"I........THE PROVISION OF PARAGRAPH NO. 9 OF THE SUBJECT MORTGAGE CONTRACT IS NULL AND VOID AB INITIO.

II........THE RESCISSION OF THE DEED OF SALE DATED 6 AUGUST 1974 BETWEEN THE SPS. LITONJUA AND PHIILIPPINE WHITEHOUSE AUTO SUPPLY, INC. HAS NEVER BEEN INVOKED AS A DEFENSE BY RESPONDENT L & R CORPORATION; THUS, DEEMED WAIVED.

III........THE DECISION RESCINDING THE DEED OF SALE EXECUTED BY AND BETWEEN THE PETITIONERS IN EFFECT DEPRIVED THEM OF THEIR BASIC RIGHT TO DUE PROCESS."

"Both contracts of lease in question provide the identically worded paragraph 8, which reads:

‘That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.’

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal.

As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price.

‘It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtahan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned. x x x. There was, therefore, a meeting of minds on the part of the one and the other, with regard to the stipulations made in the said document. But it is not shown that there was any cause or consideration for that agreement, and this omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, x x x, there can be no contract without the requisite, among others, of the cause for the obligation to be established.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

‘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. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, not an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives the right, or, rather, from his point of view, he receives the right to elect to buy.’

‘x x x. 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:

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. x x x.

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.

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.

Observe, however, that the option is not the contract of sale itself. 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.

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. 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. x x x.’

In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts.

There is nothing in the identical Paragraphs ‘8’ of the June 1, 1967 and March 31, 1969 contracts which would bring them into the ambit of the usual offer or option requiring an independent consideration.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render ineffectual or ‘inutile’ the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or promise of each party is the consideration for that of the other.

"(T)he stringent treatment towards contracts of adhesion which the courts are enjoined to observe is in pursuance of the mandate in Article 24 of the New Civil Code that ‘(i)n all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.

Thus, the validity and/or enforceability of a contract of adhesion will have to be determined by the peculiar circumstances obtaining in each case and the situation of the parties concerned."