Daniel Vazquez vs Ayala Corporation

written by Howard

G.R. NO. 149734 – 443 SCRA 239 – Civil Law – Law on Sales – Warranty – Option Contract

Daniel Vazquez et al. owns Conduit Development, Inc. In 1981, the Vasquez group entered into a Memorandum of Agreement (MOA) with Ayala Corporation wherein Ayala bought Conduit Development, Inc. from Vazquez. Ayala committed to develop Conduit’s lands including 4 parcels of land adjacent to Vazquez’ retained land. Be it noted that these parcels of land were in the 3rd phase of Ayala’s development plan. Paragraph of the MOA provides:

. The BUYER (AYALA) agrees to give the SELLERS (Vasquez) a first option to purchase four developed lots next to the “Retained Area” at the prevailing market price at the time of the purchase.

In 1990, Ayala was able to develop the said lots. (This was after some slump, and some litigation between Conduit’s former contractor (GP construction) and GP’s subcontractor (Lancer Builders).) Ayala then offered to sell the 4 parcels of land to Vasquez at m. which was the market price in 1990. Vasquez refused the offer. Vasquez contended that the purchase price should be P460/sq. m. which was the market price in 1981 (time of purchase). Ayala then lowered the purchase price to P5k/sq. m. but Vasquez refused again. Instead he made a counter offer to buy the lots at P2k/sq. m. This time, Ayala refused.

ISSUE: Whether or not Paragraph of the MOA is an option contract or right of first refusal.

HELD: No. The said paragraph is a mere right of first refusal. Although the paragraph has a definite object, i.e., the sale of the 4 lots, the period within which they will be offered for sale to Vasquez and, necessarily, the price for which the subject lots will be sold are not specified.  The phrase “at the prevailing market price at the time of the purchase” connotes that there is no definite period within which Ayala is bound to reserve the subject lots for Vasquez to exercise his privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.

Further, paragraph was inserted into the MOA to give Vasquez the first crack to buy the subject lots at the price which Ayala would be willing to accept when it offers the subject lots for sale.  It is not supported by an independent consideration.

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