The Fraternal Order of Utopia

Ateneo de Manila University

School of Law

Law on Sales
Right of First Refusal

EQUATORIAL REALTY v. MAYFAIR THEATER – “consideration is integral / rescissible / bad faith”

Mayfair was leasing a portion of the property in CM Recto owned by Carmelo for its theaters. Under
the lease agreement, “if Carmelo should decide to sell the leased premises, Mayfair shall be
given 30 days exclusive option to purchase the same.” Carmelo, though Henry Yang, informed
the president of Mayfair that the former was interested in selling the whole CM Recto property – and
that Araneta offered to purchase the same for $ 1.2 million. Mayfair twice replied through letter of its
intention to exercise its right to purchase – but Carmelo never replied. Thereafter, Carmelo sold the
entire property to Equatorial Realty for some P 11 million. Thus, Mayfair instituted an action for
specific performance and annulment of the sale. Carmelo alleges that the right, being an “option
contract,” is void for lack of consideration.

The clause in the lease agreement was not an option contract; it was a right of first refusal. It
was premised on Carmelo’s decision to sell the said property. It also did not contain a
stipulation as to the price of the said property. The requirement of separate consideration
does not apply to a right of 1 st refusal – because the consideration is already an integral part
of the lease. Carmelo violated such right by not affording Mayfair a fair chance to negotiate. It
abandoned the negotiations arbitrarily.

Equatorial was likewise in bad faith; it was well aware of the right conferred upon Mayfair because its
lawyers had ample time to review the contract. That being the case, the contract between
Carmelo and Equatorial is rescissible. Mayfair should be allowed to purchase the entire property
for the price offered by Equatorial. Rights of 1st Refusal are also governed by the law on contracts, not
the amorphous principles on human relations.

PARAÑAQUE KING v. CA – “ridiculous offer / same price and terms / assignment” Catalina owned 8
parcels of land leased to Chua, who assigned his rights thereto to Lee Ching Bing, who, in turn,
assigned the said rights to Parañaque King w/c introduced significant improvements on the premises.
Under the lease agreement, “in case of sale, the lessor shall have the option or priority to buy

Darvin’s Digests
the said properties.” Catalina, in violation of the said stipulation, sold the lot to Raymundo for P 5
million. Parañaque King notified her of the said breach, and she immediately had the lots
reconveyed. She then offered the lot to Parañaque King for P 15 million; the latter refused claiming
that the offer was “ridiculous.” Catalina thereafter sold it again to Raymundo for P 9 million. The
lower courts dismissed the Complaint of Parañaque King claiming that Catalina had substantially
complied w/ her obligation to offer the said lot to the former.

In a Right of 1st Refusal, the seller cannot offer the property to another for a lower price or
under terms more favorable. It must be offered under the same terms & conditions to
Parañaque King; otherwise, the right of 1 st refusal becomes illusory. Only if Parañaque King fails
to meet the offer may the property be offered for sale to another buyer – and under the same terms
also. The Right of 1st Refusal may also be validly transferred or assigned – as in this case.

VASQUEZ v. AYALA CORPORATION – “right of 1st refusal vs. option contract / 2 offers / right is lost”
In the year 1984, Ayala Corp. entered into a Memorandum of Agreement w/ Dr. Vasquez buying the
latter’s shares w/ Conduit Development – w/c constitute some 50 hectares of land in Ayala Alabang.
Under the MOA, Ayala was to undertake the development of the lands except the “retained area.”
Under Paragraph 5.15 of the MOA, “Ayala agreed to give Vasquez a first option to purchase
the 4 adjacent lots to the retained area at the prevailing market price at the time of purchase.”
A case was filed by one of the former sub-contractors of Conduit against Ayala causing a 6-year
delay in the development of the project. Now, Vasquez comes forward invoking Paragraph 5.15
claiming that it was a valid option contract, and that Ayala should sell to him the said property at the
1984 prevailing price. Ayala offered to sell the said properties to Vasquez at the prevailing
(1990) prices; but the latter refused to accept. Ayala discounted the price from P 6,500.00 per
sq.m to P 5,000 sq.m. but still, Vasquez refused.

Paragraph 5.15 was not an option contract; it was a right of first refusal. It was predicated
upon Ayala’s decision to sell the said properties. The price was also not specified. It was also

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not supported by any independent consideration. By twice refusing to accept Ayala’s offers,
Vasquez lost his right to repurchase. Ayala did not breach its obligation.

VILLONCO REALTY v. BORMAHECO – “earnest money / counter offer / trivial changes” Cervantes
and his wife owned 3 parcels of land along Buendia where the buildings of Bormaheco Inc. were
situated. Beside their property were lots owned by Villonco Realty. Cervantes entered into several
negotiations w/ Villonco for the sale of the Buendia property. Cervantes, made a written offer for P
400.00 per sq.m., w/ a down payment of P 100,000.00 to serve as earnest money. The offer also
made the consummation of the sale dependent upon the acquisition by Bormaheco of a Sta. Ana
property. Villonco made a counter-offer stating that the earnest money was to earn 10% interest per
annum; the check was enclosed w/ the reply letter. Cervantes accepted and cashed the check.
The Sta. Ana Property was awarded to Bormaheco; the transfer was also duly approved. However,
Cervantes sent the check back to Villonco w/ the interest thereon – stating that he was no longer
interested in selling the property. He also claims that no contract was perfected; Villonco sues for
specific performance.

