G.R. No. 106063




G.R. No. 106063, November 21, 1996, ♦ Decision, Hermosisima, Jr., [J] ♦ Separate Opinions, Padilla, Panganiban, Romero, Vitug [JJ] G.R. No. 106063 November 21, 1996 EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC., respondent. Separate Opinion PADILLA, J., concurring: I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically recognize Mayfair's right of first refusal under its contract of lease with Carmelo and Bauermann, Inc. (hereafter, Carmelo) and, because of Carmelo's and Equatorial's bad faith in riding "roughshod" over Mayfair's right of first refusal, the Court should order the rescission of the sale of the Claro M. Recto property by the latter to Equatorial (Art. 1380-1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of P11,300,000.00 for the entire subject property, without any need of instituting a separate action for damages against Carmelo and/or Equatorial. I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair should be required to pay a compounded interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as indemnity for damages in the following instances: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. There appears to be no basis in law for adding 12% per annum compounded interest to the purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly, because Mayfair neither incurred in delay in the performance of its obligation nor committed any breach of contract. Indeed, why should Mayfair be penalized by way of making it pay 12% per annum compounded interest when it was Carmelo which violated Mayfair's right of first refusal under the contract? The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investment-wise and/or operation-wise in its own business. It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the exercise of its right of first refusal, has been subjected to the inroads of inflation so that its purchasing power today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the amount was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also incurred consequential or "opportunity" losses by reason of its failure to acquire and use the property under its right of first refusal. In fine, any loss in purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching Mayfair's contractual right of first refusal to the subject property. ACCORDINGLY, I vote to order the rescission of the contract of sale between Carmelo and Equatorial of the Claro M. Recto property in question, so that within thirty (30) days from the finality of the Court's decision, the property should be retransferred and delivered by Equatorial to Carmelo with the latter simultaneously returning to Equatorial the sum of P11,300, 000.00. I also vote to allow Mayfair to exercise its right of first refusal, by paying to Carmelo the sum of P11,300,000.00 without interest for the entire subject property, within thirty (30) days from re-acquisition by Carmelo of the titles to the property, with the corresponding obligation of Carmelo to sell and transfer the property to Mayfair within the same period of thirty (30) days. Separate Opinion PANGANIBAN, J., concurring: In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice Regino C. Hermosisima, Jr., especially with the following doctrinal pronouncements: 1. That while no option to purchase within the meaning of the second paragraph of Article 1479 of the Civil Code was given to Mayfair Theater, Inc. ("Mayfair"), under the two lease contracts a right of first refusal was in fact granted, for which no separate consideration is required by law to be paid or given so as to make it binding upon Carmelo & Bauermann, Inc. ("Carmelo"); 2. That such right was violated by the latter when it sold the entire property to Equatorial Realty Development, Inc. ("Equatorial") on July 30, 1978, for the sum of P11,300,000.00; 3. That Equatorial is a buyer in bad faith as it was aware of the lease contracts, its own lawyers having studied said contracts prior to the sale; and 4. That, consequently, the contract of sale is rescissible. 5. That, finally, under the proven facts, the right of first refusal may be enforced by an action for specific performance. There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are concerned. It is in items 4 and 5 that there is a marked divergence of opinion. Hence, I shall limit the discussion in this Separate Concurring Opinion to such issues, namely: Is the contract of sale between Carmelo and Equatorial rescissible, and corollarily, may the right of first refusal granted to Mayfair be enforced by an action for specific performance? It is with a great amount of trepidation that I respectfully disagree with the legal proposition espoused by two equally well-respected colleagues, Mme. Justice Flerida Ruth P. Romero and Mr. Justice Jose C. Vitug — who are both acknowledged authorities on Civil Law — that a breach of the covenanted right of first refusal, while warranting a suit for damages under Article 19 of the Civil Code, cannot sanction an action for specific performance without thereby negating the indispensable element of con-sensuality in the perfection of contracts. Ang Yu Asuncion Not In Point Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA,1 which was penned by Mr. Justice Vitug himself. I respectfully submit, however, that that case turned largely on the issue of whether or not the sale of an immovable in breach of a right of first refusal that had been decreed in a final judgment would justify the issuance of certain orders of execution in the same case. The validity of said orders was the subject of the attack before this Court. These orders had not only directed the defendants to execute a deed of sale in favor of the plaintiffs, when there was nothing in the judgment itself decreeing it, but had