THIRD DIVISION
[ G.R. No. 172733, August 20, 2008 ]SPS. CORNELIO JOEL I. ORDEN AND MARIA NYMPHA V. ORDEN v. SPS. ARTURO AUREA AND MELODIA C. AUREA +
SPS. CORNELIO JOEL I. ORDEN AND MARIA NYMPHA V. ORDEN, AND REGISTER OF DEEDS OF NEGROS ORIENTAL, PETITIONERS, VS. SPS. ARTURO AUREA AND MELODIA C. AUREA, SPS. ERNESTO P. COBILE AND SUSANA M. COBILE, AND FRANKLIN M. QUIJANO, RESPONDENTS.
D E C I S I O N
SPS. CORNELIO JOEL I. ORDEN AND MARIA NYMPHA V. ORDEN v. SPS. ARTURO AUREA AND MELODIA C. AUREA +
SPS. CORNELIO JOEL I. ORDEN AND MARIA NYMPHA V. ORDEN, AND REGISTER OF DEEDS OF NEGROS ORIENTAL, PETITIONERS, VS. SPS. ARTURO AUREA AND MELODIA C. AUREA, SPS. ERNESTO P. COBILE AND SUSANA M. COBILE, AND FRANKLIN M. QUIJANO, RESPONDENTS.
D E C I S I O N
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to set aside the Decision[1] of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No. 75788 affirming in
toto the Decision[2] of Branch 33 of the Regional Trial Court (RTC) of Dumaguete City in Civil Case No. 12056. The RTC decision ordered petitioners Sps. Cornelio Joel I. Orden and Maria Nympha V. Orden to return to respondents-spouses Ernesto Cobile and
Susana M. Cobile the amount of P738,596.28 plus twenty percent interest per annum from the filing of the complaint until fully paid.
The antecedents are as follows:
Petitioners spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are the owners of two parcels of land located at the Municipality of Sibulan, Negros Oriental covered by Transfer Certificate of Title Nos. T-27159 and T-27160, and the residential house standing thereon.
On 29 September 1994, petitioners Orden executed a Deed of Absolute Sale selling, transferring and conveying the aforementioned properties to respondents-spouses Arturo Aurea and Melodia C. Aurea, their heirs, successors and assigns. The Deed of Absolute Sale contained, among others, the following:
Respondents Cobile failed to pay the P566,000.00 which was due on or before 31 October 1994.
On 13 December 1994, respondents Cobile, through Arturo Aurea, paid petitioners Orden P354,596.28 representing partial payment of the purchase price. The same was evidenced by a receipt executed by the petitioners Orden which reads:
On 21 May 1996, petitioners sold the properties to Fortunata Adalim Houthuijzen and the titles thereto transferred to her name.[10]
On 30 September 1997, respondents-spouses Aurea and spouses Cobile, and respondent Franklin M. Quijano filed a Complaint before the Regional Trial Court of Dumaguete City for Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injuction and Restraining Order against petitioners Orden and the Register of Deeds of Negros Oriental. Franklin Quijano was the attorney-in-fact of respondents spouses Aurea and Cobile. The complaint was docketed as Civil Case No. 12056 and was raffled to Branch 44 of said court.
The complaint, among other things, asked the trial court to order petitioners Orden and the Register of Deeds of Negros Oriental for the delivery of the titles to the properties involved in the names of respondents Cobile; in the alternative, if the titles to the properties could not be delivered in respondents Cobile's name, to order petitioners Orden to pay the whole consideration of the sale plus interest of 20% per annum. The restraining order and writ of preliminary injunction were sought to restrain petitioners Orden from selling, transferring, conveying or encumbering the properties involved to other person during the pendency of the case and to prohibit the Register of Deeds of Negros Oriental from recording, registering and transferring the titles to the properties to other persons except to respondents Cobile.
On 29 October 1997, petitioners Orden filed their Answer with Counterclaim.[11] They asked that the complaint be dismissed for lack of cause of action and that the Deed of Absolute Sale be declared rescinded. They likewise ask for damages.
On 9 September 1998, following the trial court's order to amend the complaint, impleaded therein were spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen, the subsequent purchasers of the subject properties and holders of the titles thereto.[12]
On 23 February 1999, the trial court dismissed the case for lack of interest to prosecute.[13] On 12 March 1999, respondents filed a motion for reconsideration which the trial court granted.[14] Thus, the case was reinstated.[15]
On 13 April 1999, spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen filed their Answer with Motion to Dismiss.[16]
In an Order dated 1 June 1999, the trial court granted the spouses Houthuijzen's motion to dismiss, ruling that said spouses were buyers in good faith who were able to register the sale with the Register of Deeds, and that respondents Cobile's complaint could be enforced only against petitioners Orden.[17]
On 8 July 1999, respondents moved for the reconsideration[18] of the 1 June 1999 Order which the trial court denied for lack of merit.[19]
During the pre-trial conference, the parties agreed only on the identities of the parties and of the subject properties.[20]
On 25 April 2000, respondents filed a Motion for Inhibition[21] which was granted by the Presiding Judge of Branch 44. The case was re-raffled to Branch 33. Trial ensued.
