G.R. No. 124045 May 21, 1998
SPOUSES VIVENCIO BABASA and ELENA CANTOS BABASA, petitioners, vs. COURT OF APPEALS, TABANGAO REALTY, INC., and SHELL GAS PHILIPPINES, INC., respondents.

FACTS

On April 11, 1981, petitioners Spouses Vivencio and Elena Babasa and respondent Tabangao Realty, Inc. (TABANGAO) executed a “Conditional Sale of Registered Lands” over three parcels of land. The total purchase price was P2,121,920.00, payable as follows: P300,000.00 upon signing and the balance of P1,821,920.00 upon the BABASAS’ presentation of transfer certificates of title in their name, free from liens, and delivery of registerable documents of sale within twenty (20) months. The unpaid balance would earn 17% interest per annum payable monthly. TABANGAO had the absolute right to take immediate possession. TABANGAO paid the down payment and monthly interest, and paid disturbance compensation to tenants. The BABASAS filed cases to secure clean titles. Two days before the 20-month period expired on December 31, 1982, the BABASAS asked for an indefinite extension to deliver the titles and for continued interest payments. TABANGAO refused. The BABASAS then unilaterally rescinded the contract via a notarized deed dated February 28, 1983. TABANGAO filed an action for specific performance. Shell Gas Philippines, Inc. (SHELL), to which TABANGAO had leased the lots, intervened. During the case, the BABASAS erected structures on the property and made claims against SHELL’s operations. The trial court ruled in favor of TABANGAO and SHELL, declaring the unilateral rescission void, ordering the BABASAS to deliver clean titles, and directing TABANGAO to pay the balance with interest. The Court of Appeals affirmed the decision but modified the interest to be compounded from the date of filing of the complaint (July 19, 1983), not from January 1983.

ISSUE

1. Whether the contract dated April 11, 1981, is a contract of lease or a contract of sale.
2. Whether the contract, being conditional, was extinguished upon the non-delivery of clean titles within the stipulated 20-month period.

RULING

1. The contract is one of sale, not lease. The terms of the contract are clearly indicative of a sale: it references the “sale and purchase” of land, describes the parties as “vendors” and “vendee,” stipulates a purchase price, grants the vendee immediate possession, requires the vendors to shoulder capital gains tax, and anticipates the execution of a Final Deed of Absolute Sale. The petitioners’ claim that it is a lease merely because the word “ownership” is not mentioned is untenable. They were assisted by counsel during execution and did not object to the terms then.
2. No, the contract was not extinguished. The 20-month period was not a condition that extinguished the contract upon its expiration. Rather, its expiration gave TABANGAO, as vendee, the option under Article 1545 of the Civil Code to either refuse to proceed or to waive the condition. The failure of the vendors (BABASAS) to deliver titles on time did not give them the right to rescind the contract. It would be inequitable to allow them to rescind based on their own failure to perform. The contract remained valid and enforceable, obligating the BABASAS to deliver the titles and TABANGAO to pay the balance.
The Supreme Court DENIED the petition and AFFIRMED the decision of the Court of Appeals.