The contract entered into by Nicolas

and Rodolfo was a contract to sell.

a) The stipulation to execute a deed of sale upon full
payment of the purchase price is a unique and distinguishing
characteristic of a contract to sell. It also shows that the
vendor reserved title to the property until full payment.
There is no dispute that in 1993, Rodolfo agreed to buy
Nicolas's share in the Diego Building for the price of P500,000.00.
There is also no dispute that of the total purchase price, Rodolfo
paid, and Nicolas received, P250,000.00. Significantly, it is also not
disputed that the parties agreed that the remaining amount of
P250,000.00 would be paid after Nicolas shall have executed a deed
of sale.
This stipulation, i.e.,to execute a deed of absolute sale upon
full payment of the purchase price, is a unique and distinguishing
characteristic of a contract to sell.In Reyes v. Tuparan,15 this Court
ruled that a stipulation in the contract, "[w]here the vendor
promises to execute a deed of absolute sale upon the
completion by the vendee of the payment of the
price," indicates that the parties entered into a contract to
sell.According to this Court, this particular provision is tantamount
to a reservation of ownership on the part of the vendor. Explicitly
stated, the Court ruled that the agreement to execute a deed of sale
upon full payment of the purchase price "shows that the vendors
reserved title to the subject property until full payment of the
purchase price." 16
In Tan v. Benolirao,17 this Court, speaking through Justice
Brion,ruled that the parties entered into a contract to sell as
revealed by the following stipulation:
d) That in case, BUYER has complied with the terms and
conditions of this contract, then the SELLERS shall execute and
deliver to the BUYER the appropriate Deed of Absolute Sale; 18

The Court further held that "[j]urisprudence has established

that where the seller promises to execute a deed of absolute
sale upon the completion by the buyer of the payment of the
price, the contract is only a contract to sell." 19 TAESDH

b) The acknowledgement receipt signed by Nicolas as well

as the contemporaneous acts of the parties show that they
agreed on a contract to sell, not of sale. The absence of a formal
deed of conveyance is indicative of a contract to sell.
 In San Lorenzo Development Corporation v. Court of
Appeals,20 the facts show that spouses Miguel and Pacita Lu (Lu) sold
a certain parcel of land to Pablo Babasanta (Pablo).After several
payments, Pablo wrote Lu demanding "the execution of a final deed
of sale in his favor so that he could effect full payment of the
purchase price." 21 To prove his allegation that there was a
perfected contract of sale between him and Lu, Pablo presented a
receipt signed by Lu acknowledging receipt of P50,000.00 as partial
payment. 22
However, when the case reached this Court, it was ruled that
the transaction entered into by Pablo and Lu was only a contract to
sell,not a contract of sale. The Court held thus:
The receipt signed by Pacita Lu merely states that she
accepted the sum of fifty thousand pesos (P50,000.00) from
Babasanta as partial payment of 3.6 hectares of farm lot
situated in Sta. Rosa, Laguna. While there is no stipulation that
the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the parties convince us
that the Spouses Lu never intended to transfer ownership
to Babasanta except upon full payment of the purchase
price.
Babasanta's letter dated 22 May 1989 was quite telling.
He stated therein that despite his repeated requests for the
execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to
do so. In effect, Babasanta himself recognized that
ownership of the property would not be transferred to
him until such time as he shall have effected full payment
of the price. Moreover, had the sellers intended to
transfer title, they could have easily executed the
document of sale in its required form simultaneously with
their acceptance of the partial payment, but they did not.
Doubtlessly, the receipt signed by Pacita Lu should legally
be considered as a perfected contract to sell.23 CHDAEc

In the instant case, records show that Nicolas signed a mere

receipt 24 acknowledging partial payment of P250,000.00 from
Rodolfo. It states:
July 8, 1993
Received the amount of [P250,000.00] for 1 share of
Diego Building as partial payment for Nicolas Diego. HCSEcI

