Santos vs.

Court of Appeals

Facts:

The spouses Fortunato and Rosalinda Santos owned the house and lot consisting of 350 square meters
located at Lot 7, Block 8, Better Living Subdivision, Parañaque, Metro Manila, as evidenced by TCT (S-
11029) 28005 of the Register of Deeds of Parañaque. The land together with the house, was mortgaged
with the Rural Bank of Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16, 1987 .
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers in Pasay City
and soon became very good friends with her. The duo even became kumadres when Carmen stood as a
wedding sponsor of Rosalinda’s nephew. On June 16, 1984, the bank sent Rosalinda Santos a letter
demanding payment of P16,915.84 in unpaid interest and other charges. Since the Santos couple had no
funds, Rosalinda offered to sell the house and lot to Carmen. After inspecting the real property, Carmen
and her husband agreed. Sometime that month of June, Carmen and Rosalinda signed a document,
which reads:

“Received the amount of P54,100.00 as a partial payment of Mrs. Carmen Caseda to the (total) amount
of 350,000.00 (house and lot) that is owned by Mrs. Rosalinda R. Santos. (Mrs.) (Sgd.) Carmen H. Caseda
direct buyer Mrs. Carmen Caseda “(Sgd.) Rosalinda Del R. Santos Owner Mrs. Rosalinda R. Santos House
and Lot Better Living Subd. Parañaque, Metro Manila Section V Don Bosco St.” 2 The other terms and
conditions that the parties agreed upon were for the Caseda spouses to pay:

(1) the balance of the mortgage loan with the Rural bank amounting to P135,385.18;

(2) the real estate taxes;

(3) the electric and water bills; and

(4) the balance of the cash price to be paid not later than June 16, 1987, which was the maturity date of
the loan.

The Casedas gave an initial payment of P54,100.00 and immediately took possession of the property,
which they then leased out. They also paid in installments, P81,696.84 of the mortgage loan. The
Casedas, however, failed to pay the remaining balance of the loan because they suffered bankruptcy in
1987. Notwithstanding the state of their finances, Carmen nonetheless paid in March 1990, the real
estate taxes on the property for 1981-1984. She also settled the electric bills from December 12, 1988 to
July 12, 1989. All these payments were made in the name of Rosalinda Santos. In January 1989, the
Santoses, seeing that the Casedas lacked the means to pay the remaining installments and/or
amortization of the loan, repossessed the property. The Santoses then collected the rentals from the
tenants. In February 1989, Carmen Caseda sold her fishpond in Batangas. She then approached
petitioners and offered to pay the balance of the purchase price for the house and lot. The parties,
however, could not agree, and the deal could not push through because the Santoses wanted a higher
price. For understandably, the real estate boom in Metro Manila at this time, had considerably jacked up
realty value. On August 11, 1989, the Casedas filed Civil Case No. 89- 4759, with the RTC of Makati, to
have the Santoses execute the final deed of conveyance over the property, or in default thereof, to
reimburse the amount of P180,000.00 paid in cash and P249,900.00 paid to the rural bank, plus interest,
as well as rentals for eight months amounting to P32,000.00, plus damages and costs of suit.

After trial on the merits, the lower court disposed of the case as follows: “WHEREFORE, judgment is
hereby ordered: dismissing plaintiffs’ (Casedas’) complaint; and declaring the agreement marked as
Annex “C” of the complaint rescinded. Costs against plaintiffs. “SO ORDERED.” 4 Said judgment of
dismissal is mainly based on the trial court’s finding that: “Admittedly, the purchase price of the house
and lot was P485,385.18, i.e. P350,000.00 as cash payment and P135.385.18, assumption of mortgage.
Of it plaintiffs [Casedas] paid the following: (1) P54,100.00 down payment; and (2) P81,694.64
installment payments to the bank on the loan (Exhs. E to E-19) or a total of P135,794.64. Thus, plaintiffs
were short of the purchase price. They cannot, therefore, demand specific performance.” 5 The trial
court further held that the Casedas were not entitled to reimbursement of payments already made,
reasoning that:

“As earlier mentioned, plaintiffs made a total payment of P135,794.64 out of the purchase price of
P485,385.18. The property was in plaintiffs’ possession from June 1984 to January 1989 or a period of
fifty-five months. During that time, plaintiffs leased the property. Carmen said the property was rented
for P25.00 a day or P750.00 a month at the start and in 1987 it was increased to P2,000.00 and
P4,000.00 a month. But the evidence is not precise when the different amounts of rental took place. Be
that as it may, fairness demands that plaintiffs must pay defendants for their exercise of dominical rights
over the property by renting it to others. The amount of P2,000.00 a month would be reasonable based
on the average of P750.00, P2,000.00, P4,000.00 lease-rentals charged. Multiply P2,000.00 by 55
months, the plaintiffs must pay defendants P110,000.00 for the use of the property. Deducting this
amount from the P135.794.64 payment of the plaintiffs on the property, the difference is P25,794.64.
Should the plaintiffs be entitled to a reimbursement of this amount? The answer is in the negative.
Because of failure of plaintiffs to liquidated the mortgage loan on time, it had ballooned from its original
figure of P135,384.18 as of June 1984 to P337,280.78 as of December 31, 1988. Defendants [Santoses]
had to pay the last amount to the bank to save the property from foreclosure. Logically, plaintiffs must
share in the burden arising from their failure to liquidate the loan per their contractual commitment.
Hence, the amount of P25,794.64 as their share in the defendants’ damages in the form of increased
loan-amount, is reasonable.” 6 On appeal, the appellate court, as earlier noted, reversed the lower
court. The appellate court held that rescission was not justified under the circumstances and allowed
the Caseda spouses a period of ninety days within which to pay the balance of the agreed purchase
price.

Issue: WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL
CONTRACT TO SELL IN WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART. 1592, 7 CIVIL CODE) IS
NOT APPLICABLE.

WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE PURCHASE PRICE
INCLUDING THE NONCOMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE MORTGAGE LOAN ON
TIME WHICH CAUSED GRAVE DAMAGE AND PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL
BREACH TO JUSTIFY RESCISSION OF A CONTRACT TO SELL UNDER ARTICLE 1191 8 (CIVIL CODE).
Ruling: Civil Law; Contracts; Sale; A contract is what the law defines it to be, taking into consideration its
essential elements, and not what the contracting parties call it; The transfer of ownership in exchange
for a price paid or promised is the very essence of a contract of sale.—It must be emphasized from the
outset that a contract is what the law defines it to be, taking into consideration its essential elements,
and not what the contracting parties call it. Article 1458 of the Civil Code defines a contract of sale. Note
that the said article expressly obliges the vendor to transfer ownership of the thing sold as an essential
element of a contract of sale. This is because the transfer of ownership in exchange for a price paid or
promised is the very essence of a contract of sale.

Same; Same; Same; Contract of Sale Distinguished from a Contract to Sell.—As we earlier pointed out, in
a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase
price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation
that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is
entirely different from the situation in a contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost
ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside.
In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied
fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to
meet the condition precedent, he is enforcing the contract and not rescinding it.