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were 4 lots adjacent to the "Retained Area"

Republic of the Philippines


and Ayala agreed to offer these lots for sale
SUPREME COURT
to the Vazquez spouses at the prevailing
Manila
price at the time of purchase. The relevant
SECOND DIVISION provisions of the MOA on this point are:
G.R. No. 149734 November 19, 2004 "5.7. The BUYER hereby commits that it will
DR. DANIEL VAZQUEZ and MA. LUIZA M. develop the 'Remaining Property' into a first
VAZQUEZ, petitioners, class residential subdivision of the same
vs. class as its New Alabang Subdivision, and
AYALA CORPORATION, respondent. that it intends to complete the first phase
under its amended development plan within
three (3) years from the date of this
DECISION Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS
a first option to purchase four developed lots
TINGA, J.: next to the "Retained Area" at the prevailing
The rise in value of four lots in one of the country's market price at the time of the purchase."
prime residential developments, Ayala Alabang The parties are agreed that the development
Village in Muntinlupa City, over a period of six (6) plan referred to in paragraph 5.7 is not
years only, represents big money. The huge price Conduit's development plan, but Ayala's
difference lies at the heart of the present amended development plan which was still
controversy. Petitioners insist that the lots should be to be formulated as of the time of the MOA.
sold to them at 1984 prices while respondent While in the Conduit plan, the 4 lots to be
maintains that the prevailing market price in 1990 offered for sale to the Vasquez Spouses were
should be the selling price. in the first phase thereof or Village 1, in the
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed Ayala plan which was formulated a year
this Petition for Review on Certiorari2 dated October later, it was in the third phase, or Phase II-c.
11, 2001 assailing the Decision3 of the Court of Under the MOA, the Vasquez spouses made
Appeals dated September 6, 2001 which reversed several express warranties, as follows:
the Decision4 of the Regional Trial Court (RTC) and
dismissed their complaint for specific performance "3.1. The SELLERS shall deliver to the BUYER:
and damages against Ayala Corporation. xxx
Despite their disparate rulings, the RTC and the 3.1.2. The true and complete list, certified by
appellate court agree on the following the Secretary and Treasurer of the Company
antecedents:5 showing:
On April 23, 1981, spouses Daniel Vasquez xxx
and Ma. Luisa M. Vasquez (hereafter,
Vasquez spouses) entered into a D. A list of all persons and/or entities with
Memorandum of Agreement (MOA) with whom the Company has pending contracts, if
Ayala Corporation (hereafter, AYALA) with any.
AYALA buying from the Vazquez spouses, all xxx
of the latter's shares of stock in Conduit
3.1.5. Audited financial statements of the
Development, Inc. (hereafter, Conduit). The
Company as at Closing date.
main asset of Conduit was a 49.9 hectare
property in Ayala Alabang, Muntinlupa, which 4. Conditions Precedent
was then being developed by Conduit under All obligations of the BUYER under this
a development plan where the land was Agreement are subject to fulfillment prior to
divided into Villages 1, 2 and 3 of the "Don or at the Closing, of the following conditions:
Vicente Village." The development was then
being undertaken for Conduit by G.P. 4.1. The representations and warranties by
Construction and Development Corp. the SELLERS contained in this Agreement
(hereafter, GP Construction). shall be true and correct at the time of
Closing as though such representations and
Under the MOA, Ayala was to develop the warranties were made at such time; and
entire property, less what was defined as the
"Retained Area" consisting of 18,736 square xxx
meters. This "Retained Area" was to be 6. Representation and Warranties by the
retained by the Vazquez spouses. The area SELLERS
to be developed by Ayala was called the
"Remaining Area". In this "Remaining Area"
The SELLERS jointly and severally represent or of any governmental investigation relative
and warrant to the BUYER that at the time of to the Company.
the execution of this Agreement and at the 7.6.4 To the knowledge of the SELLERS, no
Closing: default or breach exists in the due
xxx performance and observance by the
Company of any term, covenant or condition
6.2.3. There are no actions, suits or
of any instrument or agreement to which the
proceedings pending, or to the knowledge of
company is a party or by which it is bound,
the SELLERS, threatened against or affecting
and no condition exists which, with notice or
the SELLERS with respect to the Shares or
lapse of time or both, will constitute such
the Property; and
default or breach."
7. Additional Warranties by the SELLERS
After the execution of the MOA, Ayala caused
7.1. With respect to the Audited Financial the suspension of work on Village 1 of the
Statements required to be submitted at Don Vicente Project. Ayala then received a
Closing in accordance with Par. 3.1.5 above, letter from one Maximo Del Rosario of Lancer
the SELLER jointly and severally warrant to General Builder Corporation informing Ayala
the BUYER that: that he was claiming the amount of
7.1.1 The said Audited Financial Statements P1,509,558.80 as the subcontractor of G.P.
shall show that on the day of Closing, the Construction...
Company shall own the "Remaining G.P. Construction not being able to reach an
Property", free from all liens and amicable settlement with Lancer, on March
encumbrances and that the Company shall 22, 1982, Lancer sued G.P. Construction,
have no obligation to any party except for Conduit and Ayala in the then Court of First
billings payable to GP Construction & Instance of Manila in Civil Case No. 82-8598.