(signed)
Nicolas Diego 25
 As we ruled in San Lorenzo Development Corporation v. Court of
Appeals,26 the parties could have executed a document of sale upon
receipt of the partial payment but they did not. This is thus an
indication that Nicolas did not intend to immediately transfer title
over his share but only upon full payment of the purchase price.
Having thus reserved title over the property, the contract entered
into by Nicolas is a contract to sell. In addition, Eduardo admitted
that he and Rodolfo repeatedly asked Nicolas to sign the deed of
sale 27 but the latter refused because he was not yet paid the full
amount. As we have ruled in San Lorenzo Development Corporation v.
Court of Appeals,28 the fact that Eduardo and Rodolfo asked Nicolas
to execute a deed of sale is a clear recognition on their part that the
ownership over the property still remains with Nicolas. In fine, the
totality of the parties' acts convinces us that Nicolas never intended
to transfer the ownership over his share in the Diego Building until
the full payment of the purchase price. Without doubt, the
transaction agreed upon by the parties was a contract to sell, not of
sale.
In Chua v. Court of Appeals,29 the parties reached an impasse
when the seller wanted to be first paid the consideration before a
new transfer certificate of title (TCT) is issued in the name of the
buyer. Contrarily, the buyer wanted to secure a new TCT in his name
before paying the full amount. Their agreement was embodied in a
receipt containing the following terms: "(1) the balance of
P10,215,000.00 is payable on or before 15 July 1989; (2) the capital
gains tax is for the account of ...;and (3) if [the buyer] fails to pay the
balance ...the [seller] has the right to forfeit the earnest
money ...." 30 The case eventually reached this Court. In resolving
the impasse, the Court, speaking through Justice Carpio,held that
"[a] perusal of the Receipt shows that the true agreement between
the parties was a contract to sell." 31 The Court noted that "the
agreement ...was embodied in a receipt rather than in a deed of
sale, ownership not having passed between them." 32 The Court
thus concluded that "[t]he absence of a formal deed of
conveyance is a strong indication that the parties did not
intend immediate transfer of ownership, but only a transfer
after full payment of the purchase price." 33 Thus, the "true
agreement between the parties was a contract to sell." 34 CcTHaD

In the instant case, the parties were similarly embroiled in an

impasse. The parties' agreement was likewise embodied only in a
receipt. Also, Nicolas did not want to sign the deed of sale unless he
is fully paid. On the other hand, Rodolfo did not want to pay unless
a deed of sale is duly executed in his favor. We thus say, pursuant to
our ruling in Chua v. Court of Appeals 35 that the agreement between
Nicolas and Rodolfo is a contract to sell.
This Court cannot subscribe to the appellate court's view that
Nicolas should first execute a deed of absolute sale in favor of
Rodolfo, before the latter can be compelled to pay the balance of
the price. This is patently ridiculous, and goes against every rule in
the book. This pronouncement virtually places the prospective seller
in a contract to sell at the mercy of the prospective buyer, and
sustaining this point of view would place all contracts to sell in
jeopardy of being rendered ineffective by the act of the prospective
buyers, who naturally would demand that the deeds of absolute
sale be first executed before they pay the balance of the price.
Surely, no prospective seller would accommodate.
In fine, "the need to execute a deed of absolute sale upon
completion of payment of the price generally indicates that it is
a contract to sell, as it implies the reservation of title in the
vendor until the vendee has completed the payment of the
price." 36 In addition, "[a] stipulation reserving ownership in the
vendor until full payment of the price is ...typical in a contract to
sell." 37 Thus, contrary to the pronouncements of the trial and
appellate courts, the parties to this case only entered into a contract
to sell; as such title cannot legally pass to Rodolfo until he makes full
payment of the agreed purchase price.
c)Nicolas did not surrender or deliver title or possession
to Rodolfo.
Moreover, there could not even be a surrender or delivery of
title or possession to the prospective buyer Rodolfo. This was made
clear by the nature of the agreement, by Nicolas's repeated
demands for the return of all rents unlawfully and unjustly remitted
to Rodolfo by Eduardo, and by Rodolfo and Eduardo's repeated
demands for Nicolas to execute a deed of sale which, as we said
before, is a recognition on their part that ownership over the subject
property still remains with Nicolas. SEAHID

