RIGHT OF FIRST REFUSAL thereafter or on September 7, 1987, Cornelio passed After the parties presented their respective evidence,

s presented their respective evidence, the

away. Regional Trial Court rendered judgment on May 5, 1997
in favor of petitioner, viz:
THIRD DIVISION G.R. No. 145736 March 4, 2009 Sometime in 1993, Eduardo informed Wenifreda of his
desire to take over the subject lot. However, the latter WHEREFORE, PREMISES CONSIDERED, this Court
ESTATE OF ORLANDO LLENADO and WENIFREDA refused to vacate the premises despite repeated finds the [petitioner’s] civil action duly established by
T. LLENADO, in her capacity as (a) Administratrix of demands. Thus, on September 24, 1993, Eduardo filed a preponderance of evidence, renders judgment
the Estate of Orlando A. Llenado and (b) Judicial complaint for unlawful detainer before the Metropolitan (adjudicates) in favor of the [petitioner], Estate of
Guardian of the Minor children of Orlando A. Trial Court of Valenzuela, Metro Manila against Orlando Llenado represented by Wenifreda Llenado, and
Llenado, and (c) in her Own behalf as the Surviving Wenifreda, which was docketed as Civil Civil Case No. against [respondents] e.g. Jorge, Eduardo, Felisa
Spouse and Legal Heir of Orlando A. Llenado, 6074. Gallardo, all surnamed Llenado, and the Register of
Petitioners, vs. EDUARDO LLENADO, JORGE Deeds of Valenzuela, Metro Manila, as follows:
LLENADO, FELIZA GALLARDO VDA. DE LLENADO On July 22, 1996, the Metropolitan Trial Court rendered
and REGISTER OF DEEDS of Valenzuela City, Metro its Decision in favor of Eduardo and ordered Wenifreda 1) It hereby judicially declare as non-existence (sic) and
Manila, Respondents. to: (1) vacate the leased premises; (2) pay Eduardo null and void, the following:
reasonable compensation for the use and occupation of
D E C I S I O N YNARES-SANTIAGO, J.: the premises plus attorney’s fees, and (3) pay the costs a) The Kasulatan Sa Ganap na Kasunduan or Deed of
of the suit. Sale;
This petition for review on certiorari assails the May 30,
2000 Decision1 of the Court of Appeals in CA-G.R. CV Wenifreda appealed to the Regional Trial Court of b) TCT- Transfer Certificate of Title No. V-9440, in the
No. 58911 which reversed the May 5, 1997 Decision2 of Valenzuela, Metro Manila, which reversed the decision of name of [respondent] Eduardo Llenado, TCT- Transfer
the Regional Trial Court of Valenzuela City, Branch 75 in the court a quo. Thus, Eduardo appealed to the Court of Certificate of Title No. V-1689, in the name of Jorge
Civil Case No. 4248-V-93, and the October 6, 2000 Appeals which rendered a Decision8 on March 31, 1998 Llenado, and Eduardo Llenado, and all deeds,
Resolution3 which denied the motion for reconsideration. reversing the decision of the Regional Trial Court and documents or proceedings leading to the issuance of
The appellate court dismissed for lack of merit the reinstating the decision of the Metropolitan Trial Court. It said title, and all subsequent title issued therefrom and
complaint for annulment of deed of conveyance, title and also increased the amount of reasonable compensation likewise whatever deeds, documents or proceedings
damages filed by petitioner against herein respondents. awarded to Eduardo for the use of the leased premises. leading to the issuance of said subsequent titles;
Wenifreda’s appeal to this Court, docketed as G.R. No.
9
The subject of this controversy is a parcel of land 135001, was dismissed in a Resolution dated December 2) It hereby orders the reconveyance of the said
10
denominated as Lot 249-D-1 (subject lot) consisting of 2, 1998. Accordingly, an Entry of Judgment was made properties embraced in the said TCTs-Transfer
1,554 square meters located in Barrio Malinta, in due course on July 8, 1999. Certificate of Title Nos. V-9440 and V-1689 to the
Valenzuela, Metro Manila and registered in the names of [petitioner] for the same consideration, or purchase price,
Eduardo Llenado (Eduardo) and Jorge Llenado (Jorge) Previously, after Eduardo instituted the aforesaid paid by [respondents] Eduardo Llenado and Jorge
under Transfer of Certificate of Title (TCT) No. V-1689.4 unlawful detainer case on September 24, 1993, herein Llenado for the same properties;
The subject lot once formed part of Lot 249-D owned by petitioner Wenifreda, in her capacity as administratrix of
and registered in the name of their father, Cornelio the estate of Orlando Llenado, judicial guardian of their 3) It hereby orders [respondent], Register of Deeds of
Llenado (Cornelio), under TCT No. T-16810. minor children, and surviving spouse and legal heir of Valenzuela, Metro Manila, to cause the issuance of new
Orlando, commenced the subject Complaint,11 later transfer certificates of title over the said property in the
On December 2, 1975, Cornelio leased Lot 249-D-1 to amended, on November 10, 1993 for annulment of deed name of the [petitioner];
his nephew, Romeo Llenado (Romeo), for a period of of conveyance, title and damages against herein
five years, renewable for another five years at the option respondents Eduardo, Jorge, Feliza Llenado (mother of 4) And, because this Court is not only a court of law, but
