OSCAR A. JACINTO AND LIBRADA FRANCO-JACINTO, PETITIONERS, VS. ROGELIO KAPARAZ, RAUL KAPARAZ AND ROSE MARIET KAPARAZ, RESPONDENTS.

Petitioners urge this Court to review and set aside the decision
of the respondent Court of Appeals of 30 July 1987 in C.A.-G.R. CV No. 69357,^[1]
the dispositive portion of which reads:

“WHEREFORE, the appealed decision is hereby REVERSED and SET
ASIDE and judgment is hereby rendered as follows:

1. The
Complaint/Amended Complaint is hereby dismissed.

2. The agreement
between the parties dated March 11, 1966 (Exhibit “A”; also marked as
Exhibit “1”) is hereby declared extinguished.

3. To prevent unjust
enrichment at the expense of another, the defendants-appellants are hereby
ordered to reimburse to the plaintiffs-appellees the sum of P500.00 paid
by the latter to the Development Bank of the Philippines for the defendants-
appellants’ P2,600.00 loan account.

No pronouncement as to costs.

SO ORDERED.”^[2]

The undisputed antecedent facts are as follows:

On 11 March 1966, herein petitioners and private respondents
entered into an agreement (hereinafter referred to as Agreement) under which
the private respondents agreed to sell and convey to petitioners a portion
consisting of six hundred (600) square meters of a lot located in Matiao, Mati,
Davao Oriental and covered by Transfer Certificate of Title No. T-3694 for a
total consideration of P1,800.00. A downpayment of P800.00 was paid upon execution of the
Agreement. The balance of P1,000.00
was to be paid by petitioners on installment at the rate of P100.00 a
month to the Development Bank of the Philippines (DBP) to be applied to private
respondents’ loan accounts. Paragraphs
5, 6, 7 and 8 of the Agreement read as follows:

“That the PARTY OF THE FIRST PART is very much in need of cash to
pay the loan to the DEVELOPMENT BANK OF THE PHILIPPINES herein abovementioned
which is very much in arrears and the PARTY OF THE SECOND PART is agreeable to
advance the sum of EIGHT HUNDRED (P800.00) PESOS as partial payment of
the said loan to the Development Bank of the Philippines provided that the
PARTY OF THE FIRST PARTY (sic) shall sell, transfer, cede and convey absolutely
to the party of the SECOND PART an area of SIX HUNDRED (600) SQUARE METERS with
a frontage of twenty (20) METERS along the present national highway, at the
corner of the aforementioned land bordering a proposed five-meter subdivision
road adjacent to the property of the PARTY OF THE SECOND PART;

That for and in consideration of the foregoing premises and of the
sum of EIGHT HUNDRED (800.00) PESOS which the PARTY OF THE FIRST PARTY (sic)
hereby acknowledges to have received from the PARTY OF THE SECOND PART, THE PARTY
OF THE FIRST PART hereby agrees, promises and binds himself to sell, cede,
transfer, and convey absolutely to the PARTY OF THE SECOND PART SIX HUNDRED
(600) SQUARE METERS portion of the property covered by TRANSFER CERTIFICATE OF
TITLE NO. T-3694 together with all the improvements thereon, which portion is
situated along the national highway and shown as the shaded area in the sketch
at the back hereof; the total consideration of the sale of the said SIX HUNDRED
(600) SQUARE METERS shall be ONE THOUSAND EIGHT HUNDRED PESOS (P1,800.00),
including the amount of EIGHT HUNDRED PESOS (P800.00) advanced by the
PARTY OF THE SECOND PART upon the execution of this document;

That the unpaid balance of the total consideration of the sale
amounting to ONE THOUSAND (P1,000.00) PESOS shall be paid by the PARTY
OF THE SECOND PART directly to the DEVELOPMENT BANK OF THE PHILIPPINES, DAVAO
BRANCH, in ten (10) equal monthly installments of ONE HUNDRED (P100.00)
PESOS each not later than the 15th day following the end of each month
beginning May 10, 1966;

