G.R. No. 161318 ; November 25, 2009
JULIE NABUS, MICHELLE NABUS and BETTY TOLERO, Petitioners, vs. JOAQUIN PACSON and JULIA PACSON, Respondents.

FACTS

Spouses Bate and Julie Nabus owned a parcel of land mortgaged to PNB. On February 19, 1977, they executed a Deed of Conditional Sale over a 1,000-square-meter portion in favor of respondents Spouses Pacson for ₱170,000.00. The deed stipulated payment terms: an initial amount to PNB, monthly installments to extinguish the mortgage, and subsequent monthly payments to the vendors until full price was paid, after which absolute sale documents would be executed. Respondents paid PNB, fully settling the mortgage, and took possession of the property, constructing improvements for their business. They made numerous payments directly to the Nabuses over several years.
After Bate Nabus died, Julie Nabus and daughter Michelle executed an Extrajudicial Settlement, transferring title to themselves and later to petitioner Betty Tolero. Despite respondents having paid a substantial portion (₱112,455.16) of the price, leaving a balance of ₱57,544.84, petitioners refused to execute the final deed of sale. Respondents filed a complaint for specific performance.

ISSUE

Whether respondents are entitled to specific performance to compel petitioners to execute a deed of absolute sale upon payment of the balance of the purchase price.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ decision ordering specific performance. The contract 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 vendor’s obligation to sell becomes demandable only upon the buyer’s full payment. Here, respondents substantially complied with their obligations by taking possession, making improvements, and paying a significant majority of the price over many years, with petitioners accepting the payments without objection.
The Court found that respondents were clearly willing and able to pay the remaining balance, as evidenced by their consignation of the amount in court. Petitioners’ refusal to accept the balance and execute the deed was unjustified. The right to rescind under a contract to sell is not absolute; it must be exercised in good faith. Petitioners’ act of transferring the property to a third party (Tolero) after respondents had substantially performed constituted bad faith, barring them from invoking non-payment as a ground to rescind. Equity dictates that respondents, who have invested significantly and acted in good faith, should be allowed to complete payment and acquire title. Thus, specific performance is the proper remedy.