also set aside the sale made in breach of said right of first refusal and even canceled the title that had been issued to the buyer, who was not a party to the suit and had obviously not been given its day in court. It was thus aptly held: 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.2 In other words, the question of whether specific performance of one's right of first refusal is available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang Yu Asuncion. Consequently, the pronouncements there made bearing on such unlitigated question were mere obiter. Moreover, as will be shown later, the pronouncement that a breach of the right of first refusal would not sanction an action for specific performance but only an action for damages (at p. 615) is at best debatable (and in my humble view, imprecise or incorrect), on top of its being contradicted by extant jurisprudence. Worth bearing in mind is the fact that two juridical relations, both contractual, are involved in the instant case: (1) the deed of sale between the petitioners dated July 30, 1978, and (2) the contract clause establishing Mayfair's right of first refusal which was violated by said sale. With respect to the sale of the property, Mayfair was not a party. It therefore had no personality to sue for its annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily." But the facts as alleged and proved clearly in the case at bar make out a case for rescission under Art. 1177, in relation to Art. 1381(3), of the Civil Code, which pertinently read as follows: Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. Art. 1381. The following contracts are rescissible: x x x x x x x x x (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; x x x x x x x x x (emphasis supplied) The term "creditors" as used in these provisions of the Civil Code is broad enough to include the obligee under an option contract3 as well as under a right of first refusal, sometimes known as a right of first priority.4 Thus, in Nietes, the Supreme Court, speaking through then Mr. Chief Justice Roberto Concepcion, repeatedly referred to the grantee or optionee as "the creditor" and to the grantor or optioner as "the debtor".5 In any case, the personal elements of an obligation are the active and passive subjects thereof, the former being known as creditors or obligees and the latter as debtors or obligors.6 Insofar as the right of first refusal is concerned, Mayfair is the obligee or creditor. As such creditor, Mayfair had, therefore, the right to impugn the sale in question by way of accion pauliana under the last clause of Art. 1177, aforequoted, because the sale was an act done by the debtor to defraud him of his right to acquire the property.7 Rescission was also available under par. 3, Art. 1381, abovequoted, as was expressly held in Guzman, Bocaling & Co., a case closely analogous to this one as it was also an action brought by the lessee to enforce his "right of first priority" — which is just another name for the right of first refusal — and to annul a sale made by the lessor in violation of such right. In said case, this Court, speaking through Mr. Justice Isagani A. Cruz, affirmed the invalidation of the sale and the enforcement of the lessee's right of first priority this wise:8 The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to that agreement and therefore have no personality to seek its annulment. The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article(s) 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. (emphasis supplied) By the same token, the status of a defrauded creditor can, and should, be granted to Mayfair, for it certainly had substantial interests that were prejudiced by the sale of the subject property to petitioner Equatorial in open violation of Mayfair's right of first refusal under its existing contracts with Carmelo. In fact, the parity between that case and the present one does not stop there but extends to the crucial and critical fact that there was manifest bad faith on the part of the buyer. Thus, in Guzman, this Court affirmed in toto the appealed judgment of the Court of Appeals which, in turn, had affirmed the trial court's decision insofar as it invalidated the deed of sale in favor of the petitioner-buyer, cancelled its TCT, and ordered the lessor to execute a deed of sale over the leased property in favor of the lessee for the same price and "under the same terms and conditions", aside from affirming as well the damages awarded, but at a reduced amount.9 In other words, the aggrieved party was allowed to acquire the property itself. The inescapable conclusion from all of the foregoing is not only that rescission is the proper remedy but also — and more importantly — that specific performance was actually used and given free rein as an effective remedy to enforce a right of first refusal in the wake of its violation, in the cited case of Guzman. On the other hand, and as already commented on above, the pronouncement in Ang Yu Asuncion to the effect that specific performance is unavailable to enforce a violated right of first refusal is at best a debatable legal proposition, aside from being contradicted by extant jurisprudence. Let me explain why. The consensuality required for a contract of sale is distinct from, and should not be confused with, the consensuality attendant to the right of first refusal itself. While indeed, prior to the actual sale of the property to Equatorial and the filing of Mayfair's complaint for specific performance, no perfected contract of sale involving the property ever existed between Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a perfected contract between them which established a right of first refusal, or of first priority. Specific Performance Is Viable Remedy The question