FACTS:

In 1976, Keppel Philippines Holdings, Inc. (Keppel) entered into a lease agreement with Luzon Stevedoring Corporation (Lusteveco) for 11 hectares of land in Bauan, Batangas. The lease was for a period of 25 years and included an option for Keppel to purchase the land for a specific price at the end of the lease term. At the time of the agreement, Keppel was not qualified to own land in the Philippines due to its foreign ownership. The agreement also prohibited Lusteveco from selling or assigning its rights to the land without Keppel's consent. When Philippine National Oil Corporation (PNOC) acquired the land from Lusteveco, Keppel did not object as long as the agreement was recorded on PNOC's title. In 2000, Keppel notified PNOC that it qualified to own land under Philippine laws and expressed its intention to exercise the option to purchase the land. However, PNOC did not respond favorably, leading Keppel to file a complaint for specific performance. The lower courts ruled in favor of Keppel, ordering PNOC to execute a deed of absolute sale. PNOC appealed the decision to the Court of Appeals (CA) and later filed a petition for review on certiorari before the Supreme Court, arguing that the agreement was unconstitutional and the option contract was invalid.

ISSUES:

1. Whether the Agreement is constitutional.

2. Whether the option contract is valid.

3. Whether a separate consideration is required to support an option to buy.

4. Whether Lusteveco's option to convert the purchase price into equity can be deemed as a sufficient separate consideration for Keppel's option to buy.

5. Whether the additional concessions in agreements are sufficient to support an option contract.

6. Whether a separate consideration is necessary to validate an option contract.

7. Whether Sanchez v. Rigos or Southwestern Sugar is the controlling doctrine in cases involving the application of Article 1324 and 1479 of the Civil Code.

8. Whether Keppel's acceptance of PNOC's offer to buy the land was timely and valid.

9. Whether Keppel's constitutional right to acquire full title to the land should be upheld.

10. Whether or not Keppel Philippines Holdings, Inc. has the option to buy the land.

11. Whether or not Keppel Philippines Holdings, Inc. meets the required Filipino equity ownership and proportion to acquire full title to the land.

RULING:

1. The Court affirms the constitutionality of the Agreement.

2. • Preserving the ownership of land in Filipino hands is a consistent policy in all three Philippine constitutions.
3. • Only Filipino citizens or corporations 60% owned by Filipinos are qualified to own private lands.
4. • The Court has voided arrangements that gradually transfer ownership rights to foreigners.
5. • In the present case, the Court rejects the claim that the Agreement amounted to a transfer of ownership to the foreign party because of the industrial/commercial purpose behind it, the significant investments made by the foreign party for the shipyard business, and the fact that the Filipino owner was not completely denied its ownership rights during the lease.

6. The option contract is valid.

7. • An option contract must have the essential elements of subject matter, consent, and consideration.
8. • The subject matter of an option contract is the right or privilege to buy/sell a determinate thing at a fixed price.
9. • The consent in an option contract is the acceptance of the promise to buy/sell, while in a sales contract, it is the acceptance of the offer itself.
10. • The consideration in an option contract can be anything of value.
11. • In this case, the option contract is deemed valid as it meets the essential elements of an option contract.

12. A separate consideration is required to support an option to buy. The mere inclusion of an option contract in a reciprocal lease contract does not provide it with the necessary separate consideration for its validity. The reciprocal contract must be closely scrutinized to determine if it contains additional concessions intended to constitute as a consideration for the option contract, separate from the purchase price.

13. Lusteveco's option to convert the purchase price into equity cannot be deemed as a sufficient separate consideration for Keppel's option to buy. Paragraph 5 of the agreement does not indicate that the grant to Lusteveco of the option to convert the purchase price for Keppel shares was intended as the consideration for Keppel's option to buy the land. The option to convert the purchase price for shares should be deemed part of the consideration for the contract of sale itself, as the shares are merely an alternative to the actual cash price.

14. The determination of whether the additional concessions in agreements are sufficient to support an option contract is subjective and depends on the parties' intent. There is a risk of reading too much or too little from the facts. For uniformity and consistency, it is better to clearly specify the consideration for the option contract in the contract or clause. If no separate consideration is specified, the burden falls on the offeree to prove its existence.

15. An option contract remains an offer that, if accepted, turns into a contract to sell, even without a separate consideration. The absence of a separate consideration does not invalidate an offer to buy or sell. This ruling is based on the reconciliation of Articles 1324 and 1479 of the Civil Code in the case of Sanchez v. Rigos. The Court has upheld this principle in various cases, including Atkins v. Cua Hian Tek and Sanchez v. Rigos itself.

