Parañaque Kings Enterprises, Inc. vs. Court of Appeals

The Court held that to fully comply with a contractual right of first refusal, the owner must offer the property to the grantee at the same price and terms eventually given to a third-party buyer; a prior, higher offer that the grantee rejected does not discharge this obligation.

Catalina L. Santos leased eight parcels of land to Frederick Chua, who subsequently assigned the lease to Lee Ching Bing, who then assigned it to Parañaque Kings Enterprises, Inc. The lease contract contained a stipulation granting the lessee the "first option or priority to buy" the leased properties in case of sale. Santos sold the properties to David A. Raymundo for P5 million without offering them to Parañaque Kings. Upon the lessee's complaint, Santos reconveyed the property and offered it to Parañaque Kings for P15 million, which the latter rejected as "ridiculous." Santos thereafter sold the same properties to Raymundo for P9 million without first offering them to Parañaque Kings at that price.

• The Lease and Assignment: On November 28, 1977, Santos leased eight parcels of land to Frederick Chua. The lease was subsequently assigned to Lee Ching Bing on February 12, 1979, and then to Parañaque Kings Enterprises, Inc. on August 6, 1979, with Santos's conformity in both instances. Paragraph 9 of the lease contract granted the lessee the "first option or priority to buy" the properties if sold.
• The Initial Sale and Reconveyance: On September 21, 1988, Santos sold the properties to Raymundo for P5 million without offering them to Parañaque Kings. After Parañaque Kings complained, Santos reconveyed the property from Raymundo for the same price.
• The High Offer and Second Sale: Santos offered the properties to Parañaque Kings for P15 million. Parañaque Kings rejected the offer and countered with P5 million. On May 15, 1989, before responding to the counter-offer, Santos executed a second deed of sale in favor of Raymundo for P9 million. Santos informed Parañaque Kings of the sale two days later, claiming the period had lapsed.
• The Complaint: Parañaque Kings filed a complaint to annul the P9 million deed of sale, compel the sale of the property to petitioner for P5 million, and claim damages, alleging collusion between Santos and Raymundo.

• Petitioner maintained that the complaint stated at least three valid causes of action: breach of contract, right of first refusal founded in law, and damages.
• Petitioner argued that the issue presented was one of law, not of fact, as it concerned the sufficiency of the allegations in the complaint.
• Petitioner contended that Santos violated the right of first refusal by selling the property to Raymundo for P9 million without first offering it at that price.
• Petitioner asserted that the deed of assignment included the option to purchase because it transferred "all rights, interest and participation" over the leased premises.
• Petitioner argued that Raymundo was a proper party because he stepped into the shoes of the lessor and the complaint sought the annulment of the sale in his favor.

• Respondents countered that the petition should be denied for raising a purely factual issue and for failure to comply with Section 2, Rule 45 of the Rules of Court regarding the number of copies of the brief required.
• Respondents argued that Santos had complied with paragraph 9 of the lease contract by offering the properties to petitioner for P15 million, which petitioner rejected.
• Respondents claimed that estoppel and laches barred the action because petitioner paid rentals to Raymundo, thereby acknowledging him as the new owner.
• Respondent Santos contended that the deed of assignment did not include the assignment of the option to purchase.
• Respondent Raymundo averred that he was not privy to the lease contract and could not be held liable for its violation.

• Procedural Issues:
  • Whether the petition should be dismissed for failure to file twelve copies of the petitioner's brief as required by the Rules of Court.
• Substantive Issues:
  • Whether a complaint alleging breach of a contractual right of first refusal states a valid cause of action.
  • Whether the deed of assignment of the lease contract included the assignment of the option to purchase.
  • Whether the third-party buyer (Raymundo) is a proper party to the suit for breach of the right of first refusal.
  • Whether the complaint states a cause of action under Presidential Decree No. 1517 (Urban Land Reform Law).

• Procedural: The Court ruled that the petition would not be dismissed for failure to file sufficient copies of the brief. Because the non-compliance was not intended for delay and did not prejudice the adverse party, dismissal on mere technicalities was unwarranted in the exercise of the Court's equity jurisdiction.
• Substantive: The Court held that the complaint stated a valid cause of action. To fully comply with a contractual right of first refusal, the owner must offer the property to the grantee at the same price and terms eventually given to a third-party buyer. A prior offer at a higher price (P15 million) that the grantee rejected does not discharge the obligation, and selling the property to a third party at a lower price (P9 million) without first offering it at that price constitutes an actionable breach.
• Substantive: The Court ruled that the deed of assignment included the option to purchase. The assignment of "all rights, interest and participation" encompasses all specific rights and obligations contained in the contract of lease, including the right of first option.
• Substantive: The Court found that Raymundo was a proper party. He stepped into the shoes of the owner-lessor, assumed the obligations of the lessor, received rental benefits, and was a necessary party because the complaint sought the annulment of the sale in his favor.
• Substantive: The Court held that the complaint failed to state a cause of action under P.D. 1517 because it did not allege compliance with the prerequisites, specifically that the terms and conditions of the sale must be determined by the Urban Zone Expropriation and Land Management Committee.

• Right of First Refusal — The grantee of a right of first refusal is entitled to be offered the property at the same price and under the same terms and conditions as those given to a third party. The basis of the right must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person under the same terms. A prior offer at a higher or less favorable price does not satisfy the obligation, lest the right be rendered illusory.
• Hypothetical Admission in Motion to Dismiss — A defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof. The complaint does not have to establish facts proving the existence of a cause of action at the outset; it must only show that the claim for relief exists rather than that a claim has been defectively stated.

• "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."
• "From the foregoing, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee 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 optionee."

• Guzman, Bocaling & Co. vs. Bonnevie, 206 SCRA 668 (1992) — Followed. The Court applied the principle that a lessor cannot sell property to another for a lower price and under more favorable terms without first offering those same terms to the lessee with a right of first priority.
• Equatorial Realty vs. Mayfair Theater, Inc., G.R. No. 106063 (1996) — Followed. The Court reiterated that a lessor must confer every opportunity to negotiate within the stipulated period to the lessee holding a right of first refusal.
• Lagmay vs. Court of Appeals, 199 SCRA 501 (1991) — Followed. The Court cited this case to hold that certain prerequisites must be complied with to avail of the right of first refusal under P.D. 1517, specifically the determination of terms by the Urban Zone Expropriation and Land Management Committee.

• Section 6, Presidential Decree No. 1517 (Urban Land Reform Law) — Grants legitimate tenants who have resided on the land for ten years or more the right of first refusal to purchase the same within a reasonable time and at reasonable prices, under terms and conditions determined by the Urban Zone Expropriation and Land Management Committee. The Court found the complaint failed to state a cause of action under this decree because it lacked allegations that these prerequisites were complied with.
• Section 8, Rule 3, Rules of Court — Governs necessary and indispensable parties. The Court applied this provision to hold that respondent Raymundo was a necessary party because a favorable judgment for petitioner would necessarily affect his rights as the buyer of the property.

Narvasa, C.J., Davide, Jr., Melo, and Francisco, JJ.