Uraca v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioners were lessees of a commercial building owned by the Velezes. On July 8, 1985, the Velezes offered to sell the property for P1,050,000.00. Petitioners, through a letter dated July 10, 1985, accepted the offer. On July 11, 1985, Emilia Uraca met with Carmen Velez Ting, who stated the price was P1,400,000.00. Uraca agreed to the higher price but counter-proposed an installment payment plan, which was not accepted by Carmen Velez Ting. No payment was made by petitioners on July 12 or 13, 1985. On July 13, 1985, the Velezes sold the property to private respondent Avenue Merchandising, Inc. (Avenue Group) for P1,050,000.00. At the time of sale, the certificate of title was clean. On July 31, 1985, petitioners filed a complaint against the Velezes. On August 1, 1985, petitioners registered a notice of lis pendens. Subsequently, the Avenue Group filed an ejectment case against petitioners, and petitioners amended their complaint to implead the Avenue Group. Procedural History: The Regional Trial Court (RTC) declared the deeds of sale to the Avenue Group void, ordered the Velezes to execute a deed of sale in favor of petitioners for P1,400,000.00, ordered reimbursement to the Avenue Group, ordered delivery of the property to petitioners, and awarded attorney's fees. The Court of Appeals (CA) reversed the RTC decision, finding that while there was a perfected contract of sale for P1,050,000.00, it was novated by the subsequent negotiation for a P1,400,000.00 price, which failed due to lack of agreement, thus rendering the original contract extinguished and the second contract unenforceable under the Statute of Frauds. The CA concluded no contract of sale was perfected. The Petition: Petitioners seek to set aside the CA decision, arguing that the original contract remained valid and enforceable, and that they had better rights due to their prior registration of lis pendens.
Issue(s)
Whether the perfected contract of sale between the Velezes and petitioners for P1,050,000.00 was extinguished by novation. Whether petitioners have a better right to the property over the Avenue Group, considering the double sale and the registration of the lis pendens.
Ruling
The petition is granted. The assailed Decision of the Court of Appeals is set aside, and the dispositive portion of the trial court's decision is revived with the modification that the consideration to be paid is P1,050,000.00.
Ratio Decidendi
On Issue 1: The Court ruled that there was no extinctive novation of the perfected contract of sale. A perfected contract of sale existed between the Velezes and petitioners for P1,050,000.00, based on the unqualified acceptance of the offer within the stipulated period, fulfilling the elements of consent, object, and cause. The subsequent negotiation for a higher price of P1,400,000.00 did not constitute novation because no new contract was perfected; the petitioners' proposal for installment payments was a counter-offer, which the Velezes did not accept. Therefore, the original contract of sale remained valid and subsisting, as novation requires the extinguishment of the old obligation by a new, valid one, which was absent in this case. The Court emphasized that novation is never presumed and must be proven, and the failure to agree on the new terms meant the Velezes were not free to sell the property to another party. On Issue 2: The Court held that the Avenue Group's purchase and registration of the property were tainted with bad faith. Article 1544 of the Civil Code requires registration to be in good faith for the second buyer to acquire priority. The evidence showed that the Avenue Group had actual knowledge of the prior sale to petitioners, as indicated by admissions of Felix and Manuel Ting regarding their prior dealings and knowledge of petitioners' occupancy and interest in the property. This knowledge negated their good faith from the time of acquisition until registration. Consequently, their registration did not afford them protection under the second paragraph of Article 1544. The Court applied the third paragraph, which prioritizes the person with the oldest title in the absence of inscription or possession, but more importantly, it affirmed that petitioners, as the first buyers with knowledge of the second sale's bad faith, had superior rights. The trial court's factual finding of bad faith, though not explicitly affirmed by the CA, was not controverted and was binding on the Supreme Court.
Main Doctrine
Novation is never presumed and requires a clear showing that a new contract has extinguished an old one. In cases of double sale of immovable property, the second buyer's registration of title must be in good faith to acquire priority over the first buyer; knowledge of the first sale negates good faith.