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GUZMAN v. RAOUL S. V. BONNEVIE

FACTS:

The subject of the controversy is a six hundred (600) square meter land with two buildings owned by the Intestate Estate of Jose L. Reynoso. The property was leased to Raoul S. Bonnevie and Christopher Bonnevie for one year starting on August 8, 1976, with a monthly rental of P4,000. The lease contract included a stipulation that gave the lessees the first priority to purchase the property if the lessor decided to sell it. On November 3, 1976, Reynoso notified the Bonnevie brothers that she was selling the property for P600,000.00 and giving them 30 days to exercise their right of first priority. In January 1977, Reynoso informed the Bonnevie brothers that the property was already sold due to their failure to exercise their right. In March 1977, the property was formally sold to petitioner Guzman, Bocaling & Co. On April 12, 1977, Reynoso demanded that the Bonnevie brothers vacate the premises for failure to pay rentals for four months. Reynoso filed a complaint for ejectment against them. In September 1979, a Compromise Agreement was submitted by the parties, which included the Bonnevie brothers' agreement to vacate the premises by October 31, 1979. The agreement was approved and a motion for execution of the judgment was granted in November 1979. In April 1980, the Bonnevie brothers filed an action for annulment of the sale between Reynoso and Guzman, Bocaling & Co. and cancellation of the transfer certificate of title. They also asked Reynoso to sell the property to them under the same terms and conditions as the Contract of Sale with the petitioner. The City Court decided the ejectment case in May 1980, ordering the Bonnevie brothers to vacate the premises and pay rentals and attorney's fees. The case was appealed, and the Court of First Instance modified the decision. In relation to Civil Case No. 131461, the court declared the sale between Reynoso and Guzman, Bocaling & Co. null and void and ordered Reynoso to execute a new deed of sale with the Bonnevie brothers. Both Reynoso and the petitioner appealed the decision to the Court of Appeals, which affirmed the lower court's decision with reduced damages.

ISSUES:

  1. Whether the grant of first priority to purchase the subject property by the judicial administratrix needed authority from the probate court.

  2. Whether the Contract of Sale was voidable or rescissible.

  3. Whether the petitioner is a buyer in bad faith.

  4. Whether the respondent court should have passed upon the counterclaim.

  5. Whether the petitioner can invoke the right of rescission under the Contract of Sale.

  6. Whether the petitioner can be considered a purchaser in good faith.

RULING:

  1. The Court agrees with the respondent court that it was not necessary to secure the approval of the probate court for the grant of first priority to purchase the subject property. The Contract of Lease did not involve an alienation of real property of the estate, nor did the term of the lease exceed one year.

  2. The Contract of Sale was deemed rescissible, not voidable. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may be rescinded by reason of injury to third persons, such as the private respondents. The private respondents, as creditors, had substantial interests that were prejudiced by the sale of the subject property.

  3. The petitioner is considered a buyer in bad faith. The terms and conditions offered to the Bonnevies were not the same as those offered to the petitioner. The petitioner purchased the property at a lower price and under more favorable terms, violating the right of first priority of the private respondents.

  4. The respondent court's failure to pass upon the counterclaim is not deemed erroneous as the Court finds the petitioner's contentions to be untenable.

  5. The petitioner cannot invoke the right of rescission under the Contract of Sale because it is not considered a third party to the contract and its possession of the subject property was not acquired lawfully and in good faith.

  6. The petitioner cannot be considered a purchaser in good faith as it had knowledge of the lease on the property and failed to inquire about the terms of the lease, including the right of first priority.

PRINCIPLES:

  • The grant of first priority to purchase a property by a judicial administratrix does not need approval from the probate court if it does not involve alienation of real property of the estate or if the term of the lease does not exceed one year.

  • A contract that is otherwise valid may be rescinded by reason of injury to third persons.

  • A buyer is considered in bad faith when they purchase a property in violation of the right of first priority of another party.

  • The failure to pass upon a counterclaim may not be considered erroneous if the court finds the petitioner's contentions to be untenable.

  • Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.

  • The acquisition by a third person of the property subject of a contract is an obstacle to the action for its rescission if the third person is in lawful possession and did not act in bad faith.

  • A purchaser in good faith and for value is one who buys the property of another without notice of any other person's right or interest in the property and pays a full and fair price.

  • Good faith connotes an honest intention to abstain from taking unconscientious advantage of another.

  • Knowledge of a lease on a property should caution a buyer to inquire further about the lease agreement and its terms.