Riviera Filipina, Inc. vs. Court of Appeals

A right of first refusal is interpreted according to the parties' contemporaneous and subsequent acts, and the holder forfeits such right by adamantly refusing to increase its offer despite the seller's pleas, thereby relieving the seller of the duty to disclose subsequent third-party offers.

Juan L. Reyes leased a 1,018-square meter parcel of land along EDSA, Quezon City, to Riviera Filipina, Inc. for a ten-year period commencing August 1, 1982. The lease contract contained a right of first refusal in favor of Riviera should Reyes decide to sell the property during the lease term. The property was subject to a real estate mortgage in favor of Prudential Bank, which extrajudicially foreclosed the mortgage when the loan remained unpaid. With the redemption period set to expire on March 7, 1989, Reyes decided to sell the property to raise the necessary redemption funds.

• Lease and Foreclosure: On November 23, 1982, Juan L. Reyes leased a 1,018-square meter property to Riviera Filipina, Inc. for ten years, with a stipulation granting the lessee a right of first refusal should the lessor decide to sell. The property was mortgaged to Prudential Bank, which extrajudicially foreclosed the mortgage. The redemption period was set to expire on March 7, 1989.
• Initial Negotiations: Unable to raise the redemption money, Reyes offered to sell the property to Riviera at P5,000 per square meter. Riviera bargained for P3,500. Seven months later, in October 1988, Riviera increased its offer to P4,000, but Reyes demanded P6,000 due to property appreciation.
• Formal Offer and Rejection: On November 2, 1988, Reyes’s counsel formally offered the property to Riviera at P6,000 per square meter, net of taxes and fees, giving Riviera ten days to exercise its right. Riviera expressed interest but only offered P5,000. On December 2, 1988, Riviera formalized its "fixed and final" offer of P5,000, demanding Reyes decide within fifteen days. On December 5, 1988, Reyes’s counsel rejected the offer and declared Riviera to have lost its right of first refusal.
• Third-Party Negotiations: On December 4, 1988, Reyes offered the property to Rolando Traballo of Philippine Cypress Construction & Development Corporation (Cypress) for P6,000. Traballo bargained for P5,300, which Reyes accepted, though Traballo needed time to secure funds. Reyes informed Traballo of Riviera’s lower P5,000 offer.
• Second Attempt with Riviera: In January 1989, with the redemption period nearing expiry and the Cypress deal unconsummated, Reyes sent his nephew to ask Riviera’s president to increase the offer slightly. Riviera refused to budge from P5,000. On February 4, 1989, Riviera even downgraded its offer terms, proposing 50% downpayment and the balance payable over five years with interest.
• Sale to Third Party: In February 1989, Cypress and its partner, Cornhill Trading Corporation, provided the funds for Reyes to redeem the property from Prudential Bank. On May 1, 1989, Reyes executed a Deed of Absolute Sale in favor of Cypress and Cornhill for P5,395,400 (P5,300 per square meter). On the same day, the buyers mortgaged the property to Urban Development Bank.

• Violation of Right of First Refusal: Petitioner argued that its right of first refusal was violated when Reyes sold the property to Cypress and Cornhill without offering it at the exact price and terms of the third-party sale. Petitioner contended that a right of first refusal is a right to match, requiring the lessor to disclose the third-party offer before executing a sale.
• Concealment and Deception: Petitioner maintained that it was deceived by Reyes’s failure to disclose the P5,300 per square meter offer from Cypress and Cornhill, asserting it would have matched the offer had it been informed.
• Jurisdictional Defect: Petitioner argued that the Court of Appeals decision was null and void because it was rendered while Reyes was deceased and no substitution of parties had been effected.

• Forfeiture of Right: Respondent countered that Riviera lost its right of first refusal by stubbornly refusing to increase its offer above P5,000 despite Reyes’s explicit requests to raise the price slightly.
• No Duty to Disclose: Respondent argued that because Riviera manifested a rigid and final position that it would not pay more than P5,000, any disclosure of the third-party offer would have been a useless ceremony, and Reyes was under no obligation to make such disclosure.

