Case Summary (G.R. No. 140479)
Key Dates
- 1971: Commencement of oral lease of a two-story apartment at 150 Tomas Morato Ave., Quezon City
- 1975: Death of original lessors, Faustino and Cresencia Tiangco
- September 4, 1990: Deed of Absolute Sale from heirs to Rosencor
- December 10, 1993: Filing of original complaint for annulment, later amended for rescission
- May 13, 1996: Decision of RTC Branch 217, Quezon City, dismissing respondents’ complaint
- June 25, 1999: Court of Appeals decision reversing RTC and ordering rescission
- March 8, 2001: Supreme Court decision
Applicable Law
- 1987 Philippine Constitution
- New Civil Code of the Philippines
• Article 1403(2)(e) – Statute of Frauds, requiring certain contracts in writing
• Articles 1380–1385 – Rescissible contracts and defenses - Rule 45, Rules of Court – Certiorari procedure
Factual Background
Since 1971 respondents leased a residential apartment from the Tiangcos, at P150 monthly rent, with an oral pre-emptive right to purchase. After the Tiangcos’ deaths in 1975, their heirs (through Eufrocina de Leon) allegedly recognized the same right. Respondents invested P50,000–P100,000 in upkeep. In mid-1990 heirs’ counsel demanded vacation for demolition; de Leon refused rent payments and, in October 1990, offered respondents P2,000,000 sale price. Respondents counteroffered P1,000,000. Unbeknownst to them, heirs had sold the property on September 4, 1990 to Rosencor for P726,000. Thereafter heirs’ counsel demanded vacation and rent from Rosencor. Respondents sought deed rescission and reconveyance, plus damages or credit for improvements.
Trial and Appellate Rulings
- RTC (May 13, 1996): Dismissed complaint. Held oral right unenforceable under the Statute of Frauds. Ordered respondents to pay P1,000 monthly rent from May 1990 until vacatur.
- CA (June 25, 1999): Reversed. Found respondents proved an oral right of first refusal and that petitioners waived statute-of-frauds objection. Ordered rescission of the September 4, 1990 sale, reconveyance to de Leon, thirty days to respondents to exercise first refusal at P1,000,000, and payment of back rent.
Issue on Statute of Frauds
Article 1403(2)(e) renders unenforceable “an agreement for the sale of real property or of an interest therein” unless in writing. The Supreme Court held:
- A right of first refusal is not a perfected sale contract but merely grants an option to purchase upon vendor’s decision to sell.
- It is not among the enumerated contracts under the Statute of Frauds and may be proven orally.
Existence of the Right of First Refusal
- Respondents uniformly testified to an oral pre-emptive promise by the Tiangcos and their heirs.
- A letter dated October 9, 1990 from de Leon offering respondents the P2,000,000 price confirmed her recognition of that right.
- Petitioners presented no contrary evidence, having declined to call de Leon whose testimony might have negated respondents’ claim.
Conclusion: The right of first refusal was substantially proven.
Rescission Doctrine and Good Faith
Precedents (Guzman-Bocaling, Equatorial, Litonjua) establish that a sale violating a third party’s right of first refusal is a valid but rescissible contract if the purchaser acted in bad faith. Bad faith arises when the purchaser knew or should have known of the pre-emptive right.
Application to Rosencor’s Good Faith
- The oral right was never reduced to writing or registered; respondents never notified Ros
Case Syllabus (G.R. No. 140479)
Facts of the Case
- Respondents had leased since 1971 a two-story residential apartment at No. 150 Tomas Morato Ave., Quezon City (TCT No. 96161) owned by spouses Faustino and Cresencia Tiangco, under an oral lease at P150/month.
- The Tiangcos verbally granted respondents a pre-emptive (first refusal) right to purchase the property if they decided to sell.
- After the Tiangcos died in 1975, their heirs—represented by Eufrocina de Leon—allegedly renewed the same pre-emptive right orally.
- Respondents invested P50,000–P100,000 in upkeep (not credited against rent) as monthly rent later rose to P1,000.
- June 1990: Atty. Erlinda Aguila (for the heirs) demanded respondents vacate for demolition; de Leon refused to collect rent and then offered the property to respondents at P2 million.
- Respondents offered P1 million; de Leon said she would consult the other heirs but never responded.
- September 4, 1990: Unknown to respondents, de Leon sold the property to Rosencor for P726,000.
- November 1990–February 1991: Rene Joaquin introduced as new owner; repeated eviction and rent-demand letters were sent; respondents’ requests for the sale deed were denied.
- April 1992: Barangay mediation led to discovery of the deed; respondents realized de Leon had already sold before offering them the property, and refused their P1 million completion offer.
- December 10, 1993: Respondents filed for rescission of the September 4, 1990 deed, reconveyance, and reimbursement for repairs or credit toward purchase.
Procedural History
- May 4, 1994: RTC Branch 217, Quezon City admitted respondents’ complaint-in-intervention.
- May 13, 1996: RTC dismissed the complaint, ruling the oral right of first refusal unenforceable under the statute of frauds; ordered P1,000/month rent from May 1990.
- June 3