​

EN BANC

G.R. No. 130722 March 27, 2000

SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE HOUSE AUTO
SUPPLY, INC., petitioners,​
vs.​
L & R CORPORATION, VICENTE M. COLOYAN in his capacity as Acting Registrar of the Register of
Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA, respondents.

RESOLUTION

YNARES-SANTIAGO, J.:

For resolution is petitioners' Motion for Partial Reconsideration of our December 9, 1999 Decision on the
following grounds.

I. THE PROVISION OF PARAGRAPH NO. 9 OF THE SUBJECT MORTGAGE CONTRACT IS NULL AND
VOID AB INTIO.

II. THE RESCISSION OF THE DEED OF SALE DATED 6 AUGUST 1974 BETWEEN THE SPS
LITONJUA AND PHILIPPINE WHITEHOUSE AUTO SUPPLY, INC. HAS NEVER BEEN INVOKED AS A
DEFENSE BY RESPONDENT L & R CORPORATION; THUS, DEEMED WAIVED.

III. THE DECISION RESCINDING THE DEED OF SALE EXECUTED BY AND BETWEEN THE
PETITIONERS IN EFFECT DEPRIVED THEM OF THEIR BASIC RIGHT TO DUE PROCESS.

Movants first theorize that paragraphs 8 (limiting the right of the mortgagor to sell the property, which we held
as void) and 9 (on the right of first refusal of respondent Corporation) should be "regarded as a tandem designed
to subvert the sound public policy prohibiting pactum commissarium"; that both paragraphs "constitute a
package". In particular, petitioners argue that "(P)aragraph 9 being intended to support paragraph 8, it is
therefore coupled thereto and is thus similarly mired in its invalidity".

This is the first time, though, that petitioners have raised the issue of invalidity of paragraph 9. While
respondent Corporation has consistently invoked the provisions thereof, petitioners have remained silent insofar
as this provision is concerned, concentrating their pleadings on the invalidity of paragraph 8 alone. Not having
been timely objected to below, petitioners cannot belatedly present their objections thereto at this stage.
At any rate, even if we were to entertain petitioners' objections, the same will still be held as without merit. To
be sure, paragraphs 8 and 9 are separate provisions of the subject contract and the invalidity of one does not
automatically render the other invalid. Indeed, Article 1420 of the New Civil Code holds that "(I)n case of a
divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced." Contrary
to the suppositions of petitioners, the invalid stipulation is independent from the rest of the terms of the
agreement and can easily be separated therefrom without doing violence to the manifest intention of the parties.
This being so the legal terms of the contract, including paragraph 9, can be enforced.1

Petitioners next argue that even if paragraph 9 is considered independently of paragraph 8, it is still
unenforceable for being null and void ab initio. In support of their argument, petitioners point out that the
provision in paragraph 9 is not a perfected contract for lack of consideration as mandated by Article 1479.
Petitioners argue that our finding that the consideration for the pre-emptive right is incorporated in the amount
of the loan is a presumption that enjoys no basis.

Again, petitioners' arguments must be brushed aside.

Petitioners' contention that absent a consideration therefor, the right of first refusal embodied in paragraph 9 is
void ab initio is misplaced. Such, contention loses sight of the difference between a right of first refusal and an
option contract where a separate consideration is, indeed, required. This distinction was set out in the analogous
case of Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc.2 where it was held that

Both contracts of lease in question provide the identically worded paragraph 8, which reads

That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive
option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is
bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and conditions thereof.

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of
first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first
refusal.

As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract
as one necessarily involving in the choice granted to another for a distinct and separate consideration as to
whether or not to purchase a determinate thing at a predetermined fixed price.

It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at
the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the
Nagtahan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed
valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to
Borck the said hacienda during the period and for the price mentioned. . . . . There was, therefore, a meeting of
minds on the part of the one and the other, with regard to the stipulations made in the said document. But it is
not shown that there was any cause or consideration for that agreement, and this omission is a bar which
precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, . . ., there can be no
contract without the requisite, among others, of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897 Bouvier defines an option as a contract, in the following language:

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of
buying from, or selling to B, certain securities or properties within a limited time at a specified price. (Story vs.
Salamon, 71 N.Y. 420).

