G.R. No.

172733             August 20, 2008

SPS. CORNELIO JOEL I. ORDEN and MARIA NYMPHA V. ORDEN, and REGISTER OF
DEEDS OF NEGROS ORIENTAL, petitioners,
vs.
SPS. ARTURO AUREA and MELODIA C. AUREA, SPS. ERNESTO P. COBILE and SUSANA
M. COBILE, and FRANKLIN M. QUIJANO, respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure which seeks to set aside the Decision1 of the Court of Appeals dated 20 April 2006 in
CA-G.R. CV No. 75788 affirming in toto the Decision2 of Branch 33 of the Regional Trial Court
(RTC) of Dumaguete City in Civil Case No. 12056. The RTC decision ordered petitioners Sps.
Cornelio Joel I. Orden and Maria Nympha V. Orden to return to respondents-spouses Ernesto
Cobile and Susana M. Cobile the amount of P738,596.28 plus twenty percent interest per
annum from the filing of the complaint until fully paid.

The antecedents are as follows:

Petitioners spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are the owners of two
parcels of land located at the Municipality of Sibulan, Negros Oriental covered by Transfer
Certificate of Title Nos. T-27159 and T-27160, and the residential house standing thereon.

On 29 September 1994, petitioners Orden executed a Deed of Absolute Sale selling,

transferring and conveying the aforementioned properties to respondents-spouses Arturo Aurea
and Melodia C. Aurea, their heirs, successors and assigns. The Deed of Absolute Sale
contained, among others, the following:

That for and in consideration of the sum of ONE MILLION NINE HUNDRED
THOUSAND PESOS (P1.9M), receipt of which is hereby acknowledged to the
satisfaction of the VENDORS, WE, the spouses CORNELIO JOEL I. ORDEN and
MARIA NYMPHA VELARDO ORDEN, by these present, do hereby SELL, TRANSFER
and CONVEY, in a manner, absolute, and irrevocable, unto and in favor of herein
VENDEES, the spouses ARTURO AUREA and MELODIA C. AUREA, their heirs,
successors and assigns, the above-described two (2) parcels of land, together with the
residential house standing thereon, and declared under Tax Declaration ______, and
assessed at ___________.3

Simultaneous with the execution of the Deed of Absolute Sale, respondents-spouses Aurea
executed a Joint Affidavit whereby they declared that the true and real purchasers of the
abovementioned properties described in the Deed of Absolute Sale are respondents-spouses
Ernesto P. Cobile and Susana M. Cobile. The pertinent portions of the affidavit read:

That we are the Vendees in a document denominated "DEED OF ABSOLUTE SALE"

from the Vendors, the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA
VELARDO ORDEN, involving two (2) parcels of land under TCT-27159 (Tax Dec. No.
93-2-04-094) and TCT-27160 (Tax Dec. No. 93-2-04-095) and a residential house under
 Tax Dec. No. _____ for the sum of ONE MILLION NINE HUNDRED THOUSAND
PESOS (P1.9M), per Doc. No. 384; Page No. 78, Book No. _____; Series of 1994,
dated September _____, 1994 of Notary Public Atty. Jose G. Hernando, Jr.

That the true and real vendees in said "DEED OF ABSOLUTE SALE" adverted to above
are one ERNESTO P. COBILE and SUSANA M. COBILE who are both American
Citizens and residents of Honolulu, Hawaii, U.S.A.

We are executing this Joint Affidavit to prove and show that the real and true purchasers
of the afore-mentioned two (2) parcels of land and the residential house sold by the
spouses CORNELIO JOEL I. ORDEN are one ERNESTO P. COBILE and SUSANA M.
COBILE.4

Immediately after the signing of the Deed of Absolute Sale and Joint Affidavit, respondents
Cobile paid petitioners Orden the amount of P384,000.00 as partial payment of the purchase
price of P1,900,000.00 as evidenced by a receipt signed by petitioners Orden. The receipt
reads:

RECEIPT

RECEIVED from ERNESTO P. COBILE and SUSANA M. COBILE, the sum of THREE
HUNDRED EIGHTY FOUR THOUSAND PESOS (P384,000.00) representing partial
payment of the purchase price re "Deed of Absolute Sale" of two parcels of land and a
residential house located at Sibulan, Negros Oriental, Philippines.5

Respondents Cobile then executed a document entitled "PROMISSORY" whereby they

promised to pay petitioners Orden the amount of P566,000.00 on or before 31 October 1994,
and the remaining P950,000.00 to be paid as soon as the titles of the properties shall have been
transferred to them. Said document reads:

