Federico Serra vs.

CA and Rizal Commercial Banking Corporation (RCBC)

January 4, 1994, J. Nocon

Doctrine: Article 1479 of the New Civil Code states that “a promise to buy and sell a determinate
thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or
sell a determinate thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.” A price is certain if it is so with reference
to another thing certain, or when the determination thereof is left to the judgment of a specified
person or persons.

Facts: Serra owns a 374 square meter lot in Masbate. In 1975, respondent bank negotiated with
Serra for the purchase of the then unregistered property. On 20 May 1975, a contract of lease
with option to buy was instead forged by the parties, which stated:

“(a) the lessor leases unto the lessee, and the lessee accepts in lease, the parcel of land to
have and to hold the same for a period of 25 years from 1 June 1971 to 1 June 2000. The
lessee shall have the option to purchase said parcel of land within 10 years from the date
of signing this contract at a price not higher than P210.00 per square meter. The lessor
undertakes to register said parcel of land under the Torrens System and all expenses
appurtenant thereto shall be for his sole account.”

Within 3 years, Serra complied with his part of the agreement by registering the property and
placing it under the Torrens System. Petitioner argues that as soon as he had the property
registered, he kept on pursuing the manager of the branch to effect the sale of the agreement.
However, on 4 September 1984, the bank decided to exercise its option (to buy the
property at agreed price of nor more than P210.00 per square meter or total of P78,430.00) and
thus informed the petitioner. Petitioner declined and reasoned that he is no longer selling the
property.

The bank filed a complaint for specific performance and damages against Serra. The latter
contended that (a) the option was not supported by any consideration distinct from the price and
hence not binding upon him; (b) the option was predicated on the condition that it be done or
exercised within a reasonable time after the registration of the land under the Torrens System;
and (c) that there was no price certain. The RTC and CA found that contract was valid, that the
option is supported by a distinct and separate consideration, and that there is no basis in granting
an adjustment in rental. The bank further argues that the “price not greater than 200 pesos” is not
a price certain, and that there was no consideration to support the option, hence the option cannot
be exercised.

Issue: Whether the “price not greater than 200 pesos” is a price certain.

Ruling: Yes, Article 1324 of the Civil Code provides that when an offeror has allowed the
offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by
communicating such withdrawal, except when the option is founded upon consideration, as
something paid or promised. On the other hand, Article 1479 of the Code provides that an
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon
the promisor if the promise is supported by a consideration distinct from the price.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by the debtor, there is already a
meeting of the minds of the parties as to the thing which is determinate and the price which is
certain. In which case, the parties may then reciprocally demand performance.

Jurisprudence has settled that an optional contract is a privilege existing only in one party — the
buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a
certain merchandise or property, at any time within the agreed period, at a fixed price. This being
his prerogative, he may not be compelled to exercise the option to buy before the time
expires. In the present case, the consideration is even more onerous on the part of the lessee since
it entails transferring of the building and/or improvements on the property to petitioner, should
respondent bank fail to exercise its option within the period stipulated.

In this case, the price “not greater than 200 pesos” is certain or definite. A price is certain if it is
so with reference to another thing certain, or when the determination thereof is left to the
judgment of a specified person or persons. And generally, gross inadequacy of price does not
affect a contract of sale. Moreover, contracts are always to be construed in accordance to their
sense, and meaning of terms, which the parties have used. Here, one of the stipulations in their
contract states that “the lessee shall have the option to purchase said parcel of land within 10
years from the date of signing this contract at a price not higher than P210.00 per square meter.”

In this case, there is clear evidence that the intention of the parties was to peg the price at P210
per square meter. Serra had the land titled under the Torrens System and pursued the bank
manager to effect the sale immediately. Evidently, he perfectly understood the terms of
the contract, and acted upon the conditions therein. Thus, the price being certain, the contract of
lease with option to buy between Serra and the bank was valid, because there was a price certain
and that the consideration was distinct from the price to support the option given to the lessee.

Therefore, the contract between the parties is valid, effective and enforceable, the price being
certain and that there was consideration distinct from the price to support the option given to the
lessee.