G.R. No. 224466 (Formerly UDK-15574). March 27, 2019.
Karen Nuñez Vito, Lynette Nuñez Masinda, Warren Nuñez, and Alden Nuñez, Petitioners, vs. Norma Moises-Palma, Respondent.

FACTS

Vicentico Nuñez owned a lot in Mambusao, Capiz. Upon his death, his heirs—petitioners Karen, Lynette, Warren, and Alden, along with their mother Placida—inherited it. After Placida’s death, petitioners each held a pro indiviso 1/4 share. In June 1995, Norma Moises-Palma had petitioners (except Alden) sign a Deed of Adjudication and Sale (DAS), purportedly selling their shares for P50,000. The DAS, however, stated only P30,000 to reduce taxes. Norma did not pay but instead executed a Promissory Note for P50,000, payable by July 1998. She later signed an Acknowledgment of Debt in 2007. Despite non-payment and Alden’s non-signature, Norma registered the DAS and obtained a title in her name in 2005.
Alden initially sued for annulment but later entered a Compromise Agreement, ceding his 85.8-square-meter share to Norma. Subsequently, the other petitioners, represented by Alden, filed a case to nullify the DAS, cancel Norma’s title, and recover the property. The Municipal Trial Court (MTC) ruled for the petitioners, declaring the DAS void. The Regional Trial Court (RTC) and the Court of Appeals (CA) reversed, holding the contract was a valid contract to sell, not an absolute sale, and that Norma’s failure to pay only gave petitioners a right to rescind, which they did not properly exercise.

ISSUE

Whether the Deed of Adjudication and Sale is an absolute sale or a contract to sell, and consequently, whether its nullity can be declared due to non-payment of the purchase price.

RULING

The Supreme Court ruled the DAS is a contract to sell, not an absolute sale. The distinction is crucial. In a contract to sell, ownership is retained by the seller until full payment of the price, which is a positive suspensive condition. Non-payment prevents the obligation to convey title from arising. The Court found the parties intended a contract to sell because: (1) the Promissory Note and Acknowledgment of Debt explicitly treated the P50,000 as an unpaid debt for the land’s “cost,” and (2) Norma never paid any part of the purchase price, yet the sellers did not immediately demand conveyance, indicating payment was a precondition for the sale’s perfection.
Since it was a contract to sell, non-payment of the price did not render the contract void ab initio but merely unenforceable. The sellers’ remedy was to rescind the contract under Article 1592 of the Civil Code, which requires a judicial or notarial demand for rescission. The petitioners failed to make such a demand. Therefore, they could not unilaterally declare the contract null and void. The CA correctly held the contract subsisting, but the Supreme Court modified the ruling by ordering Norma to pay the P50,000 purchase price to the petitioners, with legal interest, within a reasonable period, failing which the petitioners could then judicially rescind the contract. The Compromise Agreement regarding Alden’s share remained valid.