G.R. No. 179965 ; February 20, 2013
NICOLAS P. DIEGO, Petitioner, vs. RODOLFO P. DIEGO and EDUARDO P. DIEGO, Respondents.

FACTS

In 1993, petitioner Nicolas and his brother, respondent Rodolfo, entered into an oral agreement whereby Nicolas would sell his co-ownership share in the family’s Diego Building to Rodolfo for ₱500,000. Rodolfo paid a downpayment of ₱250,000. It was stipulated that the deed of absolute sale would be executed only upon Rodolfo’s payment of the remaining ₱250,000 balance. Rodolfo, however, failed to pay this balance. Meanwhile, the building was leased, and the administrator, respondent Eduardo (another brother), gave Nicolas’s share of the rentals to Rodolfo instead of to Nicolas. Nicolas filed a complaint seeking an accounting and delivery of his share of the rentals.
The Regional Trial Court dismissed Nicolas’s complaint, ruling that a perfected contract of sale existed from the 1993 downpayment, so Nicolas had “ceased to be a co-owner” and was no longer entitled to the fruits of the property. It ordered Nicolas to execute a deed of sale upon Rodolfo’s payment of the balance. The Court of Appeals affirmed this decision.

ISSUE

Whether the agreement between Nicolas and Rodolfo is a contract of sale or a contract to sell, and consequently, whether Nicolas remained a co-owner entitled to the fruits (rentals) of the property pending full payment.

RULING

The Supreme Court reversed the lower courts. It held the agreement was a contract to sell, not a contract of sale. The pivotal distinction lies in the reservation of ownership. In a contract to sell, ownership is retained by the seller and passes to the buyer only upon full payment of the price, which is a positive suspensive condition. Here, the parties expressly agreed the deed of sale would be executed only upon full payment of the ₱250,000 balance. This stipulation clearly reserved title in Nicolas until complete payment.
Consequently, since the suspensive condition (full payment) was not fulfilled, ownership did not pass to Rodolfo. Nicolas remained a co-owner of the property and was entitled to his proportionate share of the rentals until full payment was made. The Court emphasized that in a contract to sell, the seller retains ownership and the right to dispose of the property; the buyer’s non-payment is not a breach but simply an event that prevents the obligation to convey title from arising. The lower courts erred in declaring a perfected contract of sale and in depriving Nicolas of his share of the fruits. The Court ordered Rodolfo and Eduardo to account for and deliver Nicolas’s share of the rentals from 1993, and directed Rodolfo to pay the balance of the purchase price as a precondition for Nicolas’s execution of the deed of absolute sale.