SPS. LITONJUA vs.

L & R CORPORATION

FACTS:
This stems from loans obtained by the spouses Litonjua from L&R Corporation in the
aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974
and the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a
mortgage constituted by the spouses upon their two parcels of land and the improvements
thereon. The mortgage was duly registered with the Register of Deeds.

Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the
parcels of land they had previously mortgaged to L & R Corporation for the sum of
P430,000.00. Meanwhile, with the spouses Litonjua having defaulted in the payment of
their loans, L & R Corporation initiated extrajudicial foreclosure proceedings with the
Ex-Oficio Sheriff of Quezon City. The mortgaged properties were sold at public auction
to L & R Corporation as the only bidder for the amount of P221,624.58.

On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the
Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was
without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate
Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to
redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil
Code, the latter had no legal personality or capacity to redeem the same.

On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their
Certificate of Redemption as an adverse claim on the titles of the subject properties on
account of the refusal of L & R Corporation to surrender the owner’s duplicate copies of
the titles to the subject properties. With the refusal of the Register of Deeds to annotate
their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981
against L & R Corporation for the surrender of the owner’s duplicate of Transfer
Certificates of Title No. 197232 and 197233 before the then CFI.

ISSUE: WON there was a Valid and enforceable stipulation granting the mortgagee the
right of first refusal.

HELD:
While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L & R Corporation the right of first refusal over the mortgaged property in the event
the mortgagor decides to sell the same. We see nothing wrong in this provision. The
right of first refusal has long been recognized as valid in our jurisdiction.

The consideration for the loan-mortgage includes the consideration for the right of first
refusal. L & R Corporation is in effect stating that it consents to lend out money to the
spouses Litonjua provided that in case they decide to sell the property mortgaged to it,
then L & R Corporation shall be given the right to match the offered purchase price and
to buy the property at that price. Thus, while the spouses Litonjua had every right to sell
their mortgaged property to PWHAS without securing the prior written consent of L & R
Corporation, it had the obligation under paragraph 9, which is a perfectly valid provision,
to notify the latter of their intention to sell the property and give it priority over other
buyers. It is only upon failure of L & R Corporation to exercise its right of first refusal
could the spouses Litonjua validly sell the subject properties to others, under the same
terms and conditions offered to L & R Corporation.

It was then held that the Contract of Sale there, which violated the right of first refusal,
was rescissible.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to
L & R Corporation over the subject properties since the Deed of Real Estate Mortgage
containing such a provision was duly registered with the Register of Deeds. As such,
PWHAS is presumed to have been notified thereof by registration, which equates to
notice to the whole world.

That it did not duly exercised its right of first refusal at the opportune time cannot be
taken against it, precisely because it was not notified by the spouses Litonjua of their
intention to sell the subject property and thereby, to give it priority over other buyers.