G.R. No.

L-2412 April 11, 1906

PEDRO ROMAN,Plaintiff-Appellant, vs. ANDRES GRIMALT,Defendant-Appellee.
Alberto Barretto, for appellant.
Chicote, Miranda and Sierra, for appellee.
TORRES, J.:
On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt,
praying that judgment be entered in his favor and against the defendant (1) for the purchase price of the schooner Santa Marina, to
wit, 1,500 pesos or its equivalent in Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on
the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy
as might be considered just and equitable.chanroblesvirtualawlibrary chanrobles virtual law library
On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing
plaintiff ten days within which to amend his complaint. To this order the plaintiff duly
excepted.chanroblesvirtualawlibrary chanrobles virtual law library
Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904,
both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter
dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to
wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the plan of payment suggested
by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had notified
the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the vessel was
at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the
vessel being ready for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a total
loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment
of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that judgment be
rendered in accordance with the prayer of his previous complaint.chanroblesvirtualawlibrary chanrobles virtual law library
Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both
parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel,
the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer
of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both
parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were
insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and
about June 23 called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title, wrote to him
on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done
nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly
inspected.chanroblesvirtualawlibrary chanrobles virtual law library
Defendant also denied the other allegations of the complaint inconsistent with his own allegations and further denied the statement
contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and
method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been
made to deliver the same, but admitted, however, the allegations contained in the last part of the said
paragraph.chanroblesvirtualawlibrary chanrobles virtual law library
The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the
evidence introduced at the trial.chanroblesvirtualawlibrary chanrobles virtual law library
A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the
object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.)chanrobles
virtual law library
Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the
value and paid the price agreed upon, in which case the sale is considered perfected.chanroblesvirtualawlibrary chanrobles virtual
law library

When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which
is the object of the contract. (Art. 1462 of the Civil Code.)chanrobles virtual law library
Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the
schooner Santa Marina - from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500
pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written
by the purchaser to the owner on the 23rd of June.chanroblesvirtualawlibrary chanrobles virtual law library
The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for
the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the
alleged owner. Roman promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by
him did not show that he was the owner of the vessel.chanroblesvirtualawlibrary chanrobles virtual law library
If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who
only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the
vessel and thus enable them to draw up the contract of sale.chanroblesvirtualawlibrary chanrobles virtual law library
The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had
complied with the condition exacted by the proposed purchaser, to wit, the production of the proper papers showing that the
plaintiff was in fact the owner of the vessel in question.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The
conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself
to create reciprocal rights between the parties.chanroblesvirtualawlibrary chanrobles virtual law library
It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been
perfected and articles 1096 and 1182 of the same code relative to the obligation to deliver a specified thing and the extinction of
such obligation when the thing is either lost or destroyed, are not applicable to the case at
bar.chanroblesvirtualawlibrary chanrobles virtual law library
The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These
provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of
the thing or made the basis of an action in court through failure to conform to the requisites provided by
law.chanroblesvirtualawlibrary chanrobles virtual law library
The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of
twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded
to the Court of First Instance for proper action. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Arellano, C.J., Mapa, Johnson, Carson and Willard, JJ., concur.

Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss
or damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private respondent (p.
28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants
are ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally
destroyed, plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the
Philippines will have to charge the plaintiff on fits account, plus P50.00 per day from February 3, 1980
until full payment of the said present value of the motorcycle, plus P1,000.00 as exemplary damages, and
costs of the litigation. In lieu of paying the present value of the motorcycle, the defendants can deliver to
the plaintiff a brand-new motorcycle of the same brand, kind, and quality as the one which was totally
destroyed in their possession last February 3, 1980. (pp. 28-29,Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of damages "in the
amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value of the damaged vehicle"
(p35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review.
G.R. No. 91029 February 7, 1991
NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
GRIO-AQUINO, J.:p
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming
with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros
Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales' action for specific performance of a contract
of sale with damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental with office
in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought
from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No.
L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was
payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch, which
Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable
by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle
in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the
motorcycle had been perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the
meantime, however, the motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. A
registration certificate (Exh. 2) in his name was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b).
The registration fees were paid by him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but
the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian Nepales presented the unit to DBP's
Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo). The
motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP
revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total
wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As
the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and
demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with
damages against Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI,
where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased,
thereby causing him damages.

The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would depend on
whether there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even before
the ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the vendee. Under
Art. 1262, the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is
lost by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and before he has
incurred in delay (Art. 11 65, par. 3). If the thing sold is generic, the loss or destruction does not
extinguish the obligation (Art. 1263). A thing is determinate when it is particularly designated or
physically segregated from all others of the same class (Art. 1460). Thus, the vendor becomes released
from his obligation to deliver the determinate thing sold while the vendee's obligation to pay the price
subsists. If the vendee had paid the price in advance the vendor may retain the same. The legal effect,
therefore, is that the vendee assumes the risk of loss by fortuitous event (Art. 1262) after the perfection of
the contract to the time of delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p.
87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was constructive delivery of the
unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private respondent and the affixing of his
signature thereon; (2) the registration of the vehicle on November 6, 1979 with the Land Transportation Commission in private
respondent's name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does not prove transfer
of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of
the thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of
delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and Cases on Sales, 1978
Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or
ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's
motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage
over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement,
DBP would not approve private respondent's loan application and, consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the actual
intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition (Abuan vs. Garcia,
14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be
delivered when it is "placed in the hands and possession of the vendee." (Civil Code, Art. 1462). It is true
that the same article declares that the execution of a public instrument is equivalent to the delivery of the
thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect
of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the
moment of the sale, its material delivery could have been made. It is not enough to confer upon the
purchaser the ownership and the right of possession. The thing sold must be placed in his control. When
there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by
the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient.
But if notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the
delivery has riot been effects .(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 (Exh. B) and
the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the Land Registration Commission
(Exhibit C) was not to transfer to Nepales the ownership and dominion over the motorcycle, but only to comply with the
requirements of the Development Bank of the Philippines for processing private respondent's motorcycle loan. On March 20,
1980, before private respondent's loan was released and before he even paid Norkis, the motorcycle had already figured in an
accident while driven by one Zacarias Payba. Payba was not shown by Norkis to be a representative or relative of private
respondent. The latter's supposed relative, who allegedly took possession of the vehicle from Norkis did not explain how Payba
got hold of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly
took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by the latter. Alberto denied having authorized Julian
Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. (p.
5, t.s.n., February 6, 1985). This circumstances more than amply rebut the disputable presumption of delivery upon which Norkis
anchors its defense to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold
remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable to this case, for there was neither an
actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the
owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit
domino.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 09149, we deny the petition for
review and hereby affirm the appealed decision, with costs against the petitioner. SO ORDERED.

