G.R. No.

86150 March 2, 1992 This agreement was approved by the City Court and became the basis of its decision. However,
GUZMAN, BOCALING & CO., petitioner, as the private respondents failed to comply with the above-qouted stipulation, Reynoso filed a
vs. motion for execution of the judgment by compromise, which was granted on November 8, 1979.
RAOUL S. V. BONNEVIE, respondent.
E. Voltaire Garcia for petitioner.
On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the
Guinto Law Office for private respondent.
decision of the City Court as well as the Compromise Agreement on the sole ground that
Reynoso had not delivered to him the "records of payments and receipts of all rentals by or for
the account of defendant ..." The motion was denied and the case was elevated to the then
CRUZ, J.: Court of First Instance. That Court remanded the case to the City Court of Manila for trial on the
merits after both parties had agreed to set aside the Compromise Agreement.
The subject of the controversy is a parcel of land measuring six hundred (600) square meters,
more or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. On April 29, 1980, while the ejectment case was pending in the City Court, the private
Reynoso. respondents filed an action for annulment of the sale between Reynoso and herein petitioner
Guzman, Bocaling & Co. and cancellation of the transfer certificate of title in the name of the
latter. They also asked that Reynoso be required to sell the property to them under the same
This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix,
terms ands conditions agreed upon in the Contract of Sale in favor of the petitioner This
Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly
complaint was docketed as Civil Case No. 131461 in the then Court of First Instance of Manila.
rental of P4,000.00.

On May 5, 1980, the City Court decided the ejectment case, disposing as follows:
The Contract of lease contained the following stipulation:

WHEREFORE, judgment is hereby rendered ordering defendants and all

20. — In case the LESSOR desire or decides to sell the lease property, the
persons holding under them to vacate the premises at No. 658 Gen. Malvar
LESSEES shall be given a first priority to purchase the same, all things and
Street, Malate, Manila, subject of this action, and deliver possession thereof
considerations being equal.
to the plaintiff, and to pay to the latter; (1) The sum of P4,000.00 a month
from April 1, 1977 to August 8, 1977; (2) The sum of P7,000.00 a month, as
On November 3, 1976 according to Reynoso, she notified the private respondents by registered reasonable compensation for the continued unlawful use and occupation of
mail that she was selling the leased premises for P600.000.00 less a mortgage loan of said premises, from August 9, 1977 and every month thereafter until
P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise defendants actually vacate and deliver possession thereof to the plaintiff; (3)
their right of first priority to purchase the subject property. She said that in the event that they did The sum of P1,000.00 as and for attorney's fees; and (4) The costs of suit.
not exercise the said right, she would expect them to vacate the property not later then March,
1977.
The decision was appealed to the then Court of First Instance of Manila, docketed as Civil Case
No. 132634 and consolidated with Civil Case No. 131461. In due time, Judge Tomas P.
On January 20, 1977, Reynoso sent another letter to private respondents advising them that in Maddela, Jr., decided the two cases as follows:
view of their failure to exercise their right of first priority, she had already sold the property.
WHEREFORE, premises considered, this Court in Civil Case No. 132634
Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of hereby modifies the decision of the lower court as follows:
them had received her letter dated November 3, 1976; that they had advised her agent to inform
them officially should she decide to sell the property so negotiations could be initiated; and that
1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and
they were "constrained to refuse (her) request for the termination of the lease.
all persons holding under them to vacate the premises at No. 658 Gen.
Malvar St., Malate, Manila subject of this action and deliver possessions
On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. thereof to the plaintiff; and
The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the
balance of P262,500.00 to be paid only when the premises were vacated.
2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to
September 21, 1980 (when possession of the premises was turned over to
On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they the Sheriff) after deducting whatever payments were made and accepted by
vacate the premises within 15 days for their failure to pay the rentals for four months. When they Mrs. Africa Valdez Vda. de Reynoso during said period, without
refuse, Reynoso filed a complaint for ejectment against them which was docketed as Civil Case pronouncement as to costs.
No. 043851-CV in the then City Court of Manila.
As to Civil Case No. 131461, the Court hereby renders judgment in favor of
On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter the plaintiff Raoul Bonnevie as against the defendants Africa Valdez Vda.
alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease de Reynoso and Guzman and Bocaling & Co. declaring the deed of sale
Contract, Voluntarily and Peacefully not later than October 31, 1979." with mortgage executed by defendant Africa Valdez Vda. de Reynoso in
favor of defendant Guzman and Bocaling null and void; cancelling the
Certificate of Title No. 125914 issued by the Register of Deeds of Manila in
 the name of Guzman and Bocaling & Co.,; the name of Guzman and The Court agrees with the respondent court that it was not necessary to secure the approval by
Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de Reynoso to the probate court of the Contract of Lease because it did not involve an alienation of real
execute favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage property of the estate nor did the term of the lease exceed one year so as top make it fall under
over the property leased by him in the amount of P400,000.00 under the Article 1878(8) of the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated
same terms and conditions should there be any other occupants or tenants and the said property was intended to be sold would it be required of the administratrix to secure
in the premises; ordering the defendants jointly and severally to pay the the approval of the probate court pursuant to Rule 89 of the Rules of Court.
plaintiff Raoul Bonnevie the amount of P50,000.00 as temperate damages;
to pay the plaintiff jointly and severally the of P2,000.00 per month from the
As a strict legal proposition, no judgment of the probate court was reviewed and eventually
time the property was sold to defendant Guzman and Bocaling by defendant
annuled collaterally by the respondent court as contended by the petitioner. The order
Africa Valdez Vda de Reynoso on March 7, 1977, up to the execution of a
authorizing the sale in its favor was duly issued by the probate court, which thereafter approved
deed of sale of the property by defendant Africa Valdez Vda. de Reynoso in
the Contract of Sale resulting in the eventual issuance if title in favor of the petitioner. That order
favor of plaintiff Bonnevie; to pay jointly and severally the plaintiff Bonnevie
was valid insofar as it recognized the existence of all the essential elements of a valid contract of
the amount of P20,000.00 as exemplary damages, for attorney's fees in the
sale, but without regard to the special provision in the Contract of Lease giving another party the
amount of P10,000.00, and to pay the cost of suit.
right of first priority.

Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of
Even if the order of the probate court was valid, the private respondents still had a right to
this decision. The appeal was eventually resolved against them in a decision promulgated on
rescind the Contract of Sale because of the failure of Reynoso to comply with her duty to give
March 16, 1988, where the respondent court substantially affirmed the conclusions of the lower
them the first opportunity to purchase the subject property.
court but reduced the award of damages. 1

The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
Its motion for reconsideration having been denied on December 14, 1986, the petitioner has
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that
come to this Court asserting inter alia that the respondent court erred in ruling that the grant of
private respondents are strangers to the agreement and therefore have no personality to seek
first priority to purchase the subject properties by the judicial administratrix needed no authority
its annulment.
from the probate court; holding that the Contract of Sale was not voidable but rescissible;
considering the petitioner as a buyer in bad faith ordering Reynoso to execute the deed of sale
in favor of the Bonnevie; and not passing upon the counterclaim. Reynoso has not appealed. The respondent court correctly held that the Contract of Sale was not voidable  rescissible.
Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of
The Court has examined the petitioner's contentions and finds them to be untenable.
creditors could be validly accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner without recognizing their right of
Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the registry first priority under the Contract of Lease.
return card was not offered in evidence. What she presented instead was a copy of the said
letter with a photocopy of only the face of a registry return card claimed to refer to the said letter.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and
A copy of the other side of the card showing the signature of the person who received the letter
even to third persons, to secure reparation for damages caused to them by a contract, even if
and the data of the receipt was not submitted. There is thus no satisfactory proof that the letter
this should be valid, by means of the restoration of things to their condition at the moment prior
was received by the Bonnevies.
to the celebration of said contract. 4 It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may cause,
Even if the letter had indeed been sent to and received by the private respondent and they did or to protect some incompatible and preferent right created by the contract. 5 Recission implies a
not exercise their right of first priority, Reynoso would still be guilty of violating Paragraph 20 of contract which, even if initially valid, produces a lesion or pecuniary damage to someone that
the Contract of Lease which specifically stated that the private respondents could exercise the justifies its invalidation for reasons of equity. 6
right of first priority, "all things and conditions being equal." The Court reads this mean that there
should be identity of the terms and conditions to be offered to the Bonnevies and all other
It is true that the acquisition by a third person of the property subject of the contract is an
prospective buyers, with the Bonnevies to enjoy the right of first priority.
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith.  7 However, this rule
The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only the is not applicable in the case before us because the petitioner is not considered a third party in
mortgage lien of P100,000.00. 2 On the other hand, the selling price offered to and accepted by relation to the Contract of Sale nor may its possession of the subject property be regarded as
the petitioner was only P400,000.00 and only P137,500.00 was paid in cash while the balance of acquired lawfully and in good faith.
P272,500.00 was to be paid "when the property (was) cleared of tenants or occupants. 3
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
The fact that the Bonnevies had financial problems at that time was no justification for denying petitioner cannot be deemed a purchaser in good faith for the record shows that its categorically
them the first option to buy the subject property. Even if the Bonnevies could not buy it at the admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the
price qouted, Reynoso could not sell it to another for a lower price and under more favorable subject property at the time it was sold to it. Although the Contract of Lease was not annotated
terms and conditions. Only if the Bonnevies failed to exercise their right of first priority could on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the
Reynoso lawfully sell the subject property to others, and at that only under the same terms and petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more
conditions offered to the Bonnevies. binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice
that some other person has a right to or interest in such property and pays a full and fair price for
the same at the time of such purchase or before he has notice of the claim or interest of some
other person in the property. 8 Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. 9 Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of
Lease, Assuming this to be true, we nevertherless agree with the observation of the respondent
court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract,

which includes Par. 20 on priority right given to the Bonnevies, it had only
itself to blame. Having known that the property it was buying was under
lease, it behooved it as a prudent person to have required Reynoso or the
broker to show to it the Contract of Lease in which Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the
right of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set
side by the parties thereto, resulting in the restoration of the original rights of the private
respondents under the Contract of Lease. The Joint Motion to Remand filed by Reynoso and the
private respondents clearly declared inter alia:

That without going into the merits of instant petition, the parties have agreed
to SET ASIDE the compromise agreement, dated September 24, 1979 and
remand Civil Case No. 043851 of the City Court of Manila to Branch IX
thereof for trial on the merits. 10

We find, in sum, that the respondent court did not commit the errors imputed to it by the
petitioner. On the contrary, its decision is conformable to the established facts and the
applicable law and jurisprudence and so must be sustained.

WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision
is AFFIRMED in toto. It is so ordered.

Narvasa, C.J., Griño-Aquino and Medialdea, JJ., concur.