Case Summary (G.R. No. 145222)
Key Dates and Procedural History
Lease commenced August 8, 1976. Reynoso allegedly notified the Bonnevies by registered mail on November 3, 1976 of her intent to sell (offering price stated as P600,000 less a mortgage of P100,000) and gave them 30 days to exercise the priority. Reynoso later wrote (January 20, 1977) that she had sold the property; the property was sold to petitioner on March 7, 1977 (Contract of Sale: immediate payment of P137,500, balance to be paid when premises vacated). Ejectment action and subsequent compromise (set aside by parties and remanded for trial), Civil Case No. 043851-CV (City Court), Civil Case Nos. 131461 and 132634 (Court of First Instance consolidated), decision of the Court of Appeals promulgated March 16, 1988 (motion for reconsideration denied December 14, 1988), and appeal to the Supreme Court (decision in this record).
Issues Presented
- Whether the administratrix’s grant of first priority to the lessees (Paragraph 20) required prior probate court authority.
- Whether the Contract of Sale in favor of petitioner was voidable only by parties to that contract or could be rescinded by third parties (the Bonnevies) injured by it.
- Whether petitioner was a purchaser in good faith, thereby blocking rescission or other relief.
- Whether the earlier Compromise Agreement extinguished the Bonnevies’ priority right.
Findings of the Trial and Appellate Courts
The City Court ordered ejectment and awarded rental and compensation for unlawful occupation, attorney’s fees and costs. The Court of First Instance modified the ejectment judgment (ordered turnover and fixed rental due to date of sheriff turnover) and, in the separate annulment action, declared the deed of sale with mortgage in favor of petitioner null and void, cancelled the transfer certificate of title issued to petitioner, ordered Reynoso to execute a deed of sale in favor of Raoul Bonnevie under specified terms, and awarded temperate and exemplary damages plus attorney’s fees. The Court of Appeals substantially affirmed those conclusions but reduced damages; its decision was affirmed by the Supreme Court.
Supreme Court’s Analysis — Receipt and Effect of the November 3, 1976 Notice
The Court found no satisfactory proof that the November 3, 1976 letter was received by the Bonnevies: Reynoso failed to produce the registry return card bearing the recipient’s signature and date. Independently of whether the letter was received, the Court held that Reynoso violated Paragraph 20 because the Contract of Sale to petitioner was on materially different terms than the terms offered to the Bonnevies; Paragraph 20 required that the lessees be given the first opportunity to purchase on equal terms and conditions.
Supreme Court’s Analysis — Meaning of “All Things and Conditions Being Equal”
The Court construed the phrase to require identity of terms and conditions offered to the lessees and other prospective buyers. The terms offered to the Bonnevies (sale for P600,000 less a mortgage lien of P100,000) differed materially from the terms of the sale to petitioner (price P400,000 with only P137,500 paid in cash and balance payable upon vacancy). Because the terms were not equal, the administratrix’s sale to petitioner breached the lessees’ contractual priority right.
Supreme Court’s Analysis — Probate Court Approval and Scope of the Lease
The Court held that the Contract of Lease itself did not require probate court approval because it was not an alienation and the lease term did not exceed one year (Article 1878(8) of the Civil Code). Nevertheless, if Paragraph 20 were activated (i.e., if the property was to be sold), an administratrix would have to secure probate court approval for the sale pursuant to Rule 89, Rules of Court. The existence of a probate order authorizing and approving the sale did not cure the administratrix’s failure to respect the lessees’ contractual priority.
Supreme Court’s Analysis — Voidable vs. Rescissible Contract and Third-Party Rights
The Court agreed with the respondent court that the Contract of Sale was not merely voidable under Article 1397 (which limits annulment to contracting parties) but rescissible under Articles 1380–1381(3) of the Civil Code. Rescission is available where a contract, though valid, causes injury to third persons (or creditors), and operates to restore the parties (and affected third persons) to the pre-contract condition. The Bonnevies had a substantial, preferent interest under the lease that was prejudiced by the sale; thus they could seek rescission even though they were not parties to the sale.
Supreme Court’s Analysis — Good Faith and Lawful Possession of the Purchaser
The Court observed that rescission is barred where a bona fide third-party purchaser is in lawful possession and acquired the property without bad faith. Here, petitioner admitted actual knowledge of the lease and that the Bonnevies occupied the premises at the time of sale; the lease need not have been annotated on title to impart constructive notice when actual knowledge existed. Because petitioner had notice of the lease and failed to inquire into its terms (including Paragraph 20), it could not be regarded as a purchaser in good faith. The Court emphasized that a prudent buyer, aware of an existing lease, must investigate the lease’s terms; petitioner’s failure
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Parties and nature of the case
- Petitioner: Guzman, Bocaling & Co., buyer and registered owner (vendee) of the subject property pursuant to a Contract of Sale and subsequent transfer certificate of title.
- Respondent / private respondents: Raoul S. V. Bonnevie and Christopher Bonnevie, lessees and occupants of the subject property under a lease with the administratrix of the Intestate Estate of Jose L. Reynoso.
- Administratrix / vendor: Africa Valdez de Reynoso (also referenced as Reynoso; source later states "Reynosa has not appealed").
- Reliefs sought by private respondents in Civil Case No. 131461: annulment of the sale between Reynoso and petitioner, cancellation of transfer certificate of title issued to petitioner, and an order requiring Reynoso to sell the property to the Bonnevies under the same terms and conditions agreed upon in the Contract of Sale in favor of the petitioner.
