G.R. No. L-46765 August 29, 1986
JOSEPH & SONS ENTERPRISES, INC., petitioner, vs. COURT OF APPEALS, RODOLFO T. LAT, BIENVENIDO LAUREL & PAZ BANAAD-LAUREL, respondents.

FACTS

The case involves a dispute over a house and lot in Makati. Respondent spouses Laurel, after constructing a house on a lot originally purchased from respondent Lat, entered into a Deed of Conditional Sale with petitioner Joseph & Sons Enterprises on April 23, 1966. The purchase price was P125,000.00, payable with a down payment and six installments. Petitioner failed to pay the subsequent installments on time. By October 1966, it had paid only P60,000.00 against a due amount of P90,000.00, with one payment made by a check that was dishonored.
To address its default, petitioner proposed that the Laurels secure a bank loan using the property as collateral, with the loan proceeds to be applied to the overdue installments and petitioner assuming the loan repayments. The Laurels complied, obtaining a loan and applying a portion to petitioner’s debt. However, petitioner subsequently also failed to pay the final installment under the conditional sale and all amortizations on the bank loan, despite leasing the property to a third party. The Laurels were forced to pay the bank loan to prevent foreclosure.

ISSUE

The core issue is whether the Laurels were entitled to cancel the Deed of Conditional Sale, recover possession of the property, and claim damages due to petitioner’s failure to comply with the payment terms.

RULING

The Supreme Court affirmed the decisions of the lower courts, ruling in favor of the respondents. The legal logic hinges on the fundamental distinction between a “contract of sale” and a “contract to sell.” The Court clarified that the executed agreement was a contract to sell, not an absolute sale. In a contract to sell, ownership is reserved by the vendor and does not pass to the vendee until full payment of the purchase price. The vendor’s obligation to sell becomes demandable only upon the happening of the positive suspensive condition, which is full payment.
Here, the Deed of Conditional Sale explicitly made the conveyance of ownership contingent upon petitioner’s complete payment. Petitioner’s failure to pay the installments as they fell due meant the suspensive condition was not fulfilled. Consequently, ownership never passed to petitioner, and the Laurels, as vendors, rightly retained title. Their action to recover possession was not a resolution of a contract of sale under Article 1592 of the Civil Code, but an enforcement of the contract’s terms, which allowed them to cancel the agreement due to non-payment. Petitioner’s claim that delivery of the property transferred ownership was erroneous, as delivery in a contract to sell does not transfer title until full payment. Therefore, the Laurels were legally justified in cancelling the contract, recovering possession, and claiming stipulated damages and reimbursement for the bank loan they paid.