 of the Civil Code, cannot sanction an action for speci c
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts.
Ang Yu Asuncion Not In Point
Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, 1
which was penned by Mr. Justice Vitug himself. I respectfully submit, however, that that
case turned largely on the issue of whether or not the sale of an immovable in breach of a
right of rst refusal that had been decreed in a nal judgment would justify the issuance of
certain orders of execution in the same case. The validity of said orders was the subject of
the attack before this Court. These orders had not only directed the defendants to execute
a deed of sale in favor of the plaintiffs, when there was nothing in the judgment itself
decreeing it, but had also set aside the sale made in breach of said right of rst refusal and
even canceled the title that had been issued to the buyer, who was not a party to the suit
and had obviously not been given its day in court. It was thus aptly held:
"The nal judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a 'right of rst refusal' in favor of petitioners. The consequence
of such a declaration entails no more than what has heretofore been said. In ne,
if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of rst refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or bad
faith and whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must be
independently addressed in appropriate proceedings. Buen Realty, not having
been impleaded in Civil Case No. 87-41058. cannot be held subject to the writ of
execution issued by respondent Judge. Let alone ousted from the ownership and
possession of the property. without first being duly afforded its day in court." 2
In other words, the question of whether speci c performance of one's right of rst
refusal is available as a remedy in case of breach thereof was not before the Supreme
Court at all in Ang Yu Asuncion. Consequently, the pronouncements there made bearing on
such unlitigated question were mere obiter. Moreover, as will be shown later, the
pronouncement that a breach of the right of rst refusal would not sanction an action for
speci c performance but only an action for damages (at p. 615) is at best debatable (and
in my humble view, imprecise or incorrect), on top of its being contradicted by extant
jurisprudence.
Worth bearing in mind is the fact that two juridical relations, both contractual, are
involved in the instant case: (1) the deed of sale between the petitioners dated July 30,
1978, and (2) the contract clause establishing Mayfair's right of rst refusal which was
violated by said sale.
With respect to the sale of the property, Mayfair was not a party. It therefore had no
personality to sue for its annulment, since Art. 1397 of the Civil Code provides, inter alia,
that "(t)he action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily."
But the facts as alleged and proved clearly in the case at bar make out a case for
rescission under Art. 1177, in relation to Art. 1381(3), of the Civil Code, which pertinently
read as follows:
"Art. 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the rights and
bring all the actions of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the acts which the debtor may have
done to defraud them."
"Art. 1381. The following contracts are rescissible:
xxx xxx xxx

