Reyes vs. Concepcion

A co-owner has no pre-emptive right to purchase the pro-indiviso shares of another co-owner before sale to a third party; the only right granted by law is legal redemption under Article 1620, which matures after alienation has occurred. Where co-owners agree that the thing is essentially indivisible and cannot agree that it be allotted to one of them who shall indemnify the others, the proper remedy is sale of the property and distribution of the proceeds under Article 498 of the Civil Code.

Petitioners Marina Z. Reyes, Augusto M. Zaballero, and Socorro Z. Francisco, together with private respondents Socorro Marquez Vda. de Zaballero, Eugenia Z. Luna, Leonardo M. Zaballero, and intervenor Elena Fronda Zaballero, were pro-indiviso co-owners of eight parcels of registered land in Cavite with an aggregate area of about 96 hectares (covered by TCT Nos. A-1316 to A-1322). A third party, Volcano Securities Traders and Agri-Business Corporation (later identified as Volcano Lakeview Resorts, Inc.), offered to purchase the shares of the private respondents at P12.50 per square meter, net, for a total area of 72 hectares, with a downpayment of 30% and the balance payable over three years. Private respondents notified petitioners of the offer and gave them the options to exercise a claimed pre-emptive right at those same terms, agree to physical partition, or join in selling their shares to the third party. Petitioners insisted on a right to purchase at a “reasonable price” lower than P12.50 and filed a complaint for injunction and damages to prevent the sale.

• Nature of the Action: Petitioners filed a complaint for injunction and damages to prevent private respondents from selling their pro-indiviso shares in eight parcels of Cavite land to a third party, asserting a preferential right to purchase under Article 1620 of the Civil Code.

• Co-ownership and the Third-Party Offer: The parties and intervenor were all pro-indiviso co-owners of approximately 96 hectares. Some portions of the lands were subject to expropriation by the National Housing Authority, where evidence placed the current valuation at P95,132.00 per hectare. Private respondents received an offer from Volcano Securities Traders and Agri-Business Corporation (later identified as Volcano Lakeview Resorts, Inc.) to buy their shares at P12.50 per square meter net, totaling P9,000,000 for 72 hectares, with 30% downpayment and the balance payable in three equal annual installments covered by a bank guarantee.

• Notice to Petitioners: By letters dated around April 16, 1980, private respondents informed petitioners of the third-party offer and requested that petitioners: (a) exercise a pre-emptive right to purchase respondents’ shares under the same terms; (b) agree to physical partition; or (c) sell their shares jointly to the third party. Petitioners rejected the P12.50 price as grossly excessive and insisted on a “reasonable price” of not more than P95,132.00 per hectare, leading to the injunction suit.

• Proceedings Before the Trial Court: At pre-trial, the parties stipulated the facts of co-ownership, the third-party offer, and the valuation evidence in the expropriation cases. Petitioners maintained the properties were incapable of physical partition, while private respondents initially claimed partition was feasible and furnished subdivision plans. Petitioners, however, refused to formally approve or disapprove the plans and continued to assert a pre-emptive right to purchase at a reasonable price, arguing that the reasonable value remained a litigable issue of fact.

• Shift to Article 498: After petitioners’ persistent refusal to engage with the subdivision plans, private respondents adopted petitioners’ position that physical partition was not economically feasible and invoked Article 498 of the Civil Code, praying that the properties be sold and the proceeds distributed. The trial judge then issued the February 4, 1981 order requiring the parties to indicate whether they agreed to allot the properties to one co-owner at P12.50 per square meter or knew of a third party offering better terms. Private respondents signified willingness to allot the properties to Socorro Marquez Vda. de Zaballero at that price; petitioners declined to answer the queries and instead sought clarification on the third party’s identity and further hearings on reasonable value.

• The Assailed Order: On March 16, 1981, the trial judge denied the existence of a pre-emptive right, found the properties essentially indivisible, and ordered a public sale under Article 498 with an opening bid of P12.50 per square meter.

• Pre-emptive Right under Article 1620: Petitioners maintained that as co-owners they possessed a preferential right to purchase private respondents’ pro-indiviso shares at a reasonable price, invoking Article 1620 of the Civil Code even before any sale to a third party had been consummated.

• Acknowledgment of the Right: Petitioners argued that private respondents had acknowledged their pre-emptive right by offering the shares to them, and that the only disagreement concerned the reasonableness of the P12.50 price.

• Grave Abuse of Discretion: Petitioners contended that the trial judge acted without jurisdiction or with grave abuse of discretion by peremptorily denying their claimed pre-emptive right and ordering a public sale without conducting a full trial to determine the reasonable value of the shares.

• Need for Further Proceedings: Petitioners insisted that factual issues—specifically the reasonable market value of the properties and the identity and bona fides of the third-party buyer—remained unresolved and could only be settled after a trial on the merits.

• Lapse of Pre-emptive Right: Private respondents countered that any right of legal pre-emption under Article 1623 had lapsed upon petitioners’ failure to exercise it within the statutory period.

• Reasonableness of Price: Private respondents maintained that the selling price of P12.50 per square meter was reasonable and that the third party was ready, willing, and able to purchase not only respondents’ shares but also petitioners’ shares on those terms.

• Availability of Partition: Private respondents initially argued that the properties could be physically partitioned, as shown by subdivision plans furnished to petitioners.

• Invocation of Article 498: After petitioners insisted the properties were indivisible, private respondents adopted that stance and moved for a public sale under Article 498, contending that the co-ownership could be terminated by sale since the co-owners could not agree on an allottee.