Development Corporation and advances G.P. Construction in turn filed a cross-claim
made by Daniel Vazquez for which BUYER against Ayala. G.P. Construction and Lancer
shall be responsible in accordance with Par. 2 both tried to enjoin Ayala from undertaking
of this Agreement. the development of the property. The suit
7.1.2 Except to the extent reflected or was terminated only on February 19, 1987,
reserved in the Audited Financial Statements when it was dismissed with prejudice after
of the Company as of Closing, and those Ayala paid both Lancer and GP Construction
disclosed to BUYER, the Company as of the the total of P4,686,113.39.
date thereof, has no liabilities of any nature Taking the position that Ayala was obligated
whether accrued, absolute, contingent or to sell the 4 lots adjacent to the "Retained
otherwise, including, without limitation, tax Area" within 3 years from the date of the
liabilities due or to become due and whether MOA, the Vasquez spouses sent several
incurred in respect of or measured in respect "reminder" letters of the approaching so-
of the Company's income prior to Closing or called deadline. However, no demand after
arising out of transactions or state of facts April 23, 1984, was ever made by the
existing prior thereto. Vasquez spouses for Ayala to sell the 4 lots.
7.2 SELLERS do not know or have no On the contrary, one of the letters signed by
reasonable ground to know of any basis for their authorized agent, Engr. Eduardo Turla,
any assertion against the Company as at categorically stated that they expected
closing or any liability of any nature and in "development of Phase 1 to be completed by
any amount not fully reflected or reserved February 19, 1990, three years from the
against such Audited Financial Statements settlement of the legal problems with the
referred to above, and those disclosed to previous contractor."
BUYER. By early 1990 Ayala finished the
xxx xxx xxx development of the vicinity of the 4 lots to be
offered for sale. The four lots were then
7.6.3 Except as otherwise disclosed to the offered to be sold to the Vasquez spouses at
BUYER in writing on or before the Closing, the prevailing price in 1990. This was
the Company is not engaged in or a party to, rejected by the Vasquez spouses who wanted
or to the best of the knowledge of the to pay at 1984 prices, thereby leading to the
SELLERS, threatened with, any legal action or suit below.
other proceedings before any court or
administrative body, nor do the SELLERS After trial, the court a quo rendered its
know or have reasonable grounds to know of decision, the dispositive portion of which
any basis for any such action or proceeding states:
"THEREFORE, judgment is hereby rendered development plan. Nowhere does the MOA provide
in favor of plaintiffs and against defendant, that Ayala Corporation shall follow Conduit's
ordering defendant to sell to plaintiffs the development plan nor is Ayala Corporation
relevant lots described in the Complaint in prohibited from changing the sequence of the
the Ayala Alabang Village at the price of phases of the property it will develop.
P460.00 per square meter amounting to Anent the question of delay, the Court of Appeals
P1,349,540.00; ordering defendant to ruled that there was no delay as petitioners never
reimburse to plaintiffs attorney's fees in the made a demand for Ayala Corporation to sell the
sum of P200,000.00 and to pay the cost of subject lots to them. According to the appellate
the suit." court, what petitioners sent were mere reminder
In its decision, the court a quo concluded letters the last of which was dated prior to April 23,
that the Vasquez spouses were not obligated 1984 when the obligation was not yet demandable.
to disclose the potential claims of GP At any rate, the Court of Appeals found that
Construction, Lancer and Del Rosario; Ayala's petitioners in fact waived the three (3)-year period
accountants should have opened the records when they sent a letter through their agent, Engr.
of Conduit to find out all claims; the warranty Eduardo Turla, stating that they "expect that the
against suit is with respect to "the shares of development of Phase I will be completed by 19
the Property" and the Lancer suit does not February 1990, three years from the settlement of
affect the shares of stock sold to Ayala; Ayala the legal problems with the previous contractor."7
was obligated to develop within 3 years; to The appellate court likewise ruled that paragraph
say that Ayala was under no obligation to 5.15 above-quoted is not an option contract but a
follow a time frame was to put the Vasquezes right of first refusal there being no separate
at Ayala's mercy; Ayala did not develop consideration therefor. Since petitioners refused
because of a slump in the real estate market; Ayala Corporation's offer to sell the subject lots at
the MOA was drafted and prepared by the the reduced 1990 price of P5,000.00 per square
AYALA who should suffer its ambiguities; the meter, they have effectively waived their right to
option to purchase the 4 lots is valid because buy the same.
it was supported by consideration as the
option is incorporated in the MOA where the In the instant Petition, petitioners allege that the
parties had prestations to each other. appellate court erred in ruling that they violated
[Emphasis supplied] their warranties under the MOA; that Ayala
Corporation was not obliged to develop the
Ayala Corporation filed an appeal, alleging that the "Remaining Property" within three (3) years from
trial court erred in holding that petitioners did not the execution of the MOA; that Ayala was not in
breach their warranties under the MOA6 dated April delay; and that paragraph 5.15 of the MOA is a mere
23, 1981; that it was obliged to develop the land right of first refusal. Additionally, petitioners insist
where the four (4) lots subject of the option to that the Court should review the factual findings of
purchase are located within three (3) years from the the Court of Appeals as they are in conflict with
date of the MOA; that it was in delay; and that the those of the trial court.
