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Contract to Sell

Luzon Development Bank vs. Angeles Catherine Enriquez G.R. No. 168646 January 12, 2011 DELTA Development and Management Services, Inc. vs. Angeles Catherine Enriquez and Luzon Development Bank G.R. No. 168666 January 12, 2011 Ricardo De Leon and his spouse obtained a loan of 4, 000, 000 from Luzon Development Bank (LDB) to develop Delta Development and Management Services, Inc. (DELTA) Homes I. They executed a real estate mortgage over several of their property, including Lot 4 owned by Ricardo. Later, the mortgage was amended by increasing the loan to 8, 000, 000. The Real Estate Mortgage and the amendment were annotated on TCT No. T 637183. DELTA executed a Contract to Sell with Angeles Catherine Enriquez (Enriquez) over Lot no. 4 for 614, 950. He made a downpayment of 114, 590. The Contract to Sell provides that the failure to pay 3 successive monthly installments, gives the owner the power to consider the Contract to Sell as void. Paid installments are forfeited in favor of the owner as liquidated damages and to cover documentation expenses. DELTA defaulted on its loan to LDB. DELTA satisfied the loan by dation in payment. It signed a deed of assignment over several properties, including Lot no. 4. The dation in payment was not annotated on the TCT of Lot no. 4. Enriquez filed a complaint against DELTA with the Housing and Land Use Regulatory Board (HLURB) for violating the terms of its License to sell by: 1.) selling houses below the price prescribed by BP 220. 2.) failing to get clearance for the mortgage from the HLURB Enriquez sought a full refund of 301, 063 that she had already paid to DELTA plus damages and administrative fines against the LDB and DELTA. Issue: Whether or not a Contract to Sell conveys ownership over the Lot Held: The Supreme Court held that a contract to sell does not transfer ownership.A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. In this case, Enriquez has not fully paid the purchase price of the Lot. She does not own the Lot. Therefore, DELTA's transfer of ownership over the lot to LDB is valid. However, LDB is bound to respect the contract to sell with Enriquez. PD 957 provides thata contracts to sell registered by the seller with the Register of Deeds is binding on third persons. While this particular contract was not registed with the Register of Deeds by DELTA, this does not prejudice Enriquez or extinguish LDB's obligation to respect the Contract to Sell. LDB cannot claim to be an

innocent purchaser as the Lot was clearly marked to be a part of the subdivision project of Delta. While the general rule is that persons dealing with registered property can rely on just the certificate of title, banks are covered by a special rule. Banks should know that there is a risk in this dealing with this type of business because they might be covered by existing contracts to sell Finally, as to the effect of the dation in payment on the loan. While the lot would have no value to the Bank if it is delivered to Enriquez, the intent of the parties show that the dation was meant to extinguish the obligation fully, not just to the extent of the value of the thing delivered. Note: The Court also found that the mortgage over the Lot was void because DELTA did not acquire prior clearance from HLURB