BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTEVs.CA and SPOUSES VILLANUEVAG.R. No. 126454November 26, 2004

FACTS:

On June 7, 1985, the Bible Baptist Church entered into a contract of lease with Spouses Villanueva over a property located in Malate, Manila. The pertinent portions of the contract are:

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2. That lease shall take effect on June 7, 1985 and shall be for a period of 15 years.

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4. That upon signing of the LEASE AGREEMENT, the Baptist Church shall pay the sum of P 84,000.00. Said sum shall be paid directly to the Rural Bank of Bulacan for the purpose of redemption of said property, which was mortgaged by the Spouses.

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8. That Bible Baptist has the option to buy the leased property during the 15 years of the lease. If Baptist Church decides to purchase the premises the terms will be:1. A selling price of 1.8 M;2. A down payment agreed upon by both parties;3. The balance may be paid at the rate of P 120T per year.

These stipulations of the lease contract are the subject of the present controversy for it is now the contention of Baptist Church that the option contract is founded upon a separate consideration that is the P 84 T paid by them upon the signing of the lease agreement.

ISSUE:

Whether or not the option to buy given to the Baptist Church is founded upon a consideration.

HELD:

No.

Article 1479 of the Civil Code provides:

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.1. Baptist Church cannot insist that the 84 T they paid in order to release the Spouses property from the mortgage should be deemed a separate consideration to support the option contract. It must be pointed out that the said amount was in fact apportioned into monthly rentals spread over a period of one year, at 7 T per month. Thus for the entire period of June 1985 to May 1986, Baptist Churchs monthly rent had already been paid for, such that it only commenced paying rentals in June 1986. Therefore, the amount of 84 T has been fully exhausted and utilized by their occupation of the premises and there is no separate consideration to speak of which could support the option.

2. Baptist Church insists that a consideration need not be a separate sum of money. They posit that their act of advancing the money to rescue the property from the mortgage and impending foreclosure should be enough consideration to support the option. In Villamor vs CA the court defined consideration as the why of the contracts, the essential reason which moves the contracting parties to enter into a contract. This would illustrate that the consideration need not be monetary. Actual cash need not be exchanged for the prion. However, by the very nature of an option contract the same is an onerous contract for which the consideration must be something of value, although its kind may vary. The Villamor case is distinct from this case because:a. The Court cannot find that the Baptist Church parted with anything of value aside from the 84 T;b. There is no document that contains an agreement between the parties that Baptist Churchs supposed rescue of the mortgaged property was the consideration which the parties contemplated in support of the option clause in the contract;

To summarize the rules, an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

NAVOTAS INDUSTRIAL CORPORATION, represented by DANIEL BAUTISTAVs.GERMAN CRUZ, et. al.G.R. No. 159212September 12, 2005

FACTS:

Carmen Vda. De Cruz (Carmen) was the owner of a parcel of land in Navotas with an area of 13999 square meters.

On October 5, 1966, Carmen and Navotas Industrial Corporation (NIC) entered into a contract of lease covering one half portion of the property. The lease was for October 1, 1966 to October 1, 1990. The property was to be used for shipyard slipways and NICs other allied businesses. The NIC obliged itself to construct two slipways within the first 10 years of the lease with a total value of not less than 450 T.

On March 14, 1973 the property was mortgaged to China Banking Corporation (CBC) as a security for a loan availed by two of Carmens children, Mariano and Gabriel. The owners duplicate copy was now with CBC.

On December 31, 1974 Carmen executed a Deed of Absolute Sale with Assumption of Mortgage in which she as the vendor conveyed the property to her children Serafin, Mariano, Rogelio, Carmencita and Mary Carmela for the purchase price of 350 T. Mariano wrote a letter to CBC requesting them to conform to the sale however CBC refused.

On June 27, 1977 Mariano presented the deed to the ROD for registration purposes. They requested the ROD to compel CBC to transmit the owners duplicate copy of the title for annotation. CBC informed them that they were just following the instruction of Carmen not to surrender the owners duplicate.

In the meantime the balance of the loan was fully paid and on June 29, 1977 CBC executed a Cancellation of Real Estate Mortgage however the deed was not presented to the ROD for registration. On the same date Mariano, on behalf of his siblings, executed an Affidavit of Adverse claim asserting their rights as vendees of the property.

On June 30, 1977 Carmen and NIC executed a Supplementary Lease Agreement extending the lease period to October 2005. NIC was also granted the option to buy the property for 1.6 M.

Mariano et. al. was able to have the sale registered and a new title was issued in their name. Thereafter, they have informed NIC to vacate the property, as they are now its new owners, however, NIC refused.

