SECOND DIVISION
 

HEIRS OF PAULINO ATIENZA, G.R. No. 180665

namely, RUFINA L. ATIENZA,

ANICIA A. IGNACIO, ROBERTO

ATIENZA, MAURA A. DOMINGO,

AMBROCIO ATIENZA, MAXIMA

ATIENZA, LUISITO ATIENZA,

CELESTINA A. GONZALES,

REGALADO ATIENZA and

MELITA A. DELA CRUZ

Petitioners, Present:

CARPIO, J., Chairperson,

- versus - NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

DOMINGO P. ESPIDOL,
 Respondent. Promulgated:

August 11, 2010

x --------------------------------------------------------------------------------------- x

DECISION
 

ABAD, J.:

This case is about the legal consequences when a buyer in a contract to sell
on installment fails to make the next payments that he promised.

The Facts and the Case

Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A.

Ignacio, Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima
Atienza, Luisito Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A.
Dela Cruz (collectively, the Atienzas)1[1] own a 21,959 square meters of registered

1[1] Petitioners are the heirs of Paulino Atienza, the original plaintiff in this case, who died on
September 7, 2007. Please see: Certificate of Death, rollo, p. 84 and October 13, 2008
Resolution of this Court, id. at 97.
agricultural land at Valle Cruz, Cabanatuan City.2[2] They acquired the land under
an emancipation patent3[3] through the government’s land reform program.4[4]

On August 12, 2002 the Atienzas and respondent Domingo P. Espidol

entered into a contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-
Bayad (contract to sell land with a down payment) covering the property.5[5] They
agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable
in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00
in December 2002, and the remaining P974,670.00 in June 2003. Respondent
Espidol paid the Atienzas P100,000.00 upon the execution of the contract and paid
P30,000.00 in commission to the brokers.

When the Atienzas demanded payment of the second installment of

P1,750,000.00 in December 2002, however, respondent Espidol could not pay it.
He offered to pay the Atienzas P500.000.00 in the meantime,6[6] which they did
not accept. Claiming that Espidol breached his obligation, on February 21, 2003
the Atienzas filed a complaint7[7] for the annulment of their agreement with

2[2] Covered by Transfer Certificate of Title T-3971.

3[3] Emancipation Patent 416698.

4[4] Records, pp. 73-74.

5[5] Id. at 5-7.

6[6] Respondent claimed that the amount offered was P800,000.00.

7[7] Rollo, pp. 56-59.

damages before the Regional Trial Court (RTC) of Cabanatuan City in Civil Case
4451.

In his answer,8[8] respondent Espidol admitted that he was unable to pay the
December 2002 second installment, explaining that he lost access to the money
which he shared with his wife because of an injunction order issued by an
American court in connection with a domestic violence case that she filed against
him.9[9] In his desire to abide by his obligation, however, Espidol took time to
travel to the Philippines to offer P800,000.00 to the Atienzas.

Respondent Espidol also argued that, since their contract was one of sale on
installment, his failure to pay the installment due in December 2002 did not
amount to a breach. It was merely an event that justified the Atienzas’ not to
convey the title to the property to him. The non-payment of an installment is not a
legal ground for annulling a perfected contract of sale. Their remedy was to bring
an action for specific performance. Moreover, Espidol contended that the action
was premature since the last payment was not due until June 2003.

8[8] Id. at 60-66.

9[9] TSN, June 4, 2004, pp. 7-8.

 In a decision10[10] dated January 24, 2005, the RTC ruled that, inasmuch as
the non-payment of the purchase price was not considered a breach in a contract to
sell on installment but only an event that authorized the vendor not to convey title,
the proper issue was whether the Atienzas were justified in refusing to accept
respondent Espidol’s offer of an amount lesser than that agreed upon on the second
installment.