of Cornelio. On March 31, 1978, Cornelio, Romeo and the Llenado brothers), and the Register of Deeds of of equity, it hereby rendered the following damages to be
the latter’s cousin Orlando Llenado (Orlando) executed Valenzuela, Metro Manila. The case was docketed as paid by the [respondents], as the [respondents] litigated
an Agreement5 whereby Romeo assigned all his rights to Civil Case No. 4248-V-93 and raffled to Branch 75 of the under bonafide assertions that they have meritorious
Orlando over the unexpired portion of the aforesaid lease Regional Trial Court of Valenzuela, Metro Manila. defense, viz:
contract. The parties further agreed that Orlando shall
have the option to renew the lease contract for another Petitioner alleged that the transfer and conveyance of a) P400,000.00 as moral damages;
three years commencing from December 3, 1980, up to the subject lot by Cornelio in favor of respondents
December 2, 1983, renewable for another four years or Eduardo and Jorge, was fraudulent and in bad faith b) 10,000.00 as nominal damages;
up to December 2, 1987, and that "during the period that considering that the March 31, 1978 Agreement provided
[this agreement] is enforced, the x x x property cannot be that while the lease is in force, the subject lot cannot be c) 10,000.00 as temperate damages;
sold, transferred, alienated or conveyed in whatever sold, transferred or conveyed to any third party; that the
manner to any third party." period of the lease was until December 3, 1987 with the d) 10,000.00 as exemplary damages;
option to renew granted to Orlando;
Shortly thereafter or on June 24, 1978, Cornelio and e) 10,000.00 attorney’s fees on the basis of quantum
Orlando entered into a Supplementary Agreement6 that the subject lot was transferred and conveyed to merit; and
amending the March 31, 1978 Agreement. Under the respondents Eduardo and Jorge on January 29, 1987
Supplementary Agreement, Orlando was given an when the lease was in full force and effect making the f) costs of suit.
additional option to renew the lease contract for an sale null and void; that Cornelio verbally promised
aggregate period of 10 years at five-year intervals, that Orlando that in case he (Cornelio) decides to sell the
SO ORDERED.13
is, from December 3, 1987 to December 2, 1992 and subject lot, Orlando or his heirs shall have first priority or
from December 3, 1992 to December 2, 1997. The said option to buy the subject lot so as not to prejudice
The Regional Trial Court found that upon the death of
provision was inserted in order to comply with the Orlando’s business and because Orlando is the owner of
Orlando on November 7, 1983, his rights under the lease
requirements of Mobil Philippines, Inc. for the operation the property adjacent to the subject lot; and that this
contract were transmitted to his heirs; that since the
of a gasoline station which was subsequently built on the promise was wantonly disregarded when Cornelio sold
the said lot to respondents Jorge and Eduardo. lease was in full force and effect at the time the subject
subject lot.
lot was sold by Cornelio to his sons, the sale violated the
prohibitory clause in the said lease contract. Further,
Upon the death of Orlando on November 7, 1983, his In their Answer,12 respondents Eduardo and Jorge
Cornelio’s promise to sell the subject lot to Orlando may
wife, Wenifreda Llenado (Wenifreda), took over the claimed that they bought the subject lot from their father,
be established by parole evidence since an option to buy
operation of the gasoline station. Meanwhile, on January Cornelio, for value and in good faith; that the lease
is not covered by the statute of frauds. Hence, the same
29, 1987, Cornelio sold Lot 249-D to his children, agreement and its supplement were not annotated at the
is binding on Cornelio and his heirs.
namely, Eduardo, Jorge, Virginia and Cornelio, Jr., back of the mother title of the subject lot and do not bind
through a deed of sale, denominated as "Kasulatan sa them; that said agreements are personal only to Cornelio
and Orlando; that the lease expired upon the death of Respondents appealed before the Court of Appeals
Ganap Na Bilihan,"7 for the sum of P160,000.00. As
Orlando on November 7, 1983; that they were not aware which rendered the assailed May 30, 2000 Decision
stated earlier, the subject lot, which forms part of Lot
of any verbal promise to sell the subject lot granted by reversing the judgment of the Regional Trial Court and
249-D, was sold to Eduardo and Jorge, and titled in their
Cornelio to Orlando and, even if there was, said option to dismissing the Complaint. The appellate court held that
names under TCT No. V-1689. Several months
buy is unenforceable under the statute of frauds. the death of Orlando did not extinguish the lease
agreement and had the effect of transmitting his lease
rights to his heirs. However, the breach of the the City of Manila which were authorized to be duties and obligations, which said covenants conferred
non-alienation clause of the said agreement did not expropriated under said law; that the Solicitor General and imposed on the original parties.
nullify the sale between Cornelio and his sons because has instituted the requisite expropriation proceedings