That the PARTY OF THE SECOND PART has the right and privilege by
virtue of this (sic) presents to take possession of the area of SIX HUNDRED
(600) SQUARE METERS subject of this agreement and to appropriate for himself
all the improvements existing thereon effective from the date of execution of
this agreement;”^[3]

Paragraph 9 thereof reads:

“That the PARTY OF THE FIRST PART agrees and binds himself to
acknowledge receipt of every and all monthly payments remitted to the DEVELOPMENT
BANK OF THE PHILIPPINES by the PARTY OF THE SECOND PART and further agrees and
binds himself to execute the final deed of absolute sale of the SIX HUNDRED
(600) SQUARE METERS herein above referred to in favor of the PARTY OF THE
SECOND PART as soon as the settlement or partition of the estate of the
deceased NARCISA R. KAPARAZ shall have been consummated and effected, but not
later than March 31, 1967;”^[4]

Upon the execution of the agreement, petitioners paid the
downpayment of P800.00 and were placed in possession of the portion
described therein. As to the P1,000.00
which was to be paid directly to the DBP, petitioners claim that they had even
made an excess payment of P100.00.

In view of the refusal of private respondents to execute the deed
of sale, petitioners filed against them a complaint for specific performance
with the then Court of First Instance (now Regional Trial Court) of Davao
Oriental. The complaint was docketed as
Civil Case No. 586 and was amended on 23 January 1979. In their Answer filed on 28 June 1977, later
amended on 19 December 1979 as a consequence of the filing of the amended
complaint, private respondents alleged that the sale did not materialize
because of the failure of petitioners to fulfill their promise to make timely payments
on the stipulated price to the DBP; as a result of such failure, they (private
respondents) failed to secure the release of the mortgage on the property. They then prayed for the dismissal of the
case and a declaration that the agreement is null and void.

After due trial, the court below rendered on 19 November 1981 a
decision in favor of the petitioners, the dispositive portion of which reads as
follows:

“FOR ALL THE FOREGOING, judgment is hereby rendered in favor
of the plaintiffs and against the defendants —

(1) Declaring the
plaintiffs to be the owners of the property consisting of six hundred (600)
square meters, more or less, denominated as Lot H-12, Psd-11-000576, which was
formerly a portion of the property covered by Transfer Certificate of Title No.
T-3694, and now covered by Transfer Certificate of Title No. T-5824 in the name
of defendant Rogelio Kaparaz;

(2) Ordering
defendant Rogelio Kaparaz to reconvey this property to the plaintiffs herein;

(3) Ordering defendants
to pay plaintiffs reasonable attorney’s fees in the amount of P3,000.00
and to pay the costs.

SO ORDERED.”^[5]

The facts as found by the trial court are as follows:

x x x

“The adduced evidence will show that the parties herein above
executed a certain agreement (Exh. “A” for the plaintiffs; Exhibit
“1” for the defendants) dated March 11, 1966, the pertinent portions
of which are hereunder quoted, to wit:

x x x

From the foregoing provisions of the said agreement, the defendants
herein have bound themselves to sell and convey a portion of the property
covered by Transfer Certificate Title No. T-3694, consisting of SIX HUNDRED
(600) SQUARE METERS, to the plaintiffs for a consideration of P1,800.00,
P800.00 of which had been received by the defendants upon the execution
of the document and the remaining balance of P1,000.00 shall be paid by
the plaintiffs directly to the Development Bank of the Philippines in ‘ten (10)
equal monthly installments of ONE HUNDRED (P100.00) PESOS EACH not later
than the 15th day following the end of each month beginning May 10,1966’. The defendants, on the other hand, have also
bound themselves to execute the final deed of absolute sale of the portion
above-mentioned in favor of the plaintiffs ‘as soon as the settlement or
partition of the estate of the deceased NARCISA R. KAPARAZ shall have been
consummated and effected, but not later than March 31, 1967.’