On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of option" is to be a cash transaction
and to be effected "at the time the lighter is available", and, on June 25, 1953, reiterating the unavailability of the barge, it further
advised the Southwestern Company that since there is still further work for it, and as this situation still applies" the barge could not
be turned over to the latter company.
On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the present action to compel the
Atlantic Gulf to sell the barge in line with the option, depositing with the court a check covering the sum of P30,000. This check
however was later withdrawn with the approval of the court.
On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the Southwestern Company stating as reason
therefor that the option was granted merely as a favor. The Atlantic Gulf set up as a defense the option to sell made by it to the
Southwestern Company is null and void because it is not supported by any consideration.
After due trial, the lower court rendered judgment granting plaintiff's prayer for specific performance. It further ordered the
defendant to pay damages in an amount equivalent to 6 per centum per annum on the sum of P30,000 from the date of the filing of
the complaint, and to pay the sum of P600 as attorney's fees, plus the costs of action.
The case before us on the assertion that the only issue involved is one of law.
The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which reads as follows:
March 24, 1953

Southwestern Sugar & Molasses Co. Far East, Inc.

145 Muelle de Binondo
Manila, Philippines
Gentlemen:
This is to confirm our conversion of today whereby we offer you our Barge No. 10, which is 120' 00" long by 44"-0
wide and 9'-0" deep, for the sum of of P30,000. Barge to cleaned of creosote and fuel oil.
This option is to be good for ninety (90) days, or until June 30, 1953.
Yours very truly,
ATLANTIC, GULF & PACIFIC CO. OF MANILA
(Sgd.) W. H. SCHOENING

G.R. No. L-7382

June 29, 1955

SOUTHWESTERN SUGAR AND MOLASSES COMPANY, plaintiff-appellee,

vs.
ATLANTIC GULF & PACIFIC COMPANY, defendant-appellant.
Arturo A. Alafriz and A. B. Alcera for appellant.
Mariano Agoncillo for appellee.
BAUTISTA ANGELO, J.:
This is an action for specific performance.
On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic Gulf for short, granted an option to
Southwestern Sugar & Molasses Co. (Far East) Inc., hereafter called Southwestern Company, to buy its barge No. 10 for the sum
of P30,000 to be exercised within a period of ninety days.
On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it wanted "to exercise our option at
your earliest convenience" and requested that it be notified as soon as the barge was available.

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the
terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article
1479 of the new Civil Code. This article provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or 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 its acceptance, and that having accepted it within the period
of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support of this contention,
appellee invokes article 1324 of the Civil Code which provides:
ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as
something paid or promised.

There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell", as used in
said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of
said article that a unilateral promise to buy or sell, even if accepted, is only binding if supported by a consideration. In other
words, "an accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the
option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the
option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by 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.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

Ross Selph, Carrascoso and Janda for petitioner.

Ponciano T. Castro for respondent.
BENGZON, J.:
Review of a Court of Appeals' decision. For its failure to deliver one thousand cartons of sardines, which it had sold to B. Cua
Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of first instance to Pay damages, which on appeal
was reduced by the Court of Appeals to P3,240.15 representing unrealized profits.
There was no such contract of sale, says petitioner, but only an option to buy, which was not enforceable for lack of consideration
because in accordance with Art. 1479 of the New Civil Code "an accepted unilatateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.
Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter of the following tenor:
Sir (s) /Madam:
We are pleased to make you herewith the following firm offer, subject to reply by September 23, 1951:
Quantity and Commodity:
400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn.
300 Ctns. Luntea brand Sardines Natural 48/15 oz. talls at $6.25 Ct.
300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ct.
Price(s):
All prices C ad F Manila Cosular Fees of $6.00 to be added.
Shipmet:
Durig September/October from US Ports.
Supplier:
Atkins, Kroll & Co., Sa Frasisco, Cal. U.S.A.
We are looking forward to receive your valued order and remain .
Very truly yours,

The Court of first instance and the Court of Appeals1 found that B. Cua Hian Tek accepted the offer unconditionally and delivered
his letter of acceptance Exh. B on September 21, 1951. However, due to shortage of catch of sardines by the packers in California,
Atkins Kroll & Co., failed to deliver the commodities it had offered for sale. There are other details to which reference shall not be
made, as they touch the question whether the acceptance had been handed on time; and on that issue of Court of Appeals definitely
found for plaintiff.
Ayway, in presenting its case before this Court petitioner does not dispute such timely acceptance. It merely raises the point that
the acceptance only created an option, which, lacking consideration, had no obligatory force.

G.R. No. L-9871

January 31, 1958

ATKINS, KROLL and CO., INC., petitioner,

vs.
B. CUA HIAN TEK, respondent.

The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for a price certain. Upon its acceptance by
respondent, the offer became an accepted unilateral promise to sell a determinate thing for price certain. Inasmuch as there was no
consideration to support the promise to sell distinct from the price, it follows that under Art. 1479 aforequoted, the promise is not
binding on the petitioner even if it was accepted by respondent." (p. 12 brief of petitioner.).
The argument, maifestly assumes that only a unilateral promise arose when the offeree accepted. Such assumption is a mistake,
because a bilateral cotract to sell and to buy was created upon acceptance. So much so that B. Cua Hian Tek could be sued, he had
backed out after accepting, by refusing to get the sardines and/or to pay for their price. Indeed, the word "option" is found neither

