G.R. No. L-5145; May 27, 1953
FRANCISCO BASTIDA and JUAN YSMAEL & Co., INC., plaintiffs-appellees, vs. DY BUNCIO & CO., INC., defendants-appellant.

FACTS

On February 20, 1948, Francisco Bastida and Juan Ysmael & Co., Inc. (Ysmael) formed a partnership to operate the “Washington Lard and Oil Factory,” with Bastida as industrial partner and Ysmael as capitalist partner. On August 10, 1948, Dy Buncio & Co., Inc. (Dy Buncio) authorized Bastida as a broker to sell its oil and lard factory in Makati, Rizal, for P300,000. Ysmael was interested but found the price high and requested time to inspect. Consequently, on September 28, 1948, Dy Buncio leased the factory to Bastida for two years with an option to buy it for P260,000, excluding paper machinery, with a monthly rental of P3,000. Bastida explained the option was placed in his name, instead of directly to Ysmael’s manager, to allow him to earn extra money. Bastida and Ysmael took possession and operated the factory, with Ysmael paying the rentals directly to Dy Buncio, who was aware of the arrangement. On December 2, 1948, Bastida assigned his option to Ysmael. On August 29, 1950, Ysmael, through Bastida, notified Dy Buncio of its intent to exercise the option. Dy Buncio objected, claiming the option was non-transferable. When Bastida then offered to exercise the option himself, Dy Buncio, through counsel, demanded payment of September 1950 rental and other charges totaling P4,503.10. Bastida tendered payment, but it was refused due to a condition in the receipt regarding rescission. Dy Buncio then rescinded the lease. Plaintiffs sued for specific performance. The trial court ordered Dy Buncio to execute a deed of sale to Ysmael upon payment of P260,000 and P4,503.10 in rental, plus attorney’s fees.

ISSUE

1. Whether the option to buy given to Bastida was valid and binding.
2. Whether Bastida validly assigned the option to Ysmael.
3. Whether Ysmael validly exercised the option.

RULING

1. Yes, the option was valid and binding. The Court found that Dy Buncio’s initial intent was to sell the factory, and the option, though in Bastida’s name, was intended for Ysmael, as Dy Buncio knew Bastida lacked financial means and was partnering with Ysmael. Dy Buncio’s subsequent objection, based on Bastida’s Spanish citizenship (alleging constitutional incapacity to own land), was an afterthought motivated by the factory’s increased value due to Ysmael’s improvements (over P300,000). Equity and legal principles bar Dy Buncio from invoking this incapacity as a defense, as a party with capacity to contract cannot avoid performance by citing the other party’s incapacity.
2. Yes, the assignment was valid. The option contract contained no stipulation prohibiting assignment or requiring Dy Buncio’s consent. The option was not given in consideration of Bastida’s personal qualifications. The evidence showed Dy Buncio’s original purpose was for Bastida to offer the property to Ysmael. Under Article 1112 of the Old Civil Code, rights from an obligation are transmissible unless stipulated otherwise. The trial court correctly found that assignment occurred by December 2, 1948, and Ysmael’s notice and filing of the suit for specific performance before the option expired constituted a valid exercise.
3. Yes, the option was validly exercised. Ysmael’s notice of intent to exercise the option on August 29, 1950, and the filing of the lawsuit for specific performance on September 26, 1950, before the option’s expiration (September 28, 1950, per Dy Buncio, or October 15, 1950, per plaintiffs), constituted a valid exercise. Dy Buncio’s conduct indicated an initial desire to sell, later changing its mind due to the business’s profitability, estopping it from assailing the option’s validity or assignment.
The Supreme Court affirmed the trial court’s decision, ordering specific performance. Dy Buncio’s plea for alternative relief in case of plaintiff’s non-payment was deemed premature, as the suit presumed compliance with the court’s decision.