Carmelo and Bauermann, Inc. leased its parcel of land with two-storey building to Mayfair Theater, Inc. Carmelo informed Mayfair that they intend to sell the entire property. Mayfair replied that they were interested to buy the entire property if the price is reasonable. However, Carmelo sold the entire property to Equatorial. Mayfair filed an action for specific performance and annulment of the sale because it violated their exclusive option to purchase the property for 30 days as stipulated in the lease contract. Carmelo contended that it informed Mayfair their desire to sell the property and the option to purchase by Mayfair is null and void for lack of consideration.
- WON the option to purchase in the leased contract is an option contract or a right of first refusal?
- WON the sale of the property to Equatorial is valid?
- RIGHT OF FIRST REFUSAL. Under the law, an option is a contract granting a privilege to buy and sell within an agreed period of time for a determined price and must be supported by consideration distinct from the price. Whereas, right of first refusal is part of the entire contract of lease. In this case, the right of first refusal is an integral part of the lease contract between Carmelo and Mayfair and no separate consideration shall be needed to be binding.
- The sale is rescissible. Both Carmelo and Equatorial acted in bad faith knowing that a right of first refusal was agreed upon in the lease contract and Mayfair was an interested buyer of the property.
Digest Credit: Kelly Espera