(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
xxx xxx xxx (italics supplied)
The term "creditors" as used in these provisions of the Civil Code is broad enough to
include the obligee under an option contract 3 as well as under a right of rst refusal,
sometimes known as a right of rst priority. 4 Thus, in Nietes, the Supreme Court, speaking
through then Mr. Chief Justice Roberto Concepcion, repeatedly referred to the grantee or
optionee as "the creditor" and to the grantor or optioner as "the debtor". 5 In any case, the
personal elements of an obligation are the active and passive subjects thereof, the former
being known as creditors or obligees and the latter as debtors or obligors. 6 Insofar as the
right of first refusal is concerned, Mayfair is the obligee or creditor.
As such creditor, Mayfair had, therefore, the right to impugn the sale in question by
way of accion pauliana under the last clause of Art. 1177, aforequoted, because the sale
was an act done by the debtor to defraud him of his right to acquire the property. 7
Rescission was also available under par. 3, Art. 1381, abovequoted, as was expressly held
in Guzman, Bocaling & Co., a case closely analogous to this one as it was also an action
brought by the lessee to enforce his "right of rst priority" — which is just another name for
the right of rst refusal — and to annul a sale made by the lessor in violation of such right.
In said case, this Court, speaking through Mr. Justice Isagani A. Cruz, a rmed the
invalidation of the sale and the enforcement of the lessee's right of rst priority this wise: 8
"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(s) 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." (italics supplied)
By the same token, the status of a defrauded creditor can, and should be granted to
Mayfair, for it certainly had substantial interests that were prejudiced by the sale of the
subject property to petitioner Equatorial in open violation of Mayfair's right of rst refusal
under its existing contracts with Carmelo.
In fact, the parity between that case and the present one does not stop there but
extends to the crucial and critical fact that there was manifest bad faith on the part of the
buyer. Thus, in Guzman, this Court a rmed in toto the appealed judgment of the Court of
Appeals which, in turn, had a rmed the trial court's decision insofar as it invalidated the
deed of sale in favor of the petitioner-buyer, cancelled its TCT, and ordered the lessor to
execute a deed of sale over the leased property in favor of the lessee for the same price
and "under the same terms and conditions," aside from a rming as well the damages
awarded, but at a reduced amount. 9 In other words, the aggrieved party was allowed to
acquire the property itself.
The inescapable conclusion from all of the foregoing is not only that rescission is
the proper remedy but also — and more importantly — that speci c performance was
actually used and given free rein as an effective remedy to enforce a right of rst refusal in
the wake of its violation, in the cited case of Guzman.
On the other hand, and as already commented on above, the pronouncement in Ang
Yu Asuncion to the effect that speci c performance is unavailable to enforce a violated
right of rst refusal is at best a debatable legal proposition, aside from being contradicted
by extant jurisprudence. Let me explain why.
The consensuality required for a contract of sale is distinct from, and should not be
confused with, the consensuality attendant to the right of rst refusal itself. While indeed,
prior to the actual sale of the property to Equatorial and the ling of Mayfair's complaint
for speci c performance, no perfected contract of sale involving the property ever existed
between Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a
perfected contract between them which established a right of rst refusal, or of rst
priority.
Specific Performance Is Viable Remedy
The question is: Can this right (of rst refusal) be enforced by an action for speci c
performance upon a showing of its breach by an actual sale of the property under
circumstances showing palpable bad faith on the part of both seller and buyer?
The answer, I respectfully submit, should be 'yes.'
As already noted, Mayfair's right of rst refusal in the case before us is embodied in
an express covenant in the lease contracts between it as lessee and Carmelo as lessor,
hence the right created is one springing from contract. 10 Indubitably, this had the force of
law between the parties, who should thus comply with it in good faith. 11 Such right also
established a correlative obligation on the part of Carmelo to give or deliver to Mayfair a
formal offer of sale of the property in the event Carmelo decides to sell it. The decision to
sell was eventually made. But instead of giving or tendering to Mayfair the proper offer to
sell, Carmelo gave it to its now co-petitioner, Equatorial, with whom it eventually perfected
and consummated, on July 30, 1978, an absolute sale of the property, doing so within the
period of effectivity of Mayfair's right, of rst refusal. Less than two months later, or in
September 1978, with the lease still in full force, Mayfair filed the present suit.
Worth stressing at this juncture is the fact that Mayfair had the right to require that
the offer to sell the property be sent to it by Carmelo, and not to anybody else. This was
violated when the offer was made to Equatorial. Under its covenant with Carmelo, Mayfair
had the right, at that point, to sue for either speci c performance or rescission, with
damages in either case, pursuant to Arts. 1165 and 1191, Civil Code. 1 2 An action for
speci c performance and damages seasonably led, forti ed by a writ of preliminary
injunction, would have enabled Mayfair to prevent the sale to Equatorial from taking place
and to compel Carmelo to sell the property to Mayfair for the same terms and price, for
the reason that the ling of the action for speci c performance may juridically be
considered as a solemn, formal, and unquali ed acceptance by Mayfair of the speci c
terms of the offer of sale. Note that by that time, the price and other terms of the
proposed sale by Carmelo had already been determined, being set forth in the offer of sale
that had wrongfully been directed to Equatorial.
As it turned out, however, Mayfair did not have a chance. to le such suit, for it
learned of the sale to Equatorial only after it had taken place. But it did le the present
action for speci c performance and for invalidation of the wrongful sale immediately after
learning about the latter act. The act of promptly filing this suit, coupled with the fact that it
is one for speci c performance, indicates beyond cavil or doubt Mayfair's unqualified
acceptance of the misdirected offer of sale, giving rise, thereby, to a demandable
obligation on the part of Carmelo to execute the corresponding document of sale upon the
payment of the price of P11,300,000.00. In other words, the principle of consensuality of a
contract of sale should be deemed satis ed. The aggrieved party's consent to, or
acceptance of, the misdirected offer of sale should be legally presumed in the context of
the proven facts.
To say, therefore, that the wrongful breach of a right of rst refusal does not
sanction an action for speci c performance simply because, factually, there was no
meeting of the minds as to the particulars of the sale since ostensibly no offer was ever
made to, let alone accepted by, Mayfair, is to ignore the proven fact of presumed consent.
To repeat, that consent was deemed given by Mayfair when it sued for invalidation of the
sale and for speci c performance of Carmelo's obligation to Mayfair: Nothing in the law as
it now stands will be violated, or even simply emasculated, by this holding. On the contrary,
the decision in Guzman supports it.
Moreover, under the Civil Code provisions on the nature, effect and kinds of
obligations, 1 3 Mayfair's right of rst refusal may be classi ed as one subject to a
suspensive condition — namely, if Carmelo should decide to sell the leased premises
during the life of the lease contracts, then it should make an offer of sale to Mayfair.
Futurity and uncertainty, which are the essential characteristics of a condition, 1 4 were
distinctly present. Before the decision to sell was made, Carmelo had absolutely no
obligation to sell the property to Mayfair, nor even to make an offer to sell, because in
conditional obligations, where the condition is suspensive, the acquisition of rights
depends upon the happening of the event which constitutes the condition. 1 5 Had the
decision to sell not been made at all, or had it been made after the expiry of the lease, the
parties would have stood as if the conditional obligation had never existed. 1 6 But the
decision to sell was in fact made. And it was made during the life and e cacy of the lease.
Undoubtedly, the condition was duly ful lled; the right of rst refusal effectively accrued
and became enforceable; and correlatively, Carmelo's obligation to make and send the
offer to Mayfair became immediately due and demandable. 1 7 That obligation was to
deliver to Mayfair an offer to sell a determinate thing for a determinate price. As things
turned out, a de nite and speci c offer to sell the entire property for the price of
P11,300,000.00 was actually made by Carmelo — but to the wrong party. It was that
particular offer, and no other, which Carmelo should have delivered to Mayfair, but failed to
deliver. Hence, by the time the obligation of Carmelo accrued through the ful llment of the
suspensive condition, the offer to sell had become a determinate thing.
Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies
available to the creditor against the debtor, when it provides that "(w)hen what is to be
delivered is a determinate thing, the creditor, in addition to the right granted him by article
1170, may compel the debtor to make the delivery," clearly authorizing not only the
recovery of damages under Art. 1170 but also an action for specific performance.
But even assuming that Carmelo's prestation did not involve the delivery of a
determinate offer but only a generic one, the second paragraph of Art. 1165 explicitly gives
to the creditor the right "to ask that the obligation be complied with at the expense of the
debtor." The availability of an action for speci c performance is thus clear and beyond
doubt. And the correctness of Guzman becomes all the more manifest.
Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact
that the jurisprudence upon which it supposedly rests — namely, the cases of Madrigal Co.
vs. Stevenson & Co. 1 8 and Salonga vs. Farrales 1 9 — did NOT involve a right of rst refusal
or of rst priority. Nor did those two cases, involve an option to buy. In Madrigal, plaintiff
sued defendants for damages claiming wrongful breach of an alleged contract of sale of
2,000 tons of coal. The case was dismissed because "the minds of the parties never met
upon a contract of sale by defendant to plaintiff", 2 0 each party having signed the broker's
memorandum as buyer, erroneously thinking that the other party was the seller! In Salonga,
