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September 1, 2014

Paranaque Kings vs. CA

  • PR Catalina L. Santos is the owner of 8 parcels of land located at Parañaque, Metro Manila.
  • November 28, 1977: a certain Frederick Chua leased the subject property from defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. 
  • February 12, 1979: Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment was also registered. 
  • August 6, 1979: Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos. Their contract provided that:
  • "9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;"
  • September 21, 1988: Catalina Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of P5,000,000. 
  • Upon learning of this fact, the representative of Paranaque King wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of P5M.
  • Only 2 days after Catalina Santos sold her properties did she reply to Paranaque Kings’ letter saying period has lapsed.
  • July 6, 1989: counsel for defendant Santos informed the petitioners Paranaque Kings that the new owner is RAYMUNDO.
  • From the preceding facts, it is clear that the sale was simulated and that there was a collusion between the respondents Santos and Raymundo in the sales of the leased properties (defendants SANTOS and RAYMUNDO have the same counsel who represented both of them in their exchange of communication with PK’s counsel, a fact that led to the conclusion that a collusion exist between them, among others)
  • Petitioner Paranaque demanded from the defendants to rectify their unlawful acts that they committed, but defendants refused and failed to comply with plaintiffs just and valid demands.
  • RTC issued the order dismissing the complaint for lack of a valid cause of action. CA affirmed in toto.

Issue: Is such right of first refusal enforceable by an action for specific performance? YES
(WON the complaint filed by Paranaque Kings states a valid cause of action. YES)


Paranaque Kings was granted a first option or priority to purchase the subject property (Based on the Par. 9 of the Lease Contract)
A careful examination of the complaint filed by Paranaque Kings reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents.

Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the "first option or priority" to purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such "right." 

But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the "ridiculous" price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses.

The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. 
Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee.

The contention of Raymundo that he is not a privy to the contract is untenable
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.

Deed of Assignment included the option to purchase
The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises afore-described, . . . . 

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, . . . .

One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and obligations contained in the contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.

Ruling: WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further proceedings.

Read the full text:
G.R. No. 111538 February 26, 1997 PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents.


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