Santos vs. Court of Appeals

In a contract to sell, where ownership is reserved by the vendor until full payment of the purchase price, the vendor's repossession of the property upon the vendee's failure to pay is an enforcement of the contract and not a rescission; consequently, judicial rescission under Article 1592 or 1191 of the Civil Code is not required.

Spouses Fortunato and Rosalinda Santos owned a mortgaged house and lot in Parañaque. In 1984, facing a bank demand for unpaid interest, Rosalinda offered to sell the property to Carmen Caseda, a friend and market vendor. They signed an informal receipt for partial payment, with the Casedas agreeing to pay the mortgage balance, real estate taxes, utilities, and the remaining cash price by the loan's maturity date in 1987.

• Ownership and Mortgage: The Santoses owned a 350-square meter house and lot in Better Living Subdivision, Parañaque, covered by TCT No. 28005 (S-11029). The property was mortgaged to the Rural Bank of Salinas, Inc. to secure a P150,000.00 loan maturing on June 16, 1987.
• The Agreement: In June 1984, after the bank demanded unpaid interest, Rosalinda Santos offered the property to Carmen Caseda. They signed an unofficial receipt acknowledging P54,100.00 as partial payment of the P350,000.00 price. The parties further agreed that the Casedas would pay the P135,385.18 mortgage balance, real estate taxes, electric and water bills, and the remaining cash price not later than June 16, 1987.
• Partial Compliance and Default: The Casedas gave the initial payment, took possession of the property, leased it out, and paid P81,696.84 of the mortgage loan. However, the Casedas suffered bankruptcy in 1987 and failed to pay the remaining balance. Carmen Caseda later paid real estate taxes for 1981-1984 in March 1990 and electric bills from December 1988 to July 1989, settling these in Rosalinda Santos's name.
• Repossession and Subsequent Offer: In January 1989, observing the Casedas' inability to pay, the Santoses repossessed the property and collected the rentals from the tenants. In February 1989, after selling a fishpond, Carmen offered to pay the balance. The Santoses refused, demanding a higher price due to a real estate boom that had increased property values. The Casedas subsequently filed a complaint for specific performance.
• Trial Court Findings: The RTC found the total purchase price was P485,385.18, of which the Casedas paid only P135,794.64. The trial court dismissed the complaint, holding the Casedas could not demand specific performance because they were short of the purchase price. The RTC offset the P135,794.64 against P110,000.00 in reasonable rentals for the 55 months the Casedas possessed the property, and denied reimbursement of the remaining P25,794.64 because the Casedas' failure to liquidate the loan on time caused the mortgage to balloon, justifying the retention of the amount as damages.

• Petitioners maintained that the Court of Appeals lacked jurisdiction because the appeal raised pure questions of law, which are not reviewable by the appellate court under Supreme Court Circular No. 2-90.
• Petitioners argued that the transaction was a contract to sell, not an absolute sale, because ownership was not transferred simultaneously with delivery, pending fulfillment of the suspensive conditions of full payment of the price and loan amortizations.
• Petitioners contended that, assuming judicial rescission was required, their demand and prayer for rescission in their Answer filed before the trial court satisfied the requirement.
• Petitioners asserted that the Casedas' non-payment of more than half the purchase price and failure to liquidate the mortgage on time constituted substantial breach justifying rescission under Article 1191 of the Civil Code.

• Respondents insisted that the agreement was a perfected contract of sale. They argued that upon partial payment, they immediately took possession of the property as vendees and leased it, thereby exercising rights of ownership, which demonstrated that the transfer of ownership was simultaneous with the delivery of the realty sold.

• Procedural Issues:
  • Whether the Court of Appeals had jurisdiction over the appeal interposing purely questions of law.
• Substantive Issues:
  • Whether the subject transaction is a contract of absolute sale or a mere contract to sell.
  • Whether judicial rescission under Art. 1592 is required if the transaction is a contract to sell, and if so, whether the petitioners' prayer in their Answer satisfied this requirement.
  • Whether the non-payment of the purchase price and failure to liquidate the mortgage constitute substantial breach justifying rescission under Art. 1191.

• Procedural: The Court ruled that the Court of Appeals had jurisdiction. The appeal involved questions of fact because the respondents' first assignment of error before the CA dealt with the trial court's finding regarding the Santoses' repossession, which required an evaluation of proof. Furthermore, the petitioners actively participated in the CA proceedings without raising the issue of jurisdiction and are estopped from attacking the court's jurisdiction after an adverse decision was rendered.
• Substantive: The Court held that the agreement was a contract to sell. Ownership was never transferred; title remained in the name of Rosalinda Santos, and the mortgage payments made by the Casedas were applied to the loan account of the Santoses. In a contract to sell, full payment is a positive suspensive condition. Failure to pay prevents the vendor's obligation to convey title from acquiring obligatory force. Therefore, the Santoses' repossession was an enforcement of the contract, not a rescission. Articles 1592 and 1191 do not apply to contracts to sell. The issue of substantial breach under Art. 1191 was declared moot.

• Contract to Sell vs. Contract of Sale — In a contract of sale, ownership passes to the vendee upon delivery, and non-payment is a negative resolutory condition requiring rescission to recover ownership. In a contract to sell, ownership is reserved by the vendor until full payment of the purchase price, which acts as a positive suspensive condition. Failure to pay is not a mere breach but an event that prevents the obligation to convey title from arising; the vendor's repossession is an enforcement of the contract, not a rescission.
• Inapplicability of Art. 1592 to Contracts to Sell — Article 1592 of the Civil Code, which requires judicial or notarial demand for rescission in the sale of immovable property, applies only to contracts of sale where non-payment is a resolutory condition. It does not apply to contracts to sell where title remains with the vendor until full payment.

• "In contracts to sell, ownership is reserved by the vendor and is not to pass until full payment of the purchase price... Thus, in 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."
• "If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it."

• Manuel v. Rodriguez, 109 Phil. 1 (1960) — Cited for the proposition that Art. 1592 is inapplicable to a contract to sell.
• Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972) — Followed; held that Art. 1592 does not apply to a contract to sell.
• Ong v. Court of Appeals, 310 SCRA 1 (1999) — Cited for the principle that in a contract to sell, full payment is a positive suspensive condition and failure to pay prevents the vendor's obligation to convey from arising.
• Tijam v. Sibonghanoy, 23 SCRA 29 (1968) — Followed; held that a party actively participating in proceedings cannot later attack the court's jurisdiction after an adverse decision.

• Art. 1458, Civil Code — Defines contract of sale, obligating the vendor to transfer ownership. The Court used this to distinguish a contract of sale from a contract to sell, noting the absence of ownership transfer in the latter.
• Art. 1191, Civil Code — Provides the power to rescind reciprocal obligations. The Court ruled this is subordinated to Art. 1592 for immovable property and inapplicable to contracts to sell where no rescission is necessary.
• Art. 1592, Civil Code — Requires judicial or notarial demand for rescission in sales of immovable property. The Court held this applies only to contracts of sale (resolutory condition) and not to contracts to sell (suspensive condition).

Mendoza, Buena, and De Leon, Jr., JJ.