SECOND DIVISION

[G.R. No. 123581. August 29, 1997.]

RODRIGO B. BANGAYAN, BENJAMIN B. BANGAYAN, ET AL. ,

Nelson A. Loyola for petitioners.

SYNOPSIS

Petronilla Lingat entered into a Contract of Lease of a piece of land with a two-story
building with Teopista Ocampo. Atty. Amado, counsel for Lingat, notified Ocampo that she
could exercise her right of first option within 30 days from receipt of his letter. However,
Ocampo failed to exercise her first option within the given period. Lingat sold the property
to the Bangayans. Atty. Amador advised Ocampo of the sale of the property and the
cancellation of the leased contract, hence, was asked to vacate the premises. Because
Ocampo ignored the demand, the Bangayans filed an ejectment case against her. Lingat
executed a Deed of Absolute Sale to the Bangayans. Ocampo, then, sued Lingat and the
Bangayans for annulment of the Deed of Sale and for the cancellation of the title issued to
the Bangayans. While the annulment of sale was pending, the ejectment case was decided
in favor of the Bangayans. The decision was affirmed by the RTC, the Court of Appeals and
by the Supreme Court. In October 1991, Ocampo died and was substituted by her
daughter, Angelita Lim in the annulment case. The RTC ruled that Lim could not substitute
Ocampo because the death of Ocampo terminated her lease contract and thereby
extinguished her right of first option. Lim appealed to the Court of Appeals, which ruled in
her favor. In this petition for review, the Bangayans pose the issue of whether Ocampo has
the right to assign her right of first option under the lease contract to her daughter.
The Supreme Court reversed the decision of the Court of Appeals and reinstated the
decision of the RTC. A reasonable perusal of the stipulations in the lease contract revealed
the intent of the parties to limit their lease relationship to themselves alone. It cannot be
denied that Ocampo's right of first option to buy the leased property in case of its sale is
but part of the bigger right to lease said property from Lingat. The option was an
independent right, which can be exercised by Ocampo. It ought to follow that if Ocampo is
barred by the contract from assigning her right to lease the subject property to any other
party, she is similarly barred from assigning her first option to buy the leased property to
her daughter.

SYLLABUS

CIVIL LAW; LEASE; RIGHT OF FIRST OPTION TO BUY; IF THE LESSEE IS BARRED BY THE
LEASE CONTRACT FROM ASSIGNING HER RIGHT TO LEASE THE SUBJECT PROPERTY TO
ANY OTHER PARTY, SHE IS SIMILARLY BARRED FROM ASSIGNING HER FIRST OPTION TO
BUY THE LEASED PROPERTY TO OTHER PERSONS; CASE AT BAR. — The respondent
Court of Appeals harbored the wrong notion that Angelita Ocampo Lim inherited from
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 Teofista Ocampo her right of first option upon the latter's death. The evidence, however,
shows that Ocampo assigned her right of first option to Angelita even during her lifetime.
The assignment was made on August 23, 1990. This assignment has no legal warrant. We
have held that the consent of the lessor is necessary because the assignment of the lease
would involve the transfer, not only of rights but also of obligations. It constitutes novation
by a substitution of the person of one of the parties. A reasonable perusal of paragraphs 4
and 5 of the lease contract reveals the intent of the parties to limit their lease relationship
to themselves alone. Paragraph 4 provides that "leased premises shall be used exclusively
by her," referring to the late Teofista Ocampo. Paragraph 5 prohibits Ocampo from directly
or indirectly) assigning, transferring or conveying her right of lease over the leased
premises or any portion thereof under any circumstances whatsoever. It cannot be denied
that Ocampo's right of first option to buy the leased property in case of its sale is but part
of the bigger right to lease said property from Lingat. The option was given to Ocampo
because she was the lessee of the subject property. It was a component of the
consideration of the lease. The option was by no means an independent right which can be
exercised by Ocampo. It ought to follow that if Ocampo is barred by the contract from
assigning her right to lease the subject property to any other party, she is similarly barred
from assigning her first option to buy the leased property to her daughter. Angelita
Ocampo Lim. Needless to state, Angelita Ocampo Lim had no right to substitute her
mother, Teofista Ocampo, in Civil Case No. 90-54459. aSTAHD

DECISION

PUNO , J : p

In this petition for review, petitioners assail the decision of the Court of Appeals dated
February 21, 1995, in CA-G.R. SP No. 136101 reversing and setting aside the decision of
the Regional Trial Court of Manila, Branch 10, dated February 9, 1994, in Civil Case No. 90-
54459. cdasia

The facts show that on July 6, 1988, Teofista Ocampo and Petronilla Lingat entered into a
Contract of Lease involving a piece of land with a two storey building of mixed materials
located at 2309 Severino Street, Sta. Cruz, Manila, at a monthly rental of P7,000.00. The
lease contract contains the following provisions:
"xxx xxx xxx

"4. The lessee hereby expressly warrants that the leased premises shall be
used exclusively by her for an automobile supply and parts company and partly
as a dwelling place for her employees only and the lessee is strictly prohibited
from using the said premises for any other purpose without the written consent of
the lessor.

"5. The lessee shall not directly or indirectly sublease, assign, transfer, convey,
mortgage or in any manner encumber its (sic) right of lease over the leased
premises or any portion thereof under any circumstances whatsoever.

"8. The lessee hereby expressly acknowledges the right of the lessor to sell
the leased premises, but in the event of the sale, the lessee shall be given by the
lessor the FIRST OPTION to purchase the property. And in the event that it is sold
to a third person, the lessor is duty bound to place a condition on the deed of sale
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 to the effect that this Lease Contract shall be binding and shall be honored by the
vendee.
"xxx xxx xxx"

On January 2, 1990, Atty. Almario Amador, counsel of Petronilla Lingat, notified Teofista
Ocampo by mail that she could exercise her right of first option within 30 days from
receipt of his letter. In response, Ocampo asked Atty. Amador for the selling price of the
property. In a letter dated February 3, 1990, Atty. Amador informed Ocampo that she
should make a written offer to buy and indicate the price she was willing to pay for the
property.
The parties' negotiation appears to have bogged down on who should first make the offer
with a price. In a letter dated February 9, 1990, Ocampo reiterated to Atty. Amador her
desire to buy the property and again inquired about its price. On February 22, 1990, Atty.
Amador terminated the negotiation by sending the following letter to Ocampo's counsel,
viz:
"Since she failed and refused and still failing and refusing to exercise her FIRST
OPTION within the period stated in our letter, our client is now free to offer the
subject property to other interested buyers and to entertain and receive offers for
her consideration. Meanwhile, your client is not precluded to make the offer.
Moreover, it shall now be on a 'FIRST COME, FIRST SERVE' basis as your client
has waived her above mentioned privilege." 1

In March 1990, Petronilla Lingat agreed to sell the above property to Rodrigo, Roberto, and
Benjamin, Jr., all surnamed Bangayan, at P1,000,000.00. The Bangayans partially paid the
consideration. 2 On April 5, 1990, Atty. Amador advised Ocampo of the sale of the property
to the Bangayans. He also cancelled the Contract of Lease for breach of its terms and
conditions. Ocampo was asked to vacate the premises and to pay the rentals in arrears.
Ocampo did not heed the demand and an ejectment case against her was filed by the
Bangayans before the Metropolitan Trial Court.
On May 7, 1990, Petronilla Lingat executed a Deed of Absolute Sale involving the said
property to the Bangayans. A new Transfer Certificate of Title No. 193035 was issued by
the Register of Deeds of Manila in favor of the Bangayans with the adverse claim of
Teofista Ocampo annotated therein.
On September 18, 1990, Ocampo filed a complaint against Petronilla Lingat and the
Bangayans for the annulment of their deed of sale, cancellation of title issued to the
Bangayans, reconveyance of title and damages before the Regional Trial Court of Manila
Branch 10. The case was docketed as Civil Case No. 90-54459.
While Civil Case No. 90-54459 was pending in the Regional Trial Court, the ejectment case
was decided against Ocampo by the Metropolitan Trial Court on February 21, 1991. The
assailed decision was affirmed by the Regional Trial Court, the Court of Appeals and by
this Court on October 2, 1991.
It appears that Teofista Ocampo died in October 1991. She was substituted in Civil Case
No. 90-54459 by her daughter, Angelita Ocampo Lim. Allegedly, Teofista Ocampo
assigned her right of first option to buy the leased property to Angelita Ocampo Lim
before she died. On February 9, 1994, the Regional Trial Court of Manila 3 dismissed the
case of Ocampo. It found that Teofista Ocampo cannot be substituted by her daughter. It
held that the death of Ocampo terminated her lease contract with Lingat and extinguished
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 all her rights therein, including her right of first option.
Angelita Ocampo Lim appealed to the Court of Appeals. In a Decision dated February 21,
1995, the appellate court reversed the trial court. The dispositive portion of the Decision
states:
"xxx xxx xxx
"WHEREFORE, this petition is GRANTED. The challenged decision of the Regional
Trial Court of Manila, Branch 10, is hereby REVERSED and SET ASIDE. A new
judgment is entered (1) declaring the deed of absolute sale between Petronilla
Lingat and the Bangayans to be null and void; (2) directing the Register of Deeds
of Manila to cancel Transfer Certificate of Title No. 193035; and (3) ordering
Petronilla Lingat to offer to sell the property to the petitioner in accordance with
the above discussion."

