THIRD DIVISION

[G.R. No. 138814. April 16, 2009.]

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO,

ADOLFO M. DUARTE, MYRON C. PAPA, NORBERTO C. NAZARENO,
GEORGE UY-TIOCO, ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L.
VIRATA, and ANTONIO GARCIA, JR. petitioners, vs . MIGUEL V.
CAMPOS, substituted by JULIA ORTIGAS VDA. DE CAMPOS , 1
respondent.

DECISION

CHICO-NAZARIO , J : p

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of
the Decision 2 dated 11 February 1997 and Resolution dated 18 May 1999 of the Court
of Appeals in CA-G.R. SP No. 38455. ADCIca

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent
Miguel V. Campos, who led with the Securities, Investigation and Clearing Department
(SICD) of the Securities and Exchange Commission (SEC), a Petition against herein
petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-Tioco,
Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in
said Petition, sought: (1) the nulli cation of the Resolution dated 3 June 1993 of the
MKSE Board of Directors, which allegedly deprived him of his right to participate
equally in the allocation of Initial Public Offerings (IPO) of corporations registered with
MKSE; (2) the delivery of the IPO shares he was allegedly deprived of, for which he
would pay IPO prices; and (3) the payment of P2 million as moral damages, P1 million
as exemplary damages, and P500,000.00 as attorney's fees and litigation expenses.
On 14 February 1994, the SICD issued an Order granting respondent's prayer for
the issuance of a Temporary Restraining Order to enjoin petitioners from implementing
or enforcing the 3 June 1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting
respondent's application for a Writ of Preliminary Injunction, to continuously enjoin,
during the pendency of SEC Case No. 02-94-4678, the implementation or enforcement
of the MKSE Board Resolution in question. Petitioners assailed this SICD Order dated
10 March 1994 in a Petition for Certiorari led with the SEC en banc, docketed as SEC-
EB No. 393.
On 11 March 1994, petitioners led a Motion to Dismiss respondent's Petition in
SEC Case No. 02-94-4678, based on the following grounds: (1) the Petition became
moot due to the cancellation of the license of MKSE; (2) the SICD had no jurisdiction
over the Petition; and (3) the Petition failed to state a cause of action.
The SICD denied petitioner's Motion to Dismiss in an Order dated 4 May 1994.
Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en banc
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 through another Petition for Certiorari, docketed as SEC-EB No. 403.
In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nulli ed the
10 March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of
Preliminary Injunction in favor of respondent. Likewise, in an Order dated 14 August
1995 in SEC-EB No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in SEC
Case No. 02-94-4678 denying petitioners' Motion to Dismiss, and accordingly ordered
the dismissal of respondent's Petition before the SICD. aDcEIH

Respondent led a Petition for Certiorari with the Court of Appeals assailing the
Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393
and SEC-EB No. 403, respectively. Respondent's Petition before the appellate court was
docketed as CA-G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R.
SP No. 38455, granting respondent's Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for annulment of the Orders
dated May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null and void and set aside.

Petitioners led a Motion for Reconsideration of the foregoing Decision but it

was denied by the Court of Appeals in a Resolution dated 18 May 1999.
Hence, the present Petition for Review raising the following arguments:
I.
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE
PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE
A CAUSE OF ACTION.

II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A

MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF
THE MAKATI STOCK EXCHANGE, INC.
III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC

COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO
MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENT'S ALLEGATIONS
IN HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE
HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION
TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF ACTION.
DaIACS

IV.

IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE

BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENT'S CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT. 3

On 18 September 2001, counsel for respondent manifested to this Court that his
client died on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 the substitution of respondent by his surviving spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to a rm the dismissal by the SEC en banc of
respondent's Petition in SEC Case No. 02-94-4678 for failure to state a cause of action.
On the other hand, respondent insists on the su ciency of his Petition and seeks the
continuation of the proceedings before the SICD.
A cause of action is the act or omission by which a party violates a right of
another. 4 A complaint states a cause of action where it contains three essential
elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or omission of the defendant in
violation of said legal right. If these elements are absent, the complaint becomes
vulnerable to dismissal on the ground of failure to state a cause of action.
If a defendant moves to dismiss the complaint on the ground of lack of cause of
action, he is regarded as having hypothetically admitted all the averments thereof. The
test of su ciency of the facts found in a complaint as constituting a cause of action is
whether or not admitting the facts alleged, the court can render a valid judgment upon
the same in accordance with the prayer thereof. The hypothetical admission extends to
the relevant and material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in the complaint furnish su cient basis
by which the complaint can be maintained, the same should not be dismissed
regardless of the defense that may be assessed by the defendant. 5
Given the foregoing, the issue of whether respondent's Petition in SEC Case No.
02-94-4678 su ciently states a cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in respondent's Petition in SEC Case
No. 02-94-4678, the SICD may render a valid judgment in accordance with the prayer of
said Petition.
A reading of the exact text of respondent's Petition in SEC Case No. 02-94-4678
is, therefore, unavoidable. Pertinent portions of the said Petition reads: aEIADT

