SPOUSES FAUSTINO AND G.R. No.

172036
JOSEFINA GARCIA,
SPOUSES MELITON GALVEZ Present:
AND HELEN GALVEZ,
and CONSTANCIA ARCAIRA CARPIO, J., Chairperson,
represented by their Attorney-in-Fact BRION,
JULIANA O. MOTAS, DEL CASTILLO,
Petitioners, ABAD, and
PEREZ, JJ.

- versus -

COURT OF APPEALS,
EMERLITA DE LA CRUZ, Promulgated:
and DIOGENES G. BARTOLOME,
Respondents. April 23, 2010
x--------------------------------------------------x

DECISION

CARPIO, J.:

G.R. No. 172036 is a petition for review[1] assailing the Decision[2] promulgated on
25 January 2006 as well as the Resolution[3] promulgated on 16 March 2006 of the
Court of Appeals (appellate court) in CA-G.R. CV No. 63651. The appellate court
reversed and set aside the decision of Branch 23 of the Regional Trial Court of Trece
Martires City, Cavite (trial court) in Civil Case No. TM-622. The appellate court
ordered Emerlita Dela Cruz (Dela Cruz) to return to spouses Faustino and Josefina
Garcia, spouses Meliton and Helen Galvez, and Constancia Arcaira (collectively,
petitioners) the amount in excess of one-half percent of P1,500,000. Dela Cruzs co-
defendant, Diogenes Bartolome (Bartolome), did not incur any liability.

The appellate court narrated the facts as follows:

On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and
spouses Meliton and Helen Galvez (herein appellees) and defendant
Emerlita dela Cruz (herein appellant) entered into a Contract to Sell
wherein the latter agreed to sell to the former, for Three Million One
Hundred Seventy Thousand Two Hundred Twenty (P3,170,220.00)
Pesos, five (5) parcels of land situated at Tanza, Cavite particularly known
as Lot Nos. 47, 2768, 2776, 2767, 2769 and covered by Transfer
Certificate of Title Nos. T-340674, T-340673, T-29028, T-29026, T-
29027, respectively. At the time of the execution of the said contract, three
of the subject lots, namely, Lot Nos. 2776, 2767, and 2769 were registered
in the name of one Angel Abelida from whom defendant allegedly
acquired said properties by virtue of a Deed of Absolute Sale dated March
31, 1989.

As agreed upon, plaintiffs shall make a down payment of Five Hundred

Thousand (P500,000.00) Pesos upon signing of the contract. The balance
of Two Million Six Hundred Seventy Thousand Two Hundred Twenty
(P2,670,220.00) Pesos shall be paid in three installments, viz: Five
Hundred Thousand (P500,000.00) Pesos on June 30, 1993; Five Hundred
Thousand (P500,000.00) Pesos on August 30, 1993; One Million Six
Hundred Seventy Thousand Two Hundred Twenty (P1,670,220.00) Pesos
on December 31, 1993.

On its due date, December 31, 1993, plaintiffs failed to pay the last
installment in the amount of One Million Six Hundred Seventy Thousand
Two Hundred Twenty (P1,670,220.00) Pesos.Sometime in July 1995,
plaintiffs offered to pay the unpaid balance, which had already been
delayed by one and [a] half year, which defendant refused to accept. On
September 23, 1995, defendant sold the same parcels of land to intervenor
Diogenes G. Bartolome for Seven Million Seven Hundred Ninety Three
Thousand (P7,793,000.00) Pesos.

In order to compel defendant to accept plaintiffs payment in full

satisfaction of the purchase price and, thereafter, execute the necessary
document of transfer in their favor, plaintiffs filed before the RTC a
complaint for specific performance.

In their complaint, plaintiffs alleged that they discovered the infirmity of

the Deed of Absolute Sale covering Lot Nos. 2776, 2767 and 2769,
between their former owner Angel Abelida and defendant, the same being
spurious because the signature of Angel Abelida and his wife were
falsified; that at the time of the execution of the said deed, said spouses
were in the United States; that due to their apprehension regarding the
authenticity of the document, they withheld payment of the last
installment which was supposedly due on December 31, 1993; that they
tendered payment of the unpaid balance sometime in July 1995, after
Angel Abelida ratified the sale made in favor [of] defendant, but defendant
refused to accept their payment for no jusitifiable reason.

In her answer, defendant denied the allegation that the Deed of Absolute
Sale was spurious and argued that plaintiffs failed to pay in full the agreed
purchase price on its due date despite repeated demands; that the Contract
to Sell contains a proviso that failure of plaintiffs to pay the purchase price
in full shall cause the rescission of the contract and forfeiture of one-half
(1/2%) percent of the total amount paid to defendant; that a notarized letter
stating the indended rescission of the contract to sell and forfeiture of
payments was sent to plaintiffs at their last known address but it was
returned with a notation insufficient address.
 Intervenor Diogenes G. Bartolome filed a complaint in intervention
alleging that the Contract to Sell dated May 31, 1993 between plaintiffs
and defendant was rescinded and became ineffective due to unwarranted
failure of the plaintiffs to pay the unpaid balance of the purchase price on
or before the stipulated date; that he became interested in the subject
parcels of land because of their clean titles; that he purchased the same
from defendant by virtue of an Absolute Deed of Sale executed on
September 23, 1995 in consideration of the sum of Seven Million Seven
Hundred Ninety Three Thousand (P7,793,000.00) Pesos.[4]

The Decision of the Trial Court

In its Decision dated 15 April 1999, the trial court ruled that Dela Cruzs
rescission of the contract was not valid. The trial court applied Republic Act No.
6552 (Maceda Law) and stated that Dela Cruz is not allowed to unilaterally cancel
the Contract to Sell. The trial court found that petitioners are justified in withholding
the payment of the balance of the consideration because of the alleged spurious sale
between Angel Abelida and Emerlita Dela Cruz. Moreover, intervenor Diogenes
Bartolome (Bartolome) is not a purchaser in good faith because he was aware of
petitioners interest in the subject parcels of land.

The dispositive portion of the trial courts decision reads:

ACCORDINGLY, defendant Emerlita dela Cruz is ordered to accept the
balance of the purchase price in the amount of P1,670,220.00 within ten
(10) days after the judgment of this Court in the above-entitled case has
become final and executory and to execute immediately the final deed of
sale in favor of plaintiffs.

Defendant is further directed to pay plaintiffs the amount of P400,000.00

as moral damages and P100,000.00 as exemplary damages.

The deed of sale executed by defendant Emerlita dela Cruz in favor of

Atty. Diogenes Bartolome is declared null and void and the amount
of P7,793,000.00 which was paid by intervenor Bartolome to Emerlita
dela Cruz as the consideration of the sale of the five (5) parcels of land is
hereby directed to be returned by Emerlita dela Cruz to Atty. Diogenes
Bartolome within ten (10) days from the finality of judgment.

Further, defendant is directed to pay plaintiff the sum of P100,000.00 as

attorneys fees.

SO ORDERED.[5]

Dela Cruz and Bartolome appealed from the judgment of the trial court.
 The Decision of the Appellate Court

The appellate court reversed the trial courts decision and dismissed Civil Case
No. TM-622. Dela Cruzs obligation under the Contract to Sell did not arise because
of petitioners undue failure to pay in full the agreed purchase price on the stipulated
date. Moreover, judicial action for the rescission of a contract is not necessary where
the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions. The dispositive portion of the appellate courts decision reads:

WHEREFORE, in view of all the foregoing, the appealed decision of the

Regional Trial Court is hereby REVERSED and SET ASIDE and Civil
Case No. TM-622 is, consequently, DISMISSED. Defendant is however
ordered to return to plaintiffs the amount in excess of one-half (1/2%)
percent of One Million Five Hundred Thousand (P1,500,000.00) Pesos
which was earlier paid by plaintiffs.

SO ORDERED.[6]

The appellate court likewise resolved to deny petitioners Motion for

Reconsideration for lack of merit.[7]

Hence, this petition.

Issues

Petitioners raised the following grounds for the grant of their petition:

I. The Honorable Court of Appeals erred when it failed to consider the

provisions of Republic Act 6552, otherwise known as the Maceda Law.

II. The Honorable Court of Appeals erred when it failed to consider

that Respondent Dela Cruz could not pass title over the three (3)
properties at the time she entered to a Contract to Sell as her purported
ownership was tainted with fraud, thereby justifying Petitioners
Spouses Garcia, Spouses Galvez and Arcairas suspension of payment.

III. The Honorable Court of Appeals gravely erred when it failed to

consider that Respondent Dela Cruzs rescission was done in evident
bad faith and malice on account of a second sale she entered with
Respondent Bartolome for a much bigger amount.
 IV. The Honorable Court of Appeals erred when it failed to declare
Respondent Bartolome is not an innocent purchaser for value despite
the presence of evidence as to his bad faith.[8]

The Courts Ruling

The petition has no merit.

Both parties admit the following: (1) the contract between petitioners and Dela Cruz
was a contract to sell; (2) petitioners failed to pay in full the agreed purchase price
of the subject property on the stipulated date; and (3) Dela Cruz did not want to
accept petitioners offer of payment and did not want to execute a document of
transfer in petitioners favor.

The pertinent provisions of the contract, denominated Contract to Sell, between the
parties read:
Failure on the part of the vendees to comply with the herein stipulation as
to the terms of payment shall cause the rescission of this contract and the
payments made shall be returned to the vendees subject however, to
forfeiture in favor of the Vendor equivalent to 1/2% of the total amount
paid.

xxx

It is hereby agreed and covenanted that possession shall be retained by the

VENDOR until a Deed of Absolute Sale shall be executed by her in favor
of the Vendees. Violation of this provision shall authorize/empower the
VENDOR [to] demolish any construction/improvement without need of
judicial action or court order.

That upon and after the full payment of the balance, a Deed of Absolute
Sale shall be executed by the Vendor in favor of the Vendees.

That the duplicate original of the owners copy of the Transfer Certificate
of Title of the above subject parcels of land shall remain in the possession
of the Vendor until the execution of the Deed of Absolute Sale.[9]

Contracts are law between the parties, and they are bound by its stipulations. It is
clear from the above-quoted provisions that the parties intended their agreement to
be a Contract to Sell: Dela Cruz retains ownership of the subject lands and does not
have the obligation to execute a Deed of Absolute Sale until petitioners payment of
the full purchase price.Payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the obligation of the vendor
to convey title from becoming effective. Strictly speaking, there can be no rescission
or resolution of an obligation that is still non-existent due to the non-happening of
the suspensive condition.[10] Dela Cruz is thus not obliged to execute a Deed of
Absolute Sale in petitioners favor because of petitioners failure to make full payment
on the stipulated date.

We ruled thus in Pangilinan v. Court of Appeals:[11]

Article 1592 of the New Civil Code, requiring demand by suit or by
notarial act in case the vendor of realty wants to rescind does not apply to
a contract to sell but only to contract of sale. In contracts to sell, where
ownership is retained by the seller and is not to pass until the full payment,
such payment, as we said, is a positive suspensive condition, the failure of
which is not a breach, casual or serious, but simply an event that prevented
the obligation of the vendor to convey title from acquiring binding force.
To argue that there was only a casual breach is to proceed from the
assumption that the contract is one of absolute sale, where non-payment
is a resolutory condition, which is not the case.

The applicable provision of law in instant case is Article 1191 of the New
Civil Code which provides as follows:

Art. 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and

the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.

The Court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law. (1124)

Pursuant to the above, the law makes it available to the injured party
alternative remedies such as the power to rescind or enforce fulfillment of
the contract, with damages in either case if the obligor does not comply
with what is incumbent upon him. There is nothing in this law which
prohibits the parties from entering into an agreement that a violation of
the terms of the contract would cause its cancellation even without court
intervention. The rationale for the foregoing is that in contracts providing
 for automatic revocation, judicial intervention is necessary not for
purposes of obtaining a judicial declaration rescinding a contract already
deemed rescinded by virtue of an agreement providing for rescission even
without judicial intervention, but in order to determine whether or not the
rescission was proper. Where such propriety is sustained, the decision of
the court will be merely declaratory of the revocation, but it is not in itself
the revocatory act. Moreover, the vendors right in contracts to sell with
reserved title to extrajudicially cancel the sale upon failure of the vendee
to pay the stipulated installments and retain the sums and installments
already received has long been recognized by the well-established
doctrine of 39 years standing. The validity of the stipulation in the contract
providing for automatic rescission upon non-payment cannot be doubted.
It is in the nature of an agreement granting a party the right to rescind a
contract unilaterally in case of breach without need of going to
court. Thus, rescission under Article 1191 was inevitable due to
petitioners failure to pay the stipulated price within the original period
fixed in the agreement.

Petitioners justify the delay in payment by stating that they had notice that Dela Cruz
is not the owner of the subject land, and that they took pains to rectify the alleged
defect in Dela Cruzs title. Be that as it may, Angel Abelidas (Abelida)
affidavit[12] confirming the sale to Dela Cruz only serves to strengthen Dela Cruzs
claim that she is the absolute owner of the subject lands at the time the Contract to
Sell between herself and petitioners was executed. Dela Cruz did not conceal from
petitioners that the title to Lot Nos. 2776, 2767 and 2769 still remained under
Abelidas name, and the Contract to Sell[13] even provided that petitioners
should shoulder the attendant expenses for the transfer of ownership from
Abelida to Dela Cruz.

The trial court erred in applying R.A. 6552,[14] or the Maceda Law, to the present
case. The Maceda Law applies to contracts of sale of real estate on installment
payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants. The subject lands, comprising five
(5) parcels and aggregating 69,028 square meters, do not comprise residential real
estate within the contemplation of the Maceda Law.[15] Moreover, even if we apply
the Maceda Law to the present case, petitioners offer of payment to Dela Cruz was
made a year and a half after the stipulated date. This is beyond the sixty-day grace
period under Section 4 of the Maceda Law.[16] Petitioners still cannot use the second
sentence of Section 4 of the Maceda Law against Dela Cruz for Dela Cruzs alleged
failure to give an effective notice of cancellation or demand for rescission because
Dela Cruz merely sent the notice to the address supplied by petitioners in the
Contract to Sell.

It is undeniable that petitioners failed to pay the balance of the purchase price on the
stipulated date of the Contract to Sell. Thus, Dela Cruz is within her rights to sell the
subject lands to Bartolome. Neither Dela Cruz nor Bartolome can be said to be in
bad faith.

WHEREFORE, we DENY the petition. We AFFIRM in toto the Court of Appeals

Decision promulgated on 25 January 2006 as well as the Resolution promulgated on
16 March 2006 in CA-G.R. CV No. 63651.

Costs against petitioners.

SO ORDERED.

MILA A. REYES , G.R. No. 188064

Petitioner,
Present:

CARPIO, J., Chairperson,

NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.

VICTORIA T. TUPARAN, Promulgated:

Respondent. June 1, 2011

X -----------------------------------------------------------------------------------------------------
X

DECISION

MENDOZA, J.:

Subject of this petition for review is the February 13, 2009 Decision[1] of the
Court of Appeals (CA) which affirmed with modification the February 22, 2006
Decision[2]of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil
Case No. 3945-V-92, an action for Rescission of Contract with Damages.

On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for

Rescission of Contract with Damages against Victoria T.
Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among
others, that she was the registered owner of a 1,274 square meter residential and
commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-
4130; that on that property, she put up a three-storey commercial building known as
RBJ Building and a residential apartment building; that since 1990, she had been
operating a drugstore and cosmetics store on the ground floor of RBJ Building where
she also had been residing while the other areas of the buildings including the
sidewalks were being leased and occupied by tenants and street vendors.

In December 1989, respondent leased from petitioner a space on the ground

floor of the RBJ Building for her pawnshop business for a monthly rental of
₱4,000.00. A close friendship developed between the two which led to the
respondent investing thousands of pesos in petitioners financing/lending business
from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month.

