G.R. No. 111538 (February 26, 1997)
Topics: contract of sale; right of first refusal
Summary:
Parties entered into a contract of lease with a clause for the right of first refusal. Lessor subsequently sold the property without prior offer of sale to the lessee.
Doctrines:
The basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee.
Facts:
Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA.
Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at Parañaque, Metro Manila.
On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L. Santos.
On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos.
On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos.
Paragraph 9 of the assigned leased contract provides among others that:
“9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;”
On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff.
On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo.
Upon learning of this fact plaintiff’s representative wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS.
Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore the said period expired another letter came from the counsel of defendant Santos, containing the same tenor.
On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiff’s counsel wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS.
On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS.
Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant Raymundo.
It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff’s offer to buy or two days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy to the contract.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiff’s Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for 15M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as “RIDICULOUS”. There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos.
On appeal, the Court of Appeals affirmed the ruling of the trial court.
Issue: Whether the right of first refusal enforceable by an action for specific performance?
Ruling:
YES. We do not agree with respondents’ contention that the issue involved is purely factual
The principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the “first option or priority” to purchase the leased properties in case Santos decided to sell.
If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such “right.” But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained.
Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the “ridiculous” price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price.
Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses.
The trial and appellate courts based their decision to sustain respondents’ motion to dismiss on the allegations of Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner
The basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee.