Tuazon vs. Del Rosario-Suarez

An option contract is a preparatory contract that grants the offeree the right to purchase a determinate thing at a fixed price within a specified period; it is not binding on the offeror if unaccepted, or if accepted but without a consideration distinct from the price. In contrast, a right of first refusal requires an antecedent agreement that the grantee shall have the first opportunity to buy on terms yet to be determined, and it does not arise from a unilateral offer with definite price and period.

Lourdes Q. Del Rosario-Suarez owned a 1,211-square-meter parcel of land in Quezon City, which she leased to Roberto D. Tuazon for three years beginning March 1994. Some six months into the lease, Lourdes, then nearly 80 years old and needing funds to move to the United States, sent Tuazon a personal letter offering to sell him the property for ₱37,541,000 and giving him two years to decide. Tuazon attempted to negotiate a lower price, but Lourdes did not accept his counter-offer. The lease expired in February 1997, and on June 19, 1997 — after the two-year option period had lapsed — Lourdes sold the land to her daughter Catalina Suarez-De Leon, son-in-law Wilfredo De Leon, and two grandsons for ₱2,750,000. The new owners demanded that Tuazon vacate; upon his refusal, they secured an ejectment judgment in the Metropolitan Trial Court. While that judgment was on appeal, Tuazon filed a complaint for annulment of the deed of sale, reconveyance, and damages, asserting that the letter-offer had conferred a right of first refusal that Lourdes violated by selling without notice and at a lower price.

• The Lease: On June 24, 1994, petitioner Roberto D. Tuazon and respondent Lourdes Q. Del Rosario-Suarez executed a Contract of Lease over a 1,211-square-meter parcel of land in Quezon City. The lease ran from March 1994 to February 1997.
• The Letter-Offer: On January 2, 1995 — during the lease — Lourdes sent Tuazon a letter offering to sell the property for ₱37,541,000. The letter stated that she needed funds to buy a house and farm in the United States and gave Tuazon “all the time to decide … but not for 2 years or more.” It asked him to shoulder transfer expenses.
• Counter-Offer and Non-Acceptance: Tuazon did not accept the ₱37,541,000 price. He negotiated for a much lower price, which constituted a counter-offer. Lourdes never accepted the counter-offer.
• Sale to the De Leons: On June 19, 1997 — more than four months after the lease expired and after the two-year period mentioned in the letter had lapsed — Lourdes sold the property to her only child Catalina Suarez-De Leon, son-in-law Wilfredo De Leon, and grandsons Miguel Luis S. De Leon and Rommel S. De Leon for a total consideration of ₱2,750,000. A new transfer certificate of title was issued in the name of the De Leons.
• Ejectment Case: The new owners, through their attorney-in-fact, notified Tuazon to vacate. Upon his refusal, they filed an unlawful detainer complaint in the Metropolitan Trial Court (MeTC) of Quezon City. On August 30, 2000, the MeTC ordered Tuazon to vacate for non-payment of rentals and expiration of the lease contract. Tuazon appealed.
• Annulment Complaint: While the ejectment case was on appeal, Tuazon filed with the RTC of Quezon City a Complaint for Annulment of Deed of Absolute Sale, Reconveyance, Damages, and Application for Preliminary Injunction. He claimed that Lourdes had violated his right of first refusal by selling to the De Leons at a lower price without giving him the opportunity to match the terms.

• Right of First Refusal: Petitioner argued that the letter-offer gave him a right of first refusal akin to that recognized in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., and that Lourdes violated this right by selling to the De Leons at a much lower price without giving him notice or the chance to purchase under the same terms. He maintained that annulment or rescission of the deed of sale was the proper remedy.
• Procedural Sanction: Petitioner contended that Lourdes should be sanctioned for failing to file her appellee’s brief in the Court of Appeals.

• Option Contract, Not Right of First Refusal: Respondents countered that the letter was an unaccepted unilateral promise to sell — an option contract that granted Tuazon the right to buy within two years at a fixed price. They asserted that it did not amount to a right of first refusal, as there was no prior contractual stipulation creating such a right.
• Absence of Acceptance and Consideration: Respondents argued that Tuazon never accepted the offer but instead made a counter-offer, so no contract was perfected. Even if accepted, the unilateral promise lacked a consideration distinct from the price, and under Article 1479 of the Civil Code it was not binding on Lourdes. The subsequent sale to the De Leons was therefore valid, and the complaint lacked cause of action.

• Nature of the Offer: Whether the January 2, 1995 letter conferred a right of first refusal or merely constituted an option to buy, and whether its breach entitled Tuazon to annul the sale to the De Leons.
• Effect of Non-Filing of Appellee’s Brief: What is the effect of Lourdes’s failure to file her appellee’s brief in the Court of Appeals.

