Cruz vs. Fernando

A contract lacking a definite agreement on the manner of payment of the purchase price constitutes a contract to sell rather than a perfected contract of sale; failure to fulfill the suspensive conditions therein prevents the obligation to transfer ownership from arising, rendering judicial rescission unnecessary and precluding the prospective buyer from asserting superior right of possession.

Spouses Cruz occupied the front portion of a 710-square meter property in Baliuag, Bulacan, through the tolerance of the previous owners, who were their relatives. In 1983, the Cruzes and the then-owners, the Gloriosos, executed a Kasunduan before the Barangay Captain for the sale of a 213-square meter rear portion of the property at ₱40.00 per square meter. The Cruzes neither paid the purchase price nor relocated their house to the rear portion by the January 31, 1984 deadline stipulated in the agreement. The Gloriosos subsequently sold the entire property to the Fernandos in 1987, prompting the latter to demand that the Cruzes vacate the premises.

• The Property and Occupants: Spouses Cruz occupied the front portion of a 710-square meter property located in Sto. Cristo, Baliuag, Bulacan. Their possession originated from the permission and kindness of the previous owner, Pedro Hipolito, a relative, and subsequently, Teresita Glorioso, also a relative.
• The Kasunduan: On August 6, 1983, the Gloriosos and the Cruzes executed a Kasunduan before the Barangay Captain. The agreement stipulated that the Gloriosos agreed to sell ("pagbilhan") a 213-square meter portion of the property at ₱40.00 per square meter. A 10-square meter area was allotted for a right of way from the road to the rear of the lot. The Cruzes were expressly required to relocate their house to the portion they "bought or will buy" ("nabili o mabibili") by January 31, 1984. Survey and titling expenses were to be shared, with each party giving at least ₱400.00.
• Non-Compliance: The Cruzes did not pay the purchase price, asserting that no survey had been made. However, evidence showed that a survey subdividing the property into front and rear portions was completed as early as August 12, 1983. The Cruzes dismissed this as a "table survey" made without their participation, though the Kasunduan did not make the survey a condition precedent for payment. Furthermore, the Cruzes failed to relocate to the rear portion, remaining on the front portion of the lot.
• Subsequent Sale: Due to the Cruzes' failure to exercise their option, the Gloriosos sold the entire property to Spouses Fernando per Deed of Sale dated March 9, 1987.
• Demand to Vacate: The Fernandos demanded that the Cruzes vacate the premises, but the latter refused, claiming a prior right based on the Kasunduan.

• Nature of the Contract: Petitioners maintained that the Kasunduan was a perfected contract of sale, rendering their failure to pay the purchase price immaterial to the existence of the contract.
• Remedy of the Vendor: Petitioners argued that because the agreement did not fix a period for payment, no breach occurred; the Gloriosos' proper remedy was to seek judicial fixation of the period, not for the Fernandos to file an accion publiciana.
• Delivery of the Rear Portion: Petitioners contended that, assuming the trial court was correct that the rear portion was the subject of the sale, the Court should have ordered the delivery of the rear portion upon payment of the price.
• Good Faith Possession: Petitioners asserted that as possessors in good faith, they should not be ordered to pay rentals for the occupied portion.
• Bad Faith of Respondents: Petitioners claimed the Fernandos were buyers in bad faith because they purchased the property with full knowledge of the prior Kasunduan.
• Compensation for Improvements: Petitioners sought compensation for the value of improvements introduced on the property.

• Contract to Sell: Respondents countered that the Kasunduan was a mere offer to sell or contract to sell, and due to the petitioners' failure to pay the purchase price, the Gloriosos were never obliged to deliver the property.
• Right to Recover: Respondents asserted that as the registered owners, they possessed the right to recover physical possession of the property from occupants who lacked any title or contract of lease.

• Nature of the Contract: Whether the Kasunduan constitutes a perfected contract of sale or a mere contract to sell.
• Remedy of the Vendor: Whether the proper remedy was to ask the court to fix the period for payment of the price instead of filing an accion publiciana.
• Delivery of the Rear Portion: Whether the petitioners are entitled to the delivery of the rear portion of the lot upon payment of the agreed price.
• Good Faith Possession and Rentals: Whether the petitioners, as alleged possessors in good faith, are liable to pay rentals for the property they occupy.
• Bad Faith of Respondents: Whether the respondents are buyers in bad faith for purchasing the property despite knowledge of the prior Kasunduan.

• Nature of the Contract: The Kasunduan was construed as a contract to sell, not a perfected contract of sale. The conspicuous absence of a definite agreement on the manner of payment of the purchase price—an essential element for a valid and binding contract of sale—confirms this classification. Furthermore, the language of the agreement, specifically the use of "pagbilhan" (agreed to sell) and "mabibili" (will buy), indicates that the sale was yet to be consummated and ownership was reserved by the vendor. The absence of a formal deed of conveyance further supports the lack of intent for immediate transfer of ownership.
• Remedy of the Vendor: The argument that the vendors should have sought judicial fixation of the period for payment was barred for being raised for the first time on appeal. Moreover, the respondents lacked standing to seek such recourse as they were not parties to the Kasunduan. Judicial rescission was also deemed unnecessary because the obligation of the Gloriosos to transfer the property never arose; the suspensive conditions—payment of the price and relocation by January 31, 1984—were not fulfilled, rendering the contract to sell ineffective and unperfected.
• Delivery of the Rear Portion: No obligation to deliver the rear portion arose because the petitioners failed to comply with the express suspensive conditions of the Kasunduan. Non-fulfillment of these conditions prevented the contract from acquiring obligatory force.
• Good Faith Possession and Rentals: The petitioners' possession was based merely on the tolerance of the previous owners, not on a valid contract of sale or lease. Possession by tolerance binds the occupant to an implied promise to vacate upon demand and cannot ripen into ownership. Because their continued possession became unlawful upon demand, the imposition of reasonable rental at ₱500.00 per month from the filing of the complaint was proper.
• Bad Faith of Respondents: The respondents were not buyers in bad faith. In a contract to sell, there being no previous sale of the property, a third person buying such property cannot be deemed a buyer in bad faith, and the prospective buyer cannot seek reconveyance. There is no double sale in such a case, and title passes to the buyer upon registration.

• Contract to Sell vs. Contract of Sale — In a contract of sale, title passes to the vendee upon delivery, and the vendor loses ownership unless the contract is rescinded. In a contract to sell, ownership is retained by the vendor and does not pass until full payment of the purchase price, which operates as a positive suspensive condition. The absence of a definite agreement on the manner of payment of the price indicates a contract to sell.
• Tolerated Possession — A person who occupies the land of another at the latter's forbearance or permission without any contract is bound by an implied promise to vacate upon demand. Such possession, being merely tolerated, cannot ripen into ownership or bar an action to recover possession.
• Bad Faith in Contract to Sell — In a contract to sell, because there is no prior sale, a third party who purchases the property cannot be deemed a buyer in bad faith, even with knowledge of the prior agreement, because there is no double sale. The prospective buyer's remedy is an action for damages against the seller.

• "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."
• "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."

• Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995 — Followed. A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale.
• Coronel vs. Court of Appeals — Followed. A third person buying property subject to an unfulfilled contract to sell cannot be deemed a buyer in bad faith; there is no double sale.
• Chua vs. Court of Appeals, G.R. No. 119255, April 9, 2003 — Followed. The absence of any formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership.
• Padilla vs. Paredes, G.R. No. 124874, March 17, 2000 — Followed. There can be no rescission of an obligation that is nonexistent, considering that the suspensive conditions therefor have not yet happened.

• Article 1458, Civil Code — Defines a contract of sale as one where a party obligates himself to transfer ownership and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Applied to distinguish the Kasunduan from a perfected sale.
• Article 1475, Civil Code — Provides that a contract of sale is perfected at the moment there is a meeting of the minds upon the object and upon the price. Applied to emphasize that meeting of minds on the manner of payment is likewise required for a valid sale.

Reynato S. Puno, Romeo J. Callejo, Sr., Dante O. Tinga, Minita V. Chico-Nazario