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564 SUPREME COURT REPORTS ANNOTATED

Lim vs. Court of Appeals

*
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.

Sales; Contract of Sale and Contract to Sell, Distinguished; In

a contract of sale, the vendor loses and cannot recover ownership of
the thing sold until and unless the contract is itself resolved and
set aside, whereas, in a contract to sell, title remains in the vendor,
if vendee fails to make payment at the time specified in the
contract.—According to Sing Yee v. Santos: x x x 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

_______________

* FIRST DIVISION.

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VOL. 182, FEBRUARY 23, 1990 565

Lim vs. Court of Appeals

purchase price is made. In the first 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 first case, the vendor has lost and
cannot recover the ownership of the land sold until and unless the
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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 specified in the contract. Applying these distinctions, the
Court finds that the agreement between PBC and the private
respondents was only a contract to sell, not a contact of sale. And
the reasons are obvious.
Same; Contracts; Rescission; A party to a contract may treat
the same as cancelled or resolved on account of infractions by the
other party, but such extrajudicial rescission must be made known
to the other, and is always subject to scrutiny and review by the
proper courts.—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 confirmation, 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: 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 justified, 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. 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 final judgment of the
corresponding court that will conclusively and finally settle
whether the action taken was or was not correct in law. But the
law definitely does not require that the contracting party who
believes itself injured must first file 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 pen-

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566 SUPREME COURT REPORTS ANNOTATED

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Lim vs. Court of Appeals

dency of the suit until final judgment of rescission is rendered

when the law itself requires that he should exercise due diligence
to minimize its own damages.

PETITION to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Salonga, Andres, Hernandez & Allado for petitioners.
          Ocampo, Dizon & Domingo for private respondent
Pacific Banking Corporation.

CRUZ, J.:

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 No-vember 9, 1977, to the
private respondents’ counsel:

This will confirm 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:

a) The cash consideration shall be P160,000.00 payable in

full upon signing of the Deed of Absolute Sale;
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

567
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VOL. 182, FEBRUARY 23, 1990 567

Lim vs. Court of Appeals

Certificate 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
1
conformity below and
return the duplicate thereof for our files.

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
finalized
2
within 30 days, it would consider the offer of other
buyers. The record does not show any further development
until June 8, 1979, when the private respondents requested
PBC to allow them to secure a certified true copy of its
Torrens certificate over the land for purposes of its survey
and partition among them 3
preparatory to the actual
transfer of title to them. PBC granted the request subject
to the condition that title would remain with4 it until the
execution of the necessary deed of conveyance.
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
5
Enrique and Consuelo Lim, for the
sum of P300,000.00.
On September 30, 1980, the private respondents filed 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
6
was a cloud in the status of the property in question.” The
decision was affirmed in toto by the

_______________

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.

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

City, Branch LXXXV.

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568 SUPREME COURT REPORTS ANNOTATED

Lim vs. Court of Appeals

7
respondent court, 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 verified 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.
In support of their position that it was not incumbent
upon them to go beyond the land records to check the real8
status of the land, the petitioners cite Seño v. Mangubat,
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 certificate of title which in this case is that
issued in the name of the immediate transferor. The purchaser is
not bound by the original certificate of title but only by the
certificate of title of the person from whom he has purchased the
property.
xxx
Thus, where innocent third persons relying on the correctness
of the certificate of title issued, acquire rights over the property,
the court cannot disregard such rights and order the total
cancellation of the certificate for that would impair public
confidence in the certificate 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
certificate of title issued therefore and the law will in no way
oblige him to go behind the certificate to determine the condition
of the property. Stated differently, an innocent purchaser for
value relying on a torrens title issued is protected.

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_______________

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

8 156 SCRA 113.

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VOL. 182, FEBRUARY 23, 1990 569

Lim vs. Court of Appeals

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 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.

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 9
been
informed of their existing adverse claim thereto. Besides,
the said deed contained the following stipulation:

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. (Italics supplied.)

As the Court sees it, the real issue is not whether the
petitioner acted in good faith but whether there was in fact
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a prior sale of the same property to the private

respondents. Only if it is

_______________

9 Rollo, p. 60.

570

570 SUPREME COURT REPORTS ANNOTATED

Lim vs. Court of Appeals

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. 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. 10
According to Sing Yee v. Santos:

x x x 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 first 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 first 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 specified in the contract.

Applying these distinctions, the Court finds that the

agreement between PBC and the private respondents was
only a contract to sell, not a contact of sale. And the
reasons are obvious.

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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 certificate 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 transac-

_______________

10 47 O.G. 6372.

571

VOL. 182, FEBRUARY 23, 1990 571

Lim vs. Court of Appeals

tion shall have been finalized. 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.
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 confirmation, 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 11we said in University of the Philip-pines
v. De los Angeles:

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

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always provisional, being ever subject to scrutiny and review by

the proper court. If the other party denies that rescission is
justified, 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.
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 final

_______________

11 35 SCRA 102.

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572 SUPREME COURT REPORTS ANNOTATED

Lim vs. Court of Appeals

judgment of the corresponding court that will conclusively and

finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting
party who believes itself injured must first file 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 final 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
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terminated for non-payment of the stipulated

consideration. We hereby confirm that rescission.
Having arrived at these conclusions, the Court no longer
finds 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.
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,
573

VOL. 182, FEBRUARY 26, 1990 573

Silliman University vs. Benarao

is hereby dismissed. Costs against the private respondents.

SO ORDERED.

       Narvasa, Gancayco, Griño-Aquino and Medialdea,

JJ., concur.

Petition granted; decision reversed.

Notes.—Where the real interest of the parties is the

sale of a piece of land but there was a mistake in
designating the particular lot to be sold in the document,
the mistake does not vitiate consent or affect the binding
effect of the contract. (Atilano vs. Atilano, 28 SCRA 231.)
Acceptance by the vendor of the partial payments under
a contract of sale constitutes an implied ratification of the
contract and bars its rejection. (Federation of United
Namarco Distributors vs. National Marketing Corp., 45
SCRA 867.)

——o0o——

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