ANG YU ASUNCION vs. THE HON.

COURT OF APPEALS
[[G.R. No. 109125, December 2, 1994]]

Petitioners Ang Yu Asuncion, Arthur Go, and Keh Tiong are tenants of residential and commercial
spaces owned by defendants Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan, described as Nos.
630-638 Ongpin Street, Binondo, Manila.

Defendants previously informed plaintiffs about offer to sell the properties, and gave them priority to
acquire the same. Defendant Bobby Cu Unjieng offered P6-million, while plaintiffs asked for P5-million,
and further asked that that the offer be put in writing. After defendants wrote offer letter, plaintiffs replied
on October 24, 1986, for the terms and conditions; Defendants did not reply to this letter, nor to follow-
up sent by plaintiffs on January 28, 1987.

Because defendants failed to specify the terms and conditions of their sale offer, and because of
information received that the defendants were about to sell the property, plaintiffs filed a complaint to
compel defendants to sell the property to them. Lower Courts ruled in favor of defendants and against
the plaintiffs; stating that if the defendants subsequently decide to offer their property for sale for a
purchase price of Eleven Million Pesos or lower, the plaintiffs may purchase the property or of first
refusal. Defendants need not offer the property to the plaintiffs if the purchase price is higher than
Eleven Million Pesos.

Plaintiffs appealed decision to the Court of Appeals, which affirmed the lower court's decision, with the
additional modification that plaintiffs be granted right of first refusal should the subject property be sold
for a price in excess of Eleven Million pesos.

On November 15, 1990, the Cu Unjieng spouses sold the subject properties to Buen Realty and
Development Corporation. On July 1, 1991, Buen Realty as the new owners wrote a letter to the lessees
(petitioners) demanding that the latter vacate the premises. On July 16, 1991, the lessees responded
that Buen Realty bought the property subject to the notice of lis pendens regarding Civil Case No. 87-
41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

On August 30, 1991, the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale of the
property in favor of the plaintiffs Asuncion, Tiong, and Go for the consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal, and that a new Transfer Certificate of Title be issued in favor
of the buyer. All previous transactions involving the same property notwithstanding the issuance of
another title to Buen Realty Corporation, was set aside as having been executed in bad faith.

On September 22, 1991, the lower court issued a Writ of Execution, ordering the defendants to comply
with the aforesaid Order within a period of one (1) week, and for defendants to execute the necessary
Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go for the consideration of P15,000,000.00, and ordering the Register of Deeds of the City of Manila to
cancel the title already issued in favor of Buen Realty Corporation, and to register the new title in favor
of Asuncion, Tiong, and Go.

On 04 December 1991, the CA set aside and declared without force and effect the above questioned
orders of the lower court.

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

SC Decision: CA decision affirmed

Key Points:

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz:

(a) The juridical tie which is the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts);

(b) The object which is the prestation or conduct; required to be observed (to give, to do or not to do);
and

(c) The subject-persons who, viewed from the demandability of the obligation, are the active (obligee)
and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code). A contract undergoes various stages: Negotiation,
Perfection, and Consummation.

Negotiation is the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).

Perfection takes place upon the concurrence of the essential elements thereof, i.e, the the meeting of
minds.

** Real Contract: A contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum.

Consummation begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.

A contract cannot serve as an independent source of obligation until it is perfected. In current case, a
contract about sales, the contract is perfected when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over
which the latter agrees.

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

A contract of sale may be absolute or conditional.

Conditional Contracts: Ownership of the thing sold is retained until the fulfillment of a positive
suspensive condition, the breach of the condition will prevent the obligation to convey title from acquiring
an obligatory force.

Absolute Contract: Contract is devoid of any proviso that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership is transferred to buyer upon actual
or constructive delivery (e.g., by the execution of a public document) of the property sold.

Where the condition is imposed upon the perfection of the contract itself, the failure of the condition
would prevent such perfection.3 If the condition is imposed on the obligation of a party which is not
fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil
Code)

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted. An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
when coupled with a valuable consideration distinct and separate from the price, is what may properly
be termed a perfected contract of option.

This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:

Art. 1479.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
(1451a).

In the current case, the so-called "right of first refusal" cannot be deemed a perfected contract of
sale under Article 1458 of the Civil Code.

In a right of first refusal, while the object might be made determinate, the exercise of the right 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. It can at best
be so described as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here,
its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the perfection of contracts.

The final judgment in Civil Case No. 87-41058, has merely accorded a "right of first refusal" in favor of
petitioners. Since the 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, but an action for damages in a proper
forum for the purpose.

Whether private respondent Buen Realty Development Corporation has acted in good faith or bad faith
and whether or not it should 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.