G.R. No. 183612 & G.R. No. 184260. March 15, 2010.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES and NATIONAL DEVELOPMENT COMPANY, Petitioners, vs. GOLDEN HORIZON REALTY CORPORATION, Respondent.

FACTS

Petitioner National Development Company (NDC), a government-owned corporation, owned a ten-hectare property in Sta. Mesa, Manila. On September 7, 1977, NDC entered into a ten-year lease (Contract C-33-77) with respondent Golden Horizon Realty Corporation (GHRC) over 2,407 square meters. On May 4, 1978, a second ten-year lease (Contract C-12-78) was executed covering 3,222.80 square meters, which contained an “option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised.” GHRC constructed permanent improvements worth millions. Before the second contract’s expiration in 1988, GHRC wrote NDC requesting renewal and indicating a desire to purchase. NDC did not reply but continued accepting rentals. GHRC later discovered NDC planned to dispose of the property to a third party and filed a complaint for specific performance. Meanwhile, President Corazon Aquino issued Memorandum Order No. 214, ordering the transfer of the entire NDC compound to the National Government for subsequent conveyance to petitioner Polytechnic University of the Philippines (PUP) at acquisition cost. PUP intervened in the case and filed an ejectment suit against GHRC. The Regional Trial Court (RTC) ruled in favor of GHRC, upholding its right of first refusal and ordering PUP to reconvey the leased portions to GHRC upon payment. The Court of Appeals affirmed the RTC decision. NDC and PUP filed separate petitions for review.

ISSUE

Whether the Court of Appeals erred in affirming the RTC decision which upheld GHRC’s right of first refusal under the lease contracts and ordered PUP to reconvey the leased property to GHRC.

RULING

The Supreme Court DENIED the petitions and AFFIRMED the assailed Court of Appeals Decision. The Court held that GHRC’s right of first refusal under the second lease contract (C-12-78) was violated by the sale of the property to PUP without first offering it to GHRC. The Court found that an implied new lease was created after the original contracts expired because NDC continued to accept rental payments and allowed GHRC to remain in possession. This implied new lease carried with it the stipulation granting the right of first refusal. The Court applied its prior ruling in Polytechnic University of the Philippines v. Court of Appeals, involving a similarly situated lessee (Firestone Ceramics, Inc.), which held that the sale to PUP pursuant to Memorandum Order No. 214 violated the lessee’s right of first refusal. The Court also sustained the finding that the two lease contracts were interrelated as they formed part of GHRC’s industrial complex. Therefore, PUP was ordered to reconvey the leased property to GHRC upon payment of the purchase price.