In a decision dated 26 April 2002, the trial court disposed of the case as follows:
The trial court likewise ruled that the properties subject matter of the case could not be given to respondents Cobile because the ownership thereof had passed to Fortunata Adalim-Houthuijzen whom it regarded as an innocent purchaser for value.
Furthermore, the trial court declared that respondents Cobile could not demand specific performance or rescission of contract, for they themselves failed to comply with the terms and conditions set forth in the promissory note when they failed to pay the entire balance of one-half (P950,000.00) of the total price agreed upon.
The trial court ruled that it could not in conscience grant respondents Cobile's prayer that should petitioners Orden fail to deliver the titles in respondents Cobile's names, the Ordens be ordered to pay the Cobiles the entire purchase price plus 20% interest per annum. It likewise said that neither could petitioners Orden forfeit the P738,596.28 paid by respondents because they had not rescinded the contract of sale between them either judicially or by notarial act.
On 23 May 2002, petitioners Orden filed a Notice of Appeal.[23]
On 20 April 2006, the Court of Appeals rendered its Decision[24] affirming in toto the decision of the trial court. The dispositive portion of the decision reads:
On 16 June 2006, petitioners Orden filed before us a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court.[26] Per our resolution dated 10 July 2006, we required respondents to comment on the petition within ten days from notice of the resolution.[27]
On 3 October 2006, respondents filed their Comment[28] to which petitioners were directed to file a Reply.[29] The Reply was filed on 7 July 2007.[30]
On 17 September 2007, the Court gave due course to the petition and required the parties to submit their respective memoranda within thirty days from notice.[31] The parties submitted their respective memoranda.[32]
Petitioners argue that the Court of Appeals erred in holding that the case at bar involves a perfected contract of sale and that an action for rescission should have been pursued by them (petitioners).[33] They claimed that what they entered into with respondents Cobile was a Conditional Contract of Sale. They added that although captioned "Deed of Absolute Sale," the contract is truly one of a conditional sale, if not a contract to sell real property on installments. The full payment of the purchase price as laid down in the promissory note is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation of the vendor to convey title from acquiring any obligatory force.
In the resolution of this case, what is to be determined is the kind of contract petitioners Orden and respondents Cobile entered into. Did they enter into a Contract of Sale or a Contract to Sell?
Both lower courts ruled that the contract entered into by the parties was a Contract of Sale. On the other hand, petitioners Orden insist that they entered into a Contract to Sell.
In the case at bar, on 29 September 1994, a Deed of Absolute Sale was entered into by respondents Aurea, as vendees, and petitioners Orden, as vendors. Respondents Aurea then executed a Joint Affidavit declaring respondents Cobile as the true and real buyers of the subject properties. Respondent Cobile then executed a promissory note in which they promised to pay petitioners Orden the amount of P566,000.00 on or before October 31, 1994, and the remaining P950,000.00 to be paid as soon as the titles to the properties shall have been transferred to them.
In order to determine the real nature of the contract entered into by the parties, all three documents, not merely the Deed of Absolute Sale, should be considered. The Joint Affidavit of respondents Aurea and the promissory note signed by respondents Cobile veritably show that the latter are indeed the true purchasers of the subject properties. The contents of the promissory note must be taken into account inasmuch as the true buyer signed said document.
In the promissory note, respondents Cobile obligated themselves to do two things: (1) to pay petitioners Orden the amount of P566,000.00 on or before October 31, 1994; and (2) to pay the remaining P950,000.00 as soon as the titles to the properties shall have been transferred to them. From the records of the case, it is without question that respondents Cobile failed to fulfill what they promised. Having failed to fulfill their first obligation, petitioners Orden no longer transferred the titles to the properties to their names. The non-payment, therefore, by respondents Cobile of the balance of one-half of the purchase price triggered all subsequent actions of the parties that eventually led to respondents Cobile filing the complaint for Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injunction and Restraining Order.
It is clear from the promissory note that the parties agreed to a conditional sale, the consummation of which is subject to the conditions contained therein - full payment of the purchase price.
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.[34] One form of conditional sale is what is now popularly termed as a "Contract to Sell," in which ownership or title is retained until the fulfillment of a positive suspensive condition, normally the payment of the purchase price in the manner agreed upon.[35]
The distinction between a contract of sale and a contract to sell is well-settled. 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 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 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.[36]
It is thus clear that in a contract to sell, ownership is retained by the seller and is not passed to the buyer until full payment of the price.
In the case at bar, we find that petitioners Orden and respondents Cobile entered into a contract to sell. The real character of the contract is not the title given, but the intention of the parties.[37] Although there is a document denominated as "Deed of Absolute Sale," and there is no provision therein of reservation of ownership to the seller, we are persuaded that the true intent of the parties was to transfer the ownership of the properties only upon the buyer's full payment of the purchase price. This is evident from the promissory note executed by respondents Cobile. It is only upon payment of the full purchase price that title to the properties shall be transferred to their names. Furthermore, circumstances show ownership over the properties was never transferred to respondents Cobile. Respondents neither had possession of nor title to the properties. In fact, petitioners Orden, per their letter to respondents Cobile, even gave the latter the chance to pay the balance of the purchase price before they would sell the properties to other interested persons. From the foregoing, it is evident that the true agreement of the parties is for the petitioners Orden to retain ownership over the properties until respondents shall have fully paid the purchase price.