• Nature of the Offer: The letter was an option contract, not a right of first refusal. It specified a fixed price (₱37,541,000) and a definite period (not exceeding two years), satisfying the requisites of an option as defined in Beaumont v. Prieto. A right of first refusal, by contrast, lacks such certainty and depends on the grantor’s future decision to sell on terms yet to be firmed up, as explained in Ang Yu Asuncion v. Court of Appeals. Tuazon’s attempt to negotiate a lower price was a counter-offer, not an absolute acceptance; under Article 1319 of the Civil Code, a qualified acceptance constitutes a counter-offer and no perfected contract arose. Even assuming arguendo that Tuazon had accepted, the option lacked a distinct consideration separate from the purchase price, as required by Articles 1324 and 1479. The offer could therefore be withdrawn at any time before acceptance, following Sanchez v. Rigos and Diamante v. Court of Appeals. The sale to the De Leons occurred after the lease and the option period had expired, and the lease contract contained no right-of-first-refusal clause. Equatorial Realty was inapposite because there the lease itself granted a 30-day exclusive option to purchase and the property was sold within the lease term. Consequently, the deed of sale to the De Leons was valid and not subject to annulment.
• Effect of Non-Filing of Appellee’s Brief: The failure to file an appellee’s brief does not result in an automatic decision against the appellee. The proper course — as held in De Leon v. Court of Appeals — is to deem the appellee to have waived the right to file the brief, and the appellate court may decide the appeal on the basis of the appellant’s brief and the records of the case. The Court of Appeals thus committed no error in proceeding to resolve the appeal despite Lourdes’s omission.

• Option Contract — An option is a preparatory contract whereby the owner of property agrees that another person shall have the right to purchase the property at a fixed price within a specified time. It is neither a sale nor an agreement to sell but a sale of the right or privilege to buy. An option without a consideration distinct from the price may be withdrawn at any time before acceptance; an accepted unilateral promise to sell is binding only if supported by a consideration separate from the purchase price (Articles 1324 and 1479, Civil Code). The Court applied this to hold that Lourdes’s letter-offer, even had it been accepted, would not have bound her because of the absence of a distinct consideration.
• Right of First Refusal — A right of first refusal is an innovative juridical relation that cannot be equated with a perfected sale or an option contract. Its exercise depends on the grantor’s eventual intention to sell and on terms — including price — that are yet to be determined. Breach of such a right may give rise to damages but, absent an express stipulation, does not warrant specific performance or the annulment of a subsequent sale. The Court distinguished the letter-offer because it contained a definite price and period, hallmarks of an option.
• Distinction Between Option and Right of First Refusal — Where the offer includes both a determined price and a fixed period for acceptance, it is an option contract. Lacking either element, the arrangement is merely a right of first refusal. The letter’s ₱37,541,000 price and two-year limit satisfied both requisites.
• Absolute Acceptance and Counter-Offer — Under Article 1319, consent is formed by the meeting of an offer and an absolute acceptance; a qualified acceptance is a counter-offer that extinguishes the original offer. Tuazon’s negotiation for a lower price was a counter-offer, hence no contract was perfected.
• Requirement of Distinct Consideration for Unilateral Promise — The second paragraph of Article 1479 requires that an accepted unilateral promise to buy or sell a determinate thing for a price certain be supported by a consideration distinct from the price. Without such consideration, the promissor may withdraw the offer even after acceptance.
• Effect of Appellee’s Failure to File Brief — The appellee who fails to file a brief is deemed to have waived the right to file; the appellate court may properly decide the case based on the appellant’s brief and the record. No automatic reversal ensues.

• “An agreement in writing to give a person the ‘option’ to purchase lands within a given time at a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time.” — The Court’s adoption of the definition from Beaumont v. Prieto, used to classify the letter-offer as an option contract.
• “In a right of first refusal, while the object might be made determinate, the exercise of the right, however, 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.” — Quoted from Ang Yu Asuncion v. Court of Appeals to contrast the right of first refusal with the fixed-price, fixed-period option.
• “A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is accepted. … Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct consideration.” — From Diamante v. Court of Appeals, underscoring the requirement of a distinct consideration.

• Beaumont v. Prieto, 41 Phil. 670 (1916) — Defined an option contract; relied upon as the foundational definition distinguishing an option from other preparatory juridical relations.
• Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994) — Clarified the nature and limitations of a right of first refusal; followed to hold that the letter-offer, having a fixed price and period, could not be a right of first refusal.
• Sanchez v. Rigos, 150-A Phil. 714 (1972) — Interpreted Article 1479, holding that an option unsupported by distinct consideration may be withdrawn even after acceptance; applied to conclude that even acceptance would not have bound Lourdes.
• Diamante v. Court of Appeals, 206 SCRA 52 (1992) — Reiterated the rule that an accepted unilateral promise to sell requires a distinct consideration to be binding; relied upon to reinforce the ruling.
• Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 332 Phil. 525 (1996) — Distinguished; the lease there expressly contained a right of first refusal and the sale occurred within the lease term, unlike this case.
• De Leon v. Court of Appeals, 432 Phil. 775 (2002) — Held that an appellee’s failure to file a brief results in a waiver of the right to file, not an automatic reversal; applied to resolve the procedural issue.

• Article 1319, Civil Code — Mandates that acceptance must be absolute; a qualified acceptance constitutes a counter-offer. Applied to Tuazon’s negotiation for a lower price, which was deemed a counter-offer that extinguished Lourdes’s original offer.
• Article 1324, Civil Code — Allows an offeror who has given the offeree a period to accept to withdraw the offer at any time before acceptance, unless the option is founded upon a consideration. Applied in conjunction with Article 1479 to conclude that, absent a distinct consideration, Lourdes could withdraw her offer.
• Article 1479, Civil Code — Provides 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. Applied to hold that even if Tuazon had accepted, the lack of a separate consideration left Lourdes free to sell to others.

Chief Justice Renato C. Corona (Chairperson), Justices Teresita J. Leonardo-De Castro, Roberto A. Abad (in lieu of Associate Justice Presbitero J. Velasco, Jr.), and Jose Portugal Perez.