EQUATORIAL V.

MAYFAIR- Sale of Land

While execution of a public instrument of sale is recognized by law as equivalent to the delivery
of the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by
the failure of the vendee to take actual possession of the land sold.

FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M.
Recto Avenue, Manila, and covered by TCT No. 18529.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20
years. The lease covered a portion of the second floor and mezzanine of a two-storey building
with about 1,610 square meters of floor area, which respondent used as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for
another portion of the latters property this time, a part of the second floor of the two-storey
building, and two store spaces on the ground floor. In that space, Mayfair put up another movie
house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.

Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject
properties. Sadly, on July 30, 1978 - within the 20-year-lease term -- the subject properties were
sold by Carmelo to Equatorial Realty Development, Inc. for eleven million smackers, without
their first being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before
the Regional Trial Court of Manila for the recission of the Deed of Absolute Sale between
Carmelo and Equatorial, specific performance, and damages. RTC decided for Carmelo and
Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What
happened is that the contract did get rescinded, Equatorial got its money back and asserted that
Mayfair have the right to purchase the lots for 11 million bucks.

Decision became final and executory, so Mayfair deposited with the clerk the 11M (less
847grand withholding) payment for the properties (Carmelo somehow disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for
Execution, Equatorial demanded from Mayfair backrentals and reasonable compensation for the
Mayfairs continued use of the subject premises after its lease contracts expired. Remember that
Mayfair was still occupying the premises during all this hullabaloo.
ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy the fruits
and rentals.

HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to
deliver the property to the buyer. Compound this with the fact that the sale was even rescinded.

The court went on to assert that rent is a civil fruit that belonged to the owner of the property
producing it by right of accession. Hence, the rentals that fell due from the time of the perfection
of the sale to petitioner until its rescission by final judgment should belong to the owner of the
property during that period.

We remember from SALES that in a contract of sale, one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate thing and the other to pay therefor a
price certain in money or its equivalent.

Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the
thing to him in any of the ways specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee. This
right is transferred, not by contract alone, but by tradition or delivery. There is delivery if and
when the thing sold is placed in the control and possession of the vendee.

While execution of a public instrument of sale is recognized by law as equivalent to the delivery
of the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by
the failure of the vendee to take actual possession of the land sold.

For property to be delivered, we need two things. Delivery of property or title, and transfer of
control or custody to the buyer.

Possession was never acquired by the petitioner. It therefore had no rights to rent.

ADELFA PROPERTIES, INC vs. CA et al

G.R. No. 111238
January 25, 1995
FACTS: Private respondents and their brothers Jose and Dominador were the registered CO-
OWNERS of a parcel of land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa
expressed interest in buying the western portion of the property from private respondents herein.
Accordingly, an exclusive Option to Purchase was executed between Adelfa and Private
respondents and an option money of 50,000 was given to the latter.

A new owners copy of the certificate of title was issued (as the copy with respondent Salud was
lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.

Before Adelfa could make payments, it received summons as a case was filed (RTC
Makati) against Jose and Dominador and Adelfa, because of a complaint in a civil case by the
nephews and nieces of private respondents herein. As a consequence, Adelfa, through a letter,
informed the private respondents that it would hold payment of the full purchase price and
suggested that they settle the case with their said nephews and nieces. Salud did not heed the
suggestion; respondents informed Atty. Bernardo that they are canceling the transaction. Atty
Bernardo made offers but they were all rejected.

RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel of land.

Atty Bernardo wrote private respondents informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and requested that the corresponding deed of
Absolute Sale be executed. This was ignored by private respondents.

Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of
half the option money paid under the exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa failed to surrender the certificate of title,
hence the private respondents filed a civil case before the RTC Pasay, for annulment of contract
with damages. The trial court directed the cancellation of the exclusive option to purchase. On
appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.

ISSUE:
1. WON the agreement between Adelfa and Private respondents was strictly an option contract
2. WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa to pay the
balance of the purchase price
3. WON Private respondents could unilaterraly and prematurely terminate the option period, if
indeed it is a option contract, as the option period has not lapsed yet.
HELD: The judgement of the CA is AFFIRMED
1. NO. The agreement between the parties is a contract to sell, and not an option contract or a
contract of sale.
Contract to SELL

by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price
 title is retained by the vendor until the full payment of the price, such payment being a
positive

Contract of SALE

the title passes to the vendee upon the delivery of the thing sold

the vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded

There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price.

(1) the exclusive option to purchase, although it provided for automatic rescission of the
contract and partial forfeiture of the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a consequence of non-
payment. There is no stipulation anent reversion or reconveyance of the property to herein
private respondents in the event that petitioner does not comply with its obligation. With the
absence of such a stipulation, although there is a provision on the remedies available to the
parties in case of breach, it may legally be inferred that the parties never intended to transfer
ownership to the petitioner to completion of payment of the purchase price.

(2) Secondly, it has not been shown there was delivery of the property, actual or constructive,
made to herein petitioner. The exclusive option to purchase is not contained in a public
instrument the execution of which would have been considered equivalent to delivery. Neither
did petitioner take actual, physical possession of the property at any given time. It is true that
after the reconstitution of private respondents certificate of title, it remained in the possession of
petitioners counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to be understood as a
delivery. 18However, private respondents explained that there was really no intention on their part
to deliver the title to herein petitioner with the purpose of transferring ownership to it. They
claim that Atty. Bernardo had possession of the title only because he was their counsel in the
petition for reconstitution.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he
had fully paid the price in this case. Article 1478 of the civil code does not require that such a
stipulation be expressly made. Consequently, an implied stipulation to that effect is considered
valid and, therefore, binding and enforceable between the parties. It should be noted that under
the law and jurisprudence, a contract which contains this kind of stipulation is considered a
contract to sell.
The important task in contract interpretation is always the ascertainment of the intention (parties
never intended to transfer ownership to petitioner except upon the full payment of the
purchase price) of the contracting parties and that task is, of course, to be discharged by looking
to the words they used to project that intention in their contract. The title of a contract does not
necessarily determine its true nature. Hence, the fact that the document under discussion is
entitled Exclusive Option to Purchase is not controlling where the text thereof shows that it is a
contract to sell.
The obligation of petitioner consisted of an obligation to give something, that is, the payment of
the purchase price. The contract did not simply give petitioner the discretion to pay for the
property. It will be noted that there is nothing in the said contract to show that petitioner was
merely given a certain period within which to exercise its privilege to buy. The agreed period
was intended to give time to herein petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase price. No evidence was presented by
private respondents to prove otherwise.

The test in determining whether a contract is a contract of sale or purchase or a mere option
is whether or not the agreement could be specifically enforced. There is no doubt that the
obligation of petitioner to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents chosen to enforce the contract,
they could have specifically compelled petitioner to pay the balance. This is distinctly made
manifest in the contract itself as an integral stipulation, compliance with which could legally and
definitely be demanded from petitioner as a consequence.
While there is jurisprudence to the effect that a contract which provides that the initial payment
shall be totally forfeited in case of default in payment is to be considered as an option
contract, still we are not inclined to conform with the findings of respondent court and the
court a quo that the contract executed between the parties is an option contract, for the reason
that the parties were already contemplating the payment of the balance of the purchase price, and
were not merely quoting an agreed value for the property. The term balance, connotes a
remainder or something remaining from the original total sum already agreed upon.
In other words, the alleged option money was actually earnest money which was intended to
form part of the purchase price. The amount was not distinct from the cause or consideration for
the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest
money is given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract. It constitutes an advance payment and must, therefore, be deducted
from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz.:
(a) earnest money is part of the purchase price, while option money ids the money given as a
distinct consideration for an option contract;

(b) earnest money is given only where there is already a sale, while option money applies to a
sale not yet perfected; and

(c) when earnest money is given, the buyer is bound to pay the balance, while when the would-
be buyer gives option money, he is not required to buy.
The aforequoted characteristics of earnest money are apparent in the so-called option contract
under review, even though it was called option money by the parties. In addition, private
respondents failed to show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioners obligation under the contract to sell.

2. Its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590
of the civil Code which provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired,
or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused
the disturbance or danger to cease, unless the latter gives security for the return of the price in a
proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price.

Respondent court refused to apply the aforequoted provision of law on the erroneous assumption
that the true agreement between the parties was a contract of option. As we have hereinbefore
discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article
1590 would properly apply.

Both lower courts, are in accord that since the Civil Case in Makati involved only the eastern
half of the land subject of the deed of sale between Adelfa and the Jimenez brothers, it did not,
therefore, have any adverse effect on private respondents title and ownership over the western
half of the land which is covered by the contract subject of the present case. But at a glance, it is
easily discernible that, although the complaint prayed for the annulment only of the contract of
sale executed between petitioner and the Jimenez brothers, the plaintiffs therein were claiming to
be co-owners of the entireparcel of land, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, not pertaining exclusively to the eastern half adjudicated to the
Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made
by private respondents that petitioner did not have to worry about the case because it was pure
and simple harassment is not the kind of guaranty contemplated under the exceptive clause in
Article 1590 wherein the vendor is bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for the return of the price.

3. YES. The private respondents may no longer be compelled to sell and deliver the subject
property to petitioner for two reasons, that is, petitioners failure to duly effect the consignation
of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract
to sell had been validly rescinded by private respondents.
The mere sending of a letter by the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of
payment is not sufficient to compel private respondents to deliver the property and execute the
deed of absolute sale. It is consignation which is essential in order to extinguish petitioners
obligation to pay the balance of the purchase price.