Respondents Cobile failed to pay the balance of the purchase price. Such payment is a positive suspensive condition, failure of which is not a breach, serious or otherwise, but an event that prevents the obligation of the seller to convey title from arising.[38] The non-fulfillment by respondents Cobile of their obligation to pay, which is a suspensive condition for the obligation of petitioners Orden to sell and deliver the title to the properties, rendered the contract to sell ineffective and without force and effect.[39] The parties stand as if the conditional obligation had never existed.[40] Inasmuch as the suspensive condition did not take place, petitioners Orden cannot be compelled to transfer ownership of the properties to respondents Cobile.
The trial court further ruled that petitioners Orden should have filed a case for rescission or sent a notarial act of rescission to respondents Cobile when they incurred a delay by failing to pay the balance of the purchase price. Having extra-judicially rescinded their contract with respondents Cobile, such act, according to the trial court, was subject to contest.
The trial court is mistaken. Rescission, whether judicially or by notarial act, is not required to be done by petitioners Orden. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened.[41] In the case before us, there was no contract to rescind, judicially or by notarial act, because from the moment respondent Cobile failed to pay on time the correct amount of the balance of the purchase price, the contract between the parties was deemed ipso facto rescinded.[42] The reason for this is not that petitioners Orden have the power to rescind such contract, but because their obligation thereunder did not arise. The remedy of rescission under Article 1191[43] of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. Such a remedy does not apply to contracts to sell.[44] Neither does the provision of Article 1592[45] apply to this case because what said article contemplates is a contract of sale.[46]
In the exercise of the seller's right to automatically cancel the contract to sell, at least a written notice must be sent to the defaulter informing him of the same.[47] The act of petitioners Orden in notifying respondents Cobile of their intention to sell the properties to other interested persons if respondents failed to pay the balance of the purchase price was sufficient notice for the cancellation or resolution of the their contract to sell. Since respondents Cobile failed to fulfill their obligation even after said notice, petitioners were justified in canceling their contract (to sell) and selling to a buyer who was willing to pay the full purchase price. Hence, we sustain petitioners Orden's action.
We now go to the partial payments (P738,596.28) made by respondents Cobile. We decree that said amount be returned to respondents Cobile, there being no provision regarding forfeiture of payments made in any of the documents executed by the parties. We find such action to be just and equitable under the premises. If we rule otherwise, there will be unjust enrichment on the part of petitioners Orden at the expense of respondents Cobile. Interest thereon at the rate of 12% per annum shall also be paid from 30 September 1997 until fully paid.
Lest we forget, the source of all the troubles was respondents Cobile failure to pay the balance of the purchase price. Consequently they are liable for damages. Under the circumstances obtaining in this case, we find it equitable and just to award petitioners Orden moral damages and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively. Their claim for litigation expenses is denied for failure to present proof in support thereof. Exemplary damages cannot also be awarded because it was not shown that respondents Cobile acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.[48]
WHEREFORE, the decision of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No. 75788 is hereby MODIFIED as follows:
(1) Petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are ordered to return to respondents-spouses Ernesto P. Cobile and Susana M. Cobile the amount of P738,596.28, representing the total amount advanced by the latter to the former, with interest at the rate of 12% per annum from 30 September 1997 until fully paid; and
(2) Respondents-spouses Ernesto P. Cobile and Susana M. Cobile are ordered to pay moral damages and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively, to petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Nachura, and Reyes, JJ., concur.
[1] Penned by Associate Justice Isaias P. Dicdican with Associate Justices Ramon M. Bato, Jr. and Apolinario D. Bruselas, Jr., concurring; CA rollo, pp. 87-95.
[2] Records, pp. 266-278.
[3] Id. at 189-190.
[4] Id. at 195.
[5] Id. at 196.
[6] Id. at 198.
[7] The pertinent provisions of the 1987 Philippine Constitution regarding the acquisition of private lands are the following:
From the foregoing provisions, it is thus clear that a former natural-born Filipino citizen may be a transferee of private lands, subject to limitations provided by law. In the case at bar, Atty. Hernando should have first verified if the Spouses Cobile were former natural-born Filipino citizen before concluding that they cannot own lands in the Philippines. Evidence reveals that the Spouses Cobile were former Filipino citizen. (Records, p. 3.)
[8] Id. at 197.
[9] Id. at 199.
[10] Id. at 200-203.
[11] Id. at 26-32.
[12] Id. at 40-47.
[13] Id. at 55.
[14] Id. at 56-59.
[15] Id. at 65.
[16] Id. at 66-70.
[17] Id. at 80-81.
[18] Id. at 82-109.
[19] Id. at 123.
[20] Id. at 155.
[21] Id. at 158-160.
[22] Id. at 266-278.
[23] Id. at 285.