in the offer nor in the acceptance. On the copntrary Exh. B accepted "the firm offer for the sale" and adds, "the undersigned buyer
has immediately filed an application for import license . . ." (Emphasis Ours.).
Petitioner, however, insists the offer was a mere offer of option, because the "firm offer" Exh. A. was a continuing offer to sell
until September 23, "an option is nothing more than a continuing offer" for a specified time. In our opinion implies more than that:
it implies the legal obligation to keep open for the time specified.2 Yet the letter Exh. A did not by itself produce the legal
obligation of keeping the offer open up ot Septmber 23. It could be withdrawn before acceptance, because it is admitted, there was
no consideration for it.
ART. 1324. When the offerer has showed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration,
as somnething paid or promissed. (n) (New Civil Code.).
Ordinarily an offer to buy or sell may be withdrawn or countermanded before accepatnce, even though the offer
provides that it will not be withdrawn or countermanded, or allows the offeree a certain time within which to accept
it, unless such provision or agreement is supported by an independent consideration. . . (77 Corpus Juris Secundum p.
636.).
Furthermore, an option is unilateral: a promise to sell3 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 later. In this case, however, upon accepeting herein petitioner's offer a bilateral promise to
sell and to buy ensued, and the respondent ipso facto assumed the obligations of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was bilalteral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that .
If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though
the option was not supported by a sufficient consideration. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling
Case Law 339 and cases cited.).
It can be taken for granted, as contended by the defendants, that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which was accepted by letter, and of this acceptance the offerer had
knowledge before said offer was withdrawn. The concurrence of both actsthe offer and the acceptancecould at all
events have generated a contract, if none there was before (atrs. 1254 and 1262 of the Civil Code). (Zayco vs. Serra,
44 Phil. 331.).
One additional observation should be made before the closing this opinion. The defense in the court of first instance rested on the
proposition or propositions that the offer had not been precedent had not been fulfilled. This option-without-consideration idea
was never mentioned in the answer. A Change of theory in the appellate courts is not permitted.
In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their
pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon that
theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so,
would be unfair to the adverse party. (Rules of Court by Moran1957 Ed. Vol. I p.715 citing Agoncillo vs. Javier, 38
Phil. 424; American Express Company vs. Natividad, 46 Phil. 207; San Agustin vs. Barrios, 68 Phil. 465, 480; Toribio
vs. Dacasa, 55 Phil. 461.) .
We must therefore hold, as the lower courts have held that there was a contract of sale between the parties. And as no legal excuse
has been proven, the seller's failure to comply therewith gave around to an award for damages, which has been fixed by the Court
of Appeals at P3,240.15-amount which petitioner does not dispute in this final instance.
Consequently, the decision under review should be, and it is hereby affirmed, with cost against petitioner.

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

NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA RIGOS, 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. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally
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" 2 of said 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 4 and Mercy's Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from 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, 8 decided later thatSouthwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied
the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option
which, although not binding as a contract in itself for lack of 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., 10 holding
that Art. 1324 is modifiedby Art. 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 theSouthwestern 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.

G.R. No. 73573 May 23, 1991

SPOUSES TRINIDAD AND EPIFANIO NATINO, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC. AND THE PROVINCIAL
SHERIFF EX-OFFICIO OF PANGASINAN, respondents.
DAVIDE, JR., J.:pUnsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of the then Intermediate
Appellate Court (IAC) in A.C.-G.R. CV No. 69539 1 which, respectively, reversed the decision of the then Court of First Instance
of Pangasinan, Branch II, of 1 December 1981 in Civil Case No. 15573, and denied the motion for the reconsideration of the 4
June 1985 decision, petitioners filed with this Court the instant petition to seek reversal thereof. They submit one principal issue:
whether or not the conclusion drawn by the Intermediate Appellate Court from proven facts is correct. 2

The following facts are not disputed:

On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent bank as security for a loan of P2,000.00.
Petitioners failed to pay the loan on due date. The bank applied for the extrajudicial foreclosure of the mortgage. At the foreclosure
sale on 11 December 1974 the respondent bank was the highest and winning bidder with a bid of P2,945.11. A certificate of sale
was executed in its favor by the sheriff and the same was registered with the Office of the Register of Deeds on 29 January 1975.
The certificate of sale, a copy of which was furnished the petitioners by registered mail, expressly provided that the redemption
period shall be two years from the registration thereof.
Since no redemption was made by petitioners within the two-year period, which expired on 29 January 1977, the sheriff issued a
Final Deed of Sale on 15 February 1977.
Petitioners, however, claimed that they were granted by respondent bank an extension of the redemption period; but the latter
denied it.
On 22 November 1979 respondent bank file a petition for a writ of possession, which petitioners later opposed on the ground that
they had consigned the redemption money of P4,000.00 on 12 December 1979. The court rejected the opposition and issued the
writ of possession. However, to prevent its execution, petitioners instituted with the then Court of First Instance of Pangasinan a
complaint against respondent bank and the Ex-Officio Provincial Sheriff for the annulment of the aforementioned final deed of
sale and for the issuance of a writ of preliminary injunction. The case was docketed as Civil Case No. 15573 which was raffled to
Branch II thereof. In their complaint petitioners alleged that the final deed of sale was prematurely issued since they were granted
an extension of time to redeem the property.
In resolving the issue of extension of the redemption period, the trial court, in its Decision of 1 December 1981, made the
following findings and conclusion:
xxx xxx xxx
From the bank's evidence, it is difficult to believe that the plaintiffs who are personally known to the
president and manager herself, and from whom she had to hire trucks, would not have made any move or
offer to redeem the property within the redemption period. The presumption is that they exercised
ordinary care of their concerns (Sc. 5 (d), Rule 131, Rules of Court, Cabigao vs. Lim 50 Phil. 844). If
indeed, the plaintiffs made no such offer during the redemption period, the defendant bank should have
presented evidence rebutting the plaintiffs' evidence. But it did not. While the plaintiff testified that the
tender was made to Mr. Salgado, loan clerk, and Mr. Madrid, Acting Manager of the Bank and also board
members Dr. Jing Zarate and Mr. Rosario, none of them were presented to rebut plaintiffs' evidence.
Hence, the presumption that if their testimony were produced, it would be adverse to the defendant bank
under Sec. 5(e) Rule 131 of the Rules of Court, would apply.
Furthermore, the very evidence of the defendant bank shows that there was indeed an extension of the
period to redeem the property. The statutory period of redemption granted the mortgagor in the certificate
of sale registered on January 29, 1975 was 2 years. The period should have terminated on January 29,
1977. However, the Sheriff's Certificate of Final sale was only executed on February 15, 1977 and
registered only on November 14, 1979 which registration date is the effective date of the confirmation of
the sale which cuts off redemption. Such extension of nearly 3 years strengthens the plaintiffs' claim that
indeed, there was an agreement to extend the redemption date.
The plaintiffs' evidence has shown that there was an agreement between them and the defendant bank
through its personnel and its president and manager, acting as its agents to extend the period for
redemption for the plaintiffs. However, the plaintiffs were not given a specific time to pay and redeem
but were given by the President and Manager of the bank such time when their means permit them to do
so. This created an obligation with a period under Art. 1180 of the Civil Code of the Philippines, which
provides:
Art. 1180. When the debtor binds himself to pay when his means permit him to
do so, the obligation shall be deemed to be one with a period, subject to the
provisions of Article 1197.

This does not mean that the condition was exclusively dependent of the will of the plaintiffs, for they had
already promised payment. If therefore became necessary, under Article 1197 for the Court to fix the
term in order that the condition may be fulfilled. Any action to recover before this is done is considered
premature (Patents vs. Omega, 93 Phil. 218).
That agreement or contract entered into between the President and Manager of the bank was not in
writing is of no moment since under Article 1315 of the Civil Code, "contracts are perfected by mere
consent, and from that moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which according to their nature, may be in keeping
with good faith, usage and law." The defendant's claim that the agreement must be in writingciting the
ruling in the case of Pornellosa vs. Land Tenure Administration, 1 SCRA 375, only applies to executory
contracts, not to those either totally or partially performed, (Inigo vs. Estate of Maloto, 21 SCRA 246). In
this case, the bank had already partially performed its obligation thereunder by extending the period
redemption from January 29, 1977 to November 14, 1979.
The agreement does not novate the original contract of mortgage but only changes one of its conditions,
that which concerns the period of redemption. The period of redemption may be extended by the parties
under special circumstances (Lichauco vs. Olegario, 43 Phil. 540, 542). This the parties may do, since the
right of the mortgagee to demand compliance within the 2 year period of redemption maybe waived,
unless the waiver is contrary to the public order, public policy, morals or good customs or prejudicial to a
third person with a right recognized by law." None of the inhibitions enumerated are present in this case.
Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the fixing of the
period within which the plaintiffs had to pay was not in order by reason of the extension of the period of
redemption without a term. Not being in order, the period for redemption by the plaintiffs still exists but
has to be set. 3
and on the basis thereof, decreed to (a) annul the Sheriffs Final Deed of Sale, dated 15 February 1977 and its
registration of 17 March 1979, (b) fix the period of redemption to ninety (90) days from receipt of the decision by
petitioners, (c) order petitioners to pay the respondent bank, within ninety (90) days from receipt of the decision the
amount of P2,945.11, the purchase price, with 1% interest per month from 11 December 1974 to 14 December 1979,
together with any amount representing assessment or taxes which the bank may have paid after 11 December 1974,
with interest thereon at 1% per month up to 14 December 1979, (d) order the Bank to receive and credit the
petitioners with such amounts, restore petitioners to the property and to deliver to them a certificate of redemption,
and to pay petitioners the sum of P2,000.00 as attorney's fees and the costs. 4
Respondent bank appealed from said Decision to the then Intermediate Appellate Court which docketed the appeal as C.A.-G.R.
CV No. 69539.
In support of its appeal, respondent bank assigned the following errors:
-ITHE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO
THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY
EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE
DEED OF FINAL SALE BY THE SHERIFF.
-IITHE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE
APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE PROPERTY
WHICH WAS SOLD DURING THE FORECLOSURE SALE.
-IIITHE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF EVIDENCE
FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY EVIDENCE PRESENTED BY
THEM IS THE SOLE TESTIMONY OF EPIFANIO NATINO, WHICH IS NOT ONLY
UNCORROBORATED, BUT IS EVEN CONTRARY TO THE IMPORT OF HIS DECLARATIONS
AND ADMISSIONS MADE IN OPEN COURT; AS AGAINST THE TESTIMONY OF THE

APPELLANTS' WITNESS WHICH IS CORROBORATED, NOT ONLY BY DOCUMENTARY

EVIDENCE, BUT EVEN BY THE IMPORT OF PLAINTIFF-APPELLEES' TESTIMONY.
-IVTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE
WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE REGLEMENTARY PERIOD IN
AN AUTHENTIC MANNER AS REQUIRED BY THE LAW, RULES AND JURISPRUDENCE.
-VTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE
ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD INASMUCH AS IT IS NOT IN
A PUBLIC DOCUMENT OR AT LEAST IN AN AUTHENTIC WRITING.
-VITHE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE CIVIL CODE,
BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE CASE AT BAR.
-VIIASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE APPELLANT BANK
MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN RECOVER THE LAND IN
QUESTION, AS TESTIFIED BY THE PLAINTIFF-APPELLEE, THE LOWER COURT ERRED IN
HOLDING THAT SUCH OFFICERS ACTED AS AGENTS OF THE APPELLANT-BANK.
CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE ACTION
BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER.
-VIIITHE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED OF FINAL
SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES MAY STILL REDEEM
THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS 1% INTEREST PER MONTH,
DESPITE THE LAPSE OF THE PERIOD OF REDEMPTION.
-IXTHE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF THE APPELLANTS
AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO THE APPELLANTS
HEREIN. 5
Herein petitioners, as appellees, did not file their Brief.
In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned errors as follows:
xxx xxx xxx
The bank has assigned eight (8) errors in the decision but the determinants are the first and the second.
But before going into their merits We must take note of the failure of the appellees to file their brief.
Appellees did not file any motion for reconsideration. It has to be stated there that, generally, appellee's
failure to file brief is considered as equivalent to a confession of error, warranting, although not
necessarily requiring a reversal, but any doubt entertained by the appellate court as to what disposition
should be made of the case will be resolved against the appellee (4 CJS 1832, cited in Francisco, the
Revised Rules of Court Civil Procedure, Vol. III, p. 638)
Re the first error
THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY
THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE
PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A
MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF
THE DEED OF FINAL SALE BY THE SHERIFF.
It will take better proofs than appellees' mere declaration for the Court to believe that they had tendered
the redemption money within the redemption period which was refused by the bank. There would have
been no valid reason for a refusal; it is an obligation imposed by law on every purchaser at public auction
that admits of redemption, to accept tender of redemption money. And should there be refusal, the
correlative duty of the mortgagor is clear: he must deposit the money with the sheriff. The evidence does
not show that appellees complied with this duty.

