G.R. No. 180665 ; August 11, 2010
HEIRS OF PAULINO ATIENZA, Petitioners, vs. DOMINGO P. ESPIDOL, Respondent.

FACTS

Petitioners, the Heirs of Paulino Atienza, owned agricultural land acquired via an emancipation patent under the land reform program. On August 12, 2002, they entered into a “Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad” (contract to sell) with respondent Domingo Espidol. The total price was ₱2,854,670.00, payable in three installments: ₱100,000.00 upon signing, ₱1,750,000.00 in December 2002, and the balance in June 2003. Espidol paid the initial ₱100,000.00 but failed to pay the second installment in December 2002. He offered a partial payment of ₱500,000.00 (or ₱800,000.00 per his claim), which the petitioners refused. The Atienzas filed a complaint for annulment of the contract in February 2003.
Espidol admitted his inability to pay the second installment, attributing it to an injunction from a U.S. court in a domestic violence case involving his wife, which froze his funds. He argued his failure to pay an installment was not a breach warranting annulment but merely an event that precluded the vendors from being compelled to convey title. He also contended the action was premature since the final installment was not yet due. The RTC and the CA upheld the contract, ruling it remained valid and subsisting.

ISSUE

The primary issue is whether the petitioners were entitled to cancel the contract to sell due to respondent’s failure to pay the second installment when it fell due.

RULING

No. The Supreme Court affirmed the lower courts’ decisions, denying the cancellation. The agreement was a contract to sell, not a contract of sale. In a contract to sell, ownership is retained by the vendor until full payment of the purchase price. The non-payment of an installment is not a breach of contract but a contingent event that prevents the obligation to convey title from arising. The vendor’s remedy is not to seek annulment but to simply refuse to convey the title. The Court found that Espidol’s failure was due to a legal impediment beyond his control and that his subsequent offer of partial payment and travel to the Philippines demonstrated good faith and a desire to fulfill his obligation. The petitioners’ action was indeed premature as the final payment was not yet due. Furthermore, the Court noted that for valid cancellation, the vendors must comply with the mandatory notice requirements under Republic Act No. 6552 (The Realty Installment Buyer Protection Act), which they did not do. The contract, therefore, remained in force, and the parties were ordered to comply with its terms.