The rule is different in case of an option contract or in legal redemption or in a sale with right to
repurchase, wherein consignation is not necessary because these cases involve an exercise of a
right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence
tender of payment would be sufficient to preserve the right or privilege. This is because the
provisions on consignation are not applicable when there is no obligation to pay. A contract to
sell, as in the case before us, involves the performance of an obligation, not merely the exercise
of a privilege of a right. Consequently, performance or payment may be effected not by tender of
payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment. By reason of petitioners failure to comply with its
obligation, private respondents elected to resort to and did announce the rescission of the
contract through its letter to petitioner. That written notice of rescission is deemed sufficient
under the circumstances. Article 1592 of the Civil Code which requires rescission either by
judicial action or notarial act is not applicable to a contract to sell. Furthermore, judicial action
for rescission of a contract is not necessary where the contract provides for automatic
rescission in case of breach, as in the contract involved in the present controversy.
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or
protest against it. By such cavalier disregard, it has been effectively estopped from seeking the
affirmative relief it now desires but which it had theretofore disdained.

NOTES:
1. a deed of sale is considered absolute in nature where there is neither

(a) a stipulation in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor

(b) one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period.

2. We are not unaware of the ruling in University of the Philippines vs. De los Angeles,
etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the
proper court. It is our considered view, however, that this rule applies to a situation where the
extrajudicial rescission is contested by the defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the
debtor impugns the declaration, it shall be subject to judicial determination 51 otherwise, if said
party does not oppose it, the extrajudicial rescission shall have legal effect. 52
3. Option vs. contract

An option, as used in the law on sales, is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes called
an unaccepted offer. An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of property but a sale of the right to purchase. It is
simply a contract by which the owner of property agrees with another person that he shall have
the right to buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something, that it is, the right or privilege to
buy at the election or option of the other party.
Its distinguishing characteristic is that it imposes no binding obligation on the person holding
the option, aside from the consideration for the offer. Until acceptance, it is not, properly
speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest
or right in the subject matter, but is merely a contract by which the owner of property gives the
optionee the right or privilege of accepting the offer and buying the property on certain terms.
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute.

The distinction between an option and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell the land, if the
holder elects to accept them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and
the option is at an end.

A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both
parties at the time of its execution. The offer and the acceptance are concurrent, since the minds
of the contracting parties meet in the terms of the agreement.

CARCELLER V. CA (February 10, 1999)

FACTS:
Respondent State Investment Houses Inc. has a parcel of land in Cebu City leased to petitioner
Jose Ramon Caceller with an option to purchase valid until the expiration of the lease contract.
3weeks before the expiration of the contract, petitioner made a request to the respondent for the
extension of the lease contact so he can have an ample time to raise enough funds to avail of the
option of sale.

Respondent denied the request and a month after the expiration of the contract, petitioner made
known his intention to buy the property.

Respondent reiterated the provisions in the contract and asked the petitioner to leave the
property, which will now be offered to the general public for a higher price.

ISSUE:
WON can still exercise his option of sale even after the time to do such has already lapsed.

HELD:
The contract must be interpreted together with the intention of the parties. The letter of the
plaintiff to the respondent requesting for an extension is sufficient proof of his intent to avail of
the option of sale.

In contractual relations, the law allows the parties reasonable leeway on the terms of their
agreement, which is the law between them. When petitioner made his intention to buy known to
the buyer one month after the expiration of contract is within a reasonable time- frame.

Petitioner may buy the property but not anymore to the price stated in the contract. As such,
respondent may increase the price of the land but only to a reasonable and fair market value.

An option is a preparatory contract in which one party grants to the other, for a fixed period and
under specified conditions, the power to decide, whether or not to enter into a principal contract.
It binds the party who has given the option, not to enter into the principal contract with any other
person during the period designated, and, within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the option. It is a separate
agreement distinct from the contract which the parties may enter into upon the consummation of
the option.

SECOND DIVISION
 [G.R. No. 136858. July 21, 2004]

CARLOS VILLAMOR, TERTULIANO D.VILLAMOR, LOLITA D.

VILLAMOR, LEANDRA VILLAMOR CAPUNO and NUNILA
VILLAMOR ABELLAR, petitioners, vs. THE HONORABLE COURT
OF APPEALS, TEOFILO D. VILLAMOR, AND TEODULO D.
VILLAMOR, respondents.

DECISION
CALLEJO, SR., J.:

Before us is a petition for certiorari assailing the Resolution[1] dated August 26, 1998
of the Court of Appeals reinstating the appeal of the herein private respondents and its
Resolution dated December 18, 1998 denying the motion for reconsideration thereof.
An action for partition and damages was filed with the Regional Trial Court of Danao
City, Branch 25,[2] entitled Teodulo D. Villamor, Teofilo D. Villamor and Nunila Villamor-
Abellar, plaintiffs, vs. Carlos D. Villamor, Tertuliano D. Villamor, Lolita D. Villamor and
Leandra Villamor-Capuno, defendants, docketed as Civil Case No. DNA-401. The parties
are brothers and sisters, and the sole and exclusive heirs of the late spouses Jose S.
Villamor and Dolores I. De Dios.
The plaintiffs therein alleged, inter alia, that: they and their siblings had a family
meeting on May 19, 1996 and had agreed that the estate of their parents comprising of
four (4) parcels of land and a house of strong materials situated at Carmen, Cebu shall
be divided equally among themselves, and a meeting on May 25, 1996 was set for the
purpose of putting down into writing the terms of the partition; on said date, however, the
defendants changed their minds and insisted that parcel no. 3 and the house were already
donated to defendants Tertuliano and Lolita while parcel No. 4 had been donated to
defendant Carlos; the rest of the properties were owned in common by the heirs; as
gleaned from the tax declaration covering the properties, the same had an aggregate
assessed value of P19,000.00.[3]
The plaintiffs prayed that judgment be rendered, as follows:

1. Declaring the properties described in paragraph IV of this Complaint as belonging

to the estate of the late Spouses Jose and Dolores Villamor, and therefore owned in
common by the parties hereto;

2. Ordering the partition of the aforesaid properties into seven (7) equal parts, one part for each
of the seven children of the aforesaid late spouses, the parties to this case;

3. Declaring as null and void any alleged donation to Carlos D. Villamor with reference to parcel
No. 4, or to Tertuliano Villamor and Lolita Villamor with reference to parcel no. 3 and the
house, the same being obviously illegal and/or total frauds (sic) and/or fabrications, and ordering
the cancellation of any tax declarations that may have been issued pursuant thereto;

4. Ordering the defendants to pay jointly and solidarily to the plaintiffs, moral damages in the
sum of not less than P300,000.00, as well as exemplary damages in the amount of P100,000.00;

5. Ordering the defendants to pay and/or reimburse jointly and solidarily to the plaintiffs,
attorneys fees of at least P50,000.00 as well as costs of litigation in the sum of not less
than P20,000.00.[4]

Before an Answer was filed, the plaintiffs filed an amended complaint in which they
included a fifth parcel of land as subject matter thereof so that the aggregate assessed
value of the property amounted to P33,950.00.
Notwithstanding the filing of the amended complaint, the defendants filed a motion to
dismiss the amended complaint contending that it stated no cause of action against them
and that the action was within the exclusive jurisdiction of the Municipal Trial Court since
the aggregate value of the property subject of the action was less than P20,000.00.
On November 25, 1996, the trial court issued an Order denying the motion to dismiss
of the defendants. They filed a motion for reconsideration of the order and on January 13,
1997, the trial court issued a Resolution, this time granting the motion, with the following
dispositive portion:

WHEREFORE, Motion for Reconsideration is given due course, Case is hereby

ordered dismissed, without prejudice to refiling the same in the proper Municipal
Trial Court. [5]

The trial court ruled that the MTC had exclusive jurisdiction over the action under
Republic Act No. 7691, the assessed value of the property subject of the action being
less than P20,000.00. The plaintiffs moved to reconsider the order, alleging that under
their amended complaint, the assessed value of the five parcels of land was P33,950.00.
On February 11, 1997, the court issued an Order granting plaintiffs motion for
reconsideration declaring that it overlooked the amended complaint wherein a fifth parcel
of land was included as subject matter of the complaint raising the aggregate value of the
properties to P33,950.00; hence, the action was under the exclusive jurisdiction of the
RTC under Republic Act No. 7691.
The defendants filed a motion for the reconsideration of the February 11, 1997 Order
of the court. On April 10, 1997, the trial court issued an order granting the motion and
ordering the dismissal of the case. The court held that by filing the amended complaint to
include therein a fifth parcel of land, and bringing the assessed value of the property
to P33,950.00, the plaintiffs attempted to confer jurisdiction on the RTC over their action
which is contrary to the principle that the jurisdiction of the court is conferred by the
Constitution and the law and not by the plaintiffs.
 The plaintiffs again moved to reconsider the April 10, 1997 Order of the Court. On
June 30, 1997, the trial court denied the said motion. On July 1, 1997, the 1997 Rules of
Civil Procedure took effect.
Undaunted, the plaintiffs filed a notice of appeal on July 11, 1997. The trial court gave
due course to the appeal. However, the plaintiffs-appellants failed to pay the requisite
appellate docket fee and other lawful fees, as required by Rule 41, Section 4 [6] of the 1997
Rules of Civil Procedure. The defendants-appellees filed with the Court of Appeals a
motion to dismiss[7]the appeal for failure of the plaintiffs-appellants to pay the requisite
appellate docket fee within the period for appeal; and, as such, the appellate court had
no jurisdiction over the appeal. On January 19, 1998, the Court of Appeals issued a
resolution requiring the appellants to comment on the appellees motion to dismiss. On
February 17, 1998, the appellants filed a Manifestation and Motion, with the prayer that
the Clerk of Court inform them of the requisite amount of appellate docket fee so that they
can pay the same.
On February 27, 1998, plaintiff-appellant Nunila Villamor Abellar filed a Motion to
Withdraw Appeal[8] as she did not want to aggravate the already heightened animosity
among the brothers and sisters because of this court battle. On March 24, 1998, the
plaintiffs-appellants paid the requisite appellate docket fee and other lawful fees in the
Regional Trial Court.
On May 14, 1998, the Court of Appeals issued a Resolution dismissing the appeal for
failure of the plaintiffs-appellants to perfect the appeal on time on account of their failure
to pay the requisite appellate docket fees for their appeal within the period therefor. At the
same time, the CA granted Nunila Villamor Abellars withdrawal of appeal. [9]

Appellant Nunila Villamor Abellars withdrawal of appeal is hereby granted pursuant

to Sec. 3, Rule 50 of the 1997 Rules of Civil Procedure.

