Spouses Litonjua and PWHASI vs L & R Corporation (on article 1324)

G.R. No. 130722

December 9, 1999

Facts:
Spouses Litonjua mortgaged two parcels of land to L & R as security for a loan.
Consequently, they sold the same parcels of land to Philippines White House Auto
Supply, Inc. without the prior written consent of the mortgagee. Since Spouses
Litonjua has defaulted from the payment of the loan, L & R has commenced
foreclosure extrajudicially and only then did it learn that the parcels of land were sold
without their prior written consent. L & R then contended that the sale is invalid as it
is contrary to paragraph 8 and 9 of the contract which prohibits the mortgagor from
selling the property without their prior written consent and should the mortgagor sell
the property, they should be given the right of first refusal.

Issue:
Is the sale between Spouses Litonjua and PWHASI valid?
Was there breach of contract between the mortgagee and mortgagor with respect to
paragraph 9 of the contact?

Ruling:
Yes, the sale is valid since the prohibition in paragraph 8 of the contract is contrary
to law. Although the property is mortgaged, it does not extinguish the ownership of
the debtor. The right to dispose the property being a basic right of an owner, should
still be exercised by the mortgagor.

To rule that a contractual stipulation such as that found in paragraph 8 of the

contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on
promise to buy and sell would render ineffectual or ‘inutile’ the provisions on right of
first refusal so commonly inserted in leases of real estate nowadays. The Court of
Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of
lease for the benefit of Mayfair which wanted to be assured that it shall be given the
first crack or the first option to buy the property at the price which Carmelo is willing
to accept. It is not also correct to say that there is no consideration in an agreement
of right of first refusal. The stipulation is part and parcel of the entire contract of
lease. The consideration for the lease includes the consideration for the right of first
refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and
to pay the price agreed upon provided the lessor also consents that, should it sell
the leased property, then, Mayfair shall be given the right to match the offered
purchase price and to buy the property at that price.

Yes, There is breach of contract since the mortgagee, L & R, was not afforded the
right of first refusal. Paragraph 9 of the contract is valid as it provides for the doctrine
of the right of first refusal.