Coronel v.

CA

Facts:

The case arose from a complaint for specific performance filed by private respondent Alcaraz against
petitioners to consummate the sale of a parcel of land in Quezon City.

On January 19, 1985, petitioners executed a “Receipt of Down Payment” of P50,000 in favor of plaintiff
Ramona Alcaraz, binding themselves to transfer the ownership of the land in their name from their
deceased father, afterwhich the balance of P1,190,000 shall be paid in full by Alcaraz. On February 6,
1985, the property was transferred to petitioners. On February 18, 1985, petitioners sold the property
to Mabanag. For this reason, Concepcion, Ramona’s mother, filed an action for specific performance.

Issue:

Whether the contract between petitioners and private respondent was that of a conditional sale or a
mere contract to sell

Held:

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential
elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in
money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the prospective buyer. A
contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.

A contract to sell may not even be considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present, although it is
conditioned upon the happening of a contingent event which may or may not occur. If the suspensive
condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the
suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with, but to
a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property,
a third person buying such property despite the fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title
to the property will transfer to the buyer after registration because there is no defect in the owner-
seller's title per se, but the latter, of course, may be used for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is automatically
transferred to the buyer such that, the seller will no longer have any title to transfer to any third person.
Such second buyer of the property who may have had actual or constructive knowledge of such defect
in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to
the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves
(the certificate of title was not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court may safely presume that, had the certificate
of title been in the names of petitioners-sellers at that time, there would have been no reason why an
absolute contract of sale could not have been executed and consummated right there and then.

What is clearly established by the plain language of the subject document is that when the said "Receipt
of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had
agreed to a conditional contract of sale, consummation of which is subject only to the successful
transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their
names.

The provision on double sale presumes title or ownership to pass to the first buyer, the exceptions
being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b)
should there be no inscription by either of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice of the first buyer. In a case of
double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in
good faith but whether or not said second buyer registers such second sale in good faith, that is, without
knowledge of any defect in the title of the property sold. If a vendee in a double sale registers that sale
after he has acquired knowledge that there was a previous sale of the same property to a third party or
that another person claims said property in a pervious sale, the registration will constitute a registration
in bad faith and will not confer upon him any right.

Luzon Brokerage Co. v. Maritime Building Co. (1972)

Plaintiff-appellee: Luzon Brokerage Co.

Defendants: Maritime Building Co and Myers Building Co

Ponente: Reyes, J.B.L., J.

Doctrine: The distinction between contracts of sale and contract to sell with reserved title has been
recognized by this Court in repeated decisions upholding the power of promisors under contracts to sell
in case of failure of the other party to complete payment, to extrajudicially terminate the operation of
the contract, refuse conveyance and retain the sums or installments already received, where such rights
are expressly provided for, as in this case.

Short version: Myers corp sold land to Maritime. In the agreement, they agreed on an installment plan
and that if Maritime missed a payment, the contract will be annulled and the payments already made
will be forfeited. Maritime failed to pay so Myers annulled the contract and did not return payments. SC
says Myers can do this because under contracts to sell, promisors, in case of failure of the other party to
complete payment, can extrajudicially terminate the contract, refuse conveyance, and retain
installments already received, where such rights are provided.

In Manila, Myers owned 3 parcels of land w/ improvements. Myers then entered into a contract called a
“Deed of Conditional Sale” with Maritime Building.

- Myers sold the land for P1million.

- They agreed on the manner of payment (instalment, initial payment upon execution of contract,
interest rate)
- In the contract it was stipulated that in case of failure of buyer to pay any of the instalments, the
contract will be annulled at the option of the seller and all payments made by the buyer is
forfeited.
- Later on, the stipulated instalment of P10k with 5%interest was amended to the P5k with 5.5%
per annum.
- Maritime paid the monthly instalments but failed to pay the monthly instalment of March.
- VP of Maritime wrote to Pres of Myers requesting for a moratorium on the monthly payment of
the instalments because the company was undergoing financial problems. Myers refused.
- For the months of March, April, and May, Maritime failed to pay and did not heed the demand
of Myers.
- Myers wrote Maritime cancelling the “Deed of Conditional Sale”
- Myers demanded return of possession of properties and held Maritime liable for use and
occupation amounting to P10k per month

In the meantime, Luzon Brokerage was leasing the property from Maritime.
 - Myers demanded from Luzon the payment of monthly rentals of P10k
- Myers also demanded surrender of property.
- While actions and crossclaims between Myers and Maritime were happening, the contract
between Maritime and Luzon was extended for 4 more years.
- It Turns out, Maritime’s suspension of its payments to Myers corp arose from a previous event:
An award of backwages made by the Court of Industrial Relations in favor of Luzon Labor Union
(employees employed by Luzon).
- FH Myers was a major stockholder of Luzon Brokerage. FH Myers promised to indemnify
Schedler (who controlled Maritime) when Shedler purchased FH Myers’s stock in Luzon
Brokerage company. (This indemnification is for the award of backwages by the CIR)
- Schedler claims that after FH Myers estates closed, he was notified that the indemnity on the
Labor Union case will not be honored anymore.

And so, Schedler advised Myers corp that Maritime is withholding payments to Myers corp in order to
offset the liability when Myers heirs failed to honor the indemnity agreement. RTC ruled Maritime in
breach of contract.

Issue:

1. Has there been a breach of contract?

2. Can Myers extrajudicially terminate the contract?

Held:

1. Yes.
2. Yes.

Ratio:

Failure to pay monthly installments constitute a breach of contract. Default was not made in good faith.
The letter to Myers corp means that the non-payment of installments was deliberately made to coerce
Myers corp into answering for an alleged promise of the dead FH Myers.

- Whatever obligation FH Myers had assumed is not an obligation of Myers corp. No proof that
board of Myers corp agreed to assume responsibility to debts of FH Myers and heirs.
- Schaedler allowed the estate proceedings of FH Myers to close without providing liability.
- By the balance (of payment) in the Deed of Conditional Sale, Maritime was attempting to
burden the Myers corp with an uncollectible debt, since enforcement against FH Myers estate
was already barred.

Maritime acted in bad faith. Maritime’s contract with Myers is not the ordinary sale contemplated in
NCC 1592 (transferring ownership simultaneously with delivery).

The distinction between contracts of sale and contract to sell with reserved title has been recognized by
this Court in repeated decisions upholding the power of promisors under contracts to sell in case of
failure of the other party to complete payment, to extrajudicially terminate the operation of the
contract, refuse conveyance and retain the sums or installments already received, where such rights are
expressly provided for, as in this case.

PILIPINO TELECOM v. RADIO MARINE NETWORK

International Hotel Corporation v. Joaquin (2013)

Facts

On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to International Hotel
Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction of
a hotel, to be guaranteed DBP. The proposal encompassed nine phases.

The IHC Board of Directors approved phase one to phase six of the proposal and earmarked
P2,000,000.00 for the project. Anent the financing, IHC applied with DBP for a foreign loan guaranty.
DBP approved it on October 24, 1969 subject to several conditions.

On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the
payment of his fees in the amount of P500,000.00 for the services that he had provided and would be
providing to IHC in relation to the hotel project that were outside the scope of the technical proposal.
Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHC’s financial
situation. IHC granted Joaquin’s request,.

Joaquin recommended that he commence negotiating with a prospective financier, Materials handling
corp. IHC allowed. So Joaquin started negotiating Materials Handling Corp and later on with its principal,
Barnes international. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the
Executive Director of IHC, met with another financier, the Weston International Corporation (Weston),
to explore possible financing. When Barnes failed to deliver the needed loan, IHC informed DBP that it
would submit Weston for DBP’s consideration. As a result, DBP cancelled its previous guaranty.

Due to Joaquin’s failure to secure the needed loan, IHC, through its President Bautista, canceled the
17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services. The latter
requested a reconsideration of the cancellation, but their request was rejected.

Consequently, Joaquin and Suarez commenced this action for specific performance, annulment,
damages against IHC and the members of its BOD. IHC lost.

Issue:

IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had no intention of
preventing Joaquin from complying with his obligations when it adopted his recommendation to
negotiate with Barnes; that Article 1234 of the Civil Code applied only if there was a merely slight
deviation from the obligation, and the omission or defect was technical and unimportant; that
substantial compliance was unacceptable because the foreign loan was material and was, in fact, the
ultimate goal of its contract with Joaquin and Suarez; that because the obligation was indivisible and
subject to a suspensive condition, Article 1181 of the Civil Code27 applied, under which a partial
performance was equivalent to non-performance; and that the award of attorney’s fees should be
deleted for lack of legal and factual bases

Issue 1: was there “constructive fulfillment” in this case? No.

IHC’s argument is meritorious. Article 1186 of the Civil Code reads:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

This provision refers to the constructive fulfillment of a suspensive condition, whose application calls for
two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the condition, and (b)
the actual prevention of the fulfillment. Mere intention of the debtor to prevent the happening of the
condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment,
is insufficient.

The error lies in the CA’s failure to determine IHC’s intent to pre-empt Joaquin from meeting his
obligations. The June 20, 1970 minutes of IHC’s special board meeting discloses that Joaquin impressed
upon the members of the Board that Materials Handling was offering more favorable terms for IHC

Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling
and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to
prevent Joaquin and Suarez from meeting their undertaking. Such absence of any intention negated
the basis for the CA’s reliance on Article 1186 of the Civil Code.

Note: here, they were referring to “constructive fulfillment” wherein the creditor intentionally
prevents the debtor from complying with his obligation.

Issue 2: Should Joaquin be paid for substantially performing his obligations? No.

Nor do we agree with the CA’s upholding of IHC’s liability by virtue of Joaquin and Suarez’s substantial
performance. In so ruling, the CA applied Article 1234 of the Civil Code, which states:

Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee.

It is well to note that Article 1234 applies only when an obligor admits breaching the contract after
honestly and faithfully performing all the material elements thereof except for some technical aspects
that cause no serious harm to the obligee. IHC correctly submits that the provision refers to an
omission or deviation that is slight, or technical and unimportant, and does not affect the real purpose
of the contract.

In order that there may be substantial performance of an obligation, there must have been an
attempt in good faith to perform, without any willful or intentional departure therefrom. The
deviation from the obligation must be slight, and the omission or defect must be technical and
unimportant, and must not pervade the whole or be so material that the object which the parties
intended to accomplish in a particular manner is not attained. The non-performance of a material part
of a contract will prevent the performance from amounting to a substantial compliance.
By reason of the inconsequential nature of the breach or omission, the law deems the performance as
substantial, making it the obligee’s duty to pay. The compulsion of payment is predicated on the
substantial benefit derived by the obligee from the partial performance. Although compelled to pay, the
obligee is nonetheless entitled to an allowance for the sum required to remedy omissions or defects and
to complete the work agreed upon.

Conversely, the principle of substantial performance is inappropriate when the incomplete

performance constitutes a material breach of the contract. A contractual breach is material if it will
adversely affect the nature of the obligation that the obligor promised to deliver, the benefits that the
obligee expects to receive after full compliance, and the extent that the non-performance defeated the
purposes of the contract. Accordingly, for the principle embodied in Article 1234 to apply, the failure of
Joaquin and Suarez to comply with their commitment should not defeat the ultimate purpose of the
contract.

The primary objective of the parties in entering into the services agreement was to obtain a foreign loan
to finance the construction of IHC’s hotel project. All the steps that Joaquin and Suarez undertook to
accomplish had a single objective – to secure a loan to fund the construction and eventual operations of
the hotel of IHC. In that regard, Joaquin himself admitted that his assistance was specifically sought to
seek financing for IHC’s hotel project.

Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties’
contract, so that the failure to completely satisfy such obligation could not be characterized as slight and
unimportant as to have resulted in Joaquin and Suarez’s substantial performance that consequentially
benefitted IHC. Whatever benefits IHC gained from their services could only be minimal, and were even
probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel.
Consequently, Article 1234 did not apply.

Issue 3: WON there is still constructive fulfillment (on the part of the debtor)? Yes.

IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional
obligation

Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was liable
based on the nature of the obligation.

Considering that the agreement between the parties was not circumscribed by a definite period, its
termination was subject to a condition – the happening of a future and uncertain event. The prevailing
rule in conditional obligations is that the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event that constitutes the condition.

To recall, both the RTC and the CA held that Joaquin and Suarez’s obligation was subject to the
suspensive condition of successfully securing a foreign loan guaranteed by DBP. IHC agrees with both
lower courts, and even argues that the obligation with a suspensive condition did not arise when the
event or occurrence did not happen. In that instance, partial performance of the contract subject to the
suspensive condition was tantamount to no performance at all. As such, the respondents were not
entitled to any compensation.

We have to disagree with IHC’s argument.

To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the
respondents because it required the action and discretion of third persons – an able and willing foreign
financial institution to provide the needed funds, and the DBP Board of Governors to guarantee the
loan. Such third persons could not be legally compelled to act in a manner favorable to IHC. There is no
question that when the fulfillment of a condition is dependent partly on the will of one of the
contracting parties, or of the obligor, and partly on chance, hazard or the will of a third person, the
obligation is mixed. The existing rule in a mixed conditional obligation is that when the condition was
not fulfilled but the obligor did all in his power to comply with the obligation, the condition should be
deemed satisfied.

Considering that the respondents were able to secure an agreement with Weston, and subsequently
tried to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively
fulfilled their obligation.