option to purchase was valid because it was
incorporated in the MOA and the consideration Ayala Corporation filed a Comment on the Petition8
therefor was the commitment by Ayala Corporation dated March 26, 2002, contending that the petition
to petitioners embodied in the MOA. raises questions of fact and seeks a review of
evidence which is within the domain of the Court of
As previously mentioned, the Court of Appeals Appeals. Ayala Corporation maintains that the
reversed the RTC Decision. According to the subcontract between GP Construction, with whom
appellate court, Ayala Corporation was never Conduit contracted for the development of the
informed beforehand of the existence of the Lancer property under a Construction Contract dated
claim. In fact, Ayala Corporation got a copy of the October 10, 1980, and Lancer was not disclosed by
Lancer subcontract only on May 29, 1981 from G.P. petitioners during the negotiations. Neither was the
Construction's lawyers. The Court of Appeals thus liability for Lancer's claim included in the Audited
held that petitioners violated their warranties under Financial Statements submitted by petitioners after
the MOA when they failed to disclose Lancer's the signing of the MOA. These justify the conclusion
claims. Hence, even conceding that Ayala that petitioners breached their warranties under the
Corporation was obliged to develop and sell the four afore-quoted paragraphs of the MOA. Since the
(4) lots in question within three (3) years from the Lancer suit ended only in February 1989, the three
date of the MOA, the obligation was suspended (3)-year period within which Ayala Corporation
during the pendency of the case filed by Lancer. committed to develop the property should only be
Interpreting the MOA's paragraph 5.7 above-quoted, counted thence. Thus, when it offered the subject
the appellate court held that Ayala Corporation lots to petitioners in 1990, Ayala Corporation was
committed to develop the first phase of its own not yet in delay.
amended development plan and not Conduit's
In response to petitioners' contention that there was importantly, their letter dated June 27, 1988 through
no action or proceeding against them at the time of Engr. Eduardo Turla expressed petitioners'
the execution of the MOA on April 23, 1981, Ayala expectation that Phase 1 will be completed by
Corporation avers that the facts and circumstances February 19, 1990.
which gave rise to the Lancer claim were already Lastly, Ayala Corporation maintains that paragraph
extant then. Petitioners warranted that their 5.15 of the MOA is a right of first refusal and not an
representations under the MOA shall be true and option contract.
correct at the time of "Closing" which shall take
place within four (4) weeks from the signing of the Petitioners filed their Reply11 dated August 15,
MOA.9 Since the MOA was signed on April 23, 1981, 2002 reiterating the arguments in their Petition and
"Closing" was approximately the third week of May contending further that they did not violate their
1981. Hence, Lancer's claims, articulated in a letter warranties under the MOA because the case was
which Ayala Corporation received on May 4, 1981, filed by Lancer only on April 1, 1982, eleven (11)
are among the liabilities warranted against under months and eight (8) days after the signing of the
paragraph 7.1.2 of the MOA. MOA on April 23, 1981. Ayala Corporation admitted
that it received Lancer's claim before the "Closing"
Moreover, Ayala Corporation asserts that the date. It therefore had all the time to rescind the
warranties under the MOA are not just against suits MOA. Not having done so, it can be concluded that
but against all kinds of liabilities not reflected in the Ayala Corporation itself did not consider the matter
Audited Financial Statements. It cannot be faulted a violation of petitioners' warranty.
for relying on the express warranty that except for
billings payable to GP Construction and advances Moreover, petitioners submitted the Audited
made by petitioner Daniel Vazquez in the amount of Financial Statements of Conduit and allowed an
P38,766.04, Conduit has no other liabilities. Hence, acquisition audit to be conducted by Ayala
petitioners cannot claim that Ayala Corporation Corporation. Thus, the latter bought Conduit with
should have examined and investigated the Audited "open eyes."
Financial Statements of Conduit and should now Petitioners also maintain that they had no
assume all its obligations and liabilities including the knowledge of the impending case against Conduit at
Lancer suit and the cross-claim of GP Construction. the time of the execution of the MOA. Further, the
Furthermore, Ayala Corporation did not make a MOA makes Ayala Corporation liable for the
commitment to complete the development of the payment of all billings of GP Construction. Since
first phase of the property within three (3) years Lancer's claim was actually a claim against GP
from the execution of the MOA. The provision refers Construction being its sub-contractor, it is Ayala
to a mere declaration of intent to develop the first Corporation and not petitioners which is liable.
phase of its (Ayala Corporation's) own development Likewise, petitioners aver that although Ayala
plan and not Conduit's. True to its intention, Ayala Corporation may change the sequence of its
Corporation did complete the development of the development plan, it is obliged under the MOA to
first phase (Phase II-A) of its amended development develop the entire area where the subject lots are
plan within three (3) years from the execution of the located in three (3) years.