It appears that plaintiffs had paid defendant Domingo Kaparaz the
amount of P400.00 (Exh. “B”), the P200.00 which was
paid by plaintiffs to the Development Bank of the Philippines for the account
of the late Domingo Kaparaz and the P200.00 was given to said defendant. Plaintiff Oscar Jacinto made another payment
to the Development Bank of the Philippines for the account of Domingo and
Narcisa Kaparaz covered by Official Receipt No. 1113990, dated November 29,
1966, in the amount of P200.00 (Exh. “F”). Another payment was
again made to the Development Bank of the Philippines for the same account by
plaintiff Oscar Jacinto covered by Official Receipt No. 1334193, dated December
5, 1968, in the amount of P300.00 (Exh. “C”) and another
payment also was made on December 9, 1968 in the amount of P200.00
covered by Official Receipt No. 1334196 (Exh. “H”). All of these
payments are certified by the Development Bank of the Philippines (Exh.
“E”) to have been made by plaintiff Oscar Jacinto and applied to the
accounts of Domingo and Narcisa Kaparaz. For the subdivision survey of the lot of six hundred (600) square meters
involved in this case, plaintiffs contributed the amount of P80.00 (Exh.
“J”) and another amount of P350.00 was paid also to Engr.
Ladera (Exh. “I”). Plaintiffs, all in
all, aside from the payments that they made to the Surveyor, have paid the
Development Bank of the Philippines for the account of the late Domingo Kaparaz
in the total amount of P700.00 which is already in excess of the price
consideration of P1,800.00 after defendants had received the amount of P1,200.00. Plaintiff Oscar Jacinto explained that the payment
was in excess of P100.00 because the balance of P600.00 which was
originally intended to be paid for the surveyor was instead paid by him to the
bank plus P100.00 to cover the accumulated interests. Thus (sic), making the total payments to the
Development Bank of the Philippines in the amount of P700.00.

On the other (hand), defendant Rogelio Kaparaz testified that
plaintiffs did not comply with the terms of the agreement (Exh. “A”)
by having failed to pay the ten (10) equal monthly installments. For failure of plaintiffs to pay the monthly
installments, as agreed (sic) in the agreement (Exh. “A”), he decided
to pay the Development Bank of the Philippines of (sic) their accounts. The partial payment was made on July 3, 1967
in the amount of P3,000.00 covered by Official Receipt No. 1160314 (Exh.
“2”) and another payment for the balance was made on August 15, 1967
in the amount of P3,124.11 covered by Official Receipt No. 1160831 (Exh.
“4”).

It is likewise admitted that the estate of the late Narcisa R.
Kaparaz had already been settled and that six hundred (600) square
meters portion of the lot covered by Transfer Certificate of Title No. T-3694,
or Lot No. H?12, Psd-11-000576, has already been adjudicated to defendant
Rogelio Kaparaz and is now registered in his name under Transfer Certificate of
Title No. T-5824.”^[6]

Private respondents appealed from said decision to the Court of
Appeals which docketed the case as C.A-G.R. CV No. 69357. In their Brief, they contended that the
trial court erred in: (a) finding that petitioners had fully paid the
consideration for the property subject of the agreement, (b) ruling that the
delay in the payments to the DBP is only a slight breach of the agreement, (c)
holding private respondents’ failure to protest petitioners’ delay of payment
amounted to implied waiver to rescind the agreement, (d) declaring that laches
did not operate against petitioners considering that the prescriptive period
has not even expired, (e) not holding that the parties are in pari delicto, and
(f) ordering Rogelio Kaparaz to reconvey the property in question to
petitioners.

