Operaciones sin Planeación

a. Alternative Doctrine of Enforceability of Rights of First Refusal

In both his main decision in Ang Yu Asuncion and in his dissenting opinion in Equatorial Realty Dev. Inc., Justice Vitug posited that “a right of fi rst refusal cannot have the effect of a

contract because, by its very essence, certain basic terms would have yet to be determined and fi xed,”99 _{for lacking in any meeting} of the minds as to the certain price for the determinate subject matter, the eminent justice rightfully asked the question, if there could be a “breach of contract” of the right of fi rst refusal, then at what price or consideration would be the basis of specifi c performance?100 _{And to which his answer in Ang Yu Asuncion} was —

In the law on sales, the so-called “right of fi rst 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

96_{Sadhwani v. Court of Appeals, 281 SCRA 75 (1997).} 97_{Dizon v. Court of Appeals, 396 SCRA 152 (2003).} 98_Ibid.

99_{264 SCRA 483, 531.} 100_Ibid.

fi rst refusal, understood in its normal concept, per se be brought within the purview of an option under . . . Article 1479 . . . or possibly an offer under Article 1319 of the same Code . . . [as both of them] require, among other things, a clear certainly on both the object and the cause or consideration of the envisioned contract.

In a right of fi rst refusal, while the object might be made determinate the exercise of the right, however, would be depended 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 fi rmed up. Prior thereto,

it can at best be so described as merely belonging to class of preparatory juridical relations governed not by contracts (since the essential elements to establish the

vinculum juris would still be indefi nite and inconclusive)

but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.101

Outside of being a stipulation in a valid contract, like a contract of lease, may an agreement between promissor and promissee granting the latter a right of fi rst refusal over a determinate subject matter, and when supported by a separate consideration, not rise to the level of becoming a binding contractual commitment? The author believes that such an agreement would be a valid contractual relation, within the coverage of the innominate contract do ut facias, “I give that you

may do.” In other words, the separate consideration is given by

the promissee to support a contractual commitment on the part of the promissor that if the promissory ever decides to sell the determinate subject matter, then he will negotiate in good faith with the promissee for the possibility of entering into a sale. Binding oneself to enter into negotiations for a contract to sell or a contract of sale is essentially an personal obligation “to do.”

Under such a premise, the “Agreement on Right of First Refusal,” would be a binding contract between the promissor and the promissee, when supported by a separate consideration,

like much in the case of a valid option contract under Articles 1319 and 1479 of the Civil Code, and a “mutual promises to negotiate a possible contract of sale over a determinate subject matter” would be akin to the mutual promise to buy and sell under said Article 1479. The obligation is not to enter into a sale, but rather to negotiate in good faith for the possibility of entering into a sale; and when the promissor has in fact negotiated in good faith, but the parties’ minds could not meet on the price and the terms of payment, then promissor has complied with his obligation. However, since the underlying obligation in a “right of fi rst refusal contract” is a personal obligation to do, its breach can never be remedied by an action for specifi c performance, because of the underlying public policy against involuntary servitude.

The result would not be the same as that posited by Justice Vitug, for the “right of fi rst refusal contract” being valid and binding, the remedy of specifi c performance is unavailable by reason of the nature of the underlying obligation, but that the remedy of rescission for breach of contract would be available which would allow recovery of damages under Contract Law, rather than the diffi cult cause of action for recovery of damages based on “abuse of right” under Article 19 of the Civil Code on Human Relations.

b. Enforceability of Option Rights Should Be at Par With, If Not at a Higher Level Than, Rights of First Refusal Vazquez v. Ayala Corp.,102 _{distinguished an option from a} right of fi rst refusal, thus: “An option is a preparatory contract in which one party grants to another, for a fi xed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. ... In a right of fi rst 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 are yet to be fi rmed

up.103 _{... Consequently, the ‘offer’ may be withdrawn anytime by} communicating the withdrawal to the other party.”104

Vazquez therefore emphasizes the rather obvious point:

if an option, constituted of determinate subject matter, certain price, with separate consideration, can be withdrawn within the option period to remove any hope of an action to enforce a sale, then more so can the offeror withdraw a right of fi rst refusal and destroy any chance of there ever coming into being a sale upon which an action for specifi c performance could be achieved.

The rulings of the Court in Equatorial Realty and Parañaque

Kings would have the legal effect of placing rights of fi rst refusal

attached to principal contracts like lease, of having greater legal enforceability than option contracts which are supported by separate consideration. The Court should therefore revisit its ruling in Ang Yu Asuncion on option contracts.

The better rule would be that in case an option is supported by a separate consideration, the optionee shall have the right to exercise the option or accept the offer at anytime during the

option period and the same would give rise to a valid and binding contract of sale. In the same manner, if separate consideration

has been received by the optioner for the grant of the option, he cannot withdraw the offer during the option period, and any attempt to so withdraw the offer during the option period shall be void. This position seems to be affi rmed in the recent ruling in

Carceller, and would validate the rationale of Article 1324 of the

Civil Code on why a separate consideration is required for a valid option contract.

It may happen that the optioner does not only withdraw the offer during the option period but also sells the property to a third party during that period. Such a situation does not affect the above proposed rule since the acceptance of the offer (i.e., the exercise of the option) by the optionee during the option period would still give rise to a valid sale over the subject property, but that the rules on third party buyer in good faith should prevail. If the

103_{Ibid, at p. 255.} 104_{Ibid, at p. 256.}

third party buyer bought the property from the optioner knowing of the existence of the option in favor of the optionee, he would be a proper party to the action for specifi c performance that the optionee can bring against the optioner once he has exercised his option. On the other hand, if the third party buyer bought the property in good faith and for value, then he is protected by law, and the remedy of the optionee (who has become the buyer in a valid and binding sale) is to sue the optioner (who has become the seller) for recovery of damages for breach of contract of sale, rather than to sue for damages for breach of the option contract as held in Ang Yu Asuncion.

In any event the ruling in Ang Yu Asuncion would suggest that the best scheme for a prospective buyer to take if he is interested in a specifi c property, but wants to maintain an option to be able to get out of it later on, would be the earnest money scheme, whereby a sale is perfect upon the granting of the earnest money, with clear option on the part of the buyer to withdraw from the contract by forfeiting the earnest money. This arrangement is recognized in one case105 _{by the Supreme Court.}