G.R. No. 109125. December 2, 1994.

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON.
COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION,
respondents.

Obligations; Essential elements of an obligation.—An obligation is a juridical necessity to give,

to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of
the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and
quasi-delicts); (b) the object which is the prestation or conduct, required to be observed (to give,
to do or not to do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.

Same; Contracts; Various stages of a contract.—Among the sources of an obligation is a contract

(Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service (Art. 1305, Civil
Code). A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the concurrence of the essential
elements thereof. A contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause
thereof. A contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn
contract, compliance with certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed form being thereby an essential
element thereof. The stage of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.

Same; Same; Sales; In sales, the contract is perfected when the seller obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to the buyer, over which the latter
agrees.—Until the contract is perfected, it cannot, as an independent source of obligation, serve as
a binding juridical relation. In sales, particularly, to which the topic for discussion about the case
at bench belongs, the 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.
Same; Same; Same; When the sale is not absolute but conditional, the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory force.—When the sale is not
absolute but conditional, such as in a “Contract to Sell” where invariably the ownership of the
thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full
payment of the purchase price), the breach of the condition will prevent the obligation to convey
title from acquiring an obligatory force. In Dignos vs. Court of Appeals (158 SCRA 375), we have
said that, although denominated a “Deed of Conditional Sale,” a sale is still absolute where the
contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer
upon actual or constructive delivery (e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the
condition would prevent such perfection. If the condition is imposed on the obligation of a party
which is not fulfilled, the other party may either waive the condition or refuse to proceed with the
sale (Art. 1545, Civil Code).

Same; Same; Same; An unconditional mutual promise to buy and sell, with an object that is
determinate and the price fixed, can be obligatory on the parties.—An 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.

Same; Same; Same; Options; An accepted unilateral promise which specifies the thing to be sold
and the price to be paid, when coupled with a valuable consideration distinct and separate from
the price, may be termed a perfected contract of option.—An accepted unilateral promise which
specifies the thing to be sold and the price to be paid, 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, and in sales, it conforms with the second paragraph of Article
1479 of the Civil Code. Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the
offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective undertakings.

Same; Same; Same; Same; Rules applicable where a period is given to the offeree within which to
accept the offer.—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, the offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror’s coming to know of such fact, by
communicating that withdrawal to the offeree. The right to withdraw, however, must not be
exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article
19 of the Civil Code; (2) If the period has a separate consideration, a contract of “option” is deemed
perfected, and it would be a breach of that contract to withdraw the offer during the agreed period.
The option, however, is an independent contract by itself, and it is to be distinguished from the
projected main agreement (subject matter of the option) which is obviously yet to be concluded.
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 optionee-offeror,
however, renders himself liable for damages for breach of the option. In these cases, care should
be taken on the real nature of the consideration given, for if, in fact, it has been intended to be part
of the consideration for the main contract with a right of withdrawal on the part of the optionee,
the main contract could be deemed perfected; a similar instance would be an “earnest money” in
a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

Same; Same; Same; Same; Words and Phrases; “Right of First Refusal,” Explained; In the law
on sales, the so-called “right of first refusal” is an innovative juridical relation, but it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil Code.—In the law on sales, the
so-called “right of first refusal” is an innovative juridical relation. Needless to point out, it cannot
be deemed a perfected contract of sale under Article 1458 of the Civil Code, Neither can the right
of first refusal, understood in its normal concept, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article
1319 of the same Code. An option or an offer would require, among other things, a clear certainty
on both the object and the cause or consideration of the envisioned contract. In a right of first
refusal, while the object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that obviously are yet to be later firmed up. Prior
thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum juris
would still be indefinite and inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct.

Same; Same; Same; Same; Same; Same; Breach of a right of first refusal decreed under a final
judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action
for damages.—Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution
under a judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the perfection
of contracts. It is not to say, however, that the right of first refusal would be inconsequential for,
such as already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. The
final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a “right of
first refusal” in favor of petitioners. The consequence of such a declaration entails no more than
what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for damages in a proper
forum for the purpose.