a lessee, who was one of several lessees ordered by nal judgment to vacate the leased
premises to him, but his suit was not founded upon any right of rst refusal and was
therefore dismissed on the ground that there was no perfected sale in his favor. He just
thought that because the lessor had decided to sell and in fact sold portions of the
property to her other lessees, she was likewise obligated to sell to him even in the absence
of a perfected contract of sale. In fine, neither of the two cases cited in support of the legal
position that a breach of the right of rst refusal does not sanction an action for speci c
performance but, at best, only one for damages, provides such support.
Finally, the fact that what was eventually sold to Equatorial was the entire property,
not just the portions leased to Mayfair, is no reason to deprive the latter of its right to
receive a formal and speci c offer. The offer of a larger property might have led Mayfair to
reject the offer, but until and unless such rejection was actually made, its right of rst
refusal still stood. Upon the other hand, an acceptance by Mayfair would have saved all
concerned the time, trouble, and expense of this protracted litigation. In any case, the
disquisition by the Court of Appeals on this point can hardly be faulted; in fact, it amply
justifies the conclusions reached in its decision, as well as the dispositions made therein.
IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the
assailed Decision.
ROMERO , J ., concurring and dissenting :
I share the opinion that the right granted to Mayfair Theater under the identical par 8
of the June 1, 1967 and March 31, 1969 contracts constitute a right of first refusal.
An option is a privilege granted to buy a determinate thing at a price certain within a
speci ed time and is usually supported by a consideration which is why, it may be
regarded as a contract in itself The option results in a perfected contract of sale once the
person to whom it is granted decides to exercise it. The right of rst refusal is unlike an
option which requires a certainty as to the object and consideration of the anticipated
contract. When the right of the rst refusal is exercised, there is no perfected contract of
sale because the other terms of the sale have yet to be determined. Hence, in case the
offeror reneges on his promise to negotiate with offeree, the latter may only recover
damages in the belief that a contract would have been perfected under Article 19 of the
New Civil Code.
I beg to disagree, however, with the majority opinion that the contract of sale
entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Inc., should be
rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground for rescission apparently
relied on the case of Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668 [1992]) where
the offeree was likened to the status of a creditor. The case, in citing Tolentino, stated that
rescission is a remedy granted by law to 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 restoration of things to their condition prior to celebration of the contract. It
is my opinion that "third persons" should be construed to refer to the wards, creditors,
absentees, heirs and others enumerated under the law who are prejudiced by the contract
sought to be rescinded.
It should be borne in mind that rescission is an extreme remedy which may be
exercised only in the speci c instances provided by law. Article 1381 (3) speci cally refers
to contracts undertaken in fraud of creditors when the latter cannot in any manner collect
the claims due them. If rescission were allowed for analogous cases, the law would have
so stated. While Article 1381 (5) itself says that rescission may be granted to all other
contracts specially declared by law to be subject to rescission, there is nothing in the law
that states that an offeree who failed to exercise his right of refusal because of bad faith
on the part of the offeror may rescind the subsequent contract entered into by the offeror
and a third person. Hence, there is no legal justi cation to rescind the contract between
Carmelo and Bauermann, Inc. and Equatorial Realty.
Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and
Bauermann, Inc. the amount of P11,300,000.00 plus compounded interest of 12% p.a.
Justice Melo rationalized that had Carmelo and Bauermann sold the property to Mayfair,
the latter would have paid the property for the same price that Equatorial bought it. It
bears emphasis that Carmelo and Bauermann, Inc. and Mayfair never reached an
agreement as to the price of the property in dispute because the negotiations between the
two parties were not pursued to its very end. We cannot, even for reasons of equity,
compel Carmelo to sell the entire property to Mayfair at P11,300,000.00 without violating
the consensual nature of contracts.
I vote, therefore, not to rescind the contract of sale entered into by Carmelo and
Bauermann, Inc. and Equatorial Realty Development Corp.
VITUG , J., dissenting :
I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer
nor an option but merely a right of rst refusal as has been so well and amply essayed in
the ponencia of our distinguished colleague Mr. Justice Regino C. Hermosisima, Jr.
Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code
invoked to be the statutory authority for the rescission of the contract of sale between
Carmelo & Bauermann, Inc., and Equatorial Realty Development, Inc., has been misapplied.
The action for rescission under that provision of the law, unlike in the resolution of
reciprocal obligations under Article 1191 of the Code, is merely subsidiary and relates to
the speci c instance when a debtor, in an attempt to defraud his creditor, enters into a
contract with another that deprives the creditor to recover his just claim and leaves him
with no other legal means, than by rescission, to obtain reparation. Thus, the rescission is
only to the extent necessary to cover the damages caused (Article 1384, Civil Code) and,
consistent with its subsidiary nature, would require the debtor to be an indispensable party
in the action (see Gigante vs. Republic Savings Bank, 135 Phil. 359).
The concept of a right of rst refusal as a simple juridical relation, and so governed
(basically) by the Civil Code's title on "Human Relations," is not altered by the fact alone
that it might be among the stipulated items in a separate document or even in another
contract. A "breach" of the right of rst refusal can only give rise to an action for damages
primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an
action for speci c performance set out under Book IV of the Code on "Obligations and
Contracts." That right, standing by itself, is far distant from being the obligation referred to
in Article 1159 of the Code which would have the force of law su cient to compel
compliance per se or to establish a creditor-debtor or obligee-obligor relation between the
parties. If, as it is rightly so, a right of rst refusal cannot even be properly classed as an
offer or as an option, certainly, and with much greater reason, it cannot be the equivalent
of, nor be given the same legal effect as, a duly perfected contract. It is not possible to
cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602),
the indispensable element of consensuality in the perfection of contracts. It is basic that
without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305,
Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a
contract against his will or compelled to perform thereunder.
It is su ciently clear, I submit, that, there being no binding contract between
Carmelo and Mayfair, neither the rescission of the contract between Carmelo and
Equatorial nor the directive to Carmelo to sell the property to Mayfair would be legally
appropriate.
My brief disquisition should have ended here except for some personal impressions
expressed by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu
decision which perhaps need to be addressed.
The discussion by the Court in Ang Yu on the right of rst refusal is branded as a
mere obiter dictum. Justice Panganiban states: The case "turned largely on the issue of
whether or not the sale of an immovable in breach of a right of rst refusal that had been
decreed in a nal judgment would justify the issuance of certain orders of execution in the
same case. . . . In other words, the question of whether speci c performance of one's right
of rst refusal is available as a remedy in case of breach thereof was not before the
Supreme Court at all in Ang Yu Asuncion."
Black de nes an obiter dictum as "an opinion entirely unnecessary for the decision
of the case" and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition,
1990). A close look at the antecedents of Ang Yu as found by the Court of Appeals and as
later quoted by this Court would readily disclose that the "right of rst refusal" was a major
point in the controversy. Indeed, the trial and the appellate courts had to rule on it. With due
respect, I would not deem it "entirely unnecessary" for this Court to itself discuss the legal
connotation and signi cance of the decreed (con rmatory) right of rst refusal. I should
add that when the ponencia recognized that, in the case of Buen Realty Development
Corporation (the alleged purchaser of the property), the latter could not be held subject of
the writ of execution and be ousted from the ownership and possession of the disputed
property without rst affording it due process, the Court decided to simply put a cap in the
nal disposition of the case but it could not have intended to thereby mitigate the import
of its basic ratio decidendi.
Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of
the right of rst refusal does not sanction an action for speci c performance but only an
action for damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being
contradicted by extant jurisprudence." He then comes up with the novel proposition that
"Mayfair's right of rst refusal may be classi ed as one subject to a suspensive condition
— namely, if Carmelo should decide to sell the leased premises during the life of the lease
contracts, then it should make an offer of sale to Mayfair," presumably enforceable by
action for specific performance.
It would be perilous a journey, rst of all, to try to seek out a common path for such
juridical relations as contracts, options, and rights of rst refusal since they differ,
substantially enough, in their concepts, consequences and legal implications. Very brie y,
in the area on sales particularly, I borrow from Ang Yu, a unanimous decision of the
Supreme Court En Banc, which held:
"In the law on sales, the so-called 'right of rst 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 rst refusal,
understood in its normal concept, per se be bought 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 rst 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 rmed 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
inde nite and inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct."
An obligation, and so a conditional obligation as well (albeit subject to the

