G.R. No. 149734, November 19, 2004

Topics:

Right of first refusal, Option Contract

Doctrines:

In the right of first refusal, while the object might be made determinate, the exercise of the right would be dependent not only on the grantor’s eventual intention to enter into binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. 

Summary:

Conduit Development, Inc. is owned by Daniel Vazquez et al. Conduit Development, Inc. was acquired by Ayala Corporation through a Memorandum of Agreement (MOA) that the Vasquez group and Ayala Corporation signed in 1981.  Ayala was able to develop the aforementioned lots in 1990. This was following a downturn and some legal disputes between GP Construction, Conduit’s former contractor, and Lancer Builders, GP’s subcontractor. 

Facts:

Conduit Development, Inc. is owned by Daniel Vazquez et al. Conduit Development, Inc. was acquired by Ayala Corporation through a Memorandum of Agreement (MOA) that the Vasquez group and Ayala Corporation signed in 1981. Conduit’s lands, including four pieces of land next to Vazquez’s retained land, are being developed by Ayala. These land lots were part of Ayala’s third phase of development. The MOA’s paragraph 5.15 stipulates:

5.15. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) a first option to purchase four developed lots next to the “Retained Area” at the prevailing market price at the time of the purchase.

Ayala was able to develop the aforementioned lots in 1990. This was following a downturn and some legal disputes between GP Construction, Conduit’s former contractor, and Lancer Builders, GP’s subcontractor. Ayala subsequently made Vasquez an offer to purchase the four plots of land for P6.5k/sq.m. This represented the 1990 market price. Vasquez declined the invitation. Vasquez argued that the buying cost ought to be P460 per square meters. The acquisition price was then reduced by Ayala to P5k/sq.m. Vasquez again declined, instead, he countered by offering to pay P2k/sq.m for the parcels. Once more, Ayala declined.

Issue:

Is Paragraph 5.15 of the MOA, an option contract or right of first refusal?

Ruling:

No. The aforementioned sentence is merely a right of first refusal. Although the paragraph has a clear objective—the sale of the four properties—it does not specify when Vasquez will be able to purchase the subject lots or, necessarily, what price they would be sold for. The wording “at the prevailing market price at the time of the acquisition” implies that Ayala is not required to hold the subject lots in reserve for Vasquez to exercise his right to purchase for a set amount of time.  Furthermore, the relevant parcels will not be offered for sale at a set or predictable price. The price is regarded as certain if it can be calculated in relation to another thing that is certain or if it is left to the discretion of a certain person or persons.  Additionally, clause 5.15 was added to the MOA so that Vasquez would have first dibs on purchasing the subject lots at the price that Ayala would be prepared to accept when it puts them up for sale. It is not backed up by a stand-alone argument.

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