The trial court held that, although respondent’s legal problems abroad cannot
justify his failure to comply with his contractual obligation to pay an installment, it
could not be denied that he made an honest effort to pay at least a portion of it. His
traveling to the Philippines from America showed his willingness and desire to
make good on his obligation. His good faith negated any notion that he intended to
renege on what he owed. The Atienzas brought the case to court prematurely
considering that the last installment was not then due.

Furthermore, said the RTC, any attempt by the Atienzas to cancel the
contract would have to comply with the provisions of Republic Act (R.A.) 6552 or
the Realty Installment Buyer Protection Act (R.A. 6552), particularly the giving of
the required notice of cancellation, that they omitted in this case. The RTC thus
declared the contract between the parties valid and subsisting and ordered the
parties to comply with its terms and conditions.

10[10] Rollo, pp. 70-79.

 On appeal,11[11] the Court of Appeals (CA) affirmed the decision of the trial
court.12[12] Not satisfied, the Atienzas moved for reconsideration.13[13] They
argued that R.A. 6552 did not apply to the case because the land was agricultural
and respondent Espidol had not paid two years worth of installment that the law
required for coverage. And, in an apparent shift of theory, the Atienzas now also
impugn the validity of their contract to sell, claiming that, since the property was
covered by an emancipation patent, its sale was prohibited and void. But the CA
denied the motion for reconsideration, hence, the present petition.14[14]

Questions Presented

The questions presented for resolution are:

1. Whether or not the Atienzas could validly sell to respondent Espidol

the subject land which they acquired through land reform under Presidential
Decree 2715[15] (P.D. 27);

11[11] Docketed as CA-G.R. CV 84953.

12[12] Rollo, pp. 34-44. Penned by Associate Justice Myrna Dimaranan Vidal, with Associate
Justices Jose L. Sabio, Jr. and Jose C. Reyes, Jr. concurring.

13[13] Id. at 45-51.

14[14] Id. at 9-33.

15[15] Decreeing the Emancipation of Tenants From the Bondage of the Soil, Transferring to
Them the Ownership of the Land They Till and Providing the Instruments and Mechanism
 

2. Whether or not the Atienzas were entitled to the cancellation of the

contract to sell they entered into with respondent Espidol on the ground of the
latter’s failure to pay the second installment when it fell due; and

3. Whether or not the Atienzas’ action for cancellation of title was

premature absent the notarial notice of cancellation required by R.A. 6552.

The Court’s Rulings

One. That the Atienzas brought up the illegality of their sale of subject land
only when they filed their motion for reconsideration of the CA decision is not lost
on this Court. As a rule, no question will be entertained on appeal unless it was
raised before the court below. This is but a rule of fairness.16[16]

Nonetheless, in order to settle a matter that would apparently undermine a

significant policy adopted under the land reform program, the Court cannot simply
shirk from the issue. The Atienzas’ title shows on its face that the government

Therefor.

16[16] Bacsasar v. Civil Service Commission, G.R. No. 180853, January 20, 2009, 576 SCRA
787, 793; Jacot v. Dal, G.R. No. 179848, November 27, 2008, 572 SCRA 295, 311.
granted title to them on January 9, 1990 by virtue of P.D. 27. This law explicitly
prohibits any form of transfer of the land granted under it except to the government
or by hereditary succession to the successors of the farmer beneficiary.

Upon the enactment of Executive Order 22817[17] in 1987, however, the

restriction ceased to be absolute. Land reform beneficiaries were allowed to
transfer ownership of their lands provided that their amortizations with the Land
Bank of the Philippines (Land Bank) have been paid in full.18[18] In this case, the
Atienzas’ title categorically states that they have fully complied with the
requirements for the final grant of title under P.D. 27. This means that they have
completed payment of their amortization with Land Bank. Consequently, they
could already legally transfer their title to another.

