G.R. No. 123672 & G.R. No. 164489, December 14, 2005
Fernando Carrascoso, Jr. vs. The Honorable Court of Appeals, Lauro Leviste, and El Dorado Plantation, Inc.; Philippine Long Distance Telephone Company vs. Lauro Leviste, El Dorado Plantation, Inc., and Fernando Carrascoso, Jr.

FACTS

El Dorado Plantation, Inc., through its President Feliciano Leviste, sold a parcel of land to Fernando Carrascoso, Jr. via a Deed of Sale dated March 23, 1972. The purchase price was P1.8 million, payable with a P500,000 down payment and the balance of P1.3 million in three annual installments ending March 23, 1975. Crucially, paragraph 4 of the Deed stated, “The title of the property… shall pass and be transferred to the VENDEE who shall have full authority to register the same and obtain the corresponding transfer certificate of title in his name.” On the same date, El Dorado’s Board passed a resolution and Leviste executed an affidavit, both waiving the vendor’s lien and subordinating it to any mortgage Carrascoso might constitute. Carrascoso subsequently mortgaged the property to Home Savings Bank, and the title was transferred to his name.
Carrascoso failed to pay the final installment. El Dorado, through minority stockholder Lauro Leviste, sued for rescission. Carrascoso argued the sale was absolute, not conditional, and that El Dorado had waived its right to rescind by waiving the vendor’s lien. Meanwhile, Carrascoso had entered into an Agreement to Buy and Sell with PLDT over a portion of the land, which also became a party to the case.

ISSUE

The core issue was whether the contract of sale between El Dorado and Carrascoso was an absolute sale or a contract to sell, and consequently, whether El Dorado retained ownership and the right to rescind upon Carrascoso’s failure to pay the full price.

RULING

The Supreme Court ruled the contract was a contract to sell, not an absolute sale. The legal logic hinges on the distinction between the two. In a contract to sell, ownership is retained by the seller until the buyer fulfills a positive suspensive condition, typically full payment. Non-payment prevents the obligation to convey title from arising. Here, the Court found the parties intended a contract to sell. While the Deed allowed Carrascoso to register the title, this was merely a contractual concession for him to mortgage the property, as explicitly supported by the contemporaneous board resolution and affidavit waiving the vendor’s lien in favor of a bank mortgage. These acts demonstrated the seller’s intent to facilitate financing for the buyer, not to immediately relinquish all ownership rights irrespective of payment.
Since it was a contract to sell, ownership remained with El Dorado. Carrascoso’s failure to pay the final installment was a failure of the suspensive condition, which prevented the obligation to consummate the absolute sale from arising. El Dorado was therefore entitled to rescind the contract. The waiver of the vendor’s lien did not constitute a waiver of the right to rescind for non-payment; it merely waived priority over a mortgagee bank. Consequently, the rescission was upheld, and all subsequent transactions, including the mortgage and the agreement with PLDT, were deemed invalid as they derived from a voidable title.