ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, Rosencor raised the issue as to the rental payment of the premises.

It
vs.PATERNO INQUING, IRENE GUILLERMO, FEDERICO was also at this instance that the lessees were furnished with a copy of
BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, the Deed of Sale and discovered that they were deceived by de Leon
since the sale between her and Rene Joaquin/Rosencor took place in
G.R. No. 140479 March 8, 2001 September 4, 1990 while de Leon made the offer to them only in
October 1990 or after the sale with Rosencor had been consummated.
Facts: Respondents averred that they are the lessees since 1971 of a The lessees also noted that the property was sold only for P726,000.00.
two-story residential apartment located Tomas Morato Ave., Quezon
City. Owned by spouses Faustino and CresenciaTiangco. The lease was The lessees offered to reimburse de Leon the selling price of
not covered by any contract. The lessees were allegedly verbally granted P726,000.00 plus an additional P274,000.00 to complete their
by the lessors the pre-emptive right to purchase the property if ever they P1,000.000.00 earlier offer. When their offer was refused, they filed the
decide to sell the same. present action praying for the following: a) rescission of the Deed of
Absolute Sale between de Leon and Rosencor dated September 4, 1990;
Upon the death of the spouses Tiangcos, Eufrocina de Leon took control b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the
of the property. The lessees were allegedly promised the same pre- property to de Leon; and c) de Leon be ordered to reimburse the
emptive right by the heirs of Tiangcos since the latter had knowledge plaintiffs for the repairs of the property, or apply the said amount as part
that this right was extended to the former by the late spouses Tiangcos. of the price for the purchase of the property in the sum of P100,000.00."

