THIRD DIVISION

MAKATI STOCK EXCHANGE, INC., G.R. No. 138814

MA. VIVIAN YUCHENGCO, ADOLFO
M. DUARTE, MYRON C. PAPA,
NORBERTO C. NAZARENO, GEORGE
UY-TIOCO, ANTONIO A. LOPA,
RAMON B. ARNAIZ, LUIS J.L. VIRATA,
and ANTONIO GARCIA, JR.
Petitioners,
April 16, 2009

- versus -

MIGUEL V. CAMPOS, substituted by

JULIA ORTIGAS VDA. DE CAMPOS,[1]
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision[2] dated 11 February 1997 and Resolution dated 18 May 1999 of the Court
of Appeals in CA-G.R. SP No. 38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel
V. Campos, who filed with the Securities, Investigation and Clearing Department
(SICD) of the Securities and Exchange Commission (SEC), a Petition against herein
petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-
Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia,
Jr.Respondent, in said Petition, sought: (1) the nullification of the Resolution dated 3
June 1993 of the MKSE Board of Directors, which allegedly deprived him of his right
to participate equally in the allocation of Initial Public Offerings (IPO) of corporations
registered with MKSE; (2) the delivery of the IPO shares he was allegedly deprived
of, for which he would pay IPO prices; and (3) the payment of P2 million as moral
damages, P1 million as exemplary damages, and P500,000.00 as attorneys fees and
litigation expenses.
On 14 February 1994, the SICD issued an Order granting respondents prayer for the
issuance of a Temporary Restraining Order to enjoin petitioners from implementing
or enforcing the 3 June 1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting
respondents application for a Writ of Preliminary Injunction, to continuously enjoin,
during the pendency of SEC Case No. 02-94-4678, the implementation or
enforcement of the MKSE Board Resolution in question. Petitioners assailed this
SICD Order dated 10 March 1994in a Petition for Certiorari filed with the SEC en
banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition in SEC

Case No. 02-94-4678, based on the following grounds: (1) the Petition became moot
due to the cancellation of the license of MKSE; (2) the SICD had no jurisdiction over
the Petition; and (3) the Petition failed to state a cause of action.

The SICD denied petitioners Motion to Dismiss in an Order dated 4 May

1994. Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en
banc through another Petition for Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10
March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary
Injunction in favor of respondent. Likewise, in an Order dated 14 August 1995 in
SEC-EB No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in SEC
Case No. 02-94-4678 denying petitioners Motion to Dismiss, and accordingly
ordered the dismissal of respondents Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the
Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No.
393 and SEC-EB No. 403, respectively. Respondents Petition before the appellate
court was docketed as CA-G.R. SP No. 38455.

On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP

No. 38455, granting respondents Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders

dated May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403
is GRANTED. The said orders are hereby rendered null and void and set
aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was
denied by the Court of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I.

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE
PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE
A CAUSE OF ACTION.

II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A

MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF
THE MAKATI STOCK EXCHANGE, INC.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC

COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED
TO MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENTS
ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED
DURING THE HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY
INJUNCTION TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED
CAUSE OF ACTION.

IV.

IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE

BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC.HENCE, RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]

On 18 September 2001, counsel for respondent manifested to this Court that his
client died on 7 May 2001. In a Resolution dated 24 October 2001, the Court
directed the substitution of respondent by his surviving spouse, Julia
Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of
respondents Petition in SEC Case No. 02-94-4678 for failure to state a cause of
action. On the other hand, respondent insists on the sufficiency of his Petition and
seeks the continuation of the proceedings before the SICD.

A cause of action is the act or omission by which a party violates a right of another.
[4]
A complaint states a cause of action where it contains three essential elements of
a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative
obligation of the defendant, and (3) the act or omission of the defendant in violation
of said legal right.If these elements are absent, the complaint becomes vulnerable
to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of

action, he is regarded as having hypothetically admitted all the averments
thereof. The test of sufficiency of the facts found in a complaint as constituting a
cause of action is whether or not admitting the facts alleged, the court can render a
valid judgment upon the same in accordance with the prayer thereof. The
hypothetical admission extends to the relevant and material facts well pleaded in
the complaint and inferences fairly deducible therefrom.Hence, if the allegations in
the complaint furnish sufficient basis by which the complaint can be maintained, the
same should not be dismissed regardless of the defense that may be assessed by
the defendant.[5]
Given the foregoing, the issue of whether respondents Petition in SEC Case No. 02-
94-4678 sufficiently states a cause of action may be alternatively stated as
whether, hypothetically admitting to be true the allegations in respondents Petition
in SEC Case No. 02-94-4678, the SICD may render a valid judgment in accordance
with the prayer of said Petition.

