Conditional Contract of Sale vs. Contract To Sell

In both contracts to sell and contracts of conditional sale, title to the property
remains with the seller until the buyer fully pays the purchase price. Both contracts
are subject to the positive suspensive condition of the buyer’s full payment of the
purchase price.
In a contract of conditional sale, the buyer automatically acquires title to the
property upon full payment of the purchase price. This transfer of title is “by
operation of law without any further act having to be performed by the seller.” In a
contract to sell, transfer of title to the prospective buyer is not automatic. “The
prospective seller [must] convey title to the property [through] a deed of
conditional sale.”
The distinction is important to determine the applicable laws and remedies in case
a party does not fulfill his or her obligations under the contract. In contracts of
conditional sale, our laws on sales under the Civil Code of the Philippines apply.
On the other hand, contracts to sell are not governed by our law on sales but by the
Civil Code provisions on conditional obligations.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal
obligations does not apply to contracts to sell. As this court explained in Ong v.
Court of Appeals, failure to fully pay the purchase price in contracts to sell is not
the breach of contract under Article 1191. Failure to fully pay the purchase price is
“merely an event which prevents the [seller’s] obligation to convey title from
acquiring binding force.” This is because “there can be no rescission of an
obligation that is still non-existent, the suspensive condition not having
[happened].”
In this case, Castillo reserved his title to the property and undertook to execute a
deed of absolute sale upon Olivarez Realty Corporation’s full payment of the
purchase price. Since Castillo still has to execute a deed of absolute sale to
Olivarez Realty Corporation upon full payment of the purchase price, the transfer
of title is not automatic. The contract in this case is a contract to sell.
As this case involves a contract to sell, Article 1191 of the Civil Code of the
Philippines does not apply. The contract to sell is instead cancelled, and the parties
shall stand as if the obligation to sell never existed.
Olivarez Realty Corporation shall return the possession of the property to Castillo.
Any improvement that Olivarez Realty Corporation may have introduced on the
property shall be forfeited in favor of Castillo per paragraph I of the deed of
conditional sale:
Immediately upon signing this Contract, [Olivarez Realty Corporation] shall be
entitled to occupy, possess and develop the subject property. In case this Contract
is cancelled, any improvement introduced by [Olivarez Realty Corporation] on the
property shall be forfeited in favor of [Castillo.
As for prospective sellers, this court generally orders the reimbursement of the
installments paid for the property when setting aside contracts to sell. This is true
especially if the property’s possession has not been delivered to the prospective
buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession of the property to Olivarez
Realty Corporation prior to the transfer of title. We cannot order the
reimbursement of the installments paid.
In Gomez v. Court of Appeals, the City of Manila and Luisa Gomez entered into a
contract to sell over a parcel of land. The city delivered the property’s possession
to Gomez. She fully paid the purchase price for the property but violated the terms
of the contract to sell by renting out the property to other persons. This court set
aside the contract to sell for her violation of the terms of the contract to sell. It
ordered the installments paid forfeited in favor of the City of Manila “as reasonable
compensation for [Gomez’s] use of the [property]” for eight years.
In this case, Olivarez Realty Corporation failed to fully pay the purchase price for
the property. It only paid P2,500,000.00 out of the P19,080,490.00 agreed purchase
price. Worse, petitioner corporation has been in possession of Castillo’s property
for 14 years since May 5, 2000 and has not paid for its use of the property.
Similar to the ruling in Gomez, we order the P2,500,000.00 forfeited in favor of
Castillo as reasonable compensation for Olivarez Realty Corporation’s use of the
property.”
THIRD DIVISION, G.R. No. 196251, July 09, 2014, OLIVAREZ REALTY
CORPORATION AND DR. PABLO R. OLIVAREZ, PETITIONERS, VS.
BENJAMIN CASTILLO, RESPONDENT.

Conditional Contract of Sale vs. Contract To Sell

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In both contracts to sell and contracts of conditional sale, title to the property

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