FACTS:

Private respondents Faustino L. Yu and Antonio T. Lim filed a complaint for specific performance against the defendants, the Kado siblings and their spouses. The dispute centers on the nature of a transaction entered into by private respondents and the Kado siblings involving a parcel of land with a commercial building in Cotabato City. It was alleged that the Kado siblings agreed to sell the property to the private respondents, but later backed out and sold it to other parties instead. The private respondents refused to accept refunds for their downpayment and insisted on the original conditional sale agreement. The private respondents filed a complaint for breach of contract, which led to a conference in the Barangay where no settlement was reached. The private respondents then filed a complaint for specific performance, causing a Notice of Lis Pendens to be annotated on the Transfer Certificate of Title.

The private respondents argue that they became the rightful owners of the property following an offer and a 30-day option granted to them by one of the defendants, Elena Palanca. They claim that the conditional sale was valid, despite the subsequent sale to a third party, as the condition in the sale agreement was not fulfilled. The trial court ruled in favor of the private respondents, declaring them as the rightful owners and ordering the defendants to pay damages. The defendants appealed the decision, but the Court of Appeals affirmed the ruling of the trial court.

The defendants, on the other hand, deny the allegations and assert that they were ready and willing to fulfill their obligations under the agreement. They claim that it was the private respondents who failed to pay the remaining balance of the purchase price. The lower court ruled in favor of the private respondents, ordering the defendants to return the initial payment and awarding damages. The defendants appealed to the Court of Appeals, but the appellate court upheld the ruling of the lower court.

ISSUES:

1. Whether the Deed of Conditional Sale executed by the appellants-vendors in favor of the appellees-vendees is an absolute sale or a conditional sale.

2. Whether the non-payment of the balance of the purchase price and eviction of the appellees-vendees suspended the efficacy of the Deed of Conditional Sale.

3. Whether there was delivery of the property to the appellants.

4. Whether the respondent vendors can use the refusal of the respondent vendees to vacate the property as a justification to renege on their obligation to deliver possession to the appellants.

5. Whether the Deed of Conditional Sale executed by the appellants and respondent vendors should be given preference over the Deed of Sale of Registered Land executed by the appellants.

6. Whether the consummated absolute contracts of sale in favor of the petitioners prevail over the unconsummated conditional contract of sale in favor of the respondents.

7. Whether the deeds of sale in favor of the petitioners and the transfer certificate of title in their names are valid documents.

8. Whether the petitioners should be ordered to vacate the litigated property or pay reasonable compensation for its occupancy.

9. Whether the petitioners should be held liable to pay the costs.

10. Whether the sale made by Palanca to private respondents was definitive and absolute or conditional.

11. Whether the subsequent sale of the subject property by Palanca to the tenants constitutes a breach of contract.

12. Whether the second sale prevails over the first sale.

13. Whether or not the vendees were in gross bad faith and if preference should be given to the deed of conditional sale executed by the appellants and the vendors.

RULING:

1. The Court of Appeals ruled that the Deed of Conditional Sale is an absolute sale and not a conditional sale. The court considered the context of the entire contract, as well as the contemporaneous and subsequent acts of the parties. It emphasized that the title of the contract is not conclusive of its nature. The absence of provisions reserving the title to the vendors or giving them the right to rescind the contract showed that it was a perfected deed of absolute sale.

2. The Court of Appeals held that the non-payment of the balance of the purchase price and eviction of the vendees did not suspend the efficacy of the Deed of Conditional Sale. These circumstances merely gave the vendors the option to rescind the already existing and effective sale. The vendees had the right to demand the vendors' performance under the contract, which was the eviction of the vendees, to enable them to pay the balance of the purchase price.

3. The court held that there was delivery of the property to the appellants. The evidence showed that the appellants and respondent vendors met and agreed on the sale of the property, and a Deed of Conditional Sale was prepared for their signatures. The respondent vendees did not object to the sale but only insisted on receiving a disturbance fee before vacating the property.

4. The court ruled that the respondent vendors cannot use the refusal of the respondent vendees to vacate the property as a valid justification to renege on their obligation to deliver possession to the appellants. The vendors cannot use the occupation by the vendees as an excuse to ignore their obligation to evict the vendees and deliver physical possession to the appellants.

5. The court held that the Deed of Conditional Sale executed by the appellants and respondent vendors should be given preference over the Deed of Sale of Registered Land executed by the appellants. The vendees were in gross bad faith when they executed the Deed of Sale of Registered Land, as they were aware of the prior Deed of Conditional Sale between the appellants and vendors. Therefore, preference should be given to the Deed of Conditional Sale.

6. The Court held that the unconsummated conditional contract of sale in favor of the respondents prevails over the consummated absolute contracts of sale in favor of the petitioners. The Court further ruled that the deeds of sale in favor of the petitioners and the transfer certificate of title in their names are valid documents. However, the Court did not order the petitioners to vacate the litigated property or pay reasonable compensation for its occupancy. The Court also held that the petitioners are not liable to pay the costs.

7. The sale made by Palanca to private respondents was definitive and absolute. The Deed of Conditional Sale only pertained to the sellers' obligation to eject their tenants and the buyers' obligation to pay the balance of the purchase price.

8. The subsequent sale of the subject property by Palanca to the tenants constitutes a breach of contract. Palanca's acceptance of the tenants' offer to purchase the property after she already sold it to the private respondents is considered double dealing and a breach of contract.

9. The second sale does not prevail over the first sale. Despite the registration of the second sale, it is deemed to have been made in gross bad faith and the first sale to the private respondents prevails.

10. The Supreme Court dismissed the petition and ruled that preference should be given to the deed of conditional sale executed by the appellants and the vendors. The vendees were found to be in gross bad faith as they were aware of the prior execution of the deed of conditional sale.

PRINCIPLES:

• A contract may be conditional when the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition, generally the payment of the purchase price. The breach of this condition will prevent the onset of the obligation to deliver title.

• A sale of immovables is absolute when the contract does not contain any provision that title to the property sold is reversed to the vendors or that the vendor is entitled to unilaterally rescind the contract.

• The title of a contract is not conclusive of its nature. The intention of the parties and the context of the entire contract should be considered in determining its nature.

• Estoppel: The appellants are estopped from claiming that the property had not been delivered to them.

• Obligation to deliver possession: The respondent vendors have an obligation to deliver possession of the property to the appellants, regardless of the vendees' refusal to vacate.

• Preference of contracts: In cases of double sales, the contract that should be given preference is the one executed in good faith and registered first.

• The true nature of a sale transaction determines the parties' rights and obligations.

• A sale transaction may be deemed unconsummated if it is subject to a condition.

• The payment of the balance of the purchase price may be subject to the condition that the seller successfully secures the eviction of their tenants.

• A sale is considered definitive and absolute when the choice of who to sell the property to has already been made by the sellers and is no longer subject to any condition or change.

• Double dealing and breaches of contract cannot be justified by legal rationalizing.

• Estoppel may apply when parties have made prior statements regarding their intentions or actions and are subsequently bound by those statements.

• Registration of a second sale does not erase the gross bad faith that characterized the second sale, and the first sale prevails over the second sale.

• The performance of the sellers' obligations under a contract should not be subject to the will and caprices of the buyers.

• Preference is given to the deed of conditional sale executed prior to the deed of sale of registered land by vendees who are in gross bad faith.

• Bad faith on the part of the vendees can affect the enforceability of a subsequent sale.