All that was shown by way of compliance was the deposit made with the Clerk of Court of the sum of
P4,000.00. This deposit is a belated and last ditch attempt to exercise a right that had long expired. It was
made only on December 12, 1979, or after the redemption period of two (2) years from January 29, 1977
when the sheriffs certificate of sale was registered and after sheriff's final sale which was registered on
November 14, 1979. And, it is clear that the late deposit was utilized to defeat the bank's vested right
which it sought to enforce by its petition for a writ of possession. The lower court correctly ruled against
any validity to it.
The right to redeem becomes functus officio on the date of its expiry, and its exercise after the period is
not really one of redemption but a repurchase. Distinction must be made because redemption is by force
of law; the purchaser at public auction is bound to accept redemption. Repurchase however of foreclosed
property, after redemption period, imposes no such obligation. After expiry, the purchaser may or may
not re-sell the property but no law will compel him to do so, And, he is not bound by the bid price; it is
entirely within his discretion to set a higher price, for after all, the property already belongs to him as
owner.

This brings Us to the second error

THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS
GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE
REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE
FORECLOSURE SALE.
Appellees' main premise is the alleged assurances of the bank's officers that they could redeem the
property. From the testimony of Epifanio Natino, however, it is clear that these assurances were given
before expiry of redemption (tsn, pp. 15 & 16). Such assurances were not at all necessary since the right
to redeem was still in existence. Those assurances however could not and did not extend beyond the
redemption period.
It seems clear from testimony elicited on cross-examination of the president and manager of the bank that
the latter offered to re-sell the property for P30,000.00 but after the petition for a writ of possession had
already been filed, and well after expiry of the period to redeem. Appellants failed to accept the offer;
they deposited only P4,000.00. There was therefore no meeting of the minds, and accordingly, appellants
may no longer be heard. 6
and in the light thereof, REVERSED and SET ASIDE the appealed decision. Their motion to reconsider the same
having been denied in the resolution of 23 December 1985, 7 petitioners have come to Us on appeal
by certiorari raising the sole issue stated in the beginning of this decision.
We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion made by the respondent
Intermediate Appellate Court from the proven facts is wrong. We agree with said Court, and, therefore, set aside the contrary
conclusion of the trial court, that the attempts to redeem the property were done after the expiration of the redemption period and
that no extension of that period was granted to petitioners.
The contrary conclusion made by the trial court is drawn from inferences which are not supported by adequate or sufficient facts
or is based on erroneous assumptions. We note that its decision is remarkably silent as to the dates when petitioner Epifanio Natino
went to the respondent bank to talk with a bank personnel to offer to pay the loan. If indeed the offer was made within the
redemption period, but the Bank refused to accept the redemption money, petitioners should have made the tender to the sheriff
who made the sale and who then had the duty to accept the tender and execute the certificate of redemption. (Enage vs. Vda. de
Hijos de Escano, 38 Phil. 657, cited in II MORAN, Comments on the Rules of Court, 1979 Ed., pp. 326-327).
There was no such tender to the Sheriff.
Again, if indeed this occurred during the redemption period, then, as correctly pointed out by respondent IAC, it was not necessary
to ask for extension of the period to redeem.

In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of the Bank, sometime in May of 1978 to
the effect that petitioners can redeem the property as soon as they have the money, it is obvious that this took place after the
expiration of the redemption period. As correctly pointed out by the respondent IAC, this could only relate to the matter of resale
of the property, not redemption.
Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the assurance, the same could bind the bank only if
its Board of Directors approved or ratified it. No evidence was offered to prove such action by the Board. Moreover, Mrs. Brodeth
denied that during that meeting in May 1978 she made the assurance; according to her petitioner Epifanio neither mentioned the
loan nor offered to redeem, although earlier he was told that to 'redeem" the property he should pay P30,000.00. The latter
statement supports the conclusion of respondent IAC that this was the Bank's offer for the re-sell (not redemption of the property),
which, logically took place after the expiration of the redemption period.
Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy the property at any time they have the
money, the Bank was not bound by the promise not only because it was not approved or ratified by the Board of Directors but also
because, and more decisively, it was a promise unsupported by a consideration distinct from the re-purchase price.
The second paragraph of Article 1479 of the Civil Code expressly provides:
xxx xxx xxx
An accepted unilateral. promise to buy or to sell a determinate thing for a price certain is binding upon
the promissory if the promise is supported by a consideration distinct from the price.
Thus in Rural Bank of Paraaque Inc. vs. Remolado, et al., 8 a commitment by the bank to resell a property, within a specified
period, although accepted by the party in whose favor it was made, was considered an option not supported by a consideration
distinct from the price and, therefore, not binding upon the promissor. Pursuant toSouthwestern Sugar and Molasses
Co. vs. Atlantic Gulf and Pacific Company, 9 it was void.
WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners.SO ORDERED.
G.R. No. 103338 January 4, 1994
FEDERICO SERRA, petitioner,
vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents.
NOCON, J.: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price. (Article 1479, New Civil Code) The first is the mutual promise and each has the right to
demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted,
would create an obligation to the offeror to make good his promise, provided the acceptance is supported by a consideration
distinct from the price.
Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner Federico
Serra and private respondent Rizal Commercial Banking Corporation. (RCBC).
Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975,
respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then
unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the
pertinent portion of which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land
described in the first WHEREAS clause, to have and to hold the same for a period of twenty-five (25)
years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to
purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract
at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter. For this purpose,
the LESSOR undertakes, within such ten-year period, to register said parcel of land under the TORRENS
SYSTEM and all expenses appurtenant thereto shall be for his sole account.
If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the
aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease to be

