Title
Heirs of Atienza vs. Espidol
Case
G.R. No. 180665
Decision Date
Aug 11, 2010
Heirs of Atienza sold land under land reform to Espidol via contract to sell. Espidol failed to pay installments; SC ruled contract cancellable as ownership remained with sellers until full payment.
contract to sell
installment payments
cancellation of contract

Case Summary (G.R. No. L-9305)

Factual Background

The petitioners owned a 21,959 square meter tract of registered agricultural land in Valle Cruz, Cabanatuan City covered by Transfer Certificate of Title T-3971 and Emancipation Patent 416698, acquired under P.D. 27. On August 12, 2002 they and respondent entered into a written Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad fixing the sale price at P130.00 per square meter or P2,854,670.00 in the aggregate, payable in three installments: P100,000.00 upon signing, P1,750,000.00 in December 2002, and P974,670.00 in June 2003. Respondent paid the P100,000.00 down payment and expended P30,000.00 for brokers’ commission but failed to pay the P1,750,000.00 installment when it fell due in December 2002. He offered alternative sums — the petitioners stated he offered P500,000.00 while respondent claimed he offered P800,000.00 — and later travelled from the United States to the Philippines stating an intent to pay. Respondent explained his initial inability to pay by reference to an injunction in an American court arising from a domestic violence action by his wife.

Trial Court Proceedings

On February 21, 2003 the petitioners sued in Civil Case No. 4451 for annulment of the agreement with damages. Respondent answered, contending the instrument was a contract to sell and that non-payment of an installment did not constitute a breach that warranted annulling a perfected sale; instead, specific performance would be the remedy and the action was premature because the final installment was not yet due. The Regional Trial Court, by decision dated January 24, 2005, found that the non-payment of an installment in a contract to sell is an event that authorizes the vendor not to convey title but does not automatically constitute a breach meriting rescission. The RTC emphasized respondent’s demonstrated effort to pay and his good faith, held the action premature, and invoked the requirements of R.A. 6552 for extrajudicial cancellation which the petitioners had not complied with; it therefore declared the contract valid and ordered compliance with its terms.

Court of Appeals Ruling and Motion for Reconsideration

The Court of Appeals affirmed the trial court’s decision in CA-G.R. CV 84953. The petitioners filed a motion for reconsideration before the CA, wherein they additionally argued that R.A. 6552 did not apply because the land was agricultural and respondent had not failed to pay installments for two years as required for coverage, and that the sale was void because the property was covered by an emancipation patent under P.D. 27. The Court of Appeals denied the motion for reconsideration and the petitioners elevated the case to the Supreme Court.

Issues Presented

The Supreme Court framed the issues as whether the petitioners could validly sell land acquired under P.D. 27, whether the petitioners were entitled to cancel the contract for respondent’s failure to pay the December 2002 installment, and whether the petitioners’ action for cancellation was premature in the absence of the notarial notice of cancellation required by R.A. 6552.

Supreme Court’s Analysis on Transferability under P.D. 27 and E.O. 228

The Court observed that the petitioners raised the alleged illegality of the sale only in their motion for reconsideration before the Court of Appeals, which ordinarily precluded consideration on appeal, but elected to reach the substantive point because it implicated a significant land reform policy. The petitioners’ title plainly evidenced grant of final title on January 9, 1990 under P.D. 27. The Court explained that while P.D. 27 initially prohibited transfers except to the government or by hereditary succession, E.O. 228, issued in 1987 and particularly Section 6, permitted transfer of land by beneficiaries who had fully paid their amortizations with the Land Bank of the Philippines. The petitioners’ title stated compliance with the requirements for final grant under P.D. 27, which the Court interpreted to mean that amortizations had been paid and therefore the petitioners could legally transfer the land.

Supreme Court’s Analysis on the Nature of the Contract and Effect of Non-Payment

The Court reviewed the legal distinction between a contract of sale and a contract to sell. It reaffirmed that in a contract of sale title passes to the buyer upon delivery and non-payment is a negative resolutory condition, whereas in a contract to sell the seller retains ownership and the buyer’s full payment is a positive suspensive condition for transfer. The Court found the parties’ instrument to be a contract to sell because the petitioners retained title pending full payment. The Court agreed in part with the RTC and the CA that non-payment of the December 2002 installment was a failure of a suspensive condition and therefore did not constitute rescission of an already perfected sale. The Court found, however, that the lower courts erred in concluding that the petitioners remained bound to convey if respondent later paid. The Court held that when a buyer fails to pay an installment fixed by day certain, the seller may validly cancel and disregard the contract because the obligation to sell never arose; the parties then stand as if the conditional obligation had never existed. The Court further reasoned that the suspensive condition in this case was not pure because, although the petitioners had no duty to convey pending full payment, they did have an immediate obligation not to sell to others; the buyer’s default relieved the seller of the duty to hold the property in reserve. The Court emphasized the substantial nature of the default: respondent paid only P100,000.00 — about 3.5% of the total price — and failed to pay the large second installment when due. Given that respondent never tendered full payment later, the Court concluded the petitioners were entitled to judicial relief and that the action was not premature even if the final installment had not yet fallen due when the complaint was filed.

Supreme Court’s Ruling on R.A. 6552 and Notice Requirement

The Court held that the notarial notice of cancellation mandated by R.A. 6552 pertains to extrajudicial cancellation outs

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