- Reliefs sought by Reynoso in ejectment (Civil Case No. 043851-CV): possession of the leased property and rental/compensation for its continued occupation.
- Supreme Court disposition: petition for review by Guzman, Bocaling & Co. denied; challenged decision affirmed in toto; costs against petitioner. Narvasa, C.J., and Justices Grino-Aquino and Medialdea concurred.
Subject property and lease
- The controversy concerns a parcel of land of approximately six hundred (600) square meters with two buildings thereon, belonging to the Intestate Estate of Jose L. Reynoso.
- The administratrix, Africa Valdez de Reynoso, leased the property to Raoul S. V. Bonnevie and Christopher Bonnevie for one year beginning August 8, 1976, at a monthly rental of P4,000.00.
- The Contract of Lease contained Paragraph 20: a stipulation that if the lessor (administratrix) desired or decided to sell the leased property, the lessees (the Bonnevies) "shall be given a first priority to purchase the same, all things and considerations being equal."
Notices and alleged exercise of first priority
- Reynoso testified she sent a letter by registered mail dated November 3, 1976 notifying the Bonnevies that she was selling the leased premises for P600,000.00 "less a mortgage loan of P100,000.00," giving them thirty (30) days from receipt to exercise their right of first priority; she stated that if they did not exercise the right, she expected them to vacate not later than March 1977.
- Reynoso sent another letter dated January 20, 1977 advising the Bonnevies that, in view of their failure to exercise the right of first priority, she had already sold the property.
- The Bonnevies replied upon receipt of the January 20, 1977 letter, stating they had not received the November 3, 1976 letter, had advised Reynoso's agent to inform them should she decide to sell so negotiations could be initiated, and refused Reynoso's request for termination of the lease.
- The Court found that Reynoso did not satisfactorily prove receipt of the November 3, 1976 letter: she offered a copy of the letter and a photocopy of only the face of a registry return card allegedly referring to that letter, but did not submit the copy of the other side of the card showing the signature and date of receipt.
Sale to petitioner and terms of Contract of Sale
- On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co.
- The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, with the balance of P262,500.00 to be paid only when the premises were vacated (expressed in the source as "when the premises were vacated" and elsewhere as "when the property (was) cleared of tenants or occupants").
- The selling price quoted to the Bonnevies in the alleged November 3, 1976 letter was P600,000.00, "less a mortgage loan of P100,000.00." The selling price offered to and accepted by the petitioner was P400,000.00, with only P137,500.00 paid in cash and the balance to be paid upon vacation/clearance of tenants.
Ejectment case and compromise agreement (Civil Case No. 043851-CV)
- Reynoso demanded that the Bonnevies vacate by a letter dated April 12, 1977, alleging failure to pay four months' rentals; when they refused, she filed ejectment.
- The ejectment action was docketed as Civil Case No. 043851-CV in the then City Court of Manila.
- On September 25, 1979, parties submitted a Compromise Agreement in which the defendant Raoul S.V. Bonnevie agreed to vacate the premises voluntarily and peacefully not later than October 31, 1979. The City Court approved the Compromise Agreement and based its decision on it.
- The Bonnevies failed to comply with the Compromise Agreement; Reynoso obtained execution of the judgment by compromise on November 8, 1979.
- On November 12, 1979, Raoul S. V. Bonnevie filed a motion to set aside the City Court decision and the Compromise Agreement on the ground that Reynoso had not delivered records of payments and receipts of all rentals. The motion was denied and the case was elevated to the then Court of First Instance (CFI).
- The CFI remanded the ejectment case to the City Court of Manila for trial on the merits after the parties agreed to set aside the Compromise Agreement.
Separate action for annulment and consolidation (Civil Case No. 131461 and appeal Civil Case No. 132634)
- While the ejectment case was pending, the Bonnevies filed Civil Case No. 131461 in the then Court of First Instance of Manila seeking annulment of the sale to petitioner, cancellation of the transfer certificate of title in the name of petitioner, and a directive to Reynoso to sell to them under the same terms and conditions of the Contract of Sale in favor of petitioner.
- The City Court rendered judgment in the ejectment case on May 5, 1980, ordering defendants to vacate and deliver possession, and awarding:
- P4,000.00 a month from April 1, 1977 to August 8, 1977;
- P7,000.00 a month as reasonable compensation for continued unlawful use and occupation from August 9, 1977 and every month thereafter until actual vacation and delivery of possession;
- P1,000.00 as attorney's fees; and
- costs of suit.
- The decision was appealed to the Court of First Instance of Manila as Civil Case No. 132634 and consolidated with Civil Case No. 131461.
Court of First Instance judgment (Judge Tomas P. Maddela, Jr.)
- In Civil Case No. 132634 (appeal of ejectment), the CFI modified the lower court decision by ordering:
- Defendants and all persons holding under them to vacate the premises and deliver possession to the plaintiff; and
- Payment to plaintiff the sum of P4,000.00 a month from April 1, 1977 up to September 21, 1980 (the date possession was turned over to the Sheriff), after deducting whatever payments were made and accepted by Mrs. Africa Valdez Vda. de Reynoso during said period, without pronouncement as to costs.
- In Civil Case No. 131461 (annulment of sale), the CFI rendered judgment in favor of plaintiff Raoul Bonnevie against defendants Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co., with the following dispositive reliefs:
- Declared the deed of sale with mortgage executed by Africa Valdez Vda. de Reynoso in favor of Guzman a