G.R. No. 145982; July 3, 2003
FRANK N. LIU, ET AL., petitioners, vs. ALFREDO LOY, JR., TERESITA A. LOY and ESTATE OF JOSE VAÑO, respondents.

FACTS

In 1950, Teodoro Vaño, as attorney-in-fact for his father Jose, sold seven lots from the Banilad Estate to Benito Liu and Cirilo Pangalo. Benito Liu purchased five lots, including Lot Nos. 5 and 6, paying a down payment and agreeing to monthly installments. Payments ceased when Teodoro admitted an inability to transfer titles. After Jose Vaño’s death and the settlement of his estate, Teodoro, in 1968, sold Lot No. 6 to Teresita Loy and, in 1969, Lot No. 5 to Alfredo Loy, Jr. These sales were registered. Meanwhile, Benito Liu had assigned his rights to his brother, Frank Liu, in 1966. Frank Liu later filed a claim against the Estate of Jose Vaño in probate court, which was approved in 1976, leading to a deed of conveyance in his favor for the same seven lots, including those already sold to the Loys.

ISSUE

The core issue is whether the subsequent sales of Lot Nos. 5 and 6 by Teodoro Vaño to respondents Alfredo Loy, Jr. and Teresita A. Loy were valid, thereby prevailing over the claim of petitioner Frank Liu derived from the earlier 1950 contract to sell.

RULING

The Supreme Court ruled in favor of the respondents, affirming the validity of the sales to the Loys. The legal logic rests on the nature of the original 1950 agreement and the principle of rescission. The contract between Teodoro Vaño and Benito Liu was merely 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 vendor’s obligation to sell becomes demandable only upon the buyer’s full compliance. The Court found that Benito Liu, and later Frank Liu, failed to pay the full balance despite demands, thereby breaching the contract. This breach gave Teodoro Vaño, as the vendor with retained ownership, the clear right to unilaterally rescind the contract under Article 1592 of the Civil Code, as the contract did not stipulate a different procedure. The rescission was effected through the positive act of selling the lots to the Loys. Consequently, when Frank Liu finally obtained a deed of conveyance from the estate administratrix in 1976, the vendor no longer had title to convey for those specific lots, as they had already been validly sold to innocent third parties. The probate court’s subsequent approval of the sales to the Loys merely confirmed the prior consummated transactions. Therefore, the Loys acquired superior rights as purchasers for value of property still owned by the vendor at the time of sale.