G.R. No. 148514 - Lucrative Realty and Development Corp. vs. Bernabe Jr.

Case Summary (G.R. No. 148514)

Factual Background

Spouses Baal executed the 28 May 1961 lease contract with FILOIL for a parcel of land at the corner of Agno Street and Quirino Avenue, Malate, Manila, covering 1,762.50 square meters, for ten (10) years with a renewal option for an additional five (5) years at the lessee’s option. FILOIL constructed a gasoline station on the leased premises. In 1969, Bernabe Jr. acquired the right to manage and operate the gasoline station. Later, Petron Corporation (PETRON) took over FILOIL’s assets, including the Malate station, yet allowed Bernabe Jr. to continue operating it.

On 28 November 1977, the Baal spouses obtained a P 750,000.00 loan from Home Savings Bank and Trust Company (HOME SAVINGS) and mortgaged two properties, one in Caloocan and the Malate property, as security. A year later, the spouses obtained an additional P 135,000.00, and the earlier mortgage was amended to increase the secured obligation to P 885,000.00.

In August 1980, after the original 1961 lease expired, the Baal spouses entered a new ten (10) year lease with Bernabe Jr., explicitly granting him a right of first refusal in the event the leased property would be sold.

In 1989, the spouses’ loan obligations became overdue, prompting HOME SAVINGS to extrajudicially foreclose the mortgages. A public auction was scheduled, and HOME SAVINGS, as the sole bidder, acquired ownership through a certificate of sale. During the pendency of the spouses’ action to enjoin the scheduled auction, the parties compromised: HOME SAVINGS agreed to accept the Malate property as full satisfaction of the spouses’ obligation, and the Caloocan property was released from the mortgage. Acting on the compromise, the spouses executed a dacion en pago on 29 December 1989, transferring the Malate property to HOME SAVINGS.

On the same day, HOME SAVINGS sold the Malate property to petitioner LUCRATIVE REALTY. In January 1990, HOME SAVINGS informed Bernabe Jr. to pay leased rentals directly to the bank, and Bernabe Jr. believed the mortgage had already been foreclosed. He therefore invoked his right of first refusal to purchase the Malate property. On 7 March 1990, HOME SAVINGS denied Bernabe Jr.’s offer, claiming it had acquired the property from the Baal spouses through dacion en pago, not by sale. A year later, on 1 May 1991, HOME SAVINGS told Bernabe Jr. to vacate because the lease would not be renewed.

Complaint for Annulment and Prayer for Injunction

Aggrieved, Bernabe Jr. filed a complaint for annulment of sale with a prayer for a writ of preliminary injunction against petitioner LUCRATIVE REALTY, HOME SAVINGS, and Lourdes Baal. He alleged that even before HOME SAVINGS foreclosed the mortgage on the Malate property, he had already notified the bank of his right of first refusal and his intention to redeem. He attributed bad faith to petitioner, HOME SAVINGS, and the Baal spouses for hastening the transfer of the property to deprive him of his right to purchase. He further alleged that even after HOME SAVINGS sold the property to petitioner, the bank continued to represent itself as owner.

The trial court conducted hearings on the propriety of the injunction. Both parties submitted memoranda. Petitioner insisted that Bernabe Jr.’s “so-called preferential right” did not amount to a valid and binding contract because it was not supported by consideration.

After the hearing, the trial court ruled that the application for injunctive relief would be resolved after the presentation of Bernabe Jr.’s evidence in chief. Before that resolution, on 24 February 1992, petitioner filed an ejectment suit in the MeTC against Bernabe Jr. After trial, the MeTC rendered judgment ordering Bernabe Jr. to vacate.

Bernabe Jr. appealed to the RTC, which reversed and found him entitled to possession. Petitioner then elevated the ejectment case to the Court of Appeals. Meanwhile, the trial court hearing the annulment case later issued the injunction on 20 February 1995, limiting its application after HOME SAVINGS moved for modification on the ground that, having sold the property to petitioner, it could no longer comply with the writ.

Ejectment Proceedings and the Injunction

After Lourdes Baal completed her evidence and while the ejectment appeal was pending, petitioner filed a Motion to Dismiss/Demurrer to Evidence and to Lift Injunction in the annulment case. The trial court denied the motion. The record shows that the Court of Appeals later, on 30 May 1996, granted petitioner’s plea for reversal in the ejectment case and ordered Bernabe Jr. evicted. Bernabe Jr. appealed to the Supreme Court, and the Supreme Court, through a Resolution dated 15 January 1997, dismissed Bernabe’s appeal.