7. In recognition of petitioner's invaluable services, the general

membership of respondent corporation [MKSE] passed a resolution sometime in
1989 amending its Articles of Incorporation, to include the following provision
therein:
"ELEVENTH – WHEREAS, Mr. Miguel Campos is the only surviving
incorporator of the Makati Stock Exchange, Inc. who has maintained his
membership;
"WHEREAS, he has unsel shly served the Exchange in various
capacities, as governor from 1977 to the present and as President from
1972 to 1976 and again as President from 1988 to the present;

"WHEREAS, such dedicated service and leadership which has

contributed to the advancement and well being not only of the Exchange
and its members but also to the Securities industry, needs to be recognized
and appreciated;

"WHEREAS, as such, the Board of Governors in its meeting held on

February 09, 1989 has correspondingly adopted a resolution recognizing
his valuable service to the Exchange, reward the same, and preserve for
posterity such recognition by proposing a resolution to the membership
body which would make him as Chairman Emeritus for life and install in
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 the Exchange premises a commemorative bronze plaque in his honor;
"NOW, THEREFORE, for and in consideration of the above premises,
the position of the "Chairman Emeritus" to be occupied by Mr. Miguel
Campos during his lifetime and irregardless of his continued membership
in the Exchange with the Privilege to attend all membership meetings as
well as the meetings of the Board of Governors of the Exchange, is hereby
created."
8. Hence, to this day, petitioner is not only an active member of the
respondent corporation, but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active

member and Chairman Emeritus of respondent corporation, petitioner has always
enjoyed the right given to all the other members to participate equally in the Initial
Public Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior
to the listing in the trading oor of the country's two stock exchanges. Normally,
Twenty Five Percent (25%) of these shares are divided equally between the two
stock exchanges which in turn divide these equally among their members, who
pay therefor at the offering price. TcIaHC

11. However, on June 3, 1993, during a meeting of the Board of

Directors of respondent-corporation, individual respondents passed a resolution
to stop giving petitioner the IPOs he is entitled to, based on the ground that these
shares were allegedly bene ting Gerardo O. Lanuza, Jr., who these individual
respondents wanted to get even with, for having led cases before the Securities
and Exchange * (SEC) for their disquali cation as member of the Board of
Directors of respondent corporation.
12. Hence, from June 3, 1993 up to the present time, petitioner has
been deprived of his right to subscribe to the IPOs of corporations listing in the
stock market at their offering prices.
13. The collective act of the individual respondents in depriving
petitioner of his right to a share in the IPOs for the aforementioned reason, is
unjust, dishonest and done in bad faith, causing petitioner substantial nancial
damage. 6

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a
right in favor of respondent, particularly, respondent's alleged right to subscribe to the
IPOs of corporations listed in the stock market at their offering prices; and stipulates
the correlative obligation of petitioners to respect respondent's right, speci cally, by
continuing to allow respondent to subscribe to the IPOs of corporations listed in the
stock market at their offering prices.
However, the terms right and obligation in respondent's Petition are not magic
words that would automatically lead to the conclusion that such Petition su ciently
states a cause of action. Right a n d obligation are legal terms with speci c legal
meaning. A right is a claim or title to an interest in anything whatsoever that is
enforceable by law. 7 An obligation is de ned in the Civil Code as a juridical necessity to
give, to do or not to do. 8 For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to respect such right. Thus,
Justice J.B.L. Reyes offers 9 the de nition given by Arias Ramos as a more complete
definition:
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 An obligation is a juridical relation whereby a person (called the creditor)
may demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:
(1) Law;