the heirs of Orlando are mere lessees on the subject lot pursuant to Section 221 thereof; that the subject lot has The foregoing principles apply with greater force in this
and can never claim a superior right of ownership over been actually leased for a period of at least ten (10) case because the parties expressly stipulated in the
said lot as against the registered owners thereof. It years; and that the subject lot has at least forty (40) March 31, 1978 Agreement that Romeo, as lessee, shall
further ruled that petitioner failed to establish by a families of tenants thereon. transfer all his rights and interests under the lease
preponderance of evidence that Cornelio made a verbal contract with option to renew "in favor of the party of the
promise to Orlando granting the latter the right of first Instead, what was merely established during the trial is Third Part (Orlando), the latter’s heirs, successors and
refusal if and when the subject lot was sold. that the subject lot was leased by Cornelio to Orlando for assigns"32 indicating the clear intent to allow the
the operation of a gasoline station, thus, negating transmissibility of all the rights and interests of Orlando
Upon the denial of its motion for reconsideration, petitioner’s claim that the subject lot is covered by the under the lease contract unto his heirs, successors or
petitioner is now before this Court on the following aforesaid law. In Mataas Na Lupa Tenants Association, assigns. Accordingly, the rights and obligations under the
assignment of errors: Inc., the Court further explained that R.A. No. 1162, as lease contract with option to renew were transmitted
amended, has been superseded by Presidential Decree from Orlando to his heirs upon his death on November 7,
[T]he Court of Appeals erred: (P.D.) No. 151722 entitled "Proclaiming Urban Land 1983.
Reform in the Philippines and Providing for the
23
1.- In finding and concluding that there is no legal basis Implementing Machinery Thereof." It does not follow, however, that the lease subsisted at
to annul the deed of conveyance involved in the case the time of the sale of the subject lot on January 29,
and in not applying R.A. No. 3516, further amending R.A. However, as held in Tagbilaran Integrated Settlers 1987. When Orlando died on November 7, 1983, the
No. 1162; and Association Incorporated v. Court of Appeals,24 P.D. No. lease contract was set to expire 26 days later or on
1517 is applicable only in specific areas declared, December 3, 1983, unless renewed by Orlando’s heirs
25
2.- In not finding and holding as null and void the subject through presidential proclamation, to be located within for another four years. While the option to renew is an
26
deed of conveyance, the same having been executed in the so-called urban zones. Further, only legitimate enforceable right, it must necessarily be first exercised to
33
direct violation of an expressed covenant in said deed tenants who have resided on the land for ten years or be given effect. As the Court explained in Dioquino v.
and in total disregard of the pre-emptive, or preferential more who have built their homes on the land and Intermediate Appellate Court: 34
rights of the herein petitioners to buy the property subject residents who have legally occupied the lands by
of their lease contract under said R.A. No. 3516, further contract, continuously for the last ten years, are given A clause found in an agreement relative to the renewal of
amending R.A. No. 1162.14 the right of first refusal to purchase the land within a the lease agreement at the option of the lessee gives the
reasonable time.27 latter an enforceable right to renew the contract in which
The petition lacks merit. the clause is found for such time as provided for. The
Consequently, those lease contracts entered into for agreement is understood as being in favor of the lessee,
28
Petitioner contends that the heirs of Orlando are entitled commercial use are not covered by said law. Thus, and the latter is authorized to renew the contract and to
to the rights of a tenant under Republic Act (R.A.) No. considering that petitioner failed to prove that a continue to occupy the leased property after notifying the
1162,15 as amended by R.A. No. 3516.16 The right of first proclamation has been issued by the President declaring lessor to that effect.
refusal or preferential right to buy the leased premises is the subject lot as within the urban land reform zone and
invoked pursuant to Section 517 of said law and this considering further that the subject lot was leased for the A lessor’s covenant or agreement to renew gives a
Court’s ruling in Mataas Na Lupa Tenants Association, commercial purpose of operating a gasoline station, P.D. privilege to the tenant, but is nevertheless an executory
Inc. v. Dimayuga.18 No. 1517 cannot be applied to this case. contract, and until the tenant has exercised the privilege
by way of some affirmative act, he cannot be held for the
This issue is being raised for the first time on appeal. In fine, the only issue for our determination is whether additional term.
True, in Mataas Na Lupa Tenants Association, Inc., the the sale of the subject lot by Cornelio to his sons,