paid by the LESSOR the market value of the building and improvements constructed on said parcel of
land.
The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under
the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to
effect said registration within reasonable time after the signing of this Agreement, and all expenses
appurtenant to such registration shall be charged by the LESSEE against the rentals due to the LESSOR.
2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a
monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or
before the fifth (5th) day of every calendar month, provided that the rentals for the first four (4) months
shall be paid by the LESSEE in advance upon the signing of this Contract.
3. The LESSEE is hereby authorized to construct as its sole expense a building and such other
improvements on said parcel of land, which it may need in pursuance of its business and/or operations;
provided, that if for any reason the LESSEE shall fail to exercise its option mentioned in paragraph (1)
above in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period
mentioned therein, said building and/or improvements, shall become the property of the LESSOR after
the expiration of the 25-year lease period without the right of reimbursement on the part of the LESSEE.
The authority herein granted does not, however, extend to the making or allowing any unlawful,
improper or offensive used of the leased premises, or any use thereof, other than banking and office
purposes. The maintenance and upkeep of such building, structure and improvements shall likewise be
for the sole account of the LESSEE. 1
The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.
Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of
RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the
agreement by having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds of
the Province of Masbate.
Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of
the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its
option and informed petitioner, through a letter, 2 of its intention to buy the property at the agreed price of not greater than
P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no
longer selling the property. 3
Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against petitioner. In the
complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay permanently on
property once its branch office is opened unless the exigencies of the business requires otherwise. Aside from its prayer for
specific performance, it likewise asked for an award of P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the
cost of the suit. 4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it
set in lopsided terms.
2. That the option was not supported by any consideration distinct from the price and hence not binding
upon him.
3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within
the reasonable time after the registration of the land under the Torrens System; that its delayed action on
the option have forfeited whatever its claim to the same.
4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of
the currency that could not reasonably be forseen or was manifestly beyond the contemplation of the

parties at the time of the establishment of the obligation, thus, rendering the terms of the contract
unenforceable, inequitable and to the undue enrichment of RCBC. 5
and as counterclaim petitioner alleged that:
1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its
adjustment.
2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00
and award of attorney's fee of P25,000.00 and exemplary damages at P100,000.00. 6
Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court
nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price and RCBC did
not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well as that for moral and
exemplary damages. 7
Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself, the
dispositive portion reads:
WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as
follows:
1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff
selling, transferring and
conveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry
of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00),
Philippine Currency;
2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees;
3. The counter claim of defendant is hereby dismissed; and
4. Defendants shall pay the costs of suit. 8
In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings of the trial court that:
1. The contract is valid and that the parties perfectly understood the contents thereof;
2. The option is supported by a distinct and separate consideration as embodied in the agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following:
1. The disputed contract is a contract of adhesion.
2. There was no consideration to support the option, distinct from the price, hence the option cannot be
exercised.

We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial
was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the
Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters
into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to.
Petitioner contends that the doctrines laid down in the cases of
Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present case,
because 1) the option given to the respondent bank was not supported by a consideration distinct from the price; and 2) that the
stipulated price of "not greater than P210.00 per square meter" is not certain or definite.
Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer maybe
withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price.
In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction
becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is
already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. 14 In which case,
the parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate
consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the
agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time
expires. 15
On the other hand, what may be regarded as a consideration separate from the price is discussed in the case ofVda. de Quirino
v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option
to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee,
should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or
improvements constructed and/or made by the former, if he fails to exercise his option to buy leased premises." 17
In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the
building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the
period stipulated. 18
The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is
considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a
specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of sale. 20
Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the
present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. This was
confirmed by petitioner himself in his testimony, as follows:
Q. Will you please tell this Court what was the offer?

3. Respondent court gravely abused its discretion in not granting currency adjustment on the already
eroded value of the stipulated rentals for twenty-five years.
The petition is devoid of merit.
There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the appellate
court. Neither do we find the terms of the contract unfairly lopsided to have it ignored.
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party
merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in
reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind
adherence to terms where facts and circumstances will show that it is basically one-sided. 10

A. It was an offer to buy the property that I have in Quezon City (sic).
Q. And did they give you a specific amount?
xxx xxx xxx
A. Well, there was an offer to buy the property at P210 per square meters (sic).
Q. And that was in what year?
A . 1975, sir.
Q. And did you accept the offer?

A. Yes, sir. 21
Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect
the sale immediately, means that he understood perfectly the terms of the contract. He even had the same property mortgaged to
the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed
price of P210 per square meter. 22
Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is
the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the
amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the
time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary
inflation exists when there in an unimaginable increase or decrease of the purchasing power of the Philippine currency, or
fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation. 23
Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent bank is
valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to support the
option given to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

G.R. No. 106063 November 21, 1996

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent appellate court analyzed and interpreted
particular provisions of our laws on contracts and sales. In its assailed decision, the respondent court reversed the trial
court 3 which, in dismissing the complaint for specific performance with damages and annulment of contract, 4 found
the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair)
and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by
a consideration and the subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc.
(hereafter, Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim the
basis of the statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at
Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion of
Carmelo's property particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated at
C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters.
for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter
constructed on the leased property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the
lease of another portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated at
C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto Avenue,
Manila, with a floor area of 300 square meters and bearing street numbers 1871
and 1875,
for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another
movie house known as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall
be given 30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the
LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates
itself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize
this lease and be bound by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair,
through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto
property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for
US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six
to Seven Million Pesos.

desire to sell the same (admitted subject to the contention that the stipulation is
null and void);
3. That the two buildings erected on this land are not of the condominium plan;
4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the
contracts of lease constitute the consideration for the plaintiff's occupancy of the
leased premises, subject of the same contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy embodied in
the contract;

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair replied
through a letter stating as follows:

7. That Carmelo & Bauermann owned the land and the two buildings erected
thereon;

It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's
Mr. Henry Yang through the telephone that your company desires to sell your
above-mentioned C.M. Recto Avenue property.

8. That the leased premises constitute only the portions actually occupied by the
theaters; and

Under your company's two lease contracts with our client, it is uniformly
provided:
8. That if the LESSOR should desire to sell the leased premises the LESSEE
shall be given 30-days exclusive option to purchase the same. In the event,
however, that the leased premises is sold to someone other than the LESSEE,
the LESSOR is bound and obligated, as it is (sic) herebinds (sic) and obligates
itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize
this lease and be bound by all the terms and conditions hereof (sic).