PROMISSORY

WE, ERNESTO P. COBILE and SUSANA M. COBILE, residents of Hawaii, U.S.A., by

these presents, do hereby promise to pay to the spouses CORNELIO JOEL I. ORDEN
and MARIA NYMPHA VELARDO ORDEN, the sum of FIVE HUNDRED SIXTY SIX
THOUSAND PESOS (P566,000.00) on or before October 31, 1994, said amount
representing the one-half balance of the purchase price of the sale of two (2) parcels of
land and a residential house located at the Municipality of Sibulan, Negros Oriental, per
Doc. No. 384; Page No. 78; Book No. IV; Series of 1994 of Notary Public JOSE G.
HERNANDO, JR., the remaining balance of NINE HUNDRED FIFTY THOUSAND
PESOS (P950,000.00) to be paid as soon as the titles of the properties subject-matter of
the sale shall have been transferred to us.6

The Deed of Absolute Sale, Joint Affidavit, receipt for P384,000.00 and the promissory note
were all prepared by Atty. Jose G. Hernando, Jr., counsel of petitioners Orden. It was the
suggestion and advice of Atty. Hernando that respondents Aurea be indicated as the vendees in
the Deed of Absolute Sale in lieu of respondents Cobile. Atty. Hernando explained that
respondents Cobile, being American citizens, could not own land in the Philippines.7 To show
true ownership of the properties to be purchased, respondents executed the Joint Affidavit
declaring that the real vendees were respondents Cobile.
Respondents Cobile failed to pay the P566,000.00 which was due on or before 31 October
1994.

On 13 December 1994, respondents Cobile, through Arturo Aurea, paid petitioners

Orden P354,596.28 representing partial payment of the purchase price. The same was
evidenced by a receipt executed by the petitioners Orden which reads:

RECEIPT

RECEIVED from SPS. ERNESTO P. COBILE and SUSANA M. COBILE, the sum of
PESOS: THREE HUNDRED FIFTY FOUR THOUSAND FIVE HUNDRED NINETY SIX &
28/100 (P354,596.28) representing partial payment of the purchase price re "Deed of
Absolute Sale" of two (2) parcels of land and a residential house located at Sibulan,
Negros Oriental, per Doc. No. 384; Page No. 78; Book No. IV; Series of 1994 of the
notary public JOSE G. HERMANDO, Jr.

Balance after this payment = P1,161,403.728

Failing to pay the balance of the purchase price, petitioners Orden wrote respondents Cobile a
letter dated 11 March 1995 informing the latter of their intention to dispose of the properties to
other interested parties if respondents Cobile did not comply with their promise to pay the
remaining balance of the purchase price. Petitioners Orden, however, gave respondents Cobile
ten days from receipt of the letter to pay; otherwise, their non-payment shall be construed as
refusal on their part and the properties shall be sold to others. The letter reads:

Please be informed that we have decided to dispose of the property (Lot 1 and 4, Block
B of the Consolidation Subdivision Plan, (LRC) Pcs-7321, all located at Barrio Maslog,
Sibulan, Negros Oriental, Philippines, entered by Transfer Certificate of Title No. T-
27160 and T-272159, respectively) to other [interested] parties, in view of your failure to
make good the conditions imposed on the "Deed of Sale" we have executed as vendors,
in your favor as vendees, sometime last September 29, 1994.

However, if only to give you a chance to fully consummate our transaction, notice is
hereby given upon your goodness to pay us the remaining balance of the aforesaid
"Deed of Sale" ten (10) days upon receipt of this letter. Your failure to do so within said
period shall be constrained (sic) as your refusal and we then shall proceed to dispose of
the property.

Rest assured that you will be reimbursed of the advance payments you made, after the
properties shall have been sold and after deductions be made concerning damages,
attorney's fees, etc.9

Respondents Cobile did not make any further payment. All in all, they paid petitioners
Orden P738,596.28 (P384,000.00 + P354,596.28). Petitioners Orden did not transfer the titles
to the properties to respondents Cobile.

On 21 May 1996, petitioners sold the properties to Fortunata Adalim Houthuijzen and the titles
thereto transferred to her name.10
On 30 September 1997, respondents-spouses Aurea and spouses Cobile, and respondent
Franklin M. Quijano filed a Complaint before the Regional Trial Court of Dumaguete City for
Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment,
Prohibitory Injuction and Restraining Order against petitioners Orden and the Register of Deeds
of Negros Oriental. Franklin Quijano was the attorney-in-fact of respondents spouses Aurea and
Cobile. The complaint was docketed as Civil Case No. 12056 and was raffled to Branch 44 of
said court.