(2) Contracts;
(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. cTAaDC

Therefore, an obligation imposed on a person, and the corresponding right

granted to another, must be rooted in at least one of these ve sources. The mere
assertion of a right and claim of an obligation in an initiatory pleading, whether a
Complaint or Petition, without identifying the basis or source thereof, is merely a
conclusion of fact and law. A pleading should state the ultimate facts essential to the
rights of action or defense asserted, as distinguished from mere conclusions of fact or
conclusions of law. 1 0 Thus, a Complaint or Petition led by a person claiming a right to
the O ce of the President of this Republic, but without stating the source of his
purported right, cannot be said to have su ciently stated a cause of action. Also, a
person claiming to be the owner of a parcel of land cannot merely state that he has a
right to the ownership thereof, but must likewise assert in the Complaint either a mode
of acquisition of ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondent's right to subscribe to the IPOs of corporations listed in the stock market
at their offering prices, and petitioners' obligation to continue respecting and observing
such right, the Petition utterly failed to lay down the source or basis of respondent's
right and/or petitioners' obligation.
Respondent merely quoted in his Petition the MKSE Board Resolution, passed
sometime in 1989, granting him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from which the Court can deduce that
respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by
law, contract, or any other legal source, the right to subscribe to the IPOs of
corporations listed in the stock market at their offering prices.
A meticulous review of the Petition reveals that the allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by the
members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public, prior to their
listing in the trading oor of the country's two stock exchanges. Normally ,
Twenty-Five Percent (25%) of these shares are divided equally between
the two stock exchanges which in turn divide these equally among their
members, who pay therefor at the offering price. 1 1 (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or

enforceable right. 1 2 Indeed, in labor cases, bene ts which were voluntarily given by the
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 employer, and which have ripened into company practice, are considered as rights that
cannot be diminished by the employer. 1 3 Nevertheless, even in such cases, the source
of the employees' right is not custom, but ultimately, the law, since Article 100 of the
Labor Code explicitly prohibits elimination or diminution of benefits. SEIcAD

There is no such law in this case that converts the practice of allocating IPO
shares to MKSE members, for subscription at their offering prices, into an enforceable
or demandable right. Thus, even if it is hypothetically admitted that normally, twenty ve
percent (25%) of the IPOs are divided equally between the two stock exchanges —
which, in turn, divide their respective allocation equally among their members, including
the Chairman Emeritus, who pay for IPO shares at the offering price — the Court cannot
grant respondent's prayer for damages which allegedly resulted from the MKSE Board
Resolution dated 3 June 1993 deviating from said practice by no longer allocating any
shares to respondent.
Accordingly, the instant Petition should be granted. The Petition in SEC Case No.
02-94-4678 should be dismissed for failure to state a cause of action. It does not
matter that the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403,
overstepped its bounds by not limiting itself to the issue of whether respondent's
Petition before the SICD su ciently stated a cause of action. The SEC en banc may
have been mistaken in considering extraneous evidence in granting petitioners' Motion
to Dismiss, but its discussion thereof are merely super uous and obiter dictum. In the
main, the SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678
for its failure to state the basis for respondent's alleged right, to wit:
Private respondent Campos has failed to establish the basis or authority
for his alleged right to participate equally in the IPO allocations of the Exchange.
He cited paragraph 11 of the amended articles of incorporation of the Exchange
in support of his position but a careful reading of the said provision shows
nothing therein that would bear out his claim. The provision merely created the
position of chairman emeritus of the Exchange but it mentioned nothing about
conferring upon the occupant thereof the right to receive IPO allocations. 1 4

With the dismissal of respondent's Petition in SEC Case No. 02-94-4678, there is
no more need for this Court to resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals
dated 11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
are REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of
the Securities and Exchange Commission en banc in SEC-EB Case No. 393 and No. 403,
respectively, are hereby reinstated. No pronouncement as to costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Peralta, JJ., concur.

Footnotes
1. Per Resolution of 24 October 2001. CIaHDc

2. Penned by Associate Justice Eubulo G. Verzola with Associate Justices Jesus M.

Elbinias and Hilarion L. Aquino, concurring; rollo, pp. 30-36.
3. Rollo, p. 144.
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 4. Revised Rules of Court, Rule 2, Section 2.

5. Fil-Estate Golf and Development, Inc. v. Court of Appeals, 333 Phil. 465, 490-491 (1996).
6. Rollo, pp. 50-52.
7. Bailey v. Miller, 91 N.E. 24, 25, Ind. App. 475, cited in 37A Words and Phrases 363.
8. Civil Code, Article 1156.
9. Lawyer's Journal, 31 January 1951, p. 47.

10. Abad v. Court of First Instance of Pangasinan , G.R. Nos. 58507-08, 26 February 1992,
206 SCRA 567, 579-580.

11. Rollo, pp. 51-52.

12. A distinction, however, should be made between Municipal Law and Public
International Law. Custom is one of the primary sources of International Law, and is
thus a source of legal rights within such sphere.
13. Arco Metal Products Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-NAFLU ,
G.R. No. 170734, 14 May 2008, 554 SCRA 110, 118.
14. Rollo, p. 95. TcCEDS

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

 EN BANC

[G.R. No. 109125. December 2, 1994.]