Considering that the notice of appeal was filed on July 11, 1997 after the 1997 Rules
on Civil Procedure took effect and docket fees were only paid on March 24, 1998, the
appeal is hereby dismissed for failure of the appellants Teofilo and Teodulo Villamor
to perfect the appeal within the period provided.

On motion for reconsideration of the plantiffs-appellants,[10] the Court of Appeals

reconsidered its resolution of dismissal and reinstated the appeal of the plaintiffs-
appellants. The Court of Appeals applied the 1997 Rules of Civil Procedure liberally in
the interest of justice.
Hence, this petition filed by the herein petitioners, alleging that:
I.

THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTON IN
ISSUING THE RESOLUTIONS DATED AUGUST 26, 1998 AND DECEMBER 18,
1998.
 II.

THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF OR EXCESS OF JURISDICTION IN
GIVING DUE COURSE TO THE APPEAL OF PRIVATE RESPONDENTS
DESPITE THE LATE FILING OF APPEAL, THE LATE PAYMENT OF APPEAL
DOCKET FEE AND NON-APPEALABILITY OF THE RESOLUTIONS OF THE
TRIAL COURT.

The petitioners assert that the CA committed a grave abuse of its discretion in
reinstating the appeal of the private respondents despite the fact that they failed to perfect
their appeal by remitting to the Clerk of Court of the trial court the appellate court docket
fee and other legal fees. They contend that the Court of Appeals did not acquire any
appellate jurisdiction over the assailed order which had become final and executory for
their failure to perfect their appeal within the period and in the manner provided for in the
Rules of Civil Procedure.
We are not persuaded.
Although the right to appeal is a statutory, not a natural right, it is an essential part of
the judicial system and courts should proceed with caution so as not to deprive a party of
this prerogative, but instead afford every party litigant the amplest opportunity for the
proper and just disposition of his cause, freed from the constraints of technicalities.[11]
The failure of a party to perfect the appeal in the manner and within the period fixed
by law carries with it the result that no court can exercise appellate jurisdiction over the
case. A partys appeal by notice of appeal as in this case is perfected as to him upon the
filing of the notice of appeal in due time.[12] Together with this notice of appeal is the
payment of docket and other legal fees which should be paid within the prescribed
period.[13] Such payment is mandatory and jurisdictional and the failure of the appellant to
conform with the rules on appeal renders the judgment final and executory. [14]
However, in several cases, it has been held that the delay in the payment of the
docket fees confers a discretionary, and not mandatory, power to dismiss the proposed
appeal.[15] In Buenaflor vs. Court of Appeals,[16] the Court had the occasion to explain that:

The established rule is that the payment in full of the docket fees within the prescribed
period is mandatory. Nevertheless, this rule must be qualified, to wit: First, the failure
to pay appellate court docket fees within the reglementary period allows only
discretional dismissal, not automatic dismissal, of the appeal; Second, such power
should be used in the exercise of the Courts sound discretion in accordance with the
tenets of justice and fair play and with great deal of circumspection considering all
attendant circumstances.

Admittedly, this Court has allowed the filing of an appeal in some cases where a
stringent application of the rules would have denied it, only when to do so would
serve the demands of justice and in the exercise of the Courts equity jurisdiction. This
is based on the rule of liberality in the interpretation of the Rules to achieve
substantial justice. It may be recalled that the general rule is that the Rules of Court
are rules of procedure and whenever called for they should be construed as to give
effect rather than defeat their essence.

In reinstating the appeal of the private respondents, the Court of Appeals ratiocinated
as follows:

It appearing that the entire record of this case related to this appeal interposed by
plaintiffs-appellants were transmitted to this Court on July 16, 1997 (Rollo, p. 4)
which is five (5) days after the Notice of Appeal was filed on July 11, 1997 (Rollo, p.
11) despite the provision of Section 4, Rule 41 of the 1997 Rules of Civil Procedure
which took effect on July 1, 1997, or ten (10) days from the filing of the Notice of
Appeals, thus:

SEC. 4. APPELLATE COURT DOCKET AND OTHER LAWFUL FEES. Within the
period for taking an appeal, the appellant shall pay to the clerk of court which
rendered the judgment or final order appealed from, the full amount of the appellate
docket and other lawful fees. Proof of payment of the said fees shall be transmitted to
the appellate court together with the original record or the record on appeal. (n):
underscoring supplied.

which is a new provision under the said Rule; and it further appearing that the docket
fees were already paid by the plaintiffs-appellants with proof of payment transmitted
to this Court by the Clerk of Court of the Regional Trial Court of Danao City (Rollo,
pp. 23-24, 27); and that the Brief for the appellants was already submitted to this
Court attached to plaintiffs-appellants Manifestation and Motion dated April 25, 1998,
in the interest of substantial justice, the Motion for Reconsideration dated June 12,
1998 and the Motion dated April 25, 1998 are hereby GRANTED and Brief for the
Appellants attached to the Manifestation and Motion of even date is hereby
ADMITTED. [17]

We do not find any reversible error much less grave abuse of discretion on the part
of the court in reinstating the appeal of the private respondents.
It bears stressing that under Rule 46, Section 5 of the Rules of Court, the appellant
was mandated to pay the fee for the docketing of the appeal within fifteen days from date
of notice of the receipt by the Clerk of Court of the Court of Appeals of the record on
appeal from the trial court.

Sec. 5. Duty of appellant upon receipt of notice. It shall be the duty of the appellant,
within fifteen (15) days from the date of the notice referred to in the preceding
section, to pay to the clerk of the Court of Appeals the fee for the docketing of the
appeal, and within sixty (60) days from such notice to submit to the court forty (40)
printed copies of the record on appeal, together with the proof of service of fifteen
(15) printed copies thereof upon the appellee.

However, the rule was amended by Section 4, Rule 41 of the 1997 Rules of Civil
Procedure, which provides that the appellant is mandated to pay to the appellate court
the appellate docket fee and other lawful fees with the Clerk of Court of the trial court
within the period for taking the appeal. When the petitioners filed their notice of appeal in
the trial court, on July 11, 1997, the 1997 Rules of Civil Procedure was in effect for only
ten days. It appears that the counsel of the private respondents had yet to familiarize
himself with the 1997 Rules of Civil Procedure and consequently the petitioners failed to
pay the requisite appellate court docket fee and other lawful fees with the Clerk of Court
of the trial court within the period for appeal. It was only when the private respondents
were required by the Court of Appeals to comment on the motion to dismiss appeal filed
by the petitioners on the ground that the private respondents failed to pay the required
appellate docket fee did the private respondents realize their lapse and forthwith paid the
requisite amount due. There is no showing in the record that the private respondents
deliberately refused to pay the requisite fee within the period therefor and abandon their
appeal.
Not to be forgotten is the fact that the trial court dismissed the case solely because
of its perception that, by amending their complaint, the private respondents thereby
conferred jurisdiction to the trial court over the subject matter of their action. It is
imperative for the appellate court to review the ruling of the trial court to avoid a
miscarriage of justice.
Under the circumstances obtaining in the case at bar, we see no cogent reason to
reverse the resolutions of the respondent court. It is the policy of the court to encourage
hearing of appeals on their merits. To resort to technicalities which the petitioner
capitalizes on in the instant petition would only tend to frustrate rather than promote
substantial justice.[18]
IN LIGHT OF THE FOREGOING, the petition is DENIED DUE COURSE for lack of
merit. The respondent court is directed to continue with the proceedings before it with
dispatch.
SO ORDERED.
Puno, (Chairman), Tinga, and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

Republic of the Philippines

SUPREME COURT
Manila

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

NICOLAS SANCHEZ, plaintiff-appellee,

vs.
SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

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

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

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

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

ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
 An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described
in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on
the margin. Hence, plaintiff maintains that the promise contained in the contract is "reciprocally
1

demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the
latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not
bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an
integral part" of his complaint, the provisions of said instrument form part "and parcel" of said
2

pleading.

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

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

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

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

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

that:

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

This view was reiterated in Evangelista v. De la Rosa and Mercy's Incorporated v. Herminia
4

Verde.5

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

which We quote:

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

"ART. 1479. A promise to buy and sell a determinate thing for a

price certain is reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for

a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price."