MOA. However, it is not obliged to develop the third
phase (Phase II-C) where the subject lots are located They also assert that demand was made on Ayala
within the same time frame because there is no Corporation to comply with their obligation under
contractual stipulation in the MOA therefor. It is free the MOA. Apart from their reminder letters dated
to decide on its own the period for the development January 24, February 18 and March 5, 1984, they
of Phase II-C. If petitioners wanted to impose the also sent a letter dated March 4, 1984 which they
same three (3)-year timetable upon the third phase claim is a categorical demand for Ayala Corporation
of the amended development plan, they should to comply with the provisions of the MOA.
have filed a suit to fix the time table in accordance The parties were required to submit their respective
with Article 119710 of the Civil Code. Having failed memoranda in the Resolution12 dated November
to do so, Ayala Corporation cannot be declared to 18, 2002. In compliance with this directive,
have been in delay. petitioners submitted their Memorandum13 dated
Ayala Corporation further contends that no demand February 14, 2003 on even date, while Ayala
was made on it for the performance of its alleged Corporation filed its Memorandum14 dated February
obligation. The letter dated October 4, 1983 sent 14, 2003 on February 17, 2003.
when petitioners were already aware of the Lancer We shall first dispose of the procedural question
suit did not demand the delivery of the subject lots raised by the instant petition.
by April 23, 1984. Instead, it requested Ayala
Corporation to keep petitioners posted on the status It is well-settled that the jurisdiction of this Court in
cases brought to it from the Court of Appeals by
of the case. Likewise, the letter dated March 4, 1984
was merely an inquiry as to the date when the way of petition for review under Rule 45 is limited to
reviewing or revising errors of law imputed to it, its
development of Phase 1 will be completed. More
findings of fact being conclusive on this Court as a Corporation did not deny this. In fact, Mr. Duarte's
matter of general principle. However, since in the letter18 dated March 6, 1984 indicates that Ayala
instant case there is a conflict between the factual Corporation had knowledge of the Lancer
findings of the trial court and the appellate court, subcontract prior to its acquisition of Conduit. Ayala
particularly as regards the issues of breach of Corporation even admitted that it "tried to explore…
warranty, obligation to develop and incurrence of legal basis to discontinue the contract of Conduit
delay, we have to consider the evidence on record with GP" but found this "not feasible when
and resolve such factual issues as an exception to information surfaced about the tacit consent of
the general rule.15 In any event, the submitted Conduit to the sub-contracts of GP with Lancer."
issue relating to the categorization of the right to At the latest, Ayala Corporation came to know of the
purchase granted to petitioners under the MOA is Lancer claim before the date of Closing of the MOA.
legal in character. Lancer's letter19 dated April 30, 1981 informing
The next issue that presents itself is whether Ayala Corporation of its unsettled claim with GP
petitioners breached their warranties under the MOA Construction was received by Ayala Corporation on
when they failed to disclose the Lancer claim. The May 4, 1981, well before the "Closing"20 which
trial court declared they did not; the appellate court occurred four (4) weeks after the date of signing of
found otherwise. the MOA on April 23, 1981, or on May 23, 1981.
Ayala Corporation summarizes the clauses of the The full text of the pertinent clauses of the MOA
MOA which petitioners allegedly breached when quoted hereunder likewise indicate that certain
they failed to disclose the Lancer claim: matters pertaining to the liabilities of Conduit were
disclosed by petitioners to Ayala Corporation
a) Clause 7.1.1. – that Conduit shall not be
although the specifics thereof were no longer
obligated to anyone except to GP
included in the MOA:
Construction for P38,766.04, and for
advances made by Daniel Vazquez; 7.1.1 The said Audited Financial Statements
shall show that on the day of Closing, the
b) Clause 7.1.2. – that except as reflected in
Company shall own the "Remaining
the audited financial statements Conduit had
Property", free from all liens and
no other liabilities whether accrued,
encumbrances and that the Company shall
absolute, contingent or otherwise;
have no obligation to any party except for
c) Clause 7.2. – that there is no basis for any billings payable to GP Construction &
assertion against Conduit of any liability of Development Corporation and advances
any value not reflected or reserved in the made by Daniel Vazquez for which BUYER
financial statements, and those disclosed to shall be responsible in accordance with
Ayala; Paragraph 2 of this Agreement.
d) Clause 7.6.3. – that Conduit is not 7.1.2 Except to the extent reflected or
threatened with any legal action or other reserved in the Audited Financial Statements
proceedings; and of the Company as of Closing, and those
e) Clause 7.6.4. – that Conduit had not disclosed to BUYER, the Company as of the
breached any term, condition, or covenant of date hereof, has no liabilities of any nature
any instrument or agreement to which it is a whether accrued, absolute, contingent or
party or by which it is bound.16 otherwise, including, without limitation, tax
liabilities due or to become due and whether
The Court is convinced that petitioners did not incurred in respect of or measured in respect
violate the foregoing warranties. of the Company's income prior to Closing or
The exchanges of communication between the arising out of transactions or state of facts
parties indicate that petitioners substantially existing prior thereto.
apprised Ayala Corporation of the Lancer claim or 7.2 SELLERS do not know or have no
the possibility thereof during the period of reasonable ground to know of any basis for
negotiations for the sale of Conduit. any assertion against the Company as at
In a letter17 dated March 5, 1984, petitioner Daniel Closing of any liability of any nature and in
Vazquez reminded Ayala Corporation's Mr. Adolfo any amount not fully reflected or reserved
Duarte (Mr. Duarte) that prior to the completion of against such Audited Financial Statements
the sale of Conduit, Ayala Corporation asked for and referred to above, and those disclosed to
was given information that GP Construction sub- BUYER.
contracted, presumably to Lancer, a greater xxx xxx xxx
percentage of the project than it was allowed.
