G.R. No. 149734 November 19, 2004
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners, vs. AYALA CORPORATION, respondent.

FACTS

Petitioners, the Vazquez spouses, entered into a Memorandum of Agreement (MOA) with respondent Ayala Corporation on April 23, 1981. Under the MOA, Ayala purchased the Vazquez spouses’ shares in Conduit Development, Inc., which owned a property in Ayala Alabang. A key provision, paragraph 5.15, granted the spouses a “first option to purchase four developed lots next to the ‘Retained Area’ at the prevailing market price at the time of the purchase.” The development of these lots, according to Ayala’s subsequently formulated plan, was scheduled for a later phase. After the MOA’s execution, Ayala discovered an undisclosed contingent liability—a claim by a subcontractor, Lancer General Builder Corporation, against the project’s original contractor. Ayala settled this claim and deducted the amount from the final payment to the Vazquez spouses, who protested this deduction.

ISSUE

The core issue is whether the Vazquez spouses are entitled to purchase the four lots at the 1984 market price, as they insisted, or at the 1990 price when Ayala formally offered the lots, given the intervening discovery of the undisclosed liability and the delayed development.

RULING

The Supreme Court ruled in favor of Ayala Corporation, holding that the correct selling price is the prevailing market price at the time the option is exercised in 1990. The Court’s legal logic is anchored on contract interpretation and the doctrine of concurrent conditions. First, the plain meaning of paragraph 5.15 of the MOA establishes that the price is pegged to the market value “at the time of the purchase,” not at an earlier arbitrary date. The option could only be exercised once the lots were developed and offered for sale, which occurred in 1990. Second, the Court found that the Vazquez spouses breached their warranties under the MOA by failing to disclose the contingent claim from Lancer. This breach justified Ayala’s deduction of the settlement amount from the purchase price. The obligation to offer the lots and the obligation to pay the full purchase price without set-off were concurrent conditions. The spouses’ breach affected the agreed consideration and excused Ayala from immediate performance of its correlative duties. Consequently, the spouses could not demand performance (the sale at 1984 prices) while themselves being in breach. The appellate court’s decision dismissing the complaint for specific performance was affirmed.