GR 106063; (November, 1996) (Digest)
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC., respondent.
FACTS
Petitioner Carmelo & Bauermann, Inc. (Carmelo) owned a parcel of land with buildings on Claro M. Recto Avenue, Manila. On June 1, 1967, and March 31, 1969, Carmelo entered into two separate 20-year lease contracts with respondent Mayfair Theater, Inc. (Mayfair) for portions of the property to operate movie theaters. Both contracts contained an identical paragraph 8, granting Mayfair a 30-day exclusive option to purchase the leased premises if Carmelo desired to sell them, and obligating Carmelo to bind any other purchaser to recognize the lease. In August 1974, Carmelo informed Mayfair of its desire to sell the entire Recto property. Mayfair responded by invoking its option under paragraph 8. Carmelo did not reply. Four years later, on July 30, 1978, Carmelo sold the entire property, including the leased premises, to petitioner Equatorial Realty Development, Inc. Mayfair then filed an action for specific performance and annulment of the sale.
ISSUE
The core issue is whether the option clause in the lease contracts is valid and enforceable, thereby obligating Carmelo to first offer the leased premises to Mayfair, and whether the subsequent sale to Equatorial violated Mayfair’s rights.
RULING
The Supreme Court ruled in favor of Mayfair, affirming the Court of Appeals’ decision. The option clause is a valid and enforceable stipulation. The Court rejected the petitioners’ arguments that the option was void for lack of consideration and impossible to perform. The consideration for the option is the lease contract itself; it is not a separate agreement but an integral part of the reciprocal lease covenants. The option became binding upon the execution of the leases. Regarding impossibility, the Court held that the stipulation was for the sale of the “leased premises,” which were specifically described portions of the property. The fact that the buildings were not of condominium plan does not render the sale of these specific portions impossible. Carmelo breached its obligation by selling the property to Equatorial without first offering it to Mayfair under the terms of the option. Consequently, the sale to Equatorial was annulled insofar as it included the leased premises, and Carmelo was ordered to execute a deed of sale for those portions in favor of Mayfair at the same price per square meter paid by Equatorial.