G.R. NO. 163244 (June 22, 2009)
Topics: contract to sell, contract of sale
Summary:
Spouses Jose and Gloria Valenzuela were ordered to leave the property by Kalayaan Development & Industrial Corporation. Petitioners could only afford monthly payments totaling P208,000.00. Company filed a Complaint for the Rescission of Contract and Damages.
In a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. 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sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded.
Doctrines:
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price.
Unlike a contract of sale, where 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 to the vendor and is not to pass to the vendee until full payment of the purchase price.
Facts:
Spouses Jose and Gloria Valenzuela were ordered to leave the property by Kalayaan Development & Industrial Corporation after it was revealed that they had occupied and constructed a home on a piece of land that belonged to the company. However, after discussion, petitioners and Kalayaan entered a Contract to Sell in which the petitioners agreed to pay P1,416,000 for the subject property’s 236 square meters over twelve evenly spaced monthly installments.
The contract further stipulated those petitioners would be liable for a liquidated penalty at 3% per month compounded monthly until fully paid if they failed to pay any of the aforementioned installments. Additionally, Kalayaan would only sign the absolute sale document after receiving complete money. Petitioners could only afford to make monthly payments totaling P208,000.00.
They argued that since they had already paid half the purchase price, or a total of P708,000.00, representing 118 square meters of the land, Kalayaan should issue a deed of sale for the 118 square meters of the lot where their house stood. Gloria Valenzuela’s sister, Juliet Giron, assumed the remaining balance for the 118 square meters of the subject property at P10,000.00 per month to Kalayaan, which the latter accepted for and on behalf of Gloria. Kalayaan, on the other hand, sent two demand letters asking petitioners to pay their outstanding obligation including agreed penalties.
Following that, Kalayaan had the petitioners pay the unpaid debt, but she received no response. Then, against the petitioners, Kalayaan filed a Complaint for the Rescission of Contract and Damages. The RTC of Caloocan issued a decision in Kalayaan’s favor, nullifying the parties’ agreement and directing the petitioners to leave the property. The petitioners asked the CA for redress.
They assert that the CA disregarded the fact that the major debtor’s change in persona resulted in the original contract between the petitioners and Kalayaan being altered, changed, modified, and restricted (Sps. Valenzuela to Juliet). The initial contract was modified when Kalayaan consented to a monthly amortization of P10,000.00, which recognized Juliet’s ability to pay and her identification as the new debtor. However, the CA upheld the RTC judgment.
Issue:
Whether the agreement between the parties is a contract to sell, thus Art 1191 of the Civil Code cannot be applied.
Ruling:
Yes. In the present case, the nature and characteristics of a contract to sell is determinative of the propriety of the remedy of rescission and the award of attorney’s fees.
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full 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. Unlike a contract of sale, where 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 to 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 purchase 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.
Since the obligation of respondent did not arise because of the failure of petitioners to fully pay the purchase price, Article 1191 of the Civil Code would have no application.