Due Process; Actions; A party not impleaded in an action cannot be held subject to the writ of
execution issued therein.—Furthermore, whether private respondent Buen Realty Development
Corporation, the allegedpurchaser of the property, has acted in good faith or bad faith and whether
or not it should, in any case, be considered bound to respect the registration of the lis pendens in
Civil Case No. 87-41058 are matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held
subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership
and possession of the property, without first being duly afforded its day in court.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December
1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of
execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-
41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed
by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu
Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil
Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as Nos. 630-638
Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935
and have been religiously paying the rental and complying with all the conditions
of the lease contract; that on several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are giving them
priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered
a price of P6-million while plaintiffs made a counter offer of P5-million; that
plaintiffs thereafter asked the defendants to put their offer in writing to which
request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them
on October 24, 1986 asking that they specify the terms and conditions of the offer
to sell; that when plaintiffs did not receive any reply, they sent another letter dated
January 28, 1987 with the same request; that since defendants failed to specify the
terms and conditions of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer
to sell was never accepted by the plaintiffs for the reason that the parties 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. Thus the dispositive portion of the
decision states:

WHEREFORE, judgment is hereby rendered in favor of the

defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for a
purchase price of Eleven Million Pesos or lower, then the plaintiffs
has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned
by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza
and Fernando A. Santiago), this Court affirmed with modification the lower court's
judgment, holding:
 In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the
claim for specific performance will not lie. Appellants' demand for
actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render summary
judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia
vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment

appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of
first refusal to herein appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration
by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition)
transferring the property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION

PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys
for and in favor of the VENDEE, his heirs, executors, administrators
or assigns, the above-described property with all the improvements
found therein including all the rights and interest in the said property
 free from all liens and encumbrances of whatever nature, except the
pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax,

registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu

Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in
the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter
to the lessees demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No.
87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted
as follows:

Presented before the Court is a Motion for Execution filed by

plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.

The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6,
 1991, stating that the aforesaid modified decision had already
become final and executory.

It is the observation of the Court that this property in dispute was the
subject of the Notice of Lis Pendens and that the modified decision
of this Court promulgated by the Court of Appeals which had
become final to the effect that should the defendants decide to offer
the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for
a price in excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the

necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer Certificate of Title be issued
in favor of the buyer.

All previous transactions involving the same property

notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-

entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and set aside the
title already issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants and to
 register the new title in favor of the aforesaid plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex
C, Petition) was issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound
by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816
issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15
November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as
the right of first refusal, a purchase option and a contract to sell. For ready reference, we might
point out some fundamental precepts that may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause established by the various sources
of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-
persons who, viewed from the demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of
minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages
that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded (perfected). The perfection of
the contract takes place upon the concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence
of offer and acceptance, on the object and on the cause thereof. A contract which requires, in
addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum,
is commonly referred to as a real contract. In a solemn contract, compliance with certain
formalities prescribed by law, such as in a donation of real property, is essential in order to make
the act valid, the prescribed form being thereby an essential element thereof. The stage
of consummation begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation. In sales, particularly, to which the topic for discussion about the case at bench
belongs, the 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. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.2 In Dignos vs. Court of Appeals (158
SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to
the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the contract itself, the failure
of the condition would prevent such perfection.3 If the condition is imposed on the obligation of a
party which is not fulfilled, the other party may either waive the condition or refuse to proceed
with the sale (Art. 1545, Civil Code).4

An 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.5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, 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, and in sales, it conforms
with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .
 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. (1451a)6

Observe, however, that the option is not the contract of sale itself.7 The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect

promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations, until
a contract is perfected, are not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its
mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil.
270). 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, the offeror is still free
and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree
(see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this
rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision
in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank
of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise
to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be concluded. 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. In these cases, care should be taken of
the real nature of the consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of the optionee, the main
contract could be deemed perfected; a similar instance would be an "earnest money" in a contract
of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless
to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code.
Neither can the right of first refusal, understood in its normal concept, per se be brought within the
purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 13199 of the same Code. An option or an offer would require, among other
things,10 a clear certainty on both the object and the cause or consideration of the envisioned
contract. In a right of first refusal, while the object might be made determinate, the exercise of the
right, however, would be dependent not only on the grantor's eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that obviously are yet
to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like
here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment
that merely recognizes its existence, nor would it sanction an action for specific performance
without thereby negating the indispensable element of consensuality in the perfection of
contracts.11 It is not to say, however, that the right of first refusal would be inconsequential for,
such as already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right
of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than
what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for damages in a proper
forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any
case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058
are matters that must be independently addressed in appropriate proceedings. Buen Realty, not
having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution
issued by respondent Judge, let alone ousted from the ownership and possession of the property,
without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the
writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in
CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the trial
court as modified by this Court. As already stated, there was nothing in said
13
decision that decreed the execution of a deed of sale between the Cu Unjiengs
and respondent lessees, or the fixing of the price of the sale, or the cancellation of
title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730;
Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have
decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.
G.R. No. 97547.July 29, 1994.*