occurrence of the condition), in its context under Book IV of the Civil Code, can only be "a
juridical necessity to give, to do or not to do" (Art. 1156, Civil Code), and one that is
constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil
Code) which all have their respective legal signi cance rather well settled in law. The law
certainly must have meant to provide congruous, albeit contextual, consequences to its
provisions. Interpretare et concordore legibus est optimus interpretendi. As a valid source
of an obligation, a contract must have the concurrence of (a) consent of the contracting
parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil
Code). These requirements, clearly de ned, are essential. The consent contemplated by
the law is that which is manifested by the meeting of the offer and of the acceptance upon
the object and the cause of the obligation. The offer must be certain and the acceptance
absolute (Article 1319 of the Civil Code). Thus, a right of rst refusal cannot have the
effect of a contract because, by its very essence, certain basic terms would have yet to be
determined and xed . How its "breach" be also its perfection escapes me. It is only when
the elements concur that the juridical act would have the force of law between the
contracting parties that must be complied with in good faith (Article 1159 of the Civil
Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the
creditor or obligee (the passive subject) to invoke the remedy that speci cally appertains
to it.
The judicial remedies, in general, would, of course, include: (a) The principal
remedies (i) of speci c performance in obligations to give speci c things (Articles 1165
and 1167 of the Civil Code), substitute performance in an obligation to do or to deliver
generic things (Article 1165 of the Civil Code) and equivalent performancefor damages
(Articles 1168 and 1 170 of the Civil Code); and (ii) of rescission or resolution of reciprocal
obligations; and (b) the subsidiary remedies that may be availed of when the principal
remedies are unavailable or ineffective such as (i) accion subrogatoria or subrogatory
action (Article 1177 of the Civil Code; see also Articles 1729 and 1893 of the Civil Code);
and (ii) accion pauliana or rescissory action (Articles 1177 and 1381 of the Civil Code).
And, in order to secure the integrity of nal judgments, such ancillary remedies as
attachments, replevin, garnishments, receivership, examination of the debtor, and similar
remedies, are additionally provided for in procedural law.
Might it be possible, however, that Justice Panganiban was referring to how Ang Yu
could relate to the instant case for, verily, his remark, earlier quoted, was followed by an
extensive discussion on the factual and case milieu of the present petition? If it were, then I
guess it was the applicability of the Ang Yu decision to the instant case that he questioned,
but that would not make Ang Yu "imprecise" or "incorrect."
Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman,
Bocaling & Co. vs. Bonnevie (206 SCRA 668). I would not be too hasty in concluding
similarly. In Guzman, the stipulation involved, although loosely termed a "right of rst
priority," was, in fact, a contract of option. The provision in the agreement there stated:
"20. — In case the LESSOR desires or decides to sell the leased property,
the LESSEES shall be given a rst priority to purchase the same, all things and
considerations being equal." (At page 670; italics supplied.)
In the above stipulation, the Court ruled, in effect, that the basic terms had been
adequately, albeit brie y, spelled out with the lease consideration being deemed
likewise to be the essential cause for the option. The situation undoubtedly was not the
same that prevailed in Ang Yu or, for that matter, in the case at bar. The stipulation
between Mayfair Theater, Inc., and Carmelo & Bauermann, Inc., merely read:
"That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same."

