Li Hang Sheong v. Venancio C. Diaz

Summary

This 1909 Supreme Court case involved a dispute over property rights when Li Hang Sheong purchased land under pacto de retro from Dy Payco, who had previously mortgaged the same property to Venancio C. Diaz. Before the purchase, Diaz promised through a notary public to cancel his mortgage upon payment of P2,000. Li Hang Sheong relied on this promise and paid P4,000 for the property. When Dy Payco subsequently paid P3,000 to Diaz (exceeding the promised P2,000), Diaz applied it to a current account instead of canceling the mortgage, then proceeded to foreclose. The Supreme Court reversed the lower court's decision, holding that Diaz's promise created a binding obligation and that he could not prejudice Li Hang Sheong by violating this agreement. The Court applied Article 1174 of the Civil Code and ordered annulment of the foreclosure sale, establishing important precedent regarding the binding nature of promises that induce reliance in property transactions.