Following receipt of that Supreme Court resolution, petitioner filed an omnibus motion seeking the inhibition of Judge Vicente A. Hidalgo and the immediate resolution of its motion for reconsideration. The trial judge did not act for a considerable time. Two years and a half later, on 8 September 1999, Judge Hidalgo denied petitioner’s Omnibus Motion. Petitioner then filed a petition for certiorari in the Court of Appeals alleging grave abuse of discretion for the refusal to lift the injunction and for the refusal to recuse the judge, contending that the judge displayed “unmistakable partiality” by allegedly declining to act with dispatch on several motions.

Proceedings Before the Court of Appeals

The Court of Appeals dismissed the certiorari petition. It ruled that petitioner was barred by laches in challenging the issuance and continuation of the preliminary injunction. The appellate court observed that petitioner received the trial court’s order granting the writ on 4 March 1995 but only moved to lift it on 12 June 1995. After that motion was denied, petitioner sought reconsideration only after an additional five (5) months. After denial of the reconsideration, petitioner waited another ten (10) months before challenging the propriety of the order via certiorari. The Court of Appeals held that this delayed conduct constituted laches and warranted a presumption of abandonment or declination to assert rights.

The Court of Appeals further held that there was insufficient evidence to support a finding of grave abuse of discretion by Judge Hidalgo in denying the motion to dismiss and the motion to inhibit.

It also disallowed the petition for certiorari for lack of compliance with the sixty (60)-day period under Sec. 4, Rule 65. Although petitioner attacked the trial court’s issuance of the writ, the Court of Appeals emphasized that petitioner questioned it only on 16 November 1999, which was far beyond the sixty-day reglementary period, and held that the lapse of the period deprived the appellate court of jurisdiction to alter an otherwise final order from the lower court.

Issues Raised in the Supreme Court

Petitioner maintained that the Court of Appeals erred in affirming the trial court’s denial of the Motion to Dismiss/Demurrer to Evidence and to Lift Injunction despite alleged grounds for dismissal. It argued that under Art. 1479 of the Civil Code, an accepted unilateral promise to buy or sell a determinate thing that is not supported by a consideration distinct from the price does not produce a binding contract. Petitioner asserted that Bernabe Jr. admitted his preferential right lacked consideration separate from rent. Consequently, petitioner contended that Bernabe Jr. could not claim a cause of action against petitioner and the other defendants.

Petitioner also reiterated that Judge Hidalgo committed grave abuse of discretion by refusing to lift the injunction and by refusing to inhibit himself, and it relied on the theory that the judge manifested “unmistakable partiality” due to delay.

Ruling of the Supreme Court

The Supreme Court denied the petition. It affirmed the Court of Appeals’ finding that no grave abuse of discretion could be imputed to Judge Hidalgo when the trial court denied petitioner’s demurrer to evidence.

The Supreme Court held that petitioner’s consideration argument failed. It cited Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 332 Phil. 525 (1996), and stated that it was incorrect to claim that there is no consideration for a right of first refusal when the right is embodied in the same contract of lease. The Supreme Court reasoned that, because the stipulation forms part of the entire lease contract, the consideration for the lease includes the consideration for the right of first refusal. It explained that the lessee consents to the lease and to pay the agreed price on the condition that, if the lessor sells the leased property, the lessee may match the offered purchase price and buy at that price.

On the basis of this doctrine, the Supreme Court rejected petitioner’s reliance on Bernabe Jr.’s testimony that he gave no consideration other than rental payment. The Court held that rent constitutes sufficient consideration for a right of first refusal stipulated in the same lease contract.

Legal Basis and Reasoning

The Supreme Court found no basis to indulge assumptions of partiality or prejudgment against Judge Hidalgo. It held that it would be improper to declare a ju

Case Syllabus (G.R. No. 148514)

The case involved a petition for certiorari under Rule 65 assailing a Court of Appeals decision and resolution that rejected imputations of grave abuse of discretion against Judge Vicente A. Hidalgo.
The petition challenged the denial of a demurrer to evidence and the denial of a motion to inhibit or recuse by reason that the judge’s acts were within the limits of discretion.
The Supreme Court ultimately denied the petition and upheld the Court of Appeals findings and procedural rulings.

Parties and Procedural Posture

Lucrative Realty and Development Corporation (LUCRATIVE REALTY) filed the petition for certiorari.
Ricardo C. Bernabe Jr. opposed as respondent and relied on his claims relating to a lease, a right of first refusal, and the effect of the mortgaged property’s transfer.
The Court of Appeals denied the petition for certiorari, ruling that the challenge to the injunction order was barred by laches and that there was no sufficient basis to find grave abuse of discretion.
The Supreme Court reviewed the Court of Appeals disposition on (a) substantive claims of error in denying the motion to dismiss/demurrer and refusing recusal, and (b) procedural bars affecting certiorari timeliness and jurisdiction.

