Rosencor v.

Paterno Inquing (Rescissible Contract)

Facts: Paterno Inquing, Irene Guillermo, Frederico Bantugan, Fernando Magbanua, and Liza Tiangco, herein respondents, averred that they are the lessees, since 1971, of a two-story residential apartment located at Tomas Morato Ave., Quezon City owned by the spouses Faustino and Cresencia Tiangco. The lease was not covered by a contract and the lessees were assured by the Spouses Tiangco that they had the pre-emptive right to purchase the property if ever there was a decision to sell it. Upon the death of the Spouses Tiangco in 1975, the management of the property was adjucated to their heirs who were represented by Eufrocina de Leon. The lessess were allegedly promised the same pre-emptive rights to purchase by the heirs of the spouses Tiangco. In June 1990, the lessees received a letter from a certain Atty. Erlinda Aguila demanding that they vacate the premises so that demolition to the building could be undertaken. The lessees refused to vacate. Thereafter, they received a letter from Eufrocina De Leon offering to sell them the property for 2,000,000.00 pesos. The lessees countered the offer by offering to buy the property for 1,000,000 pesos. However, no answer was given by De Leon to accept the offer. However, in November 1990, Rene Joaquin, came to the leased premises introducing himself as the new owner. In January 1991, the lessees again received another letter from Atty. Aguila demanding that they vacate the premises. And thereafter, they received a letter from De Leon advising them that the heirs had already sold the property to Rosencor. The lessees, later on, received a copy of the Deed of Sale between De Leon and Rosencor. They discovered that the sale took place on September 1990 while the offer by De Leon happened a month later in October 1990. The lessees offered to reimburse De Leon the selling price but they were refused. They then filed an action, among others, for the rescission of the Deed of Absolute Sale between De Leon and Rosencor. The RTC dismissed the complaint holding that the right of first refusal of the lessees was merely and oral one and was thus unenforceable by virtue of the statute of frauds. The CA reversed the decision of the RTC and ordered, among others, the rescission of the Deed of Absolute Sale and for the heirs to afford the lessees to exercise their rights of first refusal. Hence, the present petition wherein Rosencor and Rene Joaquin raise the following errors: Third Issue First Issue

I.

THE CA GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE DEED OF ABSOLUTE SALE

II.

THE CA COMMITTED MANIFEST ERROR IN MANDATING THAT DE LEON AFFORD THE RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST REFUSAL

III.

THE CA GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.

Issues: WON the oral contract for the rights of first refusal of the lessees was valid, WON the respondents have proven their right of first refusal, and WON the rescission of the Deed of Absolute Sale was proper

Both the RTC and the CA based their decisions on the statue of frauds. The RTC ruled that, being only oral, the right of refusal of the lessees was unenforceable. The CA, on the other hand, claims that the statute of frauds governs the said right. However, the right of first refusal is not among those listed unenforceable under the statue of frauds. Paragraph 2(e) of Article 1403 of the Civil Code only mentions a perfected contract of sale of real property. A right of first refusal is not a perfected contract of sale of real property. And, also, the Court has also previously held that not all agreements affecting land must be put into writing to attain enforceability.

Second Issue The Court agrees with the CA that the lessee-respondents have proven the existence of their right of first refusal. All respondents have individually and uniformly testified that they were promised by the late Spouses Tiangco and, later on, by their heirs a right of first refusal over the property they were leasing. Furthermore, the act by De Leon of offering to sell the property to the lessees verifies that the heirs recognize the existence of the right of first refusal. Also, the petitioners did not present evidence that the rights of first refusal did not exist.

The court mentioned four cases in relation to the third issue. In the first cases, the court held in Guzman, Bocaling and Co, Inc. vs. Bonnevie that a Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (paragraph 3) of the Civil Code, a contract otherwise valid may nonetheless be

subsequently be rescinded by reason of injury to third persons, like creditors.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparations for damages caused to them by a contract.

Thus, the remedy for the respondent is not rescission but an action for damages against De Leon and the heirs of the Spouses Tiangco for the unjustified disregard of their right of first refusal.

In the second case, Equatorial Realty and Devt, Inc. vs Mayfair Theater, Inc, the court ordered the rescission of a contract entered into in violation of a right of first refusal. Mayfair could only exercise the right if the fraudulent sale is first set aside or rescinded.

Third, in Paranaque Kings Enterprises, Inc. vs CA, the Court held that the allegations in a complaint showing violation of a contractual right of first option to buy properties subject to lease constitute a valid cause of action by summarizing the rulings in the two previously cited cases.

Lastly, in the case of Litonjua vs L&R Corporation, the court held that the sale made therein in violation of a right of first refusal embodied in a mortgage contract was rescissible.

Thus, as enunciated in the cited cases, a contract of sale entered into in violation of a right of first refusal of another person is rescissible.

However, that doctrine cannot be applied to the case at bar. Under Article 1381 of the Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it is undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them.

Moreover, under Article 1385, rescission shall not take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

Good faith is always presumed unless contrary to the evidence is adduced. In the case at bar, there clear and convincing evidence should have been shown to prove that petitioners were aware of the right of first refusal accorded to the respondents.

Respondents point to the letter by Atty. Aguila as proof. However, no mention about the rights of first refusal was made in said letter.

Neither was there any showing that respondents notified Rosencor of Atty. Aguila of their right of first refusal after they received the said letter.

Respondents also point to the letter by De Leon where she recognized the right of first refusal of the respondents. However, De Leon was writing on her behalf and not on behalf of petitioners and, as such, it only shows that De Leon was aware of the existence of the rights. It does not show that petitioners were aware of such rights.

Clearly, De Leon is the only party in bad faith in this case. Considering the there was no showing of bad faith on the part of the petitioners, the CA erred in ordering for the rescission of the Deed of Absolute Sale between Rosencor and De Leon.