ROLANDO T. DIWA, BLESIDA G. DIWA, petitioners, vs. ARNOLD L. DONATO,

NAPOLEON L. DONATO, respondents.

Remedial Law; Res Judicata; Elements of Res Judicata.—The elements of res judicata are: (1) the
previous judgment has become final; (2) the prior judgment was rendered by a court having
jurisdiction over the subject matter and the parties; (3) the first judgment was made on the merits;
and (4) there was substantial identity of parties, subject matter and causes of action, as between
the prior and subsequent actions.

Same; Same; Same; Trial court erred in considering the Court’s resolution of September 20, 1989
in the interpleader case as an adjudication on the merits.—We hold that the trial court erred in
considering our September 20, 1989 Resolution in the interpleader case as an adjudication on the
merits.

Same; Same; Judgment; A judgment on the merits is one rendered after argument and investigation
and when there is determination which party is right.—A judgment on the merits is one rendered
after argument and investigation, and when there is determination which party is right, as
distinguished from a judgment rendered upon some preliminary or formal or merely technical
point, or by default and without trial.

Same; Statute of Frauds; Agreements for the sale of real property shall be unenforceable by action
unless the same or some note or memorandum thereof be in writing and subscribed by the party
charged or by his agent.—The trial court also erred when it further held that specific performance
does not lie against respondent, by applying the Statute of Frauds. Under said Statute, agreements
for the sale of real property “shall be unenforceable by action, unless the same,or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents.” Non-compliance with this provision, while not invalidating the contract which is not in
writing, makes ineffective the action for specific performance.

Same; Same; It is settled that the Statute of Frauds applies only to executory and not to completed,
executed or partially executed contracts.—It is settled, however, that the Statute of Frauds applies
only to executory and not to completed, executed, or partially executed contracts. Thus, as early
as 1925, we held that where the land has been delivered under the oral contract of sale, and the
vendees have already paid part of the purchase price, the heirs of the vendor cannot invoke the
statute of frauds in a proceeding where the vendees seek to have the land registered in their names.

PETITION for certiorari to set aside the orders of the Regional Trial Court of Tuguegarao,
Cagayan, Br. 1. Diwa vs. Donato, 234 SCRA 608, G.R. No. 97547 July 29, 1994

PUNO, J.:

This is a petition for certiorari under Rule 45 of the Revised Rules of Court from two Orders of
the RTC of Tuguegarao, Cagayan, Br. 1. 1 The first, dated January 8, 1990, dismissed Civil Case
No. 4117-(Tug '90) on the ground of res judicata; ;and the second, dated January 31, 1991,
denied petitioners' motion for reconsideration of the earlier Order.

Petitioners first filed a Complaint for Interpleader And Execution Of Registerable Deed Of Sale
With Damages against respondents docketed as Civil Case No. 3892, and raffled to Branch 4 of
the RTC of Tuguegarao, Cagayan. 2 The Complaint alleged:

1. Plaintiffs (petitioners herein) are spouses, of legal age, Filipinos and residents
of Tuguegarao, Cagayan;

2. Defendants (respondents herein) who are brothers are of legal age; Arnold L.
Donato is however a Filipino and a resident of and with postal address at 10
Masbate Street, Quezon City while Napoleon L. Donato is an American citizen
and resident of Tuguegarao, Cagayan;

3. DONATO ENTERPRISES COMPANY, LIMITED was a duly constituted and

registered partnership composed of only three (3) partners, the brothers and sister,
Arnold L. Donato, Napoleon L. Donato and Adoracion Donato, who had equal
contributions and shares or interests therein.

