Isko Bayan died in his sleep. Manny, Isko’s computer whiz brother, was thereafter appointed by the probate court as the administrator of the estate left behind by his brother.
Without obtaining the prior approval of the probate court, Manny, leased a property to their high school heart throb, Dodo, for a period of one year.
Paragraph 20 of their lease contract provided that Dodo shall have the first priority to purchase the property should Manny decide to sell it, “all things and considerations being equal”.
Manny notified Dodo by registered mail that he was selling the leased premises for P600,000, to be fully paid in cash less only the mortgage lien of P100,000. Manny gave Dodo a period of 30 days from receipt of the letter within which to exercise his right of first priority.
In the said letter, Manny demanded that in the event that Dodo will not exercise the said right, he is expected to vacate the property.
Manny sent another letter to Dodo advising the latter that in view of his failure to exercise their right of first priority, he had already sold the property. Upon receipt of this letter, Dodo wrote Manny informing him that he did not receive the latter’s first letter.
Manny sold the leased premises to his kind-hearted neighbor, Raffy. In their contract of sale, the selling price offered to and accepted by Raffy was only P400,000 and only P137,500 was paid in cash while the balance of P272,500 was to be paid when the property was cleared of tenants or occupants.
Dodo filed an action for annulment of the sale between Manny and Raffy and sought the cancellation of the transfer certificate of title in the name of Raffy. Dodo asked that Manny be required to sell the property to him under the same terms and conditions agreed upon in the Contract of Sale that was executed in favor of Raffy.
Manny and Raffy countered that the subject lease agreement is void because Manny failed to obtain the prior approval of the probate court.
Q: Can Dodo still insist on his right of first priority?
A: Yes. Manny violated the provision of the Contract of Lease which specifically stated that Dodo could exercise the right of first priority, “all things and conditions being equal.”
Said provision means that there should be identity of the terms and conditions to be offered to Dodo and all other prospective buyers, with Dodo to enjoy the right of first priority.
It is only when Dodo fails to exercise his right of first priority could Manny lawfully sell the subject property to Raffy, and at that only under the same terms and conditions offered to Dodo.
Q: Was it necessary for the probate court to approve the contract of lease Manny executed in favor of Dodo?
A: No. It was not necessary to secure the approval by the probate court of the Contract of Lease because it did not involve an alienation of real property of the estate nor did the term of the lease exceed one year so as to make it fall under Article 1878(8) of the Civil Code.
It is only when Paragraph 20 of the Contract of Lease is activated and the said property was intended to be sold would it be required of the administrator to secure the approval of the probate court pursuant to the Rules of Court.
Q: Does Dodo have the right to seek the annulment of the deed of sale executed by Manny in favor of Raffy considering that he is not a party to the contract of sale?
A: Yes, Dodo has the personality to seek the annulment of the contract. 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 to Dodo for he had substantial interests that were prejudiced by the sale of the subject property to Raffy in violation of Dodo’s 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 causto 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. (Source: Guzman Bocaling & Co vs. Bonnevie, 206 SCRA 668)
Ma. Soledad Deriquito-Mawis is currently the Dean for the Lyceum of the Philippines University; president of the Philippines Association of Law Schools; and Senior Partner, Gatchalian Castro & Mawis Law Office