OLIVAREZ REALTY CORP. V. CASTILLO GR 196251| July 9, 2014 | Leonen, J.

| Third Division Remedies of Obligations

FACTS:
Respondent Benjamin Castillo was owner of a parcel of land which had existing occupying legitimate agricultural and fisherman tenants measuring
346,918sqm in Laurel Batangas. There was also an adverse claim to the property by Philippine Tourism Agency (PTA).
Nonetheless, on April 2000, Castillo sold the parcel of land to Olivares Realty Corp. represented by Dr. Pablo Olivares. The sale was governed by the
following contractual terms:
Stipulations of Contract to Sell –with Deed of Conditional Sale
1. Payment
The total price is P19M
• Olivares would pay Castillo a down payment of P5M payable in the first seven months from April to November 2000.
• The remaining balance of P14M would be paid in 30 equal monthly payments beginning from date when a decision in favor of
Castillo is rendered with regard to the adverse claim of PTA over the same property.
2. On the adverse claim of PTA:
Olivarez assumes the responsibility of taking legal action to have claim of PTA be nullified and voided; with the full assistance of Castillo. In the event that
the Court decides in favor of PTA, all sums received by Castillo shall be reimbursed to Olivarez without interest.
3. As to existing legitimate agricultural and fisherman tenants in the property:
Olivarez shall pay disturbance compensation to tenants an amount not exceeding P1.5M and that Castillo shall clear the land of the tenants within a period of 6
months upon signing of contract, and in case Castillo fails, Olivarez shall have the right to suspend the monthly DP until such time that tenants are
evicted.
4. As to when Olivarez may occupy the property
Immediately upon signing, Olivarez shall be entitled to occupy, possess and develop the property. In case this contract is canceled any improvement
introduced by Olivarez on the property shall be forfeited in favor of Castillo.

September 2004 - Castillo filed a complaint with RTC asking for rescission under NCC 1191 on following grounds:
a. Olivarez only paid P2.5M of the purchase price contrary to agreement number one.
b. Olivarez did not institute any action against PTA, contrary to agreement number two.
c. Olivarez did not pay the disturbance compensation nor did they clear the land of tenants, contrary to agreement number three.
d. On top of this, Castillo also alleged that the terms of the contract were not adequately explained to him in Tagalog (that Olivarez was one who
prepared the contract; that it was a contract of adhesion)
Olivarez Realty Castillo
The Olivarez justified withholding his payments because Castillo failed to fully RTC: found that Olivarez substantially admitted the material allegations
assist Olivarez in filing an action against PTA nor did they clear the property of of Castillo’s complaint and did not raise any genuine issue as to any
its tenants within six months. material fact, a summary judgement was rendered. It held that Olivarez
was responsible for suing the PTA and for paying the disturbance
compensation. Since it did not do either of the two, the trial court ruled
that Olivarez had no right to withhold payments from Castillo.
Olivarez therefore was liable for breach of the contract and ordered
it’s rescission under NCC 1191, while forfeiting in favor of Castillo the
P2.5M it had already paid. It also held Dr. Pablo Olivarez solidarily liable
with the corporation for damages.

CA: affirmed the RTC ruling.

ISSUE: WON Castillo is entitled to cancellation and not rescission of the contract with regard to the withholding of Olivarez for the payments due.
–YES, since the contract is CONTRACT TO SELL (governed by Civil Code prov on conditional obligations) , and not CONTRACT OF
CONDITIONAL SALE (governed by law on sales), and that Art 1191 of Civil Code does NOT apply to CONTRACTS to SELL

RULING:
Olivarez averred: justified withholding his payments because Castillo failed to fully assist Olivarez in filing an action against PTA nor did they clear the
property of its tenants within six months; that Castillo sold property to a 3rd person
Averred that there is ambiguity as to which should occur first: payment of disturbance compensatin to tenants by Olivarez OR clearance of tenants
by Castillo
Averred that summary judgment is not enough, there should be a full-blown trial to thresh out issues.
Castillo countered: there was substantial breach by Olivarez – nonpayment of full, hindi nagfile ng case against PTA, it did not pay tenants disturbance
compensation ; that it had right to rescind.
Countered that summary judgment is enough. ELAM: Pwede na sa mga pleadings lang.
Court ruled (with Castillo): It was Olivarez who breached the obligation.
It must first be established that Olivarez had no valid reason to cease paying the purchase price with Olivarez. It was ruled that ---
1. It is clear that Olivarez was responsible for initiating court action against the PTA. It cannot invoke the defense that Castillo did not help in the
proceedings when it did initiate the action in the first place. (ELAM: Sabi sa contract, Castillo only to assist, but it was Olivarez to file the case)
2. Olivarez’s obligation to pay disturbance compensation is a pure obligation hence it must have been complied with immediately. (ELAM: Hindi raw siya
reciprocal obligation.) Moreover, the deed of conditional sale did not give Olivarez Corporation a period to perform the obligation. As such, the
obligation to pay disturbance compensation was demandable at once. (ELAM: since hindi nila nagawa, delay na)
 Olivarez Realty Corporation should have paid the tenants disturbance compensation upon execution of the deed of conditional sale. (ELAM: pure
obligation)
Castillo’s obligation to clear the land was subject to a resolutory condition. The obligation to clear the land of tenants took effect at once, specifically,
upon the parties’ signing of the deed of conditional sale. Castillo had until October 2, 2000, six months from April 5, 2000 when the parties signed the
deed of conditional sale, to clear the land of the tenants. (ELAM: may period; since hindi nabayaran ni Olivarez the disturbance compensation, hindi
maceclear ni Castillo). Therefore Olivarez had no right to withhold DP before October 2000 and blame that Castillo had not cleared (ELAM: April, May1,
June2, July3, Aug4, Sept5, Oct6)
Court noted that Olivarez Corp had no right to withhold payments of purchase price. As TRIAL COURT ruled, Olivarez Realty “can only claim
noncompliance of the obligation to clear the land of tenants in October 2000. (ELAM: Dito pumapasok concept that in reciprocal obligations, there is
delay if one does not comply on the assumption that there is no stipulation as to period when to perform obli. But if there is stipulation, the other party is
not in delay if the period to perform the obligation has not arrived.)
Court also ruled Olivares cannot withhold before Oct since sa contract 6 mos dapat bago iclear ni Castillo ung tenants. Also at that point in time
(Oct 2000), the balance paid should already have been P4.5M. But as stated, only P2.5M was paid. ELAM: So in fact, ung in delay/default si Olivarez for
not paying.
Court ruled that Olivarez claim that Castillo has sold property to 3rd party is not correct.
There are no genuine issues of material fact in this case. These are issues that can be resolved judiciously by plain resort to the pleadings,
affidavits, depositions, and other papers on file. As the trial court found, Olivarez illegally withheld payments of the purchase price. The trial
court did not err in rendering summary judgment.

