1191 RESCISSION/RESOLUTION[G.R. No. 139523. May 26, 2005]SPS.
FELIPE AND LETICIA CANNU,petitioners, vs. SPS. GIL AND FERNANDINA
GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION,respondents.D
E C I S I O NCHICO-NAZARIO,J.:Before Us is a Petition for Review
onCertiorariwhich seeks to set aside the decision[1]of the Court of
Appeals dated 30 September 1998 which affirmed with modification
the decision of Branch 135 of the Regional Trial Court (RTC) of
Makati City, dismissing the complaint for Specific Performance and
Damages filed by petitioners, and its Resolution[2]dated 22 July
1999 denying petitioners motion for reconsideration.A
complaint[3]for Specific Performance and Damages was filed by
petitioners-spouses Felipe and Leticia Cannu against
respondents-spouses Gil and Fernandina Galang and the National Home
Mortgage Finance Corporation (NHMFC) before Branch 135 of the RTC
of Makati, on 24 June 1993. The case was docketed as Civil Case No.
93-2069.The facts that gave rise to the aforesaid complaint are as
follows:Respondents-spouses Gil and Fernandina Galang obtained a
loan from Fortune Savings & Loan Association forP173,800.00 to
purchase a house and lot located at Pulang Lupa, Las Pias, with an
area of 150 square meters covered by Transfer Certificate of Title
(TCT) No. T-8505 in the names of respondents-spouses. To secure
payment, a real estate mortgage was constituted on the said house
and lot in favor of Fortune Savings & Loan Association. In
early 1990, NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings & Loan Association
forP173,800.00.Respondent Fernandina Galang authorized[4]her
attorney-in-fact, Adelina R. Timbang, to sell the subject house and
lot.Petitioner Leticia Cannu agreed to buy the property
forP120,000.00 and to assume the balance of the mortgage
obligations with the NHMFC and with CERF Realty[5](the Developer of
the property).Of theP120,000.00, the following payments were made
by petitioners:DateAmount Paid
July 19, 1990P40,000.00[6]
March 13, 199115,000.00[7]
April 6, 199115,000.00[8]
November 28, 19915,000.00[9]
TotalP75,000.00
Thus, leaving a balance ofP45,000.00.A Deed of Sale with
Assumption of Mortgage Obligation[10]dated 20 August 1990 was made
and entered into by and between spouses Fernandina and Gil Galang
(vendors) and spouses Leticia and Felipe Cannu (vendees) over the
house and lot in question which contains,inter alia, the
following:NOW, THEREFORE, for and in consideration of the sum of
TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine
Currency, receipt of which is hereby acknowledged by the Vendors
and the assumption of the mortgage obligation, the Vendors hereby
sell, cede and transfer unto the Vendees, their heirs, assigns and
successor in interest the above-described property together with
the existing improvement thereon.It is a special condition of this
contract that the Vendees shall assume and continue with the
payment of the amortization with the National Home Mortgage Finance
Corporation Inc. in the outstanding balance ofP_______________, as
of __________ and shall comply with and abide by the terms and
conditions of the mortgage document dated Feb. 27, 1989 and
identified as Doc. No. 82, Page 18, Book VII, S. of 1989 of Notary
Public for Quezon City Marites Sto. Tomas Alonzo, as if the Vendees
are the original signatories.Petitioners immediately took
possession and occupied the house and lot.Petitioners made the
following payments to the NHMFC:DateAmountReceipt No.
July 9, 1990P14,312.47D-503986[11]
March 12, 1991 8,000.00D-729478[12]
February 4, 1992 10,000.00D-999127[13]
March 31, 1993 6,000.00E-563749[14]
April 19, 1993 10,000.00E-582432[15]
April 27, 1993 7,000.00E-618326[16]
P55,312.47
Petitioners paid the equity or second mortgage to CERF
Realty.[17]Despite requests from Adelina R. Timbang and Fernandina
Galang to pay the balance ofP45,000.00 or in the alternative to
vacate the property in question, petitioners refused to do so.In a
letter[18]dated 29 March 1993, petitioner Leticia Cannu informed
Mr. Fermin T. Arzaga, Vice President, Fund Management Group of the
NHMFC, that the ownership rights over the land covered by TCT No.
T-8505 in the names of respondents-spouses had been ceded and
transferred to her and her husband per Deed of Sale with Assumption
of Mortgage, and that they were obligated to assume the mortgage
and pay the remaining unpaid loan balance. Petitioners formal
assumption of mortgage was not approved by the NHMFC.[19]Because
the Cannus failed to fully comply with their obligations,
respondent Fernandina Galang, on 21 May 1993, paidP233,957.64 as
full payment of her remaining mortgage loan with
NHMFC.[20]Petitioners opposed the release of TCT No. T-8505 in
favor of respondents-spouses insisting that the subject property
had already been sold to them. Consequently, the NHMFC held in
abeyance the release of said TCT.Thereupon, a Complaint for
Specific Performance and Damages was filed asking, among other
things, that petitioners (plaintiffs therein) be declared the
owners of the property involved subject to reimbursements of the
amount made by respondents-spouses (defendants therein) in
preterminating the mortgage loan with NHMFC.Respondent NHMFC filed
its Answer.[21]It claimed that petitioners have no cause of action
against it because they have not submitted the formal requirements
to be considered assignees and successors-in-interest of the
property under litigation.In their Answer,[22]respondents-spouses
alleged that because of petitioners-spouses failure to fully pay
the consideration and to update the monthly amortizations with the
NHMFC, they paid in full the existing obligations with NHMFC as an
initial step in the rescission and annulment of the Deed of Sale
with Assumption of Mortgage. In their counterclaim, they maintain
that the acts of petitioners in not fully complying with their
obligations give rise to rescission of the Deed of Sale with
Assumption of Mortgage with the corresponding damages.After trial,
the lower court rendered its decision ratiocinating:On the basis of
the evidence on record, testimonial and documentary, this Court is
of the view that plaintiffs have no cause of action either against
the spouses Galang or the NHMFC. Plaintiffs have admitted on record
they failed to pay the amount of P45,000.00 the balance due to the
Galangs in consideration of the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. C and 3). Consequently, this is a breach
of contract and evidently a failure to comply with obligation
arising from contracts. . . In this case, NHMFC has not been duly
informed due to lack of formal requirements to acknowledge
plaintiffs as legal assignees, or legitimate tranferees and,
therefore, successors-in-interest to the property, plaintiffs
should have no legal personality to claim any right to the same
property.[23]The decretal portion of the decision reads:Premises
considered, the foregoing complaint has not been proven even by
preponderance of evidence, and, as such, plaintiffs have no cause
of action against the defendants herein. The above-entitled case is
ordered dismissed for lack of merit.Judgment is hereby rendered by
way of counterclaim, in favor of defendants and against plaintiffs,
to wit:1. Ordering the Deed of Sale With Assumption of Mortgage
Obligation (Exhs. C and 3) rescinded and hereby declared the same
as nullified without prejudice for defendants-spouses Galang to
return the partial payments made by plaintiffs; and the plaintiffs
are ordered, on the other hand, to return the physical and legal
possession of the subject property to spouses Galang by way of
mutual restitution;2. To pay defendants spouses Galang and NHMFC,
each the amount of P10,000.00 as litigation expenses, jointly and
severally;3. To pay attorneys fees to defendants in the amount of
P20,000.00, jointly and severally; and4. The costs of suit.5. No
moral and exemplary damages awarded.[24]A Motion for
Reconsideration[25]was filed, but same was denied. Petitioners
appealed the decision of the RTC to the Court of Appeals. On 30
September 1998, the Court of Appeals disposed of the appeal as
follows:Obligations arising from contract have the force of law
between the contracting parties and should be complied in good
faith. The terms of a written contract are binding on the parties
thereto.Plaintiffs-appellants therefore are under obligation to pay
defendants-appellees spouses Galang the sum of P250,000.00, and to
assume the mortgage.Records show that upon the execution of the
Contract of Sale or on July 19, 1990 plaintiffs-appellants paid
defendants-appellees spouses Galang the amount of only
P40,000.00.The next payment was made by plaintiffs-appellants on
March 13, 1991 or eight (8) months after the execution of the
contract. Plaintiffs-appellants paid the amount of P5,000.00.The
next payment was made on April 6, 1991 for P15,000.00 and on
November 28, 1991, for another P15,000.00.From 1991 until the
present, no other payments were made by plaintiffs-appellants to
defendants-appellees spouses Galang.Out of the P250,000.00 purchase
price which was supposed to be paid on the day of the execution of
contract in July, 1990 plaintiffs-appellants have paid,in thespan
of eight (8) years, from 1990 to present, the amount of only
P75,000.00. Plaintiffs-appellants should have paid the P250,000.00
at the time of the execution of contract in 1990. Eight (8) years
have already lapsed and plaintiffs-appellants have not yet complied
with their obligation.We consider this breach to be substantial.The
tender made by plaintiffs-appellants after the filing of this case,
of the Managerial Check in the amount of P278,957.00 dated January
24, 1994 cannot be considered as an effective mode of
payment.Performance or payment may be effected not by tender of
payment alone but by both tender and consignation. It is
consignation which is essential in order to extinguish
plaintiffs-appellants obligation to pay the balance of the purchase
price.In addition, plaintiffs-appellants failed to comply with
their obligation to pay the monthly amortizations due on the
mortgage.In the span of three (3) years from 1990 to 1993,
plaintiffs-appellants made only six payments. The payments made by
plaintiffs-appellants are not even sufficient to answer for the
arrearages, interests and penalty charges.On account of these
circumstances, the rescission of the Contract of Sale is warranted
and justified.. . .WHEREFORE, foregoing considered, the appealed
decision is hereby AFFIRMED with modification. Defendants-appellees
spouses Galang are hereby ordered to return the partial payments
made by plaintiff-appellants in the amount of P135,000.00.No
pronouncement as to cost.[26]The motion for
reconsideration[27]filed by petitioners was denied by the Court of
Appeals in a Resolution[28]dated 22 July 1999.Hence, this Petition
forCertiorari.Petitioners raise the following assignment of
errors:1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT
PETITIONERS BREACH OF THE OBLIGATION WAS SUBSTANTIAL.2. THE
HONORABLE COURT OF APPEALS ERRED WHEN IN EFFECT IT HELD THAT THERE
WAS NO SUBSTANTIAL COMPLIANCE WITH THE OBLIGATION TO PAY THE
MONTHLY AMORTIZATION WITH NHMFC.3. THE HONORABLE COURT OF APPEALS
ERRED WHEN IT FAILED TO CONSIDER THE OTHER FACTS AND CIRCUMSTANCES
THAT MILITATE AGAINST RESCISSION.4. THE HONORABLE COURT OF APPEALS
ERRED WHEN IT FAILED TO CONSIDER THAT THE ACTION FOR RESCISSION IS
SUBSIDIARY.[29]Before discussing the errors allegedly committed by
the Court of Appeals, it must be stateda priorithat the latter made
a misappreciation of evidence regarding the consideration of the
property in litigation when it relied solely on the Deed of Sale
with Assumption of Mortgage executed by the respondents-spouses
Galang and petitioners-spouses Cannu.As above-quoted, the
consideration for the house and lot stated in the Deed of Sale with
Assumption of Mortgage isP250,000.00, plus the assumption of the
balance of the mortgage loan with NHMFC. However, after going over
the record of the case, more particularly the Answer of
respondents-spouses, the evidence shows the consideration therefor
isP120,000.00, plus the payment of the outstanding loan mortgage
with NHMFC, and of the equity or second mortgage with CERF Realty
(Developer of the property).[30]Nowhere in the complaint and answer
of the petitioners-spouses Cannu and respondents-spouses Galang
shows that the consideration is P250,000.00. In fact, what is clear
is that of theP120,000.00 to be paid to the latter, onlyP75,000.00
was paid to Adelina Timbang, the spouses Galangs attorney-in-fact.
This debunks the provision in the Deed of Sale with Assumption of
Mortgage that the amount ofP250,000.00 has been received by
petitioners.Inasmuch as the Deed of Sale with Assumption of
Mortgage failed to express the true intent and agreement of the
parties regarding its consideration, the same should not be fully
relied upon. The foregoing facts lead us to hold that the case on
hand falls within one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may present
evidence to modify, explain or add to the terms of the written
agreement if he puts in issue in his pleading, among others, its
failure to express the true intent and agreement of the parties
thereto.[31]In the case at bar, when respondents-spouses enumerated
in their Answer the terms and conditions for the sale of the
property under litigation, which is different from that stated in
the Deed of Sale with Assumption with Mortgage, they already put in
issue the matter of consideration. Since there is a difference as
to what the true consideration is, this Court has admitted
evidencealiundeto explain such inconsistency. Thus, the Court has
looked into the pleadings and testimonies of the parties to thresh
out the discrepancy and to clarify the intent of the parties.As
regards the computation[32]of petitioners as to the breakdown of
theP250,000.00 consideration, we find the same to be self-serving
and unsupported by evidence.On the first assigned error,
petitioners argue that the Court erred when it ruled that their
breach of the obligation was substantial.Settled is the rule that
rescission or, more accurately, resolution,[33]of a party to an
obligation under Article 1191[34]is predicated on a breach of faith
by the other party that violates the reciprocity between
them.[35]Article 1191 reads:Art. 1191. The power to rescind
obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.The
injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He
may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.The court shall decree the
rescission claimed, unless there be just cause authorizing the
fixing of a period.Rescission will not be permitted for a slight or
casual breach of the contract. Rescission may be had only for such
breaches that are substantial and fundamental as to defeat the
object of the parties in making the agreement.[36]The question of
whether a breach of contract is substantial depends upon the
attending circumstances[37]and not merely on the percentage of the
amount not paid.In the case at bar, we find petitioners failure to
pay the remaining balance ofP45,000.00 to be substantial. Even
assumingarguendothat only said amount was left out of the supposed
consideration ofP250,000.00, or eighteen (18%) percent thereof,
this percentage is still substantial. Taken together with the fact
that the last payment made was on 28 November 1991, eighteen months
before the respondent Fernandina Galang paid the outstanding
balance of the mortgage loan with NHMFC, the intention of
petitioners to renege on their obligation is utterly
clear.CitingMassive Construction, Inc. v. Intermediate Appellate
Court,[38]petitioners ask that they be granted additional time to
complete their obligation. Under the facts of the case, to give
petitioners additional time to comply with their obligation will be
putting premium on their blatant non-compliance of their
obligation. They had all the time to do what was required of them
(i.e., pay the P45,000.00 balance and to properly assume the
mortgage loan with the NHMFC), but still they failed to comply.
Despite demands for them to pay the balance, no payments were
made.[39]The fact that petitioners tendered a Managers Check to
respondents-spouses Galang in the amount of P278,957.00 seven
months after the filing of this case is of no moment. Tender of
payment does not by itself produce legal payment, unless it is
completed by consignation.[40]Their failure to fulfill their
obligation gave the respondents-spouses Galang the right to
rescission.Anent the second assigned error, we find that
petitioners were not religious in paying the amortization with the
NHMFC. As admitted by them, in the span of three years from 1990 to
1993, their payments covered only thirty months.[41]This, indeed,
constitutes another breach or violation of the Deed of Sale with
Assumption of Mortgage. On top of this, there was no formal
assumption of the mortgage obligation with NHMFC because of the
lack of approval by the NHMFC[42]on account of petitioners
non-submission of requirements in order to be considered as
assignees/successors-in-interest over the property covered by the
mortgage obligation.[43]On the third assigned error, petitioners
claim there was no clear evidence to show that respondents-spouses
Galang demanded from them a strict and/or faithful compliance of
the Deed of Sale with Assumption of Mortgage.We do not agree.There
is sufficient evidence showing that demands were made from
petitioners to comply with their obligation. Adelina R. Timbang,
attorney-in-fact of respondents-spouses, per instruction of
respondent Fernandina Galang, made constant follow-ups after the
last payment made on 28 November 1991, but petitioners did not
pay.[44]Respondent Fernandina Galang stated in her Answer[45]that
upon her arrival from America in October 1992, she demanded from
petitioners the complete compliance of their obligation by paying
the full amount of the consideration (P120,000.00) or in the
alternative to vacate the property in question, but still,
petitioners refused to fulfill their obligations under the Deed of
Sale with Assumption of Mortgage. Sometime in March 1993, due to
the fact that full payment has not been paid and that the monthly
amortizations with the NHMFC have not been fully updated, she made
her intentions clear with petitioner Leticia Cannu that she will
rescind or annul the Deed of Sale with Assumption of Mortgage.We
likewise rule that there was no waiver on the part of petitioners
to demand the rescission of the Deed of Sale with Assumption of
Mortgage. The fact that respondents-spouses accepted, through their
attorney-in-fact, payments in installments does not constitute
waiver on their part to exercise their right to rescind the Deed of
Sale with Assumption of Mortgage. Adelina Timbang merely accepted
the installment payments as an accommodation to petitioners since
they kept on promising they would pay. However, after the lapse of
considerable time (18 months from last payment) and the purchase
price was not yet fully paid, respondents-spouses exercised their
right of rescission when they paid the outstanding balance of the
mortgage loan with NHMFC. It was only after petitioners stopped
paying that respondents-spouses moved to exercise their right of
rescission.Petitioners cite the case ofAngeles v. Calasanz[46]to
support their claim that respondents-spouses waived their right to
rescind. We cannot apply this case since it is not on all fours
with the case before us. First, inAngeles, the breach was only
slight and casual which is not true in the case before us. Second,
inAngeles, the buyer had already paid more than the principal
obligation, while in the instant case, the buyers (petitioners) did
not pay P45,000.00 of the P120,000.00 they were obligated to pay.We
find petitioners statement that there is no evidence of prejudice
or damage to justify rescission in favor of respondents-spouses to
be unfounded. The damage suffered by respondents-spouses is the
effect of petitioners failure to fully comply with their
obligation, that is, their failure to pay the remaining P45,000.00
and to update the amortizations on the mortgage loan with the
NHMFC. Petitioners have in their possession the property under
litigation. Having parted with their house and lot,
respondents-spouses should be fully compensated for it, not only
monetarily, but also as to the terms and conditions agreed upon by
the parties. This did not happen in the case before us.CitingSeva
v. Berwin & Co., Inc.,[47]petitioners argue that no rescission
should be decreed because there is no evidence on record that
respondent Fernandina Galang is ready, willing and able to comply
with her own obligation to restore to them the total payments they
made. They added that no allegation to that effect is contained in
respondents-spouses Answer.We find this argument to be
misleading.First, the facts obtaining inSevacase do not fall
squarely with the case on hand. In the former, the failure of one
party to perform his obligation was the fault of the other party,
while in the case on hand, failure on the part of petitioners to
perform their obligation was due to their own fault.Second, what is
stated in the book of Justice Edgardo L. Paras is [i]t (referring
to the right to rescind or resolve) can be demanded only if the
plaintiff is ready, willing and able to comply with his own
obligation, and the other is not. In other words, if one party has
complied or fulfilled his obligation, and the other has not, then
the former can exercise his right to rescind. In this case,
respondents-spouses complied with their obligation when they gave
the possession of the property in question to petitioners. Thus,
they have the right to ask for the rescission of the Deed of Sale
with Assumption of Mortgage.On the fourth assigned error,
petitioners, relying on Article 1383 of the Civil Code, maintain
that the Court of Appeals erred when it failed to consider that the
action for rescission is subsidiary.Their reliance on Article 1383
is misplaced.The subsidiary character of the action for rescission
applies to contracts enumerated in Articles 1381[48]of the Civil
Code. The contract involved in the case before us is not one of
those mentioned therein. The provision that applies in the case at
bar is Article 1191.In the concurring opinion of Justice Jose B.L.
Reyes inUniversal Food Corp. v. Court of Appeals,[49]rescission
under Article 1191 was distinguished from rescission under Article
1381. Justice J.B.L. Reyes said:. . . The rescission on account of
breach of stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith by the
defendant, that violates the reciprocity between the parties. It is
not a subsidiary action, and Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder is
subordinated to anything other than the culpable breach of his
obligations by the defendant. This rescission is a principal action
retaliatory in character, it being unjust that a party be held
bound to fulfill his promises when the other violates his. As
expressed in the old Latin aphorism: Non servanti fidem, non est
fides servanda. Hence, the reparation of damages for the breach is
purely secondary.On the contrary, in the rescission by reason
oflesionor economic prejudice, the cause of action is subordinated
to the existence of that prejudice, because it is theraisondtreas
well as the measure of the right to rescind. Hence, where the
defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383 and
1384. But the operation of these two articles is limited to the
cases of rescission forlesionenumerated in Article 1381 of the
Civil Code of the Philippines, and does not apply to cases under
Article 1191.From the foregoing, it is clear that rescission
(resolution in the Old Civil Code) under Article 1191 is a
principal action, while rescission under Article 1383 is a
subsidiary action. The former is based on breach by the other party
that violates the reciprocity between the parties, while the latter
is not.In the case at bar, the reciprocity between the parties was
violated when petitioners failed to fully pay the balance of
P45,000.00 to respondents-spouses and their failure to update their
amortizations with the NHMFC.Petitioners maintain that inasmuch as
respondents-spouses Galang were not granted the right to
unilaterally rescind the sale under the Deed of Sale with
Assumption of Mortgage, they should have first asked the court for
the rescission thereof before they fully paid the outstanding
balance of the mortgage loan with the NHMFC. They claim that such
payment is a unilateral act of rescission which violates existing
jurisprudence.InTan v. Court of Appeals,[50]this court said:. . .
[T]he power to rescind obligations is implied in reciprocal ones in
case one of the obligors should not comply with what is incumbent
upon him is clear from a reading of the Civil Code provisions.
However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially;
it cannot be exercised solely on a partys own judgment that the
other has committed a breach of the obligation. Where there is
nothing in the contract empowering the petitioner to rescind it
without resort to the courts, the petitioners action in
unilaterally terminating the contract in this case is
unjustified.It is evident that the contract under consideration
does not contain a provision authorizing its extrajudicial
rescission in case one of the parties fails to comply with what is
incumbent upon him. This being the case, respondents-spouses should
have asked for judicial intervention to obtain a judicial
declaration of rescission. Be that as it may, and considering that
respondents-spouses Answer (with affirmative defenses) with
Counterclaim seeks for the rescission of the Deed of Sale with
Assumption of Mortgage, it behooves the court to settle the matter
once and for all than to have the case re-litigated again on an
issue already heard on the merits and which this court has already
taken cognizance of. Having found that petitioners seriously
breached the contract, we, therefore, declare the same is rescinded
in favor of respondents-spouses.As a consequence of the rescission
or, more accurately, resolution of the Deed of Sale with Assumption
of Mortgage, it is the duty of the court to require the parties to
surrender whatever they may have received from the other. The
parties should be restored to their original situation.[51]The
record shows petitioners paid respondents-spouses the amount of
P75,000.00 out of the P120,000.00 agreed upon. They also made
payments to NHMFC amounting to P55,312.47. As to the petitioners
alleged payment to CERF Realty of P46,616.70, except for petitioner
Leticia Cannus bare allegation, we find the same not to be
supported by competent evidence. As a general rule, one who pleads
payment has the burden of proving it.[52]However, since it has been
admitted in respondents-spouses Answer that petitioners shall
assume the second mortgage with CERF Realty in the amount of
P35,000.00, and that Adelina Timbang, respondents-spouses very own
witness, testified[53]that same has been paid, it is but proper to
return this amount to petitioners. The three amounts total
P165,312.47 -- the sum to be returned to petitioners.WHEREFORE,
premises considered, the decision of the Court of Appeals is hereby
AFFIRMED with MODIFICATION. Spouses Gil and Fernandina Galang are
hereby ordered to return the partial payments made by petitioners
in the amount of P165,312.47. With costs.SO ORDERED.
G.R. No. 147695 September 13, 2007MANUEL C.
PAGTALUNAN,petitioner,vs.RUFINA DELA CRUZ VDA. DE
MANZANO,respondent.D E C I S I O NAZCUNA,J.:This is a petition for
review oncertiorariunder Rule 45 of the Rules of Court of the Court
of Appeals (CA) Decision promulgated on October 30, 2000 and its
Resolution dated March 23, 2001 denying petitioners motion for
reconsideration. The Decision of the CA affirmed the Decision of
the Regional Trial Court (RTC) of Malolos, Bulacan, dated June 25,
1999 dismissing the case of unlawful detainer for lack of merit.The
facts are as follows:On July 19, 1974, Patricio Pagtalunan
(Patricio), petitioners stepfather and predecessor-in-interest,
entered into a Contract to Sell with respondent, wife of Patricios
former mechanic, Teodoro Manzano, whereby the former agreed to
sell, and the latter to buy, a house and lot which formed half of a
parcel of land, covered by Transfer Certificate of Title (TCT) No.
T-10029 (now TCT No. RT59929 [T-254773]), with an area of 236
square meters. The consideration ofP17,800 was agreed to be paid in
the following manner:P1,500 as downpayment upon execution of the
Contract to Sell, and the balance to be paid in equal monthly
installments ofP150 on or before the last day of each month until
fully paid.It was also stipulated in the contract that respondent
could immediately occupy the house and lot; that in case of default
in the payment of any of the installments for 90 days after its due
date, the contract would be automatically rescinded without need of
judicial declaration, and that all payments made and all
improvements done on the premises by respondent would be considered
as rentals for the use and occupation of the property or payment
for damages suffered, and respondent was obliged to peacefully
vacate the premises and deliver the possession thereof to the
vendor.Petitioner claimed that respondent paid onlyP12,950. She
allegedly stopped paying after December 1979 without any
justification or explanation. Moreover, in a "Kasunduan"1dated
November 18, 1979, respondent borrowedP3,000 from Patricio payable
in one year either in one lump sum payment or by installments,
failing which the balance of the loan would be added to the
principal subject of the monthly amortizations on the land.Lastly,
petitioner asserted that when respondent ceased paying her
installments, her status of buyer was automatically transformed to
that of a lessee. Therefore, she continued to possess the property
by mere tolerance of Patricio and, subsequently, of petitioner.On
the other hand, respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 when Patricio
changed his mind and offered to refund all her payments provided
she would surrender the house. She refused. Patricio then started
harassing her and began demolishing the house portion by portion.
Respondent admitted that she failed to pay some installments after
December 1979, but that she resumed paying in 1980 until her
balance dwindled toP5,650. She claimed that despite several months
of delay in payment, Patricio never sued for ejectment and even
accepted her late payments.Respondent also averred that on
September 14, 1981, she and Patricio signed an agreement (Exh. 2)
whereby he consented to the suspension of respondents monthly
payments until December 1981. However, even before the lapse of
said period, Patricio resumed demolishing respondents house,
prompting her to lodge a complaint with theBarangayCaptain who
advised her that she could continue suspending payment even beyond
December 31, 1981 until Patricio returned all the materials he took
from her house. This Patricio failed to do until his
death.Respondent did not deny that she still owed PatricioP5,650,
but claimed that she did not resume paying her monthly installment
because of the unlawful acts committed by Patricio, as well as the
filing of the ejectment case against her. She denied having any
knowledge of theKasunduanof November 18, 1979.Patricio and his wife
died on September 17, 1992 and on October 17, 1994, respectively.
Petitioner became their sole successor-in-interest pursuant to a
waiver by the other heirs. On March 5, 1997, respondent received a
letter from petitioners counsel dated February 24, 1997 demanding
that she vacate the premises within five days on the ground that
her possession had become unlawful. Respondent ignored the demand.
ThePunong Barangayfailed to settle the dispute amicably.On April 8,
1997, petitioner filed a Complaint for unlawful detainer against
respondent with the Municipal Trial Court (MTC) of Guiguinto,
Bulacan praying that, after hearing, judgment be rendered ordering
respondent to immediately vacate the subject property and surrender
it to petitioner; forfeiting the amount ofP12,950 in favor of
petitioner as rentals; ordering respondent to pay petitioner the
amount ofP3,000 under theKasunduanand the amount ofP500 per month
from January 1980 until she vacates the property, and to pay
petitioner attorneys fees and the costs.On December 22, 1998, the
MTC rendered a decision in favor of petitioner. It stated that
although the Contract to Sell provides for a rescission of the
agreement upon failure of the vendee to pay any installment, what
the contract actually allows is properly termed a resolution under
Art. 1191 of the Civil Code.The MTC held that respondents failure
to pay not a few installments caused the resolution or termination
of the Contract to Sell. The last payment made by respondent was on
January 9, 1980 (Exh. 71). Thereafter, respondents right of
possessionipso factoceased to be a legal right, and became
possession by mere tolerance of Patricio and his
successors-in-interest. Said tolerance ceased upon demand on
respondent to vacate the property.The dispositive portion of the
MTC Decision reads:Wherefore, all the foregoing considered,
judgment is hereby rendered, ordering the defendant:a. to vacate
the property covered by Transfer Certificate of Title No. T-10029
of the Register of Deeds of Bulacan (now TCT No. RT-59929 of the
Register of Deeds of Bulacan), and to surrender possession thereof
to the plaintiff;b. to pay the plaintiff the amount ofP113,500
representing rentals from January 1980 to the present;c. to pay the
plaintiff such amount of rentals, atP500/month, that may become due
after the date of judgment, until she finally vacates the subject
property;d. to pay to the plaintiff the amount ofP25,000 as
attorneys fees.SO ORDERED.2On appeal, the RTC of Malolos, Bulacan,
in a Decision dated June 25, 1999, reversed the decision of the MTC
and dismissed the case for lack of merit. According to the RTC, the
agreement could not be automatically rescinded since there was
delivery to the buyer. A judicial determination of rescission must
be secured by petitioner as a condition precedent to convert the
possessionde factoof respondent from lawful to unlawful.The
dispositive portion of the RTC Decision states:WHEREFORE, judgment
is hereby rendered reversing the decision of the Municipal Trial
Court of Guiguinto, Bulacan and the ejectment case instead be
dismissed for lack of merit.3The motion for reconsideration and
motion for execution filed by petitioner were denied by the RTC for
lack of merit in an Order dated August 10, 1999.Thereafter,
petitioner filed a petition for review with the CA.In a Decision
promulgated on October 30, 2000, the CA denied the petition and
affirmed the Decision of the RTC. The dispositive portion of the
Decision reads:WHEREFORE, the petition for review on certiorari is
Denied. The assailed Decision of the Regional Trial Court of
Malolos, Bulacan dated 25 June 1999 and its Order dated 10 August
1999 are hereby AFFIRMED.SO ORDERED.4The CA found that the parties,
as well as the MTC and RTC failed to advert to and to apply
Republic Act (R.A.) No. 6552, more commonly referred to as the
Maceda Law, which is a special law enacted in 1972 to protect
buyers of real estate on installment payments against onerous and
oppressive conditions.The CA held that the Contract to Sell was not
validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552,
and recognized respondents right to continue occupying unmolested
the property subject of the contract to sell.The CA denied
petitioners motion for reconsideration in a Resolution dated March
23, 2001.Hence, this petition for review oncertiorari.Petitioner
contends that:A. Respondent Dela Cruz must bear the consequences of
her deliberate withholding of, and refusal to pay, the monthly
payment. The Court of Appeals erred in allowing Dela Cruz who acted
in bad faith from benefiting under the Maceda Law.B. The Court of
Appeals erred in resolving the issue on the applicability of the
Maceda Law, which issue was not raised in the proceedingsa quo.C.
Assumingarguendothat the RTC was correct in ruling that the MTC has
no jurisdiction over a rescission case, the Court of Appeals erred
in not remanding the case to the RTC for trial.5Petitioner submits
that the Maceda Law supports and recognizes the right of vendors of
real estate to cancel the sale outside of court, without need for a
judicial declaration of rescission, citingLuzon Brokerage Co.,
Inc., v. Maritime Building Co., Inc.6Petitioner contends that
respondent also had more than the grace periods provided under the
Maceda Law within which to pay. Under Sec. 37of the said law, a
buyer who has paid at least two years of installments has a grace
period of one month for every year of installment paid. Based on
the amount ofP12,950 which respondent had already paid, she is
entitled to a grace period of six months within which to pay her
unpaid installments after December, 1979. Respondent was given more
than six months from January 1980 within which to settle her unpaid
installments, but she failed to do so. Petitioners demand to vacate
was sent to respondent in February 1997.There is nothing in the
Maceda Law, petitioner asserts, which gives the buyer a right to
pay arrearages after the grace periods have lapsed, in the event of
an invalid demand for rescission. The Maceda Law only provides that
actual cancellation shall take place after 30 days from receipt of
the notice of cancellation or demand for rescission and upon full
payment of the cash surrender value to the buyer.Petitioner
contends that his demand letter dated February 24, 1997 should be
considered the notice of cancellation since the demand letter
informed respondent that she had "long ceased to have any right to
possess the premises in question due to [her] failure to pay
without justifiable cause." In support of his contention, he
citedLayug v. Intermediate Appellate Court8which held that "the
additional formality of a demand on [the sellers] part for
rescission by notarial act would appear, in the premises, to be
merely circuitous and consequently superfluous." He stated that
inLayug, the seller already made a written demand upon the buyer.In
addition, petitioner asserts that whatever cash surrender value
respondent is entitled to have been applied and must be applied to
rentals for her use of the house and lot after December, 1979 or
after she stopped payment of her installments.Petitioner argues
that assuming Patricio accepted respondents delayed installments in
1981, such act cannot prevent the cancellation of the Contract to
Sell. Installments after 1981 were still unpaid and the applicable
grace periods under the Maceda Law on the unpaid installments have
long lapsed. Respondent cannot be allowed to hide behind the Maceda
Law. She acted with bad faith and must bear the consequences of her
deliberate withholding of and refusal to make the monthly
payments.Petitioner also contends that the applicability of the
Maceda Law was never raised in the proceedings below; hence, it
should not have been applied by the CA in resolving the case.The
Court is not persuaded.The CA correctly ruled that R.A No. 6552,
which governs sales of real estate on installment, is applicable in
the resolution of this case.This case originated as an action for
unlawful detainer. Respondent is alleged to be illegally
withholding possession of the subject property after the
termination of the Contract to Sell between Patricio and
respondent. It is, therefore, incumbent upon petitioner to prove
that the Contract to Sell had been cancelled in accordance with
R.A. No. 6552.The pertinent provision of R.A. No. 6552 reads:Sec.
3. In all transactions or contracts involving the sale or financing
of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four as amended by Republic Act Numbered
Sixty-three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding
installments:(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by him, which
is hereby fixed at the rate of one month grace period for every one
year of installment payments made: Provided, That this right shall
be exercised by the buyer only once in every five years of the life
of the contract and its extensions, if any.(b)If the contract is
cancelled,theseller shall refund to the buyerthe cash surrender
value of the payments on the propertyequivalent to fifty percent of
the total payments made and, after five years of installments, an
additional five percent every year but not to exceed ninety percent
of the total payments made:Provided, Thatthe actual cancellation of
the contract shall take place after thirty days from receipt by the
buyer of thenotice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.9R.A. No. 6552, otherwise known as the
"Realty Installment Buyer Protection Act," recognizes in
conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.10The Court agrees with
petitioner that the cancellation of the Contract to Sell may be
done outside the court particularly when the buyer agrees to such
cancellation.However, the cancellation of the contract by the
seller must be in accordance with Sec. 3 (b) of R.A. No. 6552,
which requires a notarial act of rescission and the refund to the
buyer of the full payment of the cash surrender value of the
payments on the property. Actual cancellation of the contract takes
place after 30 days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to
the buyer.Based on the records of the case, the Contract to Sell
was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No.
6552.First, Patricio, the vendor in the Contract to Sell, died on
September 17, 1992 without canceling the Contract to Sell.Second,
petitioner also failed to cancel the Contract to Sell in accordance
with law.Petitioner contends that he has complied with the
requirements of cancellation under Sec. 3 (b) of R.A. No. 6552. He
asserts that his demand letter dated February 24, 1997 should be
considered as the notice of cancellation or demand for rescission
by notarial act and that the cash surrender value of the payments
on the property has been applied to rentals for the use of the
house and lot after respondent stopped payment after January
1980.The Court, however, finds that the letter11dated February 24,
1997, which was written by petitioners counsel, merely made formal
demand upon respondent to vacate the premises in question within
five days from receipt thereof since she had "long ceased to have
any right to possess the premises x x x due to [her] failure to pay
without justifiable cause the installment payments x x x."Clearly,
the demand letter is not the same as the notice of cancellation or
demand for rescissionby a notarial actrequired by R.A No. 6552.
Petitioner cannot rely onLayug v. Intermediate Appellate Court12to
support his contention that the demand letter was sufficient
compliance.Layugheld that "the additional formality of a demand on
[the sellers] part for rescission by notarial act would appear, in
the premises, to be merely circuitous and consequently superfluous"
since the seller therein filed an action forannulment of
contract,which is a kindred concept of rescission by notarial
act.13Evidently, the case of unlawful detainer filed by petitioner
does not exempt him from complying with the said requirement.In
addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to the buyer before
cancellation of the contract. The provision does not provide a
different requirement for contracts to sell which allow possession
of the property by the buyer upon execution of the contract like
the instant case. Hence, petitioner cannot insist on compliance
with the requirement by assuming that the cash surrender value
payable to the buyer had been applied to rentals of the property
after respondent failed to pay the installments due.There being no
valid cancellation of the Contract to Sell, the CA correctly
recognized respondents right to continue occupying the property
subject of the Contract to Sell and affirmed the dismissal of the
unlawful detainer case by the RTC.The Court notes that this case
has been pending for more than ten years. Both parties prayed for
other reliefs that are just and equitable under the premises.