As earlier adverted to, in its decision of 30 July 1987, the
respondent Court of Appeals reversed the decision of the trial court. The respondent Court was of the opinion
that: (a) The petitioners had not fully discharged their obligation under the
agreement considering that their last payments to DBP of P300.00^[7]
and P200.00^[8]
were “several months delayed beyond the date/s agreed upon by the
parties,” and that the agricultural loan to which the amortizations of the
unpaid balance of P1,000.00 of the purchase price were to be applied had
in fact been fully settled by the private respondents. The application of these payments by the DBP
to another account of the private respondents was of no moment because the
agreement of the parties specifically referred to the agricultural loan. (b) No
evidence supports the conclusion of the trial court that private respondents
failed to protest the delay in the payments. On the contrary, the evidence discloses that private respondents
demanded from the petitioners the balance of the obligation after the latter
had defaulted; having received no response, private respondents themselves paid
the agricultural loan. (c) The delay in
the payments was not a slight breach. The dates of the payments were so essential that they were specifically
stipulated upon by the parties. The
primary importance of timely payments sprang from the nature of the subject
bank account consisting of a loan secured by a real estate mortgage which
demanded up-to-date amortization to prevent foreclosure. (d) While the trial court was correct in
holding that both parties defaulted in the performance of their respective
obligations, petitioners were the first to incur in delay. There is, therefore, greater justification
to decree rescission. Moreover, even
granting that there was no evidence as to who violated the agreement first,
then the contract is deemed extinguished pursuant to the second sentence of
Article 1192 of the Civil Code. This
Article provides that:

“In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered by
the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damage.”

Unable to accept the above verdict, petitioner commenced this
petition wherein they allege that respondent Court erred in not finding that:
(a) petitioners had fully paid the consideration for the 600 square meters of
Lot H; (b) private respondents’ failure to protest the delay of payments can be
considered as estoppel on their part and an implied waiver of their right to
rescind the sale; (c) assuming that the last two payments to the DBP were not
valid as they were applied to another account, there was at least substantial
performance by the petitioners of their obligation; (d) the breach on the part
of petitioners was only slight or casual and would not warrant rescission of
the sale; (e) under the circumstances, it was necessary for the respondents to
make a notarial demand or obtain prior judicial approval to effect rescission
of the sale; and finally, (e) the agreement was extinguished.

After the filing of the Comments by private respondents, the
reply thereto by petitioners and the rejoinder to the latter by private
respondents, the Court gave due course to the petition and required the parties
to submit simultaneously their respective Memoranda,^[9]
which they subsequently complied with.^[10]

The petition is impressed with merit.

Vital to the resolution of the controversy is the determination
of the true nature of the questioned agreement. Is it a contract of sale or a contract to sell? The two are not,
of course, the same. In the latter
case, ownership is retained by the seller and is not to pass until full payment
of the price. Such payment is a
positive suspensive condition the failure of which is not a breach, casual or
serious, but simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force. In such a situation, 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 question.^[11]
Otherwise stated, as capsulized in Luzon Brokerage Co., Inc. vs. Maritime
Building Co., Inc.,^[12]
“there can be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not happen.” Expanding on this point, this Court, in said
case, made the following disquisitions:

“x x x The upshot of all these stipula­tions is that in
seeking the ouster of Maritime for failure to pay the price as agreed upon,
Myers was not rescinding (or more properly, resolving) the contract,
but precisely enforcing it according to its express terms. In its suit Myers was not seeking
restitution to it of the ownership of the thing sold (since it was never
disposed of), such restoration being the logical consequence of the fulfillment
of a resolutory condition, express or implied (article 1190); neither
was it seeking a declaration that its obligation to sell was extinguished. What is sought was a judicial declaration
that because the suspensive condition (full and punctual payment) had not
been fulfilled, its obligation to sell to Maritime never arose or
never became effective and, therefore, it (Myers) was entitled to repossess the
property object of the contract, possession being a mere incident to its right
of ownership. It is elementary that, as
stated by Castan, —

‘b) Si la
condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y
el acreedor pierde todo derecho, incluso el de utilizar las medidas
conservativas. (3 Castan, Derecho
Civil, 7a Ed., p. 107) (Also Puig Peña, Der. Civ., T. IV (1), p. 113).’”

