Title
Nabus vs. Pacson
Case
G.R. No. 161318
Decision Date
Nov 25, 2009
Spouses Nabus sold land to Pacsons via conditional sale; Pacsons failed full payment. Julie Nabus later sold to Tolero, who acted in good faith. Court ruled for Nabus, citing contract to sell, no breach, and good faith purchase.
contract to sell
contract of sale
validity of sale
A

Case Summary (G.R. No. 161318)

Factual Background

The spouses Bate and Julie Nabus owned a registered parcel of land totaling 1,665 square meters under TCT No. T-9697. The property was mortgaged to Philippine National Bank for a P30,000 loan. On February 19, 1977, the Nabuses executed a Deed of Conditional Sale covering 1,000 square meters in favor of the spouses Pacson for P170,000, with express stipulations that the vendor would execute transfer documents only “as soon as the full consideration of this sale ha[d] been paid.” The Pacsons paid various sums to the Nabuses and to PNB between February 1977 and January 1984, producing 364 receipts showing cumulative payments of P112,455.16 and an alleged unpaid balance of P57,544.84. During possession, the Pacsons erected improvements and operated a truck body-building and repair shop on the lot. Bate Nabus died on December 24, 1977. A TCT in the names of Julie and Michelle Nabus was issued as T-17718 on February 17, 1984. On March 5, 1984, Julie and Michelle executed a Deed of Absolute Sale to Betty Tolero covering the entire 1,665 square meters for an agreed price of P200,000, and new titles were issued to Tolero on March 16, 1984. Thereafter the Pacsons were denied access to their shop and filed suit.

Trial Court Proceedings and Rulings

The Pacsons filed Civil Case No. 84-CV-0079 in the Regional Trial Court of La Trinidad, Benguet, seeking annulment of the extrajudicial settlement as it affected their 1,000-square-meter interest, annulment of TCT No. T-17718, annulment of the Deed of Absolute Sale to Betty Tolero, issuance of a writ of preliminary injunction, and damages. The trial court found that the original and other copies of the Deed of Conditional Sale were duly signed and that the payments evidenced purchase and not rent. The court concluded that the transaction was a contract of sale with reciprocal obligations and that, under Art. 1191, the Pacsons had elected fulfillment. The trial court ordered Betty Tolero to execute a deed of absolute sale in favor of the Pacsons upon their payment of the balance P57,544.84, and to surrender the owner’s duplicate copies of TCT Nos. T-18650 and T-18651. The court further awarded P50,000 moral damages, P20,000 exemplary damages, and P10,000 attorney’s fees against Julie Nabus, Michelle Nabus, and Betty Tolero.

Court of Appeals Decision

The Court of Appeals affirmed the trial court’s decision in a November 28, 2003 Decision, but modified the award by deleting attorney’s fees. The CA thus upheld the trial court’s disposition ordering specific performance by Betty Tolero in favor of the Pacsons upon payment of the balance stated in the trial court’s judgment.

Issues Presented on Review

The petition to the Supreme Court presented, inter alia, whether the Deed of Conditional Sale was a contract of sale or a contract to sell; whether the Deed of Conditional Sale had been converted into a contract of lease; whether the Pacsons had fully performed or were in default; whether Betty Tolero was a purchaser in good faith; and whether the relief ordered by the lower courts — specifically, ordering Betty Tolero to execute a deed of absolute sale which was not expressly prayed for — was proper.

Parties’ Contentions

Petitioners contended that the instrument was a contract to sell, because it expressly reserved the transfer of title until full payment; that respondents failed to pay the stipulated installments and thus the suspensive condition was not fulfilled; and that Betty Tolero acquired a valid title by absolute sale which the courts below should have upheld. Respondents maintained that the instrument was a contract of sale evidenced by receipts that expressly stated payments as “partial payment of lot,” that the sellers had obligations to transfer title upon completion of payments and thus had breached when they sold to Tolero, and that Tolero was not a purchaser in good faith because she knew or should have known of the Pacsons’ prior interest.

Supreme Court’s Ruling

The Supreme Court granted the petition, reversed and set aside the Decision of the Court of Appeals, and upheld the validity of the sale in favor of Betty Tolero and the issuance of TCT Nos. T-18650 and T-18651 in her name. The Court ordered Julie Nabus and Michelle Nabus to reimburse Joaquin and Julia Pacson the sum of P112,455.16, and to pay nominal damages of P10,000 with annual interest of 12% until full payment. The Court denied recovery of moral and exemplary damages and ordered no costs.

Legal Basis and Reasoning

The Court held that the instrument entitled “Deed of Conditional Sale” was in legal effect a contract to sell because it expressly provided that “as soon as the full consideration of this sale has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor to the vendee.” The Court explained the doctrinal distinction: under Art. 1458 and the Court’s precedents such as Ramos v. Heruela, Coronel v. Court of Appeals, and Chua v. Court of Appeals, a contractual reservation of title until full payment makes the transaction a contract to sell in which ownership remains with the vendor until the positive suspensive condition of full payment is accomplished. The Court emphasized that non-fulfillment of a suspensive condition is not a breach but an event that prevents the obligation to convey from becoming effective; thus specific performance or rescission under Art. 1191 presupposes an existing obligation breached and is inapplicable where the contract never became binding in the manner of a sale. The Court applied Ayala Life Insurance, Inc. v. Ray Burton Development Corporation to hold that no cause of action for specific performance arose. Because the Nabuses had validly conveyed the property to Betty Tolero before the suspensive condition had been fulfilled, the transfer in favor of Tolero was valid. The Court further held that the Pacsons were entitled to reimbursement of the amounts they had paid and to nominal damages for invasion of their property rights, citing Art. 2221 and Art. 222

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