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PABALAN, DANICA V. OBLICON CASE DIGEST EQUATORIAL vs. MAYFAIR G.R. No.

106063 November 21, 1996 FACTS: Petitioners are Carmelo & Bauermann, Inc (owner/seller/lessor) Equatorial Realty Development, Inc (buyer) Respondent is Mayfair Theater, Inc (lessee) Carmelo owned a parcel of land with two 2-storey buildings (covered by 4 land titles) at Recto In 1967, 2 portions of the property (covered by 2 titles) was leased to Mayfair for 20 years In 1978, Carmelo sold the entire Recto property to Equatorial for P11,300,000 Mayfair petitioned for annulment of the sale on the ground that it was violative of Paragraph 8 of the Contract of lease between respondent and Carmelo, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. The Trial court ruled in favor of herein petitioners on the ground that Paragraph 8 was interpreted as an option contract Mayfair appealed and the CA reversed the decision of the Trial court saying that Paragraph 8 should be interpreted as a right of first refusal and not an option contract ISSUES: 1. Whether Paragraph 8 constitutes an option contract clause or a right of first refusal 2. WON sale of property to Equatorial is valid HELD: SC ruled in favor of Mayfair ordering recission of the deed of sale and granting him right of first refusal to buy the property at P11,300,000. The issues were held as follows: 1. RIGHT OF FIRST REFUSAL. The SC agreed with the CAs ruling that Paragraph 8 cannot constitute an option clause (covered in Article 1324 & 1479 of the Civil Code) for the lack of definite purchasing price in the agreement. Furthermore, the SC ruled that the stipulation in question was created to manifest a reciprocal obligation to guard the interest of Mayfair in case of sale of the property: (1)to give him the option to purchase the property or (2)to ensure that purchaser of the property shall recognize the lease agreement earlier made. As such, Paragraph 8 is considered a right of first refusal. 2. NO. Both Carmelo and Equatorial acted in bad faith for entering into Contract of Sale knowing that Paragraph 8 (right of first refusal) was agreed upon in the Contract of Lease and that Mayfair (another party) was interested in the property in question