On June 20, 1988, petitioner mortgaged the subject real properties to the
Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of
₱2,000,000.00 payable in installments. On November 15, 1990, petitioners
outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then decided
to sell her real properties for at least ₱6,500,000.00 so she could liquidate her bank
loan and finance her businesses. As a gesture of friendship, respondent verbally
offered to conditionally buy petitioners real properties for ₱4,200,000.00 payable on
installment basis without interest and to assume the bank loan. To induce the
petitioner to accept her offer, respondent offered the following
conditions/concessions:

1. That the conditional sale will be cancelled if the plaintiff

(petitioner) can find a buyer of said properties for the amount of
₱6,500,000.00 within the next three (3) months provided all amounts
received by the plaintiff from the defendant (respondent) including
payments actually made by defendant to Farmers Savings and Loan
Bank would be refunded to the defendant with additional interest of six
(6%) monthly;

2. That the plaintiff would continue using the space occupied by

her and drugstore and cosmetics store without any rentals for the
duration of the installment payments;

3. That there will be a lease for fifteen (15) years in favor of the
plaintiff over the space for drugstore and cosmetics store at a monthly
rental of only ₱8,000.00 after full payment of the stipulated installment
payments are made by the defendant;

4. That the defendant will undertake the renewal and payment of

the fire insurance policies on the two (2) subject buildings following
the expiration of the then existing fire insurance policy of the plaintiff
 up to the time that plaintiff is fully paid of the total purchase price of
₱4,200,000.00.[3]

After petitioners verbal acceptance of all the conditions/concessions, both

parties worked together to obtain FSL Banks approval for respondent to assume her
(petitioners) outstanding bank account. The assumption would be part of
respondents purchase price for petitioners mortgaged real properties. FSL Bank
approved their proposal on the condition that petitioner would sign or remain as co-
maker for the mortgage obligation assumed by respondent.

On November 26, 1990, the parties and FSL Bank executed the corresponding
Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to
their close personal friendship and business relationship, both parties chose not to
reduce into writing the other terms of their agreement mentioned in paragraph 11 of
the complaint. Besides, FSL Bank did not want to incorporate in the Deed of
Conditional Sale of Real Properties with Assumption of Mortgage any other side
agreement between petitioner and respondent.

Under the Deed of Conditional Sale of Real Properties with Assumption of

Mortgage, respondent was bound to pay the petitioner a lump sum of ₱1.2 million
pesos without interest as part of the purchase price in three (3) fixed installments as
follows:

a) ₱200,000.00 due January 31, 1991

b) ₱200,000.00 due June 30, 1991
c) ₱800,000.00 due December 31, 1991

Respondent, however, defaulted in the payment of her obligations on their due

dates. Instead of paying the amounts due in lump sum on their respective maturity
dates, respondent paid petitioner in small amounts from time to time. To compensate
for her delayed payments, respondent agreed to pay petitioner an interest of 6% a
month. As of August 31, 1992, respondent had only paid ₱395,000.00, leaving a
balance of ₱805,000.00 as principal on the unpaid installments and ₱466,893.25 as
unpaid accumulated interest.

Petitioner further averred that despite her success in finding a prospective

buyer for the subject real properties within the 3-month period agreed upon,
respondent reneged on her promise to allow the cancellation of their deed of
conditional sale. Instead, respondent became interested in owning the subject real
properties and even wanted to convert the entire property into a modern commercial
complex. Nonetheless, she consented because respondent repeatedly professed
friendship and assured her that all their verbal side agreement would be honored as
shown by the fact that since December 1990, she (respondent) had not collected any
rentals from the petitioner for the space occupied by her drugstore and cosmetics
store.

On March 19, 1992, the residential building was gutted by fire which caused
the petitioner to lose rental income in the amount of ₱8,000.00 a month since April
1992. Respondent neglected to renew the fire insurance policy on the subject
buildings.

Since December 1990, respondent had taken possession of the subject real
properties and had been continuously collecting and receiving monthly rental
income from the tenants of the buildings and vendors of the sidewalk fronting the
RBJ building without sharing it with petitioner.

On September 2, 1992, respondent offered the amount of ₱751,000.00 only

payable on September 7, 1992, as full payment of the purchase price of the subject
real properties and demanded the simultaneous execution of the corresponding deed
of absolute sale.

Respondents Answer

Respondent countered, among others, that the tripartite agreement

erroneously designated by the petitioner as a Deed of Conditional Sale of Real
Property with Assumption of Mortgage was actually a pure and absolute contract of
sale with a term period. It could not be considered a conditional sale because the
acquisition of contractual rights and the performance of the obligation therein did
not depend upon a future and uncertain event. Moreover, the capital gains and
documentary stamps and other miscellaneous expenses and real estate taxes up to
1990 were supposed to be paid by petitioner but she failed to do so.

Respondent further averred that she successfully rescued the properties from
a definite foreclosure by paying the assumed mortgage in the amount of
₱2,278,078.13 plus interest and other finance charges. Because of her payment, she
was able to obtain a deed of cancellation of mortgage and secure a release of
mortgage on the subject real properties including petitioners ancestral residential
property in Sta. Maria, Bulacan.

Petitioners claim for the balance of the purchase price of the subject real
properties was baseless and unwarranted because the full amount of the purchase
price had already been paid, as she did pay more than ₱4,200,000.00, the agreed
purchase price of the subject real properties, and she had even introduced
improvements thereon worth more than ₱4,800,000.00. As the parties could no
longer be restored to their original positions, rescission could not be resorted to.
 Respondent added that as a result of their business relationship, petitioner was
able to obtain from her a loan in the amount of ₱400,000.00 with interest and took
several pieces of jewelry worth ₱120,000.00. Petitioner also failed and refused to
pay the monthly rental of ₱20,000.00 since November 16, 1990 up to the present for
the use and occupancy of the ground floor of the building on the subject real
property, thus, accumulating arrearages in the amount of ₱470,000.00 as of October
1992.

Ruling of the RTC

On February 22, 2006, the RTC handed down its decision finding that respondent
failed to pay in full the ₱4.2 million total purchase price of the subject real properties
leaving a balance of ₱805,000.00. It stated that the checks and receipts presented by
respondent refer to her payments of the mortgage obligation with FSL Bank and not
the payment of the balance of ₱1,200,000.00. The RTC also considered the Deed of
Conditional Sale of Real Property with Assumption of Mortgage executed by and
among the two parties and FSL Bank a contract to sell, and not a contract of sale. It
was of the opinion that although the petitioner was entitled to a rescission of the
contract, it could not be permitted because her non-payment in full of the purchase
price may not be considered as substantial and fundamental breach of the contract
as to defeat the object of the parties in entering into the contract.[4] The RTC believed
that the respondents offer stated in her counsels letter dated September 2, 1992 to
settle what she thought was her unpaid balance of ₱751,000.00 showed her sincerity
and willingness to settle her obligation. Hence, it would be more equitable to give
respondent a chance to pay the balance plus interest within a given period of time.

Finally, the RTC stated that there was no factual or legal basis to award damages
and attorneys fees because there was no proof that either party acted fraudulently or
in bad faith.

Thus, the dispositive portion of the RTC Decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Allowing the defendant to pay the plaintiff within thirty

(30) days from the finality hereof the amount of ₱805,000.00,
representing the unpaid purchase price of the subject property,
with interest thereon at 2% a month from January 1, 1992 until
fully paid. Failure of the defendant to pay said amount within the
said period shall cause the automatic rescission of the contract
(Deed of Conditional Sale of Real Property with Assumption of
Mortgage) and the plaintiff and the defendant shall be restored to
their former positions relative to the subject property with each
returning to the other whatever benefits each derived from the
transaction;
 2. Directing the defendant to allow the plaintiff to continue
using the space occupied by her for drugstore and cosmetic store
without any rental pending payment of the aforesaid balance of the
purchase price.

3. Ordering the defendant, upon her full payment of the

purchase price together with interest, to execute a contract of lease
for fifteen (15) years in favor of the plaintiff over the space for the
drugstore and cosmetic store at a fixed monthly rental
of ₱8,000.00; and

4. Directing the plaintiff, upon full payment to her by the

defendant of the purchase price together with interest, to execute
the necessary deed of sale, as well as to pay the Capital Gains Tax,
documentary stamps and other miscellaneous expenses necessary
for securing the BIR Clearance, and to pay the real estate taxes due
on the subject property up to 1990, all necessary to transfer
ownership of the subject property to the defendant.

No pronouncement as to damages, attorneys fees and costs.

SO ORDERED.[5]

Ruling of the CA

On February 13, 2009, the CA rendered its decision affirming with modification the
RTC Decision. The CA agreed with the RTC that the contract entered into by the
parties is a contract to sell but ruled that the remedy of rescission could not apply
because the respondents failure to pay the petitioner the balance of the purchase price
in the total amount of ₱805,000.00 was not a breach of contract, but merely an event
that prevented the seller (petitioner) from conveying title to the purchaser
(respondent). It reasoned that out of the total purchase price of the subject property
in the amount of ₱4,200,000.00, respondents remaining unpaid balance was only
₱805,000.00. Since respondent had already paid a substantial amount of the purchase
price, it was but right and just to allow her to pay the unpaid balance of the purchase
price plus interest. Thus, the decretal portion of the CA Decision reads:

WHEREFORE, premises considered, the Decision dated 22

February 2006 and Order dated 22 December 2006 of the Regional
Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-
V-92 are AFFIRMED with MODIFICATION in that defendant-
appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-
appellee/appellant Mila A. Reyes, within 30 days from finality of
this Decision, the amount of ₱805,000.00 representing the unpaid
balance of the purchase price of the subject property, plus interest
 thereon at the rate of 6% per annum from 11 September 1992 up to
finality of this Decision and, thereafter, at the rate of 12% per
annum until full payment. The ruling of the trial court on the
automatic rescission of the Deed of Conditional Sale with
Assumption of Mortgage is hereby DELETED. Subject to the
foregoing, the dispositive portion of the trial courts decision is
AFFIRMED in all other respects.

SO ORDERED.[6]

After the denial of petitioners motion for reconsideration and respondents

motion for partial reconsideration, petitioner filed the subject petition for review
praying for the reversal and setting aside of the CA Decision anchored on the
following
ASSIGNMENT OF ERRORS

A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED

ITS DISCRETION IN DISALLOWING THE OUTRIGHT RESCISSION OF
THE SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES
WITH ASSUMPTION OF MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARANS FAILURE TO PAY PETITIONER REYES
THE BALANCE OF THE PURCHASE PRICE OF ₱805,000.00 IS NOT A
BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT
PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE
SUBJECT REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO
PAY THE BALANCE OF THE TOTAL PURCHASE PRICE OF ₱805,000.00
WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF
₱4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF
₱1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE
COURT OF APPEALS AFFIRMED AND ADOPTED THE TRIAL COURTS
CONCLUSION THAT THE RESPONDENTS NON-PAYMENT OF THE
₱805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.

B. THE COURT OF APPEALS SERIOUSLY ERRED AND

ABUSED ITS DISCRETION IN DISREGARDING AS GROUND
FOR THE RESCISSION OF THE SUBJECT CONTRACT THE
OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED
BY THE RESPONDENT AGAINST THE PETITIONER WHICH
BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A
GRACE PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT
WITHIN WHICH TO PAY TO THE PETITIONER THE
₱805,000.00 PLUS INTEREST THEREON.

C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS

NOT ENTITLED TO THE RESCISSION OF THE SUBJECT
CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN REDUCING THE
INTEREST ON THE ₱805,000.00 TO ONLY 6% PER ANNUM
STARTING FROM THE DATE OF FILING OF THE
COMPLAINT ON SEPTEMBER 11, 1992 DESPITE THE
PERSONAL COMMITMENT OF THE RESPONDENT AND
AGREEMENT BETWEEN THE PARTIES THAT RESPONDENT
WILL PAY INTEREST ON THE ₱805,000.00 AT THE RATE OF
6% MONTHLY STARTING THE DATE OF DELINQUENCY ON
DECEMBER 31, 1991.

D. THE COURT OF APPEALS SERIOUSLY ERRED AND

ABUSED ITS DISCRETION IN THE APPRECIATION AND/OR
MISAPPRECIATION OF FACTS RESULTING INTO THE
DENIAL OF THE CLAIM OF PETITIONER REYES FOR
ACTUAL DAMAGES WHICH CORRESPOND TO THE
MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT
REAL PROPERTIES WHICH RESPONDENT TUPARAN
COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN
WITH THE UNPAID BALANCE OF ₱805,000.00 AND DESPITE
THE FACT THAT RESPONDENT DID NOT CONTROVERT
SUCH CLAIM OF THE PETITIONER AS CONTAINED IN HER
AMENDED COMPLAINT DATED APRIL 22, 2006.

E. THE COURT OF APPEALS SERIOUSLY ERRED AND

ABUSED ITS DISCRETION IN THE APPRECIATION OF FACTS
RESULTING INTO THE DENIAL OF THE CLAIM OF
PETITIONER REYES FOR THE ₱29,609.00 BACK RENTALS
THAT WERE COLLECTED BY RESPONDENT TUPARAN
FROM THE OLD TENANTS OF THE PETITIONER.

F. THE COURT OF APPEALS SERIOUSLY ERRED AND

ABUSED ITS DISCRETION IN DENYING THE PETITIONERS
EARLIER URGENT MOTION FOR ISSUANCE OF A
PRELIMINARY MANDATORY AND PROHIBITORY
INJUNCTION DATED JULY 7, 2008 AND THE SUPPLEMENT
THERETO DATED AUGUST 4, 2008 THEREBY CONDONING
THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO
ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE
PETITIONERS THREE (3) SEPARATE MOTIONS FOR
PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING
ORDER, ACCOUNTING AND DEPOSIT OF RENTAL INCOME
DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7,
2006 THEREBY PERMITTING THE RESPONDENT TO
UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY
COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT
REAL PROPERTIES WITHOUT ANY ACCOUNTING AND
COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS
AND THE PETITIONERS URGENT MOTION TO DIRECT
DEFENDANT VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF
 TAXES ON THE SUBJECT REAL PROPERTIES
DATED JANUARY 13, 2007 THEREBY EXPOSING THE
SUBJECT REAL PROPERTIES TO IMMINENT
AUCTION SALE BY THE CITY TREASURER
OF VALENZUELA CITY.

G. THE COURT OF APPEALS SERIOUSLY ERRED AND

ABUSED ITS DISCRETION IN DENYING THE PETITIONERS
CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES AGAINST THE RESPONDENT.

In sum, the crucial issue that needs to be resolved is whether or not the CA
was correct in ruling that there was no legal basis for the rescission of the Deed of
Conditional Sale with Assumption of Mortgage.

Position of the Petitioner

The petitioner basically argues that the CA should have granted the rescission of the
subject Deed of Conditional Sale of Real Properties with Assumption of Mortgage
for the following reasons:

1. The subject deed of conditional sale is a reciprocal obligation

whose outstanding characteristic is reciprocity arising from identity of
cause by virtue of which one obligation is correlative of the other.

2. The petitioner was rescinding not enforcing the subject Deed

of Conditional Sale pursuant to Article 1191 of the Civil Code because
of the respondents failure/refusal to pay the ₱805,000.00 balance of the
total purchase price of the petitioners properties within the stipulated
period ending December 31, 1991.

3. There was no slight or casual breach on the part of the

respondent because she (respondent) deliberately failed to comply with
her contractual obligations with the petitioner by violating the terms or
manner of payment of the ₱1,200,000.00 balance and unjustly enriched
herself at the expense of the petitioner by collecting all rental payments
for her personal benefit and enjoyment.

Furthermore, the petitioner claims that the respondent is liable to pay interest
at the rate of 6% per month on her unpaid installment of ₱805,000.00 from the date
of the delinquency, December 31, 1991, because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as well
as for the back rentals in the amount of ₱29,609.00 has been fully substantiated and,
therefore, should have been granted by the CA. Her claim for moral and exemplary
damages and attorneys fees has been likewise substantiated.
Position of the Respondent

The respondent counters that the subject Deed of Conditional Sale with Assumption
of Mortgage entered into between the parties is a contract to sell and not a contract
of sale because the title of the subject properties still remains with the petitioner as
she failed to pay the installment payments in accordance with their agreement.