is: Can this right (of first refusal) be enforced by an action for specific performance upon a showing of its breach by an actual sale of the property under circumstances showing palpable bad faith on the part of both seller and buyer? The answer, I respectfully submit, should be 'yes'. As already noted, Mayfair's right of first refusal in the case before us is embodied in an express covenant in the lease contracts between it as lessee and Carmelo as lessor, hence the right created is one springing from contract.10 Indubitably, this had the force of law between the parties, who should thus comply with it in good faith.11 Such right also established a correlative obligation on the part of Carmelo to give or deliver to Mayfair a formal offer of sale of the property in the event Carmelo decides to sell it. The decision to sell was eventually made. But instead of giving or tendering to Mayfair the proper offer to sell, Carmelo gave it to its now co-petitioner, Equatorial, with whom it eventually perfected and consummated, on July 30, 1978, an absolute sale of the property, doing so within the period of effectivity of Mayfair's right of first refusal. Less than two months later, or in September 1978, with the lease still in full force, Mayfair filed the present suit. Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to sell the property be sent to it by Carmelo, and not to anybody else. This was violated when the offer was made to Equatorial. Under its covenant with Carmelo, Mayfair had the right, at that point, to sue for either specific performance or rescission, with damages in either case, pursuant to Arts. 1165 and 1191, Civil Code.12 An action for specific performance and damages seasonably filed, fortified by a writ of preliminary injunction, would have enabled Mayfair to prevent the sale to Equatorial from taking place and to compel Carmelo to sell the property to Mayfair for the same terms and price, for the reason that the filing of the action for specific performance may juridically be considered as a solemn, formal, and unqualified acceptance by Mayfair of the specific terms of the offer of sale. Note that by that time, the price and other terms of the proposed sale by Carmelo had already been determined, being set forth in the offer of sale that had wrongfully been directed to Equatorial. As it turned out, however, Mayfair did not have a chance to file such suit, for it learned of the sale to Equatorial only after it had taken place. But it did file the present action for specific performance and for invalidation of the wrongful sale immediately after learning about the latter act. The act of promptly filing this suit, coupled with the fact that it is one for specific performance, indicates beyond cavil or doubt Mayfair's unqualified acceptance of the misdirected offer of sale, giving rise, thereby, to a demandable obligation on the part of Carmelo to execute the corresponding document of sale upon the payment of the price of P11,300,000.00. In other words, the principle of consensuality of a contract of sale should be deemed satisfied. The aggrieved party's consent to, or acceptance of, the misdirected offer of sale should be legally presumed in the context of the proven facts. To say, therefore, that the wrongful breach of a right of first refusal does not sanction an action for specific performance simply because, factually, there was no meeting of the minds as to the particulars of the sale since ostensibly no offer was ever made to, let alone accepted by, Mayfair, is to ignore the proven fact of presumed consent. To repeat, that consent was deemed given by Mayfair when it sued for invalidation of the sale and for specific performance of Carmelo's obligation to Mayfair. Nothing in the law as it now stands will be violated, or even simply emasculated, by this holding. On the contrary, the decision in Guzman supports it. Moreover, under the Civil Code provisions on the nature, effect and kinds of obligations,13 Mayfair's right of first refusal may be classified as one subject to a suspensive condition — namely, if Carmelo should decide to sell the leased premises during the life of the lease contracts, then it should make an offer of sale to Mayfair. Futurity and uncertainty, which are the essential characteristics of a condition,14 were distinctly present. Before the decision to sell was made, Carmelo had absolutely no obligation to sell the property to Mayfair, nor even to make an offer to sell, because in conditional obligations, where the condition is suspensive, the acquisition of rights depends upon the happening of the event which constitutes the condition.15 Had the decision to sell not been made at all, or had it been made after the expiry of the lease, the parties would have stood as if the conditional obligation had never existed.16 But the decision to sell was in fact made. And it was made during the life and efficacy of the lease. Undoubtedly, the condition was duly fulfilled; the right of first refusal effectively accrued and became enforceable; and correlatively, Carmelo's obligation to make and send the offer to Mayfair became immediately due and demandable.17 That obligation was to deliver to Mayfair an offer to sell a determinate thing for a determinate price. As things turned out, a definite and specific offer to sell the entire property for the price of P11,300,000.00 was actually made by Carmelo — but to the wrong party. It was that particular offer, and no other, which Carmelo should have delivered to Mayfair, but failed to deliver. Hence, by the time the obligation of Carmelo accrued through the fulfillment of the suspensive condition, the offer to sell had become a determinate thing. Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies available to the creditor against the debtor, when it provides that "(w)hen what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery," clearly authorizing not only the recovery of damages under Art. 1170 but also an action for specific performance. But even assuming that Carmelo's prestation did not involve the delivery of a determinate offer but only a generic one, the second paragraph of Art. 1165 explicitly gives to the creditor the right "to ask that the obligation be complied with at the expense of the debtor." The availability of an action for specific performance is thus clear and beyond doubt. And the correctness of Guzman becomes all the more manifest. Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact that the jurisprudence upon which it supposedly rests — namely, the cases of Madrigal & CO. vs. Stevenson & Co.18 and Salonga vs. Farrales19 — did NOT involve a right of first refusal or of first priority. Nor did those two cases involve an option to buy. In Madrigal, plaintiff sued defendant for damages claiming wrongful breach of an alleged contract of sale of 2,000 tons of coal. The case was dismissed because "the minds of the parties never met upon a contract of sale by defendant to plaintiff",20 each party having signed the broker's memorandum as buyer, erroneously thinking that the other party was the seller! In Salonga, a lessee, who was one of several lessees ordered by final judgment to vacate the leased premises, sued the lessor to compel the latter to sell the leased premises to him, but his suit was not founded upon any right of first refusal and was therefore dismissed on the ground that there was no perfected sale in his favor. He just thought that because the lessor had decided to sell and in fact sold portions of the property to her other lessees, she was likewise obligated to sell to him even in the absence of a perfected contract of sale. In fine, neither of the two cases cited in support of the legal proposition that a breach of the right of first refusal does not sanction an action for specific performance but, at best, only one for damages, provides such support. Finally, the fact that what was eventually sold to Equatorial was the entire property, not just the portions leased to Mayfair, is no reason to deprive the latter of its right to receive a formal and specific offer. The offer of a larger property might have led Mayfair to reject the offer, but until and unless such rejection was actually made, its right of first refusal still stood. Upon the other hand, an acceptance by Mayfair would have saved all concerned the time, trouble, and expense of this protracted litigation. In any case, the disquisition by the Court of Appeals on this point can hardly be faulted; in fact, it amply justifies the conclusions reached in its decision, as well as the dispositions made therein. IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the assailed Decision. Footnotes 1 238 SCRA 602, December 2, 1994. 2 At pp. 615-616; emphasis supplied. 3 Cf . Nietes vs. CA, 46 SCRA 654, 662, August 18, 1972. 4 Guzman, Bocaling & Co. vs. Bonnevie, 206 SCRA 668, March 2, 1992. 5 Supra, at p. 662. 6 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1986 Ed., Vol. IV, pp. 54-55. 7 Id., p. 140. 8 Supra, at p. 675. 9 Supra, at pp. 672-673. 10 Art. 1157, par. 2, Civil Code. 11 Arts. 1159 and 1315, Civil Code. 12 "Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. x x x x x x x x x "Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law." 13 Chapters 2 and 3, Title I, Book IV of the Civil Code. 14 Tolentino, Civil Code, 1991 Ed., Vol. IV, p. 144. 15 Art. 1181, Civil Code; Wise & Co. vs. Kelly, 37 Phil. 696 (1918). 16 Gaite vs. Fonacier, 2 SCRA 830, July 31, 1961; Rose Packing Co., Inc. vs. Court of Appeals, 167 SCRA 309, November 14, 1988. 17 Hermosa vs. Longara, 93 Phil. 977, 982 (1953). 18 15 Phil. 38 (1910). 19 105 SCRA 359, July 10, 1981. 20 Supra, at p. 43. Separate Opinion ROMERO, J., concurring and dissenting: I share the opinion that the right granted to Mayfair Theater under the identical par 8 of the June 1, 1967 and March 31, 1969 contracts constitute a right of first refusal. An option is a privilege granted to buy a determinate thing at a price certain within a specified time and is usually supported by a consideration which is why, it may be regarded as a contract in itself. The option results in a perfected contract of sale once the person to whom it is granted decides to exercise it. The right of first refusal is unlike an option which requires a certainty as to the object and consideration of the anticipated contract. When the right of first refusal is exercised, there is no perfected contract of sale because the other terms of the sale have yet to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree, the latter may only recover damages in the belief that a contract could have been perfected under Article 19 of the New Civil Code. I beg to disagree, however, with the majority opinion that the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Inc., should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground for recission apparently relied on the case of Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened to the status of a creditor. The case, in citing Tolentino, stated that rescission is a remedy granted by law to contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of restoration of things to their condition prior to celebration of the contract. It is my opinion that "third persons" should be construed to refer to the wards, creditors, absentees, heirs and others enumerated under the law who are prejudiced by the contract sought to be rescinded. It should be borne in mind that rescission is an extreme remedy which may be exercised only in the specific instances provided by law. Article 1381 (3) specifically refers to contracts undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them. If rescission were allowed for analogous cases, the law would have so stated. While Article 1381 (5) itself says that rescission may be granted to all other contracts specially declared by law to be subject to rescission, there is nothing in the law that states that an offeree who failed to exercise his right of refusal because of bad faith on the part of the offeror may rescind the subsequent contract entered into by the offeror and a third person. Hence, there is no legal justification to rescind the contract between Carmelo and Bauermann, Inc. and Equatorial Realty. Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and Bauermann, Inc. the amount of P11,300,000.00 plus compounded interest of 12% p.a. Justice Melo rationalized that had Carmelo and Bauermann sold the property to Mayfair, the latter would have paid the property for the same price that Equatorial bought it. It bears emphasis that Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to the price of the property in dispute because the negotiations between the two parties were not pursued to its very end. We cannot, even for reasons of equity, compel Carmelo to sell the entire property to Mayfair at P11,300,000.00 without violating the consensual nature of contracts. I vote, therefore, not to rescind the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Development Corp. Separate Opinion VITUG, J., dissenting: I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer nor an option but merely a right of first refusal as has been so well and amply essayed in the ponencia of our distinguished colleague Mr. Justice Regino C. Hermosisima, Jr. Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code invoked to be the statutory authority for the rescission of the contract of sale between Carmelo & Bauermann, Inc., and Equatorial Realty Development, Inc., has been misapplied. The action for rescission under that provision of the law, unlike in the resolution of reciprocal obligations under Article 1191 of the Code, is merely subsidiary and relates to the specific instance when a debtor, in an attempt to defraud his creditor, enters into a contract with another that deprives the creditor to recover his just claim and leaves him with no other legal means, than by rescission, to obtain reparation. Thus, the rescission is only to the extent necessary to cover the damages caused (Article 1384, Civil Code) and, consistent with its subsidiary nature, would require the debtor to be an indispensable party in the action (see Gigante vs. Republic Savings Bank, 135 Phil. 359). The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the Civil Code's title on "Human Relations," is not altered by the fact alone that it might be among the stipulated items in a separate document or even in another contract. A "breach" of the right of first refusal can only give rise to an action for damages primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an action for specific performance set out under Book IV of the Code on "Obligations and Contracts." That right, standing by itself, is far distant from being the obligation referred to in Article 1159 of the Code which would have the force of law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor relation between the parties. If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option, certainly, and with much greater reason, it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract. It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It is basic that without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract against his will or compelled to perform thereunder. It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and Mayfair, neither the rescission of the contract between Carmelo and Equatorial nor the directive to Carmelo to sell the property to Mayfair would be legally appropriate. My brief disquisition should have ended here except for some personal impressions expressed by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which perhaps need to be addressed. The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter dictum. Justice Panganiban states: The case "turned largely on the issue of whether or not the sale of an immovable in breach of a right of first refusal that had been decreed in a final judgment would justify the issuance of certain orders of execution in the same case. . . . . In other words, the question of whether specific performance of one's right of first refusal is available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang Yu Asuncion." Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as found by the Court of Appeals and as later quoted by this Court would readily disclose that the "right of first refusal" was a major point in the controversy. Indeed, the trial and the appellate courts had rule on it. With due respect, I would not deem it "entirely unnecessary" for this Court to itself discuss the legal connotation and significance of the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized that, in the case of Buen Realty Development Corporation (the alleged purchaser of the property), the latter could not be held subject of the writ of execution and be ousted from the ownership and possession of the disputed property without first affording it due process, the Court decided to simply put a cap in the final disposition of the case but it could not have intended to thereby mitigate the import of its basic ratio decidendi. Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right of first refusal does not sanction an action for specific performance but only an action for damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being contradicted by extant jurisprudence." He then comes up with the novel proposition that "Mayfair's right of first refusal may be classified as one subject to a suspensive condition — namely, if Carmelo should decide to sell the leased premises during the life of the lease contracts, then it should make an offer of sale to Mayfair," presumably enforceable by action for specific performance. It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations as contracts, options, and rights of first refusal since they differ, substantially enough, in their concepts, consequences and legal implications. Very briefly, in the area on sales particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc, which held: 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. An obligation, and so a conditional obligation as well (albeit subject to the occurrence of the condition), in its context under Book IV of the Civil Code, can only be "a juridical necessity to give, to do or not to do" (Art. 1156, Civil Code), and one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code) which all have their respective legal significance rather well settled in law. The law certainly must have meant to provide congruous, albeit contextual, consequences to its provisions. Interpretare et concordore legibus est optimus interpretendi. As a valid source of an obligation, a contract must have the concurrence of (a) consent of the contracting parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are essential. The consent contemplated by the law is that which is manifested by the meeting of the offer and of the acceptance upon the object and the cause of the obligation. The offer must be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot have the effect of a contract because, by its very essence, certain basic terms would have yet to be determined and fixed. How its "breach" be also its perfection escapes me. It is only when the elements concur that the juridical act would have the force of law between the contracting parties that must be complied with in good faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or obligee (the passive subject) to invoke the remedy that specifically appertains to it. The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of specific performance in obligations to give specific things (Articles 1165 and 1167 of the Civil Code), substitute performance in an obligation to do or to deliver generic things (Article 1165 of the Civil Code) and equivalent performance for damages (Articles 1168 and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal obligations; and (b) the subsidiary remedies that may be availed of when the principal remedies are unavailable or ineffective such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also Articles 1729 and 1893 of the Civil Code); and (ii) accion pauliana or rescissory action (Articles 1177 and 1381 of the Civil Code). And, in order to secure the integrity of final judgments, such ancillary remedies as attachments, replevin, garnishments, receivership, examination of the debtor, and similar remedies, are additionally provided for in procedural law. Might it be possible, however, that Justice Panganiban was referring to how Ang Yu could relate to the instant case for, verily, his remark, earlier quoted, was followed by an extensive discussion on the factual and case milieu of the present petition? If it were, then I guess it was the applicability of the Ang Yu decision to the instant case that he questioned, but that would not make Ang Yu "imprecise" or "incorrect." Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman, Bocaling & Co. vs. Bonnevie (206 SCRA 668). I would not be too hasty in concluding similarly. In Guzman, the stipulation involved, although loosely termed a "right of first priority," was, in fact, a contract of option. The provision in the agreement there stated: 20. — In case the LESSOR desires or decides to sell the leased property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal.(At page 670; emphasis supplied.) In the above stipulation, the Court ruled, in effect, that the basic terms had been adequately, albeit briefly, spelled out with the lease consideration being deemed likewise to be the essential cause for the option. The situation undoubtedly was not the same that prevailed in Ang Yu or, for that matter, in the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo & Bauermann, Inc., merely read: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. The provision was too indefinite to allow it to even come close to within the area of the Guzman ruling. Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs. Stevenson & Co. and Salonga vs. Farrales (cited in Ang Yu) did NOT involve a right of first refusal or of first priority. Nor did those two cases involve an option to buy." The two cases, to set the record straight, were cited, not because they were thought to involve a right of first refusal or an option to buy but to emphasize the indispensability of consensuality over the object and cause of contracts in their perfection which would explain why, parallel therewith, Articles 1315 and 1318 of the Civil Code were also mentioned. One final note: A right of first refusal, in its proper usage, is not a contract; when parties instead make certain the object and the cause thereof and support their understanding with an adequate consideration, that juridical relation is not to be taken as just a right of first refusal but as a contract in itself (termed an "option"). There is, unfortunately, in law a limit to an unabated use of common parlance. With all due respect, I hold that the judgment of the trial court, although not for all the reasons it has advanced, should be REINSTATED. The Lawphil Project - Arellano Law Foundation

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