There was a perfected contract of sale. The alleged changes made in the counter-offers are
immaterial and are mere clarifications The changes of the words “Sta. Ana property” to “another
property” as well as the insertion of the number “12” in the date, and the words “per annum” in the
interest are trivial. There is no incompatibility in the offer and counter-offer. Cervantes assented
to the interest and he, in fact, paid the same. Also, earnest money constitutes proof of the
perfection of the contract and forms part of the consideration. The condition regarding the
acquisition of the Sta. Ana property was likewise fulfilled; there is thus no ground for the refusal of
Cervantes to consummate the sale.

SPOUSES DOROMAL v. CA – “repurchase / earnest money / mere guarantee / uncertainty of price”

Javellana owned a 1/7 share over a co-owned parcel of land. The 6 other co-owners allegedly sold
their undivided shares to Doromal through a special power of attorney in favor of Jimenez. The SPA
was, however, yet to be completed. Nonetheless, one of the co-owners, Carlos received P 5,000.00
w/c he avers is earnest money from Doromal who also paid the balance amounting to some P
115,000.00. A deed of sale was executed and the said shares were registered in the name of
Doromal. Javellana, through a letter, made a formal offer to repurchase the said land for P
30,000.00 – the amount stipulated in the deeds of sale (to avoid taxes). Doromal refused to accept
the offer – thus Javellana filed a case invoking her legal right to redeem the said property.

The fact that Carlos received P 5,000.00 does not suffice to prove that an actual sale was
made. It was not proven to be earnest money w/c could signify the perfection of the sale. It
was a mere guarantee that the buyer would not back out considering that there was yet to be a
clear agreement. The price for the lot was also not clear, whether it is P 4.00 or P 5.00 per sq.m.
based on the exchange of letters. Considering that Javellana was not properly notified of the sale and
execution thereof, the lapse of the period for her right to redemption has not let passed; thus she may
exercise her right to repurchase the property at the amount stipulated in the deed of sale.

DAILON v. CA – “sale of land / public document not needed / convenience” Sabesaje sues to recover
ownership of a parcel of land based on a private document of absolute sale executed by Dailon.
Dailon denies the fact of the sale alleging that the same being embodied in a private instrument, the
same cannot covey title under Art. 1358 of the Civil Code w/c requires that contracts w/c have for
their object the creation, transmission, modification, or extinction of real rights over immovable
property must appear in a public instrument. The necessity of a public document is only for
convenience – not for validity and enforceability. Such is not a requirement for the validity of a
contract of sale, w/c is perfected by mere consent. Dailon should thus be compelled to execute
the corresponding deed of conveyance in a public instrument in favor of Sabesaje. If the sale is made
through a public instrument, it amounts to constructive delivery.

SECUYA v. VDA. DE SELMA – “lost private document / cannot bind 3 rd persons” Caballero owned
certain friar lands. She entered into an Agreement of Partition where she parted w/ 1/3 of the said
property in favor of Sabellona. Sabellona took possession thereof and sold a portion to Dalmacio
Secuya through a private instrument that is already lost. Secuya, along w/ his many relatives took
possession of the said land. Later on, Selma bought a portion of the said land, including that occupied
by the Secuyas; she bought it from Caesaria Caballero. She presented a Deed of Absolute Sale
and a TCT. The Secuyas filed a case for quieting of title. The CA upheld Selma’s title considering

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that she had a TCT and a Deed of Sale. The Secuyas have nothing to support their supposed
ownership over the parcels of land. The best evidence they could have had was the private
instrument indicating the sale to their predecessor-in-interest. But the instrument is lost. Even
so, it is only binding as between the parties and cannot prejudice 3 rd persons since it is not
embodied in a public document. Selma on the other hand has all the supporting documents
necessary; she also acted in good faith and thought that the Secuyas were mere tenants. They did
not even pay realty taxes and did not have their claim annotated to the certificate of title.

ORTEGA v. LEONARDO – “partial performance / combination of acts” Ortega occupied a parcel of

land. After the liberation, the government assigned the lot to the Rural Progress Admin. She asserted
her right thereto; she was disputed by Leonardo. Ortega and Leonardo agreed to a compromise.
The agreement was for Ortega to desist from pressing her claim, and Leonardo, upon getting the lot,
would sell to her a portion thereof provided she paid for the surveying of the lot. If he acquired title,
she could stay as a tenant. Ortega thus desisted from her claim, paid for the surveying of the lot and
the preparation of the plan, and regularly paid him a monthly rental. When she remodeled her son’s
house beside the lot, it extended over the subject lot. When Leonardo acquired title, he refused to sell
the portion agreed upon. He claims that the contract is unenforceable based on the Statute of Frauds.