On the other hand, since in a contract of sale, the non-payment
of the price is a resolutory condition,^[13]
the remedy of the seller under Article 1191 of the Civil Code is to exact
fulfillment or to rescind the contract. In respect, however, to the sale of immovable property, this Article
must be read together with Article 1592 of the same Code:

“ARTICLE 1592. In the
sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act. After the demand, the court may not grant him a new term.”

This Article applies to instances where no stipulation for
automatic rescission is made because it says “even though”.^[14]

The agreement in the instant case has all the earmarks of a
contract of sale. The possession of the
portion sold was immediately delivered to the petitioners. They were granted the right to enjoy all the
improvements therein effective from the date of the execution of the
agreement. Private respondents
unqualifiedly bound themselves to execute the final deed of sale “as soon
as the settlement or partition of the estate of the deceased Narcisa R. Kaparaz
shall have been consummated and effected, but not later than March 31,
1967” and only upon full payment of the unpaid portion of the purchase
price. The private respondents did not
reserve unto themselves the ownership of property until full payment of the
unpaid balance of P1,000.00. Finally,
there is no stipulation giving the private respondents the right to unilaterally
rescind the contract the moment the vendee fails to pay within a fixed
period. In reality, the agreement was
an absolute sale which allowed the petitioners to pay the remaining balance of
the purchase price in installment. We
agree with the submission of petitioners^[15]
that Dignos vs. Court of Appeals^[16]
applies in this case. In said case,
this Court stated:

“Thus, it has been held that a deed of sale is absolute in
nature although denominated as a ‘Deed of Conditional Sale’ where nowhere in
the contract in question is a proviso or stipulation to the effect that title
to the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to
unilaterally rescind the contract the moment the vendee fails to pay within a
fixed period (Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc.
v. Maritime Building Co., Inc., 86 SCRA 305).”

As stated earlier, in a contract of sale, the remedy of an unpaid
seller is either specific performance or rescission. The latter, with respect
to the sale of immovables, is specifically governed by Article 1592 of the
Civil Code.^[17]
In the case at bar, there was non-compliance with the requirements prescribed
in these provisions. It is not
controverted that private respondents had neither filed an action for specific
performance nor demanded the rescission of the agreement either judicially or
by a notarial act before the filing of the complaint in Civil Case No.
586. It is only in their Answer that they
belatedly raised the defense of resolution of the contract pursuant to Article
1191 by reason of petitioners’ breach of their obligation.

Even if the general law on resolution, Article 1191 of the Civil
Code, is to be applied, Our decision would still be for the petitioners. The third paragraph of this Article reads:

x x x

“The Court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.”

It is not denied that petitioners made two (2) payments in the sums
of P200.00 and P300.00 at a time when what remained unsettled
under the agreement was only P400.00. There was then an excess payment of P100.00. These payments were made to the DBP which
applied them to an outstanding account of the private respondents. Private respondents neither complained of
the delay in these payments nor rejected their application to their
account. They were, undoubtedly,
benefited by the application because it either satisfied their account or
correspondingly reduced it. The claim
that the account to which it was applied was not the account stipulated in the
agreement is without merit. In the
first place, the agreement fails to disclose an express agreement that the
monthly amortizations on the P1,000.00 unpaid balance of the purchase
price to be made to the DBP should be applied exclusively to the agricultural
loan indicated in the exorcium of the agreement. The loan was mentioned only to lay the basis
for private respondents’ need for the downpayment. In the second place, to allow private respondents to reject the
payment of P400.00, plus the excess of P100.00 after they
benefited therefrom, would be unjust.

