Cheng v Genato

G.R. No. 129760. December 29, 1998 | Martinez, J. | Gr 2 Despite these, Cheng went ahead and issued a check
Topic: Double Sale – Requisites for P50,000.00 upon the assurance by Genato that the previous
contract with the Da Jose spouses will be annulled for which
Petitioner: Ricardo Cheng Genato issued a handwritten receipt.
Respondents: Ramon B. Genato, Ernesto R. Da Jose, Socorro
B. Da Jose October 25, 1989  Genato deposited Cheng’s check. On the
same day, Cheng called up Genato reminding him to register
Facts the affidavit to annul the contract to sell.
Ramon B. Genato is the owner of two parcels of land located at
Paradise Farms, San Jose Del Monte, Bulacan covered by TCT October 26, 1989  acting on Cheng’s request, Genato caused
No. T-76.196 (M) and TCT No. T-76.197 (M) with an aggregate the registration of the Affidavit to Annul the Contract to Sell in
area of 35,821 square meters, more or less. the Registry of Deeds, Meycauayan, Bulacan as primary entry
No. 262702.
Da Jose Spouses
September 6, 1989  Genato entered into an agreement with Conflict!
Da Jose spouses over the two parcels of land. October 27, 1989  While the Da Jose spouses were at the
 The agreement culminated in the execution of a Office of the Registry of Deeds of Meycauayan, Bulacan, they
contract to sell (P80.00 per square meter). met Genato by coincidence.
 The contract was in a public instrument and was duly  It was only then that the Da Jose spouses discovered
annotated at the back of the two certificates of title on about the affidavit to annul their contract. They were
the same day. Clauses 1 and 3 thereof provide: shocked at the disclosure and protested against the
rescission of their contract.
'1. That the purchase price shall be EIGHTY (P80.00) PESOS, Philippine
Currency per square meter, of which the amount of FIFTY THOUSAND
(P50,000.00) Pesos shall be paid by the VENDEE to the VENDOR as partial
Sps Da Jose reminded Genato that he had given them an
down payment at the time of execution of this Contract to Sell. additional 30-day period to finish their verification of titles, that
xxx xxx xxx the period as still in effect, and that they were willing and able to
'3. That the VENDEE, thirty (30) DAYS after the execution of this contract, and pay the balance of the agreed downpayment
only after having satisfactorily verified and confirmed the truth and authenticity of
documents, and that no restrictions, limitations, and developments imposed on  Later on in the day, Genato decided to continue the
and/or affecting the property subject of this contract shall be detrimental to his Contract he had with them.
interest, the VENDEE shall pay to the VENDOR, NINE HUNDRED FIFTY  The agreement to continue with their contract was
THOUSAND (P950,000.00) PESOS, Philippine Currency, representing the full
payment of the agreed Down Payment, after which complete possession of the formalized in a conforme letter dated October 27, 1989.
property shall be given to the VENDEE to enable him to prepare the premises
and any development therein. Genato advised Cheng of his decision to continue his contract
with the Da Jose spouses and the return of Cheng’s P50,000.00
October 4, 1989  the Da Jose spouses, not having finished check.
verifying the titles mentioned in clause 3, asked for and was  October 30, 1989  Cheng’s lawyer sent a letter to
granted by Genato an extension of another 30 days or until Genato demanding compliance with their agreement to
November 5, 1989. sell the property to him stating that the contract to sell
 According to Genato, the extension was granted on between him and Genato was already perfected and
condition that a new set of documents is made 7 days threatening legal action.
from Oct 4, 1989. This was denied by the Da Jose  November 2, 1989  Genato sent a letter to Cheng
spouses. enclosing a BPI Cashier’s Check for P50,000.00 and
 Pending the effectivity of the aforesaid extension expressed regret for his inability to consummate his
period, and without due notice to the Da Jose spouses, transaction with him.