In this petition for review, the Bangayans pose the following issues for resolution: (1)
whether or not the termination of the Contract of Lease pursuant to the decision in the
ejectment case extinguished Teofista Ocampo's right of first option; (2) whether or not
Teofista Ocampo's right of first option provided for under the Contract of Lease was
violated by Petronilla Lingat and the Bangayans; and (3) whether or not the Court of
Appeals decided the case in a way not in accord with the applicable decision of the
Supreme Court.
We find merit in the petition.
The threshold issue is whether the late Teofista Ocampo has the right to assign her right
of first option under the lease contract to her daughter, Angelita Ocampo Lim. If Ocampo's
right is assignable, then her daughter, Angelita Ocampo Lim, can continue Civil Case No.
90-54459.
The respondent Court of Appeals held that the said right of Ocampo is transmissible, viz:
"xxx xxx xxx
"We found no legal or factual basis for concluding that the lease contract
between Teofista Ocampo and Lingat was automatically extinguished upon the
death of the former. There is no provision in the law which so provides. It also
appears from the pleadings and the decision of the trial court that the lease
contract in question does not provide for such an eventuality.
"Indeed, the right to continue a lease contract either as lessor or lessee is not
automatically extinguished by death of either of the contracting parties without
any express provision either by will or agreement in this regard. It becomes part of
the inheritance so that the heirs of the decedent succeed to the rights and
obligations of the latter arising from the lease contract (III Tolentino: Civil Code of
the Philippines 14-15, 1979 ed.; III Paras: Civil Code of the Philippines Annotated
7, 12th ed.)."

We find this ruling erroneous. Firstly, the respondent Court of Appeals harbored the wrong
notion that Angelita Ocampo Lim inherited from Teofista Ocampo her right of first option
upon the latter's death. The evidence, however, shows that Ocampo assigned her right of
first option to Angelita even during her lifetime. The assignment was made on August 23,
1990. This assignment has no legal warrant. Article 1311 of the Civil Code is too clear to
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 be misinterpreted. It provides that "contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law. . . ."
In the case at bar, paragraphs 4 and 5 of the lease contract specifically provide:
"4. The lessee hereby expressly warrants that the leased premises shall be
used exclusively by her for an automobile supply and parts company and partly
as a dwelling place for her employees only and the latter is strictly prohibited from
using the said premises for any other purpose without the written consent of the
lessor. cdta

"5. The lessee shall not directly or indirectly sublease, assign, transfer, convey,
mortgage or in any manner encumber its (sic) right of lease over the leased
premises or any portion thereof under any circumstances whatsoever." These
stipulations are consistent with Article 1649 of the Civil Code which provides that
"the lessee cannot assign the lease without the consent of the lessor, unless there
is a stipulation to the contrary." We have held that the consent of the lessor is
necessary because the assignment of the lease would involve the transfer, not
only of rights but also of obligations. It constitutes novation by a substitution of
the person of one of the parties. 4

A reasonable perusal of paragraphs 4 and 5 of the lease contract reveals the intent of the
parties to limit their lease relationship to themselves alone. Paragraph 4 provides that "the
leased premises shall be used exclusively by her," referring to the late Teofista Ocampo.
Paragraph 5 prohibits Ocampo from directly or indirectly assigning, transferring or
conveying her right of lease over the leased premises or any portion thereof under any
circumstances whatsoever. It cannot be denied that Ocampo's right of first option to buy
the leased property in case of its sale is but part of the bigger right to lease said property
from Lingat. The option was given to Ocampo because she was the lessee of the subject
property. It was a component of the consideration of the lease. The option was by no
means an independent right which can be exercised by Ocampo. It ought to follow that if
Ocampo is barred by the contract from assigning her right to lease the subject property to
any other party, she is similarly barred from assigning her first option to buy the leased
property to her daughter, Angelita Ocampo Lim. Needless to state, Angelita Ocampo Lim
had no right to substitute her mother, Teofista Ocampo, in Civil Case No. 90-54459.
IN VIEW WHEREOF, the decision of the respondent Court of Appeals dated February 21,
1995 is reversed and the decision of the RTC of Manila, Branch 10, dated February 9, 1994
in Civil Case No. 90-54459 is reinstated. No costs. cdti

SO ORDERED.
Romero, Mendoza and Torres, Jr., JJ ., concur.
Regalado, J ., is on official leave.
Footnotes

1. Rollo, pp. 17-19, 26, 51-54.

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