Meanwhile, Carmen filed a case against NIC anent the Supplementary Lease Agreement purportedly executed by her as lessor and NIC as lessee. She averred that NIC took advantage of the animosity between her and her children by inserting therein blatantly unfair provisions.

On June 30, 1990 Mariano et. al informed NIC that they will be no longer renew the contract and that as far as they were concerned the Supplementary Lease Agreement was null and void.

ISSUE:

Whether or not there is a perfected option contract.

HELD:

No.

Article 1479, paragraph 1, provides that, A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. NIC relies on this provision contending that what was entered between them and Carmen was a mutual promise to buy and sell. However, be it noted, that as early as 1977 they were already informed of the sale made by Carmen in favor of her children and that by virtue of the annotation made by Mariano on June 30, 1977 NIC was constructively notified thereof. There is therefore a presumption of knowledge of the sale between Carmen and her children.

Considering that Carmen was no longer the owner when the Supplementary Lease Agreement was executed NICs claim that it had the option to buy the property or to compel the heirs to sell the property to it has no legal and factual basis.

Paragraphs 4 and o 5 of the Supplementary Lease Agreement provides:4. The LESSEE is hereby granted an exclusive option to buy the property including all improvements already made by the LESSEE (slipways and camarines) subject matter of this contract comprising SIX THOUSAND NINE HUNDRED FORTY-NINE Point FIVE Square Meters (6,949.5) which is one-half portion of the area covered by TCT No. 81574 and same property subject matter of this contract should also be equally divided with one-half frontage along M. Naval Street and along the Navotas River Bank shoreline during the period of the lease. The price of the property is agreed to be fixed for the duration of the Option to Buy at a flat sum of ONE MILLION SIX HUNDRED THOUSAND PESOS (P1,600,000.00), Philippine Currency, payable over a period to be mutually agreed upon. Should the LESSEE exercise the option to buy during the lifetime of the LESSOR, the LESSEE will continue to pay the monthly rental to the LESSOR during her lifetime.5. The LESSEE shall pay to the LESSOR the sum of FORTY-TWO THOUSAND (P42,000.00) PESOS upon signing of this contract as consideration thereof, to be applied as against the rental for the period from October 1, 1990 to September 30, 1991.It must be stressed that an option contract is a contract granting a privilege to buy and sell within an agreed time and at a determined price. Such contract is a separate and distinct contract from the time the parties may enter into upon the construction of the option. An option contract is a preparatory contract in which one party grants to the other for a fixed period and under specified conditions the power to decide, whether or not to enter into a principal contract. Therefore, it is only when the option is exercised may a sale be perfected. An option NEEDS TO BE SUPPORTED by a separate consideration.In the present case, there was no given period for the petitioner to exercise its option; it had yet to be determined and fixed at a future time by the parties, subsequent to the execution of the Supplementary Lease Agreement. There was, likewise, no consideration for the option. The amount ofP42,000.00 paid by the petitioner to Carmen Cruz on July 30, 1977 was payment for rentals from October 1, 1990 to September 30, 1991, and not as a consideration for the option granted to the petitioner.

SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELOVs.CA and SPOUSES MARTIN VALLEJERAG.R. No. 83759JULY 12, 1991

FACTS:

A certain property in Himamaylan, Negros Occidental was registered in the name of Spouse Vallejera. On October 1959, they leased the property to the Spouses Vasquez. After the execution of the lease, the Vasquez took possession of the lot and devoted the same to the cultivation of sugar.

On September 21, 1964, the spouses Vallejera sold the lot the spouses Vasquez for the amount of 9 T. On the same day and along with the execution of the Deed of Sale, a separate instrument, denominated as Right to Repurchase was executed by the parties granting the Vallejeras the right to repurchase the lot for 12 T.

By virtue of the Deed of Sale the spouses Vasquez secured a title in their name. However, on January 2, 1969, the Vallejeras sold the lot to Benito Derrama after securing the spouse Vasquez title for 12 T. Upon the protestation of the spouses Vasquez the sale was cancelled after payment of 12 T to Derrama.

The spouses Vasquez resisted the action for redemption on the premise that the deed of Right to Repurchase is just an option to buy since it is not embodied in the same document of sale but in a separate document and since such option is not supported by a consideration distinct from the price, said deed is not binding upon them.

The spouses Vazquez insist that they can not be compelled to resell the subject property for the nature of the sale over the said lot between them and the Vallejeras can only be either an option to buy or a mere promise on their part to resell the property. Spouses Vasquez opined that since the Right to Repurchase was not supported by any consideration distinct from the purchase price it is not valid and binding upon the spouses Vasquez pursuant to Article 1479.

ISSUE:

Whether or not the spouse Vallejera has a right to repurchase under the contract.

HELD:

No.