Court explained that Section 1 of R.A. No. 1162, as respondents Eduardo and Jorge, is invalid for (1) In the absence of a stipulation in the lease requiring
amended by R.A. No. 3516, authorizes the expropriation violating the prohibitory clause in the lease agreement notice of the exercise of an option or an election to
of any piece of land in the City of Manila, Quezon City between Cornelio, as lessor-owner, and Orlando, as renew to be given within a certain time before the
and suburbs which have been and are actually being lessee; and (2) contravening the right of first refusal of expiration of the lease, which of course, the lessee must
leased to tenants for at least 10 years, provided said Orlando over the subject lot. comply with, the general rule is that a lessee must
lands have at least 40 families of tenants thereon.19 exercise an option or election to renew his lease and
It is not disputed that the lease agreement contained an notify the lessor thereof before, or at least at the time of
Prior to and pending the expropriation, the tenant shall option to renew and a prohibition on the sale of the the expiration of his original term, unless there is a
have a right of first refusal or preferential right to buy the subject lot in favor of third persons while the lease is in waiver or special circumstances warranting equitable
leased premises should the landowner sell the same. force. Petitioner claims that when Cornelio sold the relief.1avvphi1.zw+
However, compliance with the conditions for the subject lot to respondents Eduardo and Jorge the lease
application of the aforesaid law as well as the was in full force and effect, thus, the sale violated the There is no dispute that in the instant case, the lessees
qualifications of the heirs of Orlando to be beneficiaries prohibitory clause rendering it invalid. In resolving this (private respondents) were granted the option to renew
thereunder were never raised before the trial court, or issue, it is necessary to determine whether the lease the lease for another five (5) years after the termination
even the Court of Appeals, because petitioner solely agreement was in force at the time of the subject sale of the original period of fifteen years. Yet, there was
anchored its claim of ownership over the subject lot on and, if it was in force, whether the violation of the never any positive act on the part of private respondents
the alleged violation of the prohibitory clause in the lease prohibitory clause invalidated the sale. before or after the termination of the original period to
contract between Cornelio and Orlando, and the alleged show their exercise of such option.
non-performance of the right of first refusal given by Under Article 1311 of the Civil Code, the heirs are bound
Cornelio to Orlando. by the contracts entered into by their The silence of the lessees after the termination of the
predecessors-in-interest except when the rights and original period cannot be taken to mean that they opted
The rule is settled, impelled by basic requirements of due obligations therein are not transmissible by their nature, to renew the contract by virtue of the promise by the
process, that points of law, theories, issues and by stipulation or by provision of law. A contract of lease lessor, as stated in the original contract of lease, to allow
arguments not adequately brought to the attention of the is, therefore, generally transmissible to the heirs of the them to renew. Neither can the exercise of the option to
lower court will not be ordinarily considered by a lessor or lessee. It involves a property right and, as such, renew be inferred from their persistence to remain in the
reviewing court as they cannot be raised for the first time the death of a party does not excuse non-performance of premises despite petitioners’ demand for them to vacate.
29
on appeal.20 As the issue of the applicability of R.A. No. the contract. x x x.35
1162, as amended, was neither averred in the pleadings
nor raised during the trial below, the same cannot be The rights and obligations pass to the heirs of the Similarly, the election of the option to renew the lease in
raised for the first time on appeal. deceased and the heir of the deceased lessor is bound this case cannot be inferred from petitioner Wenifreda’s
to respect the period of the lease.30 The same principle continued possession of the subject lot and operation of
At any rate, the allegations in the Complaint and the applies to the option to renew the lease. As a general the gasoline station even after the death of Orlando on
evidence presented during the trial below do not rule, covenants to renew a lease are not personal but will November 7, 1983 and the expiration of the lease
establish that Orlando or his heirs are covered by R.A. run with the land.31 Consequently, the contract on December 3, 1983. In the unlawful detainer
No. 1162, as amended. It was not alleged nor shown that successors-in-interest of the lessee are entitled to the case against petitioner Wenifreda and in the subject
the subject lot is part of the landed estate or haciendas in benefits, while that of the lessor are burdened with the complaint for annulment of conveyance, respondents
