Facts:

The case involves Pilar T. Ocampo as the petitioner and the Court of Appeals and Magdalena S. Villaruz as respondents. The dispute centers around an 18,260-square meter lot located in the Poblacion of Tigbauan, Iloilo, which was originally owned by Severino Tolosa, who had registered the property under Original Certificate of Title No. 0-7743. On August 20, 1974, Tolosa mortgaged the property to the Philippine Veterans Bank, which was annotated on his title. On March 17, 1975, Tolosa entered into a contract with Ocampo, represented by Teresa T. Borres, to sell the property for P22,000, with an initial payment of P1,000. Subsequently, on April 21, 1975, they executed an Agreement to Sell Real Property for P25,000, with a down payment of P12,500 and the balance due within six months. Ocampo, however, only managed to pay a total of P16,700 before the deadline, but Tolosa accepted late payments totaling P3,900.

In the meantime, Ocampo learned of the mortgage lien and filed an ...

Facts:

Background of the Property

• The disputed property is an 18,260-square meter lot in Tigbauan, Iloilo, registered under Original Certificate of Title No. 0-7743 in the name of Severino Tolosa.
• On 20 August 1974, Tolosa mortgaged the land to the Philippine Veterans Bank, with the encumbrance annotated on his certificate of title.

First Transaction: Tolosa and Pilar Ocampo

• On 17 March 1975, Tolosa and Pilar T. Ocampo (represented by Teresa T. Borres) entered into a contract where Tolosa agreed to sell the land to Ocampo for P22,000.00, with P1,000.00 paid upon execution.
• On 21 April 1975, they executed an Agreement to Sell Real Property, where Tolosa sold the land to Ocampo for P25,000.00, with P12,500.00 paid upfront and the balance due within six months.
• Paragraph 4 of the agreement stated that upon full payment, Tolosa would execute and deliver documents necessary to transfer title to Ocampo.
• Ocampo paid a total of P16,700.00 within the six-month period and later made additional payments totaling P3,900.00, which Tolosa accepted.

Boundary Dispute and Adverse Claim

• The property was involved in a boundary dispute, delaying the transfer of title.
• On 6 June 1976, Ocampo caused an adverse claim to be annotated on Tolosa’s certificate of title (Entry No. 279936) after learning of the mortgage lien.

Second Transaction: Tolosa and Magdalena Villaruz

• On 3 June 1977, Tolosa executed a Contract to Sell with Magdalena S. Villaruz for P94,300.00, with P15,000.00 paid upfront and the balance due upon cancellation of liens.
• The contract noted the supposed resolution of the boundary dispute and stipulated immediate physical possession to Villaruz, but no deed of sale would be delivered until full payment.

Legal Proceedings

• On 15 March 1977, Tolosa offered Ocampo two options: a refund of payments or a share from the net proceeds if sold to a third party. Ocampo refused and expressed readiness to pay the balance.
• On 19 July 1977, Tolosa offered to reimburse Ocampo if she canceled her adverse claim. Ocampo refused, leading Tolosa to file a petition to cancel the adverse claim, which was denied by the court on 30 July 1977.
• On 4 August 1977, Ocampo filed another adverse claim (Entry No. 302257).
• On 7 October 1977, Tolosa filed a case for Breach of Contract, Damages, and Quieting of Title against Teresa Borres (later substituted by Ocampo). Villaruz intervened, claiming ownership.
• On 9 October 1979, Tolosa secured the cancellation of Ocampo’s adverse claims without notice, paving the way for the registration of Villaruz’s contract and issuance of Transfer Certificate of Title No. T-100021 in her name.
• On 13 October 1981, Ocampo filed a third-party complaint against Villaruz.

Trial Court Decision

• On 7 January 1988, the Regional Trial Court ruled in favor of Ocampo, declaring Villaruz’s contract null and void, ordering Tolosa to execute a deed of sale in favor of Ocampo, and awarding damages to Ocampo.

Court of Appeals Decision

• On 11 October 1990, the Court of Appeals reversed the trial court, declaring Villaruz the absolute owner and ordering the annotation of Ocampo’s adverse claims on Villaruz’s title.

Issue:

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Ruling:

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Ratio:

1. A contract is a contract of sale if it immediately transfers ownership, even if payment is deferred. The absence of a reservation of title or a unilateral rescission clause indicates an absolute sale.
2. Rescission of a contract requires judicial or notarial demand. Tolosa’s failure to comply with these formalities rendered his rescission ineffective.
3. Under Article 1544, in cases of double sales, the first buyer in good faith who registers or annotates their claim has a superior right. Ocampo’s adverse claim annotation constituted constructive notice to Villaruz, who was not in good faith.
4. The Court emphasized that substantial performance in good faith by Ocampo, coupled with Tolosa’s bad faith in dealing with both buyers, justified the reinstatement of Ocampo’s rights.

Conclusion:

The Supreme Court ruled in favor of Ocampo, declaring her the rightful owner of the property and ordering Villaruz to reconvey the land to her. The decision underscores the importance of good faith, proper registration, and the formalities required for rescission in contracts of sale.