Pingol vs. Court of Appeals

A deed of sale constitutes a contract of sale, not a contract to sell, where the instrument contains no reservation of title in the vendor until full payment of the price and no stipulation granting the vendor a unilateral right to rescind upon the buyer's default; ownership passes to the vendee upon delivery, and the vendor cannot recover title absent a judicial or notarial rescission under Article 1592 of the Civil Code. Furthermore, an action denominated as specific performance but seeking recognition of ownership over property in the vendee's possession is in substance an action to quiet title, which is imprescriptible.

Vicente Pingol owned Lot No. 3223 of the Cadastral Survey of Caloocan, a 549-square-meter parcel covered by TCT No. 7435. On 17 February 1969, he executed a deed of absolute sale over one-half of the lot in favor of Francisco N. Donasco, with the purchase price of ₱20,530.00 payable in installments over six years beginning January 1970. The deed contained no reservation of title in the vendor and no stipulation for cancellation upon default. The dispute arose after Donasco's death in 1984 left an unpaid balance on the contract price, and Pingol refused the heirs' tender of the remaining amount.

Vicente Pingol owned Lot No. 3223 of the Cadastral Survey of Caloocan, a 549-square-meter parcel located at Bagong Barrio, Caloocan City, covered by Transfer Certificate of Title No. 7435. On 17 February 1969, he executed a "Deed of Absolute Sale of One-Half (1/2) [of] an Undivided Portion of a Parcel of Land" in favor of Francisco N. Donasco, acknowledged before a notary public. The deed conveyed one-half of the lot, equivalent to 274.50 square meters, for a total consideration of ₱20,530.00. Pingol acknowledged receipt of ₱2,000.00 as advance and partial payment, leaving a balance of ₱18,530.00 to be paid in equal monthly installments of ₱257.36 over seventy-one months, with a final installment of ₱257.44 on the seventy-second month, beginning January 1970. The deed stipulated that in case of default, the unpaid installments would earn legal interest, but it contained no reservation of title in the vendor and no provision for cancellation upon default.

Pursuant to the contract, Donasco paid ₱2,000.00 to Pingol. The one-half portion, designated as Lot No. 3223-A, was segregated from the mother lot, and the parties prepared a subdivision plan that was approved by the Land Registration Commission on 13 August 1971. Donasco immediately took possession of the lot and constructed a house thereon. He began paying the monthly installments in January 1970 but was able to pay only up to 1972. At the time of his death on 13 July 1984, he had paid ₱8,369.00 plus the ₱2,000.00 advance, leaving a balance of ₱10,161.00 on the contract price. Lot No. 3223-A remained in the possession of Donasco's heirs.

On 19 October 1988, Donasco's heirs filed an action for specific performance and damages with a prayer for a writ of preliminary injunction against the spouses Pingol before the RTC of Caloocan City, docketed as Civil Case No. 13572. The heirs alleged that after their father's death they offered to pay the balance of ₱10,161.00 plus stipulated legal interest, but Pingol rebuffed their offer and demanded a bigger and unreasonable amount. They further alleged that Pingol was committing acts of forcible entry and encroachment upon their land. In their answer with counterclaim, the Pingols admitted the execution of the deed, the segregation of the portion sold, and the preparation and approval of the subdivision plan, but asserted that the cause of action had prescribed, that the deed was a conditional contract of sale, that the sale was deemed cancelled upon Donasco's breach, and that the continued occupancy by Donasco and his heirs was by mere tolerance.

The trial court dismissed the complaint on 22 January 1990, holding that the deed was a contract to sell, that it was deemed cancelled upon default, that title never passed, and that the action had prescribed. The Court of Appeals reversed on 12 November 1991, holding that the deed was an absolute sale, that failure to fully pay was not a ground for cancellation, and that the action was imprescriptible as one akin to quieting of title. The Pingols filed the present petition for review on certiorari on 9 January 1992.

• Nature of the Contract: Petitioners contended that the deed of absolute sale was a conditional deed of sale because the price was payable on installments within a fixed period, making it a contract to sell rather than a contract of sale.
• Effect of Default: Petitioners argued that Donasco's failure to complete payment by January 1976 rendered the contract cancelled, and that the heirs could no longer enforce payment more than twelve years later when they filed suit in October 1988.
• Prescription: Petitioners maintained that the private respondents' action, being based on a written contract, had prescribed under Article 1144 of the Civil Code because it was brought more than ten years from the time performance could have been lawfully demanded.
• Tolerance: Petitioners asserted that the continuous occupancy of the property by Donasco after 1976 and by his heirs thereafter was by mere tolerance, title and ownership having never passed due to non-consummation of the contract to sell.

• No Reservation of Title: Respondents argued that the deed contained no stipulation reserving title in the vendor until full payment, nor any provision for cancellation in case of default, invoking Article 1592 of the Civil Code.
• Absolute Sale: Respondents maintained that the deed was an absolute sale, as evidenced by the contemporaneous and subsequent acts of the parties — delivery of possession, construction of a house, subdivision and approval of the plan — demonstrating that the vendor recognized the vendee as owner.
• Imprescriptibility: Respondents contended that their action was in substance an action to quiet title over property in their possession, which is imprescriptible.

• Nature of the Contract: Whether the deed of absolute sale (Exhibit "A") is a contract of sale or a contract to sell.
• Effect of Non-Payment: Whether the vendor can recover title despite the absence of a judicial or notarial rescission under Article 1592 of the Civil Code.
• Prescription: Whether the heirs' action, denominated as specific performance, is barred by prescription.

• Nature of the Contract: Yes, the deed is a contract of sale. The instrument contains no reservation of title in the vendor and no unilateral right to rescind upon default; the clear tenor shows an intent to convey ownership by absolute sale.
• Effect of Non-Payment: No, the vendor cannot recover title absent rescission. Article 1592 requires a judicial or notarial demand for rescission before the vendee loses the right to pay; Pingol failed to prove any such demand was made.
• Prescription: No, the action is not barred. The action, though denominated as specific performance, is in substance an action to quiet title over property in the respondents' possession, which is imprescriptible.

• Nature of the Contract: The distinction between a contract of sale and a contract to sell is decisive: in a contract of sale, title passes to the vendee upon delivery, whereas in a contract to sell, ownership is retained by the vendor until full payment, with payment functioning as a positive suspensive condition. A perusal of Exhibit "A" reveals that Pingol sold, conveyed, and transferred the one-half portion by absolute sale without reserving title. The deed contains no stipulation that title remains with the vendor until full payment, nor any clause granting the vendor a unilateral right to rescind upon default — the only default provision being that unpaid installments shall earn legal interest. In Dignos vs. Court of Appeals, the Court held that a deed is absolute in nature where there is no reservation of title and no unilateral rescission clause. The contemporaneous and subsequent acts of the parties — delivery of actual and constructive possession, construction of a house, preparation and approval of a subdivision plan, and continuous possession by Donasco and his heirs — further confirm that an absolute sale was intended. Constructive delivery was effected upon execution of the deed under Article 1498 of the Civil Code, and actual delivery occurred when Donasco took possession and built a house. Ownership thus passed to Donasco upon delivery.

• Effect of Non-Payment: Because the contract is one of sale, ownership passed to Donasco upon delivery, divesting Pingol of title. Pingol could recover ownership only through rescission under Article 1592, which provides that even if the contract stipulates automatic rescission upon non-payment, the vendee may pay even after the period expires as long as no demand for rescission has been made judicially or by notarial act. Neither the trial court nor the Court of Appeals found that any judicial or notarial rescission had been effected. Pingol's assertion that he verbally declared the contract cancelled was insufficient; he did not prove that his demand was made either judicially or by a notarial act. The heirs' tender of payment was therefore valid and Pingol was obligated to accept it.

• Prescription: Although the complaint was denominated as one for specific performance, its real and ultimate basis was the respondents' ownership of and possession over the property, which entitled them to a conveyance. Citing Bucton vs. Gabar and Sapto vs. Fabiana, the Court explained that where possession of the land sold has consummated the sale and transferred title to the purchaser, an action for conveyance is in substance an action to quiet title — to remove the cloud on ownership caused by the vendor's refusal to recognize the sale. A cloud had been cast on the respondents' title by Pingol's adamant refusal to accept their tender of payment and his insistence that his obligation to transfer title had been rendered ineffective. An equitable title is sufficient to clothe a vendee with personality to bring an action to quiet title. Prescription cannot be invoked against an action to quiet title to property in one's possession, as possession is a continuing right and a cloud on title is treated as a continuing nuisance or trespass, not barred until continued without interruption for a period sufficient to effect a change of title as a matter of law.

• Contract of Sale vs. Contract to Sell — In a contract of sale, title passes to the vendee upon delivery of the thing sold; in a contract to sell, ownership is reserved in the vendor and does not pass until full payment of the price, with full payment being a positive suspensive condition whose failure is not a breach but an event preventing the vendor's obligation to convey title from becoming effective. The presence or absence of a reservation of title and a unilateral rescission clause is the controlling factor. Where the deed contains neither, it is a contract of sale notwithstanding installment payments.

• Article 1592, Civil Code — Rescission of Sale of Immovable Property — Even when the contract stipulates that rescission shall of right take place upon failure to pay the price, the vendee may pay even after the expiration of the period, as long as no demand for rescission has been made upon him either judicially or by a notarial act. After such demand, the court may not grant a new term. A mere verbal declaration of cancellation is insufficient.

• Action to Quiet Title is Imprescriptible — An owner of real property in possession has a continuing right to invoke a court of equity to remove a cloud on title, which is treated as a continuing nuisance or trespass. Prescription does not run against an action to quiet title to property in one's possession. An action denominated as specific performance but rooted in ownership and possession is in substance an action to quiet title.

• "The distinction between the two is important for in a contract of sale, the title passes to the vendee upon the delivery of the thing sold, whereas in a contract to sell, by agreement, ownership is reserved in the vendor and is not to pass until the full payment of the price." — This passage states the canonical distinction between a contract of sale and a contract to sell, which is the decisive issue and ratio decidendi of the case.

• "In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may 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 a notarial act." — This is the text of Article 1592 of the Civil Code as quoted in the decision, establishing the requirement of judicial or notarial rescission before a vendee loses the right to pay.

• "Prescription thus cannot be invoked against the private respondents for it is aphoristic that an action to quiet title to property in one's possession is imprescriptible." — This sentence articulates the doctrine of imprescriptibility of actions to quiet title, the basis for the Court's rejection of the prescription defense.

• Dignos vs. Court of Appeals, 158 SCRA 375 (1988) — Controlling precedent followed; held that a deed of sale is absolute in nature where there is no reservation of title in the seller and no unilateral rescission clause, even if denominated a "Deed of Conditional Sale."
• Bucton vs. Gabar, 55 SCRA 499 (1974) — Followed; established that where possession of land sold has consummated the sale and transferred title, an action for conveyance is in substance an action to quiet title, and the vendee's equitable title is sufficient to bring such action.
• Sapto vs. Fabiana, 103 Phil. 683 (1958) — Followed; explained that delivery of possession consummates the sale and transfers title, making the action for conveyance one to quiet title rather than enforcement of contract.
• Lim vs. Court of Appeals, 182 SCRA 564 (1990) — Cited for the distinction between contract of sale and contract to sell.
• Gallar vs. Husain, 20 SCRA 186 (1967) — Cited in support of the quiet title doctrine.

• Article 1592, Civil Code — Governs rescission of sales of immovable property; requires a judicial or notarial demand for rescission before the vendee loses the right to pay the price even after the stipulated period. Applied to hold that Pingol's verbal cancellation was insufficient and the heirs' tender of payment remained valid.
• Article 1498, Civil Code — Provides that constructive delivery of the thing sold is effected by the execution of the deed of sale. Applied to hold that constructive delivery was made upon execution of the deed, transferring ownership to Donasco.
• Article 1144, Civil Code — Prescribes a ten-year period for actions upon a written contract. Petitioners invoked it, but the Court held it inapplicable because the action was in substance one to quiet title, which is imprescriptible.

Cruz, Griño-Aquino, Bellosillo, and Quiason, JJ., concurred.