TOPIC TITLE: CONTRACT TO SELL

In several cases, the Supreme Court held that in order for a contract to be characterized as a
contract to sell, there must be an express stipulation to the effect that (a) title to the property sold is
reserved in the vendor until full payment of the purchase price; or (b) a stipulation giving the vendor
the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed
period.

Thus, in the following cases, the Supreme Court laid down the foregoing rule.

Dignos v. Court of Appeals, 158 SCRA 375 (1988)

“Thus, it has been held that a deed of sale is absolute in nature although denominated as a
‘Deed of Conditional Sale’ where nowhere in the contract in question is a proviso or stipulation to
the effect that title to the property sold is reserved in the vendor until full payment of the purchase
price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period (Taguba v. Vda. de Leon, 132 SCRA 722;
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the
title of the property on the vendors nor does it give them the right to unilaterally rescind the contract
upon non-payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil
Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and
(3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that
‘The ownership of the thing sold shall be transferred to the vendee upon actual or constructive
delivery thereof. As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA
276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold
passes to the vendee upon actual or constructive delivery thereof.” (p. 382-383; emphasis supplied)

Pingol v. Court of Appeals, 226 SCRA 118 (1993)

“In Dignos vs. Court of Appeals, we held that a deed of sale is absolute in nature although
denominated as a ‘Deed of Conditional Sale’ where there is no stipulation in the deed that title to the
property sold is reserved in the seller until the full payment of the price, nor is there a stipulation
giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period. Exhibit ‘A’ contains neither stipulation. What is merely stated therein is that
‘the VENDEE agrees that in case of default in the payment of the installments due the same shall
earn a legal rate of interest, and to which the VENDOR likewise agrees.’” (p.127; emphasis
supplied)

Jovellanos v. Court of Appeals, 210 SCRA 126 (1992)

“The conditional sale agreement in said contract is, therefore, also in the nature of a contract
to sell, as contra distinguished from a contract of sale. In a contract to sell or a conditional sale,
ownership is not transferred upon delivery of the property but upon full payment of the purchase
price. Generally, ownership is transferred upon delivery, but even if delivered, the ownership may
still be with the seller until full payment of the price is made, if there is a stipulation to this effect.
The stipulation is usually known as pactum reservati dominii, or contractual reservation of title, and

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is common in sales on the installment plan. Compliance with the stipulated payments is a suspensive
condition, the failure of which prevents the obligation of the vendor to convey title from acquiring
binding force. Hornbook lore from civilists clearly lays down the distinctions between a contract of
sale in which the title passes to the buyer upon delivery of the thing sold, and a contract to sell
where, by agreement, the ownership is reserved in the seller and is not to pass until full payment of
the purchase-price. In the former, non-payment of the price is a negative resolutory condition; in the
latter, full payment is a positive suspensive condition. In the former, the vendor loses and cannot
recover the ownership of the thing sold until and unless the contract of sale is rescinded or set aside;
in the latter, the title remains in the vendor if the vendee does not comply with the condition
precedent of making full payment as specified in the contract.” (p. 132-133; emphasis supplied)

Philippine National Bank v. Court of Appeals, 262 SCRA 464 (1996)

“A perusal of the letter-agreements shows that they are contracts to sell and not contracts of
sale.

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the
vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event
so that if the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed. The suspensive condition is commonly full payment of the purchase
price.

‘Thus it has been held that a deed of sale is absolute in nature although denominated
as a "Deed of Conditional Sale" where nowhere in the contract in question is a
proviso or stipulation to the effect that title to the property is sold is reserved in the
vendor until full payment of the purchase price, nor is there a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee fails to pay
within a fixed period . . .’

If it were not full payment of the purchase price upon which depends the passing of title from
the vendor to the vendee, it may be some other condition or conditions that have been stipulated and
must be fulfilled before the contract is converted from a contract to sell or at the most an executory
sale into an executed.” (p. 477-478; emphasis supplied)

In Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565 (1995), the Supreme Court held
that the stipulation reserving ownership need not be express. It may be implied from the agreement
itself.

“There are two features which convince us that the parties never intended to
transfer ownership to petitioner except upon the full payment of the purchase price.
Firstly, the exclusive option to purchase, although it provided for automatic rescission
of the contract and partial forfeiture of the amount already paid in case of default,
does not mention that petitioner is obliged to return possession or ownership of the
property as a consequence of non-payment. There is no stipulation anent reversion or
reconveyance of the property to herein private respondents in the event that petitioner
does not comply with its obligation. With the absence of such a stipulation, although
there is a provision on the remedies available to the parties in case of breach, it may
legally be inferred that the parties never intended to transfer ownership to the
petitioner to completion of payment of the purchase price.

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 In effect, there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price. Article 1478 of the Civil Code does not
require that such a stipulation be expressly made. Consequently, an implied
stipulation to that effect is considered valid and, therefore, binding and enforceable
between the parties. It should be noted that under the law and jurisprudence, a
contract which contains this kind of stipulation is considered a contract to sell.” (p.
577; emphasis supplied)

In Salazar v. Court of Appeals, 258 SCRA 317 (1996), the Supreme Court ruled that a Deed
of Absolute Sale may still be considered as a contract to sell when, from the actuation and the
evidence of the vendor, the vendor did not intend to transfer ownership of the property sold to the
vendee until full payment of the purchase price.

