FIRST DIVISION

[G.R. No. 85733. February 23, 1990.]

Sps. ENRIQUE and CONSUELO LIM , petitioners, vs. THE HONORABLE

COURT OF APPEALS, Sps. TERESITA and OSCAR GUEVARRA, Sps.
MARCOS and ANITA ORLINO, Sps. ROMULO and CONSUELO ORLINO,
and Sps. FELIX and DOLORES ORLINO , respondents.

Salonga, Andres, Hernandez & Allado for petitioners.

Ocampo, Dizon & Domingo for private respondent Pacific Banking Corporation.

SYLLABUS

CIVIL LAW; OBLIGATIONS; CONDITIONAL OBLIGATIONS; A PARTY MAY TAKE IT

UPON ITSELF TO CONSIDER CONTRACT RESCINDED AND ACT ACCORDINGLY
SUBJECT TO JUDICIAL CONFIRMATION, WHICH MAY OR MAY NOT BE GIVEN. — It is
true that the contract to sell imposes reciprocal obligations and so cannot be
terminated unilaterally by either party. Judicial rescission is required under Article 1191
of the Civil Code. However, this rule is not absolute. We have held that in proper cases, a
party may take it upon itself to consider the contract rescinded and act accordingly
albeit subject to judicial con rmation, which may or may not be given. It is true that the
rescinding party takes a risk that its action may not be approved by the court.

DECISION

CRUZ , J : p

The subject of this controversy is a parcel of land consisting of 1,101 square

meters and located in Diliman, Quezon City. It was originally owned by Felix, Manuel and
Maria Concepcion Orlino, who mortgaged it to the Progressive Commercial Bank as
security for a P100,000.00 loan on July 1, 1965. The loan not having been paid, the
mortgage was foreclosed and the bank acquired the property as the highest bidder at
the auction sale on March 28, 1969. The mortgagee thereafter transferred all its assets,
including the said land, to the Pacific Banking Corporation (PBC).
On May 22, 1975, the Orlinos, and their respective spouses (hereinafter referred
to as the private respondents), who had remained in possession of the land, made a
written offer to PBC to repurchase the property. In response, the bank, through its
Assistant Vice-President, sent the following letter dated November 9, 1977, to the
private respondents' counsel:
This will con rm our agreement concerning the repurchase by your
clients, Mr. and Mrs. Oscar C. Guevarra of that certain property situated at 26
Jose Abad Santos, Heroes Hills, Quezon City with an area of 1,101 square
meters, more or less, under the following terms and conditions: LexLib
a) The cash consideration shall be P160,000.00 payable in full upon
signing of the Deed of Absolute Sale;
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 b) The additional consideration shall consist of your client's
conveyance to us of their share of 2,901.15 square meters on the property
situated at Camarin, Caloocan City.
We understand that your clients will be applying for a loan with a bank. In
this connection, we are enclosing a xerox copy of the Transfer Certi cate of
Title No. 218661-Quezon City, Tax Declaration No. 3092 and Official Receipt No.
E-404723 covering payment of real estate taxes for 1977. Kindly request your
clients to expedite the loan so that we can consummate the transaction as soon
as possible.
Please request your clients to sign their conformity below and return the
duplicate thereof for our files. 1
Oscar C. Guevarra, one of the private respondents, indicated the required
conformity.
One year later, on November 2, 1978, PBC advised the private respondents that if
the transaction was not nalized within 30 days, it would consider the offer of other
buyers. 2 The record does not show any further development until June 8, 1979, when
the private respondents requested PBC to allow them to secure a certi ed true copy of
its Torrens certi cate over the land for purposes of its survey and partition among
them preparatory to the actual transfer of title to them. 3 PBC granted the request
subject to the condition that title would remain with it until the execution of the
necessary deed of conveyance. 4
On April 8, 1980, or two years later, PBC reminded the private respondents of its
letter of November 2, 1978, but again no action was taken to deliver to it the stipulated
consideration for the sale. Finally, on May 14, 1980, PBC executed a deed of sale over
the land in favor of the herein petitioners, the spouses Enrique and Consuelo Lim, for
the sum of P300,000.00. 5
On September 30, 1980, the private respondents led a complaint in the Regional
Trial Court of Quezon City against the petitioners and PBC for the annulment of the
deed of sale on the ground that the subject land had been earlier sold to them. In its
judgment for the plaintiffs, the court held that both PBC and the spouses Lim had acted
in bad faith when they concluded the sale knowing that "there was a cloud in the status
of the property in question." 6 The decision was a rmed in toto by the respondent
court, 7 and the petitioners are now before us, urging reversal.
The petitioners claim they are purchasers in good faith, having relied on the
assurances of PBC as veri ed from the records in the Registry of Deeds of Quezon City
that the land belonged to PBC and was unencumbered. They therefore should have
preferential right to the disputed land, which they had registered in their name under
TCT No. 268623. For their part, the private respondents insist that as they had a valid
and binding earlier deed of sale in their favor, the land could no longer be sold by PBC
to the petitioners, who were aware of their prior right. Cdpr