Two. Regarding the right to cancel the contract for non-payment of an

installment, there is need to initially determine if what the parties had was a
contract of sale or a contract to sell. In a contract of sale, the title to the property
passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the
other hand, the ownership is, by agreement, retained by the seller and is not to pass
to the vendee until full payment of the purchase price. In the contract of sale, the
buyer’s non-payment of the price is a negative resolutory condition; in the contract

17[17] Declaring Full Land Ownership to Qualified Farmer Beneficiaries Covered by P.D. 27:
Determining the Value of Remaining Unvalued Rice and Corn Lands Subject to P.D. 27; and
Providing for the Manner of Payment by the Farmer Beneficiary and Mode of Compensation to
the Landowner, issued on July 17, 1987.

18[18] Section 6, E.O. 228.

to sell, the buyer’s full payment of the price is a positive suspensive condition to
the coming into effect of the agreement. In the first case, the seller has lost and
cannot recover the ownership of the property unless he takes action to set aside the
contract of sale. In the second case, the title simply remains in the seller if the
buyer does not comply with the condition precedent of making payment at the time
specified in the contract.19[19] Here, it is quite evident that the contract involved
was one of a contract to sell since the Atienzas, as sellers, were to retain title of
ownership to the land until respondent Espidol, the buyer, has paid the agreed
price. Indeed, there seems no question that the parties understood this to be the
case.20[20]

Admittedly, Espidol was unable to pay the second installment of

P1,750,000.00 that fell due in December 2002. That payment, said both the RTC
and the CA, was a positive suspensive condition failure of which was not regarded
a breach in the sense that there can be no rescission of an obligation (to turn over
title) that did not yet exist since the suspensive condition had not taken place. And
this is correct so far. Unfortunately, the RTC and the CA concluded that should
Espidol eventually pay the price of the land, though not on time, the Atienzas were
bound to comply with their obligation to sell the same to him.

19[19] Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564, 570, citing
Sing Yee v. Santos, 47 O.G. 6372; Chua v. Court of Appeals, 449 Phil. 25, 41-42 (2003).

20[20] Rollo, p. 67.

 But this is error. In the first place, since Espidol failed to pay the installment
on a day certain fixed in their agreement, the Atienzas can afterwards validly
cancel and ignore the contract to sell because their obligation to sell under it did
not arise. Since the suspensive condition did not arise, the parties stood as if the
conditional obligation had never existed.21[21]

Secondly, it was not a pure suspensive condition in the sense that the
Atienzas made no undertaking while the installments were not yet due. Mr. Justice
Edgardo L. Paras gave a fitting example of suspensive condition: “I’ll buy your
land for P1,000.00 if you pass the last bar examinations.” This he said was
suspensive for the bar examinations results will be awaited. Meantime the buyer is
placed under no immediate obligation to the person who took the examinations.22
[22]

Here, however, although the Atienzas had no obligation as yet to turn over
title pending the occurrence of the suspensive condition, it was implicit that they
were under immediate obligation not to sell the land to another in the meantime.
When Espidol failed to pay within the period provided in their agreement, the
Atienzas were relieved of any obligation to hold the property in reserve for him.

21[21] See: Valenzuela v. Kalayaan Development & Industrial Corporation, G.R. No. 163244,
June 22, 2009, 590 SCRA 380, 389-390; Ayala Life Assurance, Inc. v. Ray Burton Development
Corporation, G.R. No. 163075, January 23, 2006, 479 SCRA 462, 470.

22[22] Paras IV, CIVIL CODE OF THE PHILIPPINES ANNOTATED, 179-180 (1994 Edition).
 The ruling of the RTC and the CA that, despite the default in payment, the
Atienzas remained bound to this day to sell the property to Espidol once he is able
to raise the money and pay is quite unjustified. The total price was P2,854,670.00.
The Atienzas decided to sell the land because petitioner Paulino Atienza urgently
needed money for the treatment of his daughter who was suffering from
leukemia.23[23] Espidol paid a measly P100,000.00 in down payment or about
3.5% of the total price, just about the minimum size of a broker’s commission.
Espidol failed to pay the bulk of the price, P1,750,000.00, when it fell due four
months later in December 2002. Thus, it was not such a small default as to justify
the RTC and the CA’s decision to continue to tie up the Atienzas to the contract to
sell upon the excuse that Espidol tried his honest best to pay.
 
Although the Atienzas filed their action with the RTC on February 21, 2003,
four months before the last installment of P974,670.00 fell due in June 2003, it
cannot be said that the action was premature. Given Espidol’s failure to pay the
second installment of P1,750,000.00 in December 2002 when it was due, the
Atienzas’ obligation to turn over ownership of the property to him may be regarded
as no longer existing.24[24] The Atienzas had the right to seek judicial declaration
of such non-existent status of that contract to relieve themselves of any liability
should they decide to sell the property to someone else. Parenthetically, Espidol
never offered to settle the full amount of the price in June 2003, when the last
installment fell due, or during the whole time the case was pending before the
RTC.

23[23] TSN, December 16, 2003, p. 36.

24[24] See: Ong v. Court of Appeals, 369 Phil. 243, 253-254 (1999); Cordero v. F.S.
Management & Development Corporation, G.R. No. 167213, October 31, 2006, 506 SCRA 451,
463.
  
Three. Notice of cancellation by notarial act need not be given before the
contract between the Atienzas and respondent Espidol may be validly declare non-
existent. R.A. 6552 which mandated the giving of such notice does not apply to
this case. The cancellation envisioned in that law pertains to extrajudicial
cancellation or one done outside of court,25[25] which is not the mode availed of
here. The Atienzas came to court to seek the declaration of its obligation under the
contract to sell cancelled. Thus, the absence of that notice does not bar the filing
of their action.
 

Since the contract has ceased to exist, equity would, of course, demand that,
in the absence of stipulation, the amount paid by respondent Espidol be returned,
the purpose for which it was given not having been attained;26[26] and considering
that the Atienzas have consistently expressed their desire to refund the
P130,000.00 that Espidol paid.27[27]

WHEREFORE, the Court GRANTS the petition and REVERSES and

SETS ASIDE the August 31, 2007 decision and November 5, 2007 resolution of
the Court of Appeals in CA-G.R. CV 84953. The Court declares the Kasunduan sa
Pagbibili ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino
Atienza and respondent Domingo P. Espidol dated August 12, 2002 cancelled and

25[25] Pagtalunan v. Dela Cruz Vda. de Manzano, G.R. No. 147695, September 13, 2007, 533
SCRA 242, 249, 253.

26[26] See: Manuel v. Rodriguez, Sr., 109 Phil. 1, 12 (1960).

27[27] Rollo, pp. 17, 29; CA rollo, p. 26.

the Heirs’ obligation under it non-existent. The Court directs petitioner Heirs of
Atienza to reimburse the P130,000.00 down payment to respondent Espidol.

SO ORDERED.

ROBERTO A. ABAD

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

Associate Justice Associate Justice

 

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION
 

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

ANTONIO T. CARPIO

Associate Justice
 Chairperson, Second Division

 
 
 
CERTIFICATION
 

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson’s Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

 
HEIRS OF PAULINO ATIENZA versus DOMINGO P. ESPIDOL, G.R. No. 180665 Aug.
11,2010

 Facts 
 This case is about the legal consequences when a buyer in a contract to sell on installment
fails to make the nextpayments that he promised. On August 12, 2002 the Atienzas and
respondent Domingo P. Espidol entered into a contract called Kasunduan saPagbibili ng Lupa na
may Paunang-Bayad (contract to sell land with a down payment) covering the property. They
agreedon a price, payable in three instalments. When the Atienzas demanded payment of the
second installment of P1,750,000.00 in December 2002, however,respondent Espidol could not
pay it. Claiming that Espidol breached his obligation, on February 21, 2003 the Atienzasfiled a
complaint for the annulment of their agreement with damages before the Regional Trial Court
(RTC)of Cabanatuan City in a Civil Case.IssueWhether or not the Atienzas were entitled to the
cancellation of the contract to sell they entered into withrespondent Espidol on the ground of the
latter’s failure to pay the second installment when it fell due HeldThe Court declares the
Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino
Atienza and respondent Domingo P. Espidol dated August 12, 2002 cancelled and the Heirs’
obligation under itnon-existent.Regarding the right to cancel the contract for non-payment of an
installment, there is need to initially determine if what the parties had was a contract of sale or a
contract to sell. In a contract of sale, the title to the property passes to thebuyer upon the delivery
of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement,
retainedby the seller and is not to pass to the vendee until full payment of the purchase price.In
the first place, since Espidol failed to pay the installment on a day certain fixed in their
agreement, theAtienzas can afterwards validly cancel and ignore the contract to sell because their
obligation to sell under it did notarise. Since the suspensive condition did not arise, the parties
stood as if the conditional obligation had never existed.G.R. No. 187288 August 9,
2010SPOUSES BRAULIO NAVARRO AND CESARIA SINDAO, Petitioners, vs.PERLA
RICO GO, Respondent.FACTS:By Deed of Sale of Real Property dated May 23, 1937, Emilia
Samson conveyed to JosefaParras, mother of Perla RicoGo (respondent), a 405 square meter
parcel of land situated in Domalandan West, Lingayen, Pangasinan.On December 1971, Free
Patent No. 51563 (OCT No. P-14822) was issued to the Heirs of Emilia’s brother,
LorenzoSamson, covering the land.After Josefa purchased the land in 1937, she allowed one
Rufino Palma, nephew of petitioner Cesaria, to stay there. In1984, Josefa donated the land to
respondent who allowed Palma to remain on the land until 1989. Via two documentsentitled
"Paknaan," Palma recognized respondent’s ownership of the land. Photographs of the execution
of the documentswere in fact taken.When Palma vacated the land, respondent constructed fences
made of galvanized roofing sheets and wooden posts onwhich was posted a "Private Property,
No Trespass" sign.On April 27, 1990, the Samson heirs transferred their rights to the land by a
Deed of Extra-Judicial Partition with Sale toSpouses Braulio Navarro and CesariaSindao
(petitioners). On May 2001, Transfer Certificate of Title No. 254853 wasissued in petitioners’
name.Petitioner Braulio thereupon destroyed the fences of, and cut all the trees in the land,
drawing respondent to file acomplaint for annulment of documents ─ Deed of Extra-Judicial
Partition with Sale, Free Patent, Original Certificate of Title, Tax Declarations, Declaration of
Ownership of Real Property and Damages against petitioners. Petitioner Brauliopassed away on
March 22, 2002 and was substituted in the action by his heirs.Petitioners invoked good faith in
purchasing the land from the Samson heirs in 1990, no encumbrances on the title to theland on
file at the Register of Deeds having been annotated.ISSUE:Whether petitioners were in good
faith when they bought the property.

RULING
 No. A person is considered an innocent purchaser in good faith when
he buys the property of another, without notice thatsome other person has
a right or an interest in such property, and pays a full price for the same at
the time of suchpurchase, or before he has notice of the claims or interest of
some other person in the property.Palma, a relative of petitioner Cesaria,
acknowledged via two documents having been allowed by Josefa,
respondent’smother, to occupy the land. His testimony, therefore, that he
sought the permission of the Samson heirs, and not fromJosefa, must give
way to documentary evidence.Petitioners live in the vicinity of the land
which was fenced and planted to fruit bearing trees. As such, they were put
onnotice that the land was possessed by someone. Where the land subject
of sale is in possession of a person other thanthe vendor, prudence dictates
that the vendee should go beyond the certificate of title. Absent such
investigation, goodfaith cannot be presumed