• Right of First Refusal: Whether Riviera lost its right of first refusal and whether Reyes violated this right by selling the property to a third party without informing Riviera of the third party's offer.
• Fraud by Concealment: Whether Reyes committed fraud or violated a duty to disclose by concealing the third-party offer from Riviera.
• Substitution of Parties: Whether the Court of Appeals decision is null and void due to the death of Reyes and the initial lack of substitution during the pendency of the appeal.

• Right of First Refusal: The right of first refusal was not violated. While the prevailing doctrine requires identity of terms and an offer to the right-holder before selling to a third party, general propositions must yield to the practical construction of the contract by the parties. The parties' contemporaneous and subsequent acts demonstrated that Riviera understood the right simply as a priority to buy if it matched the lessor's price. Riviera's adamant "take-it-or-leave-it" stance at P5,000, despite pleas to increase the offer slightly, justified Reyes in concluding that Riviera would not match the P5,300 offer from Cypress and Cornhill. A court cannot rewrite the contract to impose an obligation the parties did not assume.
• Fraud by Concealment: No fraud was committed. Under Article 1339 of the Civil Code, silence or concealment does not constitute fraud unless there is a special duty to disclose. Given Riviera's uncompromising position, disclosure of the third-party offer would have been an exercise in futility; thus, no duty to disclose arose.
• Substitution of Parties: The Court of Appeals decision was not void. Even under the old Rules of Court, the failure to substitute a deceased party does not invalidate proceedings if the action survives the death. The appellate court properly directed substitution upon discovery of the death, and the heirs voluntarily submitted to the Supreme Court's jurisdiction, satisfying due process requirements.

• Practical Construction of Contracts — The intention of the parties is accorded primordial consideration, and where the parties have given a contract a practical construction by their conduct, such construction is determinative of their meaning. Applied to rule that Riviera's stubborn negotiation stance defined the boundaries of its right of first refusal, precluding it from demanding a right to match an offer it had previously indicated it would not accept.
• Fraud by Silence — Silence or concealment does not constitute fraud unless there is a special duty to disclose certain facts, or unless, according to good faith and the usages of commerce, the communication should be made. Applied to absolve Reyes of liability for non-disclosure, as Riviera's rigid offer made disclosure futile.

• "General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles."
• "A court, even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an obligation not assumed."

• Guzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992) — Established that a sale violating a right of first refusal is rescissible and requires identity of terms. Cited as the origin of the prevailing doctrine, but distinguished on the basis of the factual context and the parties' practical construction of the contract.
• Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994) — Departed from Guzman, holding that breach of a right of first refusal does not entitle rescission but damages. Cited as part of the doctrinal evolution.
• Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 264 SCRA 483 (1996) — Reverted to the Guzman doctrine on rescissibility. Cited as part of the prevailing doctrine.
• Parañaque Kings Enterprises, Inc. v. Court of Appeals, 268 SCRA 727 (1997) — Affirmed the requirement of identity of terms and conditions for a right of first refusal. Cited as the prevailing doctrine, but distinguished based on the parties' conduct in this case.

• Article 1371, Civil Code — Provides that the intention of the parties shall be accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. Applied to interpret the right of first refusal based on the parties' negotiation conduct.
• Article 1339, Civil Code — Provides that failure to disclose facts, when there is a duty to reveal them, constitutes fraud. Applied to rule that no duty to disclose the third-party offer arose because disclosure would have been futile given Riviera's rigid stance.
• Rule 45, Rules of Court — Governs appeals by certiorari from the Court of Appeals to the Supreme Court. Applied to treat the petition as one under Rule 45 rather than a special civil action under Rule 65, as the errors assigned were errors of judgment, not jurisdiction.
• Rule 3, Sections 16 & 17, Rules of Court — Govern the duty of counsel to inform the court of a party's death and the procedure for substitution. Applied to hold that failure to substitute a deceased party does not invalidate proceedings if the action survives the death and due process is observed.

Bellosillo, Mendoza, and Quisumbing, JJ.