Petitioners gave this information to Ayala 7.6.3 Except as otherwise disclosed to the
Corporation because the latter intimated a desire to BUYER in writing on or before the Closing,
"break the contract of Conduit with GP." Ayala the Company is not engaged in or a party to,
or to the best of the knowledge of the your subcontracts affecting the property of
SELLERS, threatened with, any legal action or Conduit, not only with Lancer General
other proceedings before any court or Builders Corporation, but all subcontracts
administrative body, nor do the SELLERS with other parties as well…24
know or have reasonable grounds to know of Quite tellingly, Ayala Corporation even attached to
any basis for any such action or proceeding its Pre-Trial Brief25 dated July 9, 1992 a copy of the
or of any governmental investigation relative letter26 dated May 28, 1981 of GP Construction's
to the Company. counsel addressed to Conduit furnishing the latter
7.6.4 To the knowledge of the SELLERS, no with copies of all sub-contract agreements entered
default or breach exists in the due into by GP Construction. Since it was addressed to
performance and observance by the Conduit, it can be presumed that it was the latter
Company of any term, covenant or condition which gave Ayala Corporation a copy of the letter
of any instrument or agreement to which the thereby disclosing to the latter the existence of the
Company is a party or by which it is bound, Lancer sub-contract.
and no condition exists which, with notice or The ineluctable conclusion is that petitioners did not
lapse of time or both, will constitute such violate their warranties under the MOA. The Lancer
default or breach."21 [Emphasis supplied] sub-contract and claim were substantially disclosed
Hence, petitioners' warranty that Conduit is not to Ayala Corporation before the "Closing" date of the
engaged in, a party to, or threatened with any legal MOA. Ayala Corporation cannot disavow knowledge
action or proceeding is qualified by Ayala of the claim.
Corporation's actual knowledge of the Lancer claim Moreover, while in its correspondence with
which was disclosed to Ayala Corporation before the petitioners, Ayala Corporation did mention the filing
"Closing." of the Lancer suit as an obstacle to its development
At any rate, Ayala Corporation bound itself to pay all of the property, it never actually brought up nor
billings payable to GP Construction and the sought redress for petitioners' alleged breach of
advances made by petitioner Daniel Vazquez. warranty for failure to disclose the Lancer claim until
Specifically, under paragraph 2 of the MOA referred it filed its Answer27 dated February 17, 1992.
to in paragraph 7.1.1, Ayala Corporation undertook We now come to the correct interpretation of
responsibility "for the payment of all billings of the paragraph 5.7 of the MOA. Does this paragraph
contractor GP Construction & Development express a commitment or a mere intent on the part
Corporation after the first billing and any payments of Ayala Corporation to develop the property within
made by the company and/or SELLERS shall be three (3) years from date thereof? Paragraph 5.7
reimbursed by BUYER on closing which advances to provides:
date is P1,159,012.87."22
5.7. The BUYER hereby commits that it will
The billings knowingly assumed by Ayala develop the 'Remaining Property' into a first
Corporation necessarily include the Lancer claim for class residential subdivision of the same
which GP Construction is liable. Proof of this is Ayala class as its New Alabang Subdivision, and
Corporation's letter23 to GP Construction dated that it intends to complete the first phase
before "Closing" on May 4, 1981, informing the under its amended development plan within
latter of Ayala Corporation's receipt of the Lancer three (3) years from the date of this
claim embodied in the letter dated April 30, 1981, Agreement….28
acknowledging that it is taking over the contractual
responsibilities of Conduit, and requesting copies of Notably, while the first phrase of the paragraph uses
all sub-contracts affecting the Conduit property. The the word "commits" in reference to the development
pertinent excerpts of the letter read: of the "Remaining Property" into a first class
residential subdivision, the second phrase uses the
… word "intends" in relation to the development of the
In this connection, we wish to inform you that first phase of the property within three (3) years
this morning we received a letter from Mr. from the date of the MOA. The variance in wording
Maximo D. Del Rosario, President of Lancer is significant. While "commit"29 connotes a pledge
General Builders Corporation apprising us of to do something, "intend"30 merely signifies a
the existence of subcontracts that they have design or proposition.
with your corporation. They have also Atty. Leopoldo Francisco, former Vice President of
furnished us with a copy of their letter to you Ayala Corporation's legal division who assisted in
dated 30 April 1981. drafting the MOA, testified:
Since we are taking over the contractual COURT
responsibilities of Conduit Development, Inc.,
we believe that it is necessary, at this point You only ask what do you mean by that
in time, that you furnish us with copies of all intent. Just answer on that point.
ATTY. BLANCO A: Yes, sir.32
Don't talk about standard. As correctly held by the appellate court, this
admission is crucial because while the subject lots
WITNESS
to be sold to petitioners were in the first phase of
A Well, the word intent here, your Honor, was the Conduit development plan, they were in the
used to emphasize the tentative character of third or last phase of the Ayala Corporation
the period of development because it will be development plan. Hence, even assuming that
noted that the sentence refers to and I quote paragraph 5.7 expresses a commitment on the part
"to complete the first phase under its of Ayala Corporation to develop the first phase of its
amended development plan within three (3) amended development plan within three (3) years
years from the date of this agreement, at the from the execution of the MOA, there was no
time of the execution of this agreement, your parallel commitment made as to the timeframe for
Honor." That amended development plan the development of the third phase where the
was not yet in existence because the buyer subject lots are located.
had manifested to the seller that the buyer
Lest it be forgotten, the point of this petition is the
could amend the subdivision plan originally
alleged failure of Ayala Corporation to offer the
belonging to the seller to conform with its
subject lots for sale to petitioners within three (3)
own standard of development and second,
years from the execution of the MOA. It is not that
your Honor, (interrupted)31
Ayala Corporation committed or intended to develop
It is thus unmistakable that this paragraph merely the first phase of its amended development plan
expresses an intention on Ayala Corporation's part within three (3) years. Whether it did or did not is
to complete the first phase under its amended actually beside the point since the subject lots are
development plan within three (3) years from the not located in the first phase anyway.
execution of the MOA. Indeed, this paragraph is so
We now come to the issue of default or delay in the
plainly worded that to misunderstand its import is
fulfillment of the obligation.
deplorable.