Respondent echoes the RTC position that her inability to pay the full balance on the
purchase price may not be considered as a substantial and fundamental breach of the
subject contract and it would be more equitable if she would be allowed to pay the
balance including interest within a certain period of time. She claims that as early as
1992, she has shown her sincerity by offering to pay a certain amount which was,
however, rejected by the petitioner.

Finally, respondent states that the subject deed of conditional sale explicitly provides
that the installment payments shall not bear any interest. Moreover, petitioner failed
to prove that she was entitled to back rentals.
The Courts Ruling

The petition lacks merit.

The Court agrees with the ruling of the courts below that the subject Deed of
Conditional Sale with Assumption of Mortgage entered into by and among the two
parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract
of sale. The subject contract was correctly classified as a contract to sell based on
the following pertinent stipulations:

8. That the title and ownership of the subject real properties

shall remain with the First Party until the full payment of the
Second Party of the balance of the purchase price and liquidation
of the mortgage obligation of ₱2,000,000.00. Pending payment of
the balance of the purchase price and liquidation of the mortgage
obligation that was assumed by the Second Party, the Second Party
shall not sell, transfer and convey and otherwise encumber the
subject real properties without the written consent of the First and
Third Party.

9. That upon full payment by the Second Party of the full

balance of the purchase price and the assumed mortgage obligation
herein mentioned the Third Party shall issue the corresponding
Deed of Cancellation of Mortgage and the First Party shall execute
the corresponding Deed of Absolute Sale in favor of the Second
Party.[7]
 Based on the above provisions, the title and ownership of the subject
properties remains with the petitioner until the respondent fully pays the balance of
the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall
then issue the corresponding deed of cancellation of mortgage and the petitioner
shall execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioners obligation to sell the subject properties becomes

demandable only upon the happening of the positive suspensive condition, which is
the respondents full payment of the purchase price. Without respondents full
payment, there can be no breach of contract to speak of because petitioner has no
obligation yet to turn over the title. Respondents failure to pay in full the purchase
price is not the breach of contract contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the petitioner from being bound to convey
title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is
enlightening:

The Court holds that the contract entered into by the Spouses
Nabus and respondents was a contract to sell, not a contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code,

thus:

Art. 1458. By the contract of sale, one of the contracting

parties obligates himself to transfer the ownership of and to deliver
a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

xxx

Sale, by its very nature, is a consensual contract because it is

perfected by mere consent. The essential elements of a contract of
sale are the following:

a) Consent or meeting of the minds, that is, consent to

transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be

considered as a Contract of Sale because the first essential element
is lacking. In a contract to sell, the prospective seller explicitly
reserves the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the
happening of an event, which for present purposes we shall take as
the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is delivered
to him. In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and, thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer.

xxx xxx xxx

Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, the
prospective sellers obligation to sell the subject property by
entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which
states:

Art. 1479. A promise to buy and sell a determinate thing for a

price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate

thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract

whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be

considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it
is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated. However, if
the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of
the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive

condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.

Further, Chua v. Court of Appeals, cited this distinction

between a contract of sale and a contract to sell:
 In a contract of sale, the title to the property passes to the
vendee upon the delivery of the thing sold; in a contract to sell,
ownership is, by agreement, reserved in the vendor and is not to
pass to the vendee until full payment of the purchase price.
Otherwise stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the contract
is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.

It is not the title of the contract, but its express terms or

stipulations that determine the kind of contract entered into by the
parties. In this case, the contract entitled Deed of Conditional
Sale is actually a contract to sell. The contract stipulated that as
soon as the full consideration of the sale has been paid by the
vendee, the corresponding transfer documents shall be executed by
the vendor to the vendee for the portion sold. Where the vendor
promises to execute a deed of absolute sale upon the completion by
the vendee of the payment of the price, the contract is only a
contract to sell. The aforecited stipulation shows that the vendors
reserved title to the subject property until full payment of the
purchase price.

xxx

Unfortunately for the Spouses Pacson, since the Deed of

Conditional Sale executed in their favor was merely a contract to
sell, the obligation of the seller to sell becomes demandable only
upon the happening of the suspensive condition. The full payment
of the purchase price is the positive suspensive condition, the
failure of which is not a breach of contract, but simply an event that
prevented the obligation of the vendor to convey title from acquiring
binding force. Thus, for its non-fulfilment, there is no contract to
speak of, the obligor having failed to perform the suspensive
condition which enforces a juridical relation. With this
circumstance, there can be no rescission or fulfillment of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the obligors
failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation. [Emphases and
underscoring supplied]

Consistently, the Court handed down a similar ruling in the 2010 case
of Heirs of Atienza v. Espidol, [9] where it was written:

Regarding the right to cancel the contract for non-payment of

an installment, there is need to initially determine if what the parties
had was a contract of sale or a contract to sell. In a contract of sale,
 the title to the property passes to the buyer upon the delivery of the
thing sold. In a contract to sell, on the other hand, the ownership
is, by agreement, retained by the seller and is not to pass to the
vendee until full payment of the purchase price. In the contract of
sale, the buyers non-payment of the price is a negative resolutory
condition; in the contract to sell, the buyers full payment of the
price is a positive suspensive condition to the coming into effect of
the agreement. In the first case, the seller has lost and cannot
recover the ownership of the property unless he takes action to set
aside the contract of sale. In the second case, the title simply
remains in the seller if the buyer does not comply with the condition
precedent of making payment at the time specified in the contract.
Here, it is quite evident that the contract involved was one of a
contract to sell since the Atienzas, as sellers, were to retain title of
ownership to the land until respondent Espidol, the buyer, has paid
the agreed price. Indeed, there seems no question that the parties
understood this to be the case.

Admittedly, Espidol was unable to pay the second installment

of P1,750,000.00 that fell due in December 2002. That payment,
said both the RTC and the CA, was a positive suspensive condition
failure of which was not regarded a breach in the sense that there
can be no rescission of an obligation (to turn over title) that did not
yet exist since the suspensive condition had not taken place. x x x.
[Emphases and underscoring supplied]

Thus, the Court fully agrees with the CA when it resolved: Considering,
however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes
(petitioner) and that out of the total purchase price of the subject property in the
amount of ₱4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is
only ₱805,000.00, a substantial amount of the purchase price has already been
paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the
purchase price to Reyes.[10]

Granting that a rescission can be permitted under Article 1191, the Court still
cannot allow it for the reason that, considering the circumstances, there was only a
slight or casual breach in the fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the breach of
the contract is substantial and fundamental to the fulfillment of the obligation.
Whether the breach is slight or substantial is largely determined by the attendant
circumstances.[11] In the case at bench, the subject contract stipulated the following
important provisions:

2. That the purchase price of ₱4,200,000.00 shall be paid as

follows:
 a) ₱278,078.13 received in cash by the First Party but directly
paid to the Third Party as partial payment of the mortgage obligation of
the First Party in order to reduce the amount to ₱2,000,000.00 only as
of November 15, 1990;

b) ₱721,921.87 received in cash by the First Party as additional

payment of the Second Party;

c) ₱1,200,000.00 to be paid in installments as follows:

1. ₱200,000.00 payable on or before January 31, 1991;

2. ₱200,000.00 payable on or before June 30, 1991;
3. ₱800,000.00 payable on or before December 31,
1991;

Note: All the installments shall not bear any interest.

d) ₱2,000,000.00 outstanding balance of the mortgage

obligation as of November 15, 1990 which is hereby assumed by the
Second Party.

xxx
3. That the Third Party hereby acknowledges receipts from the
Second Party P278,078.13 as partial payment of the loan obligation of
First Party in order to reduce the account to only ₱2,000,000.00 as of
November 15, 1990 to be assumed by the Second Party effective
November 15, 1990.[12]

From the records, it cannot be denied that respondent paid to FSL Bank
petitioners mortgage obligation in the amount of ₱2,278,078.13, which formed part
of the purchase price of the subject property. Likewise, it is not disputed that
respondent paid directly to petitioner the amount of ₱721,921.87 representing the
additional payment for the purchase of the subject property. Clearly, out of the total
price of ₱4,200,000.00, respondent was able to pay the total amount of
₱3,000,000.00, leaving a balance of ₱1,200,000.00 payable in three (3) installments.

Out of the ₱1,200,000.00 remaining balance, respondent paid on several dates

the first and second installments of ₱200,000.00 each. She, however, failed to pay
the third and last installment of ₱800,000.00 due on December 31, 1991.
Nevertheless, on August 31, 1992, respondent, through counsel, offered to pay the
amount of ₱751,000.00, which was rejected by petitioner for the reason that the
actual balance was ₱805,000.00 excluding the interest charges.

Considering that out of the total purchase price of ₱4,200,000.00, respondent

has already paid the substantial amount of ₱3,400,000.00, more or less, leaving an
unpaid balance of only ₱805,000.00, it is right and just to allow her to settle, within
a reasonable period of time, the balance of the unpaid purchase price. The Court
agrees with the courts below that the respondent showed her sincerity and
willingness to comply with her obligation when she offered to pay the petitioner the
amount of ₱751,000.00.

On the issue of interest, petitioner failed to substantiate her claim that

respondent made a personal commitment to pay a 6% monthly interest on the
₱805,000.00 from the date of delinquency, December 31, 1991. As can be gleaned
from the contract, there was a stipulation stating that: All the installments shall not
bear interest. The CA was, however, correct in imposing interest at the rate of 6%
per annum starting from the filing of the complaint on September 11, 1992.

Finally, the Court upholds the ruling of the courts below regarding the non-
imposition of damages and attorneys fees. Aside from petitioners self-serving
statements, there is not enough evidence on record to prove that respondent acted
fraudulently and maliciously against the petitioner. In the case of Heirs of Atienza v.
Espidol,[13] it was stated:

Respondents are not entitled to moral damages because

contracts are not referred to in Article 2219 of the Civil Code, which
enumerates the cases when moral damages may be recovered.
Article 2220 of the Civil Code allows the recovery of moral damages
in breaches of contract where the defendant acted fraudulently or
in bad faith. However, this case involves a contract to sell,
wherein full payment of the purchase price is a positive suspensive
condition, the non-fulfillment of which is not a breach of contract,
but merely an event that prevents the seller from conveying title to
the purchaser. Since there is no breach of contract in this case,
respondents are not entitled to moral damages.

In the absence of moral, temperate, liquidated or

compensatory damages, exemplary damages cannot be granted for
they are allowed only in addition to any of the four kinds of
damages mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.
AYALA LIFE ASSURANCE, INC., G.R. No. 163075
Petitioner,
 Present:

PUNO, J., Chairman,

SANDOVAL-GUTIERREZ,
- versus - CORONA,
AZCUNA, and
GARCIA, JJ.

RAY BURTON DEVELOPMENT Promulgated:

CORPORATION,
Respondent. January 23, 2006

x-----------------------------------------------------------------------------------------x

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the petition for review on certiorari [1] assailing the
Decision[2] dated January 21, 2004 of the Court of Appeals in CA-G.R. CV No.
74635,[3] as well as its Resolution dated April 2, 2004 denying petitioners motion
for reconsideration.

The facts are:

On December 22, 1995, Ayala Life Assurance, Inc., petitioner, and Ray
Burton Development Corporation, respondent, entered into a contract denominated
as a Contract to Sell, with a Side Agreement of even date. In these contracts,
petitioner agreed to sell to respondent a parcel of land, with an area of 1,691 square
meters, situated
at MadrigalBusiness Park, Ayala Alabang Village, Muntinlupa City, covered by
Transfer Certificate of Title No. 186485 of the Registry of Deeds
of Makati City. The purchase price of the land is P55,000.00 per square meter or
a total of P93,005,000.00, payable as follows:

(a) On contract date P24,181,300.00 representing 26 percent

of the purchase price, inclusive of the P1,000,000.00 option money;

(b) Not later than January 6, 1996 P3,720,200.00 representing

4 percent of the purchase price to complete 30 percent down payment;
and
 (c) In consecutive quarterly installments for a period of 5 years
from December 22, 1995 P65,103,500.00 representing the 70 percent
balance of the purchase price.

The contract contains a stipulation in paragraphs 3 and 3.1 for an Event of

Default. It provides that in case the purchaser (respondent) fails to pay any
installment for any reason not attributable to the seller (petitioner), the latter has the
right to assess the purchaser a late penalty interest on the unpaid installment at two
(2%) percent per month, computed from the date the amount became due until full
payment thereof. And if such default continues for a period of six (6) months, the
seller has the right to cancel the contract without need of court declaration by giving
the purchaser a written notice of cancellation. In case of such cancellation, the seller
shall return to the purchaser the amount he received, less penalties, unpaid charges
and dues on the property.

Respondent paid thirty (30%) down payment and the quarterly amortization,
including the one that fell due on June 22, 1998.

However, on August 12, 1998, respondent notified petitioner in writing that it

will no longer continue to pay due to the adverse effects of the economic crisis to its
business. Respondent then asked for the immediate cancellation of the contract and
for a refund of its previous payments as provided in the contract.

Petitioner refused to cancel the contract to sell. Instead, on November 25,

1999, it filed with the Regional Trial Court, Branch 66, Makati City, a complaint for
specific performance against respondent, docketed as Civil Case No. 99-2014,
demanding from the latter the payment of the remaining unpaid quarterly
installments beginning September 21, 1999 in the total sum of P33,242,382.43,
inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner,

asserting that on August 12, 1998, it (respondent) notified the latter of its inability
to pay the remaining installments. Respondent invoked the provisions of paragraphs
3 and 3.1 of the contract to sell providing for the refund to it of the amounts paid,
less interest and the sum of 25% of all sums paid as liquidated damages.

After pre-trial, petitioner moved for a summary judgment on the ground that
respondents answer failed to tender any genuine issue as to any material fact, except
as to the amount of damages. The trial court granted the motion and ordered the
parties to submit their memoranda.
 On December 10, 2001, the trial court rendered a Decision holding that
respondent transgressed the law in obvious bad faith. The dispositive portion reads:

WHEREFORE, defendant (now respondent) is hereby sentenced

and ordered to pay plaintiff (now petitioner) the sum of P33,242,383.43,
representing the unpaid balance of the principal amount owing under the
contract, interest agreed upon, and penalties. Defendant is further
ordered to pay plaintiff the sum of P200,000.00 as attorneys fees and the
costs of suit.

Upon full payment of the aforementioned amounts by defendant,

plaintiff shall, as it is hereby ordered, execute the appropriate deed of
absolute sale conveying and transferring full title and ownership of the
parcel of land subject of the sale to and in favor of defendant.

On appeal, the Court of Appeals rendered a Decision dated January

21, 2004 in CA-G.R. CV No. 74635, reversing the trial courts Decision, thus:

WHEREFORE, the decision appealed from is

hereby REVERSED and SET ASIDE. Ayala Life is hereby ordered
to refund all sums paid under the Contract to Sell, with interest of twelve
percent (12%) per annum from 12 August 1998 until fully paid, less the
amount equivalent to 25% of the total amount paid as liquidated damages.

SO ORDERED.

The Court of Appeals ruled that the parties transaction in question is in the
nature of a contract to sell, as distinguished from a contract of sale. Under their
contract, ownership of the land is retained by petitioner until respondent shall have
fully paid the purchase price. Its failure to pay the price in full is not a breach of
contract but merely an event that prevents petitioner from conveying the title to
respondent. Under such a situation, a cause of action for specific performance does
not arise. What should govern the parties relation are the provisions of their contract
on the Event of Default stated earlier.

Hence, the instant petition for review on certiorari.

Petitioner contends that the Court of Appeals committed a reversible error in

holding that: (a) the remedy of specific performance is not available in a contract to
sell, such as the one at bar; and (b) petitioner is liable to refund respondent all the
sums the latter paid under the contract to sell, with interest at 12% per annum from
August 12, 1998 until fully paid, less the amount equivalent to 25% of the total
amount paid as liquidated damages.
 Petitioner argues that by virtue of the contract to sell, it has the right to choose
between fulfillment and rescission of the contract, with damages in either
case. Thus, it is immaterial to determine whether the parties subject agreement is a
contract to sell or a contract of sale.