From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac, 695; 10
Mont., 5, 24 Am St Rep. 17) the following quotation has been taken.

An agreement in writing to give a person the option to purchase lands within a given time at a named price is
neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at
the election or option of the other party. The second party gets in praesenti, not lands, not an agreement that he
shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects.
The owner parts with his right to sell his lands, except to the second party, for a limited period. The second
party receives the right, or rather, from his point of view, he receives the right to elect to buy.

But the two definitions abovecited refer to the contract of option, or, what amounts to the same thing, to the case
where there was cause or consideration for the obligation, the subject of the agreement made by the parties;
while in the case at bar there was no such cause or consideration.

The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in
order to be valid and enforceable, must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.

Notably in one case we held that the lessee loses his right to buy the leased property or a named price per square
meter upon failure to make the purchase within the time specified; in one other case we freed the landowner
from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such
option was not supported by a distinct consideration, in the same vein in yet one other case, we also invalidated
an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
consideration; and as an exception to the doctrine enumerated in the two preceding cases, in another case, we
ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration
for that of the other. In all these cases, the selling price of the object thereof is always predetermined and
specified in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very
recent case of Ang Yu Asuncion vs. Court of Appeals, that:

. . . . 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. . . .

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.

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 sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.

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.

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.
Anas, 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. 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 the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease
contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second
paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts.

Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.

There is nothing in the identical paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would
bring them into the ambit of the usual offer or option requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is
a separate and distinct contract from that which the parties may enter into upon the consummation of the
option. It must be supported by consideration. In the instant case, the right of first is an integral part of the
contracts of lease. The consideration is built into the reciprocal obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article
1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render ineffectual or "inutile"
the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of
Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of
Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at
the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an
agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents
that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price
and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the
obligation or promise of each party is the consideration for that of the other.

In the instant case, as we have already stated in our Decision sought to be reconsidered, the consideration for
the loan-mortgage includes the consideration for the right of first refusal. Again, contrary to petitioners charge
that this conclusion enjoys no basis, we have merely taken our cue from the Equatorial case, aforequoted.

Petitioners also pray that since the subject contract is a contract of adhesion, its validity and legality should be
strictly interpreted against respondent Corporation. As explained in Ayala Corporation vs. Ray Burton
Development Corporation,3 however, where this court refrained from applying the rule on strict interpretation of
a contract of adhesion.

(T)he stringent treatment towards contracts of adhesion which the courts are enjoined to observe is in pursuance
of the mandate in Article 24 of the New Civil Code that "(i)n all contractual, property or other relations, when
one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection.

Thus, the validity and/or enforceability of a contract of adhesion will have to be determined by the peculiar
circumstances obtaining in each case and the situation of the parties concerned.
Here, petitioners, being not only educated but business persons as well, cannot claim being the weaker or
disadvantaged parties in the subject contract so as to call for a strict interpretation against respondent
Corporation.

The court also went on to rule in the Ayala case (supra), that since the stipulations in the subject Deed of
Restrictions are plain and unambiguous, which leave no room for interpretation, there was no cause for applying
the rule on stringent treatment towards contracts of adhesion. Indeed, while ambiguities in a contract of
adhesion are to be construed against the party that prepared the same, this rule applies only if the stipulations in
such contract are obscure or ambiguous. If the terms thereof are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations control. In the latter case, there would be no need
for construction.4 Coming now to the case at bar, considering that the contract provision in question (paragraph
9) is likewise plain and unambiguous, we also find no occasion to apply the aforesaid treatment called for by
petitioners.

With respect to the rescission of the Deed of Sale, petitioners complain that this was never invoked as a defense
by respondent corporation and is thus deemed waived. Thus, petitioners also complain that our Decision
deprived them of due process since they were not given the opportunity to confront the issue of rescission, not
having been raised as a defense by respondent corporation.

It cannot be denied, however, that respondent Corporation had always invoked its right of first refusal, which
became the basis for our order of rescission. Stated differently, rescission was the necessary relief arising out of
the violation of the right of first refusal. For the same reason, neither may petitioners complain of having been
denied due process as they were given the chance to meet the issue of violation of respondent Corporation's
right of first refusal upon which we anchored our order for the rescission of the Deed of Sale.