• Pre-emptive Right: Whether a co-owner has a pre-emptive right under Article 1620 of the Civil Code to purchase the pro-indiviso shares of another co-owner before those shares are sold to a third party.

• Grave Abuse of Discretion in Ordering Public Sale: Whether the trial judge committed grave abuse of discretion in ordering a public sale of the commonly owned properties under Article 498 without conducting further hearings on the reasonable purchase price.

• Pre-emptive Right: Article 1620 of the Civil Code grants only a right of legal redemption, which arises after a co-owner’s shares are sold to a third person. The provision contemplates a situation where alienation to a stranger has already occurred; it does not confer a right of first refusal or a pre-emptive right to purchase before sale. In this case, no sale to a third party had been consummated when petitioners filed their complaint; therefore, Article 1620 was inapplicable. Private respondents’ offer to sell to petitioners at P12.50 per square meter was a qualified offer at a fixed price, not an unqualified acknowledgment of a pre-emptive right at a “reasonable price” to be determined later.

• Grave Abuse of Discretion in Ordering Public Sale: The trial judge’s resort to Article 498 was proper and not tainted with grave abuse of discretion. Article 494 declares that no co-owner is obliged to remain in the co-ownership and that any co-owner may demand partition. Private respondents’ counterclaim for partition was entirely proper. However, because petitioners themselves maintained that physical partition was not feasible, and the parties could not agree on who among them would be allotted the entire property upon reimbursement of the others’ shares, the two requisites of Article 498 were satisfied: (1) the thing was essentially indivisible, and (2) the co-owners could not agree that it be allotted to one of them. No further evidentiary hearings were necessary because the pleadings and admissions at pre-trial sufficiently established these conditions.

• Right of Legal Redemption under Article 1620 — A co-owner’s right to redeem the shares of another co-owner is purely a right of legal redemption that can be exercised only after the shares have been sold to a third person or stranger to the co-ownership. The law does not grant a co-owner a pre-emptive right or right of first refusal to purchase the pro-indiviso shares of another co-owner prior to such sale.

• Co-owner’s Power of Disposition under Article 493 — Each co-owner has full ownership of his ideal share and may alienate, assign, or mortgage it, subject only to the limitation that the effect of the alienation or mortgage is confined to the portion that may be allotted to him upon partition. The remaining co-owners’ sole protection is the right of legal redemption after the share is sold to a stranger.

• Right to Demand Partition under Article 494 — No co-owner shall be obliged to remain in the co-ownership; each co-owner may demand partition at any time. Where physical partition is not feasible or would prejudice the interests of the co-owners, and the co-owners cannot agree to allot the entire property to one of them who shall indemnify the others, the property shall be sold and its proceeds distributed, pursuant to Article 498 in relation to Section 5, Rule 69 of the Revised Rules of Court. The two requisites for applying Article 498 are: (1) the thing is essentially indivisible or its subdivision would impair its value or the interests of the co-owners; and (2) the co-owners cannot agree that the property be allotted to one of them.

• “Article 1620 contemplates of a situation where a co-owner has alienated his pro-indiviso shares to a stranger. By the very nature of the right of ‘legal redemption’, a co-owner’s right to redeem is invoked only after the shares of the other co-owners are sold to a third party or stranger to the co-ownership.” — This passage defines the temporal limitation of the right of legal redemption and distinguishes it from a pre-emptive right.

• “The law does not prohibit a co-owner from selling, alienating or mortgaging his ideal share in the property held in common. The law merely provides that the alienation or mortgage shall be limited only to the portion of the property which may be allotted to him upon termination of the co-ownership … and … that the remaining co-owners have the right to redeem, within a specified period, the shares which may have been sold to the third party.” — This frames the co-owner’s liberty to dispose and the corresponding protection afforded to other co-owners.

• “Inasmuch as the parties were in agreement as regards the fact that the subject properties should not be partitioned, and private respondents continued to manifest their desire to terminate the co-ownership … respondent trial judge acted within his jurisdiction when he issued his order … for the purpose of determining whether or not the legal conditions for the applicability of Article 498 … were present.” — This explains why the trial judge’s procedural steps were within the proper bounds of judicial discretion.

• Estrada v. Reyes, 33 Phil. 31 (1915) — Invoked as controlling authority for the proposition that a co-owner’s right of legal redemption arises only after the shares of the other co-owners are sold to a stranger.

• Mercado v. Liwanag, G.R. No. L-14429, June 30, 1962, 5 SCRA 472; PNB v. Court of Appeals, G.R. No. L-34404, June 25, 1980, 98 SCRA 207; Go Ong v. Court of Appeals, G.R. No. 75884, September 24, 1987, 154 SCRA 270 — Cited to affirm the principle under Article 493 that a co-owner may alienate his ideal share, with the alienation’s effect limited to the portion allotted upon partition.

• Article 1620, Civil Code — Applied to clarify that it grants only a right of redemption after sale to a third party, not a pre-emptive right before sale.

• Article 1623, Civil Code — Referenced as governing the period for exercising the right of legal redemption.

• Article 493, Civil Code — Applied to establish that a co-owner may freely alienate his pro-indiviso share, subject to the rights of other co-owners upon partition.

• Article 494, Civil Code — Applied to confirm the right of any co-owner to demand partition at any time.

• Article 498, Civil Code — Applied as the operative provision justifying the trial court’s order of public sale where the property was essentially indivisible and the co-owners could not agree on an allottee.

• Section 5, Rule 69, Revised Rules of Court — Referred to in relation to the court’s authority to order sale instead of partition when partition would prejudice the interests of the co-owners.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Bidin, JJ., concurred.