G.R. No. 161318 - Nabus vs. Pacson

Case Summary (G.R. No. 161318)

Petitioner, Respondent, and Property Interests

Pacsons: Vendees under a Deed of Conditional Sale covering 1,000 sq. m. of the registered 1,665 sq. m. Nabuses: Original registered owners who mortgaged the land to PNB and later executed the Deed of Conditional Sale. Betty Tolero: Subsequent purchaser who acquired titles for the lots corresponding to the 1,000 sq. m. and other portions of the land.

Key Dates

Deed of Conditional Sale: February 19, 1977 (notarized February 21, 1977). Payments to PNB: February 22, 1977 and July 17, 1978. Bate Nabus’ death: December 24, 1977. TCT in names of Julie and Michelle issued: February 17, 1984. Deed of Absolute Sale to Tolero: March 5, 1984; new titles issued March 16, 1984. Trial court decision: September 30, 1993. Court of Appeals decision: November 28, 2003. Supreme Court decision: November 25, 2009. (Applicable constitutional framework: 1987 Philippine Constitution.)

Applicable Law

Primary substantive sources relied upon: Civil Code provisions (notably Articles 1458, 1479, 1191, and provisions on damages such as Arts. 2219, 2220, 2221, 2222, 2229). The Court’s analysis applies established jurisprudential distinctions between a contract of sale, a contract to sell, and a conditional sale.

Factual Background — Mortgage and Conditional Sale Terms

The Nabuses owned registered land which was mortgaged to PNB for P30,000. The Deed of Conditional Sale granted the Pacsons 1,000 sq. m. for P170,000, with payment terms specifying an initial payment to the bank and installments to extinguish the mortgage balance, thereafter monthly payments to the vendor until the full price was paid; the contract expressly provided that "as soon as the full consideration ... has been paid ... the corresponding transfer documents shall be executed by the vendor."

Payments, Possession, and Incidents on the Land

Respondents paid sums to PNB and to the Nabuses over 1977–1984 by many receipts (364 receipts) totaling P112,455.16, leaving an asserted unpaid balance of P57,544.84. Respondents took possession, improved the property and ousted occupants by paying them. The Nabuses later executed an extrajudicial settlement and obtained a new title in the names of Julie and Michelle; subsequently Julie sold the property to Tolero who obtained new titles for subdivided lots.

Procedural Posture

Pacsons filed suit (RTC Civil Case No. 84-CV-0079) seeking annulment of the extrajudicial settlement, the new TCT, the Deed of Absolute Sale to Tolero and the subsequent titles, plus damages and injunction relief. The trial court ordered Tolero to execute a deed of absolute sale in favor of the Pacsons upon payment of the balance (P57,544.84) and awarded moral, exemplary damages and attorney’s fees. The Court of Appeals affirmed with modification (deleted attorney’s fees). The Supreme Court reviewed the CA decision under Rule 45.

Trial Court Findings and Rationale

The trial court found the instrument to be a contract of sale (conditional sale) and not converted into lease. It concluded that the carbon copy signature omission was inadvertent and that payments were for the lot (not rent). Applying Article 1191 (reciprocal obligations), the trial court ordered specific performance (execution of deed of absolute sale) upon payment of the balance and awarded damages.

Issues Presented on Petition

Petitioners raised multiple issues including: whether the Deed of Conditional Sale was actually a contract of sale or a contract to sell; whether it had been converted into a lease; whether Tolero was a purchaser in good faith; correctness of the balance computation; and whether relief granted (ordering Tolero to execute deed and surrender titles) exceeded the pleadings.

Supreme Court’s Analysis — Nature of the Contract

The Court emphasized that the substance of the instrument, not merely its title, determines its character. Citing Civil Code definitions and pertinent jurisprudence, the Court held that the Deed of Conditional Sale was in fact a contract to sell: vendors expressly reserved title until full payment, and stipulated that the vendor would execute transfer documents only upon full payment. Under such a contract the full payment of the purchase price is a positive suspensive condition; until it is fulfilled ownership does not pass and the seller’s obligation to convey is not yet demandable.

