G.R. No. 121200 - Samedra vs. Court of Appeals

Ownership and Lease Agreements:

Private respondent Eusebio C. Encarnacion owned a 160-square-meter residential lot in Quezon City.
In the 1950s, Deogracia la Torre constructed a house on a 100-square-meter portion of the lot with Encarnacion's consent.
The house was later purchased by Gloria A. S. Lacanilao and her common-law husband, Pablo Lacanilao, who resided there.
On September 12, 1963, Pablo Lacanilao and Encarnacion entered into a lease agreement for the 100-square-meter portion, with a monthly rental of P24.00.
The remaining 60-square-meter portion was leased to petitioner Plutarco Cadurnigara.

Offer to Sell and Failed Payment:

In November 1987, Encarnacion offered to sell the lot to Lacanilao and Cadurnigara.
After negotiations, Encarnacion agreed in mid-May 1988 to sell the property for P120,000.00.
Petitioners requested an extension until June 15, 1988, to pay the full amount and for Encarnacion to execute a Deed of Absolute Sale.
On June 11, 1988, a fire destroyed the Quezon City Hall, including the Register of Deeds office, burning Encarnacion's title and other documents.
Petitioners failed to pay the purchase price by the agreed date.

Sale to the Acebos:

Encarnacion subsequently offered to sell the property to private respondents Ramon and Teresita Acebo for P145,000.00.
The Acebos paid P20,000.00 as earnest money on August 18, 1988, and the balance on November 15, 1988.
Encarnacion executed a Deed of Absolute Sale in favor of the Acebos, which was recorded on November 25, 1988.

Legal Action by Petitioners:

On November 19, 1988, the Acebos sent petitioners a notice to vacate, informing them of the sale.
Petitioners filed a complaint with the barangay, alleging a violation of their right to purchase the lot under Section 6 of P.D. 1517.
After failing to resolve the dispute, petitioners stopped paying rent and filed a complaint in the Regional Trial Court (RTC) to annul the sale to the Acebos and compel Encarnacion to sell the property to them.

Unenforceability of Verbal Contracts: Under Article 1403(2)(e) of the Civil Code, a contract for the sale of real property must be in writing to be enforceable. Petitioners' reliance on a verbal agreement was insufficient to establish a binding contract.
Contract to Sell vs. Contract of Sale: The agreement between petitioners and Encarnacion was a contract to sell, where ownership is retained by the seller until full payment. Petitioners' failure to pay the purchase price by the agreed date extinguished their right to demand specific performance.
Burden of Proof: Petitioners failed to present evidence proving they were ready to pay the purchase price, which was a condition precedent for the sale.
Good Faith of the Acebos: The Acebos acted in good faith, as they purchased the property after petitioners defaulted on their payment obligation.
Equity vs. Law: While equity might favor petitioners due to their long-term occupancy, the Court cannot disregard the law in favor of equitable considerations.