In June 1990, the lessees received a letter from Atty. Aguila demanding The RTC: Dismissed the complaint. The trial court held that the right of
that they vacate the premises so that the demolition of the building be redemption on which the complaint. The trial court held that the right of
undertaken. They refused to leave the premises. Thereafter, they redemption on which the complaint was based was merely an oral one
received a letter from Eufrocina de Leon offering to sell to them the and as such, is unenforceable under the law.
property they were leasing for P2,000,000.00. The lessees counter-
offered to buy the property from de Leon for the amount of The Court of Appeals: Rendered its decision reversing the decision of the
P1,000,000.00. No answer was given by de Leon as to their offer to buy trial court. It orderered (1) The rescission of the Deed of Absolute Sale
the property. However, in November 1990, Rene Joaquin Vice president executed between the appellees on September 4, 1990; (2) The
of Rosencor, came to the leased premises introducing himself as its new reconveyance of the subject premises to appellee Eufrocina de Leon; (3)
owner. The heirs of Faustino and CrescenciaTiangco, thru appellee Eufrocina de
Leon, to afford the appellants thirty days within which to exercise their
The lessees requested from de Leon why she had disregarded the pre- right of first refusal by paying the amount of ONE MILLION PESOS
emptive right she and the late Tiangcos have promised them. They also (P1,000,000.00) for the subject property; and (4) The appellants to, in
asked for a copy of the deed of sale between her and the new owners turn, pay the appellees back rentals from May 1990 up to the time this
thereof but she refused to heed their request. In the same manner, decision is promulgated.
when they asked Rene Joaquin a copy of the deed of sale, the latter
turned down their request and instead Atty. Aguila wrote them several Issue 1: Whether or not a right of first refusal is indeed covered by the
letters demanding that they vacate the premises. The lessees offered to provisions of the New Civil Code on the statute of frauds.
tender their rental payment to de Leon but she refused to accept the
same. Issue 2: whether or not respondents have satisfactorily proven their right
of first refusal over the property subject of the Deed of Absolute Sale
In April 1992 before the demolition can be undertaken by the Building dated September 4, 1990 between petitioner Rosencor and Eufrocina de
Official, the barangay interceded between the parties herein after which Leon.
  e) An agreement for the leasing of a longer period than one year, or for
the sale of real property or of an interest therein;
Ruling 1: No, The statue od frauds does not apply.
f) A representation to the credit of a third person."
The term "statute of frauds" is descriptive of statutes which require
certain classes of contracts to be in writing. This statute does not deprive The statute of frauds refers to specific kinds of transactions and cannot
the parties of the right to contract with respect to the matters therein apply to any other transaction that is not enumerated therein. The
involved, but merely regulates the formalities of the contract necessary application of such statute presupposes the existence of a perfected
to render it enforceable. Thus, they are included in the provisions of the contract.
New Civil Code regarding unenforceable contracts, more particularly Art.
1403, paragraph 2. Said article provides, as follows: We have previously held that not all agreements "affecting land" must be
put into writing to attain enforceability. Thus, we have held that the
"Art. 1403. The following contracts are unenforceable, unless they are setting up of boundaries, the oral partition of real property, and an
ratified: agreement creating a right of wayare not covered by the provisions of
the statute of frauds. The reason simply is that these agreements are not
(2) Those that do not comply with the Statute of Frauds as set forth in among those enumerated in Article 1403 of the New Civil Code.
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or A right of first refusal is not among those listed as unenforceable under
memorandum thereof, be in writing, and subscribed by the party the statute of frauds. Furthermore, the application of Article 1403, par.
charged, or by his agent; evidence, therefore, of the agreement cannot 2(e) of the New Civil Code presupposes the existence of a perfected,
be received without the writing, or a secondary evidence of its contents: albeit unwritten, contract of sale.A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of
a) An agreement that by its terms is not to be performed within a year sale of real property. At best, it is a contractual grant, not of the sale of
from the making thereof; the real property involved, but of the right of first refusal over the
property sought to be sold.
b) A special promise to answer for the debt, default, or miscarriage of
another; It is thus evident that the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first refusal need not
c) An agreement made in consideration of marriage, other than a mutual be written to be enforceable and may be proven by oral evidence.
promise to marry;
Ruling 2: Yes, They have.
d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and On this point, we agree with the factual findings of the Court of Appeals
receive part of such goods and chattels, or the evidences, or some of that respondents have adequately proven the existence of their right of
them, of such things in action, or pay at the time some part of the first refusal. Federico Bantugan, Irene Guillermo, and PaternoInquing
purchase money; but when a sale is made by auction and entry is made uniformly testified that they were promised by the late spouses Faustino
by the auctioneer in his sales book, at the time of the sale, of the and CrescenciaTiangco and, later on, by their heirs a right of first refusal
amount and kind of property sold, terms of sale, price, names of over the property they were currently leasing should they decide to sell
purchasers and person on whose account the sale is made, it is a the same. Moreover, respondents presented a letter20 dated October 9,
sufficient memorandum; 1990 where Eufrocina de Leon, the representative of the heirs of the
spouses Tiangco, informed them that they had received an offer to buy
the disputed property for P2,000,000.00 and offered to sell the same to It must be borne in mind that, unlike the cases cited above, the right of
the respondents at the same price if they were interested. Verily, if first refusal involved in the instant case was an oral one given to
Eufrocina de Leon did not recognize respondents’ right of first refusal respondents by the deceased spouses Tiangco and subsequently
over the property they were leasing, then she would not have bothered recognized by their heirs. As such, in order to hold that petitioners were
to offer the property for sale to the respondents. in bad faith, there must be clear and convincing proof that petitioners
were made aware of the said right of first refusal either by the
Petitioners did not present evidence before the trial court contradicting respondents or by the heirs of the spouses Tiangco.
the existence of the right of first refusal of respondents over the
disputed property. They only presented petitioner Rene Joaquin, the Good faith is always presumed unless contrary evidence is adduced. A
vice-president of petitioner Rosencor, who admitted having no personal purchaser in good faith is one who buys the property of another without
knowledge of the details of the sales transaction between Rosencor and notice that some other person has a right or interest in such a property
the heirs of the spouses Tiangco. They also dispensed with the testimony and pays a full and fair price at the time of the purchase or before he
of Eufrocina de Leon who could have denied the existence or knowledge has notice of the claim or interest of some other person in the property.
of the right of first refusal. As such, there being no evidence to the In this regard, the rule on constructive notice would be inapplicable as it
contrary, the right of first refusal claimed by respondents was is undisputed that the right of first refusal was an oral one and that the
substantially proven by respondents before the lower court. same was never reduced to writing, much less registered with the
Registry of Deeds. In fact, even the lease contract by which respondents
Issue 3: Whether or not the Court of Appeals erred in ordering the derive their right to possess the property involved was an oral one.
rescission of the Deed of Absolute Sale dated September 4, 1990
between Rosencor and Eufrocina de Leon. The evidence on record fails to show that petitioners acted in bad faith in
entering into the deed of sale over the disputed property with the heirs
Ruling 3: Yes, The Court of Appeals committed an error. of the spouses Tiangco. Respondents failed to present any evidence that
prior to the sale of the property on September 4, 1990, petitioners were
The prevailing doctrine, in a long list of Supreme Court cases, is that a aware or had notice of the oral right of first refusal.
contract of sale entered into in violation of a right of first refusal of
another person, while valid, is rescissible. Respondents point to the letter where Atty. Aguila demanded that
respondent Irene Guillermo vacate the structure they were occupying to
There is, however, a circumstance which prevents the application of this make way for its demolition. No mention is made of the right of first
doctrine in the case at bench. In the prevailing cases, the Court ordered refusal granted to respondents. The name of petitioner Rosencor or any
the rescission of sales made in violation of a right of first refusal precisely of it officers did not appear on the letter and the letter did not state that
because the vendees therein could not have acted in good faith as they Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila stated
were aware or should have been aware of the right of first refusal during trial that she wrote the letter in behalf of the heirs of the spouses
granted to another person by the vendors therein. The rationale for this Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing
is found in the provisions of the New Civil Code on rescissible contracts. in behalf of petitioner Rosencor, there is no showing that Rosencor was
Under Article 1381 of the New Civil Code, paragraph 3, a contract validly aware at that time that such a right of first refusal existed.
agreed upon may be rescinded if it is "undertaken in fraud of creditors
when the latter cannot in any manner collect the claim due them." Neither was there any showing that after receipt of this June 1, 1990
Moreover, under Article 1385, rescission shall not take place "when the letter, respondents notified Rosencor or Atty. Aguila of their right of first
things which are the object of the contract are legally in the possession refusal over the property. Respondents did not try to communicate with
of third persons who did not act in bad faith." Atty. Aguila and inform her about their preferential right over the
disputed property. There is even no showing that they contacted the
heirs of the spouses Tiangco after they received this letter to remind
them of their right over the property.