Supreme Court’s Analysis — Specific Performance and Article 1191

The Court explained that Article 1191 presupposes an obligation already in existence; where a suspensive condition prevents the obligation from arising (as in a contract to sell without full payment), there is no extant obligation to enforce by specific performance. Consequently, the trial court erred in ordering fulfillment by compelling execution of an absolute deed in favor of the Pacsons; the remedy of specific performance was not available because the contract to sell had not become operative by full payment.

Supreme Court’s Analysis — Pacsons’ Remedies and Tolero’s Title

Because the contract to sell remained ineffective for want of full payment, the subsequent sale by Julie Nabus to Tolero and issuance of new TCTs to Tolero were valid. The Pacsons’ proper remedy was reimbursement of the paym

Case Syllabus (G.R. No. 161318)

Procedural History

This case is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision of the Court of Appeals in CA-G.R. CV No. 44941 dated November 28, 2003.
The Court of Appeals affirmed with modification the Decision of the Regional Trial Court (RTC), La Trinidad, Benguet, Branch 10, which ordered petitioner Betty Tolero to execute a deed of absolute sale in favor of respondents spouses Joaquin and Julia Pacson over the lots covered by TCT Nos. T-18650 and T-18651 upon payment of P57,544.84, and to surrender the owner’s duplicate copies of those TCTs.
The RTC rendered its decision on September 30, 1993, in Civil Case No. 84-CV-0079.
Petitioners elevated the matter to the Supreme Court by filing the present petition raising several assigned errors against the Court of Appeals’ decision.
The Supreme Court issued its decision reversing and setting aside the Court of Appeals’ decision, granting the petition and upholding the validity of the sale to Betty Tolero and the issuance of TCT Nos. T-18650 and T-18651 in her name.

Parties and Titles

Petitioners: Julie Nabus, Michelle Nabus (minor daughter of Bate Nabus and Julie Nabus), and Betty Tolero.
Respondents: Spouses Joaquin and Julia Pacson.
Relevant titles: Original registered title TCT No. T-9697 was in the names of spouses Bate and Julie Nabus; TCT No. T-17718 was later issued in the names of Julie Nabus and Michelle Nabus; subsequently four titles TCT Nos. T-18650, T-18651, T-18652 and T-18653 were issued in the name of Betty Tolero.

