Babasa vs. Court of Appeals

A contract denominated as a "conditional sale" is an absolute sale absent a stipulation reserving title in the vendor until full payment or granting the vendor the right to unilaterally rescind; failure to comply with a condition imposed merely on the performance of an obligation gives the other party the option to refuse to proceed or waive the condition. The Court ruled that because the contract contained no reservation of title, ownership passed to the vendee upon delivery, and the stipulated 20-month period for delivering clean titles was a condition for the performance of the vendors' obligation, not a resolutory condition for the contract's extinguishment.

Spouses Vivencio and Elena Babasa owned three parcels of land in Batangas City, though titles were still in the names of third parties who had executed deeds of reconveyance in the Babasas' favor. Tabangao Realty, Inc., the real estate arm of Shell Gas Philippines, Inc., sought to acquire the lots. On April 11, 1981, the parties executed a contract denominated "Conditional Sale of Registered Lands," stipulating a purchase price of P2,121,920.00, with P300,000.00 payable upon signing and the P1,821,920.00 balance payable upon the Babasas' delivery of clean titles within 20 months. Tabangao took possession and leased the lots to Shell, which constructed an LPG terminal. When the Babasas failed to secure clean titles within the stipulated period and requested an indefinite extension, Tabangao refused, prompting the Babasas to unilaterally rescind the contract.

• The Contract: On April 11, 1981, the Babasas and Tabangao executed a "Conditional Sale of Registered Lands" over three lots. The total purchase price was P2,121,920.00, with P300,000.00 payable upon signing and P1,821,920.00 payable upon delivery of clean titles within 20 months. The retained balance earned 17% annual interest payable monthly. Tabangao was granted absolute and unconditional possession.
• Subsequent Transactions: On May 18, 1981, Tabangao leased the lots to Shell Gas Philippines, Inc., which constructed an LPG terminal. Tabangao paid the downpayment, disturbance compensation to tenants, and monthly interest.
• Expiration of Period: Two days before the 20-month period expired, the Babasas requested an indefinite extension to deliver clean titles and continuation of interest payments. Tabangao refused.
• Unilateral Rescission: On February 28, 1983, the Babasas executed a notarized unilateral rescission of the contract and demanded Shell vacate the premises.
• Lower Court Proceedings: Tabangao filed specific performance. The RTC declared the rescission void, ordered the Babasas to deliver clean titles, and ordered Tabangao to pay the balance with 17% interest from January 1983. The CA affirmed but modified the interest to commence from the filing of the complaint on July 19, 1983.

• Petitioners maintained that the contract was one of lease, not of sale, because the word "ownership" was never mentioned therein.
• Petitioners argued that even if it were a sale, it was conditional, and its efficacy was extinguished upon the non-happening of the condition—specifically, the non-delivery of clean titles within 20 months through no fault of their own.
• Petitioners claimed they never intended to sell their ancestral lots but were forced to do so under the threat of expropriation by the government, vitiating their consent.

• Respondents contended that the contract was an absolute sale, as evidenced by its terms denoting a purchase price, vendors and vendee, capital gains tax, and a final deed of absolute sale.
• Respondents argued that the 20-month period was merely a condition for the performance of the obligation to deliver titles, and the Babasas' failure to comply gave Tabangao the option to waive the condition, not the Babasas the right to unilaterally rescind.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the contract of April 11, 1981, was one of lease or absolute sale.
  • Whether the contract was extinguished upon the expiration of the 20-month period without the delivery of clean titles, entitling the vendors to unilaterally rescind the contract.

• Procedural: N/A
• Substantive:
  • The Court held that the contract was one of absolute sale. The terms explicitly indicated a sale, and the Babasas' claim of lease was negated by the clear stipulations and their counsel's involvement in the execution. A threat of eminent domain proceedings does not vitiate consent as it is not a wrongful injury.
  • The Court held that the contract was not extinguished by the lapse of the 20-month period. Distinguishing between a condition for the perfection of a contract and a condition for the performance of an obligation, the Court ruled that the 20-month period was a condition for the performance of the Babasas' obligation to deliver clean titles. Under Article 1545 of the Civil Code, the failure to comply with such a condition merely gives the other party (Tabangao) the option to refuse to proceed or waive the condition. The Babasas could not unilaterally rescind the contract based on their own failure to comply with the stipulated period.

• Nature of Absolute Sale — A deed of sale is absolute in nature although denominated a "conditional sale" if there is no proviso reserving title in the vendor until full payment, nor any stipulation giving the vendor the right to unilaterally rescind the contract in case of non-payment. In such cases, ownership passes to the vendee upon constructive or actual delivery.
• Condition on Perfection vs. Condition on Performance — Failure to comply with a condition imposed on the perfection of a contract results in the failure of the contract. However, failure to comply with a condition imposed merely on the performance of an obligation gives the other party the option to either refuse to proceed with the sale or to waive the condition pursuant to Article 1545 of the Civil Code.

• "A deed of sale is absolute in nature although denominated a 'conditional sale' absent such stipulations." — Establishes the determining factor for whether a sale is conditional or absolute based on the presence of a reservation of title or right to rescind.
• "Here, a perfected contract of absolute sale exists between the BABASAS and TABANGAO when they agreed on the sale of a determinate subject matter... and the price certain therefor without any condition or reservation of title on the part of the BABASAS. However, the obligation of TABANGAO as vendee to pay the full amount of the purchase price was made subject to the condition that petitioners first deliver the clean titles over the lots within twenty (20) months from the signing of the contract... the failure of petitioners to deliver clean titles within twenty (20) months from the signing of the contract merely gives TABANGAO the option to either refuse to proceed with the sale or to waive the condition in consonance with Art. 1545 of the New Civil Code." — Articulates the distinction between conditions for perfection and conditions for performance, and the remedies available to the parties under Art. 1545.

• Romero v. Court of Appeals, G.R. No. 107207, 23 November 1995 — Followed. Distinguished between a condition imposed on the perfection of a contract and a condition imposed on the performance of an obligation.
• Lim v. Court of Appeals, G.R. No. 118347, 24 October 1996 — Followed. Applied the same distinction as Romero regarding conditions of perfection versus performance.
• Dignos v. Court of Appeals, G.R. No. 59266, 29 February 1988 — Followed. Held that a deed of sale is absolute absent a stipulation reserving title or granting the right to unilaterally rescind.

• Article 1477, Civil Code — Provides that ownership of the thing sold passes to the vendee upon constructive or actual delivery. The Court applied this to hold that ownership passed to Tabangao upon execution of the contract and taking of possession, as there was no reservation of title by the Babasas.
• Article 1545, Civil Code — Provides that where the obligation of either party to a contract of sale is subject to a condition which is not performed, such party may refuse to proceed with the contract or waive performance of the condition. The Court applied this to hold that Tabangao had the option to waive the condition of delivering clean titles within 20 months, and the Babasas could not rescind based on their own failure.

Davide, Jr., Vitug, Panganiban, Quisumbing, JJ.