Case Digest: Riviera Filipina vs Court of Appeals, GR No. 117355

Riviera Filipina vs Court of Appeals, GR No. 117355, April 5, 2002

Subject: Obligations and Contracts

FACTS

Riviera Filipina, Inc. (Riviera) instituted a civil case to compel the defendants therein Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation (Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square meter parcel of land located along EDSA, Quezon City for alleged violation of Riviera’s right of first refusal.

On November 23, 1982, Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera involved the 1,018 square meter parcel of land. It was subject to a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public auction sale, the mortgagee bank emerged as the highest bidder. The redemption period was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the money needed to redeem the subject property, Reyes decided to sell the same.

Paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the right of first refusal should the LESSOR decide to sell the property during the term of the lease", Reyes offered to sell the subject property to Riviera for P5,000.00 per square meter. However, Angeles bargained for P3,500.00 per square meter. Since Reyes was not amenable to the said price and insisted on P5,000.00 per square meter, Angeles requested Reyes to allow him to consult the other members of the Board of Directors of Riviera.

Seven (7) months later, Angeles communicated Reyes Riviera’s offer to purchase the subject property for P4,000.00 per square meter. However, Reyes did not accept the offer. This time he asked for P6,000.00per square meter since the value of the property in the area had appreciated in view of the plans of Araneta to develop the vicinity. Reyes then went on and offered the property to Angeles and other corporations.

ISSUE

Whether or not the violation of one party to the other with respect to the right of first refusal is tantamount to rescission of contract.

RULING

Yes, it is tantamount to rescission of contract.

Under the law (Art 1380, NCC), contracts validly agreed upon may be rescinded in the cases established by law. Also as stated in Article 1381 of NCC, the following contracts are rescissible: (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them.

In this case, prevailing doctrine cited was the right of first priority "all things and conditions being equal" meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381(3) of the New Civil Code.