9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty
is the land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of
which reads as follows:
WHEREFORE, judgment is hereby rendered:

Carmelo did not reply to this letter.

(1) Dismissing the complaint with costs against the plaintiff;

On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in
acquiring not only the leased premises but "the entire building and other improvements if the price is
reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter.

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by

way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month
as reasonable compensation for the use of areas not covered by the contract (sic)
of lease from July 31, 1979 until plaintiff vacates said area (sic) plus legal
interest from July 31, 1978; P70,000 00 per month as reasonable compensation
for the use of the premises covered by the contracts (sic) of lease dated (June 1,
1967 from June 1, 1987 until plaintiff vacates the premises plus legal interest
from June 1, 1987; P55,000.00 per month as reasonable compensation for the
use of the premises covered by the contract of lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates the premises plus legal interest from
March 30, 1989; and P40,000.00 as attorney's fees;

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a
Deed of Absolute Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the
sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under
lease, which was impossible since the property was not a condominium; and (b) that the option to
purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer, pleaded
as special and affirmative defense that the option is void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of performance because the leased premises could not be
sold separately from the other portions of the land and building. It counterclaimed for cancellation of the
contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of
the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in
respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties stipulated on the following:
1. That there was a deed of sale of the contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation granting the
plaintiff exclusive option to purchase the leased premises should the lessor

(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo &

Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared
expired and all persons claiming rights under these contracts are directed to
vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an option
clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease is
not supported by a separate consideration. Without a consideration, the option is therefore not binding on
defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. The option invoked by

the plaintiff appears in the contracts of lease . . . in effect there is no option, on the ground that there is no
consideration. Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, morals, good custom, public order
or public policy.
Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as
something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determine thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former establishes
the existence of a distinct consideration. In other words, the promisee has the burden of proving the
consideration. The consideration cannot be presumed as in Article 1354:
Although the cause is not stated in the contract, it is presumed that it exists and
is lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354 applies to contracts in general, whereas
when it comes to an option it is governed particularly and more specifically by Article 1479 whereby the
promisee has the burden of proving the existence of consideration distinct from the price. Thus, in the
case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of
Article 1479 refers to sales in particular, and, more 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 promissor,
Article 1479 requires the concurrence of a condition, namely, that the promise
be supported by a consideration distinct from the price.
Accordingly, the promisee cannot compel the promissor to comply with the
promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in his
complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property
to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of
Appeals. Respondent appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;

2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute
the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot
registered under TCT Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged, declaring the
Deed of Absolute Sale between the defendants-appellants Carmelo & Bauermann, Inc. and Equatorial
Realty Development, Inc. as valid and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated between
Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case, and concluded that
since paragraph 8 of the two lease contracts does not state a fixed price for the purchase of the leased premises, which
is an essential element for a contract of sale to be perfected, what paragraph 8 is, must be a right of first refusal and
not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the
Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept within a
certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of the
period and while the offeree has not yet accepted the offer. However, the offer cannot be withdrawn by
the offeror within the period if a consideration has been promised or given by the offeree in exchange for
the privilege of being given that period within which to accept the offer. The consideration is distinct
from the price which is part of the offer. The contract that arises is known as option. In the case
of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier, defined an option as follows: "A
contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the
privilege of buying from or selling to B, certain securities or properties within a limited time at a
specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral promise to
buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise is
supported by a consideration distinct from the price." That "unilateral promise to buy or to sell a
determinate thing for a price certain" is called an offer. An "offer", in laws, is a proposal to enter into a
contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain as
to the object, the price and other essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days exclusive
option to purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the
leased premises) the price for which the object is to be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an "option" or the "offer to sell" because the clause does
not specify the price for the subject property.
Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed to
appreciate was the intention of the parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found in a contract of lease. Even
appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect Mayfair in
its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased property.
This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by
giving Mayfair "30-days exclusive option to purchase" the leased property. The second is, in case

Mayfair would opt not to purchase the leased property, "that the purchaser (the new owner of the leased
property) shall recognize the lease and be bound by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair "30days exclusive option to purchase the (leased premises)," was meant to provide Mayfair the opportunity
to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the
property. In order to realize this intention, the implicit obligation of Carmelo once it had decided to sell
the leased property, was not only to notify Mayfair of such decision to sell the property, but, more
importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable
opportunity to accept or reject the offer, before offering to sell or selling the leased property to third
parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo
should have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if
Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must
first give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the
telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made
the offer to Mr. Henry Yang by telephone?
A I have an offer from another party to buy the
property and having the offer we decided to make an
offer to Henry Yang on a first-refusal basis. (TSN
November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you
remember exactly what you have told him in
connection with that matter, Mr. Pascal?
A More or less, I told him that I received an offer from
another party to buy the property and I was offering
him first choice of the enter property. (TSN, November
29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of distinct
consideration indispensable in an option contract, has no application, respondent appellate court also addressed the
claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of
performance because it covered only the leased premises and not the entire Claro M. Recto property, while Carmelo's
offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the Deed of
Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto property, made
reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the information submitted
by Mayfair in its appellant's Brief (pp. 5 and 46) which has not been controverted by the appellees, and
which We, therefore, take judicial notice of the two theaters stand on the parcels of land covered by TCT
No. 17350 with an area of 622.10 sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The
existence of four separate parcels of land covering the whole Recto property demonstrates the legal and
physical possibility that each parcel of land, together with the buildings and improvements thereof, could
have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the physical and structural conditions
of the buildings on which the theaters were to be constructed in relation to the remainder of the whole
Recto property. The peculiar language of the stipulation would tend to limit Mayfair's right under

paragraph 8 of the Contract of Lease to the acquisition of the leased areas only. Indeed, what is being
contemplated by the questioned stipulation is a departure from the customary situation wherein the
buildings and improvements are included in and form part of the sale of the subjacent land. Although this
situation is not common, especially considering the non-condominium nature of the buildings, the sale
would be valid and capable of being performed. A sale limited to the leased premises only, if
hypothetically assumed, would have brought into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased premises and at the same time a co-owner
with Carmelo of the subjacent land in proportion to Mayfair's interest over the premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of
respondent Court of Appeals on the basis of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE
IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN
DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH
CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE
PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN
DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH
OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF
ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF
THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS"
AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE". 11