Genato executed an Affidavit to Annul the Contract o After having received Genato’s letter on
to Sell, on October 13, 1989. November 4, 1989, Cheng returned the check
via RCPI telegram dated November 6, 1989,
No annotation of the said affidavit at the back of his titles was reiterating that our contract to sell your
made right away. The affidavit contained the ff: property had already been perfected.
That it was agreed between the parties that the agreed downpayment
of P950,000.00 shall be paid thirty (30) days after the execution of the Contract,
November 2, 1989  Cheng executed an affidavit of adverse
that is on or before October 6, 1989; claim and had it annotated on the subject TCTs.

The supposed VENDEES failed to pay the said full downpayment even up to this On the same day, the Da Jose spouses paid Genato the
writing, a breach of contract.
That this affidavit is being executed to Annul the aforesaid Contract to Sell for the complete down payment of P950,000.00 and delivered to him 3
vendee having committed a breach of contract for not having complied with the postdated checks (all dated May 6, 1990, the stipulated due
obligation as provided in the Contract to Sell; date) in the total amount of P1,865,680.00 to cover full payment
of the balance of the agreed purchase price.
Ricardo Cheng  However, due to the filing of the pendency of this case,
October 24, 1989  Ricardo Cheng went to Genato’s residence the postdated checks have not been encashed.
and expressed interest in buying the subject properties.
 Genato showed Cheng copies of his transfer December 8, 1989  Cheng instituted a complaint for specific
certificates of title and the annotations at the back performance to compel Genato to execute a deed of sale to him
thereof of his contract to sell with the Da Jose of the subject properties plus damages and prayer for
spouses. preliminary attachment.
 Genato also showed him the aforementioned Affidavit  Cheng averred that the P50,000.00 check he gave was
to Annul the Contract to Sell which has not been a partial payment to the total agreed purchase price of
annotated at the back of the titles. the subject properties and considered as an earnest
 money for which Genato acceded. Thus, their contract The Da Jose spouses’ contention that no further condition was
was already perfected. agreed when they were granted the 30-days extension period
(clause 3) should be upheld for the following reasons:
In Answer thereto, Genato alleged that the agreement was only  If this were not true, Genato could not have been
a simple receipt of an option-bid deposit, and never stated that persuaded to continue his contract with them and later
it was a partial payment, nor is it an earnest money and that it on agree to accept the full settlement of the purchase
was subject to the condition that the prior contract with the Da price knowing fully well that he himself imposed
Jose spouses be first cancelled. such sine qua non condition in order for the extension
to be valid;
The Da Jose spouses, in their Answer in Intervention, asserted  Genato could have immediately annotated his affidavit
that they have a superior right to the property as first to annul the contract to sell on his title when it was
buyers. They alleged that the unilateral cancellation of the executed on October 13, 1989 and not only on October
Contract to Sell was without effect and void. They also cited 26, 1989 after Cheng reminded him of the annotation;
Chengs bad faith as a buyer being duly informed by Genato of  Genato could have sent at least a notice of such fact,
the existing annotated Contract to Sell on the titles. there being no stipulation authorizing him for automatic
rescission, so as to finally clear the encumbrance of his
Lower Court: the receipt issued by Genato to Cheng unerringly titles and make it available to other would be buyers. It
meant a sale and not just a priority or an option to buy. likewise settles the holding of the trial court that Genato
 If the transaction was subject to some needed money urgently.
condition/reservation, like the priority in favor of the Da
Jose spouses as first buyer, the receipt would have Even assuming in gratia argumenti that the Da Jose spouses
provided such material condition or reservation, defaulted in their Contract to Sell, the execution by Genato of
especially as it was Genato himself who had made the the affidavit to annul the contract is not even called for. For with
receipt in his own hand. or without the aforesaid affidavit their non-payment to complete
 There was a valid rescission of the Contract to Sell by the full downpayment of the purchase price ipso facto avoids
virtue of the Affidavit to Annul the Contract to Sell. Time their contract to sell, it being subjected to a suspensive
was of the essence in the execution of the agreement condition.
between Genato and Cheng, under this circumstance
demand, extrajudicial or judicial, is not necessary. It Nevertheless, this being so Genato is not relieved from the
falls under the exception to the rule provided in Article giving of a notice, verbal or written, to the Da Jose spouses for
1169 of the Civil Code. decision to rescind their contract.