In support of their position that it was not incumbent upon them to go beyond
the land records to check the real status of the land, the petitioners cite Seño v.
Mangubat, 8 where the Court said:
In order that a purchaser of land with a Torrens title may be considered
as a purchaser in good faith, it is enough that he examines the latest certi cate
of title which in this case is that issued in the name of the immediate transferor.
The purchaser is not bound by the original certi cate of title but only by the
certificate of title of the person from whom he has purchased the property.
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 xxx xxx xxx
Thus, where innocent third persons relying on the correctness of the
certi cate of title issued, acquire rights over the property, the court cannot
disregard such rights and order the total cancellation of the certi cate for that
would impair public con dence in the certi cate of title; otherwise everyone
dealing with property registered under the torrens system would have to inquire
in every instance as to whether the title had been regularly or irregularly issued
by the court. Indeed, this is contrary to the evident purpose of the law. Every
person dealing with registered land may safely rely on the correctness of the
certi cate of title issued therefore and the law will in no way oblige him to go
behind the certi cate to determine the condition of the property. Stated
differently, an innocent purchaser for value relying on a torrens title issued is
protected.
And even assuming that there was an earlier valid sale of the property to the
private respondents, the petitioners add, they would still prevail under Article 1544 of
the Civil Code, providing as follows:
If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have rst 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 rst in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
The private respondents, however, deny that the petitioners had acted in good
faith, pointing to the evidence that Consuelo Lim had, before the execution of the
disputed deed of sale, visited the property and been informed of their existing adverse
claim thereto. 9 Besides, the said deed contained the following stipulation: Cdpr

That the VENDEE is aware of the fact that the aforementioned property is
presently occupied by the former owners and that clearing of the property of its
occupants shall be for the exclusive responsibility and account of the vendee.
And, indeed, the Court also said in Seño that:
The well-known rule in this jurisdiction is that a person dealing with a
registered land has a right to rely upon the face of the Torrens Certificate of Title
and to dispense with the need of inquiring further, except when the party
concerned has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry. (Emphasis supplied.)
As the Court sees it, the real issue is not whether the petitioner acted in good
faith but whether there was in fact a prior sale of the same property to the private
respondents. Only if it is established that there was indeed a double sale of the
property will it be necessary to ascertain if Article 1544 is applicable.
Stated differently, the question is: Was the transaction between private
respondents and PBC, as embodied in the letter of November 9, 1977, a contract to sell
or a contract of sale?
It is not enough to say that the contract of sale being consensual, it became
effective between the bank and the private respondents as of November 9, 1977. There
is no question about that; but such agreement is like putting the cart before the horse.
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 Precisely, our purpose is to ascertain to what particular undertakings the parties have
given their mutual consent so we can determine the nature of their agreement.
According to Sing Yee v. Santos: 1 0
. . . A distinction must be made between a contract of sale in which title
passes to the buyer upon delivery of the thing sold and a contract to sell (or of
"exclusive right and privilege to purchase" as in this case) where by agreement
the ownership is reserved in the seller and is not to pass until the full payment
of the purchase price is made. In the rst case, non-payment of the price is a
negative resolutory condition; in the second case, full payment is a positive
suspensive condition. Being contraries, their effect in law cannot be identical. In
the rst case, the vendor has lost and cannot recover the ownership of the land
sold until and unless the contract of sale is itself resolved and set aside. In the
second case, however, the title remains in the vendor if the vendee does not
comply with the condition precedent of making payment at the time speci ed in
the contract.
Applying these distinctions, the Court nds that the agreement between PBC and
the private respondents was only a contract to sell, not a contract of sale. And the
reasons are obvious.
There was no immediate transfer of title to the private respondents as would
have happened if there had been a sale at the outset. The supposed sale was never
registered and TCT No. 218661 in favor of PBC was not replaced with another
certi cate of title in favor of the private respondents. In their letter to PBC on June 8,
1979, they acknowledged that title to the property would remain with the bank until
their transaction shall have been nalized. In response, PBC reiterated the same
condition. No less important, the consideration agreed upon by the parties was never
paid by the private respondents, to convert the agreement into a contract of sale. In
fact, PBC reminded them twice — on November 2, 1978, and on April 8, 1980 — to
comply with their obligations. They did not. Their default was not, as the respondent
court described it, "a slight delay" but lasted for all of three years and in fact continued
up to the rendition of the decision in the trial court. As payment of the consideration
was a positive suspensive condition, title to the subject property never passed to the
private respondents. Hence, the property was legally unencumbered and still belonged
to PBC on May 14, 1980, when it was sold by the bank to the petitioners. LLpr