4. DONATO ENTERPRISES COMPANY, LIMITED was the registered owner

per Transfer Certificate of Title No. T-16000 of a residential-commercial lot
situated in Centro, Tuguegarao, Cagayan more particularly bounded and
described as follows:

xxx xxx xxx

5. Partner Adoracion L. Donato who died single on

October 20, 1985 with neither ascendant nor descendant was survived by the
(respondents) who were her brothers;
6. The death of partner Adoracion L. Donato ipso jure dissolved the DONATO
ENTERPRISES COMPANY, LIMITED so that her one-third (1/3) share and
interest in the above-described lot devolved upon her heir or heirs;

7. Sometime in November 1986 (respondents) jointly sold the above-described lot

to the (petitioners) for P504,000.00 Philippine currency and accordingly delivered
to the latter the said lot;

8. (Petitioners) forthwith took exclusive possession of said lot and have been
possessing it since then continuously up to the present;

9. Of the total consideration of P504,000.00 (respondent) Arnold L. Donato

already received from (petitioners) P168,000.00 on November 19, 1986 as per
xerox copy of a Receipt which he signed and (respondent) Napoleon L. Donato
also already received from (petitioners) on June 10, 1988 the same amount of
P168,000.00 per xerox copy of a Receipt which he likewise signed, both of which
are hereto attached . . .;

10. Since November 1986 when the sale of said lot was made by (respondents) to
the (petitioners) the latter had been tendering the payment of the balance of
P168,000.00 to (respondents); the (respondent) Arnold L. Donato wanted to get
and receive the whole balance asserting that his late sister Adoracion L.
Donato inter alia conveyed her share and interest in said lot to him which was
however denied by (respondent) Napoleon L. Donato who claimed that being one
of the two intestate heirs of deceased Adoracion L. Donato, he is entitled to one-
half of said balance which is P84,000.00;

11. In the light of the conflicting claims of the (respondents) over the balance of
P168,000.00 and in order to finally relieve (petitioners) of further obligation vis a
vis said lot, the latter hereby deliver and deposit said amount of money with this
Honorable Court which will determine who is/are entitled to receive it and to
dispose of it accordingly;

12. Despite the consummation of the sale of the said lot to the (petitioners) the
(respondents) have not yet executed a registerable deed of sale to evidence the
same, hence (petitioners) have a legal right to demand the execution of the said
documents;

13. In fact since June 1988, (petitioners) had been demanding of (respondents) to
execute the said registerable deed of sale with a proposal to deposit the balance of
 P168,000.00 in escrow in a commercial bank in favor of whoever would finally
be judicially declared entitled to it but although (respondent) Napoleon L. Donato
is willing, (respondent) Arnold L. Donato without just cause refussed;

14. Since the sale of the lot to the (petitioners) in November 1986, they intended
to build a commercial building thereon with the proceeds of a loan which they
planned to secure from a banking institution with the lot as their collateral;

15. The delay in the execution of the registerable deed of sale necessarily delayed
the issuance of a title over said lot in the names of the (petitioners) which resulted
in the delay in securing the loan and ultimately in the construction of the said
building;

16. The delay mentioned in the preceding paragraph is directly attributable to the
intransigence of (respondent) Arnold L. Donato which caused (petitioners) to
suffer damages consisting of the big increase in the prices of construction
materials and cost of labor from their index in November 1986 and the present
index which is reasonably estimated to be P200,000.00;

17. (Petitioners) were constrained to engage the services of the undersigned

counsel for an agreed fee of P20,000.00; 3

Petitioners prayed for judgment: (1) declaring them the owners of the lot in question; (2)
ordering respondents to execute in their favor a registerable deed of sale over the lot; (3)
declaring who is/are entitled to the P168,000.00 balance; and (4) condemning respondent
Arnold L. Donato to pay damages, attorney's fees and costs.

The Complaint was dismissed on December 29, 1988 on the ground that interpleader is not the
proper remedy for breach of contract. This court 4 affirmed the dismissal in a Resolution, dated
September 20, 1989.