The complaint, among other things, asked the trial court to order petitioners Orden and the
Register of Deeds of Negros Oriental for the delivery of the titles to the properties involved in the
names of respondents Cobile; in the alternative, if the titles to the properties could not be
delivered in respondents Cobile's name, to order petitioners Orden to pay the whole
consideration of the sale plus interest of 20% per annum. The restraining order and writ of
preliminary injunction were sought to restrain petitioners Orden from selling, transferring,
conveying or encumbering the properties involved to other person during the pendency of the
case and to prohibit the Register of Deeds of Negros Oriental from recording, registering and
transferring the titles to the properties to other persons except to respondents Cobile.

On 29 October 1997, petitioners Orden filed their Answer with Counterclaim.11 They asked that
the complaint be dismissed for lack of cause of action and that the Deed of Absolute Sale be
declared rescinded. They likewise ask for damages.

On 9 September 1998, following the trial court's order to amend the complaint, impleaded
therein were spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen, the
subsequent purchasers of the subject properties and holders of the titles thereto.12

On 23 February 1999, the trial court dismissed the case for lack of interest to prosecute.13 On 12
March 1999, respondents filed a motion for reconsideration which the trial court granted.14 Thus,
the case was reinstated.15

On 13 April 1999, spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen filed
their Answer with Motion to Dismiss.16

In an Order dated 1 June 1999, the trial court granted the spouses Houthuijzen's motion to
dismiss, ruling that said spouses were buyers in good faith who were able to register the sale
with the Register of Deeds, and that respondents Cobile's complaint could be enforced only
against petitioners Orden.17

On 8 July 1999, respondents moved for the reconsideration18 of the 1 June 1999 Order which
the trial court denied for lack of merit.19

During the pre-trial conference, the parties agreed only on the identities of the parties and of the
subject properties.20

On 25 April 2000, respondents filed a Motion for Inhibition21 which was granted by the Presiding
Judge of Branch 44. The case was re-raffled to Branch 33. Trial ensued.

In a decision dated 26 April 2002, the trial court disposed of the case as follows:
 ACCORDINGLY, from the foregoing disquisition, judgment is hereby rendered ordering
the defendants:

(1) to return to plaintiffs, spouses Ernesto Cobile and Susana M. Cobile the amount of
SEVEN HUNDRED THIRTY EIGHT THOUSAND FIVE HUNDRED NINETY-SIX PESOS
and TWENTY-EIGHT CENTAVOS (P738,596.28) representing the total amount
advanced by the plaintiffs to defendants; and

(2) to pay plaintiffs interest of the aforecited amount at the rate of Twenty (20%) percent
per annum from the filing of the complaint until fully paid.22

The trial court found that petitioners Orden and respondents Cobile entered into a contract of
sale. The contract, it explained, was subject to the conditions laid down in the promissory note -
that respondents Cobile would pay the amount of P566,000.00 on or before 31 October 1994,
and the petitioners Ordens would undertake the transfer of the titles to the properties in the
names of respondents Cobile, after which the latter would pay the remaining balance
of P950,000.00. It said that this was an example of reciprocal obligations. Since respondents
Cobile already violated the terms of the promissory note when they failed to pay the total
amount of P566,000.00 on the agreed date, petitioners Orden should have filed for rescission.
This, the trial court said, petitioner Orden failed to do. The letter that petitioners Orden sent to
respondents Cobile -- informing them that should they fail to comply with the terms and
conditions of the promissory note, petitioners Orden would be constrained to sell the properties
to other interested persons -- was not the rescission envisaged by law. The rescission made by
petitioners Orden was thus open to contest.

The trial court likewise ruled that the properties subject matter of the case could not be given to
respondents Cobile because the ownership thereof had passed to Fortunata Adalim-
Houthuijzen whom it regarded as an innocent purchaser for value.

Furthermore, the trial court declared that respondents Cobile could not demand specific
performance or rescission of contract, for they themselves failed to comply with the terms and
conditions set forth in the promissory note when they failed to pay the entire balance of one-half
(P950,000.00) of the total price agreed upon.

The trial court ruled that it could not in conscience grant respondents Cobile's prayer that should
petitioners Orden fail to deliver the titles in respondents Cobile's names, the Ordens be ordered
to pay the Cobiles the entire purchase price plus 20% interest per annum. It likewise said that
neither could petitioners Orden forfeit the P738,596.28 paid by respondents because they had
not rescinded the contract of sale between them either judicially or by notarial act.