 The right of Genato to unilaterally rescind the contract  UP vs. De Los Angeles  “the party who deems the
is said to be under Article 1191 of the Civil Code. contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but
CA: reversed; the prior contract to sell in favor of the Da Jose it proceeds at its own risk. For it is only the final
spouses was not validly rescinded, that the subsequent contract judgment of the corresponding court that will
to sell between Genato and Cheng, embodied in the handwritten conclusively and finally settle whether the action taken
receipt, was without force and effect due to the failure to rescind was or was not correct in law.”
the prior contract; and that Cheng should pay damages to the o Thus, Ricardo Cheng’s contention that the
respondents herein being found to be in bad faith. Contract to Sell between Genato and the Da
Jose spouses was rescinded or resolved due
Hence, this petition. to Genato’s unilateral rescission finds no
support in this case.
Issue:
1. W/N the Da Jose spouses Contract to Sell has been Issue 2
validly rescinded or resolved NO The records of this case are replete with admissions that Cheng
2. W/N Cheng’s contract with Genato was not just a believed it to be one of a Contract to Sell and not one of
contract to sell but one of conditional contract of sale Conditional Contract of Sale.
which gave him better rights, thus precluding the  In his complaint, Cheng alleged that the P50,000.00
application of the rule on double sales under Article down payment was earnest money. And next, his
1544, Civil Code NO testimony was offered to prove that the transaction
3. W/N the CA erred in holding Cheng liable for damages between him and Genato on October 24, 1989 was
NO actually a perfected contract to sell.
 Settled is the rule that an issue which was not raised
Held during the trial in the court below cannot be raised for
Issue 1 the first time on appeal.
Contract to Sell  the payment of the purchase price is a  Both courts below correctly held that the receipt which
positive suspensive condition, the failure of which is not a was the result of their agreement, is a contract to sell.
breach, casual or serious, but a situation that prevents the This was, in fact Cheng’s contention in his pleadings
obligation of the vendor to convey title from acquiring an before said courts.
obligatory force.
 For its non-fulfillment there will be no contract to speak But even if we are to assume that the receipt is to be treated as
of, the obligor having failed to perform the suspensive a conditional contract of sale, it did not acquire any obligatory
condition which enforces a juridical relation. force since it was subject to suspensive condition that the earlier
 The breach contemplated in Art 1191 NCC is the contract to sell between Genato and the Da Jose spouses
obligor’s failure to comply with an obligation already should first be cancelled or rescinded.
extant, not a failure of a condition to render binding that  A condition never met, as Genato, to his credit, upon
obligation. realizing his error, redeemed himself by respecting and
 maintaining his earlier contract with the Da Jose  This principle only applies when the special rules
spouses. provided in the aforecited article of Civil Code do not
 A careful reading of the receipt alone would not even apply or fit the specific circumstances mandated under
show that a conditional contract of sale has been said law or by jurisprudence interpreting the article.
entered by Genato and Ceng. When the requisites of a
valid contract of sale are lacking in said receipt, The rule exacted by Article 1544 of the Civil Code for the
therefore the sale is neither valid or enforceable second buyer to be able to displace the first buyer are:

To support his now new theory that the transaction was a (1) that the second buyer must show that he acted in
conditional contract of sale, Cheng invokes the case of Coronel good faith (i.e. in ignorance of the first sale and of
vs. CA the first buyers rights) from the time of acquisition
 The factual milieu in Coronel is not on all fours with until title is transferred to him by registration or
those in the case at bar failing registration, by delivery of possession;
 In Coronel, petitioners clearly intended to transfer title (2) the second buyer must show continuing good
to the buyer which petitioner themselves admitted in faith and innocence or lack of knowledge of the
their pleading. The agreement of the parties therein first sale until his contract ripens into full
was definitively outlines in the Receipt of Down ownership through prior registration as provided
Payment both as to property, the purchase price, the by law.