WHEREFORE, premises considered, petitioners' Motion for Partial Reconsideration is hereby DENIED for
lack of merit.

SO ORDERED.1âwphi1.nêt

Bellosillo, Melo, Puno, Kapunan, Panganiban, Quisumbing, Purisima, Pardo, Buena, Gonzaga-Reyes and De
Leon, Jr., JJ., concur.​
Davide, Jr., C.J., I reiterate my original vote-joining Mr. Justice Vitug.​
Vitug, J., I reiterate my separate opinion.​
Mendoza, J., I reiterate my previous vote.

EXECUTIVE SUMMARY
The Supreme Court denied the petitioners' Motion for Partial Reconsideration, affirming its earlier decision that

the right of first refusal granted to L & R Corporation in the loan-mortgage contract was valid and enforceable.

The Court clarified the distinction between a right of first refusal and an option contract, emphasizing that the

former does not require a separate consideration and that rescission was the appropriate remedy for its violation.

FACTUAL BACKGROUND
 ​ Petitioner: Sps. Reynaldo K. Litonjua and Erlinda P. Litonjua and Phil. White House Auto Supply, Inc.,

mortgagors who sought to invalidate a right of first refusal clause in their mortgage contract.

​ Respondent: L & R Corporation, the mortgagee who was granted the right of first refusal in the

mortgage contract, Vicente M. Coloyan, and Deputy Sheriff Roberto R. Garcia.

​ Key Facts: The Litonjuas entered into a loan-mortgage agreement with L & R Corporation, which

included a stipulation granting L & R Corporation the right of first refusal should the Litonjuas decide to

sell the mortgaged property. The Litonjuas subsequently sold the property to Philippine Whitehouse

Auto Supply, Inc. without offering it first to L & R Corporation. L & R Corporation then sought

rescission of the sale.

​ Procedural History: The Supreme Court previously ruled in favor of L & R Corporation, ordering the

rescission of the Deed of Sale. The Litonjuas filed a Motion for Partial Reconsideration, arguing that the

right of first refusal clause was invalid and that the rescission deprived them of due process.

LEGAL ISSUES
​ Is paragraph 9 of the mortgage contract, granting the right of first refusal to L & R Corporation, null and

void ab initio for lack of consideration?

​ Did the Supreme Court's decision rescinding the Deed of Sale deprive the petitioners of their right to due

process?

COURT'S RULING & REASONING

Holding on Issue 1: Paragraph 9 of the mortgage contract, granting the right of first refusal to L & R
Corporation, is not null and void ab initio.
​ The Court distinguished between a right of first refusal and an option contract. An option contract

requires a separate consideration, while a right of first refusal does not, as its consideration is built into

the reciprocal obligations of the parties in the main contract (in this case, the loan-mortgage agreement).

​ The Court cited *Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc.*, 264 SCRA 483 (1996)

to illustrate the difference between a right of first refusal and an option contract.

​ The Court stated, "In the instant case, as we have already stated in our Decision sought to be

reconsidered, the consideration for the loan-mortgage includes the consideration for the right of first

refusal."
Holding on Issue 2: The Supreme Court's decision rescinding the Deed of Sale did not deprive the
petitioners of their right to due process.
​ The Court reasoned that respondent Corporation had always invoked its right of first refusal, which

became the basis for the order of rescission. Rescission was the necessary relief arising out of the

violation of the right of first refusal.

​ Petitioners were given the chance to meet the issue of violation of respondent Corporation's right of first

refusal upon which the Court anchored its order for the rescission of the Deed of Sale.

JURISPRUDENTIAL IMPACT
​ This decision reinforces the distinction between a right of first refusal and an option contract under

Philippine law, particularly regarding the requirement of separate consideration.

​ The legal principle clarified is that a right of first refusal, when integrated into a reciprocal contract like

a loan-mortgage agreement, does not require a separate consideration to be valid and enforceable.

​ The broader implications for future cases involve the interpretation of contracts containing rights of first

refusal, emphasizing that the consideration for such rights can be inherent in the overall agreement.

​ The decision affirms the remedy of rescission as appropriate for violations of a valid right of first

refusal.