LRTA v. Joy Mart Consolidated, Inc.

 

LRTA v. Joy Mart Consolidated, Inc.

G.R. No. 211281 & 212602

February 15, 2022

 

FACTS:

The case is about the government's acquisition of properties for its Light Rail Transit (LRT) system project, which included the property of respondent Joy Mart. The properties include the lot where Isetann Department Store is located under lease by Joy Mart. Joy Mart consented to sell its property provided it would be given the first option to redevelop the entire area. In September, 1982, the LRTA entered into a contract with the Philippine General Hospital Foundation, Inc. (PGHFI). Pursuant to the supposed first refusal option granted to Joy Mart, PGHFI subleased to the former the consolidated block through a sublease agreement entered into on February 1, 1984. Nearly three years after the execution of the DoAS in question, the LRTA wrote to Joy Mart to inform the latter that the sublease was rescinded and that it was to pay the rental proceeds not to PGHFI but directly to the LRTA. Then, on July 21, 1986, the LRTA caused the publication of the Notice for Pre-Qualification Bidding for the development of the LRT commercial stalls. During the public bidding that followed, Phoenix Omega Development and Management (Phoenix) made a bid and won. In November, 1986, proceeding from Phoenix's successful bid, the LRTA entered into a Commercial Stalls Concession Contract with Phoenix. Then, on August 20, 1987, Joy Mart and Isetann sued the LRTA and Phoenix before RTC in a complaint for specific performance. In their complaint, Joy Mart and Isetann claimed that the LRTA violated its first refusal option. The LRTA, in its answer, countered that the provision in the DoAS mentioning the first refusal option was not a categorical commitment on its part, since it was only contained in the whereas clause thereof. It also averred that, in any case, Joy Mart is considered to have already waived the same when it entered into a sublease with PGHFI. The Regional Trial Court ruled dismissing the complain of Joy Mart and Isetann, ruling that refusal option pertains to a public contract undertaken by the LRTA which required public bidding. However, the CA reversed the ruling of the RTC, saying that first refusal option of Joy Mart and Isetann did not violate the requirement of competitive public bidding, since public bidding did not apply in this case due to Joy Mart and Isetann's vested contractual right.

ISSUE:

Whether or not the right of first refusal option of Joy Mart and Isetann is valid.

HELD:

No, The first refusal option was invalid. As settled in jurisprudence, the LRTA is correct in its submission that although the DoAS, in its whereas clause, did say that the first refusal option was granted as a privilege to Joy Mart and Isetann, that same privilege was invalid from the moment of its grant, and may not be saved by the application of freedom to contract. The reason for this is no other than the rule that such freedom to contract cannot be extended as to permit a contracting away of provisions of law, i.e., the need for public bidding in government contracts, as in this case. Moreover, even if the first refusal option did survive to be enforceable, it was nonetheless waived by Joy Mart and Isetann through a series of clear but foregone opportunities to assert their claim to the right of first option, the earliest of which was when it entered into a sublease with PGHFI, followed by their failure to object to the public bidding that they knew was being conducted for the redevelopment.