The Court made reference to the earlier case of Sanchez vs. Rigos (Sanchez doctrine), stating that an option contract without a separate consideration from the purchase price is void, as a contract, but would still constitute as a valid offer; so that if the option is exercised prior to its withdrawal, that is equivalent to an offer being accepted prior to withdrawal and would give rise to a valid and binding sale.

The Sanchez doctrine also dictates that the burden of proof to show that the option contract was supported by a separate consideration is with the party seeking to show it. No reliance can be placed upon the provisions of Article 1354 which presumes the existence of a consideration in every contract, since in the case of an option contract, Article 1479 being the specific provision, requires such separate consideration for an option to be valid.

In an option contract, the offeree has the burden of proving that the option is supported by a separate consideration, it also held that the Sanchez doctrine (That upon the option contract not supported by a separate consideration; is void as contract, but valid as an offer), can only apply if the option has been accepted and such acceptance is communicated to the offeror. It held that not even the annotation of the option contract on the title of the property can be considered a proper acceptance of the option.

Neither can the signature of the spouses Vasquez in the document called "right to repurchase" signify acceptance of the right to repurchase. The Vallejeras did not sign the offer. Acceptance should be made by the promisee, in this case, the Vallejeras and not the promises, spouses Vasquez herein. It would be absurd to require the promisor of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given.

POLYTECHNIC UNIVERSITY OF THE PHILIPPINESVs.GOLDEN HORIZON REALTY CORP.x-----------------------------------------------xNATIONAL DEVELOPMENT AUTHORITYVs.GOLDEN HORIZON REALTY CORP.G.R. No. 183612; G.R. No. 184260MARCH 15, 2010

(This is case related to the case of PUP vs. CA and Firestone Ceramics)

FACTS:

National Development Corp. (NDC) had in its disposal a 10-hectare property located at Sta. Mesa, Manila. The estate was popularly known as NDC Compound.

On September 7, 1977 NDC entered into a Contract of Lease with Golden Horizon Realty Corp. (GHRC) over a portion of the property with an area of 2,407 sq. m. for a period of 10 years, renewable for another 10 years with mutual consent of the parties.

On May 4, 1978, a second Contract of Lease was executed by NDC and GHRC covering 3,222 sq. m., also renewable upon the mutual consent after the expiration of the 10-year lease period. In addition, GHRC was granted the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised.

On June 13, 1988, before the expiration of the 10-year period under the second contract, GHRC wrote a letter to NDC indicating its exercise of the option to renew the lease for another 10 years. NDC gave no response to the said letter.

In September of the same year, GHRC discovered that NDC had decided to secretly dispose the property to a third party, PUP. This led to the filing of cases before the trial court.

In the meantime President Aquino issued Memo. Order No. 214 dated January 6, 1989 ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at acquisition cost.

PUP then contended that GHRCs right to exercise the option to purchase had expired with the termination of the original contract of lease and was not carried over to the subsequent implied new lease between GHRC and NDC. Moreover, the contracts clearly state that GHRC is granted the option to renew for another 10 years with mutual consent of both parties. As regards the continued receipt of rentals by NDC and possession by GHRC of the leased premises, the impliedly renewed lease was only month-to-month and not 10 years since the rentals are being paid on monthly basis.

ISSUE:

Whether or not GHRCs right of first refusal was violated.

HELD:

Yes.

The pertinent portion of the second contract of lease provides that: Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised.An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. It binds the party, who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option.Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the event the owner sells the same.As distinguished from an option contract, in a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal would be dependent not only on the owners eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee had failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.

NDC contended that the ruling of the Court in PUP vs CA and Firestone cannot be applied in this case because the lease contract of firestone had not yet expired while in this case GHRCs lease contract have already expired. This is untenable. The reckoning point of the offer of sale to a third party was not the issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such negotiations as early as July 1988 when GHRCs right of first refusal was still subsisting and the lease contracts still in force. NDC did not bother to respond to GHRCs letter of June 13, 1988 informing it of GHRCs exercise of the option to renew and requesting to discuss further the matter with NDC, nor to the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another ten (10) years and also the exercise of the option to purchase under the lease contract. NDC had dismissed these letters as "mere informative in nature, and a request at its best."

GHRC is similarly situated with Firestone such that it was also prejudiced by NDCs sale to PUP. Therefore, GHRC is entitled to exercise its option to purchase until October 1988 in as much as the May 4, 1978 contract embodied the option to renew the lease contract for another 10 years upon mutual consent and giving GHRC the option to purchase the leased premises for a price to be negotiated and determined at the time such option was exercised by GHRC. It to be noted that MO 214 itself declared that the transfer is subject to such liens/leases existing on the subject property.