Vazquez v. Ayala Corp.

G.R. No. 149734 – 19 November 2004

Tinga, J.

Topic: Breach (Modes) – Delay (mora solvendi)

Petitioners: Dr. Daniel Vazquez and Ma. Luiza M. Vazquez (Vazquez sps)
Respondents: Ayala Corporation (Ayala)

FACTS:
• 23 April 1981: Sps. Vazquez entered into a Memorandum of Agreement (MOA) with Ayala buying
from the Vasquez sps all their shares of stock in Conduit Development, Inc. (Conduit), which main
asset is a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by
Conduit under a plan where the land was divided into Villages 1, 2 and 3 of the Don Vicente Village
• The development was then being undertaken for Conduit by G.P. Construction and Development
Corp. (GPC)
• Under the MOA, Ayala will develop the entire property, minus the Retained Area (18,736 sqm which
will be retained by the Vazquez sps)
• The area to be developed by Ayala was the Remaining Area, which includes 4 lots adjacent to the
Retained Area. Ayala agreed to offer these lots for sale to the Vazquez sps at the prevailing price at the
time of purchase
• After signing of MOA, Ayala suspended the work on Village 1 of the Don Vicente Project after
receiving a letter from Maximo Del Rosario of Lancer General Builder Corp. (Lancer), claiming
P1,509,558.80 as the subcontractor of GPC
• GPC did not reach an amicable settlement with Lancer
• 22 March 1982: Lancer sued GPC, Conduit, and Ayala in CFI Manila, which GPC answered with a
cross-claim against Ayala
• Both GPC and Lancer tried to enjoin Ayala from developing the property
• 19 Feb 1987: Suit was terminated; dismissed with prejudice after Ayala paid both Lancer and GP
Construction P4,686,113.39 total
• Vasquez sps sent letters to Ayala reminding the latter of its obligation to sell the 4 lots adjacent to the
Retained Area within 3 years from the date of the MOA
• However, no demand after April 23, 1984, was made by the Vasquez spouses for Ayala to sell the 4
lots
• On the contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla, stated they
expected development of Phase 1 to be completed by February 19, 1990, three years from the
settlement of the legal problems with the previous contractor
• Early 1990: Ayala finished the development of the vicinity of the 4 lots, offered to be sold to the
Vasquez spouses at the prevailing price in 1990
• This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the
suit below

Lower court’s decision

• Ordered Ayala to sell to Vasquez sps the said lots in Ayala Alabang Vilage at P460/sqm, totalling
P1,349,540 and reimburse plaintiff’s attorneys fees of P200,000 and pay the cost of the suit
CA decision (reversed RTC)
• Ayala was never informed of the existence of the Lancer claim; it only got a copy of the Lancer
subcontract on May 29, 1981 from GPC lawyers
• Petitioners violated their warranties under the MOA when they failed to disclose Lancers claims; even
conceding that Ayala was obliged to develop and sell the four lots in question within three years from
the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer
• Interpreting par. 5.7 of the MOA, Ayala committed to develop the first phase of its own amended
development plan and not Conduits development plan. Nowhere does the MOA provide that Ayala
Corporation shall follow Conduits development plan nor is Ayala Corporation prohibited from
changing the sequence of the phases of the property it will develop
• There was no delay as petitioners never demanded Ayala to sell the subject lots to them (only reminder
letters, the last of which was dated prior to April 23, 1984 when the obligation was not yet
demandable)
• Petitioners waived the three-year period when they sent a letter through their agent, Engr. Eduardo
Turla, stating they expect the development of Phase I will be completed by 19 February 1990, three
years from the settlement of the legal problems with the previous contractor.
• Par. 5.15 is not an option contract but a right of first refusal there being no separate consideration
therefor. Since petitioners refused Ayala Corporations offer to sell the subject lots at the reduced 1990
price of P5,000.00 per square meter, they have effectively waived their right to buy the same

ISSUES & HOLDING:

1. W/N petitioners breached their warranties under the MOA when they failed to disclose the Lancer
claim: No, petitioners did not breach their warranties
• Petitioners apprised Ayala of the Lancer claim or the possibility thereof during the period of
negotiations for the sale of Conduit
• 5 March 1984: Daniel Vazquez reminded Ayala’s Adolfo Duarte that prior to the completion of the
sale of Conduit, Ayala asked for and was given information that GPC sub-contracted, presumably to
Lancer, a greater percentage of the project than it was allowed — Ayala was given this information
because they wanted to break the contract of Conduit with GPC
• 6 March 1984: Ayala had knowledge of the Lancer subcontract prior to its acquisition of Conduit, it
even admitted it tried to explore legal basis to discontinue the contract of Conduit with GPC but found
this not feasible when information surfaced about the tacit consent of Conduit to the sub-contracts of
GP with Lancer.
• Ayala knew of the Lancer claim before the date of closing of the MOA
 23 Apr 1981: Signing of MOA
 30 Apr 1981: Lancer sent a letter informing Ayala of its unsettled claim with GPC
 4 May 1981: Ayala received the letter
 23 Mat 1981: Date of closing (4 weeks after signing)
• Petitioners did not violate their warranties under the MOA. The Lancer sub-contract and claim were
substantially disclosed to Ayala Corporation before the Closing date of the MOA

2. W/N par. 5.7 of the MOA express a commitment to or a mere intent on the part of Ayala to develop
the property within three years from date thereof: Only a mere intent on the part of Ayala to
develop the property
5.7. The BUYER hereby commits that it will develop the Remaining Property into a first class residential
subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first
phase under its amended development plan within three (3) years from the date of this Agreement.

• “Commit” connotes a pledge to do something while “intend” merely signifies a design or proposition
• Atty. Leopoldo Francisco, former VP of Ayala legal division who assisted in drafting the MOA,
testified that the paragraph merely expresses an intention on Ayala’s part to complete the first phase
under its amended development plan within three years from the execution of the MOA
• While the subject lots to be sold to petitioners were in the first phase of the Conduit development plan,
they were in the third or last phase of the Ayala Corporation development plan
• Nevertheless, the point of the petition is the alleged failure of Ayala to offer the subject lots for sale to
petitioners within three years from the execution of the MOA. It is not that Ayala committed or
intended to develop the first phase of its amended development plan within three years. Whether it did
or did not is actually beside the point since the subject lots are not located in the first phase

3. W/N there was default or delay in the fulfillment of the obligation: There was no delay in the
fulfillment of the obligation
• According to Art. 1169, the requisites to declare default on the part of the debtor are: 1) that the
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that
the creditor requires the performance judicially or extrajudicially
• Under Art. 1163, obligations for whose fulfillment a day certain has been fixed shall be demandable
only when that day comes, but in this case, no specific date has been fixed in the MOA
• Petitioners cannot demand performance after the three-year period fixed by the MOA for the
development of the first phase of the property since this is not the same period contemplated for the
development of the lots
• Petitioners should have asked the court to fix the period in accordance with Art. 1197.
• As no such action was filed by petitioners, their complaint for specific performance was premature, the
obligation not being demandable at that point. Accordingly, Ayala cannot likewise be said to have
delayed performance of the obligation, and also because no demand was made by petitioners for the
performance of its obligation
• The reminder letters sent by the petitioners were all prior to 23 April 1984, or before the obligation
became demandable
• Petitioners also waived the three-year period after they agreed the three-year period should be counted
from the termination of the case filed by Lancer (legal problems resolved on 19 Feb 1987, and the
letter said the Vasquez sps expect the development of Phase 1 by 19 Feb 1990)

4. W/N par. 5.15 of the MOA can be construed as an option contract or a right of first refusal: Par. 5.15
is a mere right of first refusal and not an option contract

5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the
Retained Area at the prevailing market price at the time of the purchase.

• Difference between an option contract and a right of first refusal:

 Option: Preparatory contract in which one party grants to another, for a fixed period and at a
determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal
contract. It binds the party who has given the option not to enter into the principal contract with
 any other person during the period designated, and within that period, to enter into such contract
with the one to whom the option was granted, if the latter should decide to use the option
 Right of first refusal: While the object might be made determinate, the exercise of the right would
be dependent not only on the grantors eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that are yet to be firmed up
• The price for which the subject lots will be sold are not specified (it only says “at the prevailing
market price”)
• Par. 5.15 is also not governed by Arts. 1324 and 1479 as it was inserted to the MOA to give petitioners
the first crack to buy the subject lots at the price which Ayala Corporation would be willing to accept
when it offers the subject lots for sale
• Ayala offered the lots for P6,500/sqm (prevailing market price for the property when the offer was
made on 18 June 1990)
• Petitioners rejected the offer, since they wanted to pay only P460/sqm (price in 1984)
• Ayala reduced the price to P5000/sqm
• Petitioners rejected again and made a counter offer of P2000/sqm, which Ayala rejected
• It cannot, therefore, be said Ayala breached petitioners right of first refusal and should be compelled
by an action for specific performance to sell the subject lots to petitioners at the prevailing market
price in 1984

RULING:

WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.