G.R. No. 154366; November 17, 2010
CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, Petitioners, vs. DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA, Respondents.

FACTS

Petitioner Cebu Bionic Builders Supply, Inc., through its President Lydia Sia, entered into a Contract of Lease on October 28, 1981, with Rudy Robles, Jr., the owner of the State Theatre Building. The contract included a stipulation granting the lessee the “first option to buy” the property should the lessor decide to sell during or immediately after the lease term. This contract was not registered. The property was mortgaged by the Robles spouses to respondent Development Bank of the Philippines (DBP) on June 2, 1981. Upon the mortgagors’ default, DBP extrajudicially foreclosed the property and acquired it as the highest bidder at the public auction on February 6, 1987. DBP later sold the property to respondents Jose To Chip, et al.
Petitioners filed a complaint for specific performance and annulment of sale, claiming DBP and the new buyers violated their right of first refusal under the lease contract. They argued DBP’s letter dated June 18, 1987, constituted an offer to sell, which they accepted, forming a perfected contract of sale. The Regional Trial Court ruled in favor of petitioners, ordering DBP to execute a deed of sale. The Court of Appeals initially affirmed but later granted DBP’s belated motion for reconsideration and reversed itself, dismissing the complaint.

ISSUE

Whether the Court of Appeals erred in admitting DBP’s motion for reconsideration filed beyond the reglementary period and in ruling that no perfected contract of sale existed between DBP and petitioners.

RULING

The Supreme Court denied the petition and affirmed the Amended Decision of the Court of Appeals. On procedural grounds, the Court found the appellate court did not gravely abuse its discretion in admitting the belated motion. The motion raised a critical issue of lack of cause of action, which is a matter of jurisdiction that can be raised at any time. The interest of substantial justice warranted relaxation of procedural rules to address this pivotal issue.
On the substantive issue, the Court held no contract of sale was perfected. DBP’s June 18, 1987 letter was not an offer to sell but merely an invitation to negotiate a new lease, as it explicitly requested the lessee “to come to the Bank for the execution of a Contract of Lease.” The letter’s third condition, mentioning the lessor’s “option of first refusal” in case of a purchase offer, was a term for a potential future lease contract, not a present offer to sell the property to the petitioner. An option is a separate contract requiring consideration, which was absent. Furthermore, the petitioners’ right of first refusal under their original lease with Robles was not binding on DBP as an involuntary successor (through foreclosure) because the lease contract was unregistered. Under the principle of mortgagee in good faith, DBP’s acquisition was free from all liens and encumbrances not appearing on the title. Thus, petitioners had no cause of action for specific performance against DBP or the subsequent buyers.