The provision was too inde nite to allow it to even come close to within the area of the
Guzman ruling.
Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs.
Stevenson & Co and Salonga vs. Farrales (cited in Ang Yu) did NOT involve a right of
rst refusal or of rst priority. Nor did those two cases involve an option to buy." The
two cases, to set the record straight, were cited, not because they were thought to
involve a right of rst refusal or an option to buy but to emphasize the indispensability
of consensuality over the object and cause of contracts in their perfection which would
explain why, parallel therewith, Articles 1315 and 1318 of the Civil Code were also
mentioned.
One nal note: A right of rst refusal, in its proper usage, is not a contract; when
parties instead make certain the object and the cause thereof and support their
understanding with an adequate consideration, that juridical relation is not to be taken as
just a right of rst refusal but as a contract in itself (termed an "option"). There is,
unfortunately, in law a limit to an unabated use of common parlance.
With all due respect, I hold that the judgment of the trial court, although not for all
the reasons it has advanced, should be REINSTATED.
Footnotes
1. Decision in CA-G.R. CV No. 32918 penned by Justice Manuel Herrera, promulgated on
June 23, 1992; Rollo, pp. 37-54.
2. Twelfth Division composed of the following members: Associate Justices Manuel

Herrera, Nicolas Lapeña, Jr., and Maria Alicia Austria.
3. Regional Trial Court, Branch VII, Manila, presided by Judge Alfredo Cantos.
4. Docketed as Civil Case No. 118019, entitled "Mayfair Theater, Inc. vs. Carmelo and
Bauermann, Inc., et al."
5. Decision of the RTC in Civil Case No. 118019; Rollo, pp. 241-248.
6. Decision of the Court of Appeals in CA-G.R. No. 32918 supra, pp. 1-7; Rollo, pp. 37-43.
7. Decision of the RTC, supra; Rollo, pp. 244-246.
8. Decision of the Court of Appeals, p. 18; Rollo, p. 54.

