REYES VS TUPARAN

FACTS

Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent,
Victoria Tuparan leased a space on said building for a monthly rental of P4, 000. Aside from
being a tenant, respondent also invested in petitioner's financing business. On June 20, 1988,
Petitioner borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and
mortgaged the building and lot (subject real properties). Reyes decided to sell the property for
P6.5 Million to liquidate her loan and finance her business. Respondent offered to conditionally
buy the real properties for P4.2 Million on installment basis without interest and to assume the
bank loan. The conditions are the following:
 
1.    Sale will be cancelled if the petitioner can find a buyer of said properties for the amount of
P6.5 Million within the next three months. All payments made by the respondent to the petitioner
and the bank will be refunded to Tuparan with an additional 6% monthly interest.
2.    Petitioner Reyes will continue using the space occupied by her drug store without rentals for
the duration of the installment payments.
3.    There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000 after full
payment has been made by the defendant.
4.    The defendant will undertake the renewal and payment of the fire insurance policies of the 2
buildings, following the expiration of the current policies, up to the time the respondent has fully
paid the purchase price.
 
They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank
approved on the condition that the petitioner would remain as co-maker of the mortgage
obligation.

Petitioner's Contention
Under their Deed of Conditional Sale, the respondent is obliged to pay a lump sum of P1.2
Million in three fixed installments. Respondent, however defaulted in the payment of the
installments. To compensate for her delayed payments, respondent agreed to pay petitioner
monthly interest. But again, respondent failed to fulfill this obligation. The petitioner further
alleged that despite her success in finding another buyer according to their conditional sale
agreement, respondent refused to cancel their transaction. The respondent also neglected to
renew the fire insurance policy of the buildings.
 
Respondent's Answer
Respondent alleges that the deed of Conditional Sale of Real Property with Assumption of
Mortgage was actually a pure and absolute contract of sale with a term period. It could not be
considered a conditional sale because the performance of the obligation therein did not depend
upon a future and uncertain event. She also averred that she was able to fully pay the loan and
secure the release of the mortgage. Since she also paid more than the P4.2 Million purchase
price, rescission could not be resorted to since the parties could no longer be restored to their
original positions.
 
ISSUE
Can the transaction or obligation be rescinded given that the conditions were not satisfied?
 
RULING(S)
RTC
The deed of conditional sale was a contract to sell. It was of the opinion that although the
petitioner was entitled to a rescission of the contract, it could not be permitted because her non-
payment in full of the purchase price “may not be considered as substantial and fundamental
breach of the contract as to defeat the object of the parties in entering into the contract.” The
RTC believed that respondent showed her sincerity and willingness to settle her obligation.
Hence, it would be more equitable to give respondent a chance to pay the balance plus interest
within a given period of time. The court ordered the respondent to pay the petitioner the unpaid
balance of the purchase price.
CA
The CA agreed with the RTC that the remedy of rescission could not apply because the
respondent’s failure to pay the petitioner the balance of the purchase price in the total amount of
₱805,000.00 was not a breach of contract, but merely an event that prevented the seller
(petitioner) from conveying title to the purchaser (respondent). Since respondent had already
paid a substantial amount of the purchase price, it was but right and just to allow her to pay the
unpaid balance of the purchase price plus interest.
SC
The SC agrees that the conditional sale is a contract to sell. The title and ownership of the subject
properties remains with the petitioner until the respondent fully pays the balance of the purchase
price and the assumed mortgage obligation.  Without respondent’s full payment, there can be no
breach of contract to speak of because petitioner has no obligation yet to turn over the title. The
court agrees that a substantial amount of the purchase price has already been paid. It is only right
and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting
that a rescission can be permitted under Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was only a slight or casual breach in the
fulfillment of the obligation. The court considered fulfillment of 20% of the purchase price is
NOT a substantial breach. Unless the parties stipulated it, rescission is allowed only when the
breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether
the breach is slight or substantial is largely determined by the attendant circumstance. As for the
6% interest, petitioner failed to substantiate her claim that the respondent committed to pay it.
Petition is denied.
 
RELEVANT JURISPRUDENCE
Art. 1458.  By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in
money or its equivalent. The essential elements of a contract of sale are the following: 
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
In a contract to sell, the seller explicitly reserves the transfer of title to the prospective buyer. The
first element (in the contract of sale) is missing. There is no consent yet to the transfer of
ownership of the property. (Nabus v Joaquin). The payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents the obligation of the vendor
to convey title from becoming effective. (Chua v CA)
Art. 1191 does not apply in a contract to sell since the breach contemplated in said article is an
obligor’s failure to comply with an existing obligation. It does not apply in the failure of a
condition to make that obligation arise.