On 23 May 2002, petitioners Orden filed a Notice of Appeal.23

On 20 April 2006, the Court of Appeals rendered its Decision24 affirming in toto the decision of
the trial court. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by

us AFFIRMING (sic) EN TOTO the decision dated April 26, 2002 of the Regional Trial
Court in Civil Case No. 12056.25
The Court of Appeals justified the return of what had been paid by respondents Cobile
(P738,596.28) on the ground that the deed of sale or promissory note did not contain any
provision regarding forfeiture in case the full purchase price was not paid. Moreover, it ruled that
petitioners Orden had no just or legal ground to keep the payments made by respondents
Cobile because they failed to transfer the titles of the properties in the names of respondents
Cobile. To allow petitioners Orden to retain said payments would unjustly enrich them at the
expense of respondents Cobile.

On 16 June 2006, petitioners Orden filed before us a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court.26 Per our resolution dated 10 July 2006, we required
respondents to comment on the petition within ten days from notice of the resolution.27

On 3 October 2006, respondents filed their Comment28 to which petitioners were directed to file
a Reply.29 The Reply was filed on 7 July 2007.30

On 17 September 2007, the Court gave due course to the petition and required the parties to
submit their respective memoranda within thirty days from notice.31 The parties submitted their
respective memoranda.32

Petitioners argue that the Court of Appeals erred in holding that the case at bar involves a
perfected contract of sale and that an action for rescission should have been pursued by them
(petitioners).33 They claimed that what they entered into with respondents Cobile was a
Conditional Contract of Sale. They added that although captioned "Deed of Absolute Sale," the
contract is truly one of a conditional sale, if not a contract to sell real property on installments.
The full payment of the purchase price as laid down in the promissory note is a positive
suspensive condition, the failure of which is not considered a breach, casual or serious, but
simply an event which prevented the obligation of the vendor to convey title from acquiring any
obligatory force.

In the resolution of this case, what is to be determined is the kind of contract petitioners Orden
and respondents Cobile entered into. Did they enter into a Contract of Sale or a Contract to
Sell?

Both lower courts ruled that the contract entered into by the parties was a Contract of Sale. On
the other hand, petitioners Orden insist that they entered into a Contract to Sell.

In the case at bar, on 29 September 1994, a Deed of Absolute Sale was entered into by
respondents Aurea, as vendees, and petitioners Orden, as vendors. Respondents Aurea then
executed a Joint Affidavit declaring respondents Cobile as the true and real buyers of the
subject properties. Respondent Cobile then executed a promissory note in which they promised
to pay petitioners Orden the amount of P566,000.00 on or before October 31, 1994, and the
remaining P950,000.00 to be paid as soon as the titles to the properties shall have been
transferred to them.

In order to determine the real nature of the contract entered into by the parties, all three
documents, not merely the Deed of Absolute Sale, should be considered. The Joint Affidavit of
respondents Aurea and the promissory note signed by respondents Cobile veritably show that
the latter are indeed the true purchasers of the subject properties. The contents of the
promissory note must be taken into account inasmuch as the true buyer signed said document.
In the promissory note, respondents Cobile obligated themselves to do two things: (1) to pay
petitioners Orden the amount of P566,000.00 on or before October 31, 1994; and (2) to pay the
remaining P950,000.00 as soon as the titles to the properties shall have been transferred to
them. From the records of the case, it is without question that respondents Cobile failed to fulfill
what they promised. Having failed to fulfill their first obligation, petitioners Orden no longer
transferred the titles to the properties to their names. The non-payment, therefore, by
respondents Cobile of the balance of one-half of the purchase price triggered all subsequent
actions of the parties that eventually led to respondents Cobile filing the complaint for
Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment,
Prohibitory Injunction and Restraining Order.

It is clear from the promissory note that the parties agreed to a conditional sale, the
consummation of which is subject to the conditions contained therein - full payment of the
purchase price.

A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the
vendor's obligation to transfer title is subordinated to the happening of a future and uncertain
event, so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. The suspensive condition is commonly full payment of
the purchase price.34 One form of conditional sale is what is now popularly termed as a
"Contract to Sell," in which ownership or title is retained until the fulfillment of a positive
suspensive condition, normally the payment of the purchase price in the manner agreed upon.35

The distinction between a contract of sale and a contract to sell is well-settled. In a contract of
sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved to the vendor and is not to pass to the
vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the
vendor loses ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents the obligation of the vendor
to convey title from becoming effective.36

It is thus clear that in a contract to sell, ownership is retained by the seller and is not passed to
the buyer until full payment of the price.

