Case Summary (G.R. No. 179965)
Factual Background
In 1993, Nicolas Diego (petitioner) and his brother Rodolfo Diego (respondent) orally agreed on a contract to sell Nicolas’s share in the Diego Building, valued at ₱500,000.00. Rodolfo paid ₱250,000.00 as a downpayment, with the agreement that the deed of sale would only be executed once the remaining ₱250,000.00 was fully paid. Rodolfo failed to pay the balance. Meanwhile, Eduardo Diego, another brother and administrator of the Diego Building, managed the property’s leases and rents but failed to remit Nicolas's share to him, instead giving it to Rodolfo. Nicolas filed a complaint seeking accounting, remittance of rents, and damages.
Lower Courts’ Decisions
The Regional Trial Court (RTC) ruled that the contract between Nicolas and Rodolfo was already perfected as a contract of sale in 1993 when the partial payment was made; thus, Nicolas had ceased to be a co-owner and no longer entitled to rents. The RTC ordered Nicolas to execute the deed of sale upon payment of the remaining balance. The Court of Appeals (CA) affirmed the decision, holding that Rodolfo could compel Nicolas to execute a deed of sale and that Nicolas’s assertion of rescission was invalid given partial payment, partial performance, and Rodolfo’s opposition to rescission. The CA also ruled that Nicolas had no further rights to his share of the rentals and that Rodolfo was entitled to collect the fruits of the property.
Issues on Petition for Review
- Whether a perfected contract of sale existed given the suspensive condition of full payment was not met.
- Whether the contract was legally binding and not rescinded despite Nicolas’s revocation.
- Whether Nicolas acted legally in unilaterally rescinding the agreement due to Rodolfo’s breach.
- Whether Nicolas retained rights over the property shares and rents, pending full payment.
- Whether Rodolfo was unjustly enriched by receiving rents without full payment and title transfer.
- Whether damages, attorney’s fees, and litigation expenses should have been awarded to Nicolas.
Petitioner’s Arguments
Nicolas contended there was no perfected sale absent full payment, thus no transfer of ownership occurred. He argued that Rodolfo’s failure to pay the balance within a reasonable time constituted a material breach entitling him to rescind. Nicolas further maintained that title remained with him until full payment and that Rodolfo had no right to collect rents. He also insisted on an award of damages, attorney’s fees, and litigation expenses due to respondents' wrongful conduct.
Respondents’ Arguments
Respondents maintained the contract was a perfected sale upon downpayment, claiming Nicolas had effectively “vanished” to the USA after receiving the partial payment and later denied it was a sale, calling the ₱250,000.00 a loan. They argued the petition was a reiteration of prior arguments already addressed.
Supreme Court’s Ruling: Nature of the Contract
The Supreme Court ruled the agreement between Nicolas and Rodolfo was a contract to sell, not a contract of sale. The defining feature of the contract—a stipulation that the deed of sale would be executed only upon full payment—indicates a reservation of title by the seller until the completion of payment. This is consistent with established jurisprudence (Reyes v. Tuparan; Tan v. Benolirao; San Lorenzo Development Corporation v. Court of Appeals), which holds that such stipulation transforms the agreement into a contract to sell.
Furthermore, the absence of a formal deed of sale and the execution of a mere acknowledgment receipt for the downpayment further evidence the intent to reserve ownership until full payment. The Court emphasized that the refusal of Nicolas to execute the deed of sale pending the full payment, and demands from Rodolfo and Eduardo for Nicolas to sign, serve as recognition that title had not yet passed.
Right to Possession and Receipt of Rents
Since Rodolfo never fully paid the purchase price, title and ownership over Nicolas’s share remained with Nicolas, making Rodolfo and Eduardo’s receipt and appropriation of rental income wrongful. Eduardo, as property administrator, was held solidarily liable for wrongfully appropriating Nicolas’s share of rents and fruits of the building by remitting them to Rodolfo.
Effects on Contractual Obligations and Remedies
The Court clarified that because this was a contract to sell with a positive suspensive condition (full payment), failure to pay the remaining balance prevents the obligation to convey title from acquiring obligatory force. Thus, Nicolas retained ownership and was not obligated to transfer title nor execute a deed of sale before receiving full payment. The Court rejected the lower courts’ view that Nicolas had to execute the deed first to compel payment, holding this would unfairly prejudice sellers under contracts to sell.
The Court analogized to prior cases that non-payment under a contract to sell does not amount to a breach warranting rescission because the obligation to sell has not yet arisen. Therefore, Nicolas’s purported rescission was correctly understood as a termination or cancellation of the contract to sell due to Rodolfo’s non-fulfillment of the condition precedent.
Accounting, Damages, and Attorney’s Fees
Respondents were ordered to surrender possession and control of Nicolas’s share in the property, return all documents related to the share, and render a full accounting of all transactions from 1993 onward, including remitting all rents wrongfully withheld, with legal interest from the complaint’s filing. Eduardo and Rodolfo were held solidarily liable for these claims due to their bad faith and abuse of authority.
The Court awarded Nicolas attorney’s fees (₱50,000.00), litigation expenses (₱20,000.00), and counsel appearance fees, recognizing that respondents’ refusal to comply with their obligations compelled Nicolas to incur expenses and evidenced bad faith.
The downpayment of ₱250,000.00 was applied by way of compensation against Rodolfo’s liabilities for damages and other awards.
Dismissal of Counterclaim and Final Direc
Case Syllabus (G.R. No. 179965)
Facts and Background
- Petitioner Nicolas P. Diego and respondent Rodolfo P. Diego, brothers and co-owners of the Diego Building in Dagupan City, entered into an oral agreement in 1993.
- The agreement concerned Nicolas’s share in the building fixed at P500,000.00, with Rodolfo making a downpayment of P250,000.00.
- It was agreed the deed of sale would only be executed upon full payment of the remaining P250,000.00.
- Rodolfo failed to pay the remaining balance.
- The Diego Building was leased to third parties, managed by Eduardo P. Diego, another brother and administrator.
- Eduardo remitted Nicolas’s share of rents to Rodolfo instead of Nicolas.
- Despite Nicolas’s demands, respondents failed to account for and remit rents due him.
- Nicolas filed a complaint in 1999 for accounting, delivery of rents, and damages.
Procedural History
- The Regional Trial Court (RTC), Branch 40, Dagupan City, dismissed the complaint in 2005, ruling the contract to be a perfected contract of sale.
- The Court of Appeals (CA) affirmed the RTC decision in 2007, upholding that Rodolfo had a perfected contract of sale and was entitled to ownership and rents.
- Nicolas filed a petition for review on certiorari before the Supreme Court challenging the CA decision.
Issues Presented
- Whether there was a perfected contract of sale or only a contract to sell due to the condition of full payment before execution of deed.
- Whether Nicolas validly rescinded the agreement due to Rodolfo’s breach.
- Whether Rodolfo had ownership and right over rents despite incomplete payment.
- Whether respondents unjustly enriched themselves at Nicolas’s expense.
- Whether damages, attorney’s fees, and litigation expenses are proper.
Held Ruling
- The contract between Nicolas and Rodolfo is a contract to sell, not a contract of sale.
- The stipulation that deed of sale shall be executed only after full payment is a suspensive condition, indicating reserved ownership by Nicolas until complete payment.
- Non-fulfillment of payment prevents transfer of ownership.
- Respondents Rodolfo and Eduardo unlawfully retained and appropriated Nicolas’s share of rents.
- The contract to sell was terminated or cancelled upon Rodolfo’s failure to pay the remaining balance.
- Nicolas has no obligation to execute the deed of sale prior to full payment.
- Nicolas acted within his rights in revoking the agreement, which is properly characterized as termination, not rescission.
- Respondents are solidarily liable to account for and return rents and other benefits derived from Nicolas’s share.
- Attorney’s fees and litigation expenses are awarded due to bad faith and compelling Nicolas to litigate.