Tanay Recreation Center and Development Corp. vs. Fausto

A right of first refusal in a lease contract is enforceable against the lessor's heirs and applies to any sale, including those to relatives, unless expressly qualified; a sale in violation thereof is rescissible.

Petitioner Tanay Recreation Center and Development Corp. (TRCDC) leased a 3,090-square meter property from Catalina Matienzo Fausto under a 20-year contract containing a "priority right" to purchase should Fausto decide to sell. Fausto sold the property to her daughter, respondent Anunciacion Fausto Pacunayen, without offering it to TRCDC. Upon seeking a lease renewal, TRCDC was informed of the sale and subsequently filed suit for annulment of sale and specific performance.

• The Lease Contract: TRCDC leased a property from Fausto under a contract providing for a 20-year term, subject to renewal, with a stipulation granting TRCDC the "priority right" to purchase should Fausto decide to sell.
• The Sale to a Relative: Fausto sold the property to her daughter, Pacunayen, for ₱10,000.00 without offering it to TRCDC. Title was transferred to Pacunayen.
• Demand to Vacate: TRCDC wrote Fausto seeking a lease renewal. Pacunayen replied, demanding TRCDC vacate and remove improvements, and informing TRCDC of her ownership.
• Negotiations and Filing of Suit: A meeting was held where TRCDC proposed a lease renewal, which Pacunayen declined. The possibility of a sale was considered, but Pacunayen refused. TRCDC then filed a complaint for annulment of sale, specific performance, and damages.
• Death of the Lessor: Fausto died during the pendency of the case before the CA.

• Scope of Right of First Refusal: Petitioner argued that the CA erred in ruling that the right of first refusal applies only if the property is sold to strangers and not to the lessor's relatives, as the stipulation contains no such qualification.
• Consequence of the Right: Petitioner maintained that the CA erred in ruling the right of first refusal inconsequential, asserting that the sale to the heir is rescissible and the heir is bound by the lessor's obligations.

• Estoppel and Waiver: Respondent countered that petitioner is estopped from assailing the validity of the deed of sale because it acknowledged respondent's ownership by merely asking for a renewal of the lease and failing to demand the exercise of its option to purchase during their meeting.

• Scope of Right of First Refusal: Whether a right of first refusal in a lease contract applies to a sale made to the lessor's relative.
• Transmissibility to Heirs: Whether the lessor's obligation under the right of first refusal is transmissible to the lessor's heirs and renders a sale to an heir rescissible.
• Waiver/Estoppel: Whether petitioner waived its right of first refusal or is estopped from asserting it by seeking a lease renewal.
• Damages: Whether petitioner is entitled to actual, moral, exemplary damages, and attorney's fees.

• Scope of Right of First Refusal: The right of first refusal applies to all sales, including those to relatives, because the stipulation is plain and unambiguous, containing no qualification. A sale in violation of this right is valid but rescissible.
• Transmissibility to Heirs: The obligation under the lease contract, including the right of first refusal, is transmissible to the heirs pursuant to Art. 1311 of the Civil Code, as a lease is not essentially personal. The heir steps into the shoes of the decedent and is bound to fulfill the terms.
• Waiver/Estoppel: Estoppel was not established. Petitioner's act of seeking a lease renewal was not an intentional and unequivocal abandonment of its right of first refusal; it was working on the assumption Fausto still had authority. The meeting minutes even showed the possibility of a sale was considered, but respondent refused.
• Damages: Actual damages of ₱20,000.00 were awarded based on the financial statement showing ₱10,000.00 monthly income for the 2-month closure. Moral damages were denied because a corporation cannot experience physical suffering. Exemplary damages were denied for lack of bad faith and because actual/moral damages were not fully granted. Attorney's fees of ₱10,000.00 were granted because petitioner was compelled to litigate.

• Right of First Refusal — Defined as requiring identity of terms and conditions to be offered to the lessee and all other prospective buyers. A contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible. Applied to rescind the sale between Fausto and Pacunayen.
• Relativity of Contracts (Art. 1311) — Contracts take effect between parties, assigns, and heirs, except when rights/obligations are not transmissible by nature, stipulation, or law. Lease contracts and rights of first refusal are transmissible to heirs. Applied to bind Pacunayen to the obligations of her deceased mother under the lease contract.
• Estoppel — Requires conduct amounting to false representation or concealment, intent to influence, and knowledge of real facts. Seeking lease renewal does not constitute intentional and unequivocal abandonment of a right of first refusal. Applied to reject the defense of waiver.
• Damages for Corporations — Corporations cannot claim moral damages as they have no feelings, emotions, or senses. Applied to deny the award of moral damages to TRCDC.

• "When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it." — Articulates the specific obligation imposed on the lessor when a right of first refusal is stipulated.
• "The prevailing doctrine therefore, is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible." — Summarizes the current jurisprudential stance on the nature and consequence of a right of first refusal.

• Riviera Filipina, Inc. v. Court of Appeals — Discussed the concept and interpretation of the right of first refusal and the consequences of a breach thereof.
• Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. — Reverted to the doctrine that rescission is allowed for violation of the right of first refusal.
• Parañaque Kings Enterprises, Inc. v. Court of Appeals — Affirmed the nature and concomitant rights of parties under a right of first refusal; basis of the right must be the current offer to sell.
• DKC Holdings Corporation v. Court of Appeals — Held that a contract of lease with option to buy is binding upon the sole heir of the deceased lessor.

• Article 1311, Civil Code — Contracts take effect between parties, assigns, and heirs. Applied to rule that the lease contract and its right of first refusal are transmissible to the lessor's heirs.
• Article 2199, Civil Code — Actual or compensatory damages. Applied to limit actual damages to the amount proved with reasonable certainty (₱20,000.00).
• Article 2205, Civil Code — Damages may be recovered for injury to business standing or commercial credit. Cited regarding the claim for loss of goodwill.
• Article 2208, Civil Code — Instances when attorney's fees may be awarded. Applied to justify the award of attorney's fees as petitioner was compelled to litigate.

Puno, Callejo, Sr., Tinga, and Chico-Nazario.