G.R. No. 126437 March 6, 2002
JOSUE ARLEGUI, petitioner, vs. HON. COURT OF APPEALS and SPOUSES GIL AND BEATRIZ GENGUYON, respondents.

FACTS

The subject of the controversy is a residential apartment unit (No. 15) in Mandaluyong City, formerly owned by Serafia Real Estate, Inc. (owned by the Barretto siblings) and leased for over twenty years to spouses Gil and Beatriz Genguyon. The tenants, including the Genguyons, formed the Barretto Apartment Tenants Association to negotiate the purchase of their units, electing Josue Arlegui as vice-president and Mateo Tan Lu as auditor. The Genguyons later discovered that their unit had been sold to Mateo Tan Lu on January 23, 1987, and subsequently sold by Tan Lu to Josue Arlegui on July 7, 1988. Arlegui then demanded that the Genguyons vacate and filed an ejectment case against them. The Genguyons filed a case for annulment of sale, specific performance, redemption, and damages against the Barrettos, Mateo Tan Lu, and Josue Arlegui, claiming they were denied their right of first preference to purchase the unit. The Regional Trial Court (RTC) dismissed the Genguyons’ complaint. The Court of Appeals reversed the RTC, annulling the sale between Tan Lu and Arlegui, ordering Arlegui to execute a deed of conveyance in favor of the Genguyons upon payment of P55,000, awarding damages, and enjoining the ejectment case. Josue Arlegui filed this petition for review.

ISSUE

The primary issues involve: (1) whether the Genguyons are entitled to a right of first preference under P.D. No. 1517 (Urban Land Reform Law); (2) whether a constructive trust existed between the Genguyons and Mateo Tan Lu; (3) whether Josue Arlegui is insulated from the effects of such trust; (4) entitlement to damages; (5) propriety of enjoining the ejectment case; and (6) whether the issues became moot due to the Genguyons allegedly vacating the unit.

RULING

The Supreme Court DENIED the petition and AFFIRMED with MODIFICATION the Decision of the Court of Appeals. The Court held:
1. The Genguyons’ claim of a right of first refusal was based on P.D. No. 1517. However, this right applies only to tenants who have resided for ten years or more on the land and built their homes thereon. Since the Genguyons were leasing an apartment unit (a building) and not the land itself, P.D. No. 1517 did not apply.
2. A constructive trust existed. Mateo Tan Lu, as an officer (auditor) of the tenants’ association, occupied a fiduciary relationship with the Genguyons. By purchasing the unit leased to the Genguyons, he violated this trust. The Court cited the principle that a trustee cannot acquire by purchase property entrusted to him for sale to a beneficiary.
3. Josue Arlegui was not an innocent purchaser for value. As vice-president of the same association, he was aware of the Genguyons’ interest and the ongoing negotiations. He purchased the property with knowledge of the Genguyons’ situation and the constructive trust, thus he was not insulated from its effects.
4. The award of damages by the Court of Appeals was modified. The amount of P35,000 was deemed nominal damages inclusive of attorney’s fees, awarded for the breach of trust.
5. The order enjoining the ejectment case was deleted, as the ejectment case had already been decided by the Metropolitan Trial Court and affirmed by the RTC during the pendency of the appeal. The Court noted that the issue of possession had been settled in the ejectment proceedings.
6. The issues were not moot. The Genguyons’ alleged vacation of the unit did not render the case academic, as the core issue was the validity of the sale and the enforcement of the constructive trust.
The dispositive portion was modified to substitute the heirs of the Genguyons (as the original respondents had died) and to delete the injunction order against the ejectment case.