Mercedes Gustilo v. Herminio Maravilla

Summary

This 1926 Supreme Court case involves a complex property dispute over the Malago/Mercedes plantation in Occidental Negros. The core issue was whether defendant Herminio Maravilla, who acquired the plantation through a deed in lieu of foreclosure, was bound to respect an existing seven-year lease to Vicente Ardosa and sublease to Felix Montinola Celis. The Supreme Court affirmed that Maravilla had full knowledge of the lease when acquiring the property, making him bound to respect it. The Court declared the sale contract rescinded due to Maravilla's breach in not honoring the lease obligations. However, the Supreme Court reversed the lower court's denial of reimbursement, holding that under Civil Code article 1303, when contracts are rescinded, parties must restore what they received. The decision established important precedents regarding good faith in land registration, the binding effect of known encumbrances on property purchasers, and the restoration obligations upon contract rescission.