G.R. No. L-7253 - Descals vs. Administrador de Rentas Internas

On July 16, 1976, Ramon Buenaventura, acting in his own behalf and as attorney-in-fact for his relatives (Angeles, Corazon, Amparo, and Maria Luisa Buenaventura), sold two parcels of land in Tagaytay City to Marcelino Galang and Guadalupe Galang.
The deed of sale detailed the following:

25% upon the signing of the instrument;
25% within three months or upon removal of the “encargado” from the premises;
The remaining 50% within one (1) year, with a stipulation of 12% interest per annum if full payment was not met within that period.

The title (TCT No. T-3603) was to be transferred upon full payment and the delivery of the owner’s duplicate certificate of title.

The petitioners (Marcelino and Guadalupe Galang) paid the initial 25% installment.
Subsequently, they demanded the removal of the “encargado” so that the sellers could deliver the owner’s duplicate certificate of title in conformity with the alternative payment period provided in the contract.
After the sellers (private respondents) failed to remove the “encargado” despite the petitioners’ willingness to pay the second 25%, the Galangs filed a complaint for specific performance with damages on March 18, 1977.
The complaint alleged that the delay in removal of the “encargado” prevented the petitioners from taking possession and developing the property, thus breaching the contract.

The contract did not reflect the true intention of the parties regarding the removal of the “encargado.”
The non-removal was due to the “encargado”’s own refusal to vacate the property, not a failure on their part.

Additionally, private respondents filed a third-party complaint against the “encargado” for subrogation and reimbursement in case of an adverse judgment. This third-party action was dismissed as it failed to state a cause of action for ejectment.
The trial court, upon considering the facts and evidence, ruled that due to the failure to remove the “encargado” (deemed an agricultural tenant under relevant agrarian laws), the petitioners were entitled to choose between enforcing the contract or its rescission.
Relying on Article 1183 of the Civil Code, the trial court held that the impossibility of ejecting the “encargado” (who was protected as a tenant) rendered the contractual condition impossible to fulfill, thereby annulling the contract. The Court of Appeals affirmed this decision in toto.

Marcelino and Guadalupe Galang petitioned for review before the Supreme Court, contending that:

The removal of the “encargado” was merely an alternative period for the payment of the second installment and was not a condition precedent to the perfection of the sale.
Even if removal were impossible due to the “encargado” being a tenant, the contractual obligation to pay the second installment and secure the title remained intact.

They argued that the lower courts erred in basing their decision on the impracticality of ejecting the “encargado” rather than recognizing the nature of the contractual condition.

Whether the removal of the “encargado” was a condition precedent essential to the perfection of the contract of sale.

Was the removal a mandatory prerequisite, or was it only an alternative timeframe tied to the second payment installment?
Did the contractual language allow for performance by paying the second 25% even if the “encargado” was not removed?

Whether the determination that the “encargado” was an agricultural tenant or lessee was made correctly.

Was there sufficient evidence to conclusively classify the “encargado” as a tenant, thereby implicating the protections under the Agrarian Reform laws (e.g., RA 3844, PD No. 1038)?

What was the proper remedy when confronted with an allegedly impossible condition under the contract?

Should the legal impossibility (if removal of the “encargado” were indeed a condition precedent) annul the obligation under Article 1183 of the Civil Code?
Alternatively, was specific performance of the contract still viable despite the inability to bring about the removal of the “encargado”?