In its comment, respondent disputed petitioners allegations and prayed that

the petition be denied for lack of merit.

The issues are:

1. Whether respondents non-payment of the balance of the

purchase price gave rise to a cause of action on the part of petitioner to
demand full payment of the purchase price; and

2. Whether petitioner should refund respondent the amount the

latter paid under the contract to sell.

At the outset, it is significant to note that petitioner does not dispute that
its December 22, 1995 transaction with respondent is a contract to sell. It bears
stressing that the exact nature of the parties contract determines whether petitioner
has the remedy of specific performance.

It is thus imperative that we first determine the nature of the parties contract.

The real nature of a contract may be determined from the express terms of the
written agreement and from the contemporaneous and subsequent acts of the
contracting parties.[4] In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued.[5] If the terms of the
contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control.[6] If the words appear to be
contrary to the evident intention of the parties, the latter shall prevail over the
former.[7] The denomination or title given by the parties in their contract is not
conclusive of the nature of its contents.[8]

Here, the questioned agreement clearly indicates that it is a contract to sell,

not a contract of sale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to

the property shall transfer to the PURCHASER upon payment of the
balance of the Purchase Price and all expenses, penalties and other costs
which shall be due and payable hereunder or which may have accrued
thereto. Thereupon, the SELLER shall execute a Deed of Absolute Sale
in favor of the PURCHASER conveying all the SELLERS rights, title and
interest in and to the Property to the PURCHASER.[9]
 As correctly stated by the Court of Appeals in its assailed Decision, The ruling
of the Supreme Court in Lim v. Court of Appeals (182 SCRA 564 [1990]) is most
illuminating. In the said case, a contract to sell and a contract of sale were clearly
and thoroughly distinguished from each other, with the High Tribunal stressing that
in a contract of sale, the title passes to the buyer upon the delivery of the thing
sold. In a contract to sell, 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 suspensivecondition. In the first case, the vendor has lost and cannot
recover the ownership of the property until and unless the contract of sale is itself
resolved and set aside. In the second case, 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.[10]

Considering that the parties transaction is a contract to sell, can petitioner, as

seller, demand specific performance from respondent, as buyer?

Blacks Law Dictionary defined specific performance as (t)he remedy of

requiring exact performance of a contract in the specific form in which it was made,
or according to the precise terms agreed upon. The actual accomplishment of a
contract by a party bound to fulfill it.[11]

Evidently, before the remedy of specific performance may be availed of, there
must be a breach of the contract.

Under a contract to sell, the title of the thing to be sold is retained by the seller
until the purchaser makes full payment of the agreed purchase price. Such payment
is a positive suspensive condition, the non-fulfillment of which is not a breach of
contract but merely an event that prevents the seller from conveying title to the
purchaser. The non-payment of the purchase price renders the contract to sell
ineffective and without force and effect. Thus, a cause of action for specific
performance does not arise.

In Rayos v. Court of Appeals,[12] we held:

x x x. Under the two contracts, the petitioners bound and obliged

themselves to execute a deed of absolute sale over the property and
transfer title thereon to the respondents after the payment of the full
purchase price of the property, inclusive of the quarterly installments due
on the petitioners loan with the PSB:

xxx
 Construing the contracts together, it is evident that the parties
executed a contract to sell and not a contract of sale. The petitioners
retained ownership without further remedies by the respondents until the
payment of the purchase price of the property in full. Such payment is a
positive suspensive condition, failure of which is not really a breach,
serious or otherwise, but an event that prevents the obligation of the
petitioners to convey title from arising, in accordance with Article
1184 of the Civil Code (Leano v. Court of Appeals, 369 SCRA 36
[2001]; Lacanilao v. Court of Appeals, 262 SCRA 486 [1996]).

The non-fulfillment by the respondent of his obligation to pay,

which is a suspensive condition to the obligation of the petitioners to
sell and deliver the title to the property, rendered the contract to sell
ineffective and without force and effect (Agustin v. Court of Appeals,
186 SCRA 375 [1990]). The parties stand as if the conditional
obligation had never existed. Article 1191[13] of the New Civil Code
will not apply because it presupposes an obligation already
extant (Padilla v. Posadas, 328 SCRA 434 [2001]. There can be no
rescission of an obligation that is still non-existing,
the suspensive condition not having happened (Rillo v. Court of Appeals,
274 SCRA 461 [1997]). (Underscoring supplied)

Here, the provisions of the contract to sell categorically indicate that

respondents default in the payment of the purchase price is considered merely as
an event, the happening of which gives rise to the respective obligations of the
parties mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an

Event of Default under this contract: the PURCHASER fails to pay any
installment on the balance, for any reason not attributable to the SELLER,
on the date it is due, provided, however, that the SELLER shall have the
right to charge the PURCHASER a late penalty interest on the said unpaid
interest at the rate of 2% per month computed from the date the amount
became due and payable until full payment thereof.

3.1. If the Event of Default shall have occurred, then at any time
thereafter, if any such event shall then be continuing for a period of six (6)
months, the SELLER shall have the right to cancel this Contract without
need of court declaration to that effect by giving the PURCHASER a
written notice of cancellation sent to the address of the PURCHASER as
specified herein by registered mail or personal delivery. Thereafter, the
SELLER shall return to the PURCHASER the aggregate amount that the
SELLER shall have received as of the cancellation of this Contract, less:
(i) penalties accrued as of the date of such cancellation, (ii) an amount
equivalent to twenty five percent (25%) of the total amount paid as
liquidated damages, and (iii) any unpaid charges and dues on the
Property. Any amount to be refunded to the PURCHASER shall be
collected by the PURCHASER at the office of the SELLER. Upon notice
 to the PURCHASER of such cancellation, the SELLER shall be free to
dispose of the Property covered hereby as if this Contract had not been
executed. Notice to the PURCHASER sent by registered mail or by
personal delivery to its address stated in this Contract shall be considered
as sufficient compliance with all requirements of notice for purposes of
this Contract.[14]

Therefore, in the event of respondents default in payment, petitioner, under

the above provisions of the contract, has the right to retain an amount equivalent to
25% of the total payments. As stated by the Court of Appeals, petitioner having
been informed in writing by respondent of its intention not to proceed with the
contract on August 12, 1998, or prior to incurring delay in payment of succeeding
installments,[15] the provisions in the contract relative to penalties and interest find
no application.

The Court of Appeals further held that with respect to the award of interest,
petitioner is liable to pay interest of 12% per annum upon the net refundable amount
due from the time respondent made the extrajudicial demand upon it on August 12,
1998 to refund payment under the Contract to Sell,[16] pursuant to our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals.[17]

In sum, we find that the Court of Appeals, in rendering the assailed Decision
and Resolution, did not commit any reversible error.

WHEREFORE, the petition is DENIED. The assailed Decision and

Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

[G.R. No. 135528. July 14, 2004]

SPOUSES ORLANDO A. RAYOS and MERCEDES T.

RAYOS, petitioners, vs. THE COURT OF APPEALS and SPOUSES
ROGELIO and VENUS MIRANDA, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision of the Court of

[1]

Appeals in CA-G.R. CV No. 46727 which affirmed the Decision of the

[2] [3]

Regional Trial Court of Makati, Branch 62, in Civil Case No. 15639 for specific
performance and damages, and Civil Case No. 15984 for sum of money and
damages.
 The two (2) cases stemmed from the following antecedent facts:
On December 24, 1985, petitioner Orlando A. Rayos, a practicing lawyer,
and his wife, petitioner Mercedes T. Rayos, secured a short-term loan from the
Philippine Savings Bank (PSB) payable within a period of one (1) year in
quarterly installments of P29,190.28, the first quarterly payment to start on
March 24, 1986. The loan was evidenced by a promissory note which the
petitioners executed on December 24, 1985. To secure the payment of the
[4]

loan, the petitioners-spouses executed, on the same date, a Real Estate

Mortgage over their property covered by Transfer Certificate of Title (TCT) No.
100156 located in Las Pias, Metro Manila. [5]

On December 26, 1985, the petitioners, as vendors, and the respondents,

Spouses Miranda, as vendees, executed a Deed of Sale with Assumption of
Mortgage over the subject property for the price of P214,000.00. However, on
January 29, 1986, the petitioners-spouses, likewise, executed a Contract to Sell
the said property in favor of the respondents for P250,000.00 with the following
condition:

3. That upon full payment of the consideration hereof, the SELLER shall execute a
Deed of Absolute Sale in favor of the BUYER that the payment of capital gains tax
shall be for the account of the SELLER and that documentary stamps, transfer tax,
registration expenses for the transfer of title including the notarization and preparation
of this Contract and subsequent documents if any are to be executed, real estate taxes
from January 1, 1986 and other miscellaneous expenses shall be for the account of the
BUYER; the SELLER hereby represents that all association dues has been paid but
that subsequent to the execution of this Contract the payment of the same shall
devolve upon the BUYER. [6]

The petitioners obliged themselves to execute a deed of absolute sale over

the property in favor of the respondents upon the full payment of the purchase
price thereof.
Respondent Rogelio Miranda filed an application dated May 4, 1986 with
the PSB to secure the approval of his assumption of the petitioners obligation
on the loan, and appended thereto a General Information sheet. Respondent [7]

Rogelio Miranda stated therein that he was the Acting Municipal Treasurer of
Las Pias and had an unpaid account with the Manila Banking Corporation in the
amount of P18,777.31. The PSB disapproved his application. Nevertheless,
respondent Rogelio Miranda paid the first quarterly installment on the
petitioners loan on March 21, 1986 in the amount of P29,190.28. The said
amount was paid for the account of the petitioners. Respondent Rogelio
Miranda, likewise, paid the second quarterly installment in the amount
of P29,459.00 on June 23, 1986, also for the account of the petitioners. [8]

In the meantime, respondent Rogelio Miranda secured the services of

petitioner Orlando Rayos as his counsel in a suit he filed against the Manila
Banking Corporation, relative to a loan from the bank in the amount
of P100,000.00. Both parties agreed to the payment of attorneys fees, as
follows:

Our agreement is as follows:

 1. You will pay me P700.00 as filing fee and other miscellaneous
expenses which I personally received from you this morning;

2. Award to you of any amount in terms of moral, exemplary or actual

and other forms of damages shall accrue to you in the amount of 70%
thereof;

3. 30% of the award to you in the concept of No. 2 hereof shall pertain to
me as my contingent fee;

4. All attorneys fees that the court shall award to me or by the

management of TMBC if they agree to extrajudicially settle shall
pertain exclusively to me;

5. Execution of judgment expenses shall be for your account;

6. Should the case be appealed, my contingent fee shall increase by 10%

if the appeal is to the Intermediate Appellate Court on questions of
facts and law, and if appealed from there to the Supreme Court, then
another 10% shall accrue to me. [9]

On May 14, 1986, petitioner Orlando Rayos filed respondent Rogelio

Mirandas complaint against the bank with the Regional Trial Court of Makati,
docketed as Civil Case No. 13670. In the meantime, the latter paid the third
[10]

quarterly installment on the PSB loan account amounting to P29,215.66, for

which the bank issued a receipt for the account of the petitioners.
The parties executed a Compromise Agreement in Civil Case No. 13670 in
which they agreed that each party shall pay for the respective fees of their
respective counsels. The trial court rendered judgment on October 23, 1986
[11]

based on the said compromise agreement. Petitioner Orlando Rayos

[12]

demanded the payment of attorneys fees in the amount of P5,631.93, but

respondent Rogelio Miranda refused to pay.
On November 12, 1986, petitioner Orlando Rayos wrote to respondent
Rogelio Miranda and enclosed a copy of his motion in Civil Case No. 13670 for
the annotation of his attorneys lien at the dorsal portion of the latters title used
as security for the loan with the Manila Banking Corporation. The respondent
[13]

opposed the motion, claiming that the petitioner agreed to render professional
services on a contingent basis. [14]

Petitioner Orlando Rayos again wrote respondent Rogelio Miranda on

November 30, 1986, reminding the latter of the last quarterly payment of his
loan with the PSB. He also advised the respondent to thereafter request the
bank for the cancellation of the mortgage on his property and to receive the
owners duplicate of his title over the same. Petitioner Orlando Rayos also wrote
that their dispute over his attorneys fees in Civil Case No. 13670 should be
treated differently.
[15]

Petitioner Orlando Rayos then received a Letter dated November 27, 1986
from the PSB, reminding him that his loan with the bank would mature on
December 24, 1986, and that it expected him to pay his loan on or before the
said date. Fearing that the respondents would not be able to pay the amount
[16]
due, petitioner Orlando Rayos paid P27,981.41 to the bank on December 12,
[17]

1986, leaving the balance of P1,048.04. In a Letter dated December 18, 1986,
the petitioner advised the PSB not to turn over to the respondents the owners
duplicate of the title over the subject property, even if the latter paid the last
quarterly installment on the loan, as they had not assumed the payment of the
same. [18]

On December 24, 1986, respondent Rogelio Miranda arrived at the PSB to

pay the last installment on the petitioners loan in the amount of P29,223.67. He
informed the bank that the petitioners had executed a deed of sale with
assumption of mortgage in their favor, and that he was paying the balance of
the loan, conformably to said deed. On the other hand, the bank informed the
respondent that it was not bound by said deed, and showed petitioner Orlando
Rayos Letter dated December 18, 1986. The respondent was also informed that
the petitioners had earlier paid the amount of P27,981.41 on the loan. The bank
refused respondent Rogelio Mirandas offer to pay the loan, and confirmed its
refusal in a Letter dated December 24, 1986. [19]

On even date, respondent Rogelio Miranda wrote the PSB, tendering the
amount of P29,223.67 and enclosed Interbank Check No. 01193344 payable
to PSB. Thereafter, on December 29, 1986, the petitioners paid the balance
[20]

of their loan with the bank in the amount of P1,081.39 and were issued a receipt
therefor. On January 2, 1987, the PSB wrote respondent Rogelio Miranda that
[21]

it was returning his check. [22]

On January 2, 1987, respondent Rogelio Miranda filed a complaint against

the petitioners and the PSB for damages with a prayer for a writ of preliminary
attachment with the RTC of Makati. The case was docketed as Civil Case No.
15639 and raffled to Branch 61 of the court. The respondent alleged inter
alia that the petitioners and the PSB conspired to prevent him from paying the
last quarterly payment of the petitioners loan with the bank, despite the
existence of the deed of sale with assumption of mortgage executed by him and
the petitioners, and in refusing to turn over the owners duplicate of TCT No.
100156, thereby preventing the transfer of the title to the property in his
name. Respondent Rogelio Miranda prayed that:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of

plaintiff and against defendants, ordering the latter, jointly and severally, as follows:

(a) To pay to plaintiff the sum of P267,197.33, with legal interest from date of
demand, as actual or compensatory damages representing the unreturned
price of the land;

(b) To pay to plaintiff the sum of P500,000.00 as consequential damages;

(c) To pay to plaintiff the sum of P1,000,000.00 as moral damages;

(d) To pay to plaintiff the sum of P100,000.00 as exemplary damages by way

of example or correction for the public good;

(e) To pay to plaintiff the sum of P100,000.00 for and as attorneys fees;

(f) To pay for the costs of suit; and

 (g) That a Writ of Attachment be issued against the properties of defendant
Rayos spouses as security for the satisfaction of any judgment that may
be recovered.