Article 1169 of the Civil Code provides:
More focal to the resolution of the instant case is
paragraph 5.7's clear reference to the first phase of Art. 1169. Those obliged to deliver or to do
Ayala Corporation's amended development plan as something incur in delay from the time the
the subject of the three (3)-year intended timeframe obligee judicially or extrajudicially demands
for development. Even petitioner Daniel Vazquez from them the fulfillment of their obligation.
admitted on cross-examination that the paragraph However, the demand by the creditor shall
refers not to Conduit's but to Ayala Corporation's not be necessary in order that delay may
development plan which was yet to be formulated exist:
when the MOA was executed:
(1) When the obligation or the law expressly
Q: Now, turning to Section 5.7 of this Memorandum so declares; or
of Agreement, it is stated as follows: "The Buyer
hereby commits that to develop the remaining (2) When from the nature and the
property into a first class residential subdivision of circumstances of the obligation it appears
the same class as New Alabang Subdivision, and that the designation of the time when the
that they intend to complete the first phase under thing is to be delivered or the service is to be
its amended development plan within three years rendered was a controlling motive for the
from the date of this agreement." establishment of the contract; or
Now, my question to you, Dr. Vasquez is that there (3) When demand would be useless, as when
is no dispute that the amended development plan the obligor has rendered it beyond his power
here is the amended development plan of Ayala? to perform.
A: Yes, sir. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
Q: In other words, it is not Exhibit "D-5" comply in a proper manner with what is incumbent
which is the original plan of Conduit? upon him. From the moment one of the parties
A: No, it is not. fulfills his obligation, delay by the other begins.
Q: This Exhibit "D-5" was the plan that was In order that the debtor may be in default it is
being followed by GP Construction in 1981? necessary that the following requisites be present:
(1) that the obligation be demandable and already
A: Yes, sir.
liquidated; (2) that the debtor delays performance;
Q: And point of fact during your direct and (3) that the creditor requires the performance
examination as of the date of the agreement, judicially or extrajudicially.33
this amended development plan was still to
be formulated by Ayala?
Under Article 1193 of the Civil Code, obligations for assurance from your goodselves regarding
whose fulfillment a day certain has been fixed shall this, in compliance with the agreement.
be demandable only when that day comes. II. Option on the adjoining lots
However, no such day certain was fixed in the MOA.
Petitioners, therefore, cannot demand performance We have already written your goodselves
after the three (3) year period fixed by the MOA for regarding the intention of Dr. & Mrs. Vazquez
the development of the first phase of the property to exercise their option to purchase the two
since this is not the same period contemplated for lots on each side (a total of 4 lots) adjacent
the development of the subject lots. Since the MOA to their "Retained Area". They are concerned
does not specify a period for the development of the that although over a year has elapsed since
subject lots, petitioners should have petitioned the the settlement of the legal problems, you
court to fix the period in accordance with Article have not presented them with the size,
119734 of the Civil Code. As no such action was configuration, etc. of these lots. They would
filed by petitioners, their complaint for specific appreciate being provided with these at your
performance was premature, the obligation not earliest convenience.35
being demandable at that point. Accordingly, Ayala Manifestly, this letter expresses not only petitioners'
Corporation cannot likewise be said to have delayed acknowledgement that the delay in the
performance of the obligation. development of Phase I was due to the legal
Even assuming that the MOA imposes an obligation problems with GP Construction, but also their
on Ayala Corporation to develop the subject lots acquiescence to the completion of the development
within three (3) years from date thereof, Ayala of Phase I at the much later date of February 19,
Corporation could still not be held to have been in 1990. More importantly, by no stretch of semantic
delay since no demand was made by petitioners for interpretation can it be construed as a categorical
the performance of its obligation. demand on Ayala Corporation to offer the subject
lots for sale to petitioners as the letter merely
As found by the appellate court, petitioners' letters articulates petitioners' desire to exercise their
which dealt with the three (3)-year timetable were option to purchase the subject lots and concern over
all dated prior to April 23, 1984, the date when the the fact that they have not been provided with the
period was supposed to expire. In other words, the specifications of these lots.
letters were sent before the obligation could
become legally demandable. Moreover, the letters The letters of petitioners' children, Juan Miguel and
were mere reminders and not categorical demands Victoria Vazquez, dated January 23, 198436 and
to perform. More importantly, petitioners waived the February 18, 198437 can also not be considered
three (3)-year period as evidenced by their agent, categorical demands on Ayala Corporation to
Engr. Eduardo Turla's letter to the effect that develop the first phase of the property within the
petitioners agreed that the three (3)-year period three (3)-year period much less to offer the subject
should be counted from the termination of the case lots for sale to petitioners. The letter dated January
filed by Lancer. The letter reads in part: 23, 1984 reads in part:
I. Completion of Phase I You will understand our interest in the
completion of the roads to our property,
As per the memorandum of Agreement also since we cannot develop it till you have
dated April 23, 1981, it was undertaken by constructed the same. Allow us to remind
your goodselves to complete the you of our Memorandum of Agreement, as
development of Phase I within three (3) per which you committed to develop the
years. Dr. & Mrs. Vazquez were made to roads to our property "as per the original
understand that you were unable to plans of the company", and that
accomplish this because of legal problems
with the previous contractor. These legal 1. The back portion should have been
problems were resolved as of February 19, developed before the front portion – which
1987, and Dr. & Mrs. Vazquez therefore has not been the case.
