Salazar v. CA

G.R. No. 118203 (July 5, 1996)

Facts:

The case involves a dispute between Emilio A. Salazar (petitioner) and Jonette Borres (respondent) regarding the nature of a transaction involving two parcels of land owned by Salazar. The properties were covered by Transfer Certificate of Title Nos. 31038 and 31039. Salazar offered to sell the properties to Borres for One Million Pesos (P1,000,000.00). Initially, Borres proposed a payment period of six months, which Salazar rejected, reducing it to three months.

On May 28, 1989, Borres attempted to have Salazar sign a Deed of Absolute Sale, but he refused due to her lack of immediate payment. During a subsequent meeting on June 2, 1989, at the Ninoy Aquino International Airport, Salazar agreed to sign the Deed of Absolute Sale on the condition that Borres would pay half of the purchase price (P500,000.00) in cash by June 15, 1989, and the balance by June 30, 1989. Salazar appointed Teresa Dizon as the custodian of the Deed of Absolute Sale and the titles, instructing her not to release them until full payment was made.

On June 14, 1989, Borres informed Dizon that she would be able to pay the full amount the next day. However, on June 16, 1989, Salazar called Dizon to inquire about the payment and subsequently ordered her to stop the sale when he learned that Borres had not made the down payment.

The trial court ruled that the Deed of Absolute Sale was, in fact, a contract to sell, as Borres failed to pay the down payment on the agreed date. The court dismissed Borres's complaint for specific performance, ordering her to pay Salazar attorney's fees.

Borres appealed to the Court of Appeals, which reversed the trial court's decision, ruling that the Deed of Absolute Sale constituted a perfected contract of sale. The appellate court found that Salazar's reluctance to sign the deed was irrelevant, and even if Borres failed to pay, it did not invalidate the contract. The appellate court ordered Salazar to accept payment and deliver the necessary documents to Borres, while also awarding damages against Dizon for acting in bad faith.

Legal Issues:

1. Is the Deed of Absolute Sale executed by Salazar in favor of Borres a perfected contract of sale or a mere contract to sell?
2. Can Borres compel Salazar to deliver the Deed of Absolute Sale and the titles despite her failure to pay the down payment?

Arguments:

• Petitioners' Argument (Salazar and Dizon):

  • The Deed of Absolute Sale is a contract to sell, as it was executed with the condition that Borres must pay the full purchase price before ownership is transferred.
  • Borres failed to pay the down payment by the agreed date, which means the contract cannot be enforced.
  • Dizon acted appropriately as a custodian of the documents, and there was no bad faith in her actions.

• Respondent's Argument (Borres):

  • The Deed of Absolute Sale is a perfected contract of sale, as it was duly executed and acknowledged by both parties.
  • The absence of a clause reserving title to the vendor until full payment indicates that the contract is one of sale, not a contract to sell.
  • Borres was ready and able to pay the down payment, as evidenced by the check she possessed, and Dizon's actions frustrated her ability to fulfill her obligation.

Court's Decision and Legal Reasoning:

The Court of Appeals ruled that the Deed of Absolute Sale constituted a perfected contract of sale, emphasizing that the absence of a reservation of title clause indicated that ownership had passed to Borres. The court noted that Salazar's reluctance to sign the deed did not imply fraud or duress, and even if Borres failed to pay, it did not invalidate the contract. The appellate court also found that Dizon acted in bad faith by preventing Borres from making the payment.

However, the Supreme Court ultimately reversed the Court of Appeals' decision, affirming the trial court's ruling that the Deed of Absolute Sale was a contract to sell. The Court reasoned that the true intent of the parties was to transfer ownership only upon full payment, as evidenced by the conditions set forth during negotiations and the execution of the Deed of Warranty. The Court held that since Borres failed to pay the down payment, she could not compel Salazar to deliver the deed and titles.

Significant Legal Principles Established:

1. The distinction between a contract of sale and a contract to sell hinges on the transfer of ownership; in a contract to sell, ownership is retained by the vendor until full payment is made.
2. The intent of the parties, as evidenced by their negotiations and the surrounding circumstances, is crucial in determining the nature of the contract.
3. A vendor's refusal to deliver the deed and titles based on non-payment of the purchase price is justified under a contract to sell.