Significantly, when Eduardo testified, he claimed to be

knowledgeable about the terms and conditions of the transaction
between Nicolas and Rodolfo. However, aside from stating that out
of the total consideration of P500,000.00, the amount of
P250,000.00 had already been paid while the remaining P250,000.00
would be paid after the execution of the Deed of Sale, he never
testified that there was a stipulation as regards delivery of title or
possession. 38
 It is also quite understandable why Nicolas belatedly
demanded the payment of the rentals. Records show that the
structural integrity of the Diego Building was severely compromised
when an earthquake struck Dagupan City in 1990. 39 In order to
rehabilitate the building, the co-owners obtained a loan from a
bank. 40 Starting May 1994, the property was leased to third parties
and the rentals received were used to pay off the loan. 41 It was only
in 1996, or after payment of the loan that the co-owners started
receiving their share in the rentals. 42 During this time, Nicolas was
in the USA but immediately upon his return, he demanded for the
payment of his share in the rentals which Eduardo remitted to
Rodolfo. Failing which, he filed the instant Complaint. To us, this
bolsters our findings that Nicolas did not intend to immediately
transfer title over the property.
It must be stressed that it is anathema in a contract to sell that
the prospective seller should deliver title to the property to the
prospective buyer pending the latter's payment of the price in full. It
certainly is absurd to assume that in the absence of stipulation, a
buyer under a contract to sell is granted ownership of the property
even when he has not paid the seller in full. If this were the case,
then prospective sellers in a contract to sell would in all likelihood
not be paid the balance of the price.
This ponente has had occasion to rule that "[a] contract to sell
is one where the prospective seller reserves the transfer of title to
the prospective buyer until the happening of an event, such as full
payment of the purchase price. What the seller obliges himself to do
is to sell the subject property only when the entire amount of the
purchase price has already been delivered to him. 'In other words,
the full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to
sell from arising and thus, ownership is retained by the prospective
seller without further remedies by the prospective buyer.' It does
not, by itself, transfer ownership to the buyer." 43
The contract to sell is terminated or
cancelled.
Having established that the transaction was a contract to sell,
what happens now to the parties' agreement? EDCTIa

The remedy of rescission is not available in contracts to

sell. 44 As explained in Spouses Santos v. Court of Appeals:45
In view of our finding in the present case that the
agreement between the parties is a contract to sell, it follows
that the appellate court erred when it decreed that a judicial
 rescission of said agreement was necessary. This is because
there was no rescission to speak of in the first place. 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.
When the petitioners in the instant case repossessed the
disputed house and lot for failure of private respondents to
pay the purchase price in full, they were merely enforcing the
contract and not rescinding it. As petitioners correctly point
out, the Court of Appeals erred when it ruled that petitioners
should have judicially rescinded the contract pursuant to
Articles 1592 and 1191 of the Civil Code.Article 1592 speaks of
non-payment of the purchase price as a resolutory condition.
It does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to
sales of immovable property. Neither provision is applicable in
the present case. 46

Similarly, we held in Chua v. Court of Appeals 47 that "Article

1592 of the Civil Code permits the buyer to pay, even after the
expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by notarial act.
However, Article 1592 does not apply to a contract to sell where the
seller reserves the ownership until full payment of the price," 48 as in
this case.
Applying the above jurisprudence, we hold that when Rodolfo
failed to fully pay the purchase price, the contract to sell was
deemed terminated or cancelled. 49 As we have held in Chua v. Court
of Appeals,50 "[s]ince the agreement ...is a mere contract to sell, the
full payment of the purchase price partakes of a suspensive
condition. The non-fulfillment of the condition prevents the
obligation to sell from arising and ownership is retained by the
seller without further remedies by the buyer." Similarly, we held
in Reyes v. Tuparan 51 that "petitioner's obligation to sell the subject
properties becomes demandable only upon the happening of the
positive suspensive condition, which is the respondent's full
payment of the purchase price. Without respondent's full
payment, there can be no breach of contract to speak of
because petitioner has no obligation yet to turn over the
title.Respondent's failure to pay in full the purchase price in full is
not the breach of contract contemplated under Article 1191 of
the New Civil Code but rather just an event that prevents the
petitioner from being bound to convey title to respondent."
Otherwise stated, Rodolfo has no right to compel Nicolas to transfer
ownership to him because he failed to pay in full n the purchase
price. Correlatively, Nicolas has no obligation to transfer his
ownership over his share in the Diego Building to Rodolfo. 52 cDCSET

Thus, it was erroneous for the CA to rule that Nicolas should

have filed a case to fix the period for Rodolfo's payment of the
balance of the purchase price. It was not Nicolas's obligation to
compel Rodolfo to pay the balance; it was Rodolfo's duty to remit it.
It would appear that after Nicolas refused to sign the deed as
there was yet no full payment, Rodolfo and Eduardo hired the
services of the Daroya Accounting Office "for the purpose of
estimating the amount to which [Nicolas] still owes [Rodolfo] as a
consequence of the unconsummated verbal agreement regarding
the former's share in the co-ownership of [Diego Building] in favor
of the latter." 53 According to the accountant's report, after Nicolas
revoked his agreement with Rodolfo due to non-payment, the
downpayment of P250,000.00 was considered a loan of Nicolas
from Rodolfo. 54 The accountant opined that the P250,000.00 should
earn interest at 18%.55 Nicolas however objected as regards the
imposition of interest as it was not previously agreed upon. Notably,
the contents of the accountant's report were not disputed or
rebutted by the respondents. In fact, it was stated therein that "[a]ll
the bases and assumptions made particularly in the fixing of the
applicable rate of interest have been discussed with [Eduardo]." 56
We find it irrelevant and immaterial that Nicolas described the
termination or cancellation of his agreement with Rodolfo as one of
rescission. Being a layman, he is understandably not adept in legal
terms and their implications. Besides, this Court should not be held
captive or bound by the conclusion reached by the parties. The
proper characterization of an action should be based on what the
law says it to be, not by what a party believed it to be. "A contract is
 what the law defines it to be ...and not what the contracting parties
call it." 57
DISEaC

On the other hand, the respondents' additional submission —

that Nicolas cheated them by "vanishing and hibernating" in the
USA after receiving Rodolfo's P250,000.00 downpayment, only to
come back later and claim that the amount he received was a mere
loan — cannot be believed. How the respondents could have been
cheated or disadvantaged by Nicolas's leaving is beyond
comprehension. If there was anybody who benefited from Nicolas's
perceived "hibernation",it was the respondents, for they certainly
had free rein over Nicolas's interest in the Diego Building. Rodolfo
put off payment of the balance of the price, yet, with the aid of
Eduardo, collected and appropriated for himself the rents which
belonged to Nicolas.
||| (Diego v. Diego, G.R. No. 179965, [February 20, 2013], 704 PHIL 373-396)

Generally, partial payments of the purchase price on a contract to sell

should be returned to the buyer if the sale does not push through,
unless forfeiture of such partial payments was stipulated. However,
these partial payments may be retained and considered as rentals by
the seller if the buyer was given possession or was able to use the
property prior to transfer of title. 1 (Spouses Godinez v. Spouses
|||

Norman, G.R. No. 225449, [February 26, 2020])