delivery of the seller of the property and the manner of
the transfer of title subject to the specific condition that In the case at bar, the knowledge gained by the Da Jose
upon the transfer in their names of the subject property spouses, as first buyers, of the new agreement between Cheng
the Coronels will execute the deed of absolute sale. and Genato will not defeat their rights as first buyers except
 In the instant case, even by a careful perusal of the where Cheng, as second buyer, registers or annotates his
receipt alone such kind of circumstances cannot be transaction or agreement on the title of the subject properties in
ascertained without however resorting to the good faith ahead of the Da Jose spouses.
exceptions of the Rule on Parol Evidence.  Although the Da Jose spouses knew of the second
transaction it will not bar them from availing of their
TC & CA correctly held that the agreement between Genato and rights granted by law, among them, to register first their
Cheng is a contract to sell, which was, in fact, petitioner’s agreement as against the second buyer.
connection in his pleadings before the said
courts. Consequently, both to mind, which read: In contrast, knowledge gained by Cheng of the first transaction
between the Da Jose spouses and Genato defeats his rights
Article 1544. If the same thing should have been sold to different vendees, the even if he is first to register the second transaction, since such
ownership shall be transferred to the person who may have first taken possession knowledge taints his prior registration with bad faith.
thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person Registration  any entry made in the books of the registry,
acquiring it who in good faith first recorded it in the Registry of Property. including both registration in its ordinary and strict sense and
Should there be no inscription, the ownership shall pertain to the person who in
cancellation, annotation, and even marginal notes. (Soler
good faith was first in possession; and in the absence thereof, to the person who and Casillo)
presents the oldest title, provided there is good faith  When a Deed of Sale is inscribed in the registry of
property on the original document itself, what was done
A meticulous reading of the Art 1544 shows that said law is not with respect to said entries or annotations and marginal
apropos to the instant case. This provision connotes that the notes amounted to a registration of the sale.
following circumstances must concur:  In this light, we see no reason why we should not give
priority in right the annotation made by the Da Jose
(a) The two (or more) sales transactions in the issue spouses with respect to their Contract to Sell dated
must pertain to exactly the same subject matter, September 6, 1989.
and must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful Registration alone in such cases without good faith is not
ownership of the subject matter must each sufficient.
represent conflicting interests; and  The annotation made by the Da Jose spouses on the
(c) The two (or more) buyers at odds over the rightful titles of Genato of their Contract to Sell more than
ownership of the subject matter must each have satisfies this requirement.
bought from the very same seller.  In the case of Genato’s agreement with Cheng, such is
unavailing. For even before the receipt was issued to
These situations obviously are lacking in a contract to sell for Cheng information of such pre-existing agreement has
neither a transfer of ownership nor a sales transaction has been been brought to his knowledge which did not deter him
consummated. from pursuing his agreement with Genato.
Notwithstanding this contrary finding with the appellate court, we Leung Yee vs. F.L. Strong Machinery Co.  One who
are of the view that the governing principle of Article 1544, purchases real estate with knowledge of a defect x x x of title in
Civil Code, should apply in this situation. his vendor cannot claim that he has acquired title thereto in good
 Jurisprudence teaches us that the governing principle faith as against x x x x an interest therein; and the same rule
is PRIMUS TEMPORE, PORTIOR JURE (first in time, must be applied to one who has knowledge of facts which
stronger in right). For not only was the contract should have put him upon such inquiry and investigation as
between herein respondents first in time; it was also might be necessary to acquaint him with the defects in the title
registered long before petitioners intrusion as a second of his vendor. X x
buyer.
Issue 3
Damages were awarded by the appellate court on the basis of
its finding that petitioner was in bad faith when he filed the suit
for specific performance knowing fully well that his agreement
with Genato did not push through.

WHEREFORE, premises considered, the instant petition for