Respondents likewise point to the letter dated October 9, 1990 of

Eufrocina de Leon, where she recognized the right of first refusal of
respondents, as indicative of the bad faith of petitioners. We do not
agree. Eufrocina de Leon wrote the letter on her own behalf and not on
behalf of petitioners and, as such, it only shows that Eufrocina de Leon
was aware of the existence of the oral right of first refusal. It does not
show that petitioners were likewise aware of the existence of the said
right. Moreover, the letter was made a month after the execution of the
Deed of Absolute Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is no showing that
prior to the date of the execution of the said Deed, petitioners were put
on notice of the existence of the right of first refusal.

Clearly, if there was any indication of bad faith based on respondents’

evidence, it would only be on the part of Eufrocina de Leon as she was
aware of the right of first refusal of respondents yet she still sold the
disputed property to Rosencor. However, bad faith on the part of
Eufrocina de Leon does not mean that petitioner Rosencor likewise acted
in bad faith. There is no showing that prior to the execution of the Deed
of Absolute Sale, petitioners were made aware or put on notice of the
existence of the oral right of first refusal. Thus, absent clear and
convincing evidence to the contrary, petitioner Rosencor will be
presumed to have acted in good faith in entering into the Deed of
Absolute Sale over the disputed property.

This does not mean however that respondents are left without any
remedy for the unjustified violation of their right of first refusal. Their
remedy however is not an action for the rescission of the Deed of
Absolute Sale but an action for damages against the heirs of the spouses
Tiangco for the unjustified disregard of their right of first refusal.