Accordingly, on February 13, 1990, petitioners filed Civil Case No. 4117-(Tug '90) for Specific
Performance (Execution of Registerable Deed of Sale and Delivery of Certificate of Title) With
Damages. The Complaint contains basically the same allegations and prayers as the Complaint in
the interpleader case, except for the following added allegation, viz:

That even if the transaction between (petitioners) and (respondents) constitutes

only a contract to sell the said land, still (petitioners) who have partially complied
with their obligation and are willing to fully comply with it have the right to
compel (respondents) to perform their obligation to sell the land to them; 5
 and the prayer, which reads as follows:

WHEREFORE, (petitioners) pray this Honorable Court to render judgment:

1. Declaring (petitioners) to be the owners of the lot described above or

compelling the (respondents) to sell the lot to the former and ordering
(respondent) Arnold L. Donato to execute with his co-(respondent) Napoleon L.
Donato the registerable deed of sale over said lot in favor of (petitioners) and to
deliver to the latter the owner's duplicate copy of Transfer Certificate of Title No.
T-16000;

2. Applying the deposited amount of P168,000.00 in payment of the balance upon

the price of said land;

3. Condemning (respondent) Arnold L. Donato to pay the (petitioners) a damage

of P100,000.00 and attorney's fees of P20,000.00 and cost of this suit;

4. Granting other proper reliefs. 6

Private respondents filed separate Answers to the second Complaint. Their Affirmative Defenses
constituting grounds for dismissal were heard by the trial court.

On January 8, 1990, the trial court issued the first impugned Order. It dismissed with prejudice
the Complaint for specific performance. It held, inter alia:

There is no dispute that the first case entitled Interpleader and Execution of
Registerable Deed of Sale with Damages, Civil Case No. 3892 was upon review
by the Supreme Court denied for lack of merit.

It was held in the case of Leonor Magdangal, et al. vs. City of Olongapo, et al., . .
. "that a party cannot by varying the form of action or adopting a different method
of presenting the case, escape the application of the rule of res judicata." This was
reiterated in the case of Filipinas Investment, et al. vs. Intermediate Appellate
Court, et al., . . . (Citations omitted.) 7

In its Order of January 31, 1991 denying petitioners' motion for reconsideration, the same
court held:

This Court made a comparison between the first civil case No. 3892 between the
same parties is entitled Interpleader and Execution of Registerable Deed of Sale
with Damages while the instant case is for specific performance (execution of
registerable deed of sale and delivery of certificate of title with damages).
 Basically, the two complaints are the same as they involve the same parties, the
same cause of action and the subject matter. The only difference is in the caption.

Granting for the sake of argument that there is no res judicata and that the present
case is for specific performance, will the latter remedy lie?

Specific performance is not an absolute right, but one which rests

entirely in judicial discretion; exercised according to the settled
principles of equity and with reference to the facts of the particular
case, and not arbitrarily or capriciously . . . .

One of the requisites for the specific performance of the agreement is that there
must be contract and the contract must be in writing (Statute of Frauds).

The contract must be clearly and unequivocally proved and its

subject matter, consideration and all other essentials must be
specific and unambiguous . . . .

Definitely the receipts by Arnold Donato and Napoleon Donato are not contracts
for the following reasons:

(1) They are not in the prescribed form as provided by law;

(2) They are not specific as indicated by the wording of last paragraph of Annex
"A",

However, should the circumstances occur whereby the transaction

will not push through, then this amount will be refundable to Mr.
Rolando T. Diwa.

(3) It is doubted whether the Supreme Court made a pronouncement that there
was a contract to sell considering that the petition for review was denied for lack
of merit for failure of counsel to comply with certain requirements with regards to
his petition. 8 (Citation omitted.)

In this petition, petitioners contend:

The errors of the lower court are the following:

1. It erroneously applied res judicata to dismiss with prejudice Civil Case No.
4117 (90-Tug).
 2. It mistakenly ruled that there was no contract between the petitioners and
respondents.

3. It incorrectly held that specific performance was not the proper remedy.

4. It blundered when it impliedly applied the Statute of Frauds to the agreement

between the parties.

5. It goofed when it dismissed Civil Case No. 4117 (90-Tug) with prejudice. 9

The petition is meritorious.

The elements of res judicata are: (1) the previous judgment has become final; (2) the prior
judgment was rendered by a court having jurisdiction over the subject matter and the parties; (3)
the first judgment was made on the merits; and (4) there was substantial identity of parties,
subject matter and causes of action, as between the prior and subsequent actions.