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

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

There is no question that under article 1479 of the new Civil Code "an option to
sell," or "a promise to buy or to sell," as used in said article, to be valid must be
"supported by a consideration distinct from the price." This is clearly inferred from
the context of said article that a unilateral promise to buy or to sell, even if accepted,
is only binding if supported by consideration. In other words, "an accepted
unilateral promise can only have a binding effect if supported by a consideration
which means that the option can still be withdrawn, even if accepted, if the same is
not supported by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the acceptance of it
by appellee.
 It is true that under article 1324 of the new Civil Code, the general rule regarding
offer and acceptance is that, when the offerer gives to the offeree a certain period
to accept, "the offer may be withdrawn at any time before acceptance" except when
the option is founded upon consideration, but this general rule must be interpreted
as modified by the provision of article 1479 above referred to, which applies to "a
promise to buy and sell" specifically. As already stated, this rule requires that a
promise to sell to be valid must be supported by a consideration distinct from the
price.

We are not oblivious of the existence of American authorities which hold that an
offer, once accepted, cannot be withdrawn, regardless of whether it is supported or
not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the
general rule applicable to offer and acceptance as contained in our new Civil Code.
But we are prevented from applying them in view of the specific provision
embodied in article 1479. While under the "offer of option" in question appellant
has assumed a clear obligation to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to be no valid or justifiable
reason for appellant to withdraw its offer, this Court cannot adopt a different
attitude because the law on the matter is clear. Our imperative duty is to apply it
unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, decided later
8

that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., saw no distinction
9

between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral
promise to sell similar to the one sued upon here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of a separate consideration, nevertheless
generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate
Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever

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

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

"If the option is given without a consideration, it is a mere offer of

a contract of sale, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding
contract of sale, even though the option was not supported by a
 sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See
also 27 Ruling Case Law 339 and cases cited.)

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

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

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

1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions
are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2)
articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and
Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests
that the two (2) provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent
therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed
abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-
appellant Severina Rigos. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.

Castro, J., took no part.

Separate Opinions

ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co., which holds that an option to sell can still be
1

withdrawn, even if accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, holding that "an option
2

implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that it could
be withdrawn before acceptance, if there was no consideration for the option, but once the "offer
to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes
the obligations of a purchaser. In other words, if the option is given without a consideration, it is
a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale. The concurrence of both acts the offer and
the acceptance could in such event generate a contract.

While the law permits the offeror to withdraw the offer at any time before acceptance even before
the period has expired, some writers hold the view, that the offeror can not exercise this right in
an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on
the part of the offeror to maintain in such length of time as to permit the offeree to decide whether
to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages
which the offeree may suffer. A contrary view would remove the stability and security of business
transactions.3

In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum
of Pl,510.00 before any withdrawal from the contract has been made by the Defendant (Severina
Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a
bilateral reciprocal contract to sell and to buy was generated.

Separate Opinions

ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar &
Molasses Co. vs. Atlantic Gulf and Pacific Co., which holds that an option to sell can still be
1

withdrawn, even if accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, holding that "an option
2

implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that it could
be withdrawn before acceptance, if there was no consideration for the option, but once the "offer
to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes
the obligations of a purchaser. In other words, if the option is given without a consideration, it is
a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale. The concurrence of both acts the offer and
the acceptance could in such event generate a contract.

While the law permits the offeror to withdraw the offer at any time before acceptance even before
the period has expired, some writers hold the view, that the offeror can not exercise this right in
an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on
the part of the offeror to maintain in such length of time as to permit the offeree to decide whether
to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages
which the offeree may suffer. A contrary view would remove the stability and security of business
transactions.3

In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum
of Pl,510.00 before any withdrawal from the contract has been made by the Defendant (Severina
Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a
bilateral reciprocal contract to sell and to buy was generated.

Footnotes

CONCEPCION, C.J.:

1 OPTION TO PURCHASE

KNOW ALL MEN BY THESE PRESENTS:

I, SEVERINA RIGOS, Filipino, of legal age, widow, with residence at San Jose,
Nueva Ecija do by these presents

WITNESSETH:

That I am the owner of that property covered by Transfer Certificate of Title No.
NT-12528 of the Land Records of Nueva Ecija, my ownership thereof is evidenced
by a Deed of Absolute Sale in my favor known as Doc. No. 47; Page No. 12; Book
No. 1; Series of 1961 of Notary Public, A. Tomas;

That I have agreed, promised and committed and do hereby agree, promise and
commit to sell the property concerned by the above numbered certificate of title to
NICOLAS SANCHEZ, Filipino, of legal age, married to Engracia Barrantes, with
residence at San Jose, Nueva Ecija, within a period of two (2) years from the
execution of this instrument for the amount of One Thousand Five Hundred Ten
Pesos (Pl,510.00) Philippine Currency;

That if within the period of two (2) years from the execution of this instrument said
Nicolas Sanchez shall fail to exercise his right to buy the property under this option,
then his right is deemed terminated and elapsed and that I shall no longer be
compelled to sell to him the property;

That I, NICOLAS SANCHEZ, whose personal circumstances are mentioned above

hereby agree and conform with all the conditions set forth in this option to purchase
executed in my favor; that I bind myself with all the terms and conditions.

IN WITNESS WHEREOF, the parties have hereunto affixed their signatures below
this 3rd day of April, 1961, at San Jose, Nueva Ecija.

(Sgd.) Nicolas SANCHEZ (Sgd.) SEVERINA RIGOS

Res. Cert. No. A-3914416 Res. Cert. No. A-2977240

Issued at San Jose, N.E. Issued at San Jose, N.E.

on April 3, 1961 on April 1, 1961

SIGNED IN THE PRESENCE OF:

(Sgd.) F. R. Bautista (Sgd.) Hipolito Francisco

2 As alleged in paragraph 5 of the Complaint.

3 10 Phil. 386, 390.

4 76 Phil. 115.

5 L-21571, September 29, 1956.

6 97 Phil. 249, 251-252.

7 Emphasis ours.

8 102 Phil. 948, 951-952.

9 Supra.

10 Supra.

ANTONIO, J., concurring:

 1 97 Phil., 249.

2 102 Phil. 948.

3 I Gasperi 302, 6 Planiol & Ripert 180. Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 109125 December 2, 1994

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

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

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

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

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

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

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

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

WHEREFORE, judgment is hereby rendered in favor of the

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

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

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

In resume, there was no meeting of the minds between the parties

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

WHEREFORE, finding the appeal unmeritorious, the judgment

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

SO ORDERED.

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

On November 15, 1990, while CA-G.R. CV No. 21123 was pending

consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner Buen
Realty and Development Corporation, subject to the following terms and
conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION

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

2. That the VENDEE shall pay the Documentary Stamp Tax,

registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu

Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued
in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter
to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No.
87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV
No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition)

quoted as follows:

Presented before the Court is a Motion for Execution filed by

plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.

The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6,
1991, stating that the aforesaid modified decision had already
become final and executory.

It is the observation of the Court that this property in dispute was

the subject of the Notice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide to
offer the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the

necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
 All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-

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

SO ORDERED.

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

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

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

We affirm the decision of the appellate court.

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

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

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

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a

binding juridical relation. In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer,
over which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. In Dignos vs. Court of Appeals
2

(158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale
is still absolute where the contract is devoid of any proviso that title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection. If the condition is
3

imposed on the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and
the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.5

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

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price

certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a) 6

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but
7

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

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise

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

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

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected
main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the option. In these cases, care
should be taken of the real nature of the consideration given, for if, in fact, it has been intended
to be part of the consideration for the main contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer
9

would require, among other things, a clear certainty on both the object and the cause or
10

consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best
be so described as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered provisions
of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like
here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. It is not to say, however, that the right of first refusal would be
11

inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for
12

damages.

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

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

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

Finally, the questioned writ of execution is in variance with the decision of the
trial court as modified by this Court. As already stated, there was nothing in said
decision that decreed the execution of a deed of sale between the Cu Unjiengs
13

and respondent lessees, or the fixing of the price of the sale, or the cancellation of
title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).

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

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

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno
and Mendoza, JJ., concur.

Kapunan, J., took no part.

Feliciano, J., is on leave.

#Footnotes

1 Rollo, pp. 32-38.

2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.

3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA
777.

4 Delta Motor Corporation vs. Genuino, 170 SCRA 29.

5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.
6 It is well to note that when the consideration given, for what otherwise would
have been an option, partakes the nature in reality of a part payment of the
purchase price (termed as "earnest money" and considered as an initial payment
thereof), an actual contract of sale is deemed entered into and enforceable as such.

7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.

8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.

9 Article 1319, Civil Code, provides:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer. (Emphasis supplied.)

10 It is also essential for an option to be binding that valuable consideration

distinct from the price should be given (see Montilla vs. Court of Appeals, 161
SCRA 167; Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co.,
Inc., 78 SCRA 331).

11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co.,
15 Phil. 38; Salonga vs. Ferrales, 105 SCRA 359).

12 Art. 19. 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.

13 The decision referred to reads:

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

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is

hereby AFFIRMED, but subject to the following modification: The court a quo in
the aforestated decision, gave the plaintiffs considering the mercurial and
uncertain forces in our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that the subject
 property is sold for a price in excess of Eleven Million pesos. No pronouncement
as to costs

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-5572 October 26, 1954

PEDRO GUERRERO, petitioner,

vs.
SERAPION D. YIGO and THE COURT OF APPEALS, respondents.

Lauro O. Sansano and Epifanio Garcia for petitioner.

Alfonso Espinosa for respondents.

