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RICARDO CHENG v. RAMON B. GENATO

FACTS:

The case involves a petition seeking to annul and set aside the decision of the Court of Appeals (CA) which reversed the ruling of the Regional Trial Court. The respondent, Ramon Genato, is the owner of two parcels of land in Bulacan. On September 6, 1989, Genato entered into an agreement with the intervenor spouses, Ernesto and Socorro Da Jose, for the sale of the land. The agreement culminated in the execution of a contract to sell, duly annotated at the back of the two certificates of title. On October 4, 1989, the Da Jose spouses requested an extension to verify the titles, which Genato granted. However, during the extension period, Genato executed an Affidavit to Annul the Contract to Sell without notifying the Da Jose spouses. Meanwhile, Ricardo Cheng expressed interest in buying the properties and issued a check for Php 50,000 to Genato, who assured Cheng that the previous contract with the Da Jose spouses would be annulled. Genato then deposited Cheng's check.

Ramon Genato received a check from Ricardo Cheng as a partial payment for the purchase of properties. Genato deposited the check and registered an Affidavit to Annul the Contract to Sell in the Registry of Deeds. The Da Jose spouses, who also had a contract with Genato, discovered about the affidavit and protested its rescission. Genato decided to continue his contract with the Da Jose spouses and returned Cheng's check. However, Cheng demanded compliance with their agreement and executed an affidavit of adverse claim on the subject titles. The Da Jose spouses paid Genato the complete down payment and gave postdated checks for the balance. Cheng filed a complaint for specific performance, while the Da Jose spouses intervened and claimed their superior right as first buyers. The lower court ruled in favor of Cheng, stating that the receipt issued by Genato indicated a sale and that the contract with Cheng was validly rescinded. The court also preferred Cheng over the Da Jose spouses.

The case involves a dispute over a property between the petitioner Ricardo Cheng and the respondents Ramon Genato and Da Jose spouses. The Da Jose spouses entered into a contract to sell with the petitioner, but the petitioner later entered into another contract with Genato. The trial court ruled in favor of the petitioner and ordered Genato to return postdated checks to the intervenors, execute a deed of conveyance and sale to the petitioner, and pay damages and attorney's fees. However, the court of appeals reversed the decision and held that the contract with the Da Jose spouses was not validly rescinded, rendering the contract with Genato ineffective. The petitioner filed a petition for review to the Supreme Court, arguing that the contract with the Da Jose spouses was rescinded and that his contract with Genato was a conditional contract of sale giving him better rights. The Supreme Court denied the petition, finding no reversible error in the ruling of the court of appeals.

ISSUES:

  1. Whether the Da Jose spouses' Contract to Sell was validly rescinded.

  2. Whether Ricardo Cheng's contract with Genato was a conditional contract of sale that gave him better rights and precluded the application of the rule on double sales under Article 1544 of the Civil Code.

  3. Whether Cheng should be held liable for damages.

  4. Whether the Contract to Sell between Genato and the Da Jose spouses was rescinded or resolved due to Genato's unilateral rescission.

  5. Whether the agreement between Cheng and Genato was a Contract to Sell or a Conditional Contract of Sale.

  6. Whether the governing principle of Article 1544, Civil Code, should apply in this situation.

  7. Whether the knowledge gained by the first buyer of the second transaction defeats their rights as first buyers.

  8. Whether registration alone is sufficient for the prior right to be enforceable.

  9. Whether petitioner acted in bad faith when he filed the suit for specific performance.

  10. Whether petitioner wrongfully interfered with the contractual relations between Genato and the Da Jose spouses.

RULING:

  1. The Court of Appeals' ruling that there was no valid and effective rescission of the Da Jose spouses' Contract to Sell is affirmed. The Court held that the non-fulfillment of the suspensive condition, which is the payment of the purchase price, prevented the obligation of the vendor to convey title from acquiring an obligatory force. Therefore, there was no contract to speak of and no rescission of an obligation that is still non-existent.

  2. The Court affirmed that the contract between Genato and Cheng was not a conditional contract of sale but a mere contract to sell. Therefore, the rule on double sales under Article 1544 of the Civil Code applies. Cheng cannot claim better rights as the subsequent buyer because the Da Jose spouses' Contract to Sell was not validly rescinded.

  3. Cheng's liability for damages was sustained by the Court. Bad faith was found on his part, and he should be held liable for damages.

  4. The Contract to Sell between Genato and the Da Jose spouses was not rescinded or resolved due to Genato's unilateral rescission.

  5. The agreement between Cheng and Genato is a Contract to Sell.

  6. Yes, the governing principle of Article 1544, Civil Code, should apply in this situation.

  7. No, the knowledge gained by the first buyer of the second transaction does not defeat their rights as first buyers, except when the second buyer registers or annotates his transaction ahead of the first buyer.

  8. No, registration alone is not sufficient. Good faith must concur with registration for the prior right to be enforceable.

  9. The appellate court found that petitioner acted in bad faith when he filed the suit for specific performance, knowing that his agreement with Genato did not push through. Based on the overwhelming evidence of bad faith, the award of damages made by the appellate court is deemed appropriate.

  10. Petitioner was found to have wrongfully interfered with the contractual relations between Genato and the Da Jose spouses, which resulted in a prolonged and economically unhealthy gridlock on both the land itself and the respondents' rights. This wrongful interference further supports the award of damages.

PRINCIPLES:

  • The fulfillment of the suspensive condition in a contract to sell is necessary for the contract to become binding. Failure to fulfill the suspensive condition prevents the obligation of the vendor to convey title from acquiring force and renders the contract non-existent.

  • The rule on double sales under Article 1544 of the Civil Code applies when both contracts involved are contracts to sell. The subsequent buyer in bad faith cannot claim better rights and cannot defeat the prior buyer's rights even if the prior buyer's contract was not validly rescinded.

  • While a stipulation for automatic rescission in a contract to sell for a violation of its terms and conditions may be valid, at least a written notice must be sent to the defaulter informing them of the same. The act of treating a contract as cancelled should be made known to the other party, and it is subject to scrutiny and review by the courts in case the alleged defaulter brings the matter to court.

  • The injured party in a breach of contract is required to exercise due diligence to minimize its own damages.

  • Ambivalent characterizations of a contract by a party may weaken their claim.

  • An issue that was not raised during the trial in the court below cannot be raised for the first time on appeal.

  • A contract to sell lacks the requisites of a valid contract of sale.

  • The rule on ownership transfer under Article 1544 of the Civil Code applies to valid sales transactions, not to contracts to sell.

  • A contract to be binding upon the obligee or vendor depends on the fulfillment or non-fulfillment of an event.

  • The governing principle of Article 1544 is "primus tempore, portior jure" (first in time, stronger in right).

  • To displace the first buyer, the second buyer must show good faith from the time of acquisition until title is transferred to him by registration or delivery of possession.

  • The knowledge gained by the first buyer of the second transaction does not defeat their rights, except when the second buyer registers or annotates his transaction ahead of the first buyer.

  • Registration alone is not sufficient for the prior right to be enforceable. Good faith must concur with registration.

  • Bad faith on the part of a party in filing a suit for specific performance may warrant an award of damages.

  • Wrongful interference with contractual relations can also be a basis for the award of damages.