G.R. No. 142310, 20 September 2004


Arra Realty Corporation (ARC) was the owner of a parcel of land, located in Alvarado Street, Legaspi Village, Makati City, covered by Transfer Certificate of Title. Through its president, the ARC decided to construct a five-story building on its property and engaged the services of Engineer Erlinda Peñaloza as project and structural engineer. In the process, Peñaloza and the ARC, through Carlos Arguelles, agreed that Peñaloza would share the purchase price of one floor of the building, consisting of 552 square meters payable within sixty (60) days from November 20, 1982, and the balance payable in twenty (20) equal quarterly installments.

The parties further agreed that the payments of Peñaloza would be credited to her account in partial payment of her stock subscription in the ARC’s capital stock. Sometime in May 1983, Peñaloza took possession of the one-half portion of the second floor, with an area of 552 square meters where she put up her office and operated the St. Michael International Institute of Technology. Unknown to her, ARC had executed a real estate mortgage over the lot and the entire building in favor of the CHINA BANKING CORPORATION as security for a loan on May 12, 1983. The deed was annotated. Peñaloza paid for the portion of the second floor of the building she had purchased from the ARC. She learned that the property had been mortgaged to the CHINA BANKING CORPORATION sometime.. Thereafter, she stopped paying the installments due on the purchase price of the property.

Peñaloza wrote the CHINA BANKING CORPORATION on August 1, 1984 informing the bank that the ARC had conveyed a portion of the second floor of the building to her. She also proposed for the bank to assist her in requesting the ARC to execute a deed of absolute sale over the portion of the second floor she had purchased and the issuance of the title in her name upon the payment of the purchase price. However, the bank rejected her proposal.

When the ARC failed to pay its loan to CHINA BANKING CORPORATION, the subject property was foreclosed extrajudicially, and, thereafter, sold at public auction to CHINA BANKING CORPORATION. ARC and the Guarantee Development Corporation and Insurance Agency (GDCIA) executed a deed of conditional sale covering the building and the lot for P22, 000,000, part of which was to be used to redeem the property from CHINA BANKING CORPORATION With the money advanced by the GDCIA, the property was redeemed on May 4, 1987. On May 14, 1987, the petitioner executed a deed of absolute sale over the lot and building in favor of the GDCIA for P22, 000,000.


Whether or not Guarantee Development Corporation is not an innocent purchaser for value and that automatic rescission is present.


As gleaned from the agreement, the petitioner ARC, as vendor, and respondent Peñaloza, as vendee, entered into a contract of sale over a portion of the second floor of the building yet to be constructed for the price of ₱3,105,838 payable in installments, the first installment of ₱901,738 to be paid within sixty (60) days from November 20, 1982 or on or before January 20, 1983, and the balance payable in twenty (20) equal quarterly payments of ₱110,205. As soon as the second floor was constructed within five (5) months, respondent Peñaloza would take possession of the property, and title thereto would be transferred to her name.

The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the contract of sale was perfected, it being consensual in nature, perfected by mere consent, which, in turn, was manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof. The perfection of the sale is not negated by the fact that the property subject of the sale was not yet in existence. This is so because the ownership by the seller of the thing sold at the time of the perfection of the contract of sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold.

In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property. The failure of the buyer to pay the purchase price within the stipulated period does not by itself bar the transfer of ownership or possession of the property sold, nor ipso facto rescind the contract.37 Such failure will merely give the vendor the option to rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of the New Civil Code:

Art. 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.

*Case digest by Lowel Dave D. Manuel, JD-4, Andres Bonifacio Law School, S.Y. 2019-2020