ROSENCOR DEV’T CORPORATION, petitioners, -versus

PATERNO INQUING, ET AL., respondents

G.R. NO. 140479
March 8, 2001
GONZAGA-REYES, J

FACTS:

Paterno Inquing, Irene Guillermo, Frederico Bantugan, Fernando Magbanua, and Liza Tiangco,
referred to here as respondents, stated that they have been tenants since 1971 of a two-story
residential apartment located on Tomas Morato Ave., QC, owned by spouses Faustino and
Cresencia Tiangco. The lease agreement was not formalized by a contract, but the tenants were
assured by the Tiangco spouses that they had the right of first refusal if the property were to be
sold. After the original landlords passed away, their heir also assured the tenants of the same right
to purchase.

Subsequently, new landlords represented by Eufrocina de Leon demanded that the tenants vacate
the property, claiming that the building would be demolished. When the tenants declined, De
Leon sent them a letter offering to sell the property for 2 million pesos. The tenants countered
with an offer of 1 million pesos, but received no response from the landlords. Later, De Leon
informed the tenants that the property had been sold to Rosencor.

The tenants argued that they were misled because the property had already been sold to Rosencor
before being offered to them. They offered to reimburse the landlords but were refused, leading to
this petition.

ISSUE:
1. Whether or not the contract of sale is rescissible?

RULING:
1. No. The right of first refusal does not require a written contract to be valid; it can be
enforced with oral evidence. The lessees proved that the lessors acknowledged their right
of first refusal when the property was offered to them for 2 million pesos.

Typically, a sale contract that violates a right of first refusal can be canceled. However,
this does not apply here. According to Article 1381 of the Civil Code, a valid contract can
be canceled if it is used to defraud creditors who cannot collect what they are owed.
Additionally, under Article 1385, rescission is not allowed if the subject matter of the
contract is lawfully held by third parties who acted in good faith.

De Leon is clearly the only party acting in bad faith in this situation. Since there is no
evidence of bad faith on the part of the petitioners, the Court of Appeals made a mistake
in ordering the rescission of the Deed of Absolute Sale between Rosencor and De Leon.
Rosencor cannot be considered to have acted in bad faith because they were unaware of
the verbal right of first refusal. The respondents' remedy is not rescission but rather an
action for damages against De Leon and the heirs of the Spouses Tiangco for unjustly
ignoring their right of first refusal.