1. Guzman, Bocaling and Co. v.

Bonnevie
GR # 86150 | March 2, 1992
Petitioner: Guzman, Bocaling and Co.
Respondent: Raoul Bonnevie
(Article 1380, 1381 of the Civil Code, Contracts)

DOCTRINE
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Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of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.
FACTS
1. The subject of the controversy is a parcel of land with two buildings constructed thereon,
belonging to the Intestate Estate of Jose L. Reynoso.
2. This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the
administratrix, Africa Valdez de Reynoso, for a period of one year, at a monthly rental of
P4,000.00.
3. The Contract of lease contained the following stipulation:
20. — 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.
4. 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.
5. 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.
6. Private respondents wrote Reynoso informing her that neither of them had received her 1st
letter.
7. 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, the balance
of P262,500.00 to be paid only when the premises were vacated.
8. 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 in the City Court of Manila.
9. The parties submitted a Compromise Agreement, which provided inter alia that "the
defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract,
Voluntarily and Peacefully
10. Respondent failed to comply with the agreement and filed a motion for execution of the
judgment by compromise, which was granted.
11. Respondent filed a motion to set aside the 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 ...";
denied, elevated to CFI.
12. Both parties agreed to set aside the Compromise Agreement.
13. While the ejectment case was pending in the City Court, the respondent filed an action for
annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling & Co.
They also asked that Reynoso be required to sell the property to them under the same
terms ands conditions agreed upon in the Contract of Sale in favor of the petitioner.
14. City Court decided the ejectment case against the respondents.
15. Appealed to CFI, consolidated the ejectment and annulment case. Respondents were
ordered to vacate but decided that the sale between Reynoso and petitioner as null and
 void. Reynoso was ordered to in favor to respondent the deed of sale with mortgage for
400k same terms and conditions as with petitioner.
16. Reynoso and petitioner filed with the CA; affirmed decision of CFI, reduced payment for
damages. MR denied.
17. According to petitioner, the respondent court erred in ruling that the grant of first priority to
purchase the subject properties by the judicial administratrix needed no authority 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.

ISSUE/S
1. Was the sale valid?

PROVISIONS
Article 1380. Contracts validly agreed upon may be rescinded in the cases established by
law. (1290)
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)

RULING & RATIO

 There is no satisfactory proof that the letter was received by the Bonnevies.
 Even if the letter had indeed been sent to and received by the private respondent and
they did not exercise their right of first priority, Reynoso would still be guilty of violating
Paragraph 20 of the Contract of Lease which specifically stated that the private
respondents could exercise the 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 prospective buyers, with the
Bonnevies to enjoy the right of first priority. (Price offered to respondent 600k; to
petitioner, 400k)
 The petitioner argues that assuming the Contract of Sale to be voidable, only the parties
thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is
stressed that private respondents are strangers to the agreement and therefore have no
personality to seek its annulment.
 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.
 According to Tolentino, 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. 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. 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.
 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
 Good faith connotes an honest intention to abstain from taking unconscientious
advantage of another. 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.
 We find, in sum, that the respondent court did not commit the errors imputed to it by the
petitioner.

DISPOSITION

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