Olivares Vs Castillo

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Contract to sell and conditional sale distinguished

THIRD DIVISION, G.R. No. 196251, July 09, 2014, OLIVAREZ REALTY CORPORATION AND DR. PABLO R.
OLIVAREZ, PETITIONERS, VS. BENJAMIN CASTILLO, RESPONDENT

Olivarez Realty Corporation and Benjamin executed a deed of conditional sale over a parcel of lot owned by Bejamin,
covered by TCT No. T-19972, which is also claimed by the Philippine Tourism Authority under TCT No. T-18493. Under the
terms of the contract, the corporation shalll buy the land for P19,080,490, with an agreed downpayment of P5,000,000.00
payable in several instalments. The balance of the purchase price shall be paid by the corporation in 30 equal monthly
installments, commencing on the day the title of the Philippine Tourism Authority had been cancelled. The corporation shall
file the case against PTA, with the full assistance of Benjamin. Also, the corporation agreed to pay disturbance
compensation up to P1,500,000.00 only, to the tenants therein, and Benjamin shall be responsible for clearing the tenants.
The parties agreed that corporation shall immediately occupy the lot, and in case the contract is cancelled, the
improvements put up by the company shall inure to Benjamin.

Thereafter, Benjamin filed an action to rescind the contract under Article 1191 of the Civil Code. According to him, the
company only paid him the amount of P2,500,000.00. out of the P5,000,000.00 instalment price. Contrary to the companys
representation, the company did not file any action against the Philippine Tourism Authority, nor paid disturbance
compensation to the tenants. Despite demand, the company refused to pay the full purchase price of the property. He also
argued that the contract was a contract of adhesion, and even so, the company committed substantial breach of the
obligation warranting rescission under Art. 1191 of the Civil Code.

The company, on the other hand, countered that Benjamin did not fully assist in the case to be filed against PTA; he also did
not clear the property of tenants, thus the company had all the legal right to withhold instalment payment. When his request
for admission to Dr. Pablo Olivarez was objected to by the company, Benjamin filed a motion for judgment on the pleadings
and/or summary judgment, attaching thereto his affidavit and the affidavit of a witness attesting to the material allegations of
his complaint. According to him, the company had already admitted the material allegations of his complaint, that is, that the
company have not yet commenced an action against PTA, nor paid the disturbance compensation. Should judgment on the
pleadings be denied, a summary judgment is still porper, since there are no genuine issues tendered by the company. The
company opposed the motion, since there were genuine issues which need to be resolved and a full blown trial is necessary
to fresh out the issues.

The trial court granted Benjamins motion and rendered summary judgment, ruling that the company substantially admitted
the material allegations in Benjamins complaint, and there were no genuine issues tendered by it. It rescinded the contract
of conditional sale between Benjamin and Olivarez Realty Corporation and forfeited the P2,500.000.00 as damages under
Art. 1191 of the Civil Code. On appeal to the Court of Appeals, the appellate court affirmed the findings of the trial court.

The company thus filed a petition for certiorari under Rule 45 of the Rules of Court to try to reverse the judgments of the
lower courts. Among the issues it presented for consideration was the propriety of the summary judgment. According to the
company, it cannot be faulted for withholding instalment payments. What then is the nature of the contract between the
company and Benjamin?

The Supreme Court:

Since Olivarez Realty Corporation illegally withheld payments of the purchase price, Castillo is entitled to cancel his contract
with petitioner corporation. However, we properly characterize the parties contract as a contract to sell, not a contract of
conditional sale.

In both contracts to sell and contracts of conditional sale, title to the property remains with the seller until the buyer fully
pays the purchase price. Both contracts are subject to the positive suspensive condition of the buyers full payment of the
purchase price.

In a contract of conditional sale, the buyer automatically acquires title to the property upon full payment of the purchase
price. This transfer of title is by operation of law without any further act having to be performed by the seller. In a contract
to sell, transfer of title to the prospective buyer is not automatic. The prospective seller [must] convey title to the property
[through] a deed of conditional sale.

The distinction is important to determine the applicable laws and remedies in case a party does not fulfill his or her
obligations under the contract. In contracts of conditional sale, our laws on sales under the Civil Code of the Philippines
apply. On the other hand, contracts to sell are not governed by our law on sales but by the Civil Code provisions on
conditional obligations.

Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not apply to contracts to sell. As
this court explained in Ong v. Court of Appeals, failure to fully pay the purchase price in contracts to sell is not the breach of
contract under Article 1191. Failure to fully pay the purchase price is merely an event which prevents the [sellers] obligation
to convey title from acquiring binding force. This is because there can be no rescission of an obligation that is still non-
existent, the suspensive condition not having [happened].

In this case, Castillo reserved his title to the property and undertook to execute a deed of absolute sale upon Olivarez
Realty Corporations full payment of the purchase price. Since Castillo still has to execute a deed of absolute sale to
Olivarez Realty Corporation upon full payment of the purchase price, the transfer of title is not automatic. The contract in
this case is a contract to sell.

As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines does not apply. The contract to sell is
instead cancelled, and the parties shall stand as if the obligation to sell never existed.

Olivarez Realty Corporation shall return the possession of the property to Castillo. Any improvement that Olivarez Realty
Corporation may have introduced on the property shall be forfeited in favor of Castillo per paragraph I of the deed of
conditional sale:

Immediately upon signing this Contract, [Olivarez Realty Corporation] shall be entitled to occupy, possess and develop the
subject property. In case this Contract is cancelled, any improvement introduced by [Olivarez Realty Corporation] on the
property shall be forfeited in favor of [Castillo.

As for prospective sellers, this court generally orders the reimbursement of the installments paid for the property when
setting aside contracts to sell. This is true especially if the propertys possession has not been delivered to the prospective
buyer prior to the transfer of title.

In this case, however, Castillo delivered the possession of the property to Olivarez Realty Corporation prior to the transfer of
title. We cannot order the reimbursement of the installments paid.

In Gomez v. Court of Appeals, the City of Manila and Luisa Gomez entered into a contract to sell over a parcel of land. The
city delivered the propertys possession to Gomez. She fully paid the purchase price for the property but violated the terms
of the contract to sell by renting out the property to other persons. This court set aside the contract to sell for her violation of
the terms of the contract to sell. It ordered the installments paid forfeited in favor of the City of Manila as reasonable
compensation for [Gomezs] use of the [property] for eight years.

In this case, Olivarez Realty Corporation failed to fully pay the purchase price for the property. It only paid P2,500,000.00
out of the P19,080,490.00 agreed purchase price. Worse, petitioner corporation has been in possession of Castillos
property for 14 years since May 5, 2000 and has not paid for its use of the property.

Similar to the ruling in Gomez, we order the P2,500,000.00 forfeited in favor of Castillo as reasonable compensation for
Olivarez Realty Corporations use of the property.

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