Undisputed Material Facts

The spouses Bate and Julie Nabus owned a tract of land totaling 1,665 square meters in Pico, La Trinidad, Benguet, registered under TCT No. T-9697.
The property was mortgaged to Philippine National Bank (PNB), La Trinidad Branch, to secure a loan of P30,000.00.
On February 19, 1977, the spouses Nabus executed a Deed of Conditional Sale covering 1,000 square meters (part of the 1,665 sq. m.) in favor of the spouses Joaquin and Julia Pacson for P170,000.00, notarized on February 21, 1977.
The Deed of Conditional Sale prescribed a payment scheme: an initial approximate payment (P13,000.00) to be paid and to be applied directly to PNB; liquidation of about P17,500.00 mortgage balance to be paid at not less than P3,000.00 a month beginning March 1977; thereafter, a monthly payment of not less than P2,000.00 to vendor until full P170,000.00 was covered; transfer documents to be executed by the vendor upon full payment; segregation survey to be at vendee’s expense; and covenant to return monies if vendor lost title in pending litigation.
Respondents paid PNB P12,038.86 on February 22, 1977 and P20,744.30 on July 17, 1978 for the full payment of the PNB loan.
Respondents made payments to the Nabuses from March 9, 1977 to January 17, 1984 by way of 364 receipts, in amounts ranging from as low as P10.00 to as high as P15,566.00; total payments reflected in receipts amounted to P112,455.16, leaving an outstanding balance of P57,544.84.
Bate Nabus died on December 24, 1977. On August 17, 1978, Julie Nabus and minor Michelle Nabus executed a Deed of Extrajudicial Settlement over the registered land; on February 17, 1984, TCT No. T-17718 was issued in the names of Julie and Michelle Nabus.
Respondents occupied the subject 1,000-square-meter portion, ousted prior occupants by paying them sums (P4,000.00 each to Mr. Marcos Tacloy and spouses Delfin and Nelita Flores), built an 80 by 32-feet building and installed facilities for their truck body-building and repair business.
During late January 1984, Julie Nabus approached Joaquin Pacson for full payment; Joaquin requested four days to have his daughter Catalina check receipts; Julie and Catalina were subsequently sent to Atty. Elizabeth Rillera for execution of deed of absolute sale; Atty. Rillera required additional documents and asked Julie to return in four days; Julie did not return.
Catalina and Atty. Rillera checked the Register of Deeds and discovered that on March 5, 1984 Julie and Michelle, represented by Julie’s mother as court-appointed guardian, executed a Deed of Absolute Sale in favor of Betty Tolero covering the whole 1,665 sq. m.; TCT No. T-9697 was canceled on March 16, 1984 and four titles were issued to Betty Tolero for Lots A-2-A (832 sq. m.), A-2-B (168 sq. m.), A-2-C (200 sq. m.), and A-2-D (465 sq. m.), with Lots A-2-A and A-2-B (combined 1,000 sq. m.) corresponding to the portion earlier subject of the Deed of Conditional Sale to the Pacsons.
On March 22, 1984, the gate to the Pacsons’ shop was padlocked and a “No Trespassing” sign posted; an affidavit-complaint regarding the padlocking incident was filed with the La Trinidad police on March 26, 1984.
The record reflects that the Pacsons filed a Complaint for Annulment of Deeds (docketed as Civil Case No. 84-CV-0079) seeking annulment of the extrajudicial settlement insofar as it affected their rights to the 1,000 sq. m., annulment of TCT No. T-17718, annulment of the Deed of Absolute Sale in favor of Betty Tolero and annulment of transfer certificates of title issued pursuant thereto; they also sought actual, moral and exemplary damages and attorney’s fees.
Betty Tolero testified she purchased the two lots (combined 1,000 sq. m.) from Julie Nabus for P200,000.00 after consulting Atty. Aurelio de Peralta and examining documents (TCT No. T-17718, guardianship papers of Michelle, and copy of survey plan); Tolero admitted knowledge of the Pacsons’ repair shop but asserted she was not aware of the Deed of Conditional Sale and learned of it only after purchase; upon purchase she had the purchase registered and caused the property to be padlocked.

Contractual Instrument: Deed of Conditional Sale — Key Stipulations

The instrument was titled “Deed of Conditional Sale” and described the portion sold with an attached sketch (Annex “A”).
Payment terms: initial P13,000.00 (more or less) to be paid on or before February 21, 1977 to PNB; remaining mortgage balance of about P17,500.00 to be paid by vendee at not less than P3,000.00 monthly beginning March 1977; after mortgage liquidation, vendee to pay not less than P2,000.00 monthly to vendor until full P170,000.00 was covered (including earlier payments).
Obligation of vendor: “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 for the portion sold.”
Segregation survey to be at the expense of the vendee.
Warranty clause: if vendor is divested of title in pending litigation, vendor shall return monies paid by vendee upon demand.
Possession clause: vendor agreed to cooperate in ousting possession by third person (Mr. Marcos Tacloy) to allow vendee use of the portion.
Agreement binding upon heirs, successors and assigns.

Issues Presented (as framed in the petition and by the courts)

Whether the Deed of Conditional Sale was converted into a contract of lease.
Whether the Deed of Conditional Sale is a contract to sell (contract to sell/conditional sale) or a contract of sale (absolute sale).
Whether Betty Tolero was a buyer in good faith or had actual knowledge of the prior Deed of Conditional Sale.
Whether the trial court and Court of Appeals erred in ordering Betty Tolero to execute an absolute deed of sale in favor of the Pacsons and to surrender TCTs, given such relief was not specifically prayed for in the complaint.
Whether the balance due to the Nabuses was only P57,544.84 as found by the trial court.
Whether the Court of Appeals erred in finding Tolero had failed to make inquiries before purchase and in its treatment of applicable precedent.

Trial Court Findings and Rationale

The trial court found the Deed of Conditional Sale was not converted into a lease:
- The original and other copies of the contract were signed by a
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