Contract of Sale vs. Contract to Sell
The distinction between a Contract of Sale and a Contract to Sell is fundamental in Philippine Civil Law, specifically under the law on obligations and contracts. These two agreements, while closely related and often confused, have distinct legal implications, especially concerning the transfer of ownership and remedies available in case of breach. Below is a comprehensive analysis:
1. Definition and Key Features
Contract of Sale
- Nature: A principal contract wherein one party (the seller) obligates himself to transfer ownership of and deliver a determinate thing to another party (the buyer), who, in turn, obligates himself to pay a price certain in money or its equivalent.
- Ownership Transfer: Ownership is transferred to the buyer upon the perfection of the contract (or upon delivery, if agreed upon as a condition).
- Risk of Loss: The risk of loss is immediately borne by the buyer once ownership has passed.
Contract to Sell
- Nature: A preparatory contract where the seller reserves ownership of the property until the buyer fulfills a suspensive condition (e.g., full payment of the purchase price).
- Ownership Transfer: Ownership is not transferred until the suspensive condition is met.
- Risk of Loss: The seller retains the risk of loss since ownership remains with him until the condition is fulfilled.
2. Legal Basis
Contract of Sale
- Article 1458, Civil Code of the Philippines:
"By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent."
Contract to Sell
- Not explicitly defined in the Civil Code but recognized by jurisprudence as a valid contract. The courts characterize it as distinct from a Contract of Sale due to the conditional nature of the transfer of ownership.
3. Differences
| Aspect | Contract of Sale | Contract to Sell |
|---|---|---|
| Nature | Consummated contract upon delivery and payment of price. | Conditional contract dependent on the fulfillment of a condition. |
| Ownership Transfer | Ownership passes upon perfection (or delivery). | Ownership passes only upon fulfillment of a suspensive condition. |
| Risk of Loss | Risk transfers to the buyer upon perfection (or delivery). | Risk remains with the seller until the suspensive condition is fulfilled. |
| Remedy for Breach | Specific performance or rescission under Article 1191. | No rescission; mere non-fulfillment of the condition prevents the transfer of ownership. |
| Reservation of Ownership | Not applicable; ownership is not reserved. | Ownership is expressly reserved by the seller. |
4. Essential Elements
Contract of Sale
- Consent: Mutual agreement between parties.
- Object: A determinate thing or specific good.
- Price: Must be certain in money or its equivalent.
Contract to Sell
- Consent: Agreement on the conditional transfer of ownership.
- Object: A specific property to be sold in the future.
- Condition: Fulfillment of a suspensive condition (e.g., full payment of the price).
5. Legal and Jurisprudential Implications
Ownership Transfer
- In a Contract of Sale, the seller cannot recover the property once delivered, unless there is a legal ground for rescission.
- In a Contract to Sell, failure to fulfill the condition prevents ownership transfer, and the seller can retain the property without needing rescission proceedings.
Breach of Contract
- In a Contract of Sale, breach may give rise to rescission under Article 1191 or damages under Articles 1170-1174.
- In a Contract to Sell, failure to fulfill the condition is not considered a breach; rather, it results in the automatic non-transfer of ownership.
Risk of Loss
- Under Article 1262, loss or deterioration of the thing sold is borne by the buyer if ownership has already passed.
- In a Contract to Sell, the seller bears the risk as ownership remains with him.
Remedies for the Seller
- In a Contract of Sale, the seller may:
- Demand payment of the price.
- Rescind the sale for breach.
- In a Contract to Sell, the seller need not rescind because the failure to fulfill the suspensive condition automatically negates the obligation to sell.
6. Jurisprudence
Philippine courts have repeatedly clarified the distinction between these two contracts:
Heirs of Felipe Lazo v. Spouses Lazo (G.R. No. 176545)
- The Court held that a Contract to Sell is a conditional sale where ownership is retained by the seller until the buyer pays in full. The non-fulfillment of the condition means no sale arises.
Coronel v. CA (G.R. No. 103577)
- The Court distinguished a Contract of Sale, where ownership transfers upon delivery, from a Contract to Sell, where ownership remains with the seller until payment of the full price.
Sps. Santos v. CA (G.R. No. 102428)
- The Court emphasized that in a Contract to Sell, the failure to pay the purchase price is not a breach but merely prevents the sale from being perfected.
7. Practical Application
- Contract of Sale is often used in cash sales or transactions where payment is immediate or installment arrangements are accompanied by delivery of ownership.
- Contract to Sell is preferred in real estate transactions where full payment is required before the transfer of title to safeguard the seller’s interest.
Conclusion
Understanding the distinction between a Contract of Sale and a Contract to Sell is crucial for both buyers and sellers. It affects ownership, risk allocation, and available remedies. Legal practitioners must carefully draft contracts to ensure the parties' intent is clear and to prevent disputes regarding ownership and obligations.