Cruz v. Reyes
REITERATIONFacts
The Antecedents: The defendant, a surveyor, owed a debt to the plaintiff. He represented that he would obtain Torrens title to a twenty-hectare portion of a larger parcel and agreed to transfer that portion to the plaintiff to pay the indebtedness. A deed was executed on December 26, 1929, for P10,000. Investigations revealed an "informacion posesoria" title in a prior name and a previously disapproved plan by the Director of Lands. Subsequent attempts by the plaintiff to survey and take possession in May and June 1930 were met with the presence and resistance of homesteaders occupying parts of the parcel. The plaintiff's attorneys notified the defendant by letter on June 30, 1930, that if no response was received by July 5, 1930, they would assume the defendant had no title and would take court action. Procedural History: The trial court found for rescission and awarded recovery but reduced the sum claimed to P4,000. Both the plaintiff and the defendant appealed to the Supreme Court. The Appeal: On review, the Supreme Court found the transfer to have been a sale (not a donation), established the defendant's bad faith and failure to comply with his obligations, and ordered that the plaintiff recover P10,000 with legal interest from the date of the complaint, with costs against the defendant.
Issue(s)
Whether the contract between the parties was a valid sale or a simulated donation. Whether the defendant's failure to deliver possession and his concealment of the title's defects justified the rescission of the contract and the full return of the P10,000 purchase price.
Ruling
The Court held that the instrument was a contract of sale and not a donation, that the defendant acted in bad faith by failing to secure title and deliver possession despite having received the purchase price, and that the plaintiff is entitled to rescission and recovery of the full P10,000 with legal interest from the date of the complaint. Costs were imposed against the defendant. The appealed judgment is affirmed as modified to award P10,000 with legal interest.
Ratio Decidendi
On Issue 1: The Court held that the transaction was a contract of sale as evidenced by the notarized deed and the testimony of the notary public. It rejected the defendant's claim that the transaction was a donation, noting that his testimony was self-contradictory—initially claiming the sale was simulated to boost land value and later claiming he did not understand the document. As an intelligent surveyor, the defendant's plea of ignorance regarding a document he signed for P10,000 was deemed incredible. The testimony of the plaintiff's wife and the notary, who witnessed the counting of P6,000 in cash, sufficiently corroborated the payment of the balance. Thus, the written deed of sale, being a public instrument, prevailed over the defendant's uncorroborated assertions. On Issue 2: The Court ruled that rescission was fully justified under Articles 1124 and 1504 of the Civil Code because the defendant failed to 'comply with that which is incumbent upon him' by failing to deliver possession of the land. The defendant's bad faith was conclusively established by the fact that he sold the land despite knowing his survey plan had been disapproved by the Bureau of Lands and that the property was occupied by homesteaders with superior rights. His evasive behavior, specifically his disappearance on the day of the scheduled survey and his failure to respond to the plaintiff's formal demand, further evidenced his breach of contract. Consequently, the plaintiff is entitled to be restored to his original position through the return of the full purchase price, which includes both the cash payment and the liquidated debt.
Main Doctrine
A seller who, with knowledge of defects in his title and in bad faith, fails to deliver possession or secure the promised title is liable to rescission and must return the full purchase price with legal interest.