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CONTACT TO SELL JURISPRUDENCE

“In a contract to sell, the seller retains ownership of the property until
the buyer has paid the price in full. A contract to sell has been 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. In a contract to
sell, "ownership is retained by the seller and is not to pass until the full
payment of the price x x x. It is commonly entered into so as to protect
the seller against a buyer who intends to buy the property in
installments by withholding ownership over the property until the buyer
effects full payment therefor." (Spouses Tumibay vs. Spouses Lopez, G.R.
No.171692 , June 3, 2013)

Distinction between contract to sell and contract of sale

The distinction between a contract of sale and 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 in 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until and unless the contract is resolved or rescinded; whereas, in a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 (Salazar
v. Court of Appeals, G.R. No. 118203, 5 July 1996)

Further, Chua v. Court of Appeals cited this distinction


between a contract of sale and a contract to sell:
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 in 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resolved or rescinded; whereas, in a contract to sell,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.

(Nabus vs. Joaquin & Julia Pacson (G.R. No.


161318, November 25, 2009)

It is not the title of the contract, but its express terms or


stipulations that determine the kind of contract entered into by
the parties. In this case, the contract entitled Deed of
Conditional Sale is actually a contract to sell. The contract
stipulated that as soon as the full consideration of the sale has
been paid by the vendee, the corresponding transfer documents
shall be executed by the vendor to the vendee for the portion
sold. Where the vendor promises to execute a deed of absolute
sale upon the completion by the vendee of the payment of the
price, the contract is only a contract to sell. The aforecited
stipulation shows that the vendors reserved title to the subject
property until full payment of the purchase price.

xxx
Unfortunately for the Spouses Pacson, since the Deed of
Conditional Sale executed in their favor was merely a contract
to sell, the obligation of the seller to sell becomes demandable
only upon the happening of the suspensive condition. The full
payment of the purchase price is the positive suspensive
condition, the failure of which is not a breach of contract, but
simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force. Thus, for its non-
fulfilment, there is no contract to speak of, the obligor having
failed to perform the suspensive condition which enforces a
juridical relation. With this circumstance, there can be no
rescission or fulfillment of an obligation that is still non-
existent, the suspensive condition not having occurred as yet.
Emphasis should be made that the breach contemplated in
Article 1191 of the New Civil Code is the obligors failure to
comply with an obligation already extant, not a failure of a
condition to render binding that obligation. [Emphasis and
underscoring supplied]”

RESCISSION IN CONTRACT TO SELL

The contract to sell is rescissible.

Article 1191 of the Civil Code provides:

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 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. x x x

As a general rule, "rescission will not be permitted for a slight or casual


breach of the contract, but only for such breaches as are substantial and
fundamental as to defeat the object of the parties in making the
agreement." (Song Fo and Company v. Hawaiian-Philippine Co., 47 Phil. 821,
827 (1925))

In Reyes v. Tuparan, G.R. No. 188064, June 1, 2011, this Court declared in
categorical terms that "[w]here the vendor promises to execute a deed
of absolute sale upon the completion by the vendee of the payment of
the price, the contract is only a contract to sell. The aforecited
stipulation shows that the vendors reserved title to the subject
property until full payment of the purchase price."

Contract to sell not rescissible

The remedy of rescission is not available in contracts to sell.44 As


explained in Spouses Santos v. Court of Appeals, 391 Phil. 739 (2000):

In view of our finding in the present case that the agreement between the
parties is a contract to sell, it follows that the appellate court erred when
it decreed that a judicial rescission of said agreement was necessary. This
is because there was no rescission to speak of in the first place. As we
earlier pointed out, in a contract to sell, title remains with the vendor and
does not pass on to the vendee until the purchase price is paid in full.
Thus, in a contract to sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is not a mere
breach, casual or serious, but a situation that prevents the obligation of
the vendor to convey title from acquiring an obligatory force. This is
entirely different from the situation in a contract of sale, where non-
payment of the price is a negative resolutory condition. The effects in
law are not identical. In a contract of sale, the vendor has lost ownership
of the thing sold and cannot recover it, unless the contract of sale is
rescinded and set aside. In a contract to sell, however, the vendor
remains the owner for as long as the vendee has not complied fully with
the condition of paying the purchase price. If the vendor should eject the
vendee for failure to meet the condition precedent, he is enforcing the
contract and not rescinding it. When the petitioners in the instant case
repossessed the disputed house and lot for failure of private respondents
to pay the purchase price in full, they were merely enforcing the contract
and not rescinding it. As petitioners correctly point out, the Court of
Appeals erred when it ruled that petitioners should have judicially
rescinded the contract pursuant to Articles 1592 and 1191 of the Civil
Code.

Similarly, we held in Chua v. Court of Appeals, 449 Phil. 25 (2003), that


"Article 1592 of the Civil Code permits the buyer to 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 notarial act.
However, Article 1592 does not apply to a contract to sell where the
seller reserves the ownership until full payment of the price.”

Similarly, the Supreme Court held in Reyes v. Tuparan, G.R. No. 188064,
June 1, 2011, that "petitioner’s obligation to sell the subject properties
becomes demandable only upon the happening of the positive
suspensive condition, which is the respondent’s full payment of the
purchase price. Without respondent’s full payment, there can be no
breach of contract to speak of because petitioner has no obligation yet
to turn over the title. Respondent’s failure to pay in full the purchase
price in full is not the breach of contract contemplated under Article 1191
of the New Civil Code but rather just an event that prevents the
petitioner from being bound to convey title to respondent.