Contract to sell vs. contract of sale explained - G.R. No. 188064 "x x x.

The Courts Ruling The petition lacks erit.

xxx 'ale/ $* its ver* nat!re/ is a consens!al contract $eca!se it is perfected $* ere consent. The essential ele ents of a contract of sale are the follo#in"1 a: Consent or eetin" of the inds/ that is/ consent to transfer o#nership in exchan"e for the price; $: &eter inate s!$%ect c: 2rice certain in atter; and

The Co!rt a"rees #ith the r!lin" of the co!rts $elo# that the s!$%ect &eed of Conditional 'ale #ith (ss! ption of )ort"a"e entered into $* and a on" the t#o parties and +', -ank on Nove $er .6/ 1000 is a contract to sell and not a contract of sale. The s!$%ect contract #as correctl* classified as a contract to sell $ased on the follo#in" pertinent stip!lations1 8. That the title and o#nership of the s!$%ect real properties shall re ain #ith the +irst 2art* !ntil the f!ll pa* ent of the 'econd 2art* of the $alance of the p!rchase price and li3!idation of the ort"a"e o$li"ation of./000/000.00. 2endin" pa* ent of the $alance of the p!rchase price and li3!idation of the ort"a"e o$li"ation that #as ass! ed $* the 'econd 2art*/ the 'econd 2art* shall not sell/ transfer and conve* and other#ise enc! $er the s!$%ect real properties #itho!t the #ritten consent of the +irst and Third 2art*. 0. That !pon f!ll pa* ent $* the 'econd 2art* of the f!ll $alance of the p!rchase price and the ass! ed ort"a"e o$li"ation herein entioned the Third 2art* shall iss!e the correspondin" &eed of Cancellation of )ort"a"e and the +irst 2art* shall exec!te the correspondin" &eed of ($sol!te 'ale in favor of the 'econd 2art*.456 -ased on the a$ove provisions/ the title and o#nership of the s!$%ect properties re ains #ith the petitioner !ntil the respondent f!ll* pa*s the $alance of the p!rchase price and the ass! ed ort"a"e o$li"ation. Thereafter/ +', -ank shall then iss!e the correspondin" deed of cancellation of ort"a"e and the petitioner shall exec!te the correspondin" deed of a$sol!te sale in favor of the respondent. (ccordin"l*/ the petitioner7s o$li"ation to sell the s!$%ect properties $eco es de anda$le onl* !pon the happenin" of the positive s!spensive condition/ #hich is the respondent7s f!ll pa* ent of the p!rchase price. 8itho!t respondent7s f!ll pa* ent/ there can $e no $reach of contract to speak of $eca!se petitioner has no o$li"ation *et to t!rn over the title. Respondent7s fail!re to pa* in f!ll the p!rchase price is not the $reach of contract conte plated !nder (rticle 1101 of the Ne# Civil Code $!t rather %!st an event that prevents the petitioner fro $ein" $o!nd to conve* title to the respondent. The .000 case of Nabus v. Joaquin & Julia Pacson486 is enli"htenin"1 The Co!rt holds that the contract entered into $* the 'po!ses Na$!s and respondents #as a contract to sell/ not a contract of sale. ( contract of sale is defined in (rticle 1498 of the Civil Code/ th!s1 (rt. 1498. -* the contract of sale/ one of the contractin" parties o$li"ates hi self to transfer the o#nership of and to deliver a deter inate thin"/ and the other to pa* therefor a price certain in one* or its e3!ivalent.

one* or its e3!ivalent.