Having resolved the procedural issues regarding the propriety

of the remedy sought, this Court now resolves the substantive
issues raised by petitioner's claims. Based on the parties'
allegations, the key issue pertains to the applicability of Olivarez
Realty Corporation v. Castillo, 57 which similarly involves the retention
of partial payments made on a failed contract to sell.
Olivarez involved the sale of a parcel of land, which the buyer
undertook to pay in several installments. The parties executed a
deed of conditional sale, stipulating that in addition to the
installment payments, the buyer would also institute the necessary
legal actions to clear the property of tenants, and of an adverse
claim by the Philippine Tourism Authority. It was also stipulated that
the buyer could immediately take possession of the property after
signing the deed of conditional sale, which it did.
However, the deed of absolute sale would be executed by the
seller only after the full payment of the purchase price. While the
buyer was able to pay a portion of the agreed purchase price, it
failed to pay the succeeding installments and to institute the legal
action required under the contract. This led the seller to rescind the
contract. However, in view of the buyer's 14-year occupancy of the
premises without full payment of the purchase price, the sellers also
sought to have the partial payments forfeited in their favor. 58
The foregoing circumstances allowed this Court to rule that
the contract between the parties in Olivarez was a contract to sell. As
such, this Court made the following pronouncements as to the
effects of the buyer's failure to fully pay the purchase price on a
contract to sell.
As this case involves a contract to sell, Article 1191 of
the Civil Code of the Philippines does not apply. The contract
to sell is instead cancelled, and the parties shall stand as if the
obligation to sell never existed.
xxx xxx xxx
As for prospective sellers, this court generally orders the
reimbursement of the installments paid for the property when
setting aside contracts to sell. This is true especially if the
property's possession has not been delivered to the prospective
buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession of
the property to Olivarez Realty Corporation prior to the transfer
of title. We cannot order the reimbursement of the installments
paid.
In Gomez v. Court of Appeals, the City of Manila and
Luisa Gomez entered into a contract to sell over a parcel of
land. The city delivered the property's possession to Gomez.
She fully paid the purchase price for the property but
violated the terms of the contract to sell by renting out the
property to other persons. This court set aside the contract
to sell for her violation of the terms of the contract to sell. It
ordered the installments paid forfeited in favor of the City of
Manila "as reasonable compensation for [Gomez's] use of the
[property]" for eight years.
In this case, Olivarez Realty Corporation failed to fully
pay the purchase price for the property. It only paid
PhP2,500,000.00 out of the PhP19,080,490.00 agreed
 purchase price. Worse, petitioner corporation has been in
possession of Castillo's property for 14 years since May 5,
2000 and has not paid for its use of the property.
Similar to the ruling in Gomez, we order the
PhP2,500,000.00 forfeited in favor of Castillo as reasonable
compensation for Olivarez Realty Corporation's use of the
property. 59 (Emphasis supplied, citations omitted)
Olivarez also cited the case of Gomez v. Court of
Appeals, 60 where this Court clarified that partial payments on a
failed contract to sell may be retained by the seller as "reasonable
compensation for use of the [property]."
Applying the foregoing, we are of the considered view
that the payment of the purchase price of P3,556.00,
constitutes fair and reasonable rental for the period in which
said property was under the control of awardee Luisa Gomez,
her heirs and successors-in-interest. Undeniably, the awardee
together with her heirs and successors-in-interest, have
gained benefits, financial or otherwise, for a period of eight
years — from the time of actual award of the lot to the time of
cancellation thereof (1978-1986). 61 (Emphasis supplied)
The same circumstances are present here. The parties
entered into an oral contract to transfer the leasehold rights over a
housing unit at an agreed price of US$175,000.00. 62 They do not
dispute the Court of Appeals' finding that the oral contract is a
contract to sell. However, respondents dispute whether or not
cancelling such a contract would entail the consequences discussed
in Olivarez.
This Court finds the application of Olivarez in order.
Here, petitioners turned over possession of the premises to
respondents after the latter made partial payments amounting to
US$10,000.00. Respondents then moved their furniture and
groceries into one of the housing unit's rooms and also hired a
house helper to watch over the premises in the
interim. 63 Respondents made subsequent payments, bringing its
total to US$40,000.00, but the contract to sell still failed to take
effect because of respondents' subsequent default in paying the
balance. During this five (5)-month period, petitioners were unable
to enjoy their property despite retaining a key to the
premises. 64 Thus, petitioners should have been compensated for
respondents' use of the property, consistent with Olivarez.
The conversion of partial payments into rentals is also
consistent with Article 1378 of the Civil Code, which teaches that
doubts in the interpretation of onerous contracts "should be settled
in favor of the greatest reciprocity of interests." 65 We find it only
proper that respondents reciprocate their use of the premises with
the payment of rentals while full payment on their contract to sell
was still pending.
Olivarez also recognized that compensation for use of the
property must be reasonable. In Olivarez, this Court allowed the
seller to retain the partial payments because the buyers possessed
and used the property without paying rentals.
Likewise, Gomez considered the "benefits, financial or
otherwise" 66 enjoyed by the buyer in determining whether or not to
retain partial payments as reasonable compensation. In both cases,
the sellers were unable to use their respective properties because
the buyers were in possession thereof.
While there is no definitive legal standard for computing
reasonable rentals on residential properties, this Court notes that
US$40,000.00 amounts to 22.9%, or over a fifth, of the total
purchase price of petitioner's housing unit, which is not
commensurate to the value respondents may have derived from
their four (4)-month possession of the property. While respondents'
possession prevented petitioners from using the premises, even
petitioners recognized that respondents did not actually occupy the
housing unit. 67 There is also no evidence before this Court
indicating the "benefits, financial or otherwise," 68 that respondents
may have derived from their possession. Thus, respondents' limited
use of the premises requires us to temper the amount of partial
payments that petitioners may reasonably retain.
Determining reasonable rentals would depend on the
circumstances of the parties, the nature of the property being
rented, and the prevailing situation in the relevant market at the
time of the transaction, among others. Ordinarily, this would require
reception of evidence, and thus, a remand of the case to the lower
courts. However, in order to speedily dispose of this case, and in
view of the time already spent litigating this issue, a recourse to the
analogous case of Olivarez is proper.
In Olivarez, this Court effectively allowed the prospective seller
to convert partial payments to rentals, with such rentals amounting
to 13.1% of the property's total purchase price. Having already
determined the applicability of the Olivarez ruling on the retention
of partial payments, the circumstances of this case would warrant
the retention of a similar amount. Thus, rentals for the housing unit
may be set at 13.1% of the US$175,000.00 total purchase price, or
US$22,925.00. Petitioners may, therefore, retain US$22,925.00 of
the US$40,000.00 partially paid by respondents, but must return the
remaining US$17,075.00 to respondents.
The Court of Appeals' insistence that compensation is not
warranted because respondents were unable to fully occupy the
property is unmeritorious. Olivarez 69 and Gomez 70 both allowed the
retention of partial payments as reasonable compensation for the
prospective buyer's possession or use of the property. Full
occupation of the premises is not required; neither is this Court
persuaded by respondents' argument that Olivarez does not apply
because respondents did not illegally withhold possession of the
premises or of payment of the purchase price. The payment of
reasonable rentals is not meant to punish the illegality of
respondents' actions, but to compensate petitioners' inability to
enjoy or use its own property. 71 Here, the record shows that
petitioners were unable to use the property for the duration of their
contract with respondents. 72 Thus, this Court finds that the partial
payments made by respondents may be converted into rentals.
As to the parties' claims for damages, this Court reiterates
that respondents' failure to fully pay the purchase price effectively
cancelled the contract to sell. As such, "the parties shall stand as if
the obligation to sell never existed." 73 Since the contract to sell was
effectively nonexistent, there was no basis for the alleged violations
that would have given rise to damages.
As to the payment of attorney's fees, ABS-CBN v. Court of
Appeals 74 is instructive.
The general rule is that attorney's fees cannot be
recovered as part of damages because of the policy that no
premium should be placed on the right to litigate. They are not
to be awarded every time a party wins a suit. The power of
the court to award attorney's fees under Article 2208
demands factual, legal, and equitable justification. Even when
a claimant is compelled to litigate with third persons or to incur
expenses to protect his rights, still attorney's fees may not be
awarded where no sufficient showing of bad faith could be
reflected in a party's persistence in a case other than an
erroneous conviction of the righteousness of his
cause. 75 (Emphasis supplied, citations omitted)
Respondents did not act in bad faith when they sought the
return of their partial payments. Attorney's fees are, therefore,
unwarranted in this case.
 (Spouses Godinez v. Spouses Norman, G.R. No. 225449, [February 26,
|||

2020])