G.R. No. 188064 ; June 1, 2011
MILA A. REYES, Petitioner, vs. VICTORIA T. TUPARAN, Respondent.

FACTS

Petitioner Mila A. Reyes, the registered owner of a lot and buildings in Valenzuela City, mortgaged the property to FSL Bank. In November 1990, petitioner and respondent Victoria T. Tuparan, along with FSL Bank, executed a “Deed of Conditional Sale of Real Properties with Assumption of Mortgage.” Respondent agreed to buy the property for ₱4.2 million, payable by assuming the petitioner’s bank loan of about ₱2.28 million and paying a balance of ₱1.2 million to petitioner in three installments. The deed did not incorporate several verbal side agreements, including a condition allowing petitioner to cancel the sale within three months if she found a buyer for ₱6.5 million. Respondent defaulted on the installment payments. Petitioner filed an action for rescission of contract with damages, alleging respondent failed to pay the full ₱1.2 million balance, reneged on the verbal cancellation clause, failed to renew fire insurance, and collected rentals from the property without sharing them. Respondent countered that the contract was an absolute sale, that she had fully paid more than the purchase price by paying the assumed mortgage and making other payments, and that rescission was not possible as the parties could no longer be restored to their original positions. The Regional Trial Court (RTC) ruled the contract was a contract to sell, found a balance of ₱805,000 unpaid, but denied rescission, awarding only the balance with interest. The Court of Appeals (CA) affirmed the RTC’s classification of the contract as a contract to sell and the finding of an unpaid balance, but deleted the award of interest and attorney’s fees.

ISSUE

Whether the Court of Appeals erred in affirming the trial court’s decision which, among other things, classified the agreement as a contract to sell, found an unpaid balance of the purchase price, and denied the remedy of rescission.

RULING

The Supreme Court DENIED the petition and affirmed the decision of the Court of Appeals with modification regarding the payment of the balance.
1. Nature of the Contract: The agreement was a contract to sell, not a contract of sale. Ownership was retained by the seller (petitioner) until the buyer (respondent) fulfilled the positive suspensive condition of full payment of the purchase price. The non-payment of installments was not a breach warranting rescission but merely an event that prevented the obligation to convey title from arising.
2. Unpaid Balance: The Supreme Court upheld the findings of the RTC and CA that respondent failed to fully pay the ₱1.2 million balance due directly to petitioner. The payments made to FSL Bank for the assumed mortgage constituted payment of a portion of the total purchase price, but did not extinguish the separate obligation to pay the stipulated balance to petitioner. An unpaid balance of ₱805,000 was established.
3. Remedy: Since the contract was a contract to sell, the remedy for non-payment is not judicial rescission under Article 1191 of the Civil Code, but an action for specific performance or for the rescission of the contract under the stipulations provided by the parties. The Court ordered respondent to pay the remaining balance of ₱805,000 to petitioner. Upon full payment, petitioner is obligated to execute a deed of absolute sale. Failure to pay within 90 days will render the contract rescinded, and petitioner shall return all payments received from respondent, minus any legitimate deductions.
4. Other Claims: The Court found no basis to award damages (moral, exemplary, temperate) or attorney’s fees to either party. Petitioner’s claims based on the unincorporated verbal side agreements (e.g., cancellation clause, free use of space) could not be enforced against respondent. Respondent’s claim for unpaid rentals from petitioner was also dismissed for lack of merit.