GARCIA vs.

CA
G.R. No. 172036, April 23, 2010
CARPIO, J.

FACTS:

 On May 28, 1993, Spouses Faustino and Josefina Garcia (Sps Garcia) and spouses Meliton and Helen
Galvez (Sps Galvez) and Emerlita dela Cruz entered into a Contract to Sell wherein Dela Cruz agreed to sell
to Sps Garcia and Sps Galvez for ₱3,170,220, 5 parcels of land situated at Tanza, Cavite. At the time of the
execution of the said contract, three of the subject lots were registered in the name of one Angel Abelida
from whom Dela Cruz allegedly acquired said properties by virtue of a Deed of Absolute Sale dated March
31, 1989.
 As agreed upon, Sps Garcia and Sps Galvez shall make a down payment of ₱500,000 upon signing of the
contract. The balance of ₱2,670,220 shall be paid in three installments, viz: ₱500,000 on June 30, 1993;
₱500,000 on August 30, 1993; ₱1,670,220 on December 31, 1993.
 On its due date, December 31, 1993, Sps Garcia and Sps Galvez failed to pay the last installment in the
amount of ₱1,670,220. Sometime in July 1995, they offered to pay the unpaid balance, which had already
been delayed by one and [a] half year, which Dela Cruz refused to accept. On September 23, 1995, Dela
Cruz sold the same parcels of land to intervenor Diogenes G. Bartolome for ₱7,793,000.
 In order to compel Dela Cruz to accept the payment made by Sps Garcia and Sps Galvez in full satisfaction
of the purchase price and, thereafter, execute the necessary document of transfer in their favor, they filed
before the RTC a complaint for specific performance. They alleged that they discovered the infirmity of
the Deed of Absolute Sale covering subject 3 lots, between former lot owner Abelida and Dela Cruz, the
same being spurious because the signature of Abelida and his wife were falsified; that at the time of the
execution of the said deed, said spouses were in the United States; that due to their apprehension
regarding the authenticity of the document, they withheld payment of the last installment which was
supposedly due on December 31, 1993; that they tendered payment of the unpaid balance sometime in
July 1995, after Abelida ratified the sale made in favor Dela Cruz, but the latter refused to accept their
payment for no jusitifiable reason.
 Dela Cruz, in her answer, denied the allegation that the Deed of Absolute Sale was spurious and argued
that Sps Garcia and Sps Galvez failed to pay in full the agreed purchase price on its due date despite
repeated demands; that the Contract to Sell contains a proviso that failure to pay the purchase price in
full shall cause the rescission of the contract and forfeiture of one-half (1/2%) percent of the total amount
paid; that a notarized letter stating the indended rescission of the contract to sell and forfeiture of
payments was sent to Sps Garcia and Sps Galvez at their last known address but it was returned with a
notation "insufficient address."
 Intervenor Diogenes G. Bartolome filed a complaint in intervention alleging that the Contract to Sell dated
May 31, 1993 between Sps Garcia and Galvez and Dela Cruz was rescinded and became ineffective due to
unwarranted failure of the former to pay the unpaid balance of the purchase price on or before the
stipulated date; that he became interested in the subject parcels of land because of their clean titles; that
he purchased the same from Dela Cruz by virtue of an Absolute Deed of Sale executed on September 23,
1995 in consideration of the sum of ₱7,793,000.

RTC Ruling:

 The trial court ruled that Dela Cruz’s rescission of the contract was not valid. The trial court applied
Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz is not allowed to unilaterally cancel the
Contract to Sell. The trial court found that Sps Garcia and Sps Galvez are justified in withholding the
payment of the balance of the consideration because of the alleged spurious sale between Angel Abelida
and Emerlita Dela Cruz. Moreover, intervenor Diogenes Bartolome (Bartolome) is not a purchaser in good
faith because he was aware of Sps Garcia and Sps Galvez’’ interest in the subject parcels of land.
CA Ruling:

 The appellate court reversed the trial court’s decision and dismissed the case. Dela Cruz’s obligation
under the Contract to Sell did not arise because of the Spouses’ undue failure to pay in full the agreed
purchase price on the stipulated date. Moreover, judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions.

ISSUE:

Whether or not Dela Cruz can be compelled to accept the full payment and execute the corresponding Deed of
Absolute Sale.

HELD:

No.. Contracts are law between the parties, and they are bound by its stipulations. It is clear from the above-
quoted provisions that the parties intended their agreement to be a Contract to Sell: Dela Cruz retains ownership
of the subject lands and does not have the obligation to execute a Deed of Absolute Sale until petitioners’ payment
of the full purchase price. 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. Strictly speaking,
there can be no rescission or resolution of an obligation that is still non-existent due to the non-happening of the
suspensive condition.10 Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in petitioners’ favor
because of petitioners’ failure to make full payment on the stipulated date.

The Court ruled in Panilinan vs Court of Appeals that Article 1592 of the New Civil Code, requiring demand by suit
or by notarial act in case the vendor of realty wants to rescind does not apply to a contract to sell but only to
contract of sale. In contracts to sell, where ownership is retained by the seller and is not to pass until the full
payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding
force. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of
absolute sale, where non-payment is a resolutory condition, which is not the case.

The applicable provision of law in instant case is Article 1191 of the New Civil Code which makes available to the
injured party alternative remedies such as the power to rescind or enforce fulfillment of the contract, with
damages in either case if the obligor does not comply with what is incumbent upon him. There is nothing in this
law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would
cause its cancellation even without court intervention. The rationale for the foregoing is that in contracts providing
for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration
rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without
judicial intervention, but in order to determine whether or not the rescission was proper. Where such propriety is
sustained, the decision of the court will be merely declaratory of the revocation, but it is not in itself the
revocatory act. Moreover, the vendor’s right in contracts to sell with reserved title to extrajudicially cancel the sale
upon failure of the vendee to pay the stipulated installments and retain the sums and installments already
received has long been recognized by the well-established doctrine of 39 years standing. The validity of the
stipulation in the contract providing for automatic rescission upon non-payment cannot be doubted. It is in the
nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach without need
of going to court. Thus, rescission under Article 1191 was inevitable due to petitioners’ failure to pay the stipulated
price within the original period fixed in the agreement.