“If we are to consider only the Deed of Absolute Sale, we can easily say that
the contract between Salazar and Borres is one of sale. However, the Deed of
Warranty and the oral testimony on the circumstances surrounding the execution of
the Deed of Absolute Sale, as well as the other pieces of evidence submitted by
Borres, sustain the finding and conclusion of the trial court that the true agreement
between the parties was a contract to sell in that the true intent of Salazar was to
transfer ownership of the property to Borres only after the latter pays the full
consideration.

From the beginning to the end, such intention of Salazar was unequivocal and
manifest. He rejected Borres's offer to pay the consideration within six months to give
her time to secure a loan. When Borres proposed that he lend her the certificates of
title of the lots so that she could secure a loan from the banks in Manila and be able to
pay, within three months, the consideration out of the proceeds of the loan, Salazar
agreed provided that she would assure him that the title would not pass to her until he
is fully paid. Borres forthwith promised to execute a warranty. She then prepared a
Deed of Absolute Sale for Salazar's signature and a Deed of Warranty for her
signature. When finally she presented to him the Deed of Absolute Sale, Salazar did
not sign it and insisted that he be paid the purchase price at the end of June 1989; he
further told her that he would not lend her the certificates of title until he is so paid.
He signed it only after Borres agreed to pay by the end of June 1989 at a bank in
Makati. But he did not give the Deed of Absolute Sale to her; instead, he told her to
just meet him at the Ninoy Aquino International Airport on 2 June 1989, when he
would leave for the United States of America, so she would know to whom he would
entrust the document and other papers relative to the property. We quote verbatim
Borres's own testimony on direct examination upon these points:

xxx xxx xxx

Clearly then, the original intention in the execution of the Deed of Absolute
Sale was to implement the proposal of Borres that Salazar ‘lend’ her the transfer
certificates of title so that she could secure a loan from a bank in Manila whose
proceeds would be applied to the payment of the purchase price of the property, and
the original purpose of the Deed of Warranty was to assure Salazar that, as demanded
by him, title to the lots will not pass to her until she pays the full consideration. The
lending of the certificates of title for the above purpose could have been easily
accomplished through a special power of attorney under which Salazar will authorize

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her to obtain a loan and to mortgage the property as security therefor. But, perhaps
anticipating Salazar's departure to the United States of America where he resides,
Borres, who is a lawyer, prepared instead a Deed of Absolute Sale and Deed of
Warranty. Notwithstanding Borre's deliberate characterizations of the documents, we
are convinced that they were prepared in connection with and in the implementation
of the agreement regarding the lending of the certificates of title. They do not weaken
the adamantine position of Salazar not to part with his title to the two lots until full
payment of the agreed price therefor. Borres's execution of the Deed of Warranty was
in fact a recognition of Salazar's position. Despite its careful wordings and
phraseology to make some sort of distinction between Borres's right to the ownership
or title over the lots on the one hand, and her right to possess or keep the Deed of
Absolute Sale and the other documents relative to the lots, the totality of the Deed of
Warranty manifests an indubitable recognition by Borres of the aforementioned
intention of Salazar. She declares therein as follows:

xxx xxx xxx

Then, too, in her Memorandum of Agreement with Monteland Realty

Corporation, dated 15 June 1989, Borres explicitly mentioned only her "rights and
interests" under the Deed of Absolute Sale signed by Salazar and therein conveyed,
transferred, and assigned to the said corporation only such "rights and interests." Also
worth noting is the statement in the second whereas clause of the Memorandum of
Agreement that Monteland Realty Corporation has full knowledge of the sales [sic]
and conditions of the SELLER-OWNER of the property . . . that the buyer [Borres]
has an obligation to pay DR. EMILIO SALAZAR the amount of ONE MILLION
PESOS (P1,000,000.00) and that there is already a Deed of Absolute Deed of [sic]
Sale in favor of [Borres] of which both copies of the titles of the properties for sale
and all documents including the Deed of Absolute Sale aforementioned are under the
custody of MS. TERESA DIZON who will only release the Title and the Deed of
Absolute Sale after the obligation of [Borres] is fully paid.

The withholding by Salazar through Dizon of the Deed of Absolute Sale, the
certificates of title, and all other documents relative to the two lots is an additional
indubitable proof that Salazar did not transfer to Borres either by actual or
constructive delivery the ownership of the two lots. While generally the execution of a
deed of absolute sale constitutes constructive delivery of ownership, the withholding
by the vendor of that deed under explicit agreement that it be delivered together with
the certificates of titles to the vendee only upon the latter's full payment of the
consideration amounts to a suspension of the effectivity of the deed of sale as a
binding contract.

Undoubtedly, Salazar and Borres mutually agreed that despite the Deed of
Absolute Sale title to the two lots in question was not to pass to the latter until full
payment of the consideration of P1 million. The form of the instrument cannot prevail
over the true intent of the parties as established by the evidence.” (pp. 325-331)