De Guzman v. Spouses Santos

 

De Guzman v. Spouses Santos

G.R. No. 222957

March 9, 2023

 

FACTS:

Petitioner Rogelio De Guzman (De Guzman) accepted the offer of respondents Bartolome and Susan Santos (Spouses Santos) to purchase his property in Rizal for P1.5M as stipulated in the Contract to Sell. Pursuant to the Contract, the Spouses Santos paid the P250,000.00 and moved in. However, they were not able to pay the monthly installments, and in February 2001, they unilaterally decided to vacate. This was followed by their filing for rescission of the Contract to Sell, recovery of payment and damages against De Guzman. The RTC initially ruled against them but later ruled in their favor after it was proven that De Guzman sold the property during the pendency of the case. De Guzman appealed to the CA. The CA concurred with the RTC that De Guzman’s act of selling the property while the case was pending without notice or authority constituted bad faith, making the said Contract subject to rescission pursuant to Art 1381 (4) of the Civil Code, and which rendered the enforcement of the same moot and academic. In the present petition, De Guzman maintained that the CA erred as rescission does not apply to a Contract to Sell, and that it was the Spouses Santos’ failure to pay the installments which rendered the contract ineffective due to a stipulation providing automatic cancellation of the contract and forfeiture of payments made. Meanwhile, Spouses Santos argued that the act of De Guzman selling the property rendered the Contract to Sell rescissible due to bad faith.

ISSUE:

Whether the remedy of rescission applies to the Contract to Sell herein.

HELD:

No. The remedy of rescission does not apply to the Contract to Sell herein. The peculiar characteristic of a Contract to Sell is that the seller retains legal title to the property to be sold until the buyer fully pays the purchase price. The full payment of the purchase price is a positive suspensive condition, the non-fulfillment of which does not constitute a breach of contract, but merely an event that prevents the seller from conveying title to the buyer. Considering that non-payment of the full purchase price does not amount to a breach of contract, the remedy of specific performance cannot be availed of. The remedy of rescission is also unavailable since it is impossible to rescind an obligation that is non-existing, the suspensive condition not having happened yet. The buyer's non-payment thus only renders the contract to sell ineffective and without force and effect. The CA erred in affirming the rescission of the Contract to Sell and the order for De Guzman to reimburse the down payment. Although his act of selling the Subject Property to Algoso during the trial stage constituted bad faith, it was not a legal ground for rescission pursuant to Article 1381(4) of the New Civil Code. This was likewise not a sufficient ground to nullify it under any existing laws.