PILAR T. OCAMPO, PETITIONER, VS. COURT OF APPEALS AND MAGDALENA S. VILLARUZ, RESPONDENTS.

Two (2) documents,
an “Agreement to Sell Real Property”
and a “Contract to Sell,” covering the same parcel of land were executed by a
seller in favor of two (2) different buyers. Both buyers now assert against each other a better title to the
property.

In dispute is an 18,260-square meter lot in the Poblacion of
Tigbauan, Iloilo, described in Plan Psu-223696, L.R.C. Case No. N-675, L.R.C.
Record No. N-38846, and registered under Original Certificate of Title No.
0-7743 in the name of seller Severino Tolosa. On 20 August 1974, Tolosa mortgaged the land to the Philippine Veterans
Bank and had the encumbrance annotated on his certificate of title under Entry
No. 238353.

On 17 March 1975, Tolosa and Pilar T. Ocampo, the latter being
then represented by Teresa T. Borres,^[1]
entered into a contract whereby Tolosa undertook to sell the same parcel of
land to Ocampo not later than 15 May 1975 for P22,000.00, Pl,000.00 of which was paid upon execution thereof.^[2]

On 21 April 1975, the parties entered into an “Agreement to Sell
Real Property”^[3]
whereby Tolosa “sells, cedes and transfers” the land to Ocampo in consideration
of P25,000.00, P12,500.00 of which was paid upon signing of the deed and the
balance to be due within six (6) months thereafter. Paragraph 4 of the contract provides that “immediately upon
complete payment of the purchase price x
x x by the VENDEE, the VENDOR x
x x agrees to execute and deliver unto the VENDEE whatever pertinent
document or documents necessary to implement this sale and to transfer title to
the VENDEE.”

Before the six-month period to complete the payment of the
purchase price expired, Ocampo paid but only the total of Pl6,700.00.^[4]
Nevertheless Tolosa accepted her subsequent late payments amounting to
P3,900.00.^[5]
Meanwhile, the subject property was involved in a boundary dispute.^[6]

On 6 June 1976, upon learning of the mortgage lien, Ocampo caused
her adverse claim to be annotated on Tolosa’s certificate of title as Entry No.
279936.

In his letter to Ocampo dated 15 March 1977, Tolosa sought the
cancellation of Ocampo’s adverse claim and presented her with two options,
namely, a refund of payments made, or a share from the net proceeds if sold to
a third party.^[7]
On even date, Ocampo through counsel wrote Tolosa expressing her readiness to
pay the balance of the purchase price, which was P5,400.00, should Tolosa be
ready to deliver to her the deed of absolute sale and the owner’s duplicate of
OCT No. 0-7743 for purposes of registration.^[8]

On 3 June 1977, Tolosa and Magdalena S. Villaruz executed a
“Contract to Sell”^[9]
whereby Tolosa “sells, cedes, transfers, and conveys” to Villaruz the same land
in consideration of P94,300.00. The
amount of P15,000.00 was to be paid upon execution and the balance upon
cancellation of all liens and encumbrances from the certificate of title. The contract stipulated the immediate
conveyance of the physical possession of the land to Villaruz, although no deed
of definite sale would be delivered to her unless the price was fully
paid. The contract noted the supposed
judicial termination of the boundary dispute over the land.

On 19 July 1977, Tolosa wrote Ocampo offering to reimburse her
what she paid provided she would sign a document canceling her adverse claim.^[10]
Failing to convince Ocampo, Tolosa filed a petition in the Court of First
Instance of Iloilo to cancel the adverse claim of Ocampo. On 30 July 1977, Judge Ricardo M. Ilarde
denied the petition.^[11] On 4
August 1977, another adverse claim was caused to be annotated by Ocampo on OCT
No. 0-7743 under Entry No. 302257.^[12]

On 7 October 1977, Tolosa filed an action for “Breach of
Contract, Damages and Quieting of Title” against Teresa Borres.^[13]
Borres claimed in her answer that she was merely the agent of Ocampo who was
the real party in interest. Borres
however died so that the trial court, on 2 July 1979, ordered her substitution
by defendant Ocampo. Magdalena S.
Villaruz, then claiming to have already bought the land, intervened in the
case.

On 9 October 1979, during the pendency of Civil Case No. 12163,
Tolosa succeeded in securing from another branch of the court the cancellation
of the adverse claims of Ocampo without notice to her.^[14]
This paved the way for the
registration on 23 November 1979 of the contract of sale of Villaruz dated 8
August 1979 and the subsequent issuance
of Transfer Certificate of Title No. T-100021 in her name which canceled the
Original Certificate of Title No. 0-7743 of Tolosa.

