G.R. No. 106063 (1996)
Topics:
Contract of repurchase, contract of sale, perfection of a contract of sale
Summary:
This assailed CA decision reversed the trial court’s dismissal of the complaint for specific performance with damages and annulment of contract. It found the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration. Thus, the subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) was made without any breach of or prejudice to, the said lease contracts.
Doctrines:
Right of first refusal, rescission
Facts:
Carmelo owned a parcel of land, together with two 2-storey buildings located at Claro M Recto Avenue, Manila. Carmelo entered into a contract of lease with Mayfair for the latter’s lease of a portion of Carmelo’s property particularly for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter constructed on the leased property a movie house known as “Maxim Theatre”.
Two years later, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo’s property for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another movie house known as “Miramar Theatre” on this leased property. Both contracts of lease provides stipulations, to wit:
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 hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.
In 1974, Mr. Henry Pascal informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo desires to sell the property and that a certain Jose Araneta was offering to buy the whole property. He then asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Mayfair then reminded Mr. Pascal as to the stipulations in the lease contract. Mayfair sent another letter to Carmelo expressing interest in acquiring not only the leased premises but “the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter.
Four years later, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the “Maxim” and “Miramar” theatres, to Equatorial by virtue of a Deed of Absolute Sale.
Mayfair instituted the action for specific performance and annulment of the sale of the leased premises to Equatorial.
Issue:
- Whether specific performance of one’s right of first refusal is available as a remedy in case of breach of contract
Ruling:
No. The Court provides that rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract.
Citing Tolentino, the Court held that rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.
In this case, since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded.