The forbidden sale

Spouses Del and Au are the owners of a parcel land registered in the name of Au. The spouses, as principals and sellers, executed an SPA in favor of Au’s sister, Reyna, who was empowered, among others, to offer for sale the subject land provided that the purchase price should be approved by the former. The spouses and Wena, daughter of Reyna agreed to enter into an oral contract to sell over the subject land for the price of P800,000 to be paid in 10 years through monthly installments.

Wena paid the first monthly installment, which was followed by 22 intermittent monthly installments spanning almost three years. After having paid a total of $10,000, Wena called her mother, Reyna, claiming that she had already bought the subject land from the spouses.

Using the SPA, Reyna then transferred the title to the subject land in Wena’s name through a deed of sale without the knowledge and consent of the spouses. In the aforesaid deed, Reyna appeared and signed as attorney-in-fact of petitioner Au, as seller, while Wena appeared as buyer. After which, a new title, to the subject land was issued in the name of respondent Wena.

Del and Au cried foul!

Q: What was the nature of the agreement entered into by the spouses and Wena?

A: A contractual agreement between the parties for the purchase of the subject land and that this agreement partook of an oral contract to sell for the sum of P800,000.

Q: What is a contract to sell?

A: A contract to sell has been defined as “a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.”

In a contract to sell, “ownership is retained by the seller and is not to pass until the full payment of the price x x x.” It is “commonly entered into so as to protect the seller against a buyer who intends to buy the property in installments by withholding ownership over the property until the buyer effects full payment therefor.”

Q: Was Wena in breach of the contract to sell?

A: Yes. While there was a contract to sell over the subject land between the parties, Wena was in breach thereof because, at the time the aforesaid deed of sale was executed on July 23, 1997, the full price of the subject land was yet to be paid. Using the then prevailing exchange rates at that time, the total amount of monthly installments paid by Wena to the spouses is only 32.58 percent of the P800,000 purchase price.

Q: Is the deed of absolute sale executed by Reyna in favor of Wena rescissible?

A: Yes. To begin with, Wena’s reliance on the SPA as the authority or consent to effect the premature transfer of title in her name is plainly misplaced. The terms of the SPA are clear. It merely authorized Reyna to sell the subject land at a price approved by her principals.

The SPA could not have amended or novated the contract to sell to allow Wena to acquire the title over the subject land despite non-payment of the price in full for the reason that the SPA was executed four years prior to the contract to sell.

Moreover, Wena’s act of transferring the title to the subject land in her name, without the knowledge and consent of the spouses and despite non-payment of the full price, constitutes a substantial and fundamental breach of the contract to sell. It bears to stress that the main object or purpose of a seller in entering into a contract to sell is to protect himself against a buyer who intends to buy the property in installments by withholding ownership over the property until the buyer effects full payment.

As a result, the seller’s obligation to convey and the buyer’s right to conveyance of the property arise only upon full payment of the price. Thus, a buyer who willfully contravenes this fundamental object or purpose of the contract, by covertly transferring the ownership of the property in his name at a time when the full purchase price has yet to be paid, commits a substantial and fundamental breach which entitles the seller to rescission of the contract.

(Source: Sps. Tumibay vs. Lopez, G.R. No.171692, June 3, 2013)

Atty. Ma. Soledad Deriquito-Mawis is Dean, Lyceum of the Philippines University; Chairman, Philippine Association of Law Schools; and founder of Mawis Law Office