GR 186094; (August, 2010) (Digest)
G.R. No. 186094 ; August 23, 2010
PACIENCIA A. DALEON, et al., Petitioners, vs. MA. CATALINA P. TAN, et al., Respondents.
FACTS
Petitioners (the Daleons) and respondents (the Tans) executed a Contract to Sell covering a parcel of land. The Tans made a substantial downpayment and issued twelve postdated checks for the balance. A handwritten provision (paragraph 15-A) stipulated that if any check bounced, the contract would be rescinded and 50% of payments made would be forfeited. Subsequently, an adverse claim was annotated on the title by a third party, Bartolome Sy. Citing their right to a clean title, the Tans placed a stop payment order on all checks and demanded the cancellation of the adverse claim and delivery of clean title before proceeding with payment. The Daleons eventually secured a court order for the cancellation of the adverse claim, but the Tans’ checks were dishonored due to the stop payment order. The Daleons filed an action for rescission and enforcement of the forfeiture clause.
ISSUE
Whether the sellers (Daleons) are entitled to rescind the Contract to Sell and forfeit 50% of the downpayment due to the buyers’ (Tans) failure to pay the subsequent installments.
RULING
No. The Supreme Court affirmed the Court of Appeals and ruled in favor of the Tans, ordering the Daleons to return the full downpayment with legal interest. The Court distinguished a contract to sell from a contract of sale. In a contract to sell, ownership is retained by the seller until the buyer completes payment; full payment is a positive suspensive condition. The buyer’s failure to pay is not a breach that warrants rescission under Article 1191 of the Civil Code, but merely an event that prevents the obligation to convey title from arising. Here, the Tans’ refusal to pay was justified. The sellers have an implied warranty against eviction and are obligated to deliver the property free from all liens and encumbrances. The emergence of the adverse claim constituted a legal impediment that entitled the Tans, as buyers in good faith, to suspend payment until the title was cleared. Consequently, the forfeiture clause (paragraph 15-A) could not be validly invoked as the Tans’ act was not a culpable breach but a valid exercise of their right. The contract was merely set aside, obligating the Daleons to return all payments received to prevent unjust enrichment.