G.R. No. 143513 & 143590; November 14, 2001
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES and NATIONAL DEVELOPMENT CORPORATION, petitioners, vs. COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.

FACTS

National Development Corporation (NDC) leased a portion of its Sta. Mesa property to Firestone Ceramics, Inc. (Firestone) for its ceramic manufacturing business. The original 1965 lease contract, renewable for another ten years, required Firestone to construct substantial improvements. A subsequent 1978 lease agreement, extending the term for ten years renewable for another ten, expressly granted Firestone a right of first refusal, stating that “in the event NDC…decide to dispose and sell these properties including the lot, priority should be given to the LESSEE.” In early 1988, as the lease neared its expiry, Firestone sought to renew and later, upon learning of NDC’s plans to dispose of the entire compound, invoked its right to purchase the leased portion.
Meanwhile, by virtue of Memorandum Order No. 214 issued by President Aquino, the entire NDC compound was ordered transferred to the National Government for subsequent conveyance to the Polytechnic University of the Philippines (PUP) at a price based on NDC’s acquisition cost. Firestone filed an action for specific performance against NDC to compel the sale of the leased property to it, arguing the sale to PUP violated its contractual right of first refusal. PUP intervened, asserting its interest as a purchaser.

ISSUE

Whether Firestone’s contractual right of first refusal was violated by the sale of the property to PUP.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ decision, ruling in favor of Firestone. The legal logic centers on the nature of a right of first refusal and the circumstances triggering its exercise. The Court held that the sale to PUP constituted a “decision to dispose and sell” the property within the contemplation of the lease contract, thereby activating Firestone’s preferential right. NDC’s act of conveying the property pursuant to a presidential memorandum order, and PUP’s expressed willingness to acquire it, unequivocally demonstrated such a decision.
The Court rejected the argument that the transfer to PUP was a mere government reorganization or a non-negotiated sale. Memorandum Order No. 214 itself noted the “willingness” of both NDC to sell and PUP to buy, establishing a meeting of the minds characteristic of a contract of sale. The right of first refusal is a material and significant covenant, not a mere superfluity. Its purpose is defeated if the lessor can circumvent it by selling to a third party under any guise. Since the sale to PUP was a consummated sale, not a gratuitous transfer, Firestone was entitled to match the terms of that sale. The Court ordered NDC to execute a deed of sale in favor of Firestone for the leased portion at the same price per square meter paid by PUP.