We hold that the trial court erred in considering our September 20, 1989 Resolution in the
interpleader case as an adjudication on the merits. Said Resolution held:

xxx xxx xxx

After a careful review of the Petition, its Annexes and the Comment thereto, the
Court finds that no reversible error was committed by the RTC in dismissing
petitioners' complaint. The RTC correctly applied the doctrine laid down by this
Court in the case of Beltran vs. PHHC, G.R. No. L-25138, August 28, 1969, 29
SCRA 145, that if the conflicting claims of the two defendants are only between
themselves and are not against the plaintiff-in-interpleader nor do they involve or
affect him, the special civil action of interpleader will not lie.

xxx xxx xxx

While it is true that petitioners have a cause of action to compel private

respondents to execute a registrable deed of sale pursuant to their contract, the
proper remedy should be an ordinary civil action for breach of contract or an
action for specific performance and not an action for interpleader. 10

A judgment on the merits is one rendered after argument and investigation, and when there is
determination which party is right, as distinguished from a judgment rendered upon some
preliminary or formal or merely technical point, or by default and without trial. 11 By not stretch
of the imagination can our Resolution of September 20, 1989 be considered a judgment on the
merits. All it resolved is the issue of the proper action that petitioners should file in light of the
allegations of their Complaint. We ruled that they should file an action for specific performance
and not an action for interpleader. Only after the filing of the proper action can the substantive
rights of the parties be adjudicated. Needless to state, we did not adjudicate the substantive rights
of the parties in our Resolution of September 20, 1989.

The trial court also erred when it further held that specific performance does not lie against
respondent, by applying the Statute of Frauds. Under said Statute, agreements for the sale of real
property "shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore,
of the agreement cannot be received without the writing, or a secondary evidence of its
contents." 12 Non-compliance with this provision, while not invalidating the contract which is not
in writing, makes ineffective the action for specific performance. 13

It is settled, however, that the Statute of Frauds applies only to executory and not to completed,
executed, or partially executed contracts. 14 Thus, as early as 1925, we held that where the land
has been delivered under the oral contract of sale, and the vendees have already paid part of the
purchase price, the heirs of the vendor cannot invoke the statute of frauds in a proceeding where
the vendees seek to have the land registered in their names. 15

In the case at bench, the agreement to sell the lot in question was already partially executed when
the present action was commenced. No specific denial was made by their respondent that
petitioners have paid a part of the contract price, and that possession of the land has been
delivered to them. Respondent Arnold L. Donato's argument in his Memorandum filed on July 2,
1991 that petitioners' act of refunding the amount of P168,000.00 covered by a receipt dated
November 19, 1986, and consigning it with the trial court effectively revoked the contract to sell
over the property does not persuade us. In the first place, the alleged refunding is not supported
by evidence; and in the second place, even assuming it did occur, there is still the P168,000.00
partial payment made by petitioners to respondent Napoleon L. Donato that makes for the partial
execution of the contract to sell.

Finally, we do not see how the trial court could have doubted our finding as to the existence of a
contract to sell. We clearly stated in our Resolution in the interpleader case that:

In the present case, the two private respondents do not dispute the existence of the
contract to sell the commercial land in question to petitioners nor do they demand
adverse claims against petitioners. In fact, private respondents did not object
when the petitioners deposited in court the balance of the purchase price. The
conflicting claims of the two private respondents over the sharing of the balance
of the purchase price cannot be the subject of an interpleader case since they are
 exclusively between the private respondents and are not against the petitioners.
Neither do they involve or affect the petitioners' interest in the commercial land.

xxx xxx xxx

While it is true that petitioners have a cause of action to compel private

respondents to execute a registrable deed of sale pursuant to their contract, the
proper remedy should be an ordinary civil action for breach of contract or an
action for specific performance and not an action for interpleader. 16(Emphasis
supplied.)

IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated January 8, 1990 and
January 31, 1991 in Civil Case No. 4117 (90-Tug) are REVERSED AND SET ASIDE. The RTC
of Tuguegarao, Cagayan, Branch 1, is hereby ordered to hear the reinstated case on its merits. No
Costs.

SO ORDERED.