Title
Riviera Filipina, Inc. vs. Court of Appeals
Case
G.R. No. 117355
Decision Date
Apr 5, 2002
Riviera's right of first refusal was lost due to inflexibility in negotiations; Reyes acted in good faith, and the sale to Cypress and Cornhill was valid.
right of first refusal
negotiating in good faith
duty to disclose

Case Summary (G.R. No. 117355)

Factual Background

Riviera Filipina, Inc. leased a 1,018 square meter parcel along EDSA, Quezon City, from Juan L. Reyes under a ten-year renewable lease that commenced August 1, 1982 and was evidenced by Transfer Certificate of Title No. 186326. The land was subject to a real estate mortgage in favor of Prudential Bank which was foreclosed extrajudicially when the loan matured and remained unpaid; the redemption period was to expire March 7, 1989. Paragraph 11 of the lease expressly vested Riviera with a right of first refusal should Reyes decide to sell during the term of the lease.

Negotiations Leading to Sale

Reyes repeatedly negotiated with Riviera through its President Vicente C. Angeles. Initial offers and counter-offers occurred between 1982 and February 1989: Reyes proposed a selling price of P6,000.00 per square meter at one point; Riviera repeatedly insisted on P5,000.00 per square meter and on one occasion even downgraded its offer. On November 2, 1988, counsel for Reyes notified Riviera of a sale at P6,000.00 per square meter and gave Riviera ten days to exercise its right of first refusal. Riviera responded with letters expressing interest and ultimately confirmed a fixed and final offer of P5,000.00 per square meter by letter dated December 2, 1988 and again by correspondence in February 1989 proposing fifty percent down and the balance on installment terms.

Formation of the Sale to Third Parties

While negotiations with Riviera were ongoing, Reyes approached Rolando P. Traballo, president of Philippine Cypress Construction & Development Corporation (Cypress), who negotiated a purchase price of P5,300.00 per square meter on December 5, 1988. Traballo sought a partner for financing, and in February 1989 Cypress and Cornhill Trading Corporation were able to procure funds to redeem the foreclosed mortgage. On May 1, 1989, Reyes executed a Deed of Absolute Sale conveying the property to Cypress and Cornhill for P5,395,400.00, and the purchasers subsequently mortgaged the property to Urban Development Bank for P3,000,000.00.

Commencement of Litigation

After the sale to Cypress and Cornhill, Riviera Filipina, Inc. demanded resale of the property to it on the ground that its right of first refusal had been violated. When the demand proved unsuccessful, Riviera filed Civil Case No. Q-89-3371 on August 31, 1989 seeking to compel transfer of title to Riviera upon payment of the price paid by Cypress and Cornhill.

Trial Court Proceedings and Ruling

The Regional Trial Court, after trial, dismissed Riviera’s complaint and likewise dismissed counterclaims and cross-claims. The trial court found that Riviera consistently refused to accept Reyes’s asking price and had repeatedly held firm at P5,000.00 per square meter. The court concluded that Reyes had afforded Riviera the opportunity to exercise its right of first refusal and that Riviera’s unyielding position effectively forfeited that right. The trial court reasoned that Reyes need not have expressly offered the property at the P5,300.00 per square meter at which Cypress and Cornhill ultimately purchased, because Riviera had signified its unwillingness to increase its offer when given opportunity.

Court of Appeals Decision

The Court of Appeals, Special Seventh Division, affirmed the trial court in a decision dated June 6, 1994. The appellate court adopted the trial court’s factual findings and emphasized Riviera’s uncompromising counter-offer of P5,000.00 per square meter on every occasion. The Court of Appeals held that Riviera’s steadfast valuation bound it and that Reyes was justified in concluding Riviera would not pay more. The appellate court further found no deceit in Reyes’ failure to disclose Cypress and Cornhill’s offer, observing that the sale was consummated at a price higher than Riviera’s offer and that Reyes had displayed good faith in his dealings with Riviera.

Issues Presented to the Supreme Court

Riviera Filipina, Inc. advanced four principal assignments of error: (I) that the Court of Appeals gravely abused its discretion in ruling that Riviera had lost its right of first refusal; (II) that the Court of Appeals erred in failing to find that Riviera was deceived by Reyes; (III) that the Court of Appeals abused its discretion in denying reconsideration; and (IV) that the Court of Appeals’ decision was void because Reyes allegedly died during the appeal and no proper substitution had been made.

Procedural Characterization by the Supreme Court

The Supreme Court treated the present petition as a petition for review under Rule 45 rather than as a special civil action under Rule 65, explaining that errors of judgment committed by a court in the exercise of jurisdiction are ordinarily corrected by appeal under Rule 45 while genuine jurisdictional defects may be the subject of certiorari under Rule 65. The Court noted that the appeal from a final disposition of the Court of Appeals is by petition for review under Rule 45.

The Parties’ Legal Contentions and Relevant Precedent

The Supreme Court recounted Riviera’s contention that its contractual right of first refusal amounted to a right to match a third party’s offer and that Reyes’ sale to Cypress and Cornhill violated that right. The Court surveyed precedents charting the development of the doctrine, including Guzman, Bocaling & Co. v. Bonnevie (1992), Ang Yu Asuncion v. Court of Appeals (1994), Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. (1996), and Paranaque Kings Enterprises, Inc. v. Court of Appeals (1997), and summarized the prevailing principle that a right of first refusal requires identity of terms and conditions and that a sale in violation of such right is valid but rescissible.

Supreme Court’s Analysis on Contract Construction and Conduct of the Parties

The Court emphasized the primacy of the parties’ intention and practical construction of the contract under Article 1371 of the New Civil Code and related authorities. It held that factual context and the parties’ contemporaneous acts control interpretation. Applying these principles, the Court found that Riviera’s letters and conduct manifested a fixed, final and uncompromising offer of P5,000.00 per square meter, and that Riviera in fact reduced its terms in February 1989. The Court concluded that Riviera’s intransigence and apparent exploitation of the time pressure arising from the redemption period made disclosure of Cypress and Cornhill’s offer futile and unnecessary. The Court invoked Article 1339, stating that mere silence or nondisclosure does not constitute fraud absent a duty to disclose or circumstances imposing a duty in good faith and commerce, and found no such duty in the circumstances.

Substitution of the Deceased Party and Jurisdictional Effect

Addressing Riviera’s contention that the Court of Appeals acted while Reyes was dead and without proper substitution, the Supreme Court noted that Riviera later manifested to the Court of Appeals that Reyes had died and the appellate court directed the filing of a death certificate and a motion for substitution. The heirs filed the motion and the Court of Appeals granted substitution. The Court observed that Sections 16 and 17 of Rule 3 of the Revised Rules of Court, the provisions cited by Riviera, have been amended by the 1997 Rules of Civil Procedure, and that, even under the old rules

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