EQUATORIAL REALTY V. MAYFAIR (November 21, 1996)

FACTS:

Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to respondent Mayfair Theater Inc.

They entered a contract which provides that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same.

Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair made known its interest to buy the property but only to the extent of the leased premises.

Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.

ISSUE:

WON the sale of the property to Equatorial is valid.

HELD:

The sale of the property should be rescinded because Mayfair has the right of first refusal. Both Equatorial and Carmelo are in bad faith because they knew of the stipulation in the contract regarding the right of first refusal.

The stipulation is a not an option contract but a right of first refusal and as such the requirement of a separate consideration for the option, has no applicability in the instant case. The consideration is built in the reciprocal obligation of the parties.

In reciprocal contract, the obligation or promise of each party is the consideration for that of the other. (Promise to lease in return of the right to first refusal)

With regard to the impossibility of performance, only Carmelo can be blamed for not including the entire property in the right of first refusal. Court held that Mayfair may not have the option to buy the property. Not only the leased area but the entire property.