Cheng v. Genato
REITERATIONFacts
The Antecedents: Ramon B. Genato (Genato) owned two parcels of land. On September 6, 1989, he entered into a Contract to Sell with spouses Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) for P80.00 per square meter. A down payment of P50,000.00 was made, with the balance of P950,000.00 due within 30 days, subject to the vendees' verification of titles. The Da Jose spouses requested and were granted a 30-day extension for verification. Procedural History: On October 13, 1989, Genato executed an Affidavit to Annul the Contract to Sell, alleging breach by the Da Jose spouses for non-payment. On October 24, 1989, Ricardo Cheng (Cheng) expressed interest and was shown the titles and the unannotated affidavit. Genato issued a handwritten receipt for P50,000.00 from Cheng, stating it was partial payment for the properties at P70/m2 plus CGT. Cheng's check was deposited, and he urged Genato to register the annulment affidavit. On October 26, 1989, Genato registered the affidavit. On October 27, 1989, the Da Jose spouses discovered the annulment affidavit and protested. Genato agreed to continue the contract with them, formalized by a conforme letter. Genato advised Cheng of this decision and offered to return the P50,000.00. Cheng's lawyer sent a demand letter. Genato sent a cashier's check for P50,000.00, which Cheng returned, asserting their contract was perfected. On November 2, 1989, Cheng filed an affidavit of adverse claim. On the same day, the Da Jose spouses paid the full down payment of P950,000.00 and issued postdated checks for the balance. Cheng filed a complaint for specific performance, claiming his P50,000.00 was earnest money and their contract was perfected. Genato claimed it was an option deposit, conditional on cancelling the Da Jose contract. The Da Jose spouses asserted superior rights as first buyers. The RTC ruled in favor of Cheng, declaring the contract with Da Jose spouses resolved and rescinded, ordering Genato to return P1,000,000.00 to them, and to execute a deed of sale in favor of Cheng. The CA reversed the RTC, ruling that the Da Jose spouses' contract was not validly rescinded, Cheng's contract was without force due to the failure to rescind the prior contract, and Cheng was liable for damages. The Petition: Cheng filed a petition for review, assailing the CA Decision, arguing that the Da Jose spouses' contract was validly rescinded, his contract was a conditional contract of sale giving him better rights, and he should not be liable for damages.
Issue(s)
Whether the Contract to Sell between Genato and the Da Jose spouses was validly rescinded or resolved. Whether the agreement between Genato and Cheng constituted a perfected contract to sell or a conditional contract of sale. Whether Article 1544 of the Civil Code on double sales applies to the case. Whether Ricardo Cheng is liable for damages.
Ruling
The petition is denied, and the assailed decision of the Court of Appeals is affirmed en toto.
Ratio Decidendi
On the validity of the rescission of the Contract to Sell between Genato and the Da Jose spouses: The Court held that there was no valid and effective rescission. In a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure of this condition does not constitute a breach but prevents the vendor's obligation to convey title from acquiring obligatory force. The Court found that the Da Jose spouses were still within the extended period for verification when Genato executed the affidavit to annul the contract. Furthermore, even assuming default, Genato was still required to give notice to the Da Jose spouses of his decision to rescind, which he failed to do properly. The execution of the affidavit to annul the contract was not a proper mode of rescission in this context. On the nature of the agreement between Genato and Cheng: The Court affirmed the CA's finding that Cheng was inconsistent in characterizing his contract, initially alleging earnest money and later claiming a perfected contract to sell. The Court noted that both lower courts correctly held the receipt to be a contract to sell. Even if treated as a conditional contract of sale, it did not acquire obligatory force because it was subject to the suspensive condition that the prior contract with the Da Jose spouses be cancelled, which condition was never met. The Court found that the handwritten receipt lacked the requisites of a valid contract of sale. On the applicability of Article 1544 of the Civil Code: The Court reiterated that Article 1544, which governs double sales, requires valid sales transactions where ownership is transferred. This provision does not apply to a contract to sell, as neither a transfer of ownership nor a consummated sale has occurred. However, the Court invoked the principle of primus tempore, potior jure (first in time, stronger in right), noting that the Da Jose spouses' contract was first in time and registered. The Court emphasized that for Article 1544 to apply, the second buyer must act in good faith from acquisition until registration or possession. Cheng's knowledge of the prior annotated contract to sell tainted his subsequent agreement with bad faith, rendering his registration ineffective. On Ricardo Cheng's liability for damages: The Court affirmed the CA's award of damages based on its finding that Cheng acted in bad faith. Cheng was aware of the prior annotated contract to sell between Genato and the Da Jose spouses, yet he pursued his agreement with Genato. His filing of the suit for specific performance, despite knowing his agreement did not push through and his wrongful interference with the contractual relations between Genato and the Da Jose spouses, provided ample basis for the award of damages.
Main Doctrine
In a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure of this condition prevents the vendor's obligation to convey title from acquiring obligatory force. For a contract to be considered a sale, the essential requisites must be present, including the transfer of ownership. Article 1544 on double sales does not apply to a contract to sell.