expect that the development of Phase I will 2. The whole project – front and back
be completed by February 19, 1990, three portions be completed by 1984.38
years from the settlement of the legal
problems with the previous contractor. The The letter dated February 18, 1984 is
reason for this is, as you know, that security- similarly worded. It states:
wise, Dr. & Mrs. Vazquez have been advised In this regard, we would like to remind you of
not to construct their residence till the Articles 5.7 and 5.9 of our Memorandum of
surrounding area (which is Phase I) is Agreement which states respectively:…39
developed and occupied. They have been
Even petitioner Daniel Vazquez' letter40 dated
anxious to build their residence for quite
some time now, and would like to receive March 5, 1984 does not make out a categorical
demand for Ayala Corporation to offer the subject
lots for sale on or before April 23, 1984. The letter Further, paragraph 5.15 was inserted into the MOA
reads in part: to give petitioners the first crack to buy the subject
lots at the price which Ayala Corporation would be
…and that we expect from your goodselves
willing to accept when it offers the subject lots for
compliance with our Memorandum of
sale. It is not supported by an independent
Agreement, and a definite date as to when
consideration. As such it is not governed by Articles
the road to our property and the
1324 and 1479 of the Civil Code, viz:
development of Phase I will be completed.41
Art. 1324. When the offeror has allowed the
At best, petitioners' letters can only be construed as
offeree a certain period to accept, the offer
mere reminders which cannot be considered
may be withdrawn at any time before
demands for performance because it must appear
acceptance by communicating such
that the tolerance or benevolence of the creditor
withdrawal, except when the option is
must have ended.42
founded upon a consideration, as something
The petition finally asks us to determine whether paid or promised.
paragraph 5.15 of the MOA can properly be
Art. 1479. A promise to buy and sell a
construed as an option contract or a right of first
determinate thing for a price certain is
refusal. Paragraph 5.15 states:
reciprocally demandable.
5.15 The BUYER agrees to give the SELLERS
An accepted unilateral promise to buy or to sell a
first option to purchase four developed lots
determinate thing for a price certain is binding upon
next to the "Retained Area" at the prevailing
the promissor if the promise is supported by a
market price at the time of the purchase.43
consideration distinct from the price.
The Court has clearly distinguished between an
Consequently, the "offer" may be withdrawn
option contract and a right of first refusal. An option
anytime by communicating the withdrawal to the
is a preparatory contract in which one party grants
other party.47
to another, for a fixed period and at a determined
price, the privilege to buy or sell, or to decide In this case, Ayala Corporation offered the subject
whether or not to enter into a principal contract. It lots for sale to petitioners at the price of
binds the party who has given the option not to P6,500.00/square meter, the prevailing market price
enter into the principal contract with any other for the property when the offer was made on June
person during the period designated, and within that 18, 1990.48 Insisting on paying for the lots at the
period, to enter into such contract with the one to prevailing market price in 1984 of P460.00/square
whom the option was granted, if the latter should meter, petitioners rejected the offer. Ayala
decide to use the option. It is a separate and distinct Corporation reduced the price to P5,000.00/square
contract from that which the parties may enter into meter but again, petitioners rejected the offer and
upon the consummation of the option. It must be instead made a counter-offer in the amount of
supported by consideration.44 P2,000.00/square meter.49 Ayala Corporation
rejected petitioners' counter-offer. With this
In a right of first refusal, on the other hand, while
rejection, petitioners lost their right to purchase the
the object might be made determinate, the exercise
subject lots.
of the right would be dependent not only on the
grantor's eventual intention to enter into a binding It cannot, therefore, be said that Ayala Corporation
juridical relation with another but also on terms, breached petitioners' right of first refusal and should
including the price, that are yet to be firmed up.45 be compelled by an action for specific performance
to sell the subject lots to petitioners at the
Applied to the instant case, paragraph 5.15 is
prevailing market price in 1984.
obviously a mere right of first refusal and not an
option contract. Although the paragraph has a WHEREFORE, the instant petition is DENIED. No
definite object, i.e., the sale of subject lots, the pronouncement as to costs.
period within which they will be offered for sale to SO ORDERED.
petitioners and, necessarily, the price for which the
subject lots will be sold are not specified. The Puno, (Chairman), Austria-Martinez, Callejo, Sr., and
phrase "at the prevailing market price at the time of Chico-Nazario, JJ., concur.
the purchase" connotes that there is no definite
period within which Ayala Corporation is bound to
reserve the subject lots for petitioners to exercise Footnotes
their privilege to purchase. Neither is there a fixed 1 Alternatively spelled Vasquez.
or determinable price at which the subject lots will
be offered for sale. The price is considered certain if 2 Rollo, pp. 10-187 with Annexes.