9. Ibid., pp. 12-15; Rollo, pp. 48-51.
10. Ibid., pp. 15-16; Rollo, pp. 51-52.
11. Petition dated July 16, 1992, pp. 8-9; Rollo, pp. 9-10; Joint Memorandum dated February
15, 1993, p. 9; Rollo, p 481.
12. Rollo, pp. 416-417.
13. Resolution of the Second Division dated December 9, 1992, p. 2; Rollo, p. 417.
14. Paragraph 2.4, Petition, pp. 3-4; Rollo, pp. 4-5.
15. 41 Phil. 670 (1916).

16. Beaumont vs Prieto, supra, pp. 686-687.
17. Tuason, Jr., etc. vs. de Asis, et al., 107 Phil. 131 (1960).
18. Mendoza vs. Comple, 15 SCRA 162.
19. Sanchez vs Rigos, 45 SCRA 368 (1972).
20. Vda. de Quirino vs. Palarca, 29 SCRA 1 (1969).
21. 238 SCRA 602 (1994), pp. 611-614.
22. Dela Cavade vs. Diaz, 37 Phil. 982 (1918); Beaumont vs. Prieto, 41 Phil. 670 (1916).
23. 29 SCRA 1 (1969).
24. 238 SCRA 602 (1994).
25. Guzman, Bocaling & Co. vs. Bonnevie, 206 SCRA 668 (1992), pp. 675-677.
26. Aquino vs. Tañedo, 39 Phil. 517.
27. Guzman, Bocaling & Co. vs. Bonnevie, supra.
PANGANIBAN, J., concurring opinion:
1. 238 SCRA 602, December 2, 1994.
2. At pp. 615-616; emphasis supplied.

3. Cf. Nietes vs. CA, 46 SCRA 654, 662, August 18, 1972.
4. Guzman, Bocaling & for Co. vs. Bonnevie, 206 SCRA 668, March 2, 1992.
5. Supra, at p. 662.
6. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1986
Ed., Vol. IV, pp. 54-55.
7. Id., p. 140.
9. Supra, at pp. 672-673.
10. Art. 1157, par. 2, Civil Code.
11. Arts. 1159 and 1315, Civil Code.
12. "Art. 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to make the
delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied
with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until
he has effected the delivery.
xxx xxx xxx

"Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law."
13. Chapters 2 and 3, Title I, Book IV of the Civil Code.

14. Tolentino, Civil Code, 1991 Ed., Vol. IV, p. 144.
15. Art. 1181, Civil Code; Wise & Co. vs. Kelly , 37 Phil. 696 (1918).
16. Gaite vs. Fonacier, 2 SCRA 830, July 31, 1961; Rose Packing Co., Inc. vs. Court of
Appeals, 167 SCRA 309, November 14, 1988.
17. Hermosa vs. Longara, 93 Phil. 977, 982 (1953).
18. 15 Phil. 38 (1910).
19. 105 SCRA 359, July 10, 1981.

