Lim v. Court of Appeals
Respondent Orlino spouses’ lot was foreclosed by the PBC Bank because of the non-payment of their loan. Respondent also failed to redeem their property, thus, the bank became the rightful owner the same.
In 1975, Respondent offered to buy back the lot from the bank. The bank said that it will agree on the said offer but they shall keep the title to themselves first until the respondent spouses completed the payment. Respondent, however, failed to make the payments. The bank subsequently sold the lot to the petitioners.
Respondent then filed a case against the petitioner contending that the latter acted in bad faith in buying the property as the petitioner clearly knew of the earlier sale to the respondents. According to Respondent, Petitioner is in bad faith and not an innocent purchaser for value.
Whether or not the contract to sell between Respondent and the bank can be rescinded
Yes. The Court finds that it is immaterial to determine if the petitioner were in bad faith or not. What should be determined is whether there was a contract of absolute sale or contract to sell.
The Court ruled that there is a contract to sell as the bank reserved its ownership with the lot until the respondent paid the price. At the onset, a contract to sell is a reciprocal obligation. If vendee failed to pay the full purchase price, then the suspensive condition on the obligation of the vendor to execute the new contract of sale shall never exist.
Thus, in such a situation, there shall only be a unilateral obligation and the vendor can cancel the contract then and there. This is exactly what happened in the case at bar.
Since the respondent failed to pay the price, then the suspensive condition of the obligation of the Bank is not fulfilled. Thus, it validly canceled the contract to sell and executed a new contract of sale with the petitioners.