PLAINTIFF FURTHER PRAYS for such other remedies and relief as are just or
equitable in the premises. [23]

The trial court granted the respondents plea for a writ of preliminary
attachment on a bond of P260,000.00. After posting the requisite bond, the
respondent also filed a criminal complaint against petitioner Orlando Rayos
for estafa with the Office of the Provincial Prosecutor of Makati, docketed as
I.S. No. 87-150. He, likewise, filed a complaint for disbarment in this Court
against petitioner Orlando Rayos, docketed as Administrative Case No.
2974. Unaware of the said complaint, the petitioner wrote the respondent on
January 3, 1986 that as soon as his payment to the PSB of P29,223.67 was
refunded, the owners duplicate of the title would be released to him. On [24]

January 5, 1986, petitioner Orlando Rayos wrote respondent Rogelio Miranda,

reiterating that he would release the title in exchange for his cash settlement
of P29,421.41. The respondent failed to respond.
[25]

In the meantime, the PSB executed on January 8, 1987 a Release of Real

Estate Mortgage in favor of the petitioners, and released the owners duplicate
[26]

of title of TCT No. 100156. On January 17, 1987, petitioner Orlando Rayos
[27]

wrote respondent Rogelio Miranda, reiterating his stance in his Letters of

January 3 and 5, 1987.
In the meantime, the petitioners received the complaint in Civil Case No.
15639 and filed their Answer with Counterclaim in which they alleged that:

14. That plaintiff has no cause of action against defendants Rayos, the latter are
willing to deliver the title sought by plaintiff under the terms set out in their letters
dated January 3, 5, 17, and 20, hereto marked as Annexes 1, 1-A, 1-B and 1-C; [28]

Petitioner Orlando Rayos filed a complaint on February 1, 1987 against

respondent Rogelio Miranda with the Regional Trial Court of Makati, docketed
as Civil Case No. 15984 for Specific Performance with Damages for the
collection of the amount of P29,223.67 which he had paid to the PSB
on December 12 and 19, 1986, and his attorneys fees in Civil Case No.
13670. The trial court consolidated the cases in Branch 62 of the RTC.
Respondent Rogelio Miranda filed an Amended Complaint in Civil Case No.
15639 for specific performance with damages, impleading the officers of the
PSB as parties-defendants. He alleged that of the purchase price of the
property of P214,000.00, he had paid the entirety thereof to the petitioners, and
that petitioner Orlando Rayos acted unethically in trying to collect P5,631.93
from him as his attorneys fees in Civil Case No. 13670, and in having such claim
annotated at the dorsal portion of his title over the property he mortgaged to the
Manila Banking Corporation.
Respondent Rogelio Miranda prayed that, after due proceedings, judgment
be rendered in his favor, thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of
plaintiff and against defendants, as follows:

(a) Ordering defendants spouses Orlando A. Rayos and Mercedes T. Rayos to deliver
forthwith to plaintiff the Owners Duplicate of Transfer Certificate of Title No.
100156, Registry of Deeds for Pasay City;

(b) Ordering defendants, jointly and severally, to pay to plaintiff the sum
of P1,000,000.00 as moral damages;

(c) Ordering defendants, jointly and severally, to pay to plaintiff the sum
of P867,197.33 as exemplary damages by way of example or correction for the public
good;

(d) Ordering defendants, jointly and severally, to pay to plaintiff the sum
of P100,000.00 for and as attorneys fees;

(e) Ordering defendants, jointly, to pay the costs of suit; and

(f) Ordering the issuance of a Writ of Attachment against the properties of defendants
Rayos spouses as security for the satisfaction of any judgment that may be recovered.

PLAINTIFF further prays for such other remedies and relief as are just or equitable in
the premises. [29]

In the meantime, petitioner Orlando Rayos filed an Amended Complaint in

Civil Case No. 15984 impleading his wife and that of respondent Rogelio
Miranda as parties to the case. On March 4, 1987, the trial court issued an
Order granting the petitioners motion in Civil Case No. 15639 for the discharge
of the attachment on their property. The court also denied the respondents
[30]

motion for reconsideration of the Order of the court. The respondents,

thereafter, filed a petition for review with the Court of Appeals for the nullification
of the said Order.
On July 9, 1987, the public prosecutor dismissed the charge
of estafa against petitioner Orlando Rayos. The respondents appealed the
[31]

resolution to the Department of Justice.

On May 26, 1987, the PSB and its officers filed their Answer in Civil Case
No. 15639, and alleged the following by way of special and/or affirmative
defenses, thus:

27. The application for the plaintiff to assume the mortgage loan of the defendants
Spouses Rayos was not approved, and it was NOT even recommended by the
Marketing Group of defendant PSBank for approval by its Top Management, because
the credit standing of the plaintiff was found out to be not good;

28. The acceptance of the payments made by the plaintiff for three (3) amortizations
on the loan of defendants Spouses Rayos was merely allowed upon the insistence of
the plaintiff, which payments were duly and accordingly receipted, and said
acceptance was in accordance with the terms of the Real Estate Mortgage executed by
the defendants Spouses Rayos in favor of the defendant PSBank and is also allowed
by law;[32]
 The parties in Civil Case No. 15639 agreed to submit the case for the trial
courts decision on the basis of their pleadings and their respective affidavits. In
a Resolution dated July 26, 1988, then Undersecretary of Justice Silvestre Bello
III affirmed the Public Prosecutors resolution in I.S. No. 87-150. [33]

On January 30, 1989, the petitioners sold the property to Spouses Mario
and Enriqueta Ercia for P144,000.00. The said spouses were not impleaded as
parties-defendants in Civil Case No. 15639. On May 18, 1989, the petitioners
filed an amended complaint in Civil Case No. 15984, appending thereto a copy
of the Contract to Sell in favor of the respondents. The trial court admitted the
said complaint.
On November 15, 1989, this Court rendered its Decision dismissing the
complaint for disbarment against Rayos. [34]

On January 29, 1993, the trial court rendered judgment, the dispositive
portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

I. (a) In Civil Case No. 15639, this Court orders plaintiff Rogelio Miranda to refund to
spouses Orlando and Mercedes T. Rayos the total sum of P29,069.45, Rayos paid to
PS Bank as the last amortization and as release of mortgage fee, without any interest;
and upon receipt of the sum of P29,069.45 from Rogelio Miranda, Spouses Orlando
and Mercedes T. Rayos shall deliver to Rogelio Miranda Transfer Certificate of Title
No. 100156 of the Registry of Deeds of Pasay City; and, deliver to Rogelio Miranda
the possession of the parcel of land described in the said title;

(b) Dismissing the complaint for damages of Plaintiff Rogelio Miranda against
Spouses Orlando and Remedios (sic) T. Rayos, Philippine Savings Bank, Jose
Araullo, Cesar I. Valenzuela, Dionisio Hernandez, Nestor E. Valenzuela, Raul T.
Totanes, and Belinda Lim, for insufficiency of evidence; while the counterclaims of
PS Bank, Jose Araullo, Cesar Valenzuela, Dionisio Hernandez, Nestor E. Valenzuela,
Raul Totanes, and Belinda Lim, are likewise dismissed for insufficiency of evidence.

(c) The counterclaims of Spouses Orlando and Mercedes T. Rayos will be treated in
Civil Case No. 15984;

II. In Civil Case No. 15984, this Court orders Defendant Rogelio Miranda to pay to
Plaintiff Orlando Rayos the sum of P4,133.19 at 12% interest per annum, from the
date of the filing of the complaint on Feb. 11, 1987 until fully paid.

No costs in both cases.

SO ORDERED. [35]

The petitioners appealed the decision to the Court of Appeals contending

that:
I. THE COURT A QUO COMMITTED A GRAVE ERROR IN NOT FINDING THAT
ROGELIO A. MIRANDA COMMITTED A BREACH OF CONTRACT IN NOT PAYING
THE FULL CONTINGENT FEE OF 30% IN WRITING IN THE MANILABANK CASE
AND BECAUSE OF THAT BREACH, HE CANNOT NOW DEMAND SPECIFIC
PERFORMANCE AND THE COURT A QUO SHOULD HAVE LEFT THE PARTIES
AS THEY ARE;
 II. THE COURT A QUO SIMILARLY COMMITTED AN ERROR IN NOT FINDING THAT
THE DECISION IN SEVA VS. ALFREDO BERWIN & CO. & MEDEL IS APPLICABLE
FOUR SQUARE WHEREBY HE WHO BREACHES HIS CONTRACT IS NOT
ENTITLED TO SPECIFIC PERFORMANCE;[36]

On July 27, 1998, the Court of Appeals rendered judgment affirming with
modification the decision of the RTC, thus:

WHEREFORE, premises considered, the appealed decision of the Regional Trial

Court of Makati City, is hereby AFFIRMED, with the modification abovestated. [37]

The petitioners filed the instant petition, and ascribed the following errors on
the appellate court:
I. THE COURT OF APPEALS (CA) COMMITTED AN ERROR IN NOT FINDING THAT
THE PRIVATE RESPONDENT MIRANDA COMMITTED THE FIRST BREACH FOR
FAILURE TO ASSUME THE LOAN THUS HE FAILED TO
SURROGATE (sic) HIMSELF TO PSB.
II. THE CA COMMITTED AN ERROR IN FINDING THAT PETITIONERS PRE-EMPTED
PRIVATE RESPONDENT MIRANDA IN DEPOSITING THE LAST AMORTIZATION
WHEN MIRANDA HAD NO LEGAL STANDING WITH PSB DUE TO THE LATTERS
NON-APPROVAL OF THE ASSUMPTION OF THE LOAN.
III. THE CA COMMITTED AN ERROR IN FINDING BOTH PARTIES GUILTY OF FIRST
VIOLATING THE OBLIGATIONS INCUMBENT UPON THEM EVEN INFERRING
THAT PETITIONERS COMMITTED THE BREACH FIRST BUT LATER
CONCLUDING THAT THE BREACH WAS COMMITTED BY BOTH PARTIES. IT DID
NOT MAKE A CORRECT ASSESSMENT OF WHO ACTUALLY COMMITTED THE
FIRST BREACH.
IV. THE CA COMMITTED AN ERROR IN NOT ALLOWING THE OFFSET IF ITS
DECISION STOOD OF THE AMOUNT OF P4,133.19 PLUS 12% INT. P.A. FROM
THE FILING OF THE COMPLAINT (CV 15984), THUS, ENTIRELY DISREGARDING
THE DECISION OF THE TRIAL COURT IN SAID CASE ALLOWING ONLY THE
DECISION IN CV 15639.
V. THE CA COMMITTED AN ERROR IN NOT APPLYING THE DECSION (sic) LAID
DOWN IN SEVA VS. ALFRED BERWIN & CO. AND MEDEL THAT A PERSON
HIMSELF AT FAULT CANNOT ENFORCE SPECIFIC PERFORMANCE.[38]

The petitioners assert that the Court of Appeals erred in not finding that the
respondents first committed a breach of their contract to sell upon their failure
to pay the amount due for the last quarterly installment of their loan from the
PSB. The petitioners fault the Court of Appeals for not relying on the resolution
of Undersecretary Silvestre Bello III affirming the dismissal of the criminal
complaint for estafa in I.S. No. 87-150, as cited by this Court in its decision
in Miranda v. Rayos, where it was also held that petitioner Orlando Rayos paid
[39]

the last quarterly installment because he thought that the respondents would
not be able to pay the same. The petitioners argue that they had no other
alternative but to pay the last quarterly installment due on their loan with the
PSB, considering that they received a demand letter from the bank on
November 28, 1986, coupled by its denial of the respondents request to assume
the payment of the loan. They insist that they did not block the respondents
payment of the balance of the loan with the bank. The petitioners contend that
even if the parties committed a breach of their respective obligations under the
contract to sell, it behooved the Court of Appeals to apply Article 1192 of the
Civil Code in the instant case, which reads:
The power to rescind obligation is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

The petition has no merit.

The assailed ruling of the Court of Appeals reads:

After due study, the Court finds that there was no basis in fact and law for the
appellants to usurp the payment of the last amortization on the mortgage upon the
parcel of land it had conveyed to the Mirandas.Even if the appellants wanted to keep
their good credit standing, they should not have preempted Miranda in paying the
final amortization. There is no sufficient showing that Miranda was in danger of
defaulting on the said payment. In fact, it appears that he approached the bank to
tender payment, but he was refused by the bank, because he was beaten to the draw,
so to speak, by the appellants. Appellants were able to do so because, for some
reasons, the Mirandas assumption of the mortgage has not been approved by the
bank. In doing so, the appellants had unilaterally cancelled the deed of sale with
assumption of mortgage, without the consent of the Mirandas. This conduct by the
appellants is, to say the least, injudicious as under Article 1308 of the Civil Code,
contracts must bind both contracting parties and their validity or compliance cannot be
left to the will of one of them.

Just as nobody can be forced to enter into a contract, in the same manner, once a
contract is entered into, no party can renounce it unilaterally or without the consent of
the other. It is a general principle of law that no one may be permitted to change his
mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party. In a regime of law and order, repudiation of an agreement
validly entered into cannot be made without any ground or reason in law or in fact for
such repudiation.

In the same way that the Rayos spouses must respect their contract with the Mirandas
for the sale of real property and assumption of mortgage, Rogelio Miranda has to
recognize his obligations under his agreement to pay contingent attorneys fees to
Orlando Rayos. [40]

The Court of Appeals erred in so ruling.

The findings and disquisitions of the Court of Appeals cannot prevail over
our findings in Miranda v. Rayos, a case which involves the same parties, and
[41]

where we held that the petitioners cannot be faulted for paying the amortization
due for the last quarterly installment on their loan with the PSB:
It is difficult to imagine that complainant would be so nave as to be totally unaware of
the provisions of the original contract between the PSB and the spouses Rayos. He is a
degree holder (A.B. Pre-Law and B.S.C.) and Acting Municipal Treasurer of Las
Pias. In short, he is not an ordinary layman. As a buyer with a knowledge of law, it
was unnatural for him to read the provisions of the real estate mortgage wherein it is
provided, among others, that the sale of the property covered by the mortgage does
not in any manner relieve the mortgagor of his obligation but that on the contrary,
both the vendor and the vendee, or the party in whose favor the alienation or
encumbrance is made shall be, jointly and severally, liable for said mortgage
obligations. There is every reason to believe that it was pursuant to the said provision
in the real estate mortgage that complainant tried to assume the loan obligation of the
Rayoses by filling up and submitted the loan application (page 30, records) sent by
Orland Rayos. By signing the loan application and the general information sheet (page
31, records) in connection with said application, complainant showed that he knew
that there was a need to formally apply to the bank in order for him to assume the
mortgage.

We find respondent spouses version that when complainants application to assume the
mortgage loan was disapproved he begged that he be allowed to pay the quarterly
amortization credible, owing to the fact that complainant made the payments for the
account of the Rayoses. Hence, complainant knew that since his application to the
PSB was not approved, there was no substitution of parties and so he had to pay for
the account of respondent spouses as shown by the receipts issued by the PSB.

As for the charge that Rayos paid the last installment to block complainant from
getting the title and transferring the same to his name, respondents version is more
satisfactory and convincing. Respondent Orland Rayos paid the last amortization
when it became apparent that complainant would not be able to give the payment on
the due date as he was still trying to sell his Lancer car. Even if complainant was able
to pay the last installment of the mortgage loan, the title would not be released to him
as he knew very well that his application to assume the mortgage was disapproved and
he had no personality as far as PSB was concerned. [42]

Contrary to the ruling of the Court of Appeals, the petitioners did not
unilaterally cancel their contract to sell with the respondents when they paid the
total amount of P29,062.80 to the PSB in December 1986. In fact, the [43]

petitioners wrote the respondents on January 3, 5 and 17, 1987, that they were
ready to execute the deed of absolute sale and turn over the owners duplicate
of TCT No. 100156 upon the respondents remittance of the amount
of P29,223.67. The petitioners reiterated the same stance in their Answer with
Counterclaim in Civil Case No. 15639. The petitioners cannot, likewise, be
faulted for refusing to execute a deed of absolute sale over the property in favor
of the respondents, and in refusing to turn over the owners duplicate of TCT
No. 100156 unless the respondents refunded the said amount. The
respondents were obliged under the contract to sell to pay the said amount to
the PSB as part of the purchase price of the property. On the other hand, it
cannot be argued by the petitioners that the respondents committed a breach
of their obligation when they refused to refund the said amount.
It bears stressing that the petitioners and the respondents executed two
interrelated contracts, viz: the Deed of Sale with Assumption of Mortgage dated
December 26, 1985, and the Contract to Sell dated January 29, 1986. To
determine the intention of the parties, the two contracts must be read and
interpreted together. Under the two contracts, the petitioners bound and
[44]

obliged themselves to execute a deed of absolute sale over the property and
transfer title thereon to the respondents after the payment of the full purchase
price of the property, inclusive of the quarterly installments due on the
petitioners loan with the PSB:

3. That upon full payment of the consideration hereof, the SELLER shall execute a
Deed of Absolute Sale in favor of the BUYER that the payment of capital gains tax
shall be for the account of the SELLER and that documentary stamps, transfer tax,
registration expenses for the transfer of title including the notarization and preparation
of this Contract and subsequent documents if any are to be executed, real estate taxes
from January 1, 1986 and other miscellaneous expenses shall be for the account of the
BUYER; the SELLER hereby represents that all association dues has been paid but
that subsequent to the execution of this Contract the payment of the same shall
devolve upon the BUYER. [45]

Construing the contracts together, it is evident that the parties executed a

contract to sell and not a contract of sale. The petitioners retained ownership
without further remedies by the respondents until the payment of the purchase
[46]

price of the property in full. Such payment is a positive suspensive condition,

failure of which is not really a breach, serious or otherwise, but an event that
prevents the obligation of the petitioners to convey title from arising, in
accordance with Article 1184 of the Civil Code. In Lacanilao v. Court of
[47]

Appeals, we held that:

[48]

It is well established that where the seller promised to execute a deed of absolute sale
upon completion of payment of the purchase price by the buyer, the agreement is a
contract to sell. In contracts to sell, where ownership is retained by the seller until
payment of the price in full, such payment is a positive suspensive condition, failure
of which is not really a breach but an event that prevents the obligation of the vendor
to convey title in accordance with Article 1184 of the Civil Code.

The non-fulfillment by the respondent of his obligation to pay, which is a

suspensive condition to the obligation of the petitioners to sell and deliver the
title to the property, rendered the contract to sell ineffective and without force
and effect. The parties stand as if the conditional obligation had never
[49]

existed. Article 1191 of the New Civil Code will not apply because it
presupposes an obligation already extant. There can be no rescission of an
[50]

obligation that is still non-existing, the suspensive condition not having

happened. [51]

However, the respondents may reinstate the contract to sell by paying

the P29,223.67, and the petitioners may agree thereto and accept the
respondents late payment. In this case, the petitioners had decided before
[52]

and after the respondents filed this complaint in Civil Case No. 15639 to accept
the payment of P29,223.67, to execute the deed of absolute sale over the
property and cause the transfer of the title of the subject property to the
respondents. The petitioners even filed its amended complaint in Civil Case No.
15984 for the collection of the said amount. The Court of Appeals cannot, thus,
be faulted for affirming the decision of the trial court and ordering the petitioners
to convey the property to the respondents upon the latters payment of the
amount of P29,223.67, provided that the property has not been sold to a third-
party who acted in good faith.
IN VIEW OF ALL THE FOREGOING, the petition is DENIED DUE
COURSE. The Decision of the Court of Appeals in CA-G.R. CV No. 46727 is
AFFIRMED, except as to the factual finding that the petitioners usurped the
payment of the last amortization on the mortgage upon the parcel of land. Costs
against the petitioners.
SO ORDERED.
G.R. No.171692 June 3, 2013

SPOUSES DELFIN O. TUMIBAY and AURORA T. TUMIBAY-deceased; GRACE JULIE ANN

TUMIBAY MANUEL, legal representative, Petitioners,
vs.
SPOUSES MELVIN A. LOPEZ and ROWENA GAY T. VISITACION LOPEZ, Respondents.

DECISION

DEL CASTILLO, J.:

In a contract to sell, the seller retains ownership of the property until the buyer has paid the price in
full. A -buyer who covertly usurps the seller's ownership of the property prior to the full payment of
the price is in breach of the contract and the seller is entitled to rescission because the breach is
substantial and fundamental as it defeats the very object of the parties in entering into the contract to
sell.

The Petition for Review on Certiorari1 assails the May 19, 2005 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 79029, which reversed the January 6, 2003 Decision3 of the Regional Trial
Court (RTC) of Malaybalay City, Branch 9 in Civil Case No. 2759-98, and the February 10, 2006
Resolution4 denying petitioner-spouses Delfin O. Tumibay and Aurora5 T. Tumibay’s Motion for
Reconsideration.6

Factual Antecedents

On March 23, 1998, petitioners filed a Complaint7 for declaration of nullity ab initio of sale, and
recovery of ownership and possession of land with the RTC of Malaybalay City. The case was
raffled to Branch 9 and docketed as Civil Case No. 2759-98.

In their Complaint, petitioners alleged that they are the owners of a parcel of land located in
Sumpong, Malaybalay, Bukidnon covered by Transfer Certificate of Title (TCT) No. T-
253348 (subject land) in the name of petitioner Aurora; that they are natural born Filipino citizens but
petitioner Delfin acquired American citizenship while his wife, petitioner Aurora, remained a Filipino
citizen; that petitioner Aurora is the sister of Reynalda Visitacion (Reynalda);9that on July 23, 1997,
Reynalda sold the subject land to her daughter, Rowena Gay T. Visitacion Lopez (respondent
Rowena), through a deed of sale10 for an unconscionable amount of ₱95,000.00 although said
property had a market value of more than ₱2,000,000.00; that the subject sale was done without the
knowledge and consent of petitioners; and that, for these fraudulent acts, respondents should be
held liable for damages. Petitioners prayed that (1) the deed of sale dated July 23, 1997 be declared
void ab initio, (2) the subject land be reconveyed to petitioners, and (3) respondents be ordered to
pay damages.

On May 19, 1998, respondents filed their Answer11 with counterclaim. Respondents averred that on
December 12, 1990, petitioners executed a special power of attorney (SPA)12 in favor of Reynalda
granting the latter the power to offer for sale the subject land; that sometime in 1994, respondent
Rowena and petitioners agreed that the former would buy the subject land for the price of
₱800,000.00 to be paid on installment; that on January 25, 1995, respondent Rowena paid in cash
to petitioners the sum of $1,000.00; that from 1995 to 1997, respondent Rowena paid the monthly
installments thereon as evidenced by money orders; that, in furtherance of the agreement, a deed of
sale was executed and the corresponding title was issued in favor of respondent Rowena; that the
subject sale was done with the knowledge and consent of the petitioners as evidenced by the receipt
of payment by petitioners; and that petitioners should be held liable for damages for filing the subject
Complaint in bad faith. Respondents prayed that the Complaint be dismissed and that petitioners be
ordered to pay damages.

On May 25, 1998, petitioners filed an Answer to Counterclaim.13 Petitioners admitted the existence of
the SPA but claimed that Reynalda violated the terms thereof when she (Reynalda) sold the subject
land without seeking the approval of petitioners as to the selling price. Petitioners also claimed that
the monthly payments from 1995 to 1997 were mere deposits as requested by respondent Rowena
so that she (Rowena) would not spend the same pending their agreement as to the purchase price;
and that Reynalda, acting with evident bad faith, executed the deed of sale in her favor but placed it
in the name of her daughter, respondent Rowena, which sale is null and void because an agent
cannot purchase for herself the property subject of the agency.

Ruling of the Regional Trial Court

On January 6, 2003, the RTC rendered a Decision in favor of petitioners, viz:

WHEREFORE, Decision is hereby rendered, as follows;

(1) Ordering the petitioners, jointly and severally, to return the said amount of $12,000.00 at
the present rate of exchange less the expenses to be incurred for the transfer of the property
in question under the name of the petitioners;

(2) Ordering the Register of Deeds of Bukidnon to cancel TCT No. T-62674 in the name of
the respondent Rowena Gay T. Visitacion-Lopez and to issue a new TCT in the name of the
petitioners;

(3) Ordering respondents, spouses Melvin and Rowena Gay Lopez, to execute a Deed of
Reconveyance in favor of the petitioners, or if said respondents should refuse to do so or are
unable to do so, the Clerk of Court of the RTC and ex-officio Provincial Sheriff to execute
such Deed of Reconveyance;

(4) No x x x damages are awarded. The respective parties must bear their own expenses
except that respondents, jointly and severally, must pay the costs of this suit.

SO ORDERED.14

In ruling in favor of petitioners, the trial court held: (1) the SPA merely authorized Reynalda to offer
for sale the subject land for a price subject to the approval of the petitioners; (2) Reynalda violated
the terms of the SPA when she sold the subject land to her daughter, respondent Rowena, without
first seeking the approval of petitioners as to the selling price thereof; (3) the SPA does not
sufficiently confer on Reynalda the authority to sell the subject land; (4) Reynalda, through fraud and
with bad faith, connived with her daughter, respondent Rowena, to sell the subject land to the latter;
and, (5) the sale contravenes Article 1491, paragraph 2, of the Civil Code which prohibits the agent
from acquiring the property subject of the agency unless the consent of the principal has been given.
The trial court held that Reynalda, as agent, acted outside the scope of her authority under the SPA.
Thus, the sale is null and void and the subject land should be reconveyed to petitioners. The trial
court further ruled that petitioners are not entirely free from liability because they received from
respondent Rowena deposits totaling $12,000.00. Under the principle of unjust enrichment,
petitioners should, thus, be ordered to reimburse the same without interest.

Petitioners filed a partial motion for reconsideration15 praying for the award of attorney’s fees. In its
January 14, 2003 Order16 denying the aforesaid motion, the trial court clarified that the
reimbursement of $12,000.00 in favor of respondents was without interest because there was also
no award of rental income in favor of petitioners. Both parties are deemed mutually compensated
and must bear their own expenses.

From this Decision, respondents appealed to the CA.

Ruling of the Court of Appeals

On May 19, 2005, the CA rendered the assailed Decision reversing the judgment of the trial court,
viz:

WHEREFORE, premises considered, the appealed Decision of the Court a quo is hereby
REVERSED and SET ASIDE. Accordingly, title to the subject property shall remain in the name of
the Appellant ROWENA GAY VISITACION-LOPEZ. The latter and her spouse MELVIN LOPEZ are
directed to pay the balance of Four Hundred Eighty Eight Thousand Pesos (₱488,000.00) to the
petitioners effective within 30 days from receipt of this Decision and in case of delay, to pay the legal
rate of interests [sic] at 12% per annum until fully paid.

SO ORDERED.17

In reversing the trial court’s Decision, the appellate court ruled that: (1) the SPA sufficiently conferred
on Reynalda the authority to sell the subject land; (2) although there is no direct evidence of
petitioners’ approval of the selling price of the subject land, petitioner Aurora’s acts of receiving two
money orders and several dollar checks from respondent Rowena over the span of three years
amount to the ratification of any defect in the authority of Reynalda under the SPA; (3) petitioners
are estopped from repudiating the sale after they had received the deposits totaling $12,000.00; (4)
the sale is not contrary to public policy because there is no rule or law which prohibits the sale of
property subject of the agency between the agent and his children unless it would be in fraud of
creditors which is not the case here; (5) petitioners impliedly ratified the subject SPA and contract of
sale as well as its effects; and, (6) the selling price of ₱800,000.00 for the subject land is deemed
reasonable based on the testimony of respondent Rowena as this was the selling price agreed upon
by her and petitioner Delfin. Considering that respondent Rowena proved that she remitted a total of
$12,000.00 to petitioners and pegging the exchange rate at that time at ₱26.00 per dollar, the
appellate court ruled that ₱312,000.00 of the ₱800,000.00 selling price was already received by
petitioners. Thus, respondents are only liable for the balance of ₱488,000.00.

Hence, this Petition.

Issues

Petitioners raise the following issues for our resolution:

I. Whether the CA erred in resolving the issue in the case at bar.

II. Whether under the SPA Reynalda had the power to sell the subject land.

III. Whether the actuations of petitioner Aurora in receiving money from respondent Rowena
amounted to the ratification of the breach in the exercise of the SPA.

IV. Whether the CA erred in not declaring the sale void on grounds of public policy.

V. Whether the CA erred in adopting the testimony of respondent Rowena as to the

₱800,000.00 selling price of the subject land.18

Petitioners’ Arguments

Petitioners argue that the appellate court went beyond the issues of this case when it ruled that there
was a contract of sale between respondent Rowena and petitioner Aurora because the issues before
the trial court were limited to the validity of the deed of sale dated July 23, 1997 for being executed
by Reynalda beyond the scope of her authority under the SPA. Further, the existence of the alleged
contract of sale was not proven because the parties failed to agree on the purchase price as stated
by petitioner Aurora in her testimony. The money, in cash and checks, given to petitioners from 1995
to 1997 were mere deposits until the parties could agree to the purchase price. Moreover, Reynalda
acted beyond the scope of her authority under the SPA because she was merely authorized to look
for prospective buyers of the subject land. Even assuming that she had the power to sell the subject
land under the SPA, she did not secure the approval as to the price from petitioners before
executing the subject deed of sale, hence, the sale is null and void. Petitioners also contend that
there was no ratification of the subject sale through petitioners’ acceptance of the monthly checks
from respondent Rowena because the sale occurred subsequent to the receipt of the aforesaid
checks. They further claim that the sale was void because it was not only simulated but violates
Article 1491 of the Civil Code which prohibits the agent from acquiring the property subject of the
agency. Here, Reynalda merely used her daughter, respondent Rowena, as a dummy to acquire the
subject land. Finally, petitioners question the determination by the appellate court that the fair market
value of the subject land is ₱800,000.00 for lack of any factual and legal basis.

Respondents’ Arguments

Respondents counter that the issue as to whether there was a perfected contract of sale between
petitioners and respondent Rowena is inextricably related to the issue of whether the deed of sale
dated July 23, 1997 is valid, hence, the appellate court properly ruled on the former. Furthermore,
they reiterate the findings of the appellate court that the receipt of monthly installments constitutes
an implied ratification of any defect in the SPA and deed of sale dated July 23, 1997. They
emphasize that petitioners received a total of $12,000.00 as consideration for the subject land.

Our Ruling

The Petition is meritorious.

As a general rule, we do not disturb the factual findings of the appellate court. However, this case
falls under one of the recognized exceptions thereto because the factual findings of the trial court
and appellate court are conflicting.19Our review of the records leads us to conclude that the following
are the relevant factual antecedents of this case.

Petitioners were the owners of the subject land covered by TCT No. T-25334 in the name of
petitioner Aurora. On December 12, 1990, petitioners, as principals and sellers, executed an SPA in
favor of Reynalda, as agent, to, among others, offer for sale the subject land provided that the
purchase price thereof should be approved by the former. Sometime in 1994, petitioners and
respondent Rowena agreed to enter into an oral contract to sell over the subject land for the price of
₱800,000.00 to be paid in 10 years through monthly installments.

On January 25, 1995, respondent Rowena paid the first monthly installment of $1,000.00 to
petitioner Aurora which was followed by 22 intermittent monthly installments of $500.00 spanning
almost three years. Sometime in 1997, after having paid a total of $10,000.00, respondent Rowena
called her mother, Reynalda, claiming that she had already bought the subject land from petitioners.
Using the aforesaid SPA, Reynalda then transferred the title to the subject land in respondent
Rowena’s name through a deed of sale dated July 23, 1997 without the knowledge and consent of
petitioners. In the aforesaid deed, Reynalda appeared and signed as attorney-in-fact of petitioner
Aurora, as seller, while respondent Rowena appeared as buyer. After which, a new title, i.e., TCT
No. 62674,20 to thesubject land was issued in the name of respondent Rowena.

We explain these factual findings and the consequences thereof below.

Petitioners and respondent

Rowena entered into a contract to sell over the subject land.

Petitioners deny that they agreed to sell the subject land to respondent Rowena for the price of
₱800,000.00 payable in 10 years through monthly installments. They claim that the payments
received from respondent Rowena were for safekeeping purposes only pending the final agreement
as to the purchase price of the subject land.

We are inclined to give credence to the claim of the respondents for the following reasons.

First, the payment of monthly installments was duly established by the evidence on record consisting
of money orders21 and checks22 payable to petitioner Aurora. Petitioners do not deny that they
received 23 monthly installments over the span of almost three years. As of November 30, 1997
(i.e., the date of the last monthly installment), the payments already totaled $12,000.00, to wit:

Date Amount Paid

(in dollars)
January 25, 1995 1,000.0023
February 21, 1995 500.00
 March 27, 1995 500.00
April 25, 1995 500.00
June 1, 1995 500.00
June 30, 1995 500.00
July 31, 1995 500.00
May 29, 1996 500.00
June 30, 1996 500.00
July 31, 1996 500.00
August 31, 1996 500.00
September 30, 1996 500.00
October 29, 1996 500.00
December 31, 1996 500.00
January 31, 1997 500.00
February 28, 1997 500.00
March 31, 1997 500.00
May 31, 1997 500.00
July 19, 1997 500.00
August 31, 1997 500.00
September 30, 1997 500.00
October 31, 1997 500.00
November 30, 1997 500.00
Total 12,000.00

Second, in her testimony, petitioner Aurora claimed that the $1,000.00 in cash that she received
from respondent Rowena on January 25, 1995 was a mere deposit until the purchase price of the
subject land would have been finally agreed upon by both parties.24 However, petitioner Aurora failed
to explain why, after receiving this initial sum of $1,000.00, she thereafter accepted from respondent
Rowena 22 intermittent monthly installments in the amount of $500.00. No attempt was made on the
part of petitioners to return these amounts and it is fair to assume that petitioners benefited
therefrom.

Third, it strains credulity that respondent Rowena would make such monthly installments for a
substantial amount of money and for a long period of time had there been no agreement between
the parties as to the purchase price of the subject land.

We are, thus, inclined to rule that there was, indeed, a contractual agreement between the parties
for the purchase of the subject land and that this agreement partook of an oral contract to sell for the
sum of ₱800,000.00. A contract to sell has been defined as "a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price."25 In a
contract to sell, "ownership is retained by the seller and is not to pass until the full payment of the
price x x x."26 It is "commonly entered into so as to protect the seller against a buyer who intends to
buy the property in installments by withholding ownership over the property until the buyer effects full
payment therefor."27

In the case at bar, while there was no written agreement evincing the intention of the parties to enter
into a contract to sell, its existence and partial execution were sufficiently established by, and may
be reasonably inferred from the actuations of the parties, to wit: (1) the title to the subject land was
not immediately transferred, through a formal deed of conveyance, in the name of respondent
Rowena prior to or at the time of the first payment of $1,000.00 by respondent Rowena to petitioner
Aurora on January 25, 1995;28 (2) after this initial payment, petitioners received 22 intermittent
monthly installments from respondent Rowena in the sum of $500.00; and, (3) in her testimony,
respondent Rowena admitted that she had the title to the subject land transferred in her name only
later on or on July 23, 1997, through a deed of sale, because she believed that she had substantially
paid the purchase price thereof,29 and that she was entitled thereto as a form of security for the
installments she had already paid.30

Respondent Rowena was in breach of the contract to sell.

Although we rule that there was a contract to sell over the subject land between petitioners and
respondent Rowena, we find that respondent Rowena was in breach thereof because, at the time
the aforesaid deed of sale was executed on July 23, 1997, the full price of the subject land was yet
to be paid. In arriving at this conclusion, we take judicial notice31 of the prevailing exchange rates at
the time, as published by the Bangko Sentral ng Pilipinas,32 and multiply the same with the monthly
installments respondent Rowena paid to petitioners, as supported by the evidence on record, to wit:

Amount Paid Exchange Rate

Date Peso Equivalent
(in dollars) (peso per dollar)
January 25, 1995 1,000.00 24.7700 24,770.00
February 21, 1995 500.00 25.1140 12,557.00
March 27, 1995 500.00 25.9670 12,983.50
April 25, 1995 500.00 26.0270 13,013.50
June 1, 1995 500.00 25.8040 12,902.00
June 30, 1995 500.00 25.5750 12,787.50
July 31, 1995 500.00 25.5850 12,792.50
May 29, 1996 500.00 26.1880 13,094.00
June 30, 1996 500.00 26.203033 13,101.50
July 31, 1996 500.00 26.2280 13,114.00
August 31, 1996 500.00 26.202034 13,101.00
September 30, 1996 500.00 26.2570 13,128.50
October 29, 1996 500.00 26.2830 13,141.50
December 31, 1996 500.00 26.288035 13,144.00
January 31, 1997 500.00 26.3440 13,172.00
February 28, 1997 500.00 26.3330 13,166.50
March 31, 1997 500.00 26.3670 13,183.50
May 31, 1997 500.00 26.374036 13,187.00
July 19, 1997 500.00 28.574037 14,287.00
Total 260,626.50

Thus, as of July 19, 1997 or prior to the execution of the deed of sale dated July 23, 1997, the total
amount of monthly installments paid by respondent Rowena to petitioners was only ₱260,626.50 or
32.58%38 of the ₱800,000.00 purchase price. That the full price was yet to be paid at the time of the
subject transfer of title was admitted by respondent Rowena on cross-examination, viz:

ATTY. OKIT:

Q - Let us make this clear. You now admit that x x x you agreed to buy the lot at eight hundred
thousand, to which the Plaintiff x x x agreed. Now based on the dollar rate, your total payment did
not reach x x x eight hundred thousand pesos? Is that correct? [sic]

A - Yes.
Q - Since notwithstanding the fact this eight hundred thousand which you have agreed is not fully
paid why did your mother finalize the deed of sale?

A - My mother is equipped with the SPA to transfer the lot to me only for security purposes but
actually there is no full payment.39 (Emphasis supplied)

Respondent Rowena tried to justify the premature transfer of title by stating that she had
substantially paid the full amount of the purchase price and that this was necessary as a security for
the installments she had already paid. However, her own evidence clearly showed that she had, by
that time, paid only 32.58% thereof. Neither can we accept her justification that the premature
transfer of title was necessary as a security for the installments she had already paid absent proof
that petitioners agreed to this new arrangement. Verily, she failed to prove that petitioners agreed to
amend or novate the contract to sell in order to allow her to acquire title over the subject land even if
she had not paid the price in full.

Significantly, the evidence on record indicates that the premature transfer of title in the name of
respondent Rowena was done without the knowledge and consent of petitioners. In particular,
respondent Rowena’s narration of the events leading to the transfer of title showed that she and her
mother, Reynalda, never sought the consent of petitioners prior to said transfer of title, viz:

COURT:

Q- Why is this check (in the amount of $1,000.00) in your possession now?

A- This is the check I paid to her (referring to petitioner Aurora) which is in cash. [sic]

ATTY. BARROSO:

Q - Now did you continue x x x paying the $500.00 dollar to him (referring to petitioner Delfin)?

A - Yes.

xxxx

Q - Now having stated substantially paid, what did you do with the land subject of this case? [sic]

A - I called my mother who has equipped with SPA to my Uncle that I have already bought the land.
[sic]

Q - And you called your mother?

A - Yes.

xxxx

Q - Then what transpired next?

A - After two years my mother called me if how much I have paid the land and being equipped with
SPA, so she transferred the land to me. [sic]40 (Emphases supplied)

Respondent Rowena’s reliance on the SPA as the authority or consent to effect the premature
transfer of title in her name is plainly misplaced. The terms of the SPA are clear. It merely authorized
Reynalda to sell the subject land at a price approved by petitioners. The SPA could not have
amended or novated the contract to sell to allow respondent Rowena to acquire the title over the
subject land despite non-payment of the price in full for the reason that the SPA was executed four
years prior to the contract to sell. In fine, the tenor of her testimony indicates that respondent
Rowena made a unilateral determination that she had substantially paid the purchase price and that
she is entitled to the transfer of title as a form of security for the installments she had already paid,
reasons, we previously noted, as unjustified.

The contract to sell is rescissible.

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period. x x x

As a general rule, "rescission will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are substantial and fundamental as to defeat the object of the parties in
making the agreement."41

In the case at bar, we find that respondent Rowena’s act of transferring the title to the subject land in
her name, without the knowledge and consent of petitioners and despite non-payment of the full
price thereof, constitutes a substantial and fundamental breach of the contract to sell. As previously
noted, the main object or purpose of a seller in entering into a contract to sell is to protect himself
against a buyer who intends to buy the property in installments by withholding ownership over the
property until the buyer effects full payment therefor.42 As a result, the seller’s obligation to convey
and the buyer’s right toconveyance of the property arise only upon full payment of the price. Thus, a
buyer who willfully contravenes this fundamental object or purpose of the contract, by covertly
transferring the ownership of the property in his name at a time when the full purchase price has yet
to be paid, commits a substantial and fundamental breach which entitles the seller to rescission of
the contract.43

Indeed, it would be highly iniquitous for us to rule that petitioners, as sellers, should continue with the
contract to sell even after the discovery of the aforesaid breach committed by respondent Rowena,
as buyer, considering that these acts betrayed in no small measure the trust reposed by petitioners
in her and her mother, Reynalda. Put simply, respondent Rowena took advantage of the SPA, in the
name of her mother and executed four years prior to the contract to sell, to effect the transfer of title
to the subject land in her (Rowena’s) name without the knowledge and consent of petitioners and
despite non-payment of the full price.

We, thus, rule that petitioners are entitled to the rescission of the subject contract to sell.

Petitioners are entitled to moral damages and attorney’s fees while respondent Rowena is entitled to
the reimbursement of the monthly installments with legal interest.

Article 1170 of the Civil Code provides:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.

Fraud or malice (dolo) has been defined as a "conscious and intentional design to evade the normal
fulfillment of existing obligations" and is, thus, incompatible with good faith.44 In the case at bar, we
find that respondent Rowena was guilty of fraud in the performance of her obligation under the
subject contract to sell because (1) she knew that she had not yet paid the full price (having paid
only 32.58% thereof) when she had the title to the subject land transferred to her name, and (2) she
orchestrated the aforesaid transfer of title without the knowledge and consent of petitioners. Her own
testimony and documentary evidence established this fact. Where fraud and bad faith have been
established, the award of moral damages is proper.45 Further, under Article 2208(2)46 of the Civil
Code, the award of attorney’s fees is proper where the plaintiff is compelled to litigate with third
persons or incur expenses to protect his interest because of the defendant’s act or omission. Here,
respondent Rowena’s aforesaid acts caused petitioners to incur expenses in litigating their just
claims. We, thus, find respondent Rowena liable for moral damages and attorney’s fees which we fix
at ₱100,000.00 and ₱50,000.00, respectively.47

Anent the monthly installments respondent Rowena paid to petitioners, our review of the records
leads us to conclude that respondent Rowena is entitled to the reimbursement of the same with legal
interest. Although respondent Rowena was clearly unjustified in prematurely and covertly
transferring the title to the subject land in her name, we deplore petitioners’ lack of candor in
prosecuting their claims before the trial court and intent to evade recognition of the monthly
installments that they received from respondent Rowena. The records indicate that, in their
Complaint, petitioners made no mention of the fact that they had entered into a contract to sell with
respondent Rowena and that they had received 23 monthly installments from the latter. The
Complaint merely alleged that the subject sale was done without the knowledge and consent of
petitioners. It was only later on, when respondent Rowena presented the proof of payment of the
monthly installments in her Answer to the Complaint, that this was brought to light to which
petitioners readily admitted. Further, no evidence was presented to prove that respondent Rowena
occupied the subject land or benefited from the use thereof upon commencement of the contract to
sell which would have justified the setting off of rental income against the monthly installments paid
by respondent Rowena to petitioners.

In view of the foregoing, the sums paid by respondent Rowena as monthly installments to petitioners
should, thus, be returned to her with legal interest. The total amount to be reimbursed by petitioners
to respondent Rowena is computed as follows:

Amount Paid Exchange Rate

Date Peso Equivalent
(in dollars) (peso per dollar)
January 25, 1995 1,000.00 24.7700 24,770.00
February 21, 1995 500.00 25.1140 12,557.00
March 27, 1995 500.00 25.9670 12,983.50
April 25, 1995 500.00 26.0270 13,013.50
June 1, 1995 500.00 25.8040 12,902.00
June 30, 1995 500.00 25.5750 12,787.50
July 31, 1995 500.00 25.5850 12,792.50
May 29, 1996 500.00 26.1880 13,094.00
June 30, 1996 500.00 26.2030 13,101.50
July 31, 1996 500.00 26.2280 13,114.00
August 31, 1996 500.00 26.2020 13,101.00
September 30, 1996 500.00 26.2570 13,128.50
October 29, 1996 500.00 26.2830 13,141.50
December 31, 1996 500.00 26.2880 13,144.00
January 31, 1997 500.00 26.3440 13,172.00
February 28, 1997 500.00 26.3330 13,166.50
March 31, 1997 500.00 26.3670 13,183.50
May 31, 1997 500.00 26.3740 13,187.00
July 19, 1997 500.00 28.5740 14,287.00
August 31, 1997 500.00 30.1650 15,082.50
September 30, 1997 500.00 33.8730 16,936.50
October 31, 1997 500.00 34.9380 17,469.00
November 30, 1997 500.00 34.6550 17,327.50
Total 327,442.00

Since this amount is neither a loan nor forbearance of money, we set the interest rate at 6% per
annum computed from the time of the filing of the Answer48 to the Complaint on May 19, 199849 until
finality of judgement and thereafter at 12% per annum until fully paid in accordance with our ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals.50 Petitioners are, thus, ordered to pay respondent
Rowena the sum of ₱327,442.00 with an interest of 6% per annum computed from May 19, 1998
until finality of judgment and thereafter of 12% per annum until fully paid.

The sale of the subject land, effected through the deed of sale dated July 23, 1997, is void.

Having ruled that respondent Rowena was in substantial breach of the contract to sell because she
had the title to the subject land transferred in her name without the knowledge and consent of
petitioners and despite lack of full payment of the purchase price, we now rule on the validity of the
deed of sale dated July 23, 1997 which was used to effect the aforesaid transfer of ownership.

It will be recalled that on December 12, 1990, petitioners, as principals and sellers, executed an SPA
in favor of Reynalda, as agent. The SPA stated in part:

That we spouses, AURORA TUMIBAY and DELFIN TUMIBAY, of legal age and presently residing at
36 Armstrong Drive, Clark, New Jersey, 07066 name, constitute and appoint REYNALDA
VISITACION, widow, of legal age and residing at Don Carlos, Bukidnon, Philippines, to be our true
and lawful Attorney-in-fact, for us and in our name, place and stead and for our use and benefit to do
and perform the following acts and deed:

To administer our real property located in the Province of Bikidnon, Town of Malaybalay, Barrio of
Bantaunon, Towns of Maramag, Paradise, Maramag and Barrio of Kiburiao, Town of Quezon.

To offer for sale said properties, the selling price of which will be subject to our approval.

xxxx

To sign all papers and documents on our behalf in a contract of sale x x x.51.

As can be seen, the SPA gave Reynalda the power and duty to, among others, (1) offer for sale the
subject land to prospective buyers, (2) seek the approval of petitioners as to the selling price thereof,
and (3) sign the contract of sale on behalf of petitioners upon locating a buyer willing and able to
purchase the subject land at the price approved by petitioners. Although the SPA was executed four
years prior to the contract to sell, there would have been no obstacle to its use by Reynalda had the
ensuing sale been consummated according to its terms. However, as previously discussed, when
Reynalda, as attorney-in-fact of petitioner Aurora, signed the subject deed of sale dated July 23,
1997, the agreed price of ₱800,000.00 (which may be treated as the approved price) was not yet
fully paid because respondent Rowena at the time had paid only ₱260,262.50.52 Reynalda,
therefore, acted beyond the scope of her authority because she signed the subject deed of sale, on
behalf of petitioners, at a price of ₱95,000.00 which was not approved by the latter. For her part,
respondent Rowena cannot deny that she was aware of the limits of Reynalda’s power under the
SPA because she (Rowena) was the one who testified that the agreed price for the subject land was
₱800,000.00.

Article 1898 of the Civil Code provides:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principal’s ratification.

It should be noted that, under Article 1898 of the Civil Code, the principal’s ratification of the acts of
the agent, done beyond the scope of the latter’s authority, may cure the defect in the contract
entered into between the agent and a third person. This seems to be the line of reasoning adopted
by the appellate court in upholding the validity of the subject sale. The appellate court conceded that
there was no evidence that respondents sought the approval of petitioners for the subject sale but it,
nonetheless, ruled that whatever defect attended the sale of the subject land should be deemed
impliedly ratified by petitioners’ acceptance of the monthly installments paid by respondent Rowena.
Though not clearly stated in its Decision, the appellate court seemed to rely on the four monthly
installments (i.e., August 31, September 30, October 31, and November 30, 1997) respondent
Rowena paid to petitioners which the latter presumably received and accepted even after the
execution of the deed of sale dated July 23, 1997.

We disagree.
That petitioners continued to receive four monthly installments even after the premature titling of the
subject land in the name of respondent Rowena, through the deed of sale dated July 23, 1997, did
not, by itself, establish that petitioners ratified such sale. On the contrary, the fact that petitioners
continued to receive the aforesaid monthly installments tended to establish that they had yet to
discover the covert transfer of title in the name of respondent Rowena. As stated earlier, the
evidence on record established that the subject sale was done without petitioners’ knowledge and
consent which would explain why receipt or acceptance by petitioners of the aforementioned four
monthly installments still occurred. Further, it runs contrary to common human experience and
reason that petitioners, as sellers, would forego the reservation or retention of the ownership over
the subject land, which was intended to guarantee the full payment of the price under the contract to
sell, especially so in this case where respondent Rowena, as buyer, had paid only 32.58% of the
purchase price. In a contract to sell, it would be unusual for the seller to consent to the transfer of
ownership of the property to the buyer prior to the full payment of the purchase price because the
reservation of the ownership in the seller is precisely intended to protect the seller from the buyer.
We, therefore, find that petitioners’ claim that they did not ratify the subject sale, which was done
without their knowledge and consent, and that the subsequent discovery of the aforesaid fraudulent
sale led them to promptly file this case with the courts to be more credible and in accord with the
evidence on record. To rule otherwise would be to reward respondent Rowena for the fraud that she
committed on petitioners.

Based on the foregoing, we rule that (1) Reynalda, as agent, acted beyond the scope of her
authority under the SPA when she executed the deed of sale dated July 23, 1997 in favor of
respondent Rowena, as buyer, without the knowledge and consent of petitioners, and conveyed the
subject land to respondent Rowena at a price not approved by petitioners, as principals and sellers,
(2) respondent Rowena was aware of the limits of the authority of Reynalda under the SPA, and (3)
petitioners did not ratify, impliedly or expressly, the acts of Reynalda. Under Article 1898 of the Civil
Code, the sale is void and petitioners are, thus, entitled to the reconveyance of the subject land.

WHEREFORE, the Petition is GRANTED. The May 19, 2005 Decision and February 10, 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 79029 are ANNULLED and SET ASIDE. The
January 6, 2003 Decision of the Regional Trial Court of Malaybalay City, Branch 9 in Civil Case No.
2759-98 is REINSTATED and MODIFIED to read as follows:

1. The deed of sale dated July 23, 1997 over the subject land, covered by TCT No. T-62674,
between petitioner Aurora, represented by Reynalda as her attorney-in-fact, and respondent
Rowena is declared void.

2. The contract to sell over the subject land, covered by TCT No. T-25334, between
petitioners, as sellers, and respondent Rowena, as buyer, is declared rescinded. 1âw phi1

3. The Register of Deeds of Malaybalay City is ordered to cancel TCT No. T-62674 in the
name of respondent Rowena and to reinstate TCT No. T-25334 in the name of petitioner
Aurora.

4. Respondent Rowena is ordered to pay petitioners the sum of ₱100,000.00 as moral

damages and ₱50,000.00 as attorney’s fees.

5. Petitioners are ordered to pay respondent Rowena the sum of ₱327,442.00 with legal
interest of 6% per annum from May 19, 1998 until finality of this Decision. In case petitioners
fail to pay the amount due upon finality of this Decision, they shall pay legal interest thereon
at the rate of 12% per annum until fully paid.

No costs.

SO ORDERED.

FIDELA DEL CASTILLO VDA. DE MISTICA,

Petitioner,
 G.R. No. 137909
December 11, 2003

-versus-

SPOUSES BERNARDINO NAGUIAT AND

MARIA PAULINA GERONA-NAGUIAT,
Respondents.

DECISION

PANGANIBAN, J.:

The failure to pay in full the purchase price stipulated in a deed of sale does
not ipso facto grant the seller the right to rescind the agreement. Unless
otherwise stipulated by the parties, rescission is allowed only when the breach
of the contract is substantial and fundamental to the fulfillment of the
obligation.

The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court,
seeking to nullify the October 31, 1997 Decision [2] and the February 23, 1999
Resolution [3] of the Court of Appeals (CA) in CA-GR CV No. 51067. The
assailed Decision disposed as follows: chan robles virtual law library
"WHEREFORE, modified as indicated above, the decision of the Regional Trial
Court is hereby AFFIRMED." [4]
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
"Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a
parcel of land located at Malhacan, Meycauayan, Bulacan. A portion thereof
was leased to Respondent Bernardino Naguiat sometime in 1970. chan robles virtual
law library
"On 5 April 1979, Eulalio Mistica entered into a contract to sell with
[Respondent Bernardino Naguiat] over a portion of the aforementioned lot
containing an area of 200 square meters. This agreement was reduced to
writing in a document entitled 'Kasulatan sa Pagbibilihan' which reads as
follows: chan robles virtual law library
'NAGSASALAYSAY:
'Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay
na lupa na nasa Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng
Bulacan, na ang kabuuan sukat at mga kahangga nito gaya ng
sumusunod: chan robles virtual law library
x x x x x x x x x
'Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00)
Kualtang Pilipino, ang NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili
ang isang bahagi o sukat na DALAWANG DAAN (200) METROS PARISUKAT, sa
lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng
sumusunod:chan robles virtual law library
x x x x x x x x x
'Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang
DALAWANG LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan
ang kasulatang ito. chan robles virtual law library
'Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00)
Kualtang Pilipino, ay babayaran ng BUMIBILI sa loob ng Sampung (10) taon,
na magsisimula sa araw din ng lagdaan ang kasulatang ito.
'Sakaling hindi makakabayad ang Bumibili sa loob ng panahon
pinagkasunduan, an[g] BUMIBILI ay magbabayad ng pakinabang o interes ng
12% isang taon, sa taon nilakaran hanggang sa ito'y mabayaran tuluyan ng
Bumibili: chan robles virtual law library
'Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang
ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng
Bulacan, Pilipinas. chan robles virtual law library

(SGD.) (SGD.)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili Nagbibili'
"Pursuant to said agreement, Respondent Bernardino Naguiat gave a
downpayment of P2,000.00. He made another partial payment of P1,000.00
on 7 February 1980. He failed to make any payments thereafter. Eulalio
Mistica died sometime in October 1986. chan robles virtual law library
"On 4 December 1991, petitioner filed a complaint for rescission alleging inter
alia: that the failure and refusal of respondents to pay the balance of the
purchase price constitutes a violation of the contract which entitles her to
rescind the same; that respondents have been in possession of the subject
portion and they should be ordered to vacate and surrender possession of the
same to petitioner; that the reasonable amount of rental for the subject land
is P200.00 a month; that on account of the unjustified actuations of
respondents, petitioner has been constrained to litigate where she incurred
expenses for attorney's fees and litigation expenses in the sum of
P20,000.00. chan robles virtual law library
"In their answer and amended answer, respondents contended that the
contract cannot be rescinded on the ground that it clearly stipulates that in
case of failure to pay the balance as stipulated, a yearly interest of 12% is to
be paid. Respondent Bernardino Naguiat likewise alleged that sometime in
October 1986, during the wake of the late Eulalio Mistica, he offered to pay
the remaining balance to petitioner but the latter refused and hence, there is
no breach or violation committed by them and no damages could yet be
incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said
document; that he is presently the owner in fee simple of the subject lot
having acquired the same by virtue of a Free Patent Title duly awarded to him
by the Bureau of Lands; and that his title and ownership had already become
indefeasible and incontrovertible. As counterclaim, respondents pray for moral
damages in the amount of P50,000.00; exemplary damages in the amount of
P30,000.00; attorney's fees in the amount of P10,000.00 and other litigation
expenses. chan robles virtual law library
"On 8 July 1992, respondents also filed a motion to dismiss which was denied
by the court on 29 July 1992. The motion for reconsideration was likewise
denied per its Order of 17 March 1993. chan robles virtual law library
"After the presentation of evidence, the court on 27 January 1995 rendered
the now assailed judgment, the dispositive portion of which reads:
'WHEREFORE, premises considered, judgment is hereby rendered:
'1. Dismissing the complaint and ordering the [petitioner] to pay the
respondents attorney's fee in the amount of P10,000.00 and costs of the
suit;chan robles virtual law library
'2. Ordering the respondents:
'a. To pay petitioner and the heirs of Eulalio Mistica the balance of the purchase
price in the amount of P17,000.00, with interest thereon at the rate of 12%
per annum computed from April 5, 1989 until full payment is made, subject
to the application of the consigned amount to such payment; chan robles virtual law
library
'b. To return to petitioner and the heirs of Eulalio Mistica the extra area of 58
square meters from the land covered by OCT No. 4917 (M), the corresponding
price therefor based on the prevailing market price thereof.'" [5] (Citations
omitted.)
CA's Decision
Disallowing rescission, the CA held that respondents did not breach the
Contract of Sale. It explained that the conclusion of the ten-year period was
not a resolutory term, because the Contract had stipulated that payment -
with interest of 12 percent - could still be made if respondents failed to pay
within the period. According to the appellate court, petitioner did not disprove
the allegation of respondents that they had tendered payment of the balance
of the purchase price during her husband's funeral, which was well within the
ten-year period. chan robles virtual law library
Moreover, rescission would be unjust to respondents, because they had
already transferred the land title to their names. The proper recourse, the CA
held, was to order them to pay the balance of the purchase price, with 12
percent interest. chan robles virtual law library
As to the matter of the extra 58 square meters, the CA held that its
reconveyance was no longer feasible, because it had been included in the title
issued to them. The appellate court ruled that the only remedy available was
to order them to pay petitioner the fair market value of the usurped portion. c ralaw

Hence, this Petition. [6]

Issues
In her Memorandum, [7] petitioner raises the following issues:
"1. Whether or not the Honorable Court of Appeals erred in the application of
Art. 1191 of the New Civil Code, as it ruled that there is no breach of obligation
inspite of the lapse of the stipulated period and the failure of the private
respondents to pay. chan robles virtual law library
"2. Whether or not the Honorable Court of Appeals [e]rred in ruling that
rescission of the contract is no longer feasible considering that a certificate of
title had been issued in favor of the private respondents. chan robles virtual law library
"3. Whether or not the Honorable Court of Appeals erred in ruling that since
the 58 sq. m. portion in question is covered by a certificate of title in the
names of private respondents reconveyance is no longer feasible and
proper." [8] chan robles virtual law library
The Court's Ruling
The Petition is without merit. c ralaw

First Issue: Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under Article 1191
of the Civil Code, because respondents committed a substantial breach when
they did not pay the balance of the purchase price within the ten-year period.
She further avers that the proviso on the payment of interest did not extend
the period to pay. To interpret it in that way would make the obligation purely
potestative and, thus, void under Article 1182 of the Civil Code. chan robles virtual

law library
We disagree. The transaction between Eulalio Mistica and respondents, as
evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is
considered absolute in nature when there is neither a stipulation in the deed
that title to the property sold is reserved to the seller until the full payment of
the price; nor a stipulation giving the vendor the right to unilaterally resolve
the contract the moment the buyer fails to pay within a fixed period. [9]
In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission. [10] Under Article 1191 of the Civil Code, the right
to rescind an obligation is predicated on the violation of the reciprocity
between parties, brought about by a breach of faith by one of
them. [11] Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation. [12] chan robles
virtual law library
In the present case, the failure of respondents to pay the balance of the
purchase price within ten years from the execution of the Deed did not amount
to a substantial breach. In the Kasulatan, it was stipulated that payment could
be made even after ten years from the execution of the Contract, provided
the vendee paid 12 percent interest. The stipulations of the contract constitute
the law between the parties; thus, courts have no alternative but to enforce
them as agreed upon and written. [13] chan robles virtual law library
Moreover, it is undisputed that during the ten-year period, petitioner and her
deceased husband never made any demand for the balance of the purchase
price. Petitioner even refused the payment tendered by respondents during
her husband's funeral, thus showing that she was not exactly blameless for
the lapse of the ten-year period. Had she accepted the tender, payment would
have been made well within the agreed period. chan robles virtual law library
If petitioner would like to impress upon this Court that the parties intended
otherwise, she has to show competent proof to support her contention.
Instead, she argues that the period cannot be extended beyond ten years,
because to do so would convert the buyer's obligation to a purely potestative
obligation that would annul the contract under Article 1182 of the Civil
Code. chan robles virtual law library
This contention is likewise untenable. The Code prohibits purely potestative,
suspensive, conditional obligations that depend on the whims of the debtor,
because such obligations are usually not meant to be fulfilled. [14] Indeed, to
allow the fulfillment of conditions to depend exclusively on the debtor's will
would be to sanction illusory obligations. [15] The Kasulatan does not allow
such thing. First, nowhere is it stated in the Deed that payment of the
purchase price is dependent upon whether respondents want to pay it or
not. Second, the fact that they already made partial payment thereof only
shows that the parties intended to be bound by the Kasulatan. chan robles virtual law
library
Both the trial and the appellate courts arrived at this finding. Well-settled is
the rule that findings of fact by the CA are generally binding upon this Court
and will not be disturbed on appeal, especially when they are the same as
those of the trial court. [16] Petitioner has not given us sufficient reasons to
depart from this rule. chan robles virtual law library
Second Issue: Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to
respondents, because a certificate of title had already been issued in their
names. Petitioner nonetheless argues that the Court is still empowered to
order rescission. chan robles virtual law library
We clarify. The issuance of a certificate of title in favor of respondents does
not determine whether petitioner is entitled to rescission. It is a fundamental
principle in land registration that such title serves merely as an evidence of
an indefeasible and incontrovertible title to the property in favor of the person
whose name appears therein. [17] chan robles virtual law library
While a review of the decree of registration is no longer possible after the
expiration of the one-year period from entry, an equitable remedy is still
available to those wrongfully deprived of their property. [18] A certificate of
title cannot be subject to collateral attack and can only be altered, modified
or canceled in direct proceedings in accordance with law. [19] Hence, the CA
correctly held that the propriety of the issuance of title in the name of
respondents was an issue that was not determinable in these proceedings. chan
robles virtual law library
Third Issue: Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay her the
value of the lot, because the CA erred in ruling that the reconveyance of the
extra 58-square meter lot, which had been included in the certificate of title
issued to them, was no longer feasible. chan robles virtual law library
In principle, we agree with petitioner. Registration has never been a mode of
acquiring ownership over immovable property, because it does not create or
vest title, but merely confirms one already created or vested. [20] Registration
does not give holders any better title than what they actually have. [21] Land
erroneously included in the certificate of title of another must be reconveyed
in favor of its true and actual owner. [22] chan robles virtual law library
Section 48 of Presidential Decree 1529, however, provides that the certificate
of title shall not be subject to collateral attack, alteration, modification, or
cancellation except in a direct proceeding. [23] The cancellation or removal of
the extra portion from the title of respondents is not permissible in an action
for rescission of the contract of sale between them and petitioner's late
husband, because such action is tantamount to allowing a collateral attack on
the title. c ralaw

It appears that an action for cancellation/annulment of patent and title and

for reversion was already filed by the State in favor of petitioner and the heirs
of her husband. [24] Hence, there is no need in this case to pass upon the
right of respondents to the registration of the subject land under their names.
For the same reason, there is no necessity to order them to pay petitioner the
fair market value of the extra 58-square meter lot importunately included in
the title. c ralaw

WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the
MODIFICATION that the payment for the extra 58-square meter lot included
in respondents' title is DELETED. chan robles virtual law library
SO ORDERED. chan robles vir