16. Sanchez v. Rigos is the controlling doctrine in cases involving the application of Article 1324 and 1479 of the Civil Code. The Court clarified that the Constitution declares that no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or reversed except by the court sitting en banc. Therefore, since Sanchez v. Rigos is an en banc decision affirmed in another en banc decision, it should be deemed as the controlling doctrine.

17. Keppel's acceptance of PNOC's offer to buy the land was timely and valid. The Court found that when Keppel communicated its acceptance, PNOC did not withdraw the offer to sell provided under the Agreement. As the offer was duly accepted, a contract to sell the land ensued and Keppel has the right to demand compliance from PNOC.

18. Keppel's constitutional right to acquire full title to the land should be upheld. The Court acknowledged that the Constitution reserves the ownership of public and private lands to Filipino citizens, and the 60% Filipino equity proportion is required. Although Keppel could not prove the nature and composition of its shareholdings in 2000, the Court cannot deny Keppel its option to buy the land by retroactively applying the Gamboa ruling without violating its vested rights. However, Keppel must be allowed to prove its compliance with the 60% Filipino equity ownership and proportion before it can acquire full title to the land.

19. The Court partially grants the petition, setting aside the Court of Appeals' ruling upholding Keppel Philippines Holdings, Inc.'s option to buy the land. The case is remanded to the Regional Trial Court to determine whether Keppel Philippines Holdings, Inc. meets the required Filipino equity ownership and proportion in accordance with the Court's ruling in Gamboa v. Teves, in order to acquire full title to the land.

PRINCIPLES:

• Ownership of land in the Philippines is preserved for Filipino citizens or corporations 60% owned by Filipinos.

• Gradual transfer of ownership rights to foreign parties is prohibited.

• An option contract must have subject matter, consent, and consideration.

• The subject matter of an option contract is the right to buy/sell a determinate thing.

• The consent in an option contract is the acceptance of the promise to buy/sell.

• The consideration in an option contract can be anything of value.

• The consideration for an option contract does not need to be monetary and may be anything of value.

• When the consideration is not monetary, it must be clearly specified as such in the option contract.

• If the written agreement does not state the consideration for the option contract, the offeree or promisee bears the burden of proving the existence of a separate consideration.

• The offeree cannot rely on Article 1354 of the Civil Code, which presumes the existence of consideration, since Article 1479 of the Civil Code is a specific provision on option contracts that explicitly requires the existence of a consideration distinct from the purchase price.

• Additional concessions stipulated in an agreement may be considered sufficient separate consideration for an option contract, even if there is no express intent in the parties' agreements, as long as these concessions are over and above the obligations under the agreement.

• The determination of whether additional concessions in agreements are sufficient to support an option contract depends on the parties' intent and the specific facts of the case.

• It is better to clearly specify the consideration for the option contract in the contract or clause to ensure uniformity and consistency in contract interpretation.

• An option contract remains binding even without a separate consideration. It stands as an unaccepted offer that, when properly accepted, ripens into a contract to sell.

• The reconciliation of Articles 1324 and 1479 of the Civil Code holds that an offer supported by a separate consideration creates a valid option contract, while an offer without a separate consideration still stands but can be withdrawn by the offeror before acceptance. Once acceptance is communicated, a bilateral contract to buy and sell is generated and becomes reciprocally demandable.

• The Southwestern Sugar v. AGPC doctrine, which required a separate consideration for an accepted unilateral promise to be binding, has been overturned by the Sanchez v. Rigos ruling. However, subsequent cases have inconsistently applied these doctrines.

• The doctrine or principle of law laid down by the court in a decision rendered en banc or in division may only be modified or reversed by the court sitting en banc.

• When an option to buy or to sell is not supported by a consideration separate from the purchase price, the option constitutes an offer to buy or to sell and may be withdrawn by the offeror before the communication of the offeree's acceptance.

• When an offer to buy is timely accepted, a mutual promise to buy and to sell under the first paragraph of Article 1479 of the Civil Code occurs and the parties' respective obligations become reciprocally demandable.

• The 60% Filipino ownership requirement applies separately to each class of shares, regardless of differences in voting rights, privileges, and restrictions, to guarantee effective Filipino control of public utilities and the ownership of public and private lands.

• Ownership of land is restricted to Filipino citizens or corporations at least 60% owned by Filipinos.

• The determination of whether a corporation meets the required Filipino equity ownership and proportion should be made in accordance with the Court's ruling in Gamboa v. Teves.

• The Regional Trial Court has the authority to make the necessary determination regarding Filipino equity ownership and proportion.