Serra vs. Court of Appeals

An option to buy in a lease contract is binding if supported by a consideration distinct from the price, and a price stated as "not greater than" a specific amount is sufficiently certain where the parties' conduct demonstrates a mutual understanding of the exact price.

Petitioner Federico Serra owned a parcel of land in Masbate. In 1975, respondent Rizal Commercial Banking Corporation (RCBC) negotiated to purchase the property but instead entered into a "Contract of Lease with Option to Buy." The contract granted RCBC a 25-year lease and an option to purchase the land within ten years at a price "not greater than P210.00 per square meter." A key stipulation provided that if RCBC failed to exercise its option, the building and improvements it constructed would become the lessor's property without reimbursement. Serra later registered the land under the Torrens System. In 1984, RCBC exercised its option to buy, but Serra refused to sell, prompting RCBC to file a complaint for specific performance and damages.

• Nature of the Contract: The parties executed a "Contract of Lease with Option to Buy" for a 25-year term, with an option to purchase within ten years at a price "not greater than P210.00 per square meter."
• Key Stipulation: The contract provided that if the lessee (RCBC) failed to exercise its option, the building and improvements it constructed would become the lessor's (Serra's) property without right of reimbursement.
• Performance by Lessor: Serra complied with his obligation to register the land under the Torrens System within three years.
• Exercise of Option: RCBC formally exercised its option via letter in September 1984.
• Refusal to Convey: Serra refused to sell the property, claiming the option was unenforceable.
• Lower Court Findings: Both the RTC (after reconsideration) and the Court of Appeals found the contract valid, the option supported by distinct consideration, and the price certain.

• Contract of Adhesion: Petitioner argued the contract was a contract of adhesion prepared by RCBC, containing lopsided terms that should be construed against the drafter.
• Lack of Distinct Consideration: Petitioner contended the option was not supported by any consideration separate from the purchase price, rendering it a mere offer that could be withdrawn.
• Uncertainty of Price: Petitioner asserted the phrase "not greater than P210.00 per square meter" did not constitute a price certain.
• Unjust Enrichment & Currency Adjustment: Petitioner claimed extraordinary inflation had eroded the rental value and that enforcing the sale would unjustly enrich RCBC.

• Validity and Enforceability: Respondent countered that the contract was valid, voluntarily entered into, and its terms were clear.
• Distinct Consideration: Respondent argued the lessee's obligation to transfer the building and improvements upon non-exercise of the option constituted a separate consideration for the lessor's promise to sell.
• Certainty of Price: Respondent maintained the price was certain, as evidenced by the parties' negotiations and subsequent conduct.
• No Basis for Adjustment: Respondent asserted the stipulated rent was the law between the parties and no extraordinary inflation justified its adjustment.

• Distinct Consideration: Whether the option to buy was supported by a consideration distinct from the price.
• Certainty of Price: Whether the stipulated price "not greater than P210.00 per square meter" was sufficiently certain.
• Contract of Adhesion: Whether the contract, as a contract of adhesion, was invalid or unenforceable.
• Currency Adjustment: Whether the decline in the peso's purchasing power warranted an adjustment in the stipulated rental.

• Distinct Consideration: The option was binding because it was supported by a consideration distinct from the price. The lessee's obligation to transfer the constructed building and improvements to the lessor, should it fail to exercise the option, constituted this separate consideration.
• Certainty of Price: The price was certain. The parties' contemporaneous and subsequent acts—particularly petitioner's testimony confirming the agreed price of P210 per square meter and his act of mortgaging the property to RCBC—demonstrated a mutual understanding that the price was fixed at P210 per square meter.
• Contract of Adhesion: The contract was not invalid merely because it was a contract of adhesion. Petitioner, a CPA-lawyer, was competent to understand and reject its terms. The stipulations were not shown to be unconscionable or inequitable.
• Currency Adjustment: No legal or factual basis existed to adjust the rent. The decline in purchasing power from 1983 to 1985 did not constitute "extraordinary inflation" as defined by law and jurisprudence, which requires an unimaginable fluctuation manifestly beyond the parties' contemplation.

• Option Contract — An option contract is a privilege existing in one party (the buyer) to decide whether to purchase a property at a fixed price within an agreed period. For it to be binding on the promisor, the option must be supported by a consideration distinct from the price. This separate consideration can be any prestation undertaken by the optionee.
• Contract of Adhesion — A contract prepared by one party and signed by the other by mere adhesion is as binding as an ordinary contract. It is not per se invalid. Courts will only invalidate its terms if they are shown to be unduly oppressive or one-sided.
• Certainty of Price — A price is considered certain if it is fixed with reference to another thing certain or determinable. Gross inadequacy of price generally does not invalidate a contract of sale.

• "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." — This passage identifies the specific, distinct consideration supporting the option.
• "Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used." — This underscores the principle of interpreting contracts based on the parties' intent and actions.

• Vda. de Quirino v. Palarca, 29 SCRA 1 — Cited as controlling precedent where a similar lease-with-option-to-buy contract was upheld. The consideration for the option was the lessee's obligation to transfer improvements upon non-exercise of the option.
• Pan American World Airways, Inc. v. Rapadas, G.R. No. 60673, May 19, 1992 and BPI Credit Corporation v. Court of Appeals, 204 SCRA 601 — Cited for the doctrine that contracts of adhesion are valid unless proven to be unconscionable.
• Filipino Pipe and Foundry Corp. v. NAWASA, 161 SCRA 32 — Cited for the definition of "extraordinary inflation."

• Article 1324, Civil Code — Provides that an offer may be withdrawn before acceptance, except when the option is founded upon a consideration.
• Article 1479, Civil Code — States that an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding if supported by a consideration distinct from the price.
• Article 1469, Civil Code — Defines a price as certain if it is fixed with reference to another thing certain or if its determination is left to the judgment of a specified person.
• Article 1470, Civil Code — States that gross inadequacy of price does not affect a contract of sale, except in specific cases like lesion.

Chief Justice Narvasa, Justices Padilla, Regalado, and Puno.