The contract is enforceable because there was partial performance. Ortega made substantial
improvements on the lot, desisted from her claim, continued possession, paid for the
surveying, and also paid the rentals. All these put to together amount to partial performance
w/c takes the verbal agreement out of the operation of the Statute of Frauds.

CLAUDEL v. CA – “heirs vs. siblings / survey plans” Cecillo Claudel acquired a lot from the Bureau of
Lands. He occupied the same, declared it in his name and dutifully paid his taxes. After his death, his
Heirs and his Siblings contested each other claiming ownership thereof. It was his Heirs who were in
possession of the property. They partitioned it amongst themselves, registered each portion under
the Torrens System, and each paid their respective taxes. The Siblings filed a case for
Cancellation of Titles and Reconveyance arguing that there was a verbal sale between Cecillo
and their parents over the lot. As evidence, they presented a subdivision plan. The CA ordered the
cancellation of the said TCTs. As a rule, a sale of land is valid regardless of the form it may have
been entered into. However, in the event that a 3 rd party disputes the ownership, there is no
such proof in support of the ownership. As such, it cannot prejudice 3 rd persons – such as the
Heirs in this case. Also, the heirs had a right to rely upon their Torrent Titles w/c, as opposed to the
subdivision plans, are definitely more credible.

ALFREDO v. BORRAS – “Statute of Frauds / receipt as memorandum / benefits derived” Godofredo &
Carmen mortgaged their land to the DBP for P 7,000.00. To pay their debt, they sold the land to
Armando & Adelia for P 15,000.00, the latter also assumed to pay the loan. Carmen issued Armando
& Adelia a receipt for the sale. They also delivered to Armando & Adelia the Original Cert. of Title,
tax declarations, and tax receipts. They also introduced Armando & Adelia to the Natanawans, the
tenants of the said property as the new lessors. They thereafter took possession of the said land.
Later they found out that Godofredo & Carmen sold the land again to other buyers by securing
duplicate copies of the OCTs upon petition w/ the court. Thus, they filed a case entitled Specific
Performance. Godofredo & Carmen claim that the sale, not being in writing, is unenforceable under
the Statute of Frauds.

The Statute of Frauds in applicable only to executory contracts, not those that have already
been partially or completely consummated. In this case the sale of the land to Armando &
Adelia had already been consummated. The ownership over the land was also transferred to
Armando & Adelia when they were introduced to the Natanawans and took possession
thereof. Therefore, when Godofredo & Carmen sold the land to the other buyers, it was no longer
theirs to sell. Further, the subsequent buyers were in bad faith because Armando & Adelia registered
their adverse claim – this amounts to constructive notice w/c negates good faith.

The Statute of Frauds likewise does not apply considering that Godofredo & Carmen had
already derived the benefits from the sale – such as the money to pay for the loan. The receipt
also suffices to constitute the “memorandum” required by the Statute of Frauds. Assuming that
the sale was voidable because it was conjugal property, the same was ratified by Godofredo by
introducing Armando & Adelia to the Natanawans as the new lessors. Also, even though titled

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“Specific Performance” the complaint was one for Reconveyance – and prescription does not lie of
the plaintiff is in actual possession of the disputed property.

TOYOTA SHAW v. CA – “Lite Ace / misplaced ego / price & manner of payment / mere proposal”
Luna Sosa wanted to buy a Toyota Lite Ace. He went to Toyota Shaw where he met Popong
Bernardo, a sales representative. Sosa explained that he needed the Lite Ace by June 17, otherwise
he would become a laughing stock. Bernardo guaranteed that the vehicle would be delivered. They
executed a document entitles “Agreements between Sosa & Popong Bernardo of Toyota Shaw”
where a P 100,000.00 down payment was stipulated and that the Lite Ace would be available at the
given date. When the day of reckoning arrived, the Lite Ace was unavailable – the explanation of
Bernardo being “nasulot nang ibang malakas.” However, according to Toyota, the true reason was
that BA Finance, w/c was supposed to answer for the balance of the purchase price, did not approve
Sosa’s application. Toyota also returned the down payment. Thus, Sosa sues for damages
amounting to some P 1.2 million due to his humiliation, hurt feelings, sleepless nights, and so on.

Toyota should not be held liable for damages because there was no perfected contract of sale
in the first place. There was no agreement as to the price and the manner of payment – w/c are
both essential to the perfection of the sale. It was also clear that Bernardo signed the document in
his personal capacity and it was up to Sosa to inquire as to the extent of the former’s capacity. Sosa
did not even sign it. It was nothing but a mere proposal w/c did not mature into a perfected
contract of sale in lieu of the subsequent events. In fact, it made no specific reference to the
sale of a vehicle. No obligations could thus arise therefrom. Sosa has no one else to blame but
himself for his humiliation for bragging about something he did not own yet.

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