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

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

DECISION

VITUG , J : p

Assailed, in this petition for review, is the decision of the Court of Appeals, dated
04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force
and effect the orders of execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
"On July 29, 1987 a Second Amended Complaint for Speci c Performance
was led by Ann Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng,
Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila
in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the rental and complying
with all the conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made
a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put
their offer in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that when plaintiffs did not
receive any reply, they sent another letter dated January 28, 1987 with the same
request; that since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants were about to
sell the property, plaintiffs were compelled to le the complaint to compel
defendants to sell the property to them.
"Defendants led their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.

"After the issues were joined, defendants led a motion for summary
judgment which was granted by the lower court. The trial court found that
defendants' offer to sell was never accepted by the plaintiffs for the reason that
the parties did not agree upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all. Nonetheless, the lower court ruled that
should the defendants subsequently offer their property for sale at a price of P11-
million or below, plaintiffs will have the right of rst refusal. Thus the dispositive
portion of the decision states:
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 "'WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing the complaint
subject to the aforementioned condition that if the defendants
subsequently decide to offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has the option to
purchase the property or of rst refusal, otherwise, defendants need not
offer the property to the plaintiffs if the purchase price is higher than
Eleven Million Pesos.

"'SO ORDERED.'

"Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV

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

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

'WHEREFORE, nding the appeal unmeritorious, the judgment

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

'SO ORDERED.'

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

"On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner Buen
Realty and Development Corporation, subject to the following terms and
conditions:

"'1. That for and in consideration of the sum of FIFTEEN

MILLION PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys for and
in favor of the VENDEE, his heirs, executors, administrators or assigns, the
above-described property with all the improvements found therein
including all the rights and interest in the said property free from all liens
and encumbrances of whatever nature, except the pending ejectment
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 proceeding;

'2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other expenses
incidental to the sale of above-described property including capital gains
tax and accrued real estate taxes.'

"As a consequence of the sale, TCT No. 105254/T-881 in the name of the
Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was
issued in the name of petitioner on December 3, 1990.

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

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

"On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:

"'Presented before the Court is a Motion for Execution led by

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

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

'It is the observation of the Court that this property in dispute was
the subject of the Notice of Lis Pendens and that the modi ed decision of
this Court promulgated by the Court of Appeals which had become nal to
the effect that should the defendants decide to offer the property for sale
for a price of P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right of rst
refusal to herein plaintiffs/appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos or more.
'WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of plaintiffs
Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15
Million pesos in recognition of plaintiffs' right of rst refusal and that a
new Transfer Certificate of Title be issued in favor of the buyer.
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 'All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty Corporation, is
hereby set aside as having been executed in bad faith.
'SO ORDERED.'

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

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

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

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

On 04 December 1991, the appellate court, on appeal to it by private respondent,

set aside and declared without force and effect the above questioned orders of the
court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can
be held bound by the writ of execution by virtue of the notice of lis pendens, carried
over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's
purchase of the property on 15 November 1991 from the Cu Unjiengs. prcd

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of rst refusal, a purchase option and a contract to sell. For
ready reference, we might point out some fundamental precepts that may nd some
relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) The vinculum juris or juridical tie which is the e cient cause established
by the various sources of obligations (law, contracts, quasi-contracts, delicts and
quasi-delicts); (b) the object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the
demandability of the obligation, are the active (obligee) and the passive (obligor)
subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is
a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or preparation, its
perfection and, nally, its consummation. Negotiation covers the period from the time
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 the prospective contracting parties indicate interest in the contract to the time the
contract is concluded (perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e., the concurrence of
offer and acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge or commodatum, is commonly referred to as a real contract. In a solemn
contract, compliance with certain formalities prescribed by law, such as in a donation
of real property, is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of consummation begins when the
parties perform their respective undertakings under the contract culminating in the
extinguishment thereof. cdrep

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

serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
"Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.

"A contract of sale may be absolute or conditional.

