G.R. No. 106063, 21 November 1996, 264 SCRA 483

FACTS:

Carmelo and Bauermann, Inc. leased its parcel of land with two-storey building to Mayfair Theater, Inc. Carmelo informed Mayfair that they intend to sell the entire property. Mayfair replied that they were interested to buy the entire property if the price is reasonable. However, Carmelo sold the entire property to Equatorial. Mayfair filed an action for specific performance and annulment of the sale because it violated their exclusive option to purchase the property for 30 days as stipulated in the lease contract. Carmelo contended that it informed Mayfair their desire to sell the property and the option to purchase by Mayfair is null and void for lack of consideration.

ISSUE:

Whether the option to purchase in the leased contract is an option contract or a right of first refusal.

RULING:

The Court agrees with the respondent Court of Appeals that the contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. The facts of the case and considerations of justice and equity require that the Court should order rescission here and now. Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. The sale of the subject real property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period.

*Case digest by Teonilo M. Bagalanon Jr., JD – 4, Andres Bonifacio College, SY 2019 – 2020