PADILLA, J.:

This is a petition for a writ of certiorari to review the judgment of the Court of Appeals which reversed
that of the Court of First Instance of Nueva Ecija (Civil No. 207). The last mentioned Court held that
the plaintiff therein, now petitioner, is

. . . the legal owner of the western part of the land described in Certificate of Title No.
19251, Exhibit B, subject to alien for P1,847.22 in favor of defendant Yigo within the
stipulated period mentioned in Exhibits 3, 4 and 5;

voided and annulled Exhibit 2, the deed of sale in favor of the defendants therein, the spouses
Serapion D. Yigo and Francisca D. Batagan, as to the western half of the parcel of land described
in the certificate of title above mentioned, and

. . . for the purpose of final adjudication of the corresponding half, plaintiff Guerrero
and defendant Yigo are hereby ordered to cause the measurement and subdivision
of the property described in Certificate of Title No. 19251. Certificate of Title No. T-
520 is ordered cancelled. With costs against defendant Catabona.

On appeal the Court of Appeals reversed the foregoing judgment of the Court of first Instance of
Nueva Ecija and absolved the defendants from the complaint and declared them the absolute and
exclusive owners of the parcel of land on the ground that the plaintiff therein, now the petitioner, was
a purchaser in bad faith. The Court of Appeals further held that as the parcel of land was sold with
pacto de retro and the corresponding deed was executed and registered prior to the purchase of
one-half of the land by Guerrero from Catabona, Yigo has a better right.

The Court of Appeals found the following:

. . . the defendant Amado Catabona who has been adjudged in default had been
mortgaging the land described in the complaint, as follows:
A parcel of land, situated in Maranac, barrio of Baquiao, municipality of Guimba,
bounded on the North by Maranac Creek; on the east, by property of Fernando
Pimentel; on the south, by property of Casimiro de la Cruz; and on the west, by a
creek and property of Engracio Pilapil. Containing an area of one hundred seventy-
five thousand forty-one square meters,

in favor of Serapion Yigo and his wife, Francisca D. Batagan prior to March 2,
1944 when again he mortgaged it in favor of same parties for the sum of P18,000
payable within five years from said date on condition, among others, "that should he
desire to convey or sell in the future the above described land he promised to sell the
same to the mortgagees for the sum of P18,000, and that the amount of the
mortgage, to wit P18,000, shall be treated as payment of one-half, or 87,520 square
meters more or less, of the above described parcel of land covered by Transfer
Certificate of Title No. 19251 of the land records of Nueva Ecija, and further warrants
that he shall sell the said mentioned land to no other except to the said spouses and
by virtue thereof shall give the latter the right to sue him for damages which they may
incur plus reasonable attorney's fees. Said mortgage was duly registered in the
Office of the Register of Deeds on March 18, 1944.

On April 20, 1944, Amando Catabona again secured a loan of P4,000 from Serapion
Yigo and his wife, and to insure payment thereof executed a second mortgage on
the same parcel of land payable within two months after the expiration of five years
from said date and subject to the same condition that should Catabona desire to sell
the above described land he promised to sell the same to the same mortgagees, at
the price of P2,000 per hectare and that should he sell it to others, the mortgagees
may sue him for damages, plus reasonable attorney's fees (Exhibit 4). Said mortgage
was registered on the back of Transfer Certificate of Title No. 19251 on May 18,
1944.

On July 11, 1944, Catabona again mortgaged or sold the land to Serapion Yigo and
his wife for the sum of P5,000 on condition that should he fail to redeem and property
after the period of five years by paying back and returning the above mentioned
amount and the right of possession, and within the said period, title thereto shall pass
to and become vested absolutely in the said spouses. Again corresponding deed,
Exhibit 5, was registered on the back of Transfer Certificate of Title No. 19251 on the
same date, July 11, 1944.

On August 4, 1944, Catabona sold one-half of the same land and executed a deed of
absolute sale in favor of Pedro L. Guerrero married to Consolacion Silvestre for the
sum of P90,000. Guerrero testified that Catabona offered to sell one-half of the land
to him with the information that one-half of the land was mortgaged in favor of Atty.
Yigo and that he offered to sell the land to the mortgagees but the latter could not
afford to pay the price he was asking for it. He then invited Catabona to see Yigo
and Serapion himself told Catabona that he could not afford to pay the high price that
Catabona was asking. He asked Yigo "How is it then, do you not resent if I buy the
property?" to which Yigo answered "I will not, provided that the obligation to me is
paid." (Emphasis supplied)

After the execution of the deed of sale, Exhibit A, and the payment Guerrero and
Catabona went to see Yigo but only found his wife to whom they talked about the
matter. Mrs. Yigo told them that her husband was in Manila and advised them to
return upon his arrival. They again went to see Yigo in September to pay the
 obligation and get the certificate of title but again failed to see him. Guerrero was not
able to take possession of the land because Catabona requested him to allow him to
plant palay until the harvest was over. Catabona, however, kept the land from 1944
up to 1947 on the pretext that because he was paid in Japanese war notes which
were rendered worthless, he wanted to continue in possession of the land so as to
be able to compensate his loss, and since 1947 Yigo has the one in possession
including the one-half portion involved which, according to Guerrero's compadre,
Catabona yields four (?) cavanes annually and that was the net share Catabona was
to receive from the tenants.

On July 20, 1945 Atty. Lauro Sansano filed a petition for the surrender of the owner's
duplicate of Transfer Certificate of Title No. 19251, Exhibit C, to which Atty.
Espinosa, in behalf of Serapio Yigo, filed an opposition, Exhibit C-1. On August 6
the petition was denied (Exhibit C-2). A motion to reconsider said order was again
denied on September 26, 1945. On October 18, however, the order was
reconsidered and Serapion Yigo, the holder of Transfer Certificate of Title No.
19251, was ordered to surrender the same to the register of deeds for the
registration of the sale above-mentioned subject to his preferential right.

On October 24 Exhibit A, the deed of sale in favor of Guerrero, and Exhibit B, the
deed of partition entered into between Catabona and Guerrero whereby the eastern
half of the land was adjudged to Catabona and the western half to Guerrero were
presented to the Register of Deeds of Nueva Ecija for registration, but because of the
failure of Guerrero to produce the owner's duplicate of the owners copy of the
corresponding Transfer Certificate of Title, the registration was not completed.
Guerrero secured on October 24 the issuance of Tax Declaration No. 21868, Exhibit
F, in his favor, for one-half of the land in question and paid the corresponding tax for
the year 1946.

On November 16, 1946, Amado Catabona executed a deed of absolute sale of the
land in question in favor of Yigo for the sum of P6,000, Exhibit 2, which was
presented for registration in the office of the Register of Deeds on November 18,
1946, as a result of which Transfer Certificate of Title No. T-520, Exhibit 1, was
issued in favor of Yigo married to Francisca D. Batagan, subject to the lis pendens
filed in connection with Civil Case No. 207 of the Court of First Instance of Nueva
Ecija.

All the instruments attached to the complaint executed by Amado Catabona conveying the parcel of
land, half of which is involved in this litigation, to the spouses Serapion D. Yigo and Francisca D.
Batagan, the first for P18,000 executed on 2 March 1944, the second for P4,000 executed on 20
April 1944 and the third for P5,000 executed on 11 July 1944, are mortgages to secure the payment
of the loans. It is true that in the last instrument the words "mortgage with conditional sale" were
used and the following was stipulated:

That the Party of the First Part, by these presents, reserves for himself and his heirs
the right to redeem the said property after the period of five years from the date
hereof by paying back and returning the above-mentioned amount and the right of
possession and use within the said period; and that on failure of the Party of the First
Part to exercise the said right to redeem the said property according to the terms
hereof, title thereto shall pass to and become vested, absolutely, in the Party of the
Second Part.
The first clause was an attempt to stipulate the time when payment of the loan was to be made but
except as to the period of five years from the date of the instrument within which the mortgagor may
not redeem the property there is no period after the five years within which the mortgagor may
redeem it;1 and if the second clause be construed as giving the mortgagees the right to own the
property upon failure of the mortgagor to pay the loan on the stipulated time which is not provided
that would be pactum commissorium which is unlawful and void.2 The clause is conclusive proof
that it is a mortgage and not a sale with pacto de retro because if it were the latter title to the parcel
of land would pass unto the vendee upon the execution of the sale and not later as stipulated that
"title thereto shall pass to and become vested, absolutely, in the Party of the Second Part" "on failure
of the Party of the First Part to exercise the said right to redeem the said property according to the
terms hereof." Therefore, no sale of the parcel of land with the right to repurchase was made by
Amando Catabona to the spouses of Serapion D. Yigo and Francisca D. Batagan.

The registration of the three instruments created a real right in favor of the mortgagees. But the fact
that in the instruments the mortgagor undertook, bound and promised to sell the parcel of land to the
mortgagees, such undertaking, obligation or promise to sell the parcel of land to the mortgagees
does not bind the land. It is just a personal obligation of the mortgagor. So that when Amando
Catabona sold one-half of the parcel of land (the western part) on 4 August 1944 to Pedro Guerrero
the sale was legal and valid. If there should be any action accruing to Yigo it would be a personal
action for damages against Catabona. If Guerrero contributed to the breach of the contract by
Catabona, the former together with the latter may also be liable for damages. If Guerrero was guilty
of fraud which would be a ground for rescission of the contract of sale in his favor, Catabona and not
Yigo would be the party entitled to bring the action for annulment.

The judgment of the Court of Appeals is reversed and the petitioner is declared the lawful owner of
one-half of the parcel of land (the western part) described in transfer certificate of title No. 19251,
subject to a mortgage to secure the payment of P1,847.223 in favor of the spouses Serapion D.
Yigo and Francisca D. Batagan payable within such period of time as may be fixed by the Court
upon petition, without pronouncement as to costs.

Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo,
Concepcion, and Reyes, J.B.L., JJ., concur.

THIRD DIVISION

[G.R. No. 111538. February 26, 1997]

PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs.

COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO,
respondents.

DECISION
PANGANIBAN, J.:
 Do allegations in a complaint showing violation of a contractual right of first option or
priority to buy the properties subject of the lease constitute a valid cause of action? Is the
grantee of such right entitled to be offered the same terms and conditions as those given
to a third party who eventually bought such properties? In short, is such right of first refusal
enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this petition
for review under Rule 45 of the Rules of Court challenging the Decision i of the Court of
Appealsii promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled Paraaque
Kings Enterprises, Inc. vs. Catalina L. Santos, et al., which affirmed the orderiii of
September 2, 1991, of the Regional Trial Court of Makati, Branch 57,iv dismissing Civil
Case No. 91-786 for lack of a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati
a complaint,v which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of
the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos
Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, is of
legal age, widow, with residence and postal address at 444 Plato Street, Ct.,
Stockton, California, USA, represented in this action by her attorney-in-fact, Luz
B. Protacio, with residence and postal address at No, 12, San Antonio Street,
Magallanes Village, Makati, Metro Manila, by virtue of a general power of
attorney. Defendant David A. Raymundo, is of legal age, single, with residence
and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro
Manila, where they (sic) may be served with summons and other court
processes. Xerox copy of the general power of attorney is hereto attached as
Annex A.
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located
at (sic) Paraaque, Metro Manila with transfer certificate of title nos. S-19637, S-
19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto
attached as Annexes B to I, respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-
described property from defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of the lease is hereto attached
as Annex J.
4. On February 12, 1979, Frederick Chua assigned all his rights and interest
and participation in the leased property to Lee Ching Bing, by virtue of a deed
of assignment and with the conformity of defendant Santos, the said
assignment was also registered. Xerox copy of the deed of assignment is
hereto attached as Annex K.
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest
in the leased property to Paraaque Kings Enterprises, Incorporated by virtue of
a deed of assignment and with the conformity of defendant Santos, the same
was duly registered, Xerox copy of the deed of assignment is hereto attached
as Annex L.
6. Paragraph 9 of the assigned leased (sic) contract provides among others
that:
9. That in case the properties subject of the lease agreement are sold
or encumbered, Lessors shall impose as a condition that the buyer or
mortgagee thereof shall recognize and be bound by all the terms and
conditions of this lease agreement and shall respect this Contract of
Lease as if they are the LESSORS thereof and in case of sale,
LESSEE shall have the first option or priority to buy the properties
subject of the lease;
7. On September 21, 1988, defendant Santos sold the eight parcels of land
subject of the lease to defendant David Raymundo for a consideration of FIVE
MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the
contract of lease, for the first option or priority to buy was not offered by
defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto
attached as Annex M.
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing
the same of the sale of the properties to defendant Raymundo, the said letter
was personally handed by the attorney-in-fact of defendant Santos, Xerox copy
of the letter is hereto attached as Annex N.
9. Upon learning of this fact plaintiffs representative wrote a letter to defendant
Santos, requesting her to rectify the error and consequently realizing the error,
she had it reconveyed to her for the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter and the deed of
reconveyance are hereto attached as Annexes O and P.
10. Subsequently the property was offered for sale to plaintiff by the defendant
for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given
ten (10) days to make good of the offer, but therefore (sic) the said period
expired another letter came from the counsel of defendant Santos, containing
the same tenor of (sic) the former letter. Xerox copies of the letters are hereto
attached as Annexes Q and R.
11. On May 8, 1989, before the period given in the letter offering the properties
for sale expired, plaintiffs counsel wrote counsel of defendant Santos offering
to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy
of the letter is hereto attached as Annex S.
12. On May 15, 1989, before they replied to the offer to purchase, another deed
of sale was executed by defendant Santos (in favor of) defendant Raymundo
for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of
the second deed of sale is hereto attached as Annex T.
13. Defendant Santos violated again paragraph 9 of the contract of lease by
executing a second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of
the plaintiffs offer to buy or two days after she sold her properties. In her reply
she stated among others that the period has lapsed and the plaintiff is not a
privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex
U.
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant
Santos of the fact that plaintiff is the assignee of all rights and interest of the
former lessor. Xerox copy of the letter is hereto attached as Annex V.
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the
new owner is defendant Raymundo. Xerox copy of the letter is hereto attached
as Annex W.
17. From the preceding facts it is clear that the sale was simulated and that
there was a collusion between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a letter to defendant Santos
to rectify the error, she immediately have (sic) the property reconveyed it (sic)
to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their
exchange of communication with plaintiffs counsel, a fact that led to the
conclusion that a collusion exist (sic) between the defendants.
19. When the property was still registered in the name of defendant Santos, her
collector of the rental of the leased properties was her brother-in-law David
Santos and when it was transferred to defendant Raymundo the collector was
still David Santos up to the month of June, 1990. Xerox copies of cash vouchers
are hereto attached as Annexes X to HH, respectively.
20. The purpose of this unholy alliance between defendants Santos and
Raymundo is to mislead the plaintiff and make it appear that the price of the
leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a
higher price.
21. Plaintiff has made considerable investments in the said leased property by
erecting a two (2) storey, six (6) doors commercial building amounting to
THREE MILLION (P3,000,000.00) PESOS. This considerable improvement
was made on the belief that eventually the said premises shall be sold to the
plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr
(sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost
of the building and as such defendants should be charged of the same amount
for actual damages.
23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to moral damages in the
amount of FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner and as a deterrent to the commission of similar acts, they
should be made to answer for exemplary damages, the amount left to the
discretion of the Court.
 25. Plaintiff demanded from the defendants to rectify their unlawful acts that
they committed, but defendants refused and failed to comply with plaintiffs just
and valid and (sic) demands. Xerox copies of the demand letters are hereto
attached as Annexes KK to LL, respectively.
26. Despite repeated demands, defendants failed and refused without justifiable
cause to satisfy plaintiffs claim, and was constrained to engaged (sic) the
services of undersigned counsel to institute this action at a contract fee of
P200,000.00, as and for attorneys fees, exclusive of cost and expenses of
litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff
and against defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled and
the leased properties be sold to the plaintiff in the amount of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as moral damages;
d. Defendants pay exemplary damages left to the discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00 as attorneys fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss
anchored on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for
lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears
that the defendant Santos had verily complied with paragraph 9 of the Lease Agreement
by twice offering the properties for sale to the plaintiff for P15 M. The said offers,
however, were plainly rejected by the plaintiff which scorned the said offer as
RIDICULOUS. There was therefore a definite refusal on the part of the plaintiff to accept
the offer of defendant Santos. For in acquiring the said properties back to her name, and
in so making the offers to sell both by herself (attorney-in-fact) and through her counsel,
defendant Santos was indeed conscientiously complying with her obligation under
paragraph 9 of the Lease Agreement. x x x
xxx xxx xxx
This is indeed one instance where a Complaint, after barely commencing to create
a cause of action, neutralized itself by its subsequent averments which erased or
extinguished its earlier allegations of an impending wrong. Consequently, absent any
actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent
protestations of collusion is bereft or devoid of any meaning or purpose. x x x
The inescapable result of the foregoing considerations point to no other conclusion
than that the Complaint actually does not contain any valid cause of action and should
therefore be as it is hereby ordered DISMISSED. The Court finds no further need to
consider the other grounds of estoppel and laches inasmuch as this resolution is
 sufficient to dispose the matter.vi
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the
trial court, and further reasoned that:
x x x Appellants protestations that the P15 million price quoted by appellee Santos
was reduced to P9 million when she later resold the leased properties to Raymundo has
no valid legal moorings because appellant, as a prospective buyer, cannot dictate its
own price and forcibly ram it against appellee Santos, as owner, to buy off her leased
properties considering the total absence of any stipulation or agreement as to the price
or as to how the price should be computed under paragraph 9 of the lease contract, x x
xvii
Petitioner moved for reconsideration but was denied in an order dated August 20,
1993.viii
Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance
of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David
A. Raymundo in Contempt of Court.ix The motion sought to enjoin respondent Raymundo
and his counsel from pursuing the ejectment complaint filed before the barangay captain
of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment complaint
or of any similar action that may have been filed; and to require respondent Raymundo
to explain why he should not be held in contempt of court for forum-shopping. The
ejectment suit initiated by respondent Raymundo against petitioner arose from the
expiration of the lease contract covering the property subject of this case. The ejectment
suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof
renders the said motion moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of first option or priority to
buy states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in
dismissing the complaint because it in fact had not just one but at least three (3) valid
causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law,
and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that the
petition should be denied for not raising a question of law as the issue involved is purely
factual -- whether respondent Santos complied with paragraph 9 of the lease agreement
-- and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the
filing of twelve (12) copies of the petitioners brief. Both maintain that the complaint filed
by petitioner before the Regional Trial Court of Makati stated no valid cause of action and
that petitioner failed to substantiate its claim that the lower courts decided the same in a
way not in accord with law and applicable decisions of the Supreme Court; or that the
Court of Appeals has sanctioned departure by a trial court from the accepted and usual
course of judicial proceedings so as to merit the exercise by this Court of the power of
review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and
laches as grounds for dismissal, claiming that petitioners payment of rentals of the leased
property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an
acknowledgment of the latters status as new owner-lessor of said property, by virtue of
which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease
agreement did not include the assignment of the option to purchase. Respondent
Raymundo further avers that he was not privy to the contract of lease, being neither the
lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.