We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in the Court
of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we already took note of this matter
and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a lettercomplaint to this Court alleging certain irregularities and infractions committed by certain lawyers, and
Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now
G.R. No. 106063). This partakes of the nature of an administrative complaint for misconduct against
members of the judiciary. While the letter-complaint arose as an incident in case CA-G.R. CV No. 32918
(now G.R. No. 106063), the disposition thereof should be separate and independent from Case G.R. No.
106063. However, for purposes of receiving the requisite pleadings necessary in disposing of the
administrative complaint, this Division shall continue to have control of the case. Upon completion
thereof, the same shall be referred to the Court En Bancfor proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and Equatorial, to
be an independent and separate subject for an administrative complaint based on misconduct by the lawyers and

justices implicated therein, it is the correct, prudent and consistent course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said irregularities. Certainly, a discussion thereupon by us in this case
would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and
motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8 stipulated in the two
contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court and the Court of
Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR
is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that
the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first
refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an option contract as
one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not
to purchase a determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911,
quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to
purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for
its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the
defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned . . .
There was, therefore, a meeting of minds on the part of the one and the other, with regard to the
stipulations made in the said document. But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our holding that the stipulations contained in
Exhibit E is a contract of option, for, . . . there can be no contract without the requisite, among others, of
the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:
A contract by virtue of which A, in consideration of the payment of a certain
sum to B, acquires the privilege of buying from, or selling to B, certain
securities or properties within a limited time at a specified price. (Story vs.
Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695;
10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a
given timeat a named price is neither a sale nor an agreement to sell. It is
simply a contract by which the owner of property agrees with another person
that he shall have the right to buy his property at a fixed price within a certain
time. He does not sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or option of the
other party. The second party gets in praesenti, not lands, nor an agreement that
he shall have lands, but he does get something of value; that is, the right to call
for and receive lands if he elects. The owner parts with his right to sell his lands,

except to the second party, for a limited period. The second party receives this
right, or, rather, from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to
the case where there was cause or consideration for the obligation, the subject of the agreement made by
the parties; while in the case at bar there was no such cause or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in
order to be valid and enforceable, must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square meter upon
failure to make the purchase within the time specified; 17 in one other case we freed the landowner from her promise to sell her
land if the prospective buyer could raise P4,500.00 in three weeks because such option was not supported by a distinct
consideration; 18 in the same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase" a parcel
of land for the sum of P1,510.00 because of lack of consideration; 19 and as an exception to the doctrine enumerated in the two
preceding cases, in another case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease
contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the
consideration for that of the other. 20 In all these cases, the selling price of the object thereof is always predetermined and
specified in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very recent case of Ang
Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the
Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold in 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. . . .
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.
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 promisor if the promise is supported by a
consideration distinct from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily

construed as mere 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" 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
opinion. . .
In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease
contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second paragraph
of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to Mayfair and is
not an option contract. It also correctly reasoned that as such, the requirement of a separate consideration for the
option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would bring
them into the ambit of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a
separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must
be supported by consideration. 22 In the instant case, the right of first refusal is an integral part of the contracts of
lease. The consideration is built into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual or "inutile" the provisions
on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in
stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be
assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing
to accept. It is not also correct to say that there is no consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration
for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the
right to match the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino
vs.Palarca, 23 in reciprocal contract, the obligation or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to be that of
a contractual grant of the right of first refusal to Mayfair.

We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu Asuncion
vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of
first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfair's right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a
possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M
Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We
agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease
contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably
claim to be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a
contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons,
like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third
persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by
means of the restoration of things to their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the contracting parties and even third persons
from all injury and damage the contract may cause, or to protect some incompatible and preferent right
created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the
action for its rescission where it is shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us
because the petitioner is not considered a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the
time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title
in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of
such lease which was equivalent to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price for the same at the
time of such purchase or before he has notice of the claim or interest of some other person in the
property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of
another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to
look deeper into the agreement to determine if it involved stipulations that would prejudice its own
interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease.
Assuming this to be true, we nevertheless agree with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,
which includes Par. 20 on priority right given to the Bonnevies, it had only itself
to blame. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required Reynoso or the broker to show
to it the Contract of Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because the entire property is indivisible property. It was
petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness dictate that
instead of nullifying the agreement on that basis, the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the landowner should be given effect, if possible, instead of
being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners and the participation
of the owner in the attempt to strip Mayfair of its rights, the right of first refusal should include not only the property
specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed by petitioners
to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair,
a clear violation of Mayfair's rights. While there was a series of exchanges of letters evidencing the offer and counteroffers between the parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate
within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be authorized to
exercise its right of first refusal under the contract to include the entirety of the indivisible property. The boundaries
of the property sold should be the boundaries of the offer under the right of first refusal. As to the remedy to enforce
Mayfair's right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs.Court of Appeals should be modified, if not amplified under the
peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed
by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations therein should have cautioned it to look further into the agreement to
determine if it involved stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or
rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and
leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and
equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may cause or to protect some
incompatible and preferred right by the contract. 26 The sale of the subject real property by Carmelo to Equatorial
should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity
to negotiate within the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all remedies according to the facts and the law can be
included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair could have
purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over it. The damages
which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is
P11,300,000.00. This is clear from the records.

To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the
disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its
right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like
asking a fish if it would accept the choice of being thrown back into the river. Why should Carmelo be rewarded for
and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a
contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on
contracts but by the codal provisions on human relations. This may apply here if the contract is limited to the buying
and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied
in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced
according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to
the property under the right of the first refusal according to the terms at which they should have been offered then to
Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical
relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to
their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that both
Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with
Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or knowledge of the sale
coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of non-compliance
with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of
interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property.
It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other
hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact,
during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an
inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment
to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV
No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development,
Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to
return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and
documents necessary to return ownership to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur.
Narvasa, C.J., took no part.