Ang Yu Asuncion et al. vs.
Court of Appeals and Buen Realty transferred into the name of De Buen and demanded that the
Corp.
(G.R. No. 109125, December 2, 1994)
Ponente: Vitug
Topic: Sales; Contract of sale v. Contract to sell; remedies for
violation of right of first refusal
Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and
commercial spaces owned by the Unjiengs. They have been leasing
the property and possessing it since 1935 and have been paying
rentals.
In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that
the property was being sold and that Petitioners were being given
priority to acquire them (Right of First Refusal). They agreed on a
price of P5M but they had not yet agreed on the terms and
conditions. Petitioners wrote to the Unjiengs twice, asking them to
specify the terms and conditions for the sale but received no reply.
Later, the petitioners found out that the property was already
about to be sold, thus they instituted this case for Specific
Performance [of the right of first refusal].
The Trial Court dismissed the case. The trial court also held that
the Unjiengs offer to sell was never accepted by the Petitioners for
the reason that they 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 first refusal.
The Court of Appeals affirmed the decision of the Trial Court.
In the meantime, in 1990, the property was sold to De Buen Realty,
Private Respondent in this case. The title to the property was
Petitioners vacate the premises.
Because of this, Petitioners filed a motion for execution of the CA
judgement. At first, CA directed the Sheriff to execute an order
directing the Unjiengs to issue a Deed of Sale in the Petitioners
favour and nullified the sale to De Buen Realty. But then, the CA
reversed itself when the Private Respondents Appealed.
Issues:
1. Whether or not the Contract of Sale is perfected by the grant
of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an
action for Specific Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of
Sale under Art. 1458 or an option under Par. 2 Art 1479 or an offer
under Art. 1319. In a Right of First Refusal, only the object of the
contract is determinate. This means that novinculum juris is
created between the seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between
the parties, a Right of First Refusal may not be enforced through
an action for specific performance. Its conduct is governed by the
law on human relations under Art. 19-21 of the Civil Code and not
by contract law.
Therefore, the Supreme Court held that the CA could not have
decreed at the time the execution of any deed of sale between the
Unjiengs and Petitioners.
Other Rules, Comments and Discussion:
This case is notable because it lays down the rules on options
contracts and right of first refusal as well as promises to buy and
sell. First, the Supreme Court discussed the stages of the formation
of a sales contract, these are:
1. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the
contract is concluded (perfected).
2. Perfection takes place upon the concurrence of the
essential elements thereof. In a sales contract this is governed by
Art. 1458
3. Consummation begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an independent
source of obligation, serve as a binding juridical relation. A sales
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 (Art 1458).
Under Art. 1458, there is no perfection of a sale under a Contract
to Sell. A Contract to Sell is characterized as a conditional sale
and the breach of the suspensive condition will prevent the
obligation to transfer title from acquiring obligatory force.
Promises to Buy and Sell
Unconditional mutual promise to buy and sell As long as the
object is made determinate and the price is fixed, can be obligatory
on the parties, and compliance therewith may accordingly be
exacted. The Right of First Refusal falls under this classification.
Accepted unilateral promise If it specifies the thing to be sold and
the price to be paid and 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. (Par. 2 Art. 1458) Note however, that the option is a
contract separate and distinct from the contract of sale. Once the
option is exercised before it is withdrawn, a bilateral promise to
sell and to buy ensues and both parties are then reciprocally bound
to comply with their respective undertakings.
Offers with a Period
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 Offeror may withdraw offer at any time before its
acceptance (or knowledge of its acceptance). However, the right to
withdraw must not be exercised whimsically or arbitrarily
otherwise it can give rise to damages under Art. 19 of the New
Civil Code
2. If period is founded on a separate consideration This is
a perfected contract of option. Withdrawal of the offer within the
period of the option is deemed a breach of the contract of option
(not the sale). 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 specific 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.
3. Earnest money This is not an offer with a period. Earnest
money is distinguished from the option contract if the
consideration given will be considered as a part of the purchase
price of the object of the sale. Earnest money is evidence of a
perfected contract of sale. (Art. 1482)
Right of First Refusal
This is an innovative juridical relation because it is neither a
perfected contract of sale under Art. 1458 nor an option contract
under par. 2 Art 1479. The object might be made determinate, the
exercise of the right, however, is dependent on the offerors
eventual intention to enter into a binding juridical relation with
another but also on terms and conditions such as price. There is no
juridical tie or vinculum juris.
Breach of the right cannot justify correspondingly an issuance of a
writ of execution under a court judgement that recognizes its
existence, such as in Ang Yu Asuncion. An action for Specific
Performance is not allowed under a Right of First Refusal because
doing so would negate the indispensable element of consensuality
in the perfection of contracts.
This right is not inconsequential because it gives right to an action
for damages under Art. 19.
Other Acts that Wont Bind
Public advertisements or solicitations Construed as mere
invitations to make offers and/or proposals.