Short answer. The condition fails, so the sale does not take effect. Article 1181 makes the acquisition of rights in conditional obligations depend on the happening of the event that constitutes the condition — meaning neither your duty to pay nor the seller's to convey ever became demandable.
What the law says
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.
Civil Code, Article 1181 — Effect of Conditions. Read the full provision →
A suspensive condition holds everything in place
Compare Article 1179, under which every obligation whose performance does not depend upon a future or uncertain event is demandable at once. Your contract is the opposite case: approval of the loan is the future uncertain event, and until it happens nobody may demand anything. That protects the buyer from being sued for a price he cannot raise, and it equally frees the seller once denial is final, since he is not obliged to hold the lot indefinitely for a buyer whose financing failed.
Whose will the condition depends on
This clause is valid precisely because the bank is a stranger to the contract. Article 1182 voids a conditional obligation where fulfilment depends upon the sole will of the debtor, but provides that where it depends upon chance or upon the will of a third person, the obligation takes effect in conformity with the Code. A condition worded as approval by a lender of your choosing, on terms acceptable to you, edges closer to your own will — which is one reason such clauses are drafted around a named bank, a stated amount and a deadline.
You cannot fail the condition on purpose
Article 1186 is the trap for a buyer who has changed his mind: the condition is deemed fulfilled when the obligor voluntarily prevents its fulfilment. Never filing the application, withdrawing it, refusing to submit documents the bank asked for, or applying on terms designed to be refused can all be met with the answer that approval is treated as having come. So keep the paper trail — the application, the requirements submitted, the follow-ups and the written denial. Article 1184 matters too: a condition that an event happen at a determinate time extinguishes the obligation once the time expires.
The money you have already paid
If the sale never took effect, there is no completed transaction for the seller's retention of your money to rest on, and the ordinary consequence is that what was received goes back. But read the contract before assuming it, because reservation fees and option money are frequently made non-refundable by express stipulation, and that clause is what a dispute will actually turn on. Notify the seller in writing as soon as the denial arrives, attach the bank's letter, and ask for the refund in the same letter.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue, G.R. No. 172598, December 21, 2007 — read the decision on LawPhil →
- Felix L. Gonzales vs. Heirs of Thomas and Paula Cruz, etc. et al, G.R. No. 131784, September 16, 1999 — read the decision on LawPhil →
- Planters Development Bank (Now China Bank Savings, Inc.) vs. Fatima D.G. Fuerte, G.R. No. 259965, October 7, 2024 — read the decision on LawPhil →
- Elenita V. Macalinao, Kenneth V. Macalinao and Kristel V. Macalinao vs. Cerina, A.K.A. Cerena N. Macalinao and Cindy N. Ma, G.R. No. 250613, April 3, 2024 — read the decision on LawPhil →
Related provisions
- Civil Code, Article 1181 — Effect of Conditions
- Civil Code, Article 1179 — Pure Obligations; Resolutory Conditions
- Civil Code, Article 1182 — Potestative, Casual, and Mixed Conditions
- Civil Code, Article 1184 — Positive Condition
- Civil Code, Article 1186 — Constructive Fulfillment