It is true that the contract to sell imposes reciprocal obligations and so cannot
be terminated unilaterally by either party. Judicial rescission is required under Article
1191 of the Civil Code. However, this rule is not absolute. We have held that in proper
cases, a party may take it upon itself to consider the contract rescinded and act
accordingly albeit subject to judicial con rmation, which may or may not be given. It is
true that the rescinding party takes a risk that its action may not be approved by the
court. But as we said in University of the Philippines v. De los Angeles: 1 1
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always provisional,
being ever subject to scrutiny and review by the proper court. If the other party
denies that rescission is justi ed, it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will be
affirmed, and the consequent indemnity awarded to the party prejudiced.
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 In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the nal judgment of the corresponding
court that will conclusively and nally settle whether the action taken was or
was not correct in law. But the law de nitely does not require that the
contracting party who believes itself injured must rst le suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until nal judgment of
rescission is rendered when the law itself requires that he should exercise due
diligence to minimize its own damages.
In the case at bar, the private respondents obligated themselves to deliver to the
bank the sum of P160,000.00 and their share of 2,901.15 square meters on a property
situated in Caloocan City. In the letter of PBC dated November 9, 1977, they were
requested to "expedite the loan (they were negotiating for this purpose) so we can
consummate the transaction as soon as possible." That was in 1977. In 1978, they
were reminded of their obligation and asked to comply within thirty days. They did not.
On April 8, 1980, they were reminded of that letter of November 2, 1978, and again
asked to comply; but again they did not. Surely, the bank could not be required to wait
for them forever, especially so since they remained in possession of the property and
there is no record that they were paying rentals. Under the circumstances, PBC had the
right to consider the contract to sell between them terminated for non-payment of the
stipulated consideration. We hereby confirm that rescission.
Having arrived at these conclusions, the Court no longer nds it necessary to
determine if the petitioners acted in bad faith when they purchased the subject
property. The private respondents lost all legal interest in the land when their contract
to sell was rescinded by PBC for their non-compliance with its provisions. As that
contract was no longer effective when the land was sold by PBC to the petitioners, the
private respondents had no legal standing to assail that subsequent transaction. The
deed of sale between PBC and the petitioners must therefore be sustained. LLjur

WHEREFORE, the petition is GRANTED and the challenged decision of the Court
of Appeals is REVERSED. TCT No. 268623 in favor of the petitioners is recognized as
valid and the complaint for the annulment of the deed of sale dated May 14, 1980, is
hereby dismissed. Costs against the private respondents.
SO ORDERED.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

1. Exh. "G," Orig. Rec., p. 122.

2. Exh. "1," Ibid., p. 183.

3. Exh. "I," Id., p. 123.

4. Exh. "I," Id., p. 124.

5. Exh. "7," Id., pp. 190-192.

6. Rollo, p. 61; Decision penned by Judge Jose P. Castro, RTC of Quezon City, Branch LXXXV.

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 7. Martinez, J., with Lombos-De la Fuente and Pe, JJ., concurring.

8. 156 SCRA 113.

9. Rollo, p. 60.
10. 47 O.G. 6372.

11. 35 SCRA 102.

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