Then too, at no time before the filing of their Answer did
private respondents declare their intention to rescind the agreement, or if
they did, communicate such intention to the petitioners. It was necessary for private respondents to
have done so. As this Court held
in University of the Philippines vs. De los Angeles:^[18]

“Of course, it must be understood that the act of a party in
treating a contract as cancelled or resolved on account of infractions by the
other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is
justified, it is free to resort to judicial action in its own behalf, and bring
the matter to court. Then, should the
court, after due hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity awarded to
the party prejudiced.

In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that
will conclusively and finally settle whether the action taken was or was not
correct in law. But the law definitely
does not require that the contracting party who believes itself injured must
first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the
party injured by the others’ breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment of
rescission rendered when the law itself requires that he should exercise due
diligence to minimize its own damages (Civil Code, Article 2203).”

Finally, the delay incurred by petitioners was but a casual or
slight breach of the agreement, which did not defeat the object of the parties
in entering into the agreement. A mere
casual breach does not justify rescission.^[19]
The prompt payment of the monthly amortizations of the unpaid balance of P1,000.00
was not a condition precedent to the execution of the final deed of sale. Besides, petitioners had already paid P1,400.00
of the total consideration of P1,800.00, or exactly 77.77% of the
purchase price within the period stipulated. Moreover, they had in fact overpaid the private respondents by P100.00.

Accordingly, We rule that rescission of the agreement was not
available to private respondents.

We further rule that the respondent Court erred in declaring the
agreement extinguished pursuant to the second sentence of Article 1192 of the
Civil Code. Having concluded, although
erroneously, that petitioners were the first to breach the agreement, it should
have applied the first sentence thereof by equitably tempering petitioners’
liability. The second sentence applies
only to cases where it cannot be determined which of the parties first violated
the contract.

The foregoing disquisitions render unnecessary any discussion on
the other issues raised by petitioners.

WHEREFORE, the petition is GRANTED. The challenged decision of the Court of
Appeals is REVERSED and the judgment of the lower court is hereby REINSTATED
and AFFIRMED. Costs against private
respondents.

SO ORDERED.

Gutierrez, Jr., (Chairman), Feliciano, Bidin, and Romero, JJ., concur.

^[1]
Per Associate Justice Cecilio L. Pe, concurred in by Associate Justices
Nathanael P. De Paño, Jr. and Antonio M. Martinez.

^[2]
Rollo, 39.

^[3]
Rollo, 54-55; pages 12-13 of Brief for Petitioners in C.A.- G.R. CV. No.
69357.

^[4]
Rollo, 57.

^[5]
Rollo, 13.

^[6]
Rollo, 30-32; Decision in C.A.-G.R. CV No. 69357 (Annex “A” of
Petition), 3-5.

^[7]
Exhibit “G”.

^[8]
Exhibit “H”.

^[9]
Rollo, 129.

^[10]
Id., 138; 148.

^[11]
Manuel vs. Rodriguez, 109 Phil. 1 [1960]; Roque vs. Lapuz, 96
SCRA 741 [1980].

^[12]
46 SCRA 381 [1972].

^[13]
Manuel vs. Rodriguez, supra.; Lim vs. Court
of Appeals, 182 SCRA 564 [1990], citing Sing Yee vs. Santos, 47 O.G.
6372.

^[14]
PARAS, E.L., Civil Code of the Philippines Annotated,
vol., V, 11th ed., 1986, 198.

^[15]
Memorandum for Petitioners, 7; Rollo, 144, et seq.

^[16]
158 SCRA 375 [1988].

^[17]
This was Article 1504 of the old Civil Code; Luzon Brokerage Co., Inc., vs.
Maritime Building Co., Inc., 86 SCRA 305 [1978].

^[18]
35 SCRA 102 [1970].

^[19]
Philippine Amusement Enterprises, Inc. vs. Natividad, 21 SCRA 284 [1967];
Angeles vs. Calasanz, 135 SCRA 323 [1985].