CHENG vs GENATO 300 SCRA 722 (1998)

DOCTRINE: WHILE ART. 1544 IS NOT APPLICABLE SINCE THE CONTRACT IS A CONTRACT TO
SELL, ITS GOVERNING PRINCIPLE SHOULD NONETHELESS FIND APPLICATION, I.E., WHOEVER IS
FIRST IN TIME AND/ OR FIRST TO REGISTER IS THAT WHICH IS GIVEN PRIORITY (FIRST IN TIME,
STRONGER IN RIGHT/ FIRST IN TIME, PRIORITY IN RIGHT).

FACTS: Genato owned 2 parcels of land in Paradise Farms. He agreed with the Da
Jose spouses to enter into a contract to sell over the said parcels; it was embodied in a
public instrument annotated to the certificates of title. A 30-day extension was granted
them for the payment of the remaining purchase price. Unknown to them, Genato dealt
with Cheng regarding the lot, executed an Affidavit to annul the Contract to Sell,
appraised the latter of his decision to rescind the sale, and received a down payment
from Cheng upon the guarantee that the said contract to sell will be annulled. By chance,
Genato and the Da Jose spouses met at the Register of Deeds, where he again agreed
to continue the contract with them since the Spouses Da Jose protested that the 30-day
extension had not yet expired. Genato then advised Cheng of his decision; Chen
countered that the sale had already been perfected. Cheng executed an Affidavit of
Adverse Claim and had it annotated to the TCTs and sued for specific performance.

ISSUE: Who has a better title, Cheng or the Da Jose spouses?

HELD: Da Jose spouses.

In a Contract to Sell, paying the purchase price is a suspensive condition. If the

purchase price isn’t paid, there isn’t a contract to speak of. The contract between Genato
and Da Jose is a contract to sell. But the foregoing rule does not apply in this case
because the Sps. Da Jose weren’t in default in paying the purchase price because
Genato granted them a 30-day extension that hasn’t expired yet. Even if the contract to
sell is subsequently annulled, Genato is still required to give notice to the Sps. Da Jose
of his decision to rescind the contract.

Even assuming that the spouses defaulted, the contract also cannot be validly rescinded
because no notice was given to them. Thus, Cheng's contention that the Contract to Sell
between Genato and the Da Jose spouses was rescinded or resolved due to Genato's
unilateral rescission finds no support in this case.

The contract between Genato and Cheng is a contract to sell not a contract of sale. But
But even assuming that it should be treated as a conditional contract of sale, it did not
acquire any obligatory force since it was subject to a suspensive condition that the
earlier contract to sell between Genato and the Da Jose spouses should first be
cancelled or rescinded.

Both agreements involve a contract to sell, which makes Art. 1544 inapplicable since
neither a transfer of ownership nor a sales transaction took place. A contract to sell is
premised upon a suspensive condition—the full payment of the purchase price.

However, the governing principle of Art. 1544 should still apply, namely ‘first in time,
stronger in right.’ (first in time, priority in right). In this case, the Sps. Da Jose’s contract
wasn’t only first, but was also registered long before Cheng came into the picture.

Further, the Sps. Da Jose’s knowledge of the agreement between Genato and Cheng
won’t prejudice them except if Cheng manages to annotate his agreement with Genato
on the TCT in good faith ahead of the Sps. Da Jose. In contrast, Cheng’s knowledge of
the 1st transaction involving the Sps. Da Jose makes him in bad faith, even if he
registers the 2nd transaction first. Good faith must concur with registration for such right
to be enforceable.