Case Digest (G.R. No. 106063)
Facts:
This is Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. v. Mayfair Theater, Inc., G.R. No. 106063, promulgated November 21, 1996, Supreme Court En Banc, Hermosisima, Jr., J., writing for the Court.The dispute arose from two lease contracts between lessor Carmelo & Bauermann, Inc. (Carmelo) and lessee Mayfair Theater, Inc. (Mayfair) dated June 1, 1967 and March 31, 1969 respectively, covering portions of a two‑storey building on Claro M. Recto Avenue where Mayfair constructed the Maxim and Miramar theaters. Both leases contained identical paragraph 8: 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 a third person the purchaser shall recognize and be bound by the lease. Mayfair relied on those clauses as a preemptive right when Carmelo later signaled an intention to sell.
In August 1974 Carmelo informed Mayfair of a proposed sale; correspondence and telephone exchanges followed but no agreement resulted. On July 30, 1978 Carmelo executed a Deed of Absolute Sale of the entire Recto property to Equatorial Realty Development, Inc. (Equatorial) for P11,300,000.00. In September 1978 Mayfair filed suit (Civil Case No. 118019, RTC Branch VII, Manila) for specific performance with damages and annulment of the sale. Carmelo and Equatorial pleaded, among other defenses, that the paragraph 8 clause was an option unsupported by distinct consideration and/or impossible of performance because the sale covered the whole property rather than only the leased portions; Equatorial counterclaimed for cancellation and cross‑claimed for indemnity.
At pretrial the parties stipulated material facts including (inter alia) that paragraph 8 contained no separate consideration, the buildings were not on the condominium plan, and what Carmelo sold to Equatorial was the entire land and buildings. The trial court (RTC) dismissed Mayfair’s complaint, holding paragraph 8 to be an option lacking distinct consideration and thus unenforceable; it declared the leases expired and awarded various compensations and attorneys’ fees against Mayfair.
Mayfair appealed. The Court of Appeals (Twelfth Division; Decision promulgated June 23, 1992) reversed: it construed paragraph 8 not as an option but as a right of first refusal (a contractual right distinct from an option), found Equatorial had notice of the leases, and directed Mayfair to return the purchase price to Equatorial and ordered Equatorial to transfer title to Mayfair upon payment. Carmelo and Equatorial sought review in this Court (petition for review), assigning several errors including mischaracterization...(Pro-only)
Issues:
- Was paragraph 8 of the lease contracts a legally enforceable option requiring a distinct consideration, or was it a right of first refusal?
- If it was a right of first refusal, could the sale by Carmelo to Equatorial be rescinded and Mayfair be allowed to exercise the right to buy at the price actually paid?
- Did the Court of Appeals err in directing implementation of relief prior to finality and in granting relief not prayed for?
- Do alleged irregularities in the assignment/raffle of the case in the Cour...(Pro-only)
Ruling:
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Ratio:
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Doctrine:
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