<nder this definition/ a Contract to 'ell a* not $e considered as a Contract of 'ale $eca!se the first essential ele ent is lackin". =n a contract to sell/ the prospective seller explicitl* reserves the transfer of title to the prospective $!*er/ eanin"/ the prospective seller does not as *et a"ree or consent to transfer o#nership of the propert* s!$%ect of the contract to sell !ntil the happenin" of an event/ #hich for present p!rposes #e shall take as the f!ll pa* ent of the p!rchase price. 8hat the seller a"rees or o$li"es hi self to do is to f!lfill his pro ise to sell the s!$%ect propert* #hen the entire a o!nt of the p!rchase price is delivered to hi . =n other #ords/ the f!ll pa* ent of the p!rchase price partakes of a s!spensive condition/ the non-f!lfill ent of #hich prevents the o$li"ation to sell fro arisin" and/ th!s/ o#nership is retained $* the prospective seller #itho!t f!rther re edies $* the prospective $!*er. xxx xxx xxx 'tated positivel*/ !pon the f!lfill ent of the s!spensive condition #hich is the f!ll pa* ent of the p!rchase price/ the prospective seller7s o$li"ation to sell the s!$%ect propert* $* enterin" into a contract of sale #ith the prospective $!*er $eco es de anda$le as provided in (rticle 1450 of the Civil Code #hich states1 (rt. 1450. ( pro ise to $!* and sell a deter inate thin" for a price certain is reciprocall* de anda$le. (n accepted !nilateral pro ise to $!* or to sell a deter inate thin" for a price certain is $indin" !pon the pro issor if the pro ise is s!pported $* a consideration distinct fro the price. ( contract to sell a* th!s $e defined as a $ilateral contract #here$* the prospective seller/ #hile expressl* reservin" the o#nership of the s!$%ect propert* despite deliver* thereof to the prospective $!*er/ $inds hi self to sell the said propert* excl!sivel* to the prospective $!*er !pon f!lfill ent of the condition a"reed !pon/ that is/ f!ll pa* ent of the p!rchase price. ( contract to sell as defined hereina$ove/ a* not even $e considered as a conditional contract of sale #here the seller a* like#ise reserve title to the propert* s!$%ect of the sale !ntil the f!lfill ent of a s!spensive condition/ $eca!se in a conditional contract of sale/ the first ele ent of consent is present/ altho!"h it is conditioned !pon the happenin" of a contin"ent event #hich a* or a* not occ!r. =f the s!spensive condition is not f!lfilled/ the perfection of the contract of sale is co pletel* a$ated. >o#ever/ if the s!spensive condition is f!lfilled/ the contract of sale is there$* perfected/ s!ch that if there had alread* $een previo!s deliver* of the

propert* s!$%ect of the sale to the $!*er/ o#nership thereto a!to aticall* transfers to the $!*er $* operation of la# #itho!t an* f!rther act havin" to $e perfor ed $* the seller. =n a contract to sell/ !pon the f!lfill ent of the s!spensive condition #hich is the f!ll pa* ent of the p!rchase price/ o#nership #ill not a!to aticall* transfer to the $!*er altho!"h the propert* a* have $een previo!sl* delivered to hi . The prospective seller still has to conve* title to the prospective $!*er $* enterin" into a contract of a$sol!te sale. +!rther/ Ch!a v. Co!rt of (ppeals/ cited this distinction $et#een a contract of sale and a contract to sell1 =n a contract of sale/ the title to the propert* passes to the vendee !pon the deliver* of the thin" sold; in a contract to sell/ o#nership is/ $* a"ree ent/ reserved in the vendor and is not to pass to the vendee !ntil f!ll pa* ent of the p!rchase price. ?ther#ise stated/ in a contract of sale/ the vendor loses o#nership over the propert* and cannot recover it !ntil and !nless the contract is resolved or rescinded; #hereas/ in a contract to sell/ title is retained $* the vendor !ntil f!ll pa* ent of the price. =n the latter contract/ pa* ent of the price is a positive s!spensive condition/ fail!re of #hich is not a $reach $!t an event that prevents the o$li"ation of the vendor to conve* title fro $eco in" effective. =t is not the title of the contract/ $!t its express ter s or stip!lations that deter ine the kind of contract entered into $* the parties. =n this case/ the contract entitled @&eed of Conditional 'aleA is act!all* a contract to sell. The contract stip!lated that @as soon as the f!ll consideration of the sale has $een paid $* the vendee/ the correspondin" transfer doc! ents shall $e exec!ted $* the vendor to the vendee for the portion sold.A 8here the vendor pro ises to exec!te a deed of a$sol!te sale !pon the co pletion $* the vendee of the pa* ent of the price/ the contract is onl* a contract to sell.A The aforecited stip!lation sho#s that the vendors reserved title to the s!$%ect propert* !ntil f!ll pa* ent of the p!rchase price. xxx <nfort!natel* for the 'po!ses 2acson/ since the &eed of Conditional 'ale exec!ted in their favor #as erel* a contract to sell/ the o$li"ation of the seller to sell $eco es de anda$le onl* !pon the happenin" of the s!spensive condition. The f!ll pa* ent of the p!rchase price is the positive s!spensive condition/ the fail!re of #hich is not a $reach of contract/ $!t si pl* an event that prevented the obligation of the vendor to convey title from acquiring binding force. Th!s/ for its non-f!lfil ent/ there is no contract to speak of/ the o$li"or havin" failed to perfor the s!spensive condition #hich enforces a %!ridical relation. 8ith this circ! stance/ there can $e no rescission or f!lfill ent of an o$li"ation that is still non-existent/ the s!spensive condition not havin" occ!rred as *et. B phasis sho!ld $e ade that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already e tant! not a failure of a condition to render binding that obligation" 4B phases and !nderscorin" s!pplied6