FIRST DIVISION
[G.R. No. 91029. February 7, 1991.]
NORKIS DISTRIBUTORS, INC. , petitioner, vs. THE COURT OF APPEALS

& ALBERTO NEPALES , respondents.
Jose D. Palma for petitioner.

Public Attorney's Office for private respondent.
DECISION
GRIÑO-AQUINO , J : p
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth
Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional
Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil
Case No. 1272, which was private respondent Alberto Nepales' action for specific
performance of a contract of sale with damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha
motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its
Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought
from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model
YL2DX with Engine No. L2-329401K, Frame No. NL2-0329401, Color Maroon, then
displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a
Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan
Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was
extended to Nepales for the price of the motorcycle payable by DBP upon release of his
motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on
the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No.
0120 (Exh. 1) showing that the contract of sale of the motorcycle had been perfected.
Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the
meantime, however, the motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land Transportation
Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name
was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The
registration fees were paid by him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was
allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984).
The record shows that Alberto and Julian Nepales presented the unit to DBP's Appraiser-
Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch
(p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros
Occidental. An investigation conducted by the DBP revealed that the unit was being driven
by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total
wreck (p. 36, t.s.n., August 2, 1984; p. 13, Rollo), was returned, and stored inside Norkis'
warehouse. prLL
On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to
Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828
in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the
delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional Trial Court of Himamaylan,
Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as Civil
Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased,
thereby causing him damages.
Norkis answered that the motorcycle had already been delivered to private respondent
before the accident, hence, the risk of loss or damage had to be borne by him as owner of
the unit.
After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling
in favor of private respondent (p. 28, Rollo) thus:
"WHEREFORE, judgment is rendered in favor of the plaintiff and against the
defendants. The defendants are ordered to pay solidarily to the plaintiff the
present value of the motorcycle which was totally destroyed, plus interest
equivalent to what the Kabankalan Sub-Branch of the Development Bank of the
Philippines will have to charge the plaintiff on his account, plus P50.00 per day
from February 3, 1980 until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages, and costs of the litigation. In
lieu of paying the present value of the motorcycle, the defendants can deliver to
the plaintiff a brand-new motorcycle of the same brand, kind, and quality as the
one which was totally destroyed in their possession last February 3, 1980." (pp.
28-29, Rollo.)
On appeal, the Court of Appeals affirmed the appealed judgment on August 21, 1989, but
deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February
3, 1980 until payment of the present value of the damaged vehicle" (p. 35, Rollo). The Court
of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review.
The principal issue in this case is who should bear the loss of the motorcycle. The answer
to this question would depend on whether there had already been a transfer of ownership
of the motorcycle to private respondent at the time it was destroyed.
Norkis' theory is that:
". . . After the contract of sale has been perfected (Art. 1475) and even before
delivery, that is, even before the ownership is transferred to the vendee, the risk of
loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of
the vendor to deliver a determinate thing becomes extinguished if the thing is lost
by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and
before he has incurred delay (Art. 1165, par. 3). If the thing sold is generic, the loss
or destruction does not extinguish the obligation (Art. 1263). A thing is
determinate when it is particularly designated or physically segregated from all
others of the same class (Art. 1460). Thus, the vendor becomes released from his
obligation to deliver the determinate thing sold while the vendee's obligation to
pay that price subsists. If the vendee had paid the price in advance the vendor
may retain the same. The legal effect, therefore, is that the vendee assumes the
risk of loss by fortuitous event (Art. 1262) after the perfection of the contract to
the time of delivery." (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5, 1987
Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that
there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No.
0120 (Exh. 1) in the name of the private respondent and the affixing of his signature
thereon; (2) the registration of the vehicle on November 6, 1979 with the Land
Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of
official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private respondent, the issuance of
a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An
invoice is nothing more than a detailed statement of the nature, quantity and cost of the
thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378). cdphil
In all forms of delivery, it is necessary that the act of delivery whether constructive or
actual, be coupled with the intention of delivering the thing. The act, without the intention, is
insufficient (De Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private respondent, Norkis
did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the
execution of a chattel mortgage in favor of the DBP for the release of the buyer's
motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the
execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite
for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP
would not approve private respondent's loan application and, consequently, there would be
no sale.
In other words, the critical factor in the different modes of effecting delivery, which gives
legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by
the vendee. Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:
"The Code imposes upon the vendor the obligation to deliver the thing sold. The
thing is considered to be delivered when it is 'placed in the hands and possession
of the vendee.' (Civil Code, Art. 1462). It is true that the same article declares that
the execution of a public instrument is equivalent to the delivery of the thing
which is the object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall have had such
control over the thing sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed in his
control. When there is no impediment whatever to prevent the thing sold passing
into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient. But if, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through another in his
name, because such tenancy and enjoyment are opposed by the interposition of
another will, then fiction yields to reality — the delivery has not been effected."
(Emphasis supplied.)