[24] CA rollo, pp. 87-95.
[25] Id. at 95.
[26] Rollo, pp. 8-14.
[27] Id. at 16.
[28] Id. at 18-21.
[29] Id. at 23.
[30] Id. at 27-28.
[31] Id. at 30.
[32] Id. at 32-45.
[33] Id. at 10.
[34] Serrano v. Caguiat, G.R. No. 139173, 28 February 2007, 517 SCRA 57, 64.
[35] Demafelis v. Court of Appeals, G.R. No. 152164, 23 November 2007, 538 SCRA 305, 314.
[36] Torrecampo v. Alindogan, Sr., G.R. No. 156405, 28 February 2007, 517 SCRA 84, 88.
[37] Escueta v. Lim, G.R. No. 137162, 24 January 2007, 512 SCRA 411, 426.
[38] Leaño v. Court of Appeals, 420 Phil. 836, 846 (2001).
[39] Agustin v. Court of Appeals, G.R. No. 84751, 6 June 1990, 186 SCRA 375, 381.
[40] Padilla v. Spouses Paredes, 385 Phil. 128, 140-141 (2000).
[41] Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No. 163075, 23 January 2006, 479 SCRA 462, 470.
[42] Torralba v. Judge De los Angeles, 185 Phil. 40, 47 (1980).
[43] 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
[44] Villanueva v. Estate of Gerardo L. Gonzaga, G.R. No. 157318, 9 August 2006, 498 SCRA 285, 294-295.
[45] Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.
[46] Padilla v. Spouses Paredes, supra note 39 at 142.
[47] Cheng v. Genato, 360 Phil. 891, 906 (1998).
[48] Art. 2233, Civil Code.
The antecedents are as follows:
Petitioners spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are the owners of two parcels of land located at the Municipality of Sibulan, Negros Oriental covered by Transfer Certificate of Title Nos. T-27159 and T-27160, and the residential house standing thereon.
On 29 September 1994, petitioners Orden executed a Deed of Absolute Sale selling, transferring and conveying the aforementioned properties to respondents-spouses Arturo Aurea and Melodia C. Aurea, their heirs, successors and assigns. The Deed of Absolute Sale contained, among others, the following:
That for and in consideration of the sum of ONE MILLION NINE HUNDRED THOUSAND PESOS (P1.9M), receipt of which is hereby acknowledged to the satisfaction of the VENDORS, WE, the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN, by these present, do hereby SELL, TRANSFER and CONVEY, in a manner, absolute, and irrevocable, unto and in favor of herein VENDEES, the spouses ARTURO AUREA and MELODIA C. AUREA, their heirs, successors and assigns, the above-described two (2) parcels of land, together with the residential house standing thereon, and declared under Tax Declaration ______, and assessed at ___________.[3]Simultaneous with the execution of the Deed of Absolute Sale, respondents-spouses Aurea executed a Joint Affidavit whereby they declared that the true and real purchasers of the abovementioned properties described in the Deed of Absolute Sale are respondents-spouses Ernesto P. Cobile and Susana M. Cobile. The pertinent portions of the affidavit read:
That we are the Vendees in a document denominated "DEED OF ABSOLUTE SALE" from the Vendors, the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN, involving two (2) parcels of land under TCT-27159 (Tax Dec. No. 93-2-04-094) and TCT-27160 (Tax Dec. No. 93-2-04-095) and a residential house under Tax Dec. No. _____ for the sum of ONE MILLION NINE HUNDRED THOUSAND PESOS (P1.9M), per Doc. No. 384; Page No. 78, Book No. _____; Series of 1994, dated September _____, 1994 of Notary Public Atty. Jose G. Hernando, Jr.Immediately after the signing of the Deed of Absolute Sale and Joint Affidavit, respondents Cobile paid petitioners Orden the amount of P384,000.00 as partial payment of the purchase price of P1,900,000.00 as evidenced by a receipt signed by petitioners Orden. The receipt reads:
That the true and real vendees in said "DEED OF ABSOLUTE SALE" adverted to above are one ERNESTO P. COBILE and SUSANA M. COBILE who are both American Citizens and residents of Honolulu, Hawaii, U.S.A.
