Tina was the owner of a 3,090 square meter property. On August 21, 1971, she entered into a contract of lease covering the same property in favor of TRCDC for a period of 20 years subject to renewal within 60 days prior to its expiration. The contract also provided that should Tina decide to sell the property TRCDC shall have the priority right to purchase the same. By virtue of said contract, TRCDC put up a cockpit on said land.
On June 17, 1991 TRCDC wrote Tina informing her of its intention to renew the lease. However, it was Tina’s daughter Annie who replied, asking TRCDC to remove the improvements built thereon as "she is now the absolute owner of the property". It appears that the subject property was sold by Tina to Annie on August 8, 1990 for the measly sum of P10,000 as a mere formality so that Annie may have proper representation with TRCDC in the absence of her parents. In fact title has already been transferred in Annie’s name. In order to resolve the matter, TRCDC proposed that the lease be renewed, but Annie declined. Then TRCDC also offered to buy the land but Annie likewise refused to sell the land, while the improvements "if for sale shall be subject for appraisal".
When efforts to resolve the case failed, TRCDC filed a complaint against Tina and Annie for annulment of the sale to Annie and cancellation of her title, specific performance of its right of first refusal and damages. After trial, the Regional Trial Court (RTC) rendered judgment extending the period of lease to seven years at a monthly rental of P10,000 but dismissed TRCDC’s claim for damages. TRCDC appealed the decision to the Court of Appeals (CA). While the case is pending in the CA or on March 16, 1996, Tina died. Thereafter on June 14, 1999 the CA rendered a decision modifying the RTC decision and ordered TRCDC to immediately vacate the premises, pay P10,000 monthly rental until it finally vacates the premises, make a necessary accounting of the amount it has deposited as rentals and to allow Annie to withdraw the P320,000) already deposited as rentals. Was the CA correct?
The CA is partly correct only. Under the terms of TRCDC’s right of first refusal as contained in the Contract of Lease, Tina has the legal duty to TRCDC not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to TRCDC at a certain price and said offer was rejected by TRCDC. It is only after TRCDC failed to exercise the right of first priority could Tina then lawfully sell the property to Annie. When Tina sold the property to her daughter Annie without offering it to TRCDC, the sale, while valid, is rescindable so as to enable TRCDC to exercise its option under the lease contract.
With the death of Tina, whatever rights and obligations she had over the property, including her obligations under the lease contract were transmitted to her heirs by way of succession, a mode of acquiring the property, rights and obligations of the decedent to the extent of the value of the inheritance of the heirs. The general rule is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation, or (3) provision of law. In this case the rights and obligations under the lease contract are by their nature transmissible. There is neither contractual stipulation nor provision of law that makes the rights and obligations under the lease contract, in-transmissible. So Annie as an heir of Tina is bound to fulfill all its terms and conditions. Tina’s obligation to deliver the property to TRCDC upon exercise by the latter of its right of first refusal may be performed by Annie and the other heirs, if any.
So (1) the sale of the property by Tina to Annie on August 1990 is deemed rescinded; (2) the heirs of Tina represented by Annie are ordered to recognize the obligation of Tina under the Contract of Lease with respect to the priority right of TRCDC to purchase the property under reasonable terms and conditions; (3) the TCT shall remain in the name of Annie which shall be cancelled in the event TRCDC successfully purchases the subject property; (4) Annie should pay TRCDC actual damages of P20,000 plus interest at the legal rate, and attorney’s fees of P10,000 plus cost of suit. But as held by the CA Annie may withdraw all the rental deposits made by TRCDC upon proper accounting and TRCDC shall pay P10,000 monthly rental during its occupancy of the land until the proceedings is finally terminated by the determination of the reasonable terms and conditions for the sale of the property, or until TRCDC vacates the property if it chooses not to exercise its right of first refusal (Tanay Recreation Center and Development Inc. vs. Fausto, G.R. 140182, April 12, 2005, 455 SCRA 436).