G.R. No. 117355 . April 5, 2002.
RIVIERA FILIPINA, INC., petitioner, vs. COURT OF APPEALS, JUAN L. REYES, (substituted by his heirs), PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL TRADING CORPORATION and URBAN DEVELOPMENT BANK, respondents.

FACTS

Petitioner Riviera Filipina, Inc. was the lessee of a parcel of land owned by Juan L. Reyes under a contract containing a right of first refusal should the lessor decide to sell. After the property was extrajudicially foreclosed by Prudential Bank, Reyes, unable to redeem it, decided to sell. He offered it to Riviera for P5,000/sq.m. Riviera initially countered with P3,500, and months later offered P4,000/sq.m. Reyes then increased his asking price to P6,000/sq.m. In a formal letter dated November 2, 1988, Reyes’ counsel gave Riviera ten days to exercise its right at P6,000/sq.m. Riviera replied expressing interest and later increased its offer to P5,000/sq.m., which it termed its “fixed and final” price in a December 2, 1988 letter, giving Reyes fifteen days to decide. On December 5, 1988, Reyes’ counsel rejected this offer, stating Riviera had lost its right of first refusal.
Meanwhile, on December 4, 1988, Reyes offered the property to Rolando Traballo of respondent Cypress for P6,000/sq.m. After negotiation, they agreed on December 5 to a price of P5,300/sq.m. A Deed of Absolute Sale was eventually executed on February 28, 1989, transferring the property to Cypress and Cornhill. Riviera filed a suit for specific performance to compel the transfer of the title to it, alleging violation of its right of first refusal.

ISSUE

Whether the Court of Appeals erred in affirming the dismissal of Riviera’s complaint for specific performance based on its right of first refusal.

RULING

No. The Court of Appeals correctly affirmed the dismissal. The essential elements for enforcing a right of first refusal are: (1) the lessor’s decision to sell, and (2) an offer by the lessor to the lessee containing the definite terms and conditions of the sale. Here, Reyes validly offered the property to Riviera on the definite terms of P6,000/sq.m., net of taxes and fees, in his November 2, 1988 letter. Riviera’s response was a counter-offer of P5,000/sq.m., which was a rejection of the original offer. A right of first refusal is not a right to match any future offer, but a right to accept the exact terms offered by the owner to a third party. Once the lessee rejects the owner’s definite terms, the owner is free to sell to others. The subsequent sale to Cypress and Cornhill at P5,300/sq.m. was on terms materially different from those offered to and rejected by Riviera. Therefore, no violation occurred. The Court also found no merit in the procedural issues raised regarding the substitution of the deceased Reyes, as any error was harmless and did not affect the substantive rights of the parties.