University of the Philippines College of Law

JEAF, 2-D

Topic RIGHT OF FIRST REFUSAL

Case No. G.R. No. 111538 / February 26, 1997
Case Name PARAÑAQUE KINGS ENTERPRISES, INC. vs. CA
Ponente Panganiban, j.

RELEVANT FACTS
 Defendant Catalina Santos owns 8 parcels of land located in Parañaque City, Metro Manila.
 On November 28, 1977, a certain Frederick Chua leased the properties from Santos, the said lease was
registered in the Register of Deeds.
 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, the said assignment was also registered.
 On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to
Parañaque Kings Enterprises by virtue of a deed of assignment and with the conformity of defendant
Santos, the same was duly registered
 Par. 9 of the assigned leased contract provides: (that the lessee shall have the right of first refusal)
o “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, Santos sold the 8 parcels of land subject of the lease to defendant David
Raymundo for P5 Million, without offering it first to Parañaque Kings in contravention of their contract
 On March 5, 1989, 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 Santos, requesting her to rectify the
error and consequently realizing the error, she had it reconveyed to her for the same consideration of 5
Million
 Santos then offered the properties to Parañaque Kings for 15 Million. She gave them 10 days to make
good of the offer; but the period expired without plaintiff sending a reply. Santos’ counsel sent another
letter offering the properties again to plaintiff.
 On May 8, 1989 before the period given in the second letter expired, plaintiff’s counsel sent Santos a
letter offering to buy the properties for 5 Million
 But before they replied to the offer to purchase, another deed of sale was executed by defendant
Santos in favor of defendant Raymundo for 9 Million
 Aggrieved, Parañaque Kings filed a complaint before the RTC of Makati praying that the Deed of Sale
between Santos and Raymundo be annulled and the leased properties be sold to them; that defendants
pay them 3 Million for actual damages for the cost of the building that they built on the land, 5 Million
for moral damages, 200,00 for attorney’s fees and exemplary damages.
o Plaintiff argues that there was a breach of contract
o That the there was collusion between the defendants. The offer given the plaintiff was
ridiculous and was intended for it to not accept the offer
 Respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and
laches
 University of the Philippines College of Law
JEAF, 2-D

o Santos argues that she actually offered the properties to plaintiff and that the period has lapsed
without it making good the offer
o That plaintiff is not priv to the contract
 RTC and CA dismissed the complaint for lack of cause of action saying that Santos complied with her
obligation to offer the propert first to plaintiff. CA also held that plaintiff can’t complain if the offer given
to it was 15M and the propert was later sold at 9M. The prospective buer can’t dictate its own price and
forcibly ram it against Santos, especially when they didn’t have an previous agreement regarding the
selling price.

ISSUE AND RATIO DECIDENDI

Issue
W/N the complaint alleging
breach of the contractual
right of first option to buy
states a valid cause of action?
W/N Paranaque Kings is privy
to the contract?
Ratio
YES
1. SC held 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. The basis of the right of the first refusal must be the current offer to
sell of the seller or offer to purchase of any prospective buyer. Only
after the grantee 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 grantee
YES
1. SC said that when the deed of assignments were executed from the
second lessee to the third lessee, i.e. Paranaque Kings, ALL RIGHTS
 University of the Philippines College of Law
JEAF, 2-D

were transferred and assigned as stated in the contract, including the

right of first refusal.

RULING

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are
hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further
proceedings.