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice
dated September 20, 1979 (Exh. B) and the registration of the vehicle in the name of
plaintiff-appellee (private respondent) with the Land Registration Commission (Exhibit C)
was not to transfer to Nepales the ownership and dominion over the motorcycle, but only
to comply with the requirements of the Development Bank of the Philippines for
processing private respondent's motorcycle loan. On March 20, 1980, before private
respondent's loan was released and before he even paid Norkis, the motorcycle had
already figured in an accident while driven by one Zacarias Payba. Payba was not shown by
Norkis to be a representative or relative of private respondent. The latter's supposed
relative, who allegedly took possession of the vehicle from Norkis did not explain how
Payba got hold of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was
acting as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20,
Appellants' Brief), is controverted by the latter. Alberto denied having authorized Julian
Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction
with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This circumstances
more than amply rebut the disputable presumption of delivery upon which Norkis anchors
its defense to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an express
assumption of risk by the buyer, the things sold remain at seller's risk until the ownership
thereof is transferred to the buyer," is applicable to this case, for there was neither an
actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by
the seller, Norkis, which was still the owner and possessor of the motorcycle when it was
wrecked. This is in accordance with the well-known doctrine of res perit domino. cdphil
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R.
No. 09149, we deny the petition for review and hereby affirm the appealed decision, with
costs against the petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

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FIRST DIVISION

[G.R. No. L-7382. June 29, 1955.]

SOUTHWESTERN SUGAR AND MOLASSES COMPANY , plaintiff-

Arturo A. Alafriz and A. B. Alcera for appellant.

1. CONTRACTS; OFFER AND ACCEPTANCE; RULE ON WITHDRAWAL OF

This is an action for specific performance.

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[G.R. No. L-9871. January 31, 1958.]

ATKINS, KROLL & CO., INC. , petitioner, vs . B. CUA HIAN TEK ,

Ross, Selph, Carrascoso & Janda for petitioner.

1. OBLIGATION AND CONTRACTS; SALES; OFFER TO SELL A DETERMINATE

Review of a Court of Appeals' decision.

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[G.R. No. 73573. May 23, 1991.]

SPOUSES TRINIDAD AND EPIFANIO NATINO , petitioners, vs. THE

Jose P. Villamor for petitioners.

1. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF INTERMEDIATE APPELLATE

THE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF

THE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-

Herein petitioners, as appellees, did not file their Brief.

Re the first error —

THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS

xxx xxx xxx

4. P. 7, Annex "A" of Petition, Rollo, 22.

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[G.R. No. 103338. January 4, 1994.]

FEDERICO SERRA , petitioner, vs . THE HON. COURT OF APPEALS AND

1. CIVIL LAW; CONTRACTS; CONTRACT OF ADHESION; CONSTRUED; CASE AT

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"The LESSEE is hereby appointed attorney-in-fact for the LESSOR to

Pursuant to said contract, a building and other improvements were constructed on

3. That as a condition for the validity and/or e cacy of the option, it

and as counterclaim petitioner alleged that:

"2. Defendant is ordered to pay plaintiff the sum of Five Thousand

In a decision promulgated on September 19, 1991, 9 the Court of Appeals a rmed

The petition is devoid of merit.

Jurisprudence has taught us that an optional contract is a privilege existing only in

1. Annex "A" of the Complaint, Original Records, pp. 8-9.

12. 45 SCRA 368.

20. Article 1470, New Civil Code.

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[G.R. No. 2412. April 11, 1906.]

PEDRO ROMAN , plaintiff-appellant, vs . ANDRES GRIMALT , defendant-

Alberto Barretto, for appellant.

1. CONTRACT, VALIDITY OF. — The provision contained in article 1278 of the

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[G.R. No. 106063. November 21, 1996.]

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OPTION CONTRACT;

2. ID.; ID.; SINCE PETITIONER IS A BUYER IN BAD FAITH, THE SALE TO IT OF

PADILLA, J., separate opinion:

PANGANIBAN, J., separate concurring opinion:

ROMERO, J., concurring and dissenting opinion:

2. ID.; RESCISSION OF CONTRACT; THE CONTRACT OF SALE ENTERED INTO BY

VITUG, J., dissenting opinion:

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THE SECOND FLOOR AND MEZZANINE of the two-storey building,