31. GUZMAN, BOCALING & CO., petitioner, vs. RAOUL S. V. BONNEVIE, respondent.
A parcel of land with two buildings constructed thereon belonging to the Intestate Estate of Jose L.
Reynoso was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez
de Reynoso, for a period of one year. The Contract of lease contained a stipulation which provides that
In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first priority
to purchase the same, all things and considerations being equal.
according to Reynoso, she notified the private respondents by registered mail that she was selling the
leased premises for P600.000.00 less a mortgage loan of P100,000.00, and was giving them 30 days from
receipt of the letter within which to exercise their right of first priority to purchase the subject property.
She said that in the event that they did not exercise the said right, she would expect them to vacate the
property. Reynoso sent another letter to private respondents advising them that in view of their failure
to exercise their right of first priority, she had already sold the property. Upon receipt of this letter, the
private respondents wrote Reynoso informing her that neither of them had received her first letter.The
leased premises were formally sold to petitioner Guzman, Bocaling & Co. Reynoso wrote a letter to the
private respondents demanding that they vacate the premises within 15 days for their failure to pay the
rentals for four months. When they refuse, Reynoso filed a complaint for ejectment against them.
While the ejectment case was pending in the City Court, the private 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 terms and conditions agreed upon in the Contract of Sale in
favor of the petitioner.
the City Court decided the ejectment case ordering defendants and all persons holding under them to
vacate the premises and deliver possession thereof to the plaintiff, and to pay to the latter reasonable
compensation for the continued unlawful use and occupation of said premises, and every month
thereafter until defendants actually vacate and deliver possession thereof to the plaintiff. The decision
was affirmed by the CFI.
As to Civil Case No. 131461, the Court hereby renders judgment in favor of the plaintiff Raoul Bonnevie
as against the defendants Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co. declaring the
deed of sale 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 in the name of Guzman and
Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de Reynoso to execute in favor of the plaintiff
Raoul Bonnevie a deed of sale with mortgage over the property leased by him in the amount of
P400,000.00 under the same terms and conditions should there be any other occupants or tenants in
the premises;
Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this
decision. the respondent court substantially affirmed the conclusions of the lower court but reduced the
award of damages. MR was also denied.
ISSUEs
Whether or not the Contract of Sale is not voidable but rescissible;
Whether or not the petitioner is a buyer in bad faith.
HELD
The respondent court correctly held that the Contract of Sale was not voidable but 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 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 first priority under the Contract of
Lease.
Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior 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, or to protect some incompatible and preferent right created by the
contract. 5 Recission implies a contract which, even if initially valid, produces a lesion or pecuniary
damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an 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 is not applicable in the case
before us because the petitioner is not considered a third party in relation to the Contract of Sale nor
may its possession of the subject property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the
time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of
title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to and indeed more binding than presumed
WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision is
AFFIRMED in toto. It is so ordered.
