#### Facts:
This case involves a complex series of transactions concerning a property located in Cebu City, Philippines. The series of events can be summarized as follows:
1. Spouses Jesus and Cristita Moneset (the Monesets) owned a property, which they agreed to sell to Winifreda Ursal (Ursal) through a “Contract to Sell Lot & House” dated January 9, 1985, with conditions that included installment payments.
2. Ursal paid the down payment and took possession of the property, making improvements valued at P50,000.00. After six monthly installments, she stopped payments due to the Monesets’ failure to deliver the property’s title as agreed.
3. Unbeknownst to Ursal, the Monesets sold the property to Dr. Rafael Canora, Jr. and executed another sale with pacto de retro with Restituto Bundalo.
4. Bundalo, acting for the Monesets, mortgaged the property with the Rural Bank of Larena (the Bank) for P100,000.00, leading to foreclosure proceedings after loan defaults.
5. On September 30, 1989, Ursal sued the Monesets, Bundalo, and the Bank, alleging fraud in mortgaging the property she bought.
The Regional Trial Court (RTC) and the Court of Appeals (CA) held the Monesets liable for damages but found the mortgage valid, attributing no bad faith to the Bank.
#### Issues:
1. Whether the “Contract to Sell Lot & House” vested ownership and gave Ursal a right to enforce the mortgage as non-effective against her.
2. The extent of the Bank’s duty to inquire beyond the face of the title before approving a mortgage.
3. The legal effects of a contract to sell versus a contract of sale on parties’ obligations and rights.
#### Court’s Decision:
The Philippine Supreme Court denied Ursal’s petition, affirming the RTC and CA decisions but modified to remove the preferential right to redeem granted to Ursal, citing it as lacking legal basis. The Supreme Court emphasized several points:
1. **Contract to Sell vs. Contract of Sale**: Ursal, under a contract to sell, did not acquire ownership until full payment. Since she stopped payments, she did not fulfill the condition for ownership transfer.
2. **Duty of Banks**: Banks are expected to exercise greater diligence than private individuals. However, Ursal’s failure to complete payments and seek specific performance earlier diminished her position.
3. **Fraudulent Actions of the Monesets**: The Monesets were found liable for damages due to fraudulent actions concerning the property’s multiple dispositions.
#### Doctrine:
– **Contract to Sell**: Ownership is reserved by the seller until full payment of the price, distinguishing it from a contract of sale where ownership is transferred upon delivery.
– **Banks’ Due Diligence**: Banks are under an obligation to exercise due diligence in mortgage transactions and cannot solely rely on the certificate of title.
#### Class Notes:
– **Contract to Sell**: Non-fulfillment of the payment condition in a contract to sell prevents the obligation to sell from arising, retaining ownership with the seller.
– **Due Diligence in Mortgages**: Banks are expected to investigate the status of properties beyond what appears on the certificate of title.
– Relevant Statutes:
– Civil Code, Art. 1169 on reciprocal obligations.
#### Historical Background:
The case underscores the intricate legal issues surrounding property transactions in the Philippines, especially the distinctions between types of sales contracts and the expectations of due diligence from financial institutions. It also addresses the challenges faced by buyers in securing their rights amidst conflicting transactions by sellers.
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