Lease Origins and Property Background

Spouses Ambrocio and Lourdes Baal entered into a contract of lease with Fil Oil Refinery Corporation (FILOIL) on twenty-eight May 1961 covering a parcel of land at the corner of Agno Street and Quirino Avenue, Malate, Manila, measuring one thousand seven hundred sixty-two and one-half (1,762.50) square meters.
The lease period was ten (10) years, renewable for another five (5) years at the lessee’s option.
FILOIL immediately constructed a gasoline station on the leased premises.
In sometime in 1969, Bernabe Jr. acquired the right to manage and operate the gasoline station.
Later, the assets of FILOIL, including the Malate station, were taken over by Petron Corporation (PETRON), but Bernabe Jr. continued operating the station.

Mortgage Default and Foreclosure Events

On twenty-eight November 1977, the Baal spouses obtained a loan of P 750,000.00 from Home Savings Bank and Trust Company (HOME SAVINGS) secured by a real estate mortgage over two properties: one in Caloocan and the Malate property subject of the controversy.
On a year later, HOME SAVINGS granted an additional credit of P 135,000.00, and the earlier mortgage deed was amended to increase the secured obligation to P 885,000.00.
Upon the expiration of the 1961 lease contract, the Baal spouses executed a new contract of lease in August 1980 with Bernabe Jr. for ten (10) years.
The August 1980 lease explicitly granted Bernabe Jr. a right of first refusal if the leased property would be sold.
In 1989, the Baal spouses’ loan became overdue, prompting HOME SAVINGS to foreclose extrajudicially the mortgage and schedule a public auction of both properties.

Compromise, Dacion en Pago, and LUCRATIVE REALTY Acquisition

During the trial of an action to enjoin the auction, the parties entered into a compromise agreement under which HOME SAVINGS would accept the Malate property as full satisfaction of the spouses’ obligation.
The compromise agreement released the Caloocan property from the mortgage.
Pursuant to the compromise, the Baals executed a dacion en pago on twenty-nine December 1989 transferring ownership of the Malate property to HOME SAVINGS.
On the very same day, HOME SAVINGS acquired the property and immediately sold it to LUCRATIVE REALTY.
In January 1990, HOME SAVINGS informed Bernabe Jr. to pay rentals directly to the bank, indicating a shift in the perceived ownership and landlord position.
Believing HOME SAVINGS had already foreclosed, Bernabe Jr. invoked his right of first refusal to purchase the Malate property.
On seven March 1990, HOME SAVINGS denied the offer, contending it acquired the property through dacion en pago and not through sale.
On one May 1991, HOME SAVINGS demanded that Bernabe Jr. vacate because the lease would not be renewed.

Claims in the Annulment Suit

Bernabe Jr. filed a complaint for annulment of sale with a prayer for a writ of preliminary injunction against LUCRATIVE REALTY, HOME SAVINGS, and Lourdes Baal.
Bernabe Jr. alleged that even before HOME SAVINGS foreclosed the mortgage, he had already notified the bank of his right of first refusal and his intention to redeem.
He attributed bad faith to LUCRATIVE REALTY, HOME SAVINGS, and the Baal spouses, alleging they hastened the transfer of the property to defeat his right to purchase the leased premises.
He emphasized that even after the sale to LUCRATIVE REALTY, HOME SAVINGS continued to represent itself as owner of the property.
LUCRATIVE REALTY contended during the injunction proceedings that Bernabe Jr.’s “so-called preferential right” did not constitute a valid and binding contract because it was supposedly not supported by consideration.

Parallel Ejectment Case

After the complaint was filed, the trial court initially postponed full resolution of the injunction application pending presentation of evidence in chief.
On twenty-four February 1992, LUCRATIVE REALTY filed an ejectment case in the Metropolitan Trial Court of Manila against Bernabe Jr.
After trial, the MeTC ordered Bernabe Jr. to vacate the property.
Bernabe Jr. appealed to the Regional Trial Court, which ruled in his favor and found him entitled to possession.
LUCRATIVE REALTY elevated the ejectment case to the Court of Appeals.
On thirty May 1996, the Court of Appeals reversed the RTC decision, ordered Bernabe Jr. evicted, and thus ruled against his claim of continuing possession.
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