Valdez vs. Lagon

A contract of sale executed by an agent beyond the scope of their authority is ratified from the moment of its commencement when the principal accepts partial payment, and the buyer cannot invoke Article 1186 to deem a suspensive condition fulfilled when the failure to comply is caused by the buyer's own refusal to pay the purchase price.

Carlos Valdez, Sr. and Josefina de Leon Valdez owned a parcel of land in Isulan, Sultan Kudarat. After Carlos Sr.'s death, Josefina subdivided the property. To enhance its value, she authorized her son, Carlos Jr., to sell a portion to Jose Lagon, a businessman, with the condition that Lagon transfer his Rural Bank to the property and construct a commercial building.

• The Property and the SPA: Josefina owned a parcel of land. She executed a Special Power of Attorney (SPA) authorizing her son Carlos Jr. to sell a 4,094 sq m portion to Lagon for cash, imposing the condition that Lagon transfer the Rural Bank of Isulan to the lot and construct a commercial building.
• The Deed of Absolute Sale: Carlos Jr. executed a Deed of Absolute Sale in favor of Lagon but failed to incorporate the conditions from the SPA. The deed falsely stated the price was ₱80,000 cash and paid, when the actual price was ₱163,760 and unpaid.
• Partial Payment and the Affidavit: Lagon issued checks totaling ₱90,076 as partial payment, which Josefina acknowledged through Carlos Jr., leaving a balance of ₱61,880. Lagon executed an Affidavit undertaking to commercialize the property within five years (by May 9, 1984), stipulating that failure to do so would render the deed null and void without need of demand.
• Breach and Subsequent Disposition: Lagon failed to pay the balance, construct the building, or transfer the bank. Josefina refused to deliver the Torrens title. She subsequently sold portions of the property to PCIB and another individual, and mortgaged another portion.
• Lagon's Justification: Lagon claimed that his consent to the PCIB construction on a portion of the lot constituted substantial compliance with the commercialization condition, and that Josefina's refusal to deliver the title prevented him from securing a building permit.

• Nature of the Contract: Petitioners argued that the contract was a contract to sell, not a contract of sale, because of the suspensive conditions agreed upon.
• Integrality of Documents: Petitioners maintained that the SPA and Lagon's Affidavit formed integral parts of the Deed of Absolute Sale, embodying the true intention of the parties.
• Right to Rescind: Petitioners contended that they had the right to rescind the contract due to Lagon's failure to comply with the conditions, and that Article 1592 of the Civil Code does not apply to contracts to sell.
• Fault of Respondent: Petitioners insisted that the Court of Appeals erred in declaring the conditions deemed fulfilled, asserting that Lagon's failure to commercialize was his own fault.

• Nature of the Contract: Respondent countered that a deed of absolute sale was executed, transferring title and possession under Articles 1477 and 1498 of the Civil Code.
• Substantial Compliance: Respondent argued that his consent to the PCIB sale and construction constituted substantial compliance with the commercialization condition.
• Justified Non-Payment: Respondent maintained that his refusal to pay the balance was justified because Josefina's refusal to deliver the title made it impossible to determine the metes and bounds and secure a building permit.
• Deemed Fulfilled: Respondent asserted that under Article 1186 of the Civil Code, the conditions of the sale were deemed fulfilled because Josefina failed to deliver the Torrens title.

• Nature of the Contract: Whether the contract between the parties, subject to the suspensive conditions agreed upon, was a contract to sell or a contract of sale.
• Right to Rescind: Whether the petitioners had the right to rescind their contract with the respondent.
• Entitlement to Specific Performance: Whether the respondent is entitled to specific performance and damages considering his failure to comply with the suspensive conditions agreed upon.

• Nature of the Contract: The contract was a contract of sale, not a contract to sell. The deed explicitly sold and delivered the property without reserving title or a right to unilaterally rescind. However, the deed was initially unenforceable because Carlos Jr. acted beyond his SPA authority by misstating the price and omitting the conditions. The contract was ratified when Josefina accepted partial payments, cleansing the defect retroactively to the date of execution. The SPA and Affidavit were considered integral parts of the transaction, establishing the commercialization condition as part of the consideration.
• Right to Rescind: Petitioners were justified in refusing to deliver the title because Lagon refused to pay the balance. The agreement in the Affidavit that the sale would be void without demand upon failure to commercialize was valid and binding. Article 1592 was inapplicable because the rescission was not unilateral but based on the parties' express agreement that the contract would be void upon failure of the condition.
• Entitlement to Specific Performance: Respondent was not entitled to specific performance. The failure to commercialize was due to his own fault in refusing to pay the balance, which justified Josefina's refusal to deliver the title. Article 1186 could not be invoked because the obligor did not prevent the fulfillment of the condition; rather, the failure was self-inflicted. Lagon's claim of substantial compliance via the PCIB sale was rejected because Carlos Jr. had no authority to bind Josefina to such an agreement.

• Ratification of Unenforceable Contracts — Ratification cleanses the contract from all its defects from the moment it was constituted. Acceptance of partial payment by the principal ratifies an agent's act done beyond their authority, making the contract enforceable retroactively.
• Contract of Sale vs. Contract to Sell — A contract is one of sale if there is no stipulation reserving title over the property to the vendee until full payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case of non-payment. In a contract of sale, non-payment is a resolutory condition; in a contract to sell, full payment is a positive suspensive condition.
• Article 1186, Civil Code — The condition is not deemed fulfilled when the failure to comply is due to the obligor's own fault or refusal to perform their prior obligation.
• Presumption of Conjugal Property — The presumption under Article 160 of the Civil Code that property acquired during marriage is conjugal does not apply where there is no showing as to when the property was acquired. Property registered only in the name of one spouse, without proof of time of acquisition, indicates exclusive ownership.

• "A contract is one of sale, absent any stipulation therein reserving title over the property to the vendee until full payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case of non-payment."
• "Ratification cleanses the contract from all its defects from the moment it was constituted."
• "There was no need for petitioner Josefina to make a notarized demand to the respondent or file an action to rescind the deed of absolute sale to enable her to recover the ownership of the property. This is so because the petitioner and the respondent had agreed that upon the latter’s failure... the deed of absolute sale would be deemed null and void without need of any demand..."

• Cuenca v. Cuenca, 168 SCRA 335 (1988) — Followed. Issuance of title in the name of one spouse is not determinative of the conjugal nature of the property.
• Babasa v. Court of Appeals, 290 SCRA 532 (1998) — Followed. Distinguishing contract of sale from contract to sell; constructive delivery passes title.
• Salazar v. Court of Appeals, 258 SCRA 317 (1996) — Followed. Definition of contract to sell where payment is a positive suspensive condition.
• Tang Ah Chan v. Gonzales, 52 Phil. 180 (1928) — Followed. Ratification prevents the maintenance of an action to annul based on defects relating to original validity.
• Francisco v. GSIS, 7 SCRA 586 (1963) — Followed. Ratification by acceptance of partial payment.

• Article 160, Civil Code — Presumption that property acquired during marriage is conjugal. Held inapplicable because there was no showing of when the property was acquired.
• Article 1317, Civil Code — Contracts entered into by agents acting beyond their powers are unenforceable unless ratified. Applied to the agent's execution of the deed without the required conditions.
• Article 1396, Civil Code — Ratification cleanses the contract from all its defects from the moment it was constituted. Applied when the principal accepted partial payments.
• Article 1398, Civil Code — An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract. Applied to order the refund of partial payments.
• Article 1477, Civil Code — Title passes to the vendee upon constructive or actual delivery. Applied to confirm the nature of the contract as a sale.
• Article 1186, Civil Code — Conditions are deemed fulfilled when the obligor prevents fulfillment. Held inapplicable because the seller's refusal to deliver the title was justified by the buyer's prior non-payment.
• Article 1540, Civil Code — Rescission of sale of immovable by notarial deed or judicial action. Held inapplicable due to the express agreement making the sale void upon failure of condition.
• Article 1592, Civil Code — Rescission of sale of immovable property. Held inapplicable to contracts to sell, and inapplicable here because the contract was a sale with an express voiding clause.

Puno, Austria-Martinez, Tinga, and Chico-Nazario, JJ.