G.R. No. 82819 - Lumanta vs. National Labor Relations Commission

Carmelo & Bauermann, Inc. owned a parcel of land with two two-storey buildings on Claro M. Recto Avenue, Manila, covered by TCT No. 18529.
Mayfair Theater, Inc. leased portions of Carmelo’s property under two contracts of lease dated June 1, 1967 and March 31, 1969.
Equatorial Realty Development, Inc. later purchased the entire Claro M. Recto property from Carmelo by Deed of Absolute Sale dated July 30, 1978 for P11,300,000.00.
Mayfair constructed and operated the Maxim Theatre and Miramar Theatre on the leased portions.

Both lease contracts contained identical paragraph 8 providing: if the lessor should desire to sell the leased premises, the lessee shall be given 30-days exclusive option to purchase the same; and if sold to someone other than the lessee, the lessor shall stipulate in the deed of sale that the purchaser shall recognize and be bound by the lease.
In August 1974 Carmelo informed Mayfair of its desire to sell the entire property and mentioned a prospective offer; Mayfair replied by letter asserting paragraph 8.
Mayfair sent a second letter on September 18, 1974 expressing interest in acquiring the leased premises and other improvements; Carmelo and Equatorial later questioned the authenticity of that letter.

At pre-trial (January 23, 1979) the parties stipulated, inter alia, that: (a) there was a deed of sale from Carmelo to Equatorial; (b) both leases contained the paragraph giving plaintiff a 30-day exclusive option (admitted subject to contention of nullity); (c) the buildings were not condominium; (d) there was no separate consideration specified in the option clause; (e) what was sold by Carmelo to Equatorial was the land and the two buildings erected thereon.

Mayfair filed suit in September 1978 for specific performance, annulment of the sale, and damages (Civil Case No. 118019, RTC Branch VII, Manila).
RTC dismissed the complaint and declared the lease contracts expired, holding that paragraph 8 was an option clause void for lack of a distinct consideration and that the option was impossible of performance; the court awarded various compensations and attorneys’ fees in favor of defendants and dismissed Equatorial’s crossclaim.

The Twelfth Division reversed the RTC and ruled paragraph 8 was not an option but a contractual right of first refusal; it directed Mayfair to pay and return P11,300,000.00 to Equatorial and ordered ...(Subscriber-Only)

Whether the identical paragraph 8 in the two lease contracts constituted an *option* (option contract) subject to Article 1479, second paragraph, Civil Code, requiring a distinct consideration and a fixed price.
Whether paragraph 8 instead constituted a *right of first refusal* and, if so, whether such right required a distinct consideration to be enforceable.

Whether paragraph 8 was impossible of performance because it purported to cover only the leased premises while Carmelo’s offer and sale concerned the entire Claro M. Recto property.
Whether Mayfair’s remedy was limited to damages or whether specific performance (including rescission of the sale to Equatorial and compelling sale to Mayfair) was available after the breach.

Whether Equatorial Realty Development, Inc. was a purchaser in good faith or had actual knowledge of the leases, thereby affecting the availability of rescission or other rem...(Subscriber-Only)