On 13 October 1981, Ocampo filed a third-party complaint against Villaruz.15

On 7 January 1988, Judge Julian Y, Ereño of the Regional Trial
Court of Iloilo, Branch 27, rendered a decision in Civil Case No. 12163
dismissing the complaint of Tolosa as well as the complaint in intervention of
Villaruz –

1. Declaring the contract to sell executed
between plaintiff Severino Tolosa and third-party defendant Magdalena Villaruz
as null and void as well as the Transfer of Certificate of Title issued in
connection therewith, if any;

2. Ordering plaintiff Tolosa to execute the
corresponding deed of sale in favor of third-party plaintiff Pilar T. Ocampo
over the lot in litigation upon the latter’s payment of the balance of
P4,400.00;

3. Ordering plaintiff Tolosa to vacate and
deliver possession of the lot in question to Pilar T. Ocampo;

4. Ordering plaintiff to pay Pilar T. Ocampo
P10,000.00 as attorney’s fees, P30,000.00 as moral damages, P2,000.00 as
litigation expenses, and costs.

Her motion for reconsideration having been denied on 26 March
1988, Villaruz appealed to the Court of Appeals. On 11 October 1990, the 16th Division of the Court of Appeals,16 in CA-G.R. No. 18428, reversed and set aside the
trial court’s decision –

1. Declaring Magdalena S. Villaruz the absolute
owner of the parcel of land covered by TCT No. T­-100021 of the Register of
Deeds of Iloilo;

2. Ordering the Register of Deeds of Iloilo to
annotate at the back of TCT No. T-100021 the adverse claims filed by Pilar
Ocampo under Entry No. 279936 and 302257 found in OCT No. 0-7743; and

3. Ordering the parties to pay proportionate
costs.

The appellate court upheld the sale in favor of Villaruz on the theory
that the 21 April 1975 agreement of Tolosa and Ocampo was merely a contract to
sell. It claimed that in the absence of
a deed of absolute sale in favor of Ocampo, in relation to par. 4 of the
contract, Tolosa retained ownership over the land and validly conveyed the same
to Villaruz.

The agreement between Tolosa and Ocampo dated 21 April 1975
although titled “Agreement to Sell Real Property” was a perfected contract of absolute
sale wherein Tolosa forthwith sold, ceded and transferred the land to Ocampo. It provided “[T]hat for and in consideration
of the sum of TWENTY-FIVE
THOUSAND PESOS (P25,000.00), Philippine Currency, to be paid by the VENDEE unto
the VENDOR, the latter hereby SELLS, CEDES and TRANSFERS in favor of the former – her heirs and assigns,
the above-described parcel of land, free from all liens and encumbrances.”

In Dignos v. CA,17 we laid
down the criteria that:

“x x x x a deed of sale is absolute in nature although denominated
as a ‘Deed of Conditional Sale’ where nowhere in the contract in question is a
proviso or stipulation to the effect that title to the property sold is
reserved in the vendor until full payment of the purchase price, nor is there a
stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period (Taguba v. Vda. de Leon, 132 SCRA 722; Luzon
Brokerage Co., Inc. v. Maritime
Building Co., Inc., 86 SCRA 305).

The conditions mentioned in Dignos, reiterating Taguba
and Luzon Brokerage Co., Inc., were not found in the subject contract to
indicate that it was indeed a mere
contract to sell or a deed of conditional sale. Contrary to the interpretation of the appellate court, we find
nothing significant about par. 4 of the contract which provides that –

x x x immediately upon complete payment of the purchase price
herein by the VENDEE, the VENDOR hereby agrees to execute and deliver unto the
VENDEE whatever pertinent document or documents necessary to implement this
sale and to transfer title to the VENDEE.

Paragraph 4 pertains to the undertaking of the seller to execute
and deliver to the buyer any document deemed necessary by law to implement the
sale and transfer title since the parties were unsure of what documents were
pertinent. If the intent was for the
seller to retain ownership and possession of the land through non-delivery of
certain documents unless the price be fully paid, par. 4 alone should be
inutile; it should have been complemented with a proviso that the sale
would not be implemented nor the title considered transferred unless another
document specifically for said purpose be first executed and delivered to the
buyer. In this regard, no right to
retain ownership and possession of the
land pending full payment of the price can be inferred from the fact that no
delivery was made to Ocampo.18

The failure of the buyer to pay the price in full within a fixed
period does not, by itself, bar the transfer of the ownership or possession,19 much less dissolve the contract of sale. We held in De la Cruz v. Legaspi:20

x x x x they err in the assertion that as plaintiff failed to pay
the price after the execution of the document of sale as agreed previously, the
contract became null and void for lack of consideration. It cannot be denied that when the document
was signed the cause or consideration existed: P450. The document specifically
said so; and such was undoubtedly the agreement. Subsequent non-­payment of the price at the time agreed upon did
not convert the contract into one without cause or consideration: a nudum pactum (Levy vs. Johnson,
4 Phil. 650; Puato vs. Mendoza, 64 Phil. 457). The situation was rather one in which there is failure to pay
the consideration, with its resultant consequences. In other words, when after the notarization of the contract,
plaintiff failed to hand the money to defendants, as he previously promised,
there was default on his part at most, and defendants’ right was to demand
interest – legal interest – for the delay, pursuant to article 1501 (3) of the
Civil Code21 (Villaruel vs. Tan King,
43 Phil. 251), or to demand rescission in court. (Escueta vs. Pardo, 42 Off. Gaz. 2759; Cortes vs.
Bibaño, 41 Phil. 298.) Such failure, however, did not ipso facto resolve
the contract, no stipulation to that effect having been alleged (Cf.
Warner Barnes & Co. vs. Inza, 43 Phil. 505). Neither was there any agreement nor
allegation that payment on time was essential (Cf. Abella vs. Francisco, 55 Phil. 477; Berg vs.
Magdalena Estate, 92 Phil. 110).

Under Art. 1592 of the Civil Code, the failure of Ocampo to
complete her payment of the purchase price within the stipulated period merely
accorded Tolosa the option to rescind the contract of sale upon judicial or
notarial demand.22

However, the letter of 2 August 1977 claimed to have been sent by
Tolosa to Ocampo rescinding the contract of sale23 was
defective because it was not notarized24 and,
more importantly, it was not proven to have been received by Ocampo.25

Likewise, Civil Case No. 12163 could not be considered a judicial
demand under Art. 1592 of the Civil Code because it did not pray for the
rescission of the contract. Although
the complaint sought the cancellation of Ocampo’s adverse claim on Tolosa’s OCT
and for the refund of the payments made, these could not be equivalent to a
rescission. In other words, seeking
discharge from contractual obligations and an offer for restitution is not the
same as abrogation of the contract. To
rescind is “[t]o declare a contract void in its inception and to put an end to
it as though it never were.”26 It is
“[n]ot merely to terminate it and release parties from further obligations to
each other but to abrogate it from the beginning and restore parties to
relative positions which they would have occupied had no contract ever been
made.”27

Even assuming arguendo that Civil Case No. 12163 was a valid
judicial demand, rescission is not granted as a matter of course. Before Civil Case No. 12163 was filed on 7
October 1977, Ocampo not only paid Tolosa a total of P20,600.00 but also
discharged Tolosa’s mortgage debt in the amount of P4,453.41. Had not Tolosa ordered the Philippine
Veterans Bank to return the mortgage debt payment by Ocampo,28 the purchase price would have been deemed fully
paid.

If only to accentuate her intention to make good her contractual
obligations, Ocampo offered to pay the balance of the purchase price in her
letter of 15 March 1977 or more than four months before Tolosa allegedly wrote
his letter of rescission on 2 August 1977, and more than six-months before the filing of Civil
Case No. 12163 on 7 October 1977. This
offer to pay prior to the demand for rescission is sufficient to defeat
Tolosa’s prerogative under Art. 1592 of the Civil Code.

Tolosa, on the other hand, is now precluded from raising the
issue of late payments. His unqualified
acceptance of payments after the six-month period expired constitutes waiver of
the period and, hence, of the ground to rescind under Art. 1592.

In any case, however, the breach on the part of Ocampo was only
slight if not outweighed by the bad faith of Tolosa in reneging in his own
prestations, hence, judicial rescission of the contract cannot be
justified. Angeles v. Calasanz29 is apropos –

The right to rescind the contract for non-­performance of one of
its stipulations x x x is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court
stated: The general rule is that
rescission of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental breach as would defeat the very
object of the parties in making the agreement (Song Fo & Co. v.
Hawaiian-Philippine Co., 47 Phil., 821, 827); The question of whether a
breach of a contract is substantial depends upon the attendant circumstances (Corpus
v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968) x x x x

The defendants-appellants state that the plaintiffs-appellees
violated Section two of the contract to sell x x x x because they failed to pay
the August installment, despite demand, for more than four (4) months.

The breach of the contract adverted to by the defendants-appellants
is so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the monthly
installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would
have been paid. Furthermore, although
the principal obligation was only P3920.00 excluding the 7 percent interest,
the plaintiffs-appellees had already paid an aggregate amount of
P4,533.38. To sanction the rescission
made by the defendants-appellants will work injustice to the
plaintiffs-appellees (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA
829). It would unjustly enrich the
defendants-appellants.

Article 1234 of the Civil Code which provides that ‘[I]f the
obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee,’ also militates against the unilateral act of
the defendants-appellants in canceling the contract.

x x x x We agree with the plaintiffs-appellees that when the
defendants-appellants, instead of availing of their right to rescind, have
accepted and received delayed payments of installments, though the
plaintiffs-appellees have been in arrears beyond the grace period mentioned in
paragraph 6 of the contract, the defendants-appellants have waived and are now
estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68),
we held x x x x But defendants do not deny that in spite of the long
arrearages, neither they nor their predecessor x x x x even took steps to
cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the
delayed payments were received without protest or qualification. x x x x Under these circumstances, We cannot
but agree with the lower court that at the time appellees exercised their
option, appellants had already forfeited their right to invoke the above-quoted
provision regarding the nullifying effect of the non-payment of six-months
rentals by appellees by their having accepted without qualification on July 21,
1964 the full payment by appellees of all their arrearages.

While the contract dated 3 June 1977 in favor of Villaruz is also
a contract of sale, that of Ocampo dated 21 April 1975 should prevail pursuant
to Art. 1544 of the Civil Code on double sales.30 While
Villaruz may have registered his contract or came into possession ahead of
Ocampo, Villaruz was never in good faith.

Since Ocampo had her adverse claim annotated on Tolosa’s OCT on 6
June 1976, Villaruz could not profess innocence thereof when she signed her
contract on 3 June 1977; in fact, her full payment of the purchase price was
made dependent, among others, on the cancelation of this claim. Moreover, Villaruz admitted having been informed by Tolosa of the first sale to Ocampo
while still negotiating to buy the land.31 Knowledge of the foregoing should have
impelled Villaruz to investigate the circumstances of the annotation since this
is equivalent to registration of Ocampo’s contract of sale as against Villaruz. In sum, Ocampo having the older title in good faith and considering that
personal knowledge thereof by Villaruz constitutes registration as against the
latter, Ocampo should be considered the preferred buyer.

Incidentally, the stipulation in the contract of Villaruz
conveying the land in her favor
bows to Tolosa’s admission at the witness stand on 15 May 1980 that he never
actually delivered the possession of the property to anyone.32

From the foregoing, although the decision of the trial court
ordering Tolosa to execute another deed of sale in favor of Ocampo already
became final as against him for failing to appeal therefrom, there is no more
need for it. For practical purposes, it
is enough that we order Villaruz to reconvey the property to Ocampo.

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE and the decision dated 7 January 1988 of the Regional
Trial Court of Iloilo, Branch 27, in Civil Case No. 12163 is REINSTATED, with the modification that
respondent Magdalena S. Villaruz is directed to reconvey the subject land now
covered by TCT No. T-100021 in her name to petitioner Pilar T. Ocampo, without
prejudice to Severino Tolosa collecting from petitioner Pilar T. Ocampo the
balance of the purchase price of
P4,400.00 which nevertheless may be deducted from the monetary awards made by
the trial court in favor of petitioner Ocampo.

SO ORDERED.

Cruz, (Chairman), Davide, Jr., Quiason, and Kapunan, JJ., concur.

^[1]
Par. 2 of the Pre-Trial Order reads: “It appearing from the Answer that the proper party-defendant x x x is
not Teresa T. Borres but Pilar T. Ocampo, as indicated in the Waiver x x x
Teresa T. Borres is hereby substituted by Pilar T. Ocampo, as party-defendant x
x x with the conformity of the plaintiff and intervenor” (RTC Record, Civil
Case No. 12163, p. 127).

^[2]
Exh. “1,” RTC Record, p. 286.

^[3]
Annex “B,” Answer, RTC Rec. pp. 21, 313.

^[4]
It was established at the trial that the P1,000.00 earnest money was paid on 11
March 1975 (Exh. “1”) as part of the price, P12,500.00 upon the signing of the
contract on 21 April 1975 (Exh, “16”), P1,000.00 on 12 August 1975 (Exh. “2”),
P1,500.00 on 12 September 1975 (Exh. “3”), P300.00 on 26 September 1975 (Exh.
“4”), and P400.00 on 27 September 1975 (Exh. “5”).

^[5]
The trial court found the following payments to Tolosa after the six-month period
lapsed on 21 October 1975: P500.00 on
18 December 1975 (Exh. “6”), P900.00 on 10 December 1976 (Exh. “7”), and
P2,500.00 on various dates under receipt dated 18 March 1976 (Exh. “8”).

^[6]
Although it was noted in the Contract to Sell dated 3 June 1977 between Tolosa and Magdalena S. Villaruz that
“the boundary dispute between the VENDOR and the adjacent owner Salvador
Tumines has already been judicially resolved x x x x” (RTC Record, p. 383),
Tolosa however admitted on the stand that the case was on review before the
Court of Appeals (TSN, 28 March 1980, p. 35).

^[7]
Exh. “12,” RTC Record, p. 297.

^[8]
The letter adds: “x x x x It appears
that x x x the second installment was not paid because your land was involved
in a case with a certain Dodoy Tomines, so that you could not deliver to her
the title thereof, free from all liens and encumbrances. Nevertheless, you have been continually
asking money from my client x x x x leaving a balance of P5,400.00 unpaid x x x
x My client will have to continue the suit against Tomines x x x x I understand
that the PLS Monuments of the land are not yet embedded in their proper places
in order to fix the boundaries of the land you have agreed to sell to my
client” (RTC Record, p. 312).

^[9]
RTC Record, pp. 382-383.

^[10]
Exh. 13, RTC Record, p. 298.

^[11]
RTC Record, pp. 305-306.

^[12]
RTC Record, pp. 300.

^[13]
Docketed as Civil Case No. 12163.

^[14]
Entry No. 342601 canceled Entry No. 279936, while Entry No. 342602 canceled
Entry No. 302257, both under orders of Judge Midpantao L. Adil, Court of First
Instance of Iloilo, Br. 2.

15 RTC Record, pp. 249-253.

16 Penned by Justice Ricardo
L. Pronove, Jr., with Justices Nicolas P. Lapeña, Jr., and Salome A. Montoya,
concurring.

17 G.R. No. 59266, 29
February 1988, 158 SCRA 375, 382.

18 TSN, 20 July 1981, pp.
25-26.

19 “[W]hat is deferred is
not the transfer of ownership but the full payment of the purchase price, which
is to be made in installments, on the dates indicated” (Filoil Marketing
Corp. v. IAC, G.R. No. 67115, 20 January 1989, 169 SCRA 293, 301).

20 98 Phil. 43, 45-46
(1955).

21 Now Art. 1589, par. 3,
New Civil Code.

22 In the sale of immovable
property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall take place,
the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand,
the court may not grant him a new term.

23 Exh. “B”, RTC Record, p.
209.

24 A notarial act
presupposes signing before a notary public and two competent witnesses (Words
and Phrases, 1955, vol. 28A, p. 459, citing Smith v. Bratsos, La.App.,
12 So.2d 241, 243).

25 As found by the trial court,
“[t]o such alleged rescission letter, the return card was not presented and, of
equal importance, the alteration or super-imposition appearing in the alleged
registry receipt (Exh. “B-2”) was not explained. Such failures on the part of the plaintiff cannot overcome the
denial of receipt by the defendant and the latter therefore prevails”
(Decision, Civil Case No. 12163, p. 5, RTC Record, p. 444).

26 Black’s Law Dictionary,
4th ed., p. 1471, citing Russel v. Stephens,
191 Wash. 314, 71 P.2d 30, 31.

27 Ibid, citing Wall v. Zynda, 283
Mich. 260, 278 N.W. 66, 68, 114 A.L.R. 1521; Sylvania Industrial Corporation v. Lilienfeld’s Estate, C.C.A. Va., 132 F.2d 887, 892, 145 A.L.R.
612.

28 Exh. “20,” RTC Rec., p.
312. Tolosa maintains that the payment
by Ocampo of his mortgage debt was prejudicial to his interest.

29 No. L-42283, 18 March
1985, 135 SCRA 323, 330-331; cited by Court En Banc in Siska
Development Corporation v. Office of the President, G.R. No. 93176, 22 April 1994.

30 If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.

Should it be immovable property,
the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.

Should there be no inscription, the
ownership shall pertain to the person who in good faith was first in the
possession; and in the absence thereof, to the person who presents the oldest
title, provided there is good faith.

31 TSN, 9 June 1983, pp.
22-23.

32 Decision, Civil Case No.
12163, citing TSN, 15 May 1980, p. 18.