Court ruled (with Castillo): Castillo is entitled to cancel the contract of conditional sale
Since Olivarez Realty illegally withheld payments, Castillo is entitled to cancel his contract. However, we properly characterize the parties’ contract as a
contract to sell, not a contract of conditional sale.

In both contracts, title to the property remains with the seller until the buyer fully pays the purchase price. Both contracts are subject to a positive
suspensive condition that the buyer pays the full amount of the purchase price, for the other to convey (ELAM: full payment of purchase price is the
positive suspensive condition for transfer of title) but they differ in that –
--in CTS (Contract to Sell), ownership is transferred by act of seller conveying to buyer the a deed of conditional sale (ELAM: transfer not AUTOMATIC)
Timeline: signing of contract > full payment > convey deed of conditional sale
--while in a CCS (Contract of Conditional Sale), ownership is transferred by operation of law upon the happening of the condition w/o further act of
seller
Timeline: signing of contract > full payment > deed of conditional sale? transferred by operation of law
--ELAM: In Contract of Sale (Art 1191 is applicable here, since reciprocal obligatinos, so for contracts OF sale, these are rescissible)

Distinction of type of contract is important. Contract to Sell (CTS) - is governed by Civil Code prov on conditional obligations. Contract of Conditional
Sale (CCS) –is governed by the law on sales. Art 1191 on right to rescind does not apply to Contracts to Sell, that’s why CANCELLATION is the remedy,
not RESOLUTION/REscissiON.
>> In Contract to Sell – buyer pays and this is suspensive condition, giving rise to obli by seller to convey title + seller conveys title (not covered
under Art 1191, It is NOT a breach, because the NONpayment is merely an event which prevents suspensive condition from happening, that is it
prevents seller’s obligation to convey title from acquiring binding force SELLER NOT OBLIGATED; this means also Contract to Sell is rendered
ineffective, without force and effect) … Rationale: Why Art 1191 not applicable in contract to sell --- This is because “there can be no rescission of an
obligation that is still nonexistent, the suspensive condition not having happened. Art 1191 presupposes that a contract is existing.
>> In Contract of Conditional Sale – buyers pays, this is suspensive condition + title is conveyed by operation of law (reciprocal covered under Art
1191?)
>>ELAM, In Contract of Sale – this is rescissible, Art 1191 is applicableee (IS CONTRACT OF CONDITIONAL SAME AS CONTRACT OF
SALE????_

In this case, CONTRACT TO SELL ito -- Castillo reserved his title to property and undertook to execute a deed of absolute sale upon Olivarez’s full
payment of the purchase price. Since Castillo still has to execute a deed of absolute sale to Olivarez upon full payment of the purchase price, the transfer
of title is not automatic. The contract in this case is a contract to sell. CANCELLATION is the remedy. (ELAM: Hindi applicable rescission of Art 1191
kasi nonexistent pa ung obligation ni seller) The contract to sell is instead cancelled, and the parties shall stand as if the obligation to sell never existed.
EffeCTS: Failure to pay the purchase price stipulated in a CTS is NOT a breach of an obligation under NCC 1191, but rather it is merely an event
which prevents the suspensive condition from happening.
The property shall be returned and all improvements are forfeited in favor of Castillo in accordance to agreement number one.
Because possession of the property was given to Olivarez before the transfer of title, the P2.5M shall be forfeited in favor of Castillo as well (ELAM:
Since nagbenefit si Olivarez). This is a reasonable compensation for Olivarez’s possession of property for 14 years already.

DISPOSITION:
WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals’ decision dated July 20, 2010 and in C.A.-G.R. CV No. 91244 is
AFFIRMED with MODIFICATION. The deed of conditional sale dated April 5, 2000 is declared CANCELLED. Petitioner Olivarez Realty
Corporation shall RETURN to respondent Benjamin Castillo the possession of the property covered by Transfer Certificate of Title No. T-19972
together with all the improvements that petitioner corporation introduced on the property. The amount of P2,500,000.00 is FORFEITED in favor of
respondent Benjamin Castillo as reasonable compensation for the use of petitioner Olivarez Realty Corporation of the property. Petitioner Olivarez
Realty Corporation shall PAY respondent Benjamin Castillo P500,000.00 as moral damages, P50,000.00 as exemplary damages, and P50,000.00 as
attorney’s fees with interest at 6% per annum from the time this decision becomes final and executory until petitioner corporation fully pays the amount
of damages.