Hence, the rights of the parties over the subject property shall be
resolved to finally dispose of that issue in this case.Considering
that the Contract to Sell was not cancelled by the vendor,
Patricio, during his lifetime or by petitioner in accordance with
R.A. No. 6552 when petitioner filed this case of unlawful detainer
after 22 years of continuous possession of the property by
respondent who has paid the substantial amount ofP12,300 out of the
purchase price ofP17,800, the Court agrees with the CA that it is
only right and just to allow respondent to pay her arrears and
settle the balance of the purchase price.For respondents delay in
the payment of the installments, the Court, in its discretion, and
applying Article 220914of the Civil Code, may award interest at the
rate of 6% per annum15on the unpaid balance considering that there
is no stipulation in the Contract to Sell for such interest. For
purposes of computing the legal interest, the reckoning period
should be the filing of the complaint for unlawful detainer on
April 8, 1997.Based on respondents evidence16of payments made, the
MTC found that respondent paid a total ofP12,300 out of the
purchase price ofP17,800. Hence, respondent still has a balance
ofP5,500, plus legal interest at the rate of 6% per annum on the
unpaid balance starting April 8, 1997.The third issue is
disregarded since petitioner assails an inexistent ruling of the
RTC on the lack of jurisdiction of the MTC over a rescission case
when the instant case he filed is for unlawful detainer.WHEREFORE,
the Decision of the Court of Appeals dated October 30, 2000
sustaining the dismissal of the unlawful detainer case by the RTC
isAFFIRMEDwith the followingMODIFICATIONS:1. Respondent Rufina Dela
Cruz Vda. de Manzano shall pay petitioner Manuel C. Pagtalunan the
balance of the purchase price in the amount of Five Thousand Five
Hundred Pesos (P5,500) plus interest at 6% per annum from April 8,
1997 up to the finality of this judgment, and thereafter, at the
rate of 12% per annum;2. Upon payment, petitioner Manuel C.
Pagtalunan shall execute a Deed of Absolute Sale of the subject
property and deliver the certificate of title in favor of
respondent Rufina Dela Cruz Vda. de Manzano; and3. In case of
failure to pay within 60 days from finality of this Decision,
respondent Rufina Dela Cruz Vda. de Manzano shall immediately
vacate the premises without need of further demand, and the
downpayment and installment payments ofP12,300 paid by her shall
constitute rental for the subject property.No costs.SO ORDERED.
SECOND DIVISIONG.R. No. 179965 February 20, 2013NICOLAS P.
DIEGO,Petitioner,vs.RODOLFO P. DIEGO and EDUARDO P.
DIEGO,Respondents.D E C I S I O NDEL CASTILLO,J.:It is settled
jurisprudence, to the point of being elementary, that an agreement
which stipulates that the seller shall execute a deed of sale only
upon or after tl1ll payment of the purchase price is acontract to
sell,not a contract of sale. InReyes v. Tuparan,1this Court
declared in categorical terms that"[w]here the vendor promises to
execute a deed of absolute sale upon the completion by the vendee
of the payment of the price, the contract is only a contract to
sell. The aforecited stipulation shows that the vendors reserved
title to the subject property until full payment of the purchase
price."In this case, it is not disputed as in tact both parties
agreed that the deed of sale shall only be executed upon payment of
the remaining balance of the purchase price. Thus, pursuant to the
above stated jurisprudence, we similarly declare that the
transaction entered into by the parties is a contract to
sell.Before us is a Petition for Review onCertiorari2questioning
the June 29, 2007 Decision3and the October 3, 2007 Resolution4of
the Court of Appeals (CA) in CA-G.R. CV No. 86512, which affirmed
the April 19, 2005 Decision5of the Regional Trial Court (RTC),
Branch 40, of Dagupan City in Civil Case No. 99-02971-D.Factual
AntecedentsIn 1993, petitioner Nicolas P. Diego (Nicolas) and his
brother Rodolfo, respondent herein, entered into an oral contract
to sell covering Nicolass share, fixed atP500,000.00, as co-owner
of the familys Diego Building situated in Dagupan City. Rodolfo
made a downpayment ofP250,000.00. It was agreed that the deed of
sale shall be executed upon payment of the remaining balance
ofP250,000.00. However, Rodolfo failed to pay the remaining
balance.Meanwhile, the building was leased out to third parties,
but Nicolass share in the rents were not remitted to him by herein
respondent Eduardo, another brother of Nicolas and designated
administrator of the Diego Building. Instead, Eduardo gave Nicolass
monthly share in the rents to Rodolfo. Despite demands and
protestations by Nicolas, Rodolfo and Eduardo failed to render an
accounting and remit his share in the rents and fruits of the
building, and Eduardo continued to hand them over to Rodolfo.Thus,
on May 17, 1999, Nicolas filed a Complaint6against Rodolfo and
Eduardo before the RTC of Dagupan City and docketed as Civil Case
No. 99-02971-D. Nicolas prayed that Eduardo be ordered to render an
accounting of all the transactions over the Diego Building; that
Eduardo and Rodolfo be ordered to deliver to Nicolas his share in
the rents; and that Eduardo and Rodolfo be held solidarily liable
for attorneys fees and litigation expenses.Rodolfo and Eduardo
filed their Answer with Counterclaim7for damages and attorneys
fees. They argued that Nicolas had no more claim in the rents in
the Diego Building since he had already sold his share to Rodolfo.
Rodolfo admitted having remitted onlyP250,000.00 to Nicolas. He
asserted that he would pay the balance of the purchase price to
Nicolas only after the latter shall have executed a deed of
absolute sale.Ruling of the Regional Trial CourtAfter trial on the
merits, or on April 19, 2005, the trial court rendered its
Decision8dismissing Civil Case No. 99-02971-D for lack of merit and
ordering Nicolas to execute a deed of absolute sale in favor of
Rodolfo upon payment by the latter of theP250,000.00 balance of the
agreed purchase price. It made the following interesting
pronouncement:It is undisputed that plaintiff (Nicolas) is one of
the co-owners of the Diego Building, x x x. As a co-owner, he is
entitled to [his] share in the rentals of the said building.
However, plaintiff [had] already sold his share to defendant
Rodolfo Diego in the amount ofP500,000.00 and in fact, [had]
already received a partial payment in the purchase price in the
amount ofP250,000.00.Defendant Eduardo Diego testified that as per
agreement, verbal, of the plaintiff and defendant Rodolfo Diego,
the remaining balance ofP250,000.00 will be paid upon the execution
of the Deed of Absolute Sale.It was in the year 1997 when plaintiff
was being required by defendant Eduardo Diego to sign the Deed of
Absolute Sale. Clearly, defendant Rodolfo Diego was not yet in
default as the plaintiff claims which cause [sic] him to refuse to
sign [sic] document. The contract of sale was already perfected as
early as the year 1993 when plaintiff received the partial payment,
hence, he cannot unilaterally revoke or rescind the same. From then
on, plaintiff has, therefore, ceased to be a co-owner of the
building and is no longer entitled to the fruits of the Diego
Building.Equity and fairness dictate that defendant [sic] has to
execute the necessary document regarding the sale of his share to
defendant Rodolfo Diego. Correspondingly, defendant Rodolfo Diego
has to perform his obligation as per their verbal agreement by
paying the remaining balance ofP250,000.00.9To summarize, the trial
court ruled that as early as 1993, Nicolas was no longer entitled
to the fruits of his aliquot share in the Diego Building because he
had "ceased to be a co-owner" thereof. The trial court held that
when Nicolas received theP250,000.00 downpayment, a "contract of
sale" was perfected. Consequently, Nicolas is obligated to convey
such share to Rodolfo, without right of rescission. Finally, the
trial court held that theP250,000.00 balance from Rodolfo will only
be due and demandable when Nicolas executes an absolute deed of
sale.Ruling of the Court of AppealsNicolas appealed to the CA which
sustained the trial courts Decisionin toto. The CA held that since
there was a perfected contract of sale between Nicolas and Rodolfo,
the latter may compel the former to execute the proper sale
document. Besides, Nicolass insistence that he has since rescinded
their agreement in 1997 proved the existence of a perfected sale.
It added that Nicolas could not validly rescind the contract
because: "1) Rodolfo ha[d] already made a partial payment; 2)
Nicolas ha[d] already partially performed his part regarding the
contract; and 3) Rodolfo opposes the rescission."10The CA then
proceeded to rule that since no period was stipulated within which
Rodolfo shall deliver the balance of the purchase price, it was
incumbent upon Nicolas to have filed a civil case to fix the same.
But because he failed to do so, Rodolfo cannot be considered to be
in delay or default.Finally, the CA made another interesting
pronouncement, that by virtue of the agreement Nicolas entered into
with Rodolfo, he had already transferred his ownership over the
subject property and as a consequence, Rodolfo is legally entitled
to collect the fruits thereof in the form of rentals. Nicolas
remaining right is to demand payment of the balance of the purchase
price, provided that he first executes a deed of absolute sale in
favor of Rodolfo.Nicolas moved for reconsideration but the same was
denied by the CA in its Resolution dated October 3, 2007.Hence,
this Petition.IssuesThe Petition raises the following errors that
must be rectified:ITHE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN
PETITIONER NICOLAS DIEGO AND RESPONDENT RODOLFO DIEGO OVER NICOLASS
SHARE OF THE BUILDING BECAUSE THE SUSPENSIVE CONDITION HAS NOT YET
BEEN FULFILLED.IITHE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE CONTRACT OF SALE BETWEEN PETITIONER AND RESPONDENT RODOLFO
DIEGO REMAINS LEGALLY BINDING AND IS NOT RESCINDED GIVING MISPLACED
RELIANCE ON PETITIONER NICOLAS STATEMENT THAT THE SALE HAS NOT YET
BEEN REVOKED.IIITHE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT PETITIONER NICOLAS DIEGO ACTED LEGALLY AND CORRECTLY WHEN HE
UNILATERALLY RESCINDED AND REVOKED HIS AGREEMENT OF SALE WITH
RESPONDENT RODOLFO DIEGO CONSIDERING RODOLFOS MATERIAL, SUBSTANTIAL
BREACH OF THE CONTRACT.IVTHE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONER HAS NO MORE RIGHTS OVER HIS SHARE IN THE
BUILDING, DESPITE THE FACT THAT THERE WAS AS YET NO PERFECTED
CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND RODOLFO DIEGO
AND THERE WAS YET NO TRANSFER OF OWNERSHIP OF PETITIONERS SHARE TO
RODOLFO DUE TO THE NON-FULFILLMENT BY RODOLFO OF THE SUSPENSIVE
CONDITION UNDER THE CONTRACT.VTHE HONORABLE COURT OF APPEALS ERRED
IN NOT HOLDING THAT RESPONDENT RODOLFO HAS UNJUSTLY ENRICHED
HIMSELF AT THE EXPENSE OF PETITIONER BECAUSE DESPITE NOT HAVING
PAID THE BALANCE OF THE PURCHASE PRICE OF THE SALE, THAT RODOLFO
HAS NOT YET ACQUIRED OWNERSHIP OVER THE SHARE OF PETITIONER
NICOLAS, HE HAS ALREADY BEEN APPROPRIATING FOR HIMSELF AND FOR HIS
PERSONAL BENEFIT THE SHARE OF THE INCOME OF THE BUILDING AND THE
PORTION OF THE BUILDING ITSELF WHICH WAS DUE TO AND OWNED BY
PETITIONER NICOLAS.VITHE HONORABLE COURT OF APPEALS ERRED IN NOT
AWARDING ACTUAL DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES TO
THE PETITIONER DESPITE THE FACT THAT PETITIONERS RIGHTS HAD BEEN
WANTONLY VIOLATED BY THE RESPONDENTS.11Petitioners ArgumentsIn his
Petition, the Supplement12thereon, and Reply,13Nicolas argues that,
contrary to what the CA found, there was no perfected contract of
sale even though Rodolfo had partially paid the price; that in the
absence of the third element in a sale contract the price there
could be no perfected sale; that failing to pay the required price
in full, Nicolas had the right to rescind the agreement as an
unpaid seller.Nicolas likewise takes exception to the CA finding
that Rodolfo was not in default or delay in the payment of the
agreed balance for his (Nicolass) failure to file a case to fix the
period within which payment of the balance should be made. He
believes that Rodolfos failure to pay within a reasonable time was
a substantial and material breach of the agreement which gave him
the right to unilaterally and extrajudicially rescind the agreement
and be discharged of his obligations as seller; and that his
repeated written demands upon Rodolfo to pay the balance granted
him such rights.Nicolas further claims that based on his agreement
with Rodolfo, there was to be no transfer of title over his share
in the building until Rodolfo has effected full payment of the
purchase price, thus, giving no right to the latter to collect his
share in the rentals.Finally, Nicolas bewails the CAs failure to
award damages, attorneys fees and litigation expenses for what he
believes is a case of unjust enrichment at his expense.Respondents
ArgumentsApart from echoing the RTC and CA pronouncements,
respondents accuse the petitioner of "cheating" them, claiming that
after the latter received theP250,000.00 downpayment, he "vanished
like thin air and hibernated in the USA, he being an American
citizen,"14only to come back claiming that the said amount was a
mere loan.They add that the Petition is a mere rehash and
reiteration of the petitioners arguments below, which are deemed to
have been sufficiently passed upon and debunked by the appellate
court.Our RulingThe Court finds merit in the Petition.The contract
entered into by Nicolas and Rodolfo was a contract to sell.a) The
stipulation to execute a deed of sale upon full payment of the
purchase price is a unique and distinguishing characteristic of a
contract to sell. It also shows that the vendor reserved title to
the property until full payment.There is no dispute that in 1993,
Rodolfo agreed to buy Nicolass share in the Diego Building for the
price ofP500,000.00. There is also no dispute that of the total
purchase price, Rodolfo paid, and Nicolas received,P250,000.00.
Significantly, it is also not disputed that the parties agreed that
the remaining amount ofP250,000.00 would be paid after Nicolas
shall have executed a deed of sale.This stipulation,i.e., to
execute a deed of absolute sale upon full payment of the purchase
price, is a unique and distinguishing characteristic of acontract
to sell. InReyes v. Tuparan,15this Court ruled that a stipulation
in the contract,"[w]here the vendor promises to execute a deed of
absolute sale upon the completion by the vendee of the payment of
the price,"indicates that the parties entered into acontract to
sell. According to this Court, this particular provision is
tantamount to a reservation of ownership on the part of the vendor.
Explicitly stated, the Court ruled that the agreement to execute a
deed of sale upon full payment of the purchase price"shows that the
vendors reserved title to the subject property until full payment
of the purchase price."16InTan v. Benolirao,17this Court, speaking
throughJustice Brion, ruled that the parties entered into acontract
to sellas revealed by the following stipulation:d) That in case,
BUYER has complied with the terms and conditions of this contract,
then the SELLERS shall execute and deliver to the BUYER the
appropriate Deed of Absolute Sale;18The Court further held
that"[j]urisprudence has established that where the seller promises
to execute a deed of absolute sale upon the completion by the buyer
of the payment of the price, the contract is only a contract to
sell."19b) The acknowledgement receipt signed by Nicolas as well as
the contemporaneous acts of the parties show that they agreed on a
contract to sell, not of sale. The absence of a formal deed of
conveyance is indicative of a contract to sell.InSan Lorenzo
Development Corporation v. Court of Appeals,20the facts show that
spouses Miguel and Pacita Lu (Lu) sold a certain parcel of land to
Pablo Babasanta (Pablo). After several payments, Pablo wrote Lu
demanding "the execution of a final deed of sale in his favor so
that he could effect full payment of the purchase price."21To prove
his allegation that there was a perfected contract of sale between
him and Lu, Pablo presented a receipt signed by Lu acknowledging
receipt ofP50,000.00 as partial payment.22However, when the case
reached this Court, it was ruled that the transaction entered into
by Pablo and Lu was only acontract to sell, not a contract of sale.
The Court held thus:The receipt signed by Pacita Lu merely states
that she accepted the sum of fifty thousand pesos (P50,000.00) from
Babasanta as partial payment of 3.6 hectares of farm lot situated
in Sta. Rosa, Laguna. While there is no stipulation that the seller
reserves the ownership of the property until full payment of the
price which is a distinguishing feature of a contract to sell, the
subsequent acts of the parties convince us thatthe Spouses Lu never
intended to transfer ownership to Babasanta except upon full
payment of the purchase price.Babasantas letter dated 22 May 1989
was quite telling. He stated therein that despite his repeated
requests for the execution of the final deed of sale in his favor
so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so.In effect, Babasanta himself recognized
that ownership of the property would not be transferred to him
until such time as he shall have effected full payment of the
price. Moreover, had the sellers intended to transfer title, they
could have easily executed the document of sale in its required
form simultaneously with their acceptance of the partial payment,
but they did not. Doubtlessly, the receipt signed by Pacita Lu
should legally be considered as a perfected contract to sell.23In
the instant case, records show that Nicolas signed a mere
receipt24acknowledging partial payment ofP250,000.00 from Rodolfo.