Consistentl*/ the Co!rt handed do#n a si ilar r!lin" in the .010 case of Heirs of Atienza v. Espidol/ 406 #here it #as #ritten1 Regarding the right to cancel the contract for non# payment of an installment! there is need to initially determine if what the parties had was a contract of sale or a contract to sell" =n a contract of sale/ the title to the propert* passes to the $!*er !pon the deliver* of the thin" sold. =n a contract to sell/ on the other hand/ the o#nership is/ $* a"ree ent/ retained $* the seller and is not to pass to the vendee !ntil f!ll pa* ent of the p!rchase price. =n the contract of sale/ the $!*er7s nonpa* ent of the price is a ne"ative resol!tor* condition; in the contract to sell/ the $!*er7s f!ll pa* ent of the price is a positive s!spensive condition to the co in" into effect of the a"ree ent. =n the first case/ the seller has lost and cannot recover the o#nership of the propert* !nless he takes action to set aside the contract of sale. =n the second case/ the title si pl* re ains in the seller if the $!*er does not co pl* #ith the condition precedent of akin" pa* ent at the ti e specified in the contract. >ere/ it is 3!ite evident that the contract involved #as one of a contract to sell since the (tienCas/ as sellers/ #ere to retain title of o#nership to the land !ntil respondent Bspidol/ the $!*er/ has paid the a"reed price. =ndeed/ there see s no 3!estion that the parties !nderstood this to $e the case. (d ittedl*/ Bspidol #as !na$le to pa* the second install ent of 21/590/000.00 that fell d!e in &ece $er .00..That pa* ent/ said $oth the RTC and the C(/ #as a positive s!spensive condition fail!re of #hich #as not re"arded a $reach in the sense that there can be no rescission of an obligation $to turn over title% that did not yet e ist since the suspensive condition had not ta&en place. x x x. 4B phases and !nderscorin" s!pplied6 Th!s/ the Co!rt f!ll* a"rees #ith the C( #hen it resolved1 @Considerin"/ ho#ever/ that the &eed of Conditional 'ale #as not cancelled $* Dendor Re*es Epetitioner: and that o!t of the total p!rchase price of the s!$%ect propert* in the a o!nt of 4/.00/000.00/ the re ainin" !npaid $alance of T!paran Erespondent: is onl* 809/000.00/ a s!$stantial a o!nt of the p!rchase price has alread* $een paid. =t is onl* ri"ht and %!st to allo# T!paran to pa* the said !npaid $alance of the p!rchase price to Re*es.A4106 " '(T)'N *'N+, -.AT )/ T.+ +00+CT '0 0A)12R+ T' 3+T+R*)N+ T.+ (R)C+4 1. 8here contract is exec!tor* F ineffective .. 8here the thin" has $een delivered to and appropriated $* the $!*er F the $!*er !st pa* a reasona$le price therefore Note1 The fixin" of the price cannot $e left to the discretion of one of the parties. >o#ever/ if the price fixed $* one of the parties is accepted $* the other/ the sale is perfected.

-.AT )/ AN '(T)'N *'N+,4 The distinct consideration in case of an option contract. =t does not for part of the p!rchase price hence/ it cannot $e recovered if the $!*er did not contin!e #ith the sale. -.+N )/ (A,*+NT C'N/)3+R+3 '(T)'N *'N+,4 2a* ent is considered option one* #hen it is "iven as a separate and distinct consideration fro the p!rchase price. Consideration in an option contract a* $e an*thin" or !ndertakin" of val!e. +ARN+/T *'N+, -.AT )/ AN +ARN+/T *'N+, 'R 5ARRA/64 This is the one* "iven to the seller $* the prospective $!*er to sho# that the latter is tr!l* interested in $!*in" the propert*/ and its ai is to $ind the $ar"ain. E2ineda/ p. 59: -.AT )/ T.+ +00+CT '0 7)8)N7 AN +ARN+/T *'N+,4 =t for s part of the p!rchase price #hich a* $e ded!cted fro the total price. =t also serves as a proof of the perfection of the contract of sale. The r!le is no ore than a disp!ta$le pres! ption and prevails onl* in the a$sence of contrar* or re$!tta$le evidence. E2N- v C(/ .6. 'CR( 464/ 1006: Note: Option money may become earnest money if t e parties so a!ree. -.+N )/ (A,*+NT C'N/)3+R+3 AN +ARN+/T *'N+,4 8hen the pa* ent constit!tes as part of the p!rchase price. >ence/ in case #hen the sale did not happen/ it !st $e ret!rned to the prospective $!*er. ?nce ore/ the 'C in Oesmer" et al. v. Paraiso #ev. $orp." G. R. No. 19540G/ +e$r!ar* 9/ .005/ had the occasion to distin"!ish earnest one* fro option one*. =t said that earnest one* and option one* are not the sa e $!t distin"!ished th!s1 Ea: earnest one* is part of the p!rchase price/ #hile option one* is the one* "iven as a distinct consideration for an option contract; E$: earnest one* is "iven onl* #here there is alread* a sale/ #hile option one* applies to a sale not *et perfected; and Ec: #hen earnest one* is "iven/ the $!*er is $o!nd to pa* the $alance/ #hile #hen the #o!ld-$e $!*er "ives option one*/ he is not re3!ired to $!*/ $!t a* even forfeit it dependin" on the ter s of the option.

option is an independent contract/ the pa* ent in connection there#ith -- the option one* -- is distinct and separate fro the contract of sale. This eans that if the sale doesnHt p!sh thro!"h/ the option one* is not rei $!rsed. The parties !st re e $er/ ho#ever/ that contracts are defined $* principles of la#/ and not ho# the parties call it. Bven if the parties call it an "option one*/" co!rts #ill treat it as an earnest one* if/ $* nat!re and $ased on the lan"!a"e of the contract/ a on" other factors/ itHs an earnest one*. Barnest one* is clearl* distin"!ished fro option one*1 Ea: earnest one* is part of the p!rchase price/ #hile option one* is the one* "iven as a distinct consideration for an option contract; E$: earnest one* is "iven onl* #here there is alread* a sale/ #hile option one* applies to a sale not *et perfected; and Ec: #hen earnest one* is "iven/ the $!*er is $o!nd to pa* the $alance/ #hile #hen the #o!ld-$e $!*er "ives option one*/ he is not re3!ired to $!*. =n other #ords/ #henever earnest one* is "iven in a contract of sale/ it shall $e considered as part of the price. =tHs a proof of the perfection of the contract. Barnest one* is "iven $* the $!*er to the seller to $ind the $ar"ain. =t constit!tes an advance pa* ent Eor do#npa* ent: and !st/ therefore/ $e ded!cted fro the total price. These disc!ssions are $asicall* the tip of the ice$er"/ so to speak. To co plicate atters/ #e co!ld sa* that pa* ent of the earnest one* need not necessaril* "ive rise to a valid contract of sale. The parties co!ld also treat an "earnest one*" as a for of "!arantee that the $!*er #ill not $ack o!t and/ sho!ld it do so/ the a o!nt #ill $e forfeited in favor of the seller. There are other co plications that need not $e disc!ssed in this introd!ctor* post.

(n option one* is paid in relation to an option contract/ #hich is a preparator* contract. (n option/ as !sed in the la# on sales/ is a contin!in" offer or contract $* #hich a propert*Hs o#ner/ sa* the o#ner of a piece of land/ "ives the potential $!*er a certain ti e to $!* the propert*. 'o eti es called an "!naccepted offer/" an option is not *et a p!rchase contract/ $!t erel* sec!res the privile"e to $!*. =t is not *et a sale of the propert*/ $!t a sale of the ri"ht to p!rchase that propert*. Considerin" that an

CARCELLER V. CA (February 10, 1999)

