Serra v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Federico Serra and respondent Rizal Commercial Banking Corporation (RCBC) entered into a "Contract of Lease with Option to Buy" for a parcel of land owned by petitioner. The contract stipulated a lease period of twenty-five (25) years with an option for RCBC to purchase the land within ten (10) years at a price not greater than P210.00 per square meter. Petitioner was obligated to register the land under the Torrens System at his expense. RCBC was authorized to construct improvements on the land. Petitioner complied with the registration requirement within three years. RCBC exercised its option to buy on September 4, 1984, but petitioner refused to sell. Procedural History: Respondent RCBC filed a complaint for specific performance and damages. Petitioner raised defenses including the contract being one of adhesion, the option lacking distinct consideration, delayed exercise of the option, and extraordinary inflation. The Regional Trial Court (RTC) initially dismissed the complaint, finding the option unenforceable due to lack of distinct consideration and unreasonable delay. However, upon motion for reconsideration, the RTC reversed its decision, ordering petitioner to execute a deed of sale and pay attorney's fees. The Petition: The Court of Appeals affirmed the RTC's decision. Petitioner elevated the case to the Supreme Court, assailing the appellate court's findings on the contract being one of adhesion, the lack of consideration for the option, and the denial of currency adjustment for rentals.
Issue(s)
Whether the "Contract of Lease with Option to Buy" is valid and enforceable, and whether the option to buy was supported by a consideration distinct from the purchase price. Whether the stipulated price of "not greater than P210.00 per square meter" is certain or definite. Whether the contract is a contract of adhesion and if so, whether it is inequitable. Whether the rental amount should be adjusted due to the decrease in the purchasing power of the currency.
Ruling
The petition is devoid of merit. The Supreme Court affirmed the decision of the Court of Appeals, upholding the validity and enforceability of the "Contract of Lease with Option to Buy" between petitioner and respondent bank. The Court found that the option was supported by a consideration distinct from the price, the price was certain, and there was no basis for adjusting the rental amount.
Ratio Decidendi
On the validity and enforceability of the contract and the option's consideration: The Court reiterated that a promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy and sell is binding if supported by a consideration distinct from the price. In this case, the Court found that the consideration for the lessor's obligation to sell was the lessee's obligation to transfer ownership of the building and improvements to the lessor should the lessee fail to exercise the option to buy within the stipulated period. This provision, as explicitly stated in paragraph 3 of the contract, constitutes a consideration separate from the purchase price. The Court also noted that the lessee's obligation to transfer the improvements was even more onerous as it involved the transfer of the building and improvements without right of reimbursement if the option was not exercised. The Court distinguished this from a mere offer, emphasizing that the contract created a binding obligation once accepted under the specified conditions. On the certainty of the price: The Court held that a price is considered certain if it is definite or can be determined by reference to another certain thing or by the judgment of a specified person. In this case, the price of "not greater than P210.00 per square meter" was deemed certain. The Court pointed to the petitioner's own testimony confirming the offer to buy at P210.00 per square meter in 1975, which he accepted. Furthermore, the petitioner's subsequent actions, such as registering the land and mortgaging it to the respondent bank without objection to the price, demonstrated his understanding and acceptance of the stipulated price. The Court also stated that gross inadequacy of price generally does not affect the validity of a contract of sale. On the contract being a contract of adhesion: The Court acknowledged that a contract of adhesion is one prepared by one party and adhered to by the other, but stated that such contracts are as binding as ordinary contracts, provided the adhering party is free to reject it. The Court found no inequity in the present case, noting that the petitioner was a highly educated individual (CPA-Lawyer) at the time of the transaction, possessing the capacity to understand the terms and negotiate effectively. Therefore, his adherence to the contract was not a result of undue pressure or disadvantage. On the adjustment of rental due to inflation: The Court ruled that there was no legal or factual basis for adjusting the rental amount. It reiterated that the contract is the law between the parties, and any amendment should be by mutual agreement. The Court also found that the decline in the purchasing power of the peso between 1983 and 1985 did not constitute extraordinary inflation, which requires an unimaginable increase or decrease in purchasing power or fluctuations beyond the parties' contemplation at the time of the obligation's establishment. The Court cited Filipino Pipe and Foundry Corp. v. NAWASA in support of its reasoning regarding extraordinary inflation.
Main Doctrine
A contract of lease with an option to buy is valid and enforceable if the option is supported by a consideration distinct from the purchase price, and the price is certain. A unilateral promise to buy or sell is binding if supported by a separate consideration.