It states:July 8, 1993Received the amount of [P250,000.00] for 1
share of Diego Building as partial payment for Nicolas
Diego.(signed)Nicolas Diego25As we ruled inSan Lorenzo Development
Corporation v. Court of Appeals,26the parties could have executed a
document of sale upon receipt of the partial payment but they did
not. This is thus an indication that Nicolas did not intend to
immediately transfer title over his share but only upon full
payment of the purchase price. Having thus reserved title over the
property, the contract entered into by Nicolas is a contract to
sell. In addition, Eduardo admitted that he and Rodolfo repeatedly
asked Nicolas to sign the deed of sale27but the latter refused
because he was not yet paid the full amount. As we have ruled inSan
Lorenzo Development Corporation v. Court of Appeals,28the fact that
Eduardo and Rodolfo asked Nicolas to execute a deed of sale is a
clear recognition on their part that the ownership over the
property still remains with Nicolas. In fine, the totality of the
parties acts convinces us that Nicolas never intended to transfer
the ownership over his share in the Diego Building until the full
payment of the purchase price. Without doubt, the transaction
agreed upon by the parties was a contract to sell, not of
sale.InChua v. Court of Appeals,29the parties reached an impasse
when the seller wanted to be first paid the consideration before a
new transfer certificate of title (TCT) is issued in the name of
the buyer. Contrarily, the buyer wanted to secure a new TCT in his
name before paying the full amount. Their agreement was embodied in
a receipt containing the following terms: "(1) the balance
ofP10,215,000.00 is payable on or before 15 July 1989; (2) the
capital gains tax is for the account of x x x; and (3) if [the
buyer] fails to pay the balance x x x the [seller] has the right to
forfeit the earnest money x x x."30The case eventually reached this
Court. In resolving the impasse, the Court, speaking throughJustice
Carpio, held that "[a] perusal of the Receipt shows that the true
agreement between the parties was a contract to sell."31The Court
noted that "the agreement x x x was embodied in a receipt rather
than in a deed of sale, ownership not having passed between
them."32The Court thus concluded that"[t]he absence of a formal
deed of conveyance is a strong indication that the parties did not
intend immediate transfer of ownership, but only a transfer after
full payment of the purchase price."33Thus, the "true agreement
between the parties wasa contract to sell."34In the instant case,
the parties were similarly embroiled in an impasse. The parties
agreement was likewise embodied only in a receipt. Also, Nicolas
did not want to sign the deed of sale unless he is fully paid. On
the other hand, Rodolfo did not want to pay unless a deed of sale
is duly executed in his favor. We thus say, pursuant to our ruling
inChua v. Court of Appeals35that the agreement between Nicolas and
Rodolfo is a contract to sell.This Court cannot subscribe to the
appellate courts view that Nicolas shouldfirstexecute a deed of
absolute sale in favor of Rodolfo, before the latter can be
compelled to pay the balance of the price. This is patently
ridiculous, and goes against every rule in the book. This
pronouncement virtually places the prospective seller in a contract
to sell at the mercy of the prospective buyer, and sustaining this
point of view would place all contracts to sell in jeopardy of
being rendered ineffective by the act of the prospective buyers,
who naturally would demand that the deeds of absolute sale be first
executed before they pay the balance of the price. Surely, no
prospective seller would accommodate.In fine,"the need to execute a
deed of absolute sale upon completion of payment of the price
generally indicates that it is a contract to sell, as it implies
the reservation of title in the vendor until the vendee has
completed the payment of the price."36In addition, "[a] stipulation
reserving ownership in the vendor until full payment of the price
is x x x typical in a contract to sell."37Thus, contrary to the
pronouncements of the trial and appellate courts, the parties to
this case only entered into a contract to sell; as such title
cannot legally pass to Rodolfo until he makes full payment of the
agreed purchase price.c) Nicolas did not surrender or deliver title
or possession to Rodolfo.Moreover, there could not even be a
surrender or delivery of title or possession to the prospective
buyer Rodolfo. This was made clear by the nature of the agreement,
by Nicolass repeated demands for the return of all rents unlawfully
and unjustly remitted to Rodolfo by Eduardo, and by Rodolfo and
Eduardos repeated demands for Nicolas to execute a deed of sale
which, as we said before, is a recognition on their part that
ownership over the subject property still remains with
Nicolas.Significantly, when Eduardo testified, he claimed to be
knowledgeable about the terms and conditions of the transaction
between Nicolas and Rodolfo. However, aside from stating that out
of the total consideration ofP500,000.00, the amount ofP250,000.00
had already been paid while the remainingP250,000.00 would be paid
after the execution of the Deed of Sale, he never testified that
there was a stipulation as regards delivery of title or
possession.38It is also quite understandable why Nicolas belatedly
demanded the payment of the rentals. Records show that the
structural integrity of the Diego Building was severely compromised
when an earthquake struck Dagupan City in 1990.39In order to
rehabilitate the building, the co-owners obtained a loan from a
bank.40Starting May 1994, the property was leased to third parties
and the rentals received were used to pay off the loan.41It was
only in 1996, or after payment of the loan that the co-owners
started receiving their share in the rentals.42During this time,
Nicolas was in the USA but immediately upon his return, he demanded
for the payment of his share in the rentals which Eduardo remitted
to Rodolfo. Failing which, he filed the instant Complaint. To us,
this bolsters our findings that Nicolas did not intend to
immediately transfer title over the property.It must be stressed
that it is anathema in a contract to sell that the prospective
seller should deliver title to the property to the prospective
buyer pending the latters payment of the price in full. It
certainly is absurd to assume that in the absence of stipulation, a
buyer under a contract to sell is granted ownership of the property
even when he has not paid the seller in full. If this were the
case, then prospective sellers in a contract to sell would in all
likelihood not be paid the balance of the price.Thisponentehas had
occasion to rule that "[a] contract to sell is one where the
prospective seller reserves the transfer of title to the
prospective buyer until the happening of an event, such as full
payment of the purchase price. What the seller obliges himself to
do is to sell the subject property only when the entire amount of
the purchase price has already been delivered to him. In other
words, the full payment of the purchase price partakes of a
suspensive condition, the nonfulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by
the prospective seller without further remedies by the prospective
buyer. It does not, by itself, transfer ownership to the
buyer."43The contract to sell is terminated or cancelled.Having
established that the transaction was a contract to sell, what
happens now to the parties agreement?The remedy of rescission is
not available in contracts to sell.44As explained inSpouses Santos
v. Court of Appeals:45In view of our finding in the present case
that the agreement between the parties is a contract to sell, it
follows that the appellate court erred when it decreed that a
judicial rescission of said agreement was necessary. This is
because there was no rescission to speak of in the first place. As
we earlier pointed out, in a contract to sell, title remains with
the vendor and does not pass on to the vendee until the purchase
price is paid in full. Thus, in a contract to sell, the payment of
the purchase price is a positive suspensive condition. Failure to
pay the price agreed upon is not a mere breach, casual or serious,
but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. This is entirely
different from the situation in a contract of sale, where
non-payment of the price is a negative resolutory condition. The
effects in law are not identical. In a contract of sale, the vendor
has lost ownership of the thing sold and cannot recover it, unless
the contract of sale is rescinded and set aside. In a contract to
sell, however, the vendor remains the owner for as long as the
vendee has not complied fully with the condition of paying the
purchase price. If the vendor should eject the vendee for failure
to meet the condition precedent, he isenforcing the contract and
not rescinding it. When the petitioners in the instant case
repossessed the disputed house and lot for failure of private
respondents to pay the purchase price in full, they were merely
enforcing the contract and not rescinding it. As petitioners
correctly point out, the Court of Appeals erred when it ruled that
petitioners should have judicially rescinded the contract pursuant
to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of
non-payment of the purchase price as a resolutory condition. It
does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to
sales of immovable property. Neither provision is applicable in the
present case.46Similarly, we held inChua v. Court of Appeals47that
"Article 1592 of the Civil Code permits the buyer to 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 notarial act. However, Article 1592 does not apply to a
contract to sell where the seller reserves the ownership until full
payment of the price,"48as in this case.1wphi1Applying the above
jurisprudence, we hold that when Rodolfo failed to fully pay the
purchase price, the contract to sell was deemed terminated or
cancelled.49As we have held inChua v. Court of Appeals,50"[s]ince
the agreement x x x is a mere contract to sell, the full payment of
the purchase price partakes of a suspensive condition.The
non-fulfillment of the condition prevents the obligation to sell
from arising and ownership is retained by the seller without
further remedies by the buyer." Similarly, we held inReyes v.
Tuparan51that "petitioners obligation to sell the subject
properties becomes demandable only upon the happening of the
positive suspensive condition, which is the respondents full
payment of the purchase price.Without respondents full payment,
there can be no breach of contract to speak of because petitioner
has no obligation yet to turn over the title.Respondents failure to
pay in full the purchase price in full is not the breach of
contract contemplated under Article 1191 of the New Civil Code but
rather just an event that prevents the petitioner from being bound
to convey title to respondent." Otherwise stated, Rodolfo has no
right to compel Nicolas to transfer ownership to him because he
failed to pay in full the purchase price. Correlatively, Nicolas
has no obligation to transfer his ownership over his share in the
Diego Building to Rodolfo.52Thus, it was erroneous for the CA to
rule that Nicolas should have filed a case to fix the period for
Rodolfos payment of the balance of the purchase price. It was not
Nicolass obligation to compel Rodolfo to pay the balance; it was
Rodolfos duty to remit it.It would appear that after Nicolas
refused to sign the deed as there was yet no full payment, Rodolfo
and Eduardo hired the services of the Daroya Accounting Office "for
the purpose of estimating the amount to which [Nicolas] still owes
[Rodolfo] as a consequence of the unconsummated verbal agreement
regarding the formers share in the co-ownership of [Diego Building]
in favor of the latter."53According to the accountants report,
after Nicolas revoked his agreement with Rodolfo due to
non-payment, the downpayment ofP250,000.00 was considered a loan of
Nicolas from Rodolfo.54The accountant opined that theP250,000.00
should earn interest at 18%.55Nicolas however objected as regards
the imposition of interest as it was not previously agreed upon.
Notably, the contents of the accountants report were not disputed
or rebutted by the respondents. In fact, it was stated therein that
"[a]ll the bases and assumptions made particularly in the fixing of
the applicable rate of interest have been discussed with
[Eduardo]."56We find it irrelevant and immaterial that Nicolas
described the termination or cancellation of his agreement with
Rodolfo as one of rescission. Being a layman, he is understandably
not adept in legal terms and their implications. Besides, this
Court should not be held captive or bound by the conclusion reached
by the parties. The proper characterization of an action should be
based on what the law says it to be, not by what a party believed
it to be. "A contract is what the law defines it to be x x x and
not what the contracting parties call it."57On the other hand, the
respondents additional submission that Nicolas cheated them by
"vanishing and hibernating" in the USA after receiving
RodolfosP250,000.00 downpayment, only to come back later and claim
that the amount he received was a mere loan cannot be believed. How
the respondents could have been cheated or disadvantaged by
Nicolass leaving is beyond comprehension. If there was anybody who
benefited from Nicolass perceived "hibernation", it was the
respondents, for they certainly had free rein over Nicolass
interest in the Diego Building. Rodolfo put off payment of the
balance of the price, yet, with the aid of Eduardo, collected and
appropriated for himself the rents which belonged to
Nicolas.Eduardo is solidarily liable with Rodolfo as regards the
share of Nicolas in the rents.For his complicity, bad faith and
abuse of authority as the Diego Building administrator, Eduardo
must be held solidarily liable with Rodolfo for all that Nicolas
should be entitled to from 1993 up to the present, or in respect of
actual damages suffered in relation to his interest in the Diego
Building. Eduardo was the primary cause of Nicolass loss, being
directly responsible for making and causing the wrongful payments
to Rodolfo, who received them under obligation to return them to
Nicolas, the true recipient.1wphi1As such, Eduardo should be
principally responsible to Nicolas as well. Suffice it to state
that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith; and every person who, contrary
to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.58Attorneys fees and other
costs."Although attorneys fees are not allowed in the absence of
stipulation, the court can award the same when the defendants act
or omission has compelled the plaintiff to incur expenses to
protect his interest or where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiffs plainly
valid, just and demandable claim."59In the instant case, it is
beyond cavil that petitioner was constrained to file the instant
case to protect his interest because of respondents unreasonable
and unjustified refusal to render an accounting and to remit to the
petitioner his rightful share in rents and fruits in the Diego
Building. Thus, we deem it proper to award to petitioner attorneys
fees in the amount ofP50,000.00,60as well as litigation expenses in
the amount ofP20,000.00 and the sum ofP1,000.00 for each court
appearance by his lawyer or lawyers, as prayed for.WHEREFORE,
premises considered, the Petition isGRANTED. The June 29, 2007
Decision and October 3, 2007 Resolution of the Court of Appeals in
CA-G.R. CV No. 86512, and the April 19, 2005 Decision of the
Dagupan City Regional Trial Court, Branch 40 in Civil Case No.