We are executing this Joint Affidavit to prove and show that the real and true purchasers of the afore-mentioned two (2) parcels of land and the residential house sold by the spouses CORNELIO JOEL I. ORDEN are one ERNESTO P. COBILE and SUSANA M. COBILE.[4]
Respondents Cobile then executed a document entitled "PROMISSORY" whereby they promised to pay petitioners Orden the amount of P566,000.00 on or before 31 October 1994, and the remaining P950,000.00 to be paid as soon as the titles of the properties shall have been transferred to them. Said document reads:R E C E I P T
RECEIVED from ERNESTO P. COBILE and SUSANA M. COBILE, the sum of THREE HUNDRED EIGHTY FOUR THOUSAND PESOS (P384,000.00) representing partial payment of the purchase price re "Deed of Absolute Sale" of two parcels of land and a residential house located at Sibulan, Negros Oriental, Philippines.[5]
The Deed of Absolute Sale, Joint Affidavit, receipt for P384,000.00 and the promissory note were all prepared by Atty. Jose G. Hernando, Jr., counsel of petitioners Orden. It was the suggestion and advice of Atty. Hernando that respondents Aurea be indicated as the vendees in the Deed of Absolute Sale in lieu of respondents Cobile. Atty. Hernando explained that respondents Cobile, being American citizens, could not own land in the Philippines.[7] To show true ownership of the properties to be purchased, respondents executed the Joint Affidavit declaring that the real vendees were respondents Cobile.PROMISSORY
WE, ERNESTO P. COBILE and SUSANA M. COBILE, residents of Hawaii, U.S.A., by these presents, do hereby promise to pay to the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN, the sum of FIVE HUNDRED SIXTY SIX THOUSAND PESOS (P566,000.00) on or before October 31, 1994, said amount representing the one-half balance of the purchase price of the sale of two (2) parcels of land and a residential house located at the Municipality of Sibulan, Negros Oriental, per Doc. No. 384; Page No. 78; Book No. IV; Series of 1994 of Notary Public JOSE G. HERNANDO, JR., the remaining balance of NINE HUNDRED FIFTY THOUSAND PESOS (P950,000.00) to be paid as soon as the titles of the properties subject-matter of the sale shall have been transferred to us.[6]
Respondents Cobile failed to pay the P566,000.00 which was due on or before 31 October 1994.
On 13 December 1994, respondents Cobile, through Arturo Aurea, paid petitioners Orden P354,596.28 representing partial payment of the purchase price. The same was evidenced by a receipt executed by the petitioners Orden which reads:
Failing to pay the balance of the purchase price, petitioners Orden wrote respondents Cobile a letter dated 11 March 1995 informing the latter of their intention to dispose of the properties to other interested parties if respondents Cobile did not comply with their promise to pay the remaining balance of the purchase price. Petitioners Orden, however, gave respondents Cobile ten days from receipt of the letter to pay; otherwise, their non-payment shall be construed as refusal on their part and the properties shall be sold to others. The letter reads:RECEIPT
RECEIVED from SPS. ERNESTO P. COBILE and SUSANA M. COBILE, the sum of PESOS: THREE HUNDRED FIFTY FOUR THOUSAND FIVE HUNDRED NINETY SIX & 28/100 (P354,596.28) representing partial payment of the purchase price re "Deed of Absolute Sale" of two (2) parcels of land and a residential house located at Sibulan, Negros Oriental, per Doc. No. 384; Page No. 78; Book No. IV; Series of 1994 of the notary public JOSE G. HERMANDO, Jr.
Balance after this payment = P1,161,403.72[8]
Please be informed that we have decided to dispose of the property (Lot 1 and 4, Block B of the Consolidation Subdivision Plan, (LRC) Pcs-7321, all located at Barrio Maslog, Sibulan, Negros Oriental, Philippines, entered by Transfer Certificate of Title No. T-27160 and T-272159, respectively) to other [interested] parties, in view of your failure to make good the conditions imposed on the "Deed of Sale" we have executed as vendors, in your favor as vendees, sometime last September 29, 1994.Respondents Cobile did not make any further payment. All in all, they paid petitioners Orden P738,596.28 (P384,000.00 + P354,596.28). Petitioners Orden did not transfer the titles to the properties to respondents Cobile.
However, if only to give you a chance to fully consummate our transaction, notice is hereby given upon your goodness to pay us the remaining balance of the aforesaid "Deed of Sale" ten (10) days upon receipt of this letter. Your failure to do so within said period shall be constrained (sic) as your refusal and we then shall proceed to dispose of the property.
Rest assured that you will be reimbursed of the advance payments you made, after the properties shall have been sold and after deductions be made concerning damages, attorney's fees, etc.[9]
On 21 May 1996, petitioners sold the properties to Fortunata Adalim Houthuijzen and the titles thereto transferred to her name.[10]
On 30 September 1997, respondents-spouses Aurea and spouses Cobile, and respondent Franklin M. Quijano filed a Complaint before the Regional Trial Court of Dumaguete City for Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injuction and Restraining Order against petitioners Orden and the Register of Deeds of Negros Oriental. Franklin Quijano was the attorney-in-fact of respondents spouses Aurea and Cobile. The complaint was docketed as Civil Case No. 12056 and was raffled to Branch 44 of said court.
The complaint, among other things, asked the trial court to order petitioners Orden and the Register of Deeds of Negros Oriental for the delivery of the titles to the properties involved in the names of respondents Cobile; in the alternative, if the titles to the properties could not be delivered in respondents Cobile's name, to order petitioners Orden to pay the whole consideration of the sale plus interest of 20% per annum. The restraining order and writ of preliminary injunction were sought to restrain petitioners Orden from selling, transferring, conveying or encumbering the properties involved to other person during the pendency of the case and to prohibit the Register of Deeds of Negros Oriental from recording, registering and transferring the titles to the properties to other persons except to respondents Cobile.
On 29 October 1997, petitioners Orden filed their Answer with Counterclaim.[11] They asked that the complaint be dismissed for lack of cause of action and that the Deed of Absolute Sale be declared rescinded. They likewise ask for damages.