In the case at bar, we find that petitioners Orden and respondents Cobile entered into
a contract to sell. The real character of the contract is not the title given, but the intention of the
parties.37 Although there is a document denominated as "Deed of Absolute Sale," and there is
no provision therein of reservation of ownership to the seller, we are persuaded that the true
intent of the parties was to transfer the ownership of the properties only upon the buyer's full
payment of the purchase price. This is evident from the promissory note executed by
respondents Cobile. It is only upon payment of the full purchase price that title to the properties
shall be transferred to their names. Furthermore, circumstances show ownership over the
properties was never transferred to respondents Cobile. Respondents neither had possession of
nor title to the properties. In fact, petitioners Orden, per their letter to respondents Cobile, even
gave the latter the chance to pay the balance of the purchase price before they would sell the
properties to other interested persons. From the foregoing, it is evident that the true agreement
of the parties is for the petitioners Orden to retain ownership over the properties until
respondents shall have fully paid the purchase price.
Respondents Cobile failed to pay the balance of the purchase price. Such payment is a positive
suspensive condition, failure of which is not a breach, serious or otherwise, but an event that
prevents the obligation of the seller to convey title from arising.38 The non-fulfillment by
respondents Cobile of their obligation to pay, which is a suspensive condition for the obligation
of petitioners Orden to sell and deliver the title to the properties, rendered the contract to sell
ineffective and without force and effect.39 The parties stand as if the conditional obligation had
never existed.40 Inasmuch as the suspensive condition did not take place, petitioners Orden
cannot be compelled to transfer ownership of the properties to respondents Cobile.

The trial court further ruled that petitioners Orden should have filed a case for rescission or sent
a notarial act of rescission to respondents Cobile when they incurred a delay by failing to pay
the balance of the purchase price. Having extra-judicially rescinded their contract with
respondents Cobile, such act, according to the trial court, was subject to contest.

The trial court is mistaken. Rescission, whether judicially or by notarial act, is not required to be
done by petitioners Orden. There can be no rescission of an obligation that is still non-existing,
the suspensive condition not having happened.41 In the case before us, there was no contract to
rescind, judicially or by notarial act, because from the moment respondent Cobile failed to pay
on time the correct amount of the balance of the purchase price, the contract between the
parties was deemed ipso facto rescinded.42 The reason for this is not that petitioners Orden
have the power to rescind such contract, but because their obligation thereunder did not arise.
The remedy of rescission under Article 119143 of the Civil Code is predicated on a breach of
faith by the other party that violates the reciprocity between them. Such a remedy does not
apply to contracts to sell.44 Neither does the provision of Article 159245 apply to this case
because what said article contemplates is a contract of sale.46

In the exercise of the seller's right to automatically cancel the contract to sell, at least a written
notice must be sent to the defaulter informing him of the same.47 The act of petitioners Orden in
notifying respondents Cobile of their intention to sell the properties to other interested persons if
respondents failed to pay the balance of the purchase price was sufficient notice for the
cancellation or resolution of the their contract to sell. Since respondents Cobile failed to fulfill
their obligation even after said notice, petitioners were justified in canceling their contract (to
sell) and selling to a buyer who was willing to pay the full purchase price. Hence, we sustain
petitioners Orden's action.

We now go to the partial payments (P738,596.28) made by respondents Cobile. We decree that
said amount be returned to respondents Cobile, there being no provision regarding forfeiture of
payments made in any of the documents executed by the parties. We find such action to be just
and equitable under the premises. If we rule otherwise, there will be unjust enrichment on the
part of petitioners Orden at the expense of respondents Cobile. Interest thereon at the rate of
12% per annum shall also be paid from 30 September 1997 until fully paid.

Lest we forget, the source of all the troubles was respondents Cobile failure to pay the balance
of the purchase price. Consequently they are liable for damages. Under the circumstances
obtaining in this case, we find it equitable and just to award petitioners Orden moral damages
and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively. Their claim for
litigation expenses is denied for failure to present proof in support thereof. Exemplary damages
cannot also be awarded because it was not shown that respondents Cobile acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.48
WHEREFORE, the decision of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No.
75788 is hereby MODIFIED as follows:

(1) Petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are ordered to
return to respondents-spouses Ernesto P. Cobile and Susana M. Cobile the amount
of P738,596.28, representing the total amount advanced by the latter to the former, with interest
at the rate of 12% per annum from 30 September 1997 until fully paid; and

(2) Respondents-spouses Ernesto P. Cobile and Susana M. Cobile are ordered to pay moral
damages and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively, to
petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden.

SO ORDERED.