VALDEZ, ELMIN FRANCHEZKO F.

Property Case Digest

2nd Year - Wesleyan Law School

Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.

G.R. No. 136221, May 12, 2000, 370 SCRA 56
FACTS:
Carmelo and Bauermann, Inc. use to own a parcel of land, together with two 2-storey
buildings constructed thereon. Carmelo entered into a Contract of Lease with Mayfair
Theater Inc. for a period of 20 years. The lease covered a portion of the second floor
and mezzanine of a 2-storey building which respondent used as a movie house known
as Maxim Theater. Two years later, Mayfair entered into a second Contract of Lease
with Carmelo for the lease of another portion of the latters property namely, part of
the second floor of the 2-storey building and two store spaces on the ground floor and
the mezzanine, on which Mayfair put up another movie house known as Miramar
Theater. The contract was likewise for a period of 20 years. Both leases contained a
provision granting Mayfair a right of first refusal to purchase the subject properties.
However, the subject properties were sold by Carmelo to Equatorial Realty
Development, Inc. without offering it first to Mayfair. Mayfair filed a Complaint before the
RTC of Manila for the annulment of the Deed of Absolute Sale between Carmelo and
Equatorial. The RTC rendered its decision in favor of Carmelo and Equatorial. The
Court of Appeals completely reversed and set aside the judgment of the lower court.
The Supreme Court denied the petition for review and rescinded the contract of sale
between Carmelo and Equatorial and ordered Carmelo to allow Mayfair to buy the lots.
However, Carmelo could no longer be located. Thus, following the order of execution of
the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo.
The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of
Sale in favor of Mayfair. Later, Equatorial filed with the trial court an action for the
collection of the sum of money against Mayfair, claiming payment of rentals or
reasonable compensation for the defendants use of subject premises after its lease
contract had expired.
ISSUE:
Whether or not Equatorial should be entitled to back rentals.
HELD:
No. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest. It is clear the Equatorial
never took actual control and possession of the property sold, in view of Mayfairs timely
objection to the sale and continued actual possession of the property. Furthermore, the
fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted
to mean actual delivery or ispo facto recognition of Equatorials title. They were made
merely to avoid imminent eviction and should not be construed as recognition of
Equatorial as new owner.
ANALYSIS:
The law prohibits the sale of property which is the subject to another contract, in the
case at bar, the subsequent sale of property by the lessor to third party without taking

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VALDEZ, ELMIN FRANCHEZKO F.

Property Case Digest
2nd Year - Wesleyan Law School

into consideration the agreement between the lessor and the lessee. The Court decided
in favor of the lessee, and doesnt recognize the ownership of the third party.
CONCLUSION:
The Court doesnt recognize the ownership of the third party buyer over the disputed
property despite the rental payment of the lessee to the third party buyer.

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