On 9 September 1998, following the trial court's order to amend the complaint, impleaded therein were spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen, the subsequent purchasers of the subject properties and holders of the titles thereto.[12]
On 23 February 1999, the trial court dismissed the case for lack of interest to prosecute.[13] On 12 March 1999, respondents filed a motion for reconsideration which the trial court granted.[14] Thus, the case was reinstated.[15]
On 13 April 1999, spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen filed their Answer with Motion to Dismiss.[16]
In an Order dated 1 June 1999, the trial court granted the spouses Houthuijzen's motion to dismiss, ruling that said spouses were buyers in good faith who were able to register the sale with the Register of Deeds, and that respondents Cobile's complaint could be enforced only against petitioners Orden.[17]
On 8 July 1999, respondents moved for the reconsideration[18] of the 1 June 1999 Order which the trial court denied for lack of merit.[19]
During the pre-trial conference, the parties agreed only on the identities of the parties and of the subject properties.[20]
On 25 April 2000, respondents filed a Motion for Inhibition[21] which was granted by the Presiding Judge of Branch 44. The case was re-raffled to Branch 33. Trial ensued.
In a decision dated 26 April 2002, the trial court disposed of the case as follows:
ACCORDINGLY, from the foregoing disquisition, judgment is hereby rendered ordering the defendants:The trial court found that petitioners Orden and respondents Cobile entered into a contract of sale. The contract, it explained, was subject to the conditions laid down in the promissory note - that respondents Cobile would pay the amount of P566,000.00 on or before 31 October 1994, and the petitioners Ordens would undertake the transfer of the titles to the properties in the names of respondents Cobile, after which the latter would pay the remaining balance of P950,000.00. It said that this was an example of reciprocal obligations. Since respondents Cobile already violated the terms of the promissory note when they failed to pay the total amount of P566,000.00 on the agreed date, petitioners Orden should have filed for rescission. This, the trial court said, petitioner Orden failed to do. The letter that petitioners Orden sent to respondents Cobile -- informing them that should they fail to comply with the terms and conditions of the promissory note, petitioners Orden would be constrained to sell the properties to other interested persons -- was not the rescission envisaged by law. The rescission made by petitioners Orden was thus open to contest.
(1) to return to plaintiffs, spouses Ernesto Cobile and Susana M. Cobile the amount of SEVEN HUNDRED THIRTY EIGHT THOUSAND FIVE HUNDRED NINETY-SIX PESOS and TWENTY-EIGHT CENTAVOS (P738,596.28) representing the total amount advanced by the plaintiffs to defendants; and
(2) to pay plaintiffs interest of the aforecited amount at the rate of Twenty (20%) percent per annum from the filing of the complaint until fully paid.[22]
The trial court likewise ruled that the properties subject matter of the case could not be given to respondents Cobile because the ownership thereof had passed to Fortunata Adalim-Houthuijzen whom it regarded as an innocent purchaser for value.
Furthermore, the trial court declared that respondents Cobile could not demand specific performance or rescission of contract, for they themselves failed to comply with the terms and conditions set forth in the promissory note when they failed to pay the entire balance of one-half (P950,000.00) of the total price agreed upon.
The trial court ruled that it could not in conscience grant respondents Cobile's prayer that should petitioners Orden fail to deliver the titles in respondents Cobile's names, the Ordens be ordered to pay the Cobiles the entire purchase price plus 20% interest per annum. It likewise said that neither could petitioners Orden forfeit the P738,596.28 paid by respondents because they had not rescinded the contract of sale between them either judicially or by notarial act.
On 23 May 2002, petitioners Orden filed a Notice of Appeal.[23]
On 20 April 2006, the Court of Appeals rendered its Decision[24] affirming in toto the decision of the trial court. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us AFFIRMING (sic) EN TOTO the decision dated April 26, 2002 of the Regional Trial Court in Civil Case No. 12056.[25]The Court of Appeals justified the return of what had been paid by respondents Cobile (P738,596.28) on the ground that the deed of sale or promissory note did not contain any provision regarding forfeiture in case the full purchase price was not paid. Moreover, it ruled that petitioners Orden had no just or legal ground to keep the payments made by respondents Cobile because they failed to transfer the titles of the properties in the names of respondents Cobile. To allow petitioners Orden to retain said payments would unjustly enrich them at the expense of respondents Cobile.
On 16 June 2006, petitioners Orden filed before us a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court.[26] Per our resolution dated 10 July 2006, we required respondents to comment on the petition within ten days from notice of the resolution.[27]
On 3 October 2006, respondents filed their Comment[28] to which petitioners were directed to file a Reply.[29] The Reply was filed on 7 July 2007.[30]
On 17 September 2007, the Court gave due course to the petition and required the parties to submit their respective memoranda within thirty days from notice.[31] The parties submitted their respective memoranda.[32]
Petitioners argue that the Court of Appeals erred in holding that the case at bar involves a perfected contract of sale and that an action for rescission should have been pursued by them (petitioners).[33] They claimed that what they entered into with respondents Cobile was a Conditional Contract of Sale. They added that although captioned "Deed of Absolute Sale," the contract is truly one of a conditional sale, if not a contract to sell real property on installments. The full payment of the purchase price as laid down in the promissory note is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation of the vendor to convey title from acquiring any obligatory force.
