G.R. No. L-32873 (August 18, 1972)
Topics: contract of sale; option to purchase; rescission
Summary:
Respondent leased land and building to petitioner with option to buy. Respondent communicated rescission of contract for alleged breach. Petitioner communicated his desire to exercise his option to buy.
Doctrines:
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
Facts:
On October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered into a “Contract of Lease with Option to Buy, pursuant to terms and conditions.
On or about July 31, 1964, Dr. Garcia’s counsel wrote to Nietes communicating his client’s decision to rescind the contract on the basis that terms and conditions have not been complied with.
The counsel for Nietes replied, countering that Nietes has not violated any of the provision of the Contract, and also provided a notice that his client will be exercising his option to purchase the land and building.
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City checks amounting to P84,860.50, as balance of the purchase price of the property, but he withdrew said sum of P84,860.50 on August 12, 1965, after the checks had been cleared.
On August 2, 1965, he commenced the present action, in the Court of First Instance of Pampanga, for specific performance of Dr. Garcia’s alleged obligation to execute in his (Nietes’) favor a deed of absolute sale of the leased property, free from any lien or encumbrance whatsoever, he having meanwhile mortgaged it to the People’s Bank and Trust Company, and to compel him (Garcia) to accept whatever balance of the purchase price is due him, as well as to recover from him the aggregate sum of P90,000 by way of damages, apart from attorney’s fees and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations thereof, as well as setting up a counterclaim for damages in the sum of P150,000.
The Trial Court rendered a decision in favor of the plaintiff and against the defendant, ordering the latter to execute the Deed of Absolute Sale of the property originally leased together with the school building and other improvements thereon which are covered by the contract.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither dismissed the complaint nor upheld his counterclaim and failed to order Nietes to vacate the property in question, and Nietes insofar as the trial court had granted him no more than nominal damages in the sum of P1,000, as attorney’s fees.
The Court of Appeals affirmed the said decision, but later said aside the same upon the motion for reconsideration of Garcia.
Issue:
- Whether the full purchase price must be paid before the option to purchase can be exercised.
- Whether Nietes has validly and effectively exercised his option to buy the property.
Ruling:
- NO. Neither the tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia — as reflected in the receipts Exhibits B and C — justifies such view. The contract does not say that Nietes had to pay the stipulated price of P100,000 before exercising his option to buy the property in question. Accordingly, said option is governed by the general principles on obligations, pursuants to which:
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
In the case of an option to buy, the creditor may validly and effectively exercise his right by merely advising the debtor of the former’s decision to buy and expressing his readiness to pay the stipulated price, provided that the same is available and actually delivered to the debtor upon execution and delivery by him of the corresponding deed of sale. Unless and until the debtor shall have done this the creditor is not and cannot be in default in the discharge of his obligation to pay.
In other words, notice of the creditor’s decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Nietes need not have deposited, therefore, with the Agro-Industrial Bank checks amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does not and cannot affect his cause of action in the present case.
In making such deposit, he may have had the intent to show his ability to pay the balance of the sum due to Dr. Garcia as the sale price of his property. In short, said deposit and its subsequent withdrawal cannot affect the result of the present case.
- YES. Nietes was entitled to exercise his option to buy “within the period of the Contract of Lease,” which — pursuant to paragraph 6-A of said contract — commenced “in June 1960” and was to “terminate in June 1965.”
On December 13, 1962, Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia issued a receipt accepting said amount “as the partial payment on the purchase price of the property as specified on the original contract,” thus further indicating that the payment, in his opinion, conformed with said contract, and that, accordingly, the same was in full force and effect.
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of P27,757, or P2,757 in excess of the P25,000 representing the rentals for the entire period of the lease, and over P21,200 in excess of the rentals for the unexpired portion of the lease, from September 4, 1961 to June 1965. This circumstance indicates clearly that Nietes had, on September 4, 1961, chosen to exercise and did exercise then his option to buy.
What is more, this is borne out by the receipt issued by Dr. Garcia for the payment of P2,200, on December 13, 1962, to which he referred therein as a “partial payment on the purchase of the property as specified on the original contract of ‘Contract of Lease with the First Option to Buy’ ….”
The provision in paragraph 5 of the Contract, to the effect that “should the LESSEE” choose to make use of his option to buy “the unused payment for the Contract of Lease will be considered as payment for the sale of the land and school, “simply means that the rental paid for the unused portion of the lease shall be applied to and deducted from the sale price of P100,000 to be paid by Nietes at the proper time — in other words, simultaneously with the delivery to him of the corresponding deed of sale, duly executed by Dr. Garcia
It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his option to buy the property of Dr. Garcia, at least, on December 13, 1962.
PARAÑAQUE KINGS ENTERPRISES, INCORPORATED v. COURT OF APPEALS, CATALINA L. SANTOS and DAVID A. RAYMUNDO
G.R. No. 111538 (February 26, 1997)
Digest Author: Lloyd Rick Guyon
Topics: contract of sale; right of first refusal
Summary:
Parties entered into a contract of lease with a clause for the right of first refusal. Lessor subsequently sold the property without prior offer of sale to the lessee.
Doctrines:
The basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee.
Facts:
Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA.
Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at Parañaque, Metro Manila.
On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L. Santos.
On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos.
On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos.
Paragraph 9 of the assigned leased contract provides among others that:
“9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;”
On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff.
On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo.
Upon learning of this fact plaintiff’s representative wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS.
Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore the said period expired another letter came from the counsel of defendant Santos, containing the same tenor.
On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiff’s counsel wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS.
On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS.
Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant Raymundo.
It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff’s offer to buy or two days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy to the contract.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff’s Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for 15M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as “RIDICULOUS”. There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos.
On appeal, the Court of Appeals affirmed the ruling of the trial court.
Issue: Whether the right of first refusal enforceable by an action for specific performance?
Ruling:
YES. We do not agree with respondents’ contention that the issue involved is purely factual
The principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the “first option or priority” to purchase the leased properties in case Santos decided to sell.
If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such “right.” But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained.
Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the “ridiculous” price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price.
Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses.
The trial and appellate courts based their decision to sustain respondents’ motion to dismiss on the allegations of Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner
The basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee.