Digest Author: Lloyd Rick Guyon
Topics: contract to sell; rescission as a remedy
Summary:
Two brothers entered into a contract to sell over one of the brothers’ share in the building. The buyer was only able to deposit half of the price, but refused to deliver the share in the rentals and fruits of the building to the brother selling his share.
Doctrines:
The stipulation to execute a deed of sale upon full payment of the purchase price is a unique and distinguishing characteristic of a contract to sell. It also shows that the vendor reserved title to the property until full payment.
Facts:
In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent herein, entered into an oral contract to sell covering Nicolas’s share, fixed at ₱500,000.00, as co-owner of the family’s Diego Building situated in Dagupan City. Rodolfo made a downpayment of ₱250,000.00. It was agreed that the deed of sale shall be executed upon payment of the remaining balance of ₱250,000.00. However, Rodolfo failed to pay the remaining balance.
Meanwhile, the building was leased out to third parties, but Nicolas’s share in the rents were not remitted to him by herein respondent Eduardo, another brother of Nicolas and designated administrator of the Diego Building. Instead, Eduardo gave Nicolas’s monthly share in the rents to Rodolfo. Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting and remit his share in the rents and fruits of the building, and Eduardo continued to hand them over to Rodolfo.
Thus, on May 17, 1999, Nicolas filed a Complaint6 against Rodolfo and Eduardo before the RTC of Dagupan City and docketed as Civil Case No. 99-02971-D. Nicolas prayed that Eduardo be ordered to render an accounting of all the transactions over the Diego Building; that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the rents; and that Eduardo and Rodolfo be held solidarily liable for attorney’s fees and litigation expenses.
Rodolfo and Eduardo filed their Answer with Counterclaim7 for damages and attorney’s fees. They argued that Nicolas had no more claim in the rents in the Diego Building since he had already sold his share to Rodolfo. Rodolfo admitted having remitted only ₱250,000.00 to Nicolas. He asserted that he would pay the balance of the purchase price to Nicolas only after the latter shall have executed a deed of absolute sale.
Issue:
- Whether there was a perfected contract of sale.
- Whether rescission was a proper remedy.
Ruling:
- NO. The contract entered into by Nicolas and Rodolfo was a contract to sell.
The stipulation to execute a deed of sale upon full payment of the purchase price is a unique and distinguishing characteristic of a contract to sell. It also shows that the vendor reserved title to the property until full payment.
There is no dispute that in 1993, Rodolfo agreed to buy Nicolas’s share in the Diego Building for the price of ₱500,000.00. There is also no dispute that of the total purchase price, Rodolfo paid, and Nicolas received, ₱250,000.00. Significantly, it is also not disputed that the parties agreed that the remaining amount of ₱250,000.00 would be paid after Nicolas shall have executed a deed of sale.
This stipulation, i.e., to execute a deed of absolute sale upon full payment of the purchase price, is a unique and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan, this Court ruled that a stipulation in the contract, “where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price,” indicates that the parties entered into a contract to sell. According to this Court, this particular provision is tantamount to a reservation of ownership on the part of the vendor. Explicitly stated, the Court ruled that the agreement to execute a deed of sale upon full payment of the purchase price “shows that the vendors reserved title to the subject property until full payment of the purchase price.”
The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of the parties show that they agreed on a contract to sell, not of sale. The absence of a formal deed of conveyance is indicative of a contract to sell.
The parties’ agreement was likewise embodied only in a receipt. Also, Nicolas did not want to sign the deed of sale unless he is fully paid. On the other hand, Rodolfo did not want to pay unless a deed of sale is duly executed in his favor. We thus say, pursuant to our ruling in Chua v. Court of Appeals35 that the agreement between Nicolas and Rodolfo is a contract to sell.
Nicolas did not surrender or deliver title or possession to Rodolfo.
Moreover, there could not even be a surrender or delivery of title or possession to the prospective buyer Rodolfo. This was made clear by the nature of the agreement, by Nicolas’s repeated demands for the return of all rents unlawfully and unjustly remitted to Rodolfo by Eduardo, and by Rodolfo and Eduardo’s repeated demands for Nicolas to execute a deed of sale which, as we said before, is a recognition on their part that ownership over the subject property still remains with Nicolas.
- NO. The remedy of rescission is not available in contracts to sell. As explained in Spouses Santos v. Court of Appeals:45
In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission of said agreement was necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed out, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.
Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the purchase price, the contract to sell was deemed terminated or cancelled. As we have held in Chua v. Court of Appeals, “since the agreement x x x is a mere contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer.”