consistently maintained that after the death of Orlando, while the Court of Appeals disagreed by ruling that
the lease was terminated and that they permitted petitioner merely relied on the allegations in its
petitioner Wenifreda and her children to remain in Complaint to establish said right. We have reviewed the
possession of the subject property out of tolerance and records and find that no testimonial evidence was
respect for the close blood relationship between Cornelio presented to prove the existence of said right. The
and Orlando. It was incumbent, therefore, upon petitioner testimony of petitioner Wenifreda made no mention of
as the plaintiff with the burden of proof during the trial the alleged verbal promise given by Cornelio to Orlando.
below to establish by some positive act that Orlando or
his heirs exercised the option to renew the lease. The two remaining witnesses for the plaintiff, Michael
Goco and Renato Malindog, were representatives from
After going over the records of this case, we find no the Register of Deeds of Caloocan City who naturally
evidence, testimonial or documentary, of such nature were not privy to this alleged promise. Neither was it
was presented before the trial court to prove that established that respondents Eduardo and Jorge were
Orlando or his heirs exercised the option to renew prior aware of said promise prior to or at the time of the sale of
to or at the time of the expiration of the lease on the subject lot.
December 3, 1983. In particular, the testimony of
petitioner Wenifreda is wanting in detail as to the events On the contrary, in their answer to the Complaint,
surrounding the implementation of the subject lease respondents denied the existence of said promise for
agreement after the death of Orlando and any overt acts lack of knowledge thereof.38 Within these parameters,
to establish the renewal of said lease. petitioner’s allegations in its Complaint cannot substitute
for competent proof on such a crucial factual issue.
Given the foregoing, it becomes unnecessary to resolve Necessarily, petitioner’s claims based on this alleged
the issue on whether the violation of the prohibitory right of first refusal cannot be sustained for its existence
clause invalidated the sale and conferred ownership over has not been duly established.
the subject lot to Orlando’s heirs, who are mere lessees,
considering that at the time of said sale on January 29, WHEREFORE, the petition is DENIED. The May 30,
1987 the lease agreement had long been terminated for 2000 Decision of the Court of Appeals in CA-G.R. CV
failure of Orlando or his heirs to validly renew the same. No. 58911 dismissing the complaint for annulment of
As a result, there was no obstacle to the sale of the deed of conveyance, title and damages, and the October
subject lot by Cornelio to respondents Eduardo and 6, 2000 Resolution denying the motion for
Jorge as the prohibitory clause under the lease contract reconsideration, are AFFIRMED.
was no longer in force.
Costs against petitioner.
Petitioner also anchors its claim over the subject lot on
the alleged verbal promise of Cornelio to Orlando that SO ORDERED.
should he (Cornelio) sell the same, Orlando would be
given the first opportunity to purchase said property. CONSUELO YNARES-SANTIAGO
According to petitioner, this amounted to a right of first
refusal in favor of Orlando which may be proved by Associate Justice
parole evidence because it is not one of the contracts
covered by the statute of frauds. Considering that
Cornelio sold the subject lot to respondents Eduardo and
Jorge without first offering the same to Orlando’s heirs,
petitioner argues that the sale is in violation of the latter’s
right of first refusal and is, thus, rescissible.

The question as to whether a right of first refusal may be

proved by parole evidence has been answered in the
affirmative by this Court in Rosencor Development
Corporation v. Inquing:36

We have previously held that not all agreements

"affecting land" must be put into writing to attain
enforceability. Thus, we have held that the setting up of
boundaries, the oral partition of real property, and an
agreement creating a right of way are not covered by the
provisions of the statute of frauds. The reason simply is
that these agreements are not among those enumerated
in Article 1403 of the New Civil Code.

A right of first refusal is not among those listed as

unenforceable under the statute of frauds. Furthermore,
the application of Article 1403, par. 2(e) of the New Civil
Code presupposes the existence of a perfected, albeit
unwritten, contract of sale. A right of first refusal, such as
the one involved in the instant case, is not by any means
a perfected contract of sale of real property. At best, it is
a contractual grant, not of the sale of the real property
involved, but of the right of first refusal over the property
sought to be sold.

It is thus evident that the statute of frauds does not

contemplate cases involving a right of first refusal. As
such, a right of first refusal need not be written to be
enforceable and may be proven by oral evidence.37

In the instant case, the Regional Trial Court ruled that

the right of first refusal was proved by oral evidence