In the resolution of this case, what is to be determined is the kind of contract petitioners Orden and respondents Cobile entered into. Did they enter into a Contract of Sale or a Contract to Sell?
Both lower courts ruled that the contract entered into by the parties was a Contract of Sale. On the other hand, petitioners Orden insist that they entered into a Contract to Sell.
In the case at bar, on 29 September 1994, a Deed of Absolute Sale was entered into by respondents Aurea, as vendees, and petitioners Orden, as vendors. Respondents Aurea then executed a Joint Affidavit declaring respondents Cobile as the true and real buyers of the subject properties. Respondent Cobile then executed a promissory note in which they promised to pay petitioners Orden the amount of P566,000.00 on or before October 31, 1994, and the remaining P950,000.00 to be paid as soon as the titles to the properties shall have been transferred to them.
In order to determine the real nature of the contract entered into by the parties, all three documents, not merely the Deed of Absolute Sale, should be considered. The Joint Affidavit of respondents Aurea and the promissory note signed by respondents Cobile veritably show that the latter are indeed the true purchasers of the subject properties. The contents of the promissory note must be taken into account inasmuch as the true buyer signed said document.
In the promissory note, respondents Cobile obligated themselves to do two things: (1) to pay petitioners Orden the amount of P566,000.00 on or before October 31, 1994; and (2) to pay the remaining P950,000.00 as soon as the titles to the properties shall have been transferred to them. From the records of the case, it is without question that respondents Cobile failed to fulfill what they promised. Having failed to fulfill their first obligation, petitioners Orden no longer transferred the titles to the properties to their names. The non-payment, therefore, by respondents Cobile of the balance of one-half of the purchase price triggered all subsequent actions of the parties that eventually led to respondents Cobile filing the complaint for Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injunction and Restraining Order.
It is clear from the promissory note that the parties agreed to a conditional sale, the consummation of which is subject to the conditions contained therein - full payment of the purchase price.
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.[34] One form of conditional sale is what is now popularly termed as a "Contract to Sell," in which ownership or title is retained until the fulfillment of a positive suspensive condition, normally the payment of the purchase price in the manner agreed upon.[35]
The distinction between a contract of sale and a contract to sell is well-settled. 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 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 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.[36]
It is thus clear that in a contract to sell, ownership is retained by the seller and is not passed to the buyer until full payment of the price.
In the case at bar, we find that petitioners Orden and respondents Cobile entered into a contract to sell. The real character of the contract is not the title given, but the intention of the parties.[37] Although there is a document denominated as "Deed of Absolute Sale," and there is no provision therein of reservation of ownership to the seller, we are persuaded that the true intent of the parties was to transfer the ownership of the properties only upon the buyer's full payment of the purchase price. This is evident from the promissory note executed by respondents Cobile. It is only upon payment of the full purchase price that title to the properties shall be transferred to their names. Furthermore, circumstances show ownership over the properties was never transferred to respondents Cobile. Respondents neither had possession of nor title to the properties. In fact, petitioners Orden, per their letter to respondents Cobile, even gave the latter the chance to pay the balance of the purchase price before they would sell the properties to other interested persons. From the foregoing, it is evident that the true agreement of the parties is for the petitioners Orden to retain ownership over the properties until respondents shall have fully paid the purchase price.
Respondents Cobile failed to pay the balance of the purchase price. Such payment is a positive suspensive condition, failure of which is not a breach, serious or otherwise, but an event that prevents the obligation of the seller to convey title from arising.[38] The non-fulfillment by respondents Cobile of their obligation to pay, which is a suspensive condition for the obligation of petitioners Orden to sell and deliver the title to the properties, rendered the contract to sell ineffective and without force and effect.[39] The parties stand as if the conditional obligation had never existed.[40] Inasmuch as the suspensive condition did not take place, petitioners Orden cannot be compelled to transfer ownership of the properties to respondents Cobile.
The trial court further ruled that petitioners Orden should have filed a case for rescission or sent a notarial act of rescission to respondents Cobile when they incurred a delay by failing to pay the balance of the purchase price. Having extra-judicially rescinded their contract with respondents Cobile, such act, according to the trial court, was subject to contest.
The trial court is mistaken. Rescission, whether judicially or by notarial act, is not required to be done by petitioners Orden. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened.[41] In the case before us, there was no contract to rescind, judicially or by notarial act, because from the moment respondent Cobile failed to pay on time the correct amount of the balance of the purchase price, the contract between the parties was deemed ipso facto rescinded.[42] The reason for this is not that petitioners Orden have the power to rescind such contract, but because their obligation thereunder did not arise. The remedy of rescission under Article 1191[43] of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. Such a remedy does not apply to contracts to sell.[44] Neither does the provision of Article 1592[45] apply to this case because what said article contemplates is a contract of sale.[46]
In the exercise of the seller's right to automatically cancel the contract to sell, at least a written notice must be sent to the defaulter informing him of the same.[47] The act of petitioners Orden in notifying respondents Cobile of their intention to sell the properties to other interested persons if respondents failed to pay the balance of the purchase price was sufficient notice for the cancellation or resolution of the their contract to sell. Since respondents Cobile failed to fulfill their obligation even after said notice, petitioners were justified in canceling their contract (to sell) and selling to a buyer who was willing to pay the full purchase price. Hence, we sustain petitioners Orden's action.
