Reyes v. Tuparan (G.R. No. 188064; June 1, 2011)

CASE DIGEST: MILA A. REYES v. VICTORIA T. TUPARAN. (G.R. No. 188064; June 1, 2011).

FACTS: Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC.In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-4130.

Petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan. Petitioner then decided to sell her real properties so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioner's real properties.

The parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint.

Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time.

Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and uncertain event.

Respondent further averred that she successfully rescued the properties from a definite foreclosure by paying the assumed mortgage plus interest and other finance charges.

The RTC handed down its decision finding that respondent failed to pay in full the total purchase price of the subject real properties. It stated that the checks and receipts presented by respondent refer to her payments of the mortgage obligation with FSL Bank. The RTC also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a contract of sale.

The CA rendered its decision affirming with modification the RTC Decision.The CA agreed with the RTC that the contract entered into by the parties is a contract to sell but ruled that the remedy of rescission could not apply because the respondent's failure to pay the petitioner the balance of the purchase was not a breach of contract, but merely an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent).

ISSUE: Was the agreement a contract to sell and not a contract of sale?HELD: The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale.

The title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioner's obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondent's full payment of the purchase price. Without respondent's full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondent's failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent.

Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of ?4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only ?805,000.00, a substantial amount of the purchase price has already been paid.It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes."

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation.

Out of the P1,200,000.00 remaining balance, respondent paid on several dates the first and second installments of P200,000.00 each. She, however, failed to pay the third and last installment of P800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through counsel, offered to pay the amount of P751,000.00, which was rejected by petitioner for the reason that the actual balance was P805,000.00 excluding the interest charges.

Considering that out of the total purchase price of P4,200,000.00, respondent has already paid the substantial amount of P3,400,000.00, more or less, leaving an unpaid balance of only P805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid purchase price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply with her obligation when she offered to pay the petitioner the amount of P751,000.00. DENIED.