When the sale is not absolute b ut conditional, such as in a "Contract to Sell"

where invariably the ownership of the thing sold is retained until the ful llment of a
positive suspensive condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute where the
contract is devoid of any proviso that title is reserved or the right to unilaterally rescind
is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to
the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent such perfection. 3 If the
condition is imposed on the obligation of a party which is not ful lled, the other party
may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code).
4

An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is xed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph of Article 1479 of
the Civil Code, viz:
"ART. 1479. ....
"An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a) 6
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 Observe, however, that the option is not the contract of sale itself.7 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. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make offers or
only as proposals. These relations, until a contract is perfected, are not considered
binding commitments. Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn;
the withdrawal is effective immediately after its manifestation, such as by its mailing
and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43
Phil. 270). Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration,
the offeror is still free and has the right to withdrawal the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to know of such fact,
by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank
of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise,
it could give rise to a damage claim under Article 19 of the Civil Code which ordains
that "every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith." LLjur

(2) If the period has a separate consideration, a contract of "option" is

deemed perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract by itself, and
it is to be distinguished from the projected main agreement (subject matter of the
option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for speci c performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the option.
In these cases, care should be taken of the real nature of the consideration given, for if,
in fact, it has been intended to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of rst refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale under
Article 1458 of the Civil Code. Neither can the right of rst refusal, understood in its
normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of
the same Code. An option or an offer would require, among other things, 10 a clear
certainty on both the object and the cause or consideration of the envisioned contract.
In a right of rst refusal, while the object might be made determinate, the exercise of
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 the right, however, would be dependent not only on the grantor's eventual intention to
enter into a binding juridical relation with another but also on terms, including the price,
that obviously are yet to be later rmed up. Prior thereto, it can at best be so described
as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be
inde nite and inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct. LexLib

Even on the premise that such right of rst refusal has been decreed under a nal
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its existence, nor would it sanction
an action for speci c performance without thereby negating the indispensable element
of consensuality in the perfection of contracts. 11 It is not to say, however, that the right
of rst refusal would be inconsequential for, such as already intimated above, an
unjusti ed disregard thereof, given, for instance, the circumstances expressed in Article
19 1 2 of the Civil Code, can warrant a recovery for damages.
The nal judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of rst refusal" in favor of petitioners. The consequence of such a
declaration entails no more than what has heretofore been said. In ne, if, as it is here
so conveyed to us, petitioners are aggrieved by the failure of private respondents to
honor the right of rst refusal, the remedy is not a writ of execution on the judgment,
since there is none to execute, but an action for damages in a proper forum for the
purpose.
Furthermore, whether private respondent Buen Realty Development Corporation,
the alleged purchaser of the property, has acted in good faith or bad faith and whether
or not it should, in any case, be considered bound to respect the registration of the lis
pendens in Civil Case No. 87-41058 are matters that must be independently addressed
in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No.
87-41058, cannot be held subject to the writ of execution issued by respondent Judge,
let alone ousted from the ownership and possession of the property, without rst being
duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred
in holding that the writ of execution varies the terms of the judgment in Civil Case No.
87-41058, later a rmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed: Cdpr

"Finally, the questioned writ of execution is in variance with the decision of

the trial court as modi ed by this Court. As already stated, there was nothing in
said decision 1 3 that decreed the execution of a deed of sale between the Cu
Unjiengs and respondent lessees, or the xing of the price of the sale, or the
cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516;
Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA,
137 SCRA 730; Pastor vs. CA, 122 SCRA 885)."

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not
have decreed at the time the execution of any deed of sale between the Cu Unjiengs and
petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo.
Costs against petitioners.
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

Footnotes
1. Rollo, pp. 32-38.
2. Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.

3. See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777.
4. Delta Motor Corporation vs. Genuino, 170 SCRA 29.
5. See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.
6. It is well to note that when the consideration given, for what otherwise would have been
an option, partakes the nature in reality of a part payment of the purchase price (termed
as "earnest money" and considered as an initial payment thereof), an actual contract of
sale is deemed entered into and enforceable as such.

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

8. Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.
9. Article 1319, Civil Code, provides:
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
(Emphasis supplied.)

10. It is also essential for an option to be binding that valuable consideration distinct from
the price should be given (see Montilla vs. Court of Appeals, 161 SCRA 167; Sps. Natino
vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331).
11. See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil. 38;
Salonga vs. Ferrales, 105 SCRA 359).
12. Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.
13. The decision referred to read:
In resume, there was no meeting of the minds between the parties concerning the sale of
the property. Absent such requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for defendants was
properly granted. Courts may render summary judgment when there is no genuine issue
as to any material fact and the moving party is entitled to a judgment as a matter of law
(Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the
court a quo is legally justifiable.

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

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

CD Technologies Asia, Inc. © 2018 cdasiaonline.com