We now go to the partial payments (P738,596.28) made by respondents Cobile. We decree that said amount be returned to respondents Cobile, there being no provision regarding forfeiture of payments made in any of the documents executed by the parties. We find such action to be just and equitable under the premises. If we rule otherwise, there will be unjust enrichment on the part of petitioners Orden at the expense of respondents Cobile. Interest thereon at the rate of 12% per annum shall also be paid from 30 September 1997 until fully paid.
Lest we forget, the source of all the troubles was respondents Cobile failure to pay the balance of the purchase price. Consequently they are liable for damages. Under the circumstances obtaining in this case, we find it equitable and just to award petitioners Orden moral damages and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively. Their claim for litigation expenses is denied for failure to present proof in support thereof. Exemplary damages cannot also be awarded because it was not shown that respondents Cobile acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.[48]
WHEREFORE, the decision of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No. 75788 is hereby MODIFIED as follows:
(1) Petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are ordered to return to respondents-spouses Ernesto P. Cobile and Susana M. Cobile the amount of P738,596.28, representing the total amount advanced by the latter to the former, with interest at the rate of 12% per annum from 30 September 1997 until fully paid; and
(2) Respondents-spouses Ernesto P. Cobile and Susana M. Cobile are ordered to pay moral damages and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively, to petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Nachura, and Reyes, JJ., concur.
[1] Penned by Associate Justice Isaias P. Dicdican with Associate Justices Ramon M. Bato, Jr. and Apolinario D. Bruselas, Jr., concurring; CA rollo, pp. 87-95.
[2] Records, pp. 266-278.
[3] Id. at 189-190.
[4] Id. at 195.
[5] Id. at 196.
[6] Id. at 198.
[7] The pertinent provisions of the 1987 Philippine Constitution regarding the acquisition of private lands are the following:
Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
Sec. 8. Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.
Sec. 8. Notwithstanding the provisions of Section 7 of this Article, a natural-born citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands, subject to limitations provided by law.
From the foregoing provisions, it is thus clear that a former natural-born Filipino citizen may be a transferee of private lands, subject to limitations provided by law. In the case at bar, Atty. Hernando should have first verified if the Spouses Cobile were former natural-born Filipino citizen before concluding that they cannot own lands in the Philippines. Evidence reveals that the Spouses Cobile were former Filipino citizen. (Records, p. 3.)
[8] Id. at 197.
[9] Id. at 199.
[10] Id. at 200-203.
[11] Id. at 26-32.
[12] Id. at 40-47.
[13] Id. at 55.
[14] Id. at 56-59.
[15] Id. at 65.
[16] Id. at 66-70.
[17] Id. at 80-81.
[18] Id. at 82-109.
[19] Id. at 123.
[20] Id. at 155.
[21] Id. at 158-160.
[22] Id. at 266-278.
[23] Id. at 285.
[24] CA rollo, pp. 87-95.
[25] Id. at 95.
[26] Rollo, pp. 8-14.
[27] Id. at 16.
[28] Id. at 18-21.
[29] Id. at 23.
[30] Id. at 27-28.
[31] Id. at 30.
[32] Id. at 32-45.
[33] Id. at 10.
[34] Serrano v. Caguiat, G.R. No. 139173, 28 February 2007, 517 SCRA 57, 64.
[35] Demafelis v. Court of Appeals, G.R. No. 152164, 23 November 2007, 538 SCRA 305, 314.
[36] Torrecampo v. Alindogan, Sr., G.R. No. 156405, 28 February 2007, 517 SCRA 84, 88.
[37] Escueta v. Lim, G.R. No. 137162, 24 January 2007, 512 SCRA 411, 426.
[38] Leaño v. Court of Appeals, 420 Phil. 836, 846 (2001).
[39] Agustin v. Court of Appeals, G.R. No. 84751, 6 June 1990, 186 SCRA 375, 381.
[40] Padilla v. Spouses Paredes, 385 Phil. 128, 140-141 (2000).
[41] Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No. 163075, 23 January 2006, 479 SCRA 462, 470.
[42] Torralba v. Judge De los Angeles, 185 Phil. 40, 47 (1980).
[43] 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
[44] Villanueva v. Estate of Gerardo L. Gonzaga, G.R. No. 157318, 9 August 2006, 498 SCRA 285, 294-295.
[45] Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.
[46] Padilla v. Spouses Paredes, supra note 39 at 142.
[47] Cheng v. Genato, 360 Phil. 891, 906 (1998).
[48] Art. 2233, Civil Code.