it may be determined with reference to another 3 Id. at 193-210; Penned by Associate Justice
thing certain or if the determination thereof is left to Perlita J. Tria-Tirona and concurred in by
the judgment of a specified person or persons.46
Associate Justices Eugenio S. Labitoria and that on or before the Closing,
Eloy R. Bello, Jr. SELLERS shall deliver to the BUYER
duly executed letters of instruction
4 Id. at 74-79; Dated September 11, 1995.
from the other SELLERS specifically
5 Id. at 193-198; Culled from the Decision of authorizing Ma. Luisa M. Vazquez to
the Court of Appeals. receive on their own behalf their
6 Id. at 50-62. respective payments by means of a
manager's check for the entire
7 Id. at 206. Purchase Price stated in this
8 Id. at 240-289. Paragraph payable to SELLERS. In
addition to the foregoing, BUYER shall
9 Id. at 53. be responsible for the payment of all
10 Art. 1197. If the obligation does not fix a billings of the contractor GP
period, but from its nature and the Construction & Development
circumstances it can be inferred that a Corporation after the first billing and
period was intended, the courts may fix the any payments made by the company
duration thereof. and/or SELLERS shall be reimbursed
by BUYER on closing which advances
The courts shall also fix the duration of the
to date is P1,159,012.87.
period when it depends upon the will of the
debtor. Earnest money in the sum of EIGHT
MILLION PESOS (P8,000,000.00),
In every case, the courts shall determine
Philippine Currency, shall be paid
such period as may under the circumstances
upon signing of this document.
have been probably contemplated by the
parties. Once fixed by the courts, the period 23 Supra, note 17 at 78.
cannot be changed by them. 24 Ibid.
11 Supra, note 2 at 300-323. 25 Supra, note 17 at 69-76.
12 Id. at 324-325. 26 Id. at 81-82.
13 Id. at 331-369. 27 Id. at 32-38.
14 Id. at 370-433. 28 Supra, note 2 at 55.
15 Rosario v. Court of Appeals, 369 Phil. 729 29 Black's Law Dictionary, Sixth Edition, p.
(1999), citations omitted. 273.
16 Supra, note 2 at 401-402. 30 Id. at 809.
17 RTC Records, pp. 60-61. 31 TSN, November 18, 1993, pp. 35-36.
18 Id. at 90-91 32 TSN, August 3, 1993, pp. 17-19.
19 Id. at 77. 33 4 A. Tolentino, Commentaries and
20 Supra note 2 at 53. Jurisprudence on the Civil Code of the
Philippines, 102 (1991).
21 Id. at 58-60.
34 Supra note 10.
22 Id. at 52-53. The full text of paragraph 2
reads: 35 Supra, note 17 at 651.
2. Purchase Price and Mode of 36 Id. at 151.
Payment 37 Id. at 154.
The Purchase Price shall be FIFTY-SIX 38 Supra, note 36.
MILLION SIX HUNDRED TWENTY
THREE THOUSAND THREE HUNDRED 39 Supra, note 37.
THIRTY EIGHT PESOS AND EIGHTY 40Supra, note 17 at 157-158.
CENTAVOS (P56,623,338.80) and shall
be paid at the Closing by the BUYER 41 Id. at 158.
by means of a manager's check(s) 42 A. Tolentino, op. cit. supra, note 33 citing
payable to Ma. Luisa M. Vazquez in 2 Castan 528 and 3 Valverde 104.
her own behalf and as representative
43 Supra, note 2 at 57.
of the other SELLERS, less the earnest
money of EIGHT MILLION PESOS 44 Litonjua v. L&R Corporation, 385 Phil. 538
(P8,000,000.00) herein paid as (2000); Carceller v. Court of Appeals, 362
mentioned below; provided, however, Phil. 332 (1999); Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc.,
332 Phil. 525 (1996).
45 Ang Yu Asuncion v. Court of Appeals, G.R.
No. 109125, December 2, 1994, 238 SCRA
602.
46 Art. 1469, Civil Code.
47 A. Tolentino, op. cit. supra, note 33 at
465.
48 Supra, note 2 at 63.
49 Id. at 209-210.
The testimony of petitioner Daniel Vazquez
on direct examination reads:
Q Mr. Witness, at the last hearing
which was interrupted by the brown-
out, we were on Exhibit "L", which I
am handing to you, upon receipt of
Exhibit "L" which is the June 18, 1990
letter of Ayala to you, what did you
do, if any?
A We contacted Ayala to tell them we
wanted to exercise our option and
that we were not agreeable with the
price they are mentioning here, sir.
Q Did you offer any price?
A Yes, sir, we offered them a price.
Q According to the complaint, the
price in April 1984 could have been
only P460.00 pesos per square meter.
Where did you get that price?
A One of our secretaries, Mr. Eusebio,
I believe, contacted the Ayala
Corporation and that was the price
the Ayala Corporation was selling it at
that time, sir.
Q Did the Ayala Corporation reduce
this price for purposes of arriving in
an agreeable or acceptable offer?
A Yes, sir, we did.
Q How much did the Ayala
Corporation dropped to?
A Ayala dropped, if I remember right,
to I think P4,000.00 pesos, sir.
Q And how about you?
A We increased our price to P2,000.00
pesos based on the selling price of
Ayala at that time converted to
dollars and reconverted to pesos at
this later dates of 1991. (TSN dated
April 20, 1993, pp. 3-5).