99-02971-D, are herebyANNULLED and SET ASIDE.The Court further
decrees the following:1. The oral contract to sell between
petitioner Nicolas P. Diego and respondent Rodolfo P. Diego
isDECLAREDterminated/cancelled;2. Respondents Rodolfo P. Diego and
Eduardo P. Diego areORDEREDto surrender possession and control, as
the case may be, of Nicolas P. Diegos share in the Diego Building.
Respondents are further commanded to return or surrender to the
petitioner the documents of title, receipts, papers, contracts, and
all other documents in any form or manner pertaining to the latters
share in the building, which are deemed to be in their unauthorized
and illegal possession;3. Respondents Rodolfo P. Diego and Eduardo
P. Diego areORDEREDto immediately render an accounting of all the
transactions, from the period beginning 1993 up to the present,
pertaining to Nicolas P. Diegos share in the Diego Building, and
thereafter commanded to jointly and severally remit to the
petitioner all rents, monies, payments and benefits of whatever
kind or nature pertaining thereto, which are hereby deemed received
by them during the said period, and made to them or are due,
demandable and forthcoming during the said period and from the date
of this Decision, with legal interest from the filing of the
Complaint;4. Respondents Rodolfo P. Diego and Eduardo P. Diego
areORDERED, immediately and without further delay upon receipt of
this Decision, to solidarily pay the petitioner attorneys fees in
the amount ofP50,000.00; litigation expenses in the amount
ofP20,000.00 and the sum ofP1,000.00 per counsel for each court
appearance by his lawyer or lawyers;5. The payment ofP250,000.00
made by respondent Rodolfo P. Diego, with legal interest from the
filing of the Complaint, shall beAPPLIED, by way of compensation,
to his liabilities to the petitioner and to answer for all damages
and other awards and interests which are owing to the latter under
this Decision; and6. Respondents counterclaim isDISMISSED.SO
ORDERED.
G.R. No. 201167 February 27, 2013GOTESCO PROPERTIES, INC., JOSE
C. GO, EVELYN GO, LOURDES G. ORTIGA, GEORGE GO, and VICENTE
GO,Petitioners,vs.SPOUSES EUGENIO and ANGELINA
FAJARDO,Respondents.D E C I S I O NPERLAS-BERNABE,J.:Assailed in
this Petition for Review onCertiorariunder Rule 45 of the Rules of
Court is the July 22, 2011 Decision1and February 29, 2012
Resolution2of the Court of Appeals (CA) in CA-G.R. SP No. 112981,
which affirmed with modification the August 27, 2009 Decision3of
the Office of the President (OP).The FactsOn January 24, 1995,
respondent-spouses Eugenio and Angelina Fajardo (Sps. Fajardo)
entered into a Contract to Sell4(contract) with
petitioner-corporation Gotesco Properties, Inc. (GPI) for the
purchase of a 100-square meter lot identified as Lot No. 13, Block
No.6, Phase No. IV of Evergreen Executive Village, a subdivision
project owned and developed by GPI located at Deparo Road,
Novaliches, Caloocan City. The subject lot is a portion of a bigger
lot covered by Transfer Certificate of Title (TCT) No.
2442205(mother title).Under the contract, Sps. Fajardo undertook to
pay the purchase price ofP126,000.00 within a 10-year period,
including interest at the rate of nine percent (9%) per annum. GPI,
on the other hand, agreed to execute a final deed of sale (deed) in
favor of Sps. Fajardo upon full payment of the stipulated
consideration. However, despite its full payment of the purchase
price on January 17, 20006and subsequent demands,7GPI failed to
execute the deed and to deliver the title and physical possession
of the subject lot. Thus, on May 3, 2006, Sps. Fajardo filed before
the Housing and Land Use Regulatory Board-Expanded National Capital
Region Field Office (HLURBENCRFO) a complaint8for specific
performance or rescission of contract with damages against GPI and
the members of its Board of Directors namely, Jose C. Go, Evelyn
Go, Lourdes G. Ortiga, George Go, and Vicente Go (individual
petitioners), docketed as HLURB Case No. REM-050306-13319.Sps.
Fajardo averred that GPI violated Section 209of Presidential Decree
No. 95710(PD 957) due to its failure to construct and provide water
facilities, improvements, infrastructures and other forms of
development including water supply and lighting facilities for the
subdivision project. They also alleged that GPI failed to provide
boundary marks for each lot and that the mother title including the
subject lot had no technical description and was even levied upon
by the Bangko Sentral ng Pilipinas (BSP) without their knowledge.
They thus prayed that GPI be ordered to execute the deed, to
deliver the corresponding certificate of title and the physical
possession of the subject lot within a reasonable period, and to
develop Evergreen Executive Village; or in the alternative, to
cancel and/or rescind the contract and refund the total payments
made plus legal interest starting January 2000.For their part,
petitioners maintained that at the time of the execution of the
contract, Sps. Fajardo were actually aware that GPI's certificate
of title had no technical description inscribed on it. Nonetheless,
the title to the subject lot was free from any liens or
encumbrances.11Petitioners claimed that the failure to deliver the
title to Sps. Fajardo was beyond their control12because while GPI's
petition for inscription of technical description (LRC Case No.
4211) was favorably granted13by the Regional Trial Court of
Caloocan City, Branch 131 (RTC-Caloocan), the same was reversed14by
the CA; this caused the delay in the subdivision of the property
into individual lots with individual titles. Given the foregoing
incidents, petitioners thus argued that Article 1191 of the Civil
Code (Code) the provision on which Sps. Fajardo anchor their right
of rescission remained inapplicable since they were actually
willing to comply with their obligation but were only prevented
from doing so due to circumstances beyond their control.
Separately, petitioners pointed out that BSP's adverse claim/levy
which was annotated long after the execution of the contract had
already been settled.The Ruling of the HLURB-ENCRFOOn February 9,
2007, the HLURB-ENCRFO issued a Decision15in favor of Sps. Fajardo,
holding that GPIs obligation to execute the corresponding deed and
to deliver the transfer certificate of title and possession of the
subject lot arose and thus became due and demandable at the time
Sps. Fajardo had fully paid the purchase price for the subject lot.
Consequently, GPIs failure to meet the said obligation constituted
a substantial breach of the contract which perforce warranted its
rescission. In this regard, Sps. Fajardo were given the option to
recover the money they paid to GPI in the amount ofP168,728.83,
plus legal interest reckoned from date of extra-judicial demand in
September 2002 until fully paid. Petitioners were likewise held
jointly and solidarily liable for the payment of moral and
exemplary damages, attorney's fees and the costs of suit.The Ruling
of the HLURB Board of CommissionersOn appeal, the HLURB Board of
Commissioners affirmed the above ruling in its August 3, 2007
Decision,16finding that the failure to execute the deed and to
deliver the title to Sps. Fajardo amounted to a violation of
Section 25 of PD 957 which therefore, warranted the refund of
payments in favor of Sps. Fajardo.The Ruling of the OPOn further
appeal, the OP affirmed the HLURB rulings in its August 27, 2009
Decision.17In so doing, it emphasized the mandatory tenor of
Section 25 of PD 957 which requires the delivery of title to the
buyer upon full payment and found that GPI unjustifiably failed to
comply with the same.The Ruling of the CAOn petition for review,
the CA affirmed the above rulings with modification, fixing the
amount to be refunded to Sps. Fajardo at the prevailing market
value of the property18pursuant to the ruling inSolid Homes v.
Tan(Solid Homes).19The PetitionPetitioners insist that Sps. Fajardo
have no right to rescind the contract considering that GPI's
inability to comply therewith was due to reasons beyond its control
and thus, should not be held liable to refund the payments they had
received. Further, since the individual petitioners never
participated in the acts complained of nor found to have acted in
bad faith, they should not be held liable to pay damages and
attorney's fees.The Court's RulingThe petition is partly
meritorious.A. Sps. Fajardos right to rescindIt is settled that in
a contract to sell, the seller's obligation to deliver the
corresponding certificates of title is simultaneous and reciprocal
to the buyer's full payment of the purchase price.20In this
relation, Section 25 of PD 957, which regulates the subject
transaction, imposes on the subdivision owner or developer the
obligation to cause the transfer of the corresponding certificate
of title to the buyer upon full payment, to wit:Sec. 25.Issuance of
Title.The owner or developer shall deliver the title of the lot or
unit to the buyer upon full payment of the lot or unit. No fee,
except those required for the registration of the deed of sale in
the Registry of Deeds, shall be collected for the issuance of such
title. In the event a mortgage over the lot or unit is outstanding
at the time of the issuance of the title to the buyer, the owner or
developer shall redeem the mortgage or the corresponding portion
thereof within six months from such issuance in order that the
titl