G.R. No. 129760 - Cheng vs. Genato

Case Summary (G.R. No. 129760)

Petitioner

Ricardo Cheng, who paid P50,000 for an asserted contract to sell covering the two lots and sought specific performance.

Respondents

Ramon B. Genato (vendor)
Ernesto R. Da Jose and Socorro B. Da Jose (intervenors, first vendees)

Key Dates

– September 6, 1989: Contract to sell executed between Genato and Da Jose spouses.
– October 4–5, 1989: Thirty-day extension for Da Jose spouses’ down-payment period.
– October 13, 1989: Genato’s affidavit to annul the contract to sell.
– October 24, 1989: Cheng’s P50,000 payment and handwritten receipt.
– October 26, 1989: Annotation of the annulment affidavit.
– October 27, 1989: Da Jose spouses discover affidavit and formalize continuation.
– November 2–6, 1989: Exchanges of letters and checks between Genato and Cheng.
– December 8, 1989: Cheng’s complaint for specific performance filed.
– January 18, 1994: Regional Trial Court decision in favor of Cheng.
– July 7, 1997: Court of Appeals decision reversing the trial court.
– December 29, 1998: Supreme Court decision under the 1987 Constitution.

Applicable Law

– 1987 Philippine Constitution (property and due-process guarantees)
– Civil Code provisions on contract to sell (Art. 1483–1484), rescission (Art. 1169, 1191), and double sales (Art. 1544)
– Registry Rules on annotation and priority of real-property encumbrances

Disputed Real Property and Initial Sale Agreement

Genato agreed on September 6, 1989 to sell two titled parcels totaling 35,821 m² to the Da Jose spouses at P80/m². The public instrument required P50,000 down payment and full P950,000 settlement within thirty days, after which possession would be delivered.

Extension and Alleged Condition Imposed by Genato

On October 4, 1989, Genato granted a 30-day extension (until November 5) for Da Jose spouses to verify titles. Genato testified he conditioned the extension on new documents within seven days, which the Da Jose spouses denied.

Unilateral Annulment Attempt by Affidavit

Without notice to the Da Jose spouses and before the extension expired, Genato executed an affidavit on October 13, 1989 declaring the contract rescinded for alleged nonpayment and later caused its annotation on October 26.

Subsequent Agreement with Cheng

On October 24, 1989, Cheng inspected the titles (noting existing contract annotation and the unregistered annulment affidavit) and paid P50,000 via check, receiving a handwritten receipt from Genato for the same parcels at P70/m² plus taxes.

Formalization and Annotations

Genato deposited Cheng’s check on October 25. Cheng then reminded Genato to annotate the annulment affidavit; this was done on October 26. Coincidentally at the Registry of Deeds on October 27, the Da Jose spouses learned of the affidavit, protested, and secured Genato’s formal confirmation to continue their original contract in writing.

Filings and Lower Court Proceedings

Cheng refused the returned check and on November 2 filed an adverse-claim affidavit on the titles. He paid nominal taxes, while the Da Jose spouses paid their full P950,000 down payment and issued three post-dated checks totaling P1,865,680, pending final resolution. On December 8, 1989 Cheng sued for specific performance against Genato; Genato denied a binding contract and called Cheng’s payment an option deposit; Da Jose spouses intervened asserting superior rights.

Trial Court’s Findings and Decree

The Regional Trial Court held that Genato validly rescinded the Da Jose contract under Civil Code Article 1191 and that Cheng’s receipt unambiguously created a perfected contract to sell. It resolved in Cheng’s favor, ordered Genato to convey the parcels to Cheng at P70/m² (less P50,000), returned the Da Jose spouses’ payments, and awarded nominal damages, attorney’s fees, and costs.

Court of Appeals’ Reversal

The Court of Appeals ruled that (1) the Da Jose spouses’ contract could not be rescinded during the unexpired extension and was never effectively rescinded; (2) Cheng’s agreement lacked binding force because it was subject to the still-existing Da Jose contract; and (3) Cheng acted in bad faith, awarding damages to Genato and the Da Jose spouses for Cheng’s wrongful interference.

Issues Presented on Certiorari

Whether the Da Jose spouses’ contract to sell was validly rescinded.
Whether Cheng’s agreement with Genato constituted a conditional sale granting him superior rights.
Whether Cheng should be liable for damages.

Supreme Court’s Analysis on Rescission

Under Civil Code Articles 1169 and 1191, a contract to sell embodies a suspensive condition: full down payment triggers the obligation to convey. Non-fulfillment prevents the obligation’s existence; there is nothing to rescind until the condition occurs. Moreover, even optional “automatic” rescission clauses require extrajudicial notice. Here, the extension for Da Jose spouses was unexpired and no effective rescission notice was given before they performed, rendering Genato’s affidavit ineffect

Case Syllabus (G.R. No. 129760)

Facts of the Case

Respondent Genato owned two parcels of land in Paradise Farms, San Jose Del Monte, Bulacan (TCT Nos. T-76.196 (M) and T-76.197 (M)), totaling about 35,821 sq. m.
On September 6, 1989, Genato and the Da Jose spouses executed a notarized Contract to Sell at ₱80.00 per sq. m., with a ₱50,000 partial down payment and a further ₱950,000 due within 30 days after title verification.
The Contract to Sell was annotated on both certificates of title on the date of execution.

Extension of Verification Period and Affidavit to Annul

On October 4, 1989, the Da Jose spouses requested, and Genato granted, a 30-day extension (until November 5, 1989) to complete their title verification.
Genato claimed the extension was conditioned on delivery of “new set of documents” within seven days; the Da Jose spouses denied any such additional condition.
Without notifying the Da Jose spouses, Genato executed an Affidavit to Annul the Contract to Sell on October 13, 1989, alleging breach for non-payment of the ₱950,000 down payment.
Annotation of the affidavit on the TCTs did not occur immediately.

Cheng’s Purchase Negotiations and Receipt

On October 24, 1989, petitioner Cheng visited Genato, saw the existing annotations and the unregistered affidavit, and agreed to buy the lots at ₱70 per sq. m.
Cheng issued a ₱50,000 check and received a handwritten receipt (Exh. “D”) from Genato, described as “partial for T-76196 (M) T-76197 (M) … ₱70/m2.”
On October 25, 1989, Genato deposited Cheng’s check; Cheng reminded him to annotate the affidavit.
On October 26, 1989, Genato registered the Affidavit to Annul in the Registry of Deeds as primary entry No. 262702.

Reinstatement of the Da Jose Contract and Cheng’s Reaction

On October 27, 1989, the Da Jose spouses learned of the affidavit at the Registry, protested, and Genato agreed to continue their original Contract to Sell—formalized in a letter that same day.
Genato advised Cheng that he would honor the Da Jose contract and returned Cheng’s check by letter on November 2, 1989, enclosing a bank cashier’s check for ₱50,000.
Cheng refuse