Case Summary (G.R. No. 52254)
Factual Background
Petitioner owned a 374 square meter parcel of land in Masbate, Masbate. In 1975 respondent sought to establish a branch and negotiated purchase of the unregistered property. The parties executed a written Contract of Lease with Option to Buy on May 20, 1975. Under the contract respondent leased the land for twenty-five years and obtained an option to purchase the parcel within ten years at a price not greater than P210.00 per square meter. The contract obliged petitioner to register the land under the Torrens System within the ten-year period at his expense.
Terms of the Contract
The contract provided that the lease ran from June 1, 1975 to June 1, 2000, that rentals would be P700.00 monthly, that the lessee might construct buildings and improvements at its expense, and that if the lessee failed to exercise the option within the ten-year period after registration the buildings and improvements would become the lessor’s property at the end of the lease without reimbursement. The contract also contained an attorney-in-fact clause authorizing the lessee to register the land if the lessor failed to do so and to charge registration expenses against rentals.
Performance and Registration
Pursuant to the contract the lessee constructed a building to house the RCBC branch. Within three years from signing the contract petitioner caused the land to be registered under the Torrens System and Original Certificate of Title No. O-232 was issued. Petitioner thereafter sought sale as provided in the agreement and even mortgaged the property to respondent in 1979.
Exercise of Option and Refusal to Convey
Respondent informed petitioner by letter dated September 4, 1984 of its intention to exercise the option to buy at the agreed price of not greater than P210.00 per square meter, which the complaint quantified as a total of P78,430.00. Petitioner refused to convey the property. Respondent then filed a complaint for specific performance and damages on March 14, 1985, seeking conveyance, attorney’s fees, exemplary damages, and costs.
Trial Court Proceedings and Initial Decision
Petitioner pleaded as affirmative defenses that the contract was a contract of adhesion, that the option lacked consideration distinct from the price and therefore was unenforceable, that respondent failed to exercise the option within a reasonable time, and that extraordinary inflation rendered the contract unconscionable. Petitioner also counterclaimed for rent adjustment and damages. After trial the court initially dismissed the complaint, finding the option unenforceable for lack of consideration distinct from the price and for failure to exercise the option within reasonable time, while upholding the validity of the contract.
Trial Court Reconsideration and Order
Upon respondent’s motion for reconsideration the trial court reversed its initial dismissal and ordered respondent to execute and deliver a deed of sale for the property for Seventy Eight Thousand Five Hundred Forty Pesos (P78,540.00), awarded P5,000.00 attorneys’ fees to petitioner, dismissed petitioner’s counterclaim, and taxed costs against petitioner. The order of January 9, 1989 thus compelled conveyance in favor of respondent.
Court of Appeals Ruling
The Court of Appeals, in a decision promulgated September 19, 1991, affirmed the trial court’s findings that the contract was valid and that the parties clearly understood its terms; that the option was supported by a distinct and separate consideration embodied in the contract; and that there was no basis to adjust the rent. The appellate court thus affirmed the trial court’s reconsideration order enforcing the option.
Issues Presented to the Supreme Court
Petitioner urged that the contract was a contract of adhesion thus unenforceable, that the option lacked a consideration distinct from the price, that the stipulated price “not greater than P210.00 per square meter” was uncertain, and that the trial and appellate courts abused discretion by refusing to adjust the rent to correct erosion of the peso’s purchasing power.
Parties’ Contentions in the Record
Respondent maintained that the contract was negotiated and executed knowingly, that the option was supported by separate consideration in that the lessee assumed the burden of constructing and, upon failure to exercise the option, surrendering improvements to the lessor, and that the price was certain in practical effect and in the parties’ mutual understanding. Petitioner emphasized alleged adhesion, the absence of separate consideration for the option, and economic changes warranting rent adjustment.
Supreme Court Ruling
The Supreme Court found the petition devoid of merit and dismissed it, affirming the Court of Appeals. The Court held that the contract was valid and binding, that petitioner’s allegations of adhesion and unilateral imposition were unsupported, that the option was supported by a consideration distinct from the price, and that the price was sufficiently certain and definite for enforcement.
Legal Basis and Reasoning
The Court applied Article 1324 and Article 1479, New Civil Code, distinguishing a mutual promise from a unilateral promise and reiterating that an accepted unilateral promise to buy or sell a determinate thing at a certain price is binding when supported by consideration distinct from the price. The Court observed jurisprudence construing optional contracts and relied on precedent including Vda. de Quirino v. Palarca, where the reciprocal obligation to transfer improvements constituted separate consideration. The Court found in the present contract that the lessee’s obligation to construct and to transfer improvements in case of nonexercise of the option provided an onerous and sufficient consideration separate from the purchase price. The
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Case Syllabus (G.R. No. 52254)
Parties and Procedural Posture
- FEDERICO SERRA, PETITIONER was the registered owner of a 374 square meter parcel of land in Masbate, Masbate.
- RIZAL COMMERCIAL BANKING CORPORATION, RESPONDENT negotiated to acquire the same parcel and entered into a written LEASE WITH OPTION TO BUY with petitioner on May 20, 1975.
- The respondent bank filed a complaint for specific performance and damages on March 14, 1985 in Civil Case No. 10054, Regional Trial Court, Branch 134, Makati.
- The trial court initially dismissed the complaint and later, on motion for reconsideration, reversed and ordered specific performance on January 9, 1989.
- The Court of Appeals, in CA-G.R. CV No. 25693, affirmed the trial court in a decision promulgated on September 19, 1991.
- The petition to the Supreme Court was docketed as G.R. No. 103338 and resulted in a decision rendered January 04, 1994 affirming the Court of Appeals.
Key Factual Allegations
- The parties executed a written lease dated May 20, 1975 granting a twenty-five year lease from June 1, 1975 to June 1, 2000.
- The lease granted the lessee an option to purchase within ten years from signing at a price "not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter."
- The lessor undertook to register the parcel under the Torrens System within the ten-year period with all expenses for his account.
- The contract authorized the lessee to construct a building at its sole expense and provided that if the lessee failed to exercise the option within the ten-year period where the land was registered, the building and improvements would become the property of the lessor at lease expiration without right of reimbursement.
- Petitioner registered the land under the Torrens System within three years and received Original Certificate of Title No. 0-232.
- The respondent bank sent a letter dated September 4, 1984 expressing its intention to buy at the agreed price, which petitioner refused.
- The respondent bank claimed a purchase price computed at P78,430.00 and sought specific performance and damages, while petitioner counterclaimed for rental adjustment and damages.
Contract Terms
- The document titled "LEASE WITH OPTION TO BUY" fixed the lease term at twenty-five years and granted a unilateral option to buy exercisable within ten years.
- The contract expressly required the lessor to register the property under the TORRENS SYSTEM and to bear registration expenses.
- The contract fixed monthly rent at SEVEN HUNDRED PESOS (P700.00) with the first four months payable in advance upon signing.
- The contract authorized the lessee to construct buildings and provided that such improvements would transfer to the lessor without reimbursement if the option was not exercised within the ten-year period after registration.
- The contract included an attorney-in-fact clause authorizing the lessee to register the land and charge registration expenses against rentals if the lessor failed to register within a reasonable time.
Issues Presented
- Whether the option to buy was supported by a consideration distinct from the price and therefore binding under Article 1479, New Civil Code.
- Whether the phrase "not greater than P210.00 per square meter" rendered the price uncertain and the option unenforceable.
- Whether the respondent bank validly exercised the option within a reasonable time after registration.
- Whether the contract was a binding contract of adhesion and therefore subject to invalidation for