G.R. No. 129760 December 29, 1998
RICARDO CHENG, petitioner, vs. RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.

FACTS

Respondent Ramon Genato owned two parcels of land. On September 6, 1989, he entered into a Contract to Sell with respondent-spouses Ernesto and Socorro Da Jose. The contract, duly annotated on the titles, required the Da Jose spouses to pay a P950,000 down payment 30 days after execution, following their verification of Genato’s titles. The Da Jose spouses requested and were granted a 30-day extension until November 5, 1989, to complete their verification. However, on October 13, 1989, Genato executed an Affidavit to Annul the Contract to Sell, alleging breach for non-payment of the down payment by October 6. This affidavit was not immediately annotated. On October 24, 1989, petitioner Ricardo Cheng offered to buy the lots. Genato showed him the titles with the annotated contract and the unannotated affidavit. Cheng issued a P50,000 check upon Genato’s assurance the prior contract would be annulled. Genato registered the affidavit on October 26. The Da Jose spouses discovered this on October 27 and immediately tendered payment, which Genato refused. Cheng then filed a notice of adverse claim.

ISSUE

Whether Genato validly rescinded the Contract to Sell with the Da Jose spouses, thereby allowing a subsequent sale to Cheng.

RULING

No, Genato’s rescission was invalid. The Court affirmed the Court of Appeals’ reversal of the trial court. Rescission under Article 1191 of the Civil Code requires a judicial decree unless the contract expressly grants the right of extrajudicial rescission and the other party agrees. The Contract to Sell contained no such stipulation. Furthermore, for rescission to be valid, the breach must be substantial and the rescinding party must serve a formal demand for performance, either judicially or by a notarial act. Genato’s unilateral execution of an affidavit, without prior demand on the Da Jose spouses, was insufficient. Critically, Genato had granted an extension until November 5, 1989. The Da Jose spouses’ obligation to pay was not yet due when Genato attempted rescission on October 13, and they were ready to pay upon discovery of the affidavit. Therefore, there was no breach to justify rescission. Cheng, who was aware of the prior annotated contract, cannot claim good faith. The Da Jose spouses, as the first buyers with an annotated contract, have a superior right. Genato was ordered to execute a deed of absolute sale in their favor upon payment of the balance. Cheng is entitled only to a refund of his P50,000.