The Courts Ruling

Preliminary Issue: Failure to File Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioners

failure to file twelve (12) copies of its brief. We have ruled that when non-compliance with
the Rules was not intended for delay or did not result in prejudice to the adverse party,
dismissal of appeal on mere technicalities in cases where appeal is a matter of right --
may be stayed, in the exercise of the courts equity jurisdiction. x It does not appear that
respondents were unduly prejudiced by petitioners nonfeasance. Neither has it been
shown that such failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents contention that the issue involved is purely factual.
The principal legal question, as stated earlier, is whether the complaint filed by herein
petitioner in the lower court states a valid cause of action. Since such question assumes
the facts alleged in the complaint as true, it follows that the determination thereof is one
of law, and not of facts. There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts, and there is a question
of fact when the doubt or difference arises as to the truth or the falsehood of alleged
facts.xi
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack
of cause of action, such ground must appear on the face of the complaint; that to
determine the sufficiency of a cause of action, only the facts alleged in the complaint and
no others should be considered; and that the test of sufficiency of the facts alleged in a
petition or complaint to constitute a cause of action is whether, admitting the facts alleged,
the court could render a valid judgment upon the same in accordance with the prayer of
the petition or complaint.
 A cause of action exists if the following elements are present: (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right, and
(3) an act or omission on the part of such defendant violative of the right of plaintiff or
constituting a breach of the obligation of defendant to the plaintiff for which the latter may
maintain an action for recovery of damages.xii
In determining whether allegations of a complaint are sufficient to support a cause of
action, it must be borne in mind that the complaint does not have to establish or allege
facts proving the existence of a cause of action at the outset; this will have to be done at
the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of
action, the complaint must show that the claim for relief does not exist, rather than that a
claim has been defectively stated, or is ambiguous, indefinite or uncertain.xiii
Equally important, a defendant moving to dismiss a complaint on the ground of lack
of cause of action is regarded as having hypothetically admitted all the averments
thereof.xiv
A careful examination of the complaint reveals that it sufficiently alleges an actionable
contractual breach on the part of private respondents. Under paragraph 9 of the contract
of lease between respondent Santos and petitioner, the latter was granted the first option
or priority to purchase the leased properties in case Santos decided to sell. If Santos
never decided to sell at all, there can never be a breach, much less an enforcement of
such right. But on September 21, 1988, Santos sold said properties to Respondent
Raymundo without first offering these to petitioner. Santos indeed realized her error, since
she repurchased the properties after petitioner complained. Thereafter, she offered to sell
the properties to petitioner for P15 million, which petitioner, however, rejected because of
the ridiculous price. But Santos again appeared to have violated the same provision of
the lease contract when she finally resold the properties to respondent Raymundo for
only P9 million without first offering them to petitioner at such price. Whether there was
actual breach which entitled petitioner to damages and/or other just or equitable relief, is
a question which can better be resolved after trial on the merits where each party can
present evidence to prove their respective allegations and defenses.xv
The trial and appellate courts based their decision to sustain respondents motion to
dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually offered
the subject properties for sale to it prior to the final sale in favor of Raymundo, but that
the offer was rejected. According to said courts, with such offer, Santos had verily
complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right
granting petitioner the first option to purchase, the sale of the properties for the amount
of P9 million, the price for which they were finally sold to respondent Raymundo, should
have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and
obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.
Bonnevie.xvi In that case, under a contract of lease, the lessees (Raul and Christopher
Bonnevie) were given a right of first priority to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was
P600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other
hand, the selling price offered by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be
paid only when the property was cleared of occupants. We held that even if the Bonnevies
could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it
to another for a lower price and under more favorable terms and conditions without first
offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies
failed to exercise their right of first priority could Reynoso thereafter lawfully sell the
subject property to others, and only under the same terms and conditions previously
offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could
exercise the right of first priority, all things and conditions being equal. This Court
interpreted this proviso to mean that there should be identity of terms and conditions to
be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy
the right of first priority. We hold that the same rule applies even without the same proviso
if the right of first refusal (or the first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of the first refusal* must be the current offer
to sell of the seller or offer to purchase of any prospective buyer. Only after the grantee **
fails to exercise its right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to a third person, again,
under the same terms as offered to the grantee***.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair
Theater, Inc.xvii which was decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair
every opportunity to negotiate within the 30-day stipulated period (underscoring supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided that if the
LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same. Carmelo initially offered to sell the leased property
to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the
property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo.
Four years later, the latter sold its entire Recto Avenue property, including the leased
premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court
held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating
the right of first refusal* of Mayfair, and Equatorial for purchasing the property despite
being aware of the contract stipulation. In addition to rescission of the contract of sale,
the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price
of P11,300,000.00.

No cause of action under P.D. 1517

 Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law,
as another source of its right of first refusal. It claims to be covered under said law, being
the rightful occupant of the land and its structures since it is the lawful lessee thereof by
reason of contract. Under the lease contract, petitioner would have occupied the property
for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law,
suffice it to say that this Court has previously ruled that under Section 6 xviii of P.D. 1517,
the terms and conditions of the sale in the exercise of the lessees right of first refusal to
purchase shall be determined by the Urban Zone Expropriation and Land Management
Committee. Hence, x x x certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree.xix There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the complaint did fail
to state a cause of action on this ground.

Deed of Assignment included the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment
of the lease contract to petitioner did not include the option to purchase. The provisions
of the deeds of assignment with regard to matters assigned were very clear. Under the
first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee,
it was expressly stated that:
x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein
ASSIGNEE, all his rights, interest and participation over said premises afore-described,
x x xxx (underscoring supplied)
And under the subsequent assignment executed between Lee Ching Bing as
assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as
assignee, it was likewise expressly stipulated that:
x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
participation over said leased premises, x x xxxi (underscoring supplied)
One of such rights included in the contract of lease and, therefore, in the assignments
of rights was the lessees right of first option or priority to buy the properties subject of the
lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment
need not be very specific as to which rights and obligations were passed on to the
assignee. It is understood in the general provision aforequoted that all specific rights and
obligations contained in the contract of lease are those referred to as being assigned.
Needless to state, respondent Santos gave her unqualified conformity to both
assignments of rights.

Respondent Raymundo privy to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the
lease contract, not being the lessor nor the lessee referred to therein, he could thus not
have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped
into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed
all the obligations of the lessor under the lease contract. Moreover, he received benefits
in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed
for the annulment of the sale of the properties to him. Both pleadings also alleged
collusion between him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a
necessary, if not indispensable, party to the case.xxii A favorable judgment for the petitioner
will necessarily affect the rights of respondent Raymundo as the buyer of the property
over which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for
breach of the right of first refusal and that the trial court should thus not have dismissed
the complaint, we find no more need to pass upon the question of whether the complaint
states a cause of action for damages or whether the complaint is barred by estoppel or
laches. As these matters require presentation and/or determination of facts, they can be
best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents,
however, cannot be denied their day in court. While, in the resolution of a motion to
dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such
admission is merely hypothetical and only for the purpose of resolving the motion. In case
of denial, the movant is not to be deprived of the right to submit its own case and to submit
evidence to rebut the allegations in the complaint. Neither will the grant of the motion by
a trial court and the ultimate reversal thereof by an appellate court have the effect of
stifling such right.xxiii So too, the trial court should be given the opportunity to evaluate the
evidence, apply the law and decree the proper remedy. Hence, we remand the instant
case to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court
and Court of Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED
to the Regional Trial Court of Makati for further proceedings.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

SECOND DIVISION

[G.R. NO. 148514. November 26, 2002]

Lucrative Realty and DEVELOPMENT CORPORATION, petitioner, vs.
RICARDO C. BERNABE JR., respondent.

DECISION
BELLOSILLO, J.:

This petition for certiorari assails the Decision of 23 October 20001 of the Court of
Appeals as well as its Resolution of 31 May 20012 rejecting the imputation of grave abuse
of discretion on the part of Judge Vicente A. Hidalgo in denying the demurrer to evidence
of petitioner Lucrative Realty and Development Corporation (LUCRATIVE REALTY) and
its motion to inhibit him for the reason that his actuations were within the limits of his
discretion.
On 28 May 1961 spouses Ambrocio and Lourdes Baal entered into a contract of lease
with Fil Oil Refinery Corporation (FILOIL) whereby the firm leased from the couple a
parcel of land located at corner Agno Street and Quirino Avenue, Malate, Manila, with an
area of 1,762.50 square meters for a period of ten (10) years renewable for another five
(5) years at the option of the lessee. After the execution of the contract FILOIL
immediately constructed a gasoline station on the leased premises.
Sometime in 1969 respondent Ricardo Bernabe Jr. acquired the right to manage and
operate the gasoline station. Some years later the assets of FILOIL, including the Malate
gasoline station being operated by respondent, were taken over by Petron Corporation
(PETRON). Respondent Bernabe Jr. however was allowed to continue with its operation.
On 28 November 1977 the Baal spouses obtained a loan of P750,000.00 from the
Home Savings Bank and Trust Company (HOME SAVINGS) and as security therefor
executed a real estate mortgage over two (2) of their properties, a parcel of land located
in Caloocan, and the Malate property subject of this controversy.
A year later the spouses were granted by HOME SAVINGS an additional credit of
P135,000.00 for which the deed of real estate mortgage the spouses earlier executed
was amended to increase the secured loan obligation to P885,000.00.
In August 1980, with the expiration of the 1961 lease contract, the Baal spouses
entered a new contract of lease with respondent Bernabe Jr. for a period of ten (10) years
and granting respondent explicitly the right of first refusal in the event the leased property
would be sold.
Sometime in 1989 the obligation of the spouses with the bank became overdue.
HOME SAVINGS was thus constrained to extrajudicially foreclose the mortgage on the
Caloocan and Malate properties and a public auction was scheduled for their disposition.
As sole bidder HOME SAVINGS was awarded the ownership of the properties and a
certificate of sale was issued in its favor.
Meanwhile, in an effort to prevent the foreclosure of the mortgaged properties, the
Baal spouses instituted an action to enjoin the scheduled auction sale. When the case
was being tried the parties entered into a compromise agreement whereby HOME
SAVINGS agreed to accept the Malate property as full satisfaction of the spouses'
obligation; accordingly, the Caloocan property was released from the mortgage. Pursuant
further to their compromise agreement, the Baals executed on 29 December 1989 a
dacion en pago transferring ownership of the Malate property to HOME SAVINGS. On
the very same day, HOME SAVINGS acquired the property it sold the same to petitioner
LUCRATIVE REALTY.
Sometime in January 1990 HOME SAVINGS wrote respondent Bernabe Jr. telling
him to pay henceforth his leased rentals directly to the bank. Believing that HOME
SAVINGS had already foreclosed the mortgage, respondent Bernabe invoked his right of
first refusal to purchase the Malate property. On 7 March 1990 HOME SAVINGS denied
the offer of respondent to exercise his right of first refusal claiming that it acquired the
property from the Baal spouses through dacion en pago and not through sale. A year
later, or on 1 May 1991, HOME SAVINGS wrote respondent to vacate the property as his
lease would not be renewed.
Aggrieved, respondent filed a complaint for annulment of sale with prayer for the
issuance of a writ of preliminary injunction against petitioner LUCRATIVE REALTY,
HOME SAVINGS and Lourdes Baal.3 In his complaint, respondent alleged that even
before HOME SAVINGS foreclosed the mortgage on the Malate property, he had already
notified the bank of his right of first refusal as well as his intention to redeem it. He
attributed bad faith on the part of LUCRATIVE REALTY, HOME SAVINGS and the
spouses Baal in hastening the transfer of the property in favor of petitioner to deny him
his right to purchase the leased premises. In support of his complaint respondent
emphasized that even after selling the Malate property in favor of petitioner LUCRATIVE
REALTY, HOME SAVINGS in palpable bad faith continued to represent itself as owner
of the property.
After the complaint was filed, the trial court conducted hearings to determine the
propriety of the issuance of the writ of preliminary injunction prayed for by respondent.
The parties were required to submit their memoranda in support of their respective
positions. While respondent invoked his right of first refusal to purchase the contested
property, petitioner LUCRATIVE REALTY insisted that respondent's "so-called
preferential right" did not constitute a valid and binding contract because it was not
supported by a consideration.
After the parties were heard on the matter of the issuance of a writ of preliminary
injunction, the trial court ruled that the application for injunctive relief would be resolved
after the presentation of respondent's evidence in chief.
Meanwhile, on 24 February 1992 petitioner LUCRATIVE REALTY instituted an
ejectment suit in the Metropolitan Trial Court of Manila against respondent Bernabe Jr.
After trial, judgment was rendered ordering respondent to vacate the contested property. 4
Respondent appealed to the Regional Trial Court which rendered a contrary opinion and
found him entitled to the possession of the disputed property. 5 Consequently, petitioner
elevated his case to the Court of Appeals.
On 20 February 1995 the trial court hearing the complaint for annulment of sale
issued the writ of preliminary injunction in favor of respondent.6 Upon receipt of the order
HOME SAVINGS immediately moved for its modification on the ground that since it
already sold the property to LUCRATIVE REALTY it was no longer in a position to comply
with the writ. Thus the order was modified to limit the application of the writ to petitioner
LUCRATIVE REALTY only.
After Lourdes Baal had concluded with the presentation of her evidence and while
the petition for review in the ejectment case was pending before the Court of Appeals,
petitioner LUCRATIVE REALTY filed a Motion to Dismiss/Demurrer to Evidence and to
Lift Injunction before the trial court.
On 30 May 1996 the Court of Appeals granted petitioner's plea for a reversal of the
decision in the ejectment case and ordered that respondent Bernabe Jr. be evicted from
the premises. Consequently, respondent appealed to the Supreme Court.
While petitioner prevailed in its ejectment suit before the Court of Appeals, its Motion
to Dismiss/Demurrer to Evidence and to Lift Injunction was however denied by the trial
court. Petitioner timely moved for reconsideration.
Meanwhile, in a Resolution dated 15 January 1997 the Supreme Court dismissed
Bernabe's appeal in the ejectment suit. Upon receipt of the aforesaid resolution, petitioner
immediately filed an Omnibus Motion before the trial court asking Judge Vicente A.
Hidalgo to inhibit himself and to immediately resolve its Motion for Reconsideration.
Two (2) years and a half later, or on 8 September 1999, Judge Hidalgo finally issued
an Order denying petitioner's Omnibus Motion. Petitioner went to the Court of Appeals on
certiorari attributing grave abuse of discretion on the part of the trial court judge for not
lifting the writ of injunction and for refusing to recuse himself from the case.
In its petition before the Court of Appeals, LUCRATIVE REALTY argued that it was
error for the trial court to have issued the questioned writ of preliminary injunction and
charged Judge Hidalgo with "unmistakable partiality" when the latter purportedly refused
to act on several of its motions with dispatch.
In dismissing the petition, the Court of Appeals ruled that petitioner was already
barred by laches when it questioned the propriety of the issuance of the writ. According
to the appellate court, while petitioner received the trial court's Order granting
respondent's prayer for the issuance of a writ of injunction on 4 March 1995, it was only
on 12 June 1995 that it moved for its lifting. Again, after the denial of its motion, it took
petitioner another five (5) months to move for reconsideration. Still later, upon the denial
of its motion for reconsideration, it took petitioner another ten (10) months to question
through certiorari proceedings the reasonableness of the trial court's Order. Such belated
action, according to the appellate court, constituted laches warranting a presumption that
petitioner abandoned its right or declined to assert it. Further, the Court of Appeals held
that there was insufficient evidence to support the conclusion that Judge Hidalgo gravely
abused his discretion when he denied petitioner's motion to dismiss the annulment suit
and to inhibit himself from hearing the case.
To this judgment of the Court of Appeals, petitioner excepts alleging that it was error
for the appellate court to have affirmed the trial court's denial of its Motion to
Dismiss/Demurrer to Evidence and to Lift Injunction despite the existence of well-
established grounds in support thereof. Petitioner further argues that under Art. 1479 of
the Civil Code an accepted unilateral promise to buy or to sell a determinate thing which
is not supported by a consideration distinct from the price does not produce a binding
contract. According to petitioner, respondent Bernabe Jr. himself has admitted that his
preferential right to purchase the disputed property is not supported by consideration
separate from the rent regularly paid for the leased premises; as such he cannot claim
any cause of action as against petitioner, as well as its co-defendants, thereby justifying
the dismissal of the complaint.
We do not agree. In Equatorial Realty Development, Inc., v. Mayfair Theater, Inc.,7
we categorically ruled that it is not correct to say that there is no consideration for the
grant of the right of first refusal if such grant is embodied in the same contract of lease.
Since the stipulation forms part of the entire lease contract, the consideration for the lease
includes the consideration for the grant of the right of first refusal. In entering into the
contract, the lessee is in effect stating that it consents to lease the premises and to pay
the price agreed upon provided the lessor also consents that, should it sell the leased
property, then, the lessee shall be given the right to match the offered purchase price and
to buy the property at that price.
In light of the foregoing, we affirm the finding of the Court of Appeals that there is no
ground to impute grave abuse of discretion on the part of Judge Hidalgo for denying
petitioner's demurrer to evidence. Respondent Bernabe's testimony that apart from his
rental payment he gave no other consideration for the grant of the right did not defeat his
cause of action as against petitioner. For, as mentioned earlier, rent paid by the lessee
constitutes sufficient consideration for the grant of a right of first refusal aside from the
fact that such right is stipulated in the same contract of lease.
Nor can we indulge in the unfounded assumptions of partiality and prejudgment
hurled by petitioner LUCRATIVE REALTY against Judge Hidalgo. It ill behooves us to
hold a judge as biased or prejudiced simply because he took time in resolving a motion
for resolution. Prejudice and partiality are not to be presumed especially if weighed
against a judge's legal obligation to administer justice "without respect to person and do
equal right to the poor and the rich."8
Lastly, the Court of Appeals disallowed the petition for certiorari taken by petitioner
for the reason that it was filed beyond the sixty (60)-day period prescribed under Sec. 4,
Rule 65 of the Rules of Court. The appellate court stressed that while the Order granting
the writ of preliminary injunction was issued by the trial court on 20 February 1995 and
the motion for the lifting of the writ was denied on 5 June 1996 it was only on 16 November
1999, or well beyond the sixty (60)-day reglementary period, when petitioner questioned
the propriety of its issuance. It is of course beyond question that the lapse of the mandated
period deprives an appellate court of jurisdiction to alter an otherwise final order rendered
by a lower court. There is then every reason to uphold the Decision of the Court of
Appeals denying the petition for certiorari.
WHEREFORE, finding no reversible error in the Decision sought to be reviewed, the
instant petition is DENIED.
SO ORDERED.
Mendoza, Quisumbing, and Callejo, Sr., JJ., concur.
Austria-Martinez, J., no part being a party to CA Decision.

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