A reading of the exact text of respondents Petition in SEC Case No. 02-94-4678 is,
therefore, unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioners invaluable services, the general membership

of respondent corporation [MKSE] passed a resolution sometime in 1989
amending its Articles of Incorporation, to include the following provision
therein:

ELEVENTH WHEREAS, Mr. Miguel Campos is the only surviving incorporator of

the Makati Stock Exchange, Inc. who has maintained his membership;

WHEREAS, he has unselfishly served the Exchange in various capacities, as

governor from 1977 to the present and as President from 1972 to 1976 and
again as President from 1988 to the present;

WHEREAS, such dedicated service and leadership which has contributed to

the advancement and well being not only of the Exchange and its members
but also to the Securities industry, needs to be recognized and appreciated;

WHEREAS, as such, the Board of Governors in its meeting held on February

09, 1989 has correspondingly adopted a resolution recognizing his valuable
service to the Exchange, reward the same, and preserve for posterity such
recognition by proposing a resolution to the membership body which would
make him as Chairman Emeritus for life and install in the Exchange premises
a commemorative bronze plaque in his honor;

NOW, THEREFORE, for and in consideration of the above premises, the

position of the Chairman Emeritus to be occupied by Mr. Miguel Campos
during his lifetime and irregardless of his continued membership in the
Exchange with the Privilege to attend all membership meetings as well as
the meetings of the Board of Governors of the Exchange, is hereby created.

8. Hence, to this day, petitioner is not only an active member of the

respondent corporation, but its Chairman Emeritus as well.
9. Correspondingly, at all times material to this petition, as an active
member and Chairman Emeritus of respondent corporation, petitioner has
always enjoyed the right given to all the other members to participate
equally in the Initial Public Offerings (IPOs for brevity) of corporations.

10. IPOs are shares of corporations offered for sale to the public, prior to the
listing in the trading floor of the countrys two stock exchanges. Normally,
Twenty Five Percent (25%) of these shares are divided equally between the
two stock exchanges which in turn divide these equally among their
members, who pay therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of

respondent-corporation, individual respondents passed a resolution to stop
giving petitioner the IPOs he is entitled to, based on the ground that these
shares were allegedly benefiting Gerardo O. Lanuza, Jr., who these individual
respondents wanted to get even with, for having filed cases before the
Securities and Exchange (SEC) for their disqualification as member of the
Board of Directors of respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been
deprived of his right to subscribe to the IPOs of corporations listing in the
stock market at their offering prices.

13. The collective act of the individual respondents in depriving petitioner of

his right to a share in the IPOs for the aforementioned reason, is unjust,
dishonest and done in bad faith, causing petitioner substantial financial
damage.[6]

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in
favor of respondent, particularly, respondents alleged right to subscribe to the IPOs
of corporations listed in the stock market at their offering prices; and stipulates the
correlative obligation of petitioners to respect respondents right, specifically, by
continuing to allow respondent to subscribe to the IPOs of corporations listed in the
stock market at their offering prices.

However, the terms right and obligation in respondents Petition are not magic words
that would automatically lead to the conclusion that such Petition sufficiently states
a cause of action. Right and obligation are legal terms with specific legal
meaning. A right is a claim or title to an interest in anything whatsoever that is
enforceable by law.[7] An obligation is defined in the Civil Code as a juridical
necessity to give, to do or not to do.[8] For every right enjoyed by any person, there
is a corresponding obligation on the part of another person to respect such
right. Thus, Justice J.B.L. Reyes offers[9] the definition given by Arias Ramos as a
more complete definition:

An obligation is a juridical relation whereby a person (called the creditor)

may demand from another (called the debtor) the observance of a
determinative conduct (the giving, doing or not doing), and in case of
breach, may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding right granted

to another, must be rooted in at least one of these five sources. The mere assertion
of a right and claim of an obligation in an initiatory pleading, whether a Complaint
or Petition, without identifying the basis or source thereof, is merely a conclusion of
fact and law. A pleading should state the ultimate facts essential to the rights of
action or defense asserted, as distinguished from mere conclusions of
fact or conclusions of law.[10] Thus, a Complaint or Petition filed by a person claiming
a right to the Office of the President of this Republic, but without stating the source
of his purported right, cannot be said to have sufficiently stated a cause of
action. Also, a person claiming to be the owner of a parcel of land cannot merely
state that he has a right to the ownership thereof, but must likewise assert in the
Complaint either a mode of acquisition of ownership or at least a certificate of title
in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondents right to subscribe to the IPOs of corporations listed in the stock market
at their offering prices, and petitioners obligation to continue respecting and
observing such right, the Petition utterly failed to lay down the source or basis of
respondents right and/or petitioners obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed
sometime in 1989, granting him the position of Chairman Emeritus of MKSE for
life.However, there is nothing in the said Petition from which the Court can deduce
that respondent, by virtue of his position as Chairman Emeritus of MKSE, was
granted by law, contract, or any other legal source, the right to subscribe to the
IPOs of corporations listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by
the members of the stock exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their
listing in the trading floor of the countrys two stock exchanges. Normally,
Twenty-Five Percent (25%) of these shares are divided equally between the
two stock exchanges which in turn divide these equally among their
members, who pay therefor at the offering price.[11] (Emphasis supplied)
A practice or custom is, as a general rule, not a source of a legally demandable or
enforceable right.[12] Indeed, in labor cases, benefits which were voluntarily given by
the employer, and which have ripened into company practice, are considered as
rights that cannot be diminished by the employer. [13] Nevertheless, even in such
cases, the source of the employees right is not custom, but ultimately, the law,
since Article 100 of the Labor Code explicitly prohibits elimination or diminution of
benefits.

There is no such law in this case that converts the practice of allocating IPO shares
to MKSE members, for subscription at their offering prices, into an enforceable or
demandable right. Thus, even if it is hypothetically admitted that normally, twenty
five percent (25%) of the IPOs are divided equally between the two stock exchanges
-- which, in turn, divide their respective allocation equally among their members,
including the Chairman Emeritus, who pay for IPO shares at the offering price -- the
Court cannot grant respondents prayer for damages which allegedly resulted from
the MKSE Board Resolution dated 3 June 1993 deviating from said practice by no
longer allocating any shares to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-
94-4678 should be dismissed for failure to state a cause of action. It does not
matter that the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No.
403, overstepped its bounds by not limiting itself to the issue of whether
respondents Petition before the SICD sufficiently stated a cause of action. The
SEC en banc may have been mistaken in considering extraneous evidence in
granting petitioners Motion to Dismiss, but its discussion thereof are merely
superfluous and obiter dictum. In the main, the SEC en banc did correctly dismiss
the Petition in SEC Case No. 02-94-4678 for its failure to state the basis for
respondents alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for
his alleged right to participate equally in the IPO allocations of the
Exchange. He cited paragraph 11 of the amended articles of incorporation of
the Exchange in support of his position but a careful reading of the said
provision shows nothing therein that would bear out his claim. The provision
merely created the position of chairman emeritus of the Exchange but it
mentioned nothing about conferring upon the occupant thereof the right to
receive IPO allocations.[14]

With the dismissal of respondents Petition in SEC Case No. 02-94-4678, there is no
more need for this Court to resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
are REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14 August
1995 of the Securities and Exchange Commission en banc in SEC-EB Case No. 393
and No. 403, respectively, are hereby reinstated. No pronouncement as to costs.

SO ORDERED.
 MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.

REYNATO S. PUNO
Chief Justice
____
G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION,
respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30 August 1991 and 27 September
1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging,
among others, that plaintiffs are tenants or lessees of residential and commercial spaces
owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they
have occupied said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several occasions before
October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises
and are giving them priority to acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that
plaintiffs thereafter asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24,
1986 asking that they specify the terms and conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the
same request; that since defendants failed to specify the terms and conditions of the offer to
sell and because of information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to sell the property to
them.

Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently offer their property for sale at a
price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the
plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if
the defendants subsequently decide to offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or
of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A.
Santiago), this Court affirmed with modification the lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties concerning the sale of
the property. Absent such requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs.
Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is
legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby
AFFIRMED, but subject to the following modification: The court a quo in the aforestated
decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for
a purchase price of Eleven Million pesos or lower; however, considering the mercurial and
uncertain forces in our market economy today. We find no reason not to grant the same right
of first refusal to herein appellants in the event that the subject property is sold for a price in
excess of Eleven Million pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on
certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form
and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and Development Corporation, subject
to the following terms and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00),
receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the
above-described property with all the improvements found therein including all the rights
and interest in the said property free from all liens and encumbrances of whatever nature,
except the pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the
transfer of title in his favor and other expenses incidental to the sale of above-described
property including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the
lessees demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case
No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty.
Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by
Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber stamp and signatures upon the copy
of the Motion for Execution.

The gist of the motion is that the Decision of the Court dated September 21, 1990 as
modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the
Supreme Court upon the petition for review and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an Entry of
Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.

It is the observation of the Court that this property in dispute was the subject of the Notice
of Lis Pendens and that the modified decision of this Court promulgated by the Court of
Appeals which had become final to the effect that should the defendants decide to offer the
property for sale for a price of P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for a price in excess of
Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the
property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a
new Transfer Certificate of Title be issued in favor of the buyer.

All previous transactions involving the same property notwithstanding the issuance of
another title to Buen Realty Corporation, is hereby set aside as having been executed in bad
faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive portion of
which reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the
Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering
the defendants among others to comply with the aforesaid Order of this Court within a
period of one (1) week from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register
of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of
Buen Realty Corporation which was previously executed between the latter and defendants
and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued. 1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside
and declared without force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held
bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No.
195816 issued in the name of Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell. For ready
reference, we might point out some fundamental precepts that may find some relevance to
this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The
vinculum juris or juridical tie which is the efficient cause established by the various sources
of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which
is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the
subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting
of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the essential elements
thereof. A contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the
cause thereof. A contract which requires, in addition to the above, the delivery of the object
of the agreement, as in a pledge or commodatum, is commonly referred to as a real
contract. In a solemn contract, compliance with certain formalities prescribed by law, such
as in a donation of real property, is essential in order to make the act valid, the prescribed
form being thereby an essential element thereof. The stage of consummation begins when
the parties perform their respective undertakings under the contract culminating in the
extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a

binding juridical relation. In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or right to
another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the purchase price), the breach of the
condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In
Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso
that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where the
condition is imposed upon the perfection of the contract itself, the failure of the condition
would prevent such perfection. 3 If the condition is imposed on the obligation of a party
which is not fulfilled, the other party may either waive the condition or refuse to proceed
with the sale (Art. 1545, Civil Code). 4

An unconditional mutual promise to buy and sell, as long as the object is made determinate
and the price is fixed, can be obligatory on the parties, and compliance therewith may
accordingly be exacted. 5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
when coupled with a valuable consideration distinct and separate from the price, is what
may properly be termed a perfected contract of option. This contract is legally binding, and
in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. ...

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price. (1451a) 6

Observe, however, that the option is not the contract of sale itself. 7 The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise

(policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments. Thus, at any time
prior to the perfection of the contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of the
withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is
still free and has the right to withdraw the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102
Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479,
modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409;
Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of
the Civil Code which ordains that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed

perfected, and it would be a breach of that contract to withdraw the offer during the agreed
period. The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for
specific performance on the proposed contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part of the consideration for
the main contract with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an "earnest money" in a contract of
sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first 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 first refusal, understood in its normal concept, per
se be brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an
offer would require, among other things, 10 a clear certainty on both the object and the
cause or consideration of the envisioned 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. Prior
thereto, it can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment,
like here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given,
for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a
recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
"right of first refusal" in favor of petitioners. The consequence of such a declaration entails
no more than what has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to honor the right of first
refusal, the remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should,
in any case, be considered bound to respect the registration of the lis pendens in Civil Case
No. 87-41058 are matters that must be independently addressed in appropriate
proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be
held subject to the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding
that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later
affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the trial court as
modified by this Court. As already stated, there was nothing in said decision 13 that decreed
the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the
fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs.
IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman
vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have
decreed at the time the execution of any deed of sale between the Cu Unjiengs and
petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against
petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno
and Mendoza, JJ., concur.

Kapunan, J., took no part.

Feliciano, J., is on leave.