0ACT/9 Respondent 'tate =nvest ent >o!ses =nc. has a parcel of land in Ce$! Cit* leased to petitioner Iose Ra on Caceller #ith an option to p!rchase valid !ntil the expiration of the lease contract. G#eeks $efore the expiration of the contract/ petitioner ade a re3!est to the respondent for the extension of the lease contact so he can have an a ple ti e to raise eno!"h f!nds to avail of the option of sale. Respondent denied the re3!est and a onth after the expiration of the contract/ petitioner ade kno#n his intention to $!* the propert*. Respondent reiterated the provisions in the contract and asked the petitioner to leave the propert*/ #hich #ill no# $e offered to the "eneral p!$lic for a hi"her price. )//2+9 8?N can still exercise his option of sale even after the ti e to do s!ch has alread* lapsed. .+139 The contract !st $e interpreted to"ether #ith the intention of the parties. The letter of the plaintiff to the respondent re3!estin" for an extension is s!fficient proof of his intent to avail of the option of sale. =n contract!al relations/ the la# allo#s the parties reasona$le lee#a* on the ter s of their a"ree ent/ #hich is the la# $et#een the . 8hen petitioner ade his intention to $!* kno#n to the $!*er one of contract is #ithin a reasona$le ti e- fra e. 2etitioner onth after the expiration

check fro the ter s

Dillonco and then ret!rned it #ith 10J interest as stip!lated in ade $* Dillonco.

?n the other hand/ the fact that Dillonco did not o$%ect #hen -or aheco encashed the check is a proof that it accepted the offer of -or aheco. 8henever earnest one* is "iven in a contract of sale/ it shall $e

considered as part of the price and as proof of the perfection of the contract" E(rt. 148./ Civil Code:.

#ALLION V. CA (February $, 009)

0ACT/9 2etitioner 'e"!ndo &alion alle"edl* sold his propert* in 'o!thern ,e*te to respondent R!perto 'a$esa%e thro!"h a private deed of sale. &alion denies the sale and clai s that his si"nat!re in the doc! ent #as for"ed. )//2+9 8?N there has $een a contract of sale $et#een the parties. .+139 The a!thenticit* of the si"nat!re of &allion #as proven $* the testi on* of several #itness incl!din" the person #ho ade the deed of sale. &alion never presented an* evidence or #itness to prove his clai of for"er*.

&allion7s clai that the sale is invalid $eca!se it #as not ade in a p!$lic doc! ent is of no erit. This ar"! ent is isplaced. The provision of (rt. 1G98 on the necessit* of a p!$lic doc! ent is onl* for convenience/ not for validit* or enforcea$ilit*. =t is not a re3!ire ent for the validit* of a contract of sale of a parcel of land that this $e e $odied in a p!$lic instr! ent. 'ale is perfected !pon eetin" of the inds of $oth parties.

a* $!* the propert* $!t not an* ore to the price stated in the

contract. (s s!ch/ respondent a* increase the price of the land $!t onl* to a reasona$le and fair arket val!e. (n option is a preparator* contract in #hich one part* "rants to the other/ for a fixed period and !nder specified conditions/ the po#er to decide/ #hether or not to enter into a principal contract. =t $inds the part* #ho has "iven the option/ not to enter into the principal contract #ith an* other person d!rin" the period desi"nated/ and/ #ithin that period/ to enter into s!ch contract #ith the one to #ho the option #as "ranted/ if the latter sho!ld decide to !se the option. =t is a separate a"ree ent distinct fro the contract #hich the parties option. a* enter into !pon the cons! ation of the

VILLONCO REALTY V. BORMAHECO (July 19"!)

!,

0ACT/9 +rancisco Cervantes of -or aheco =nc. a"rees to sell to Dillonco Realt* a parcel of land and its i prove ents located in -!endia/ )akati. -or aheco ade the ter s and condition for the sale and Dillonco ret!rned it #ith so e odifications. The sale is for 2400 per s3!are eter $!t it is onl* to $e cons! ated

after respondent shall have also cons! ated p!rchase of a propert* in 'ta. (na/ )anila. -or aheco #on the $iddin" for the 'ta.(na land and s!$se3!entl* $o!"ht the propert*. Dillonco iss!ed a check to -or aheco a o!ntin" to 2100/000 as earnest one*. .6 da*s after si"nin" the contract of sale/ -or aheco ret!rned the 2100/000 to Dillonco #ith 10J interest for the reason that the* are not s!re *et if the* #ill ac3!ire the 'ta.(na propert*. Dillonco re%ected the ret!rn of the check and de anded for specific perfor ance.

)//2+9 8?N -or aheco is $o!nd to perfor .+139

the contract #ith Dillonco.

The contract is alread* cons! ated #hen -or aheco accepted the offer $* Dillonco. The acceptance can $e proven #hen -or aheco accepted the