Cancellation of contract | The Manila Times


Dear PAO,

I rent a townhouse where I have maintained my residence for years. Last year, Juana, the owner, and I renewed our rental agreement for another five years. The contract contained a provision that in the event that Juana sold the property in question, I would have the preferential right/right of first refusal before it was offered to other potential buyers. Unfortunately the landlady violated this when she sold the rented property without offering it to me first. I intend to file a complaint to cancel the sale as I am interested in purchasing the unit. Can I maintain an action to set aside their contract of sale even if I am not a party to a contract of sale?|


Dear Ricky,

Article 1311 of the new civil code provides that “contracts only produce their effects between the parties, their assigns and their heirs, except in cases where the rights and obligations arising from the contract are not transferable by their nature, or by stipulation or provision of law”. .” Similarly, article 1397 of the said law lays down the rule that “the action for rescission of contracts can only be exercised by all those who are obliged to do so on a principal or subsidiary basis”.

This general rule is not without exception. In Earth Minerals Exploration, Inc. v. Macaraig, et al. (GR 78569, February 11, 1991), written by Associate Justice Edgardo Paras, the Supreme Court explained:

“As a contract can only be breached by the parties against each other, in an action on this contract, the true interested parties, either as plaintiff or as defendant, must be parties to the said contract. In this regard, Article 1397 of the Civil Code sets out the general rule that an action for the annulment of contracts can only be exercised by those who are bound either principally or subsidiary thereunder. The rule, however, admits of an exception. The Court in Teves v. People’s Homesite and Housing Corporation (23 SCRA 1141 [1968] held that a person who is not principally or subsidiary in a contract may bring an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the harm that could positively result for her from the contract in which he did not intervene.

Additionally, in Tanay Recreation Center and Development Corp. vs. Faust et al. (GR 140182, April 12, 2005), written by Associate Justice Alicia Austria-Martinez, the High Court held:

“When a lease contract includes a right of first refusal, the lessor is legally bound towards the lessee not to sell to anyone at any price until after he has made an offer to sell to the latter at a certain price and that the lessee has The lessee has the right that the lessor’s first offer be in his favor The plaintiff’s right of first refusal forms an integral and indivisible part of the lease contract and is inseparable from the whole of the contract. lease includes consideration for the right of first refusal and forms part of the reciprocal obligations of the parties.

Applying the above to your case, it is clear that where the landlord has sold the leased property to another buyer without giving you the first opportunity to acquire the same, your rights and interests in the property in question have been harmed – a circumstance that may justify your legal action for the protection of your rights even though you are not a party to the sales contract.

We hope we were able to answer your questions. This advice is based solely on the facts you have related and our assessment of them. Our opinion may change when other facts are changed or elaborated.


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