G.R. No. 51824 - Diamante vs. Court of Appeals

On November 25, 1983, petitioners Meynardo C. Policarpio and Lourdes Policarpio (spouses) and respondents Evelyn, Romulo, and Clemente Catabas executed a "Contract to Sell" a residential lot (about 300 square meters) with a house and other improvements located at Servillana Street, UE Village, Cainta, Rizal, covered by Transfer Certificate of Title No. 501812.
The agreed purchase price was P270,000, payable with an initial downpayment of P10,000 upon execution, and the balance of P260,000 to be paid from the proceeds of a PAG-IBIG loan through Urban Bank, with the payment to be effected on or before the first week of December 1983.
The contract provided that failure of the respondents (vendees) to pay the balance on time would automatically cancel the contract and require the immediate return of the downpayment.

The respondents were unable to pay the balance within the stipulated time; however, the petitioners did not return the downpayment and accepted partial payments amounting to a total of P75,000 (P10,000 at contract signing, P50,000 on May 9, 1984, P10,000 on June 4, 1984, and P5,000 on June 7, 1984).
On April 9, 1984, a Deed of Absolute Sale was executed, and physical possession of the property was delivered to the respondents.
Notwithstanding the execution of the deed, disputes arose regarding the true intent of the parties, with allegations that the deed was simulated to facilitate the release of the PAG-IBIG loan rather than an actual transfer of ownership.

On March 1, 1985, the respondents filed a case for specific performance and damages against the petitioners, claiming that, due to the respondents’ approved PAG-IBIG loan and subsequent procedural requirements, the petitioners’ failure to transfer title prevented the respondents from availing the loan.
The petitioners contended that the contract was automatically annulled due to respondents’ failure to pay the full balance by the deadline and that their later actions (acceptance of partial payments and delivery of possession) amounted to accommodating the respondents’ financial difficulties.
Additional oral agreements were purportedly made to raise the contract price to P330,000, with the respondents even making further partial payments under these new terms; however, the respondents ultimately failed to perform fully under these revised conditions.

The trial court ruled in favor of the petitioners, dismissing the respondents’ complaint and awarding, among others, reasonable rental value for use and occupation, moral damages, and other compensatory relief in a counterclaim.
The decision of the trial court was reversed and set aside by the Court of Appeals, which attributed the non-release of the PAG-IBIG loan to the petitioners’ alleged fault and questioned the parties’ evidentiary presentations regarding the simulated Deed of Absolute Sale and oral agreements.
Conflicting testimonies regarding the nature of the subject documents led to a reliance on witness credibility, and a key controversy centered on whether actions by petitioners regarding the title release were justified by the mortgage encumbrance with Philippine Commercial and Industrial Bank (PCIB).

A letter from Urban Bank (dated July 2, 1984) directed to PCIB clarified that the release of the title hinged on the payment of the mortgage loan, not on any alternative condition tied to the respondents’ PAG-IBIG loan processing.
Exhibits, including the November 23, 1984 letter (Exhibit “L”), were used to support the contention that an oral agreement to increase the sale price existed, lending credence to the petitioners’ account.
The parties’ actions—including the admittance of possession, partial payments, and documented communications—demonstrated a common intention to consummate the sale despite the respondents’ delay in full performance.

Whether the failure of the respondents to pay the full balance by the stipulated deadline automatically cancelled the Contract to Sell.
Whether the petitioners’ subsequent acceptance of partial payments and delivery of possession altered the effect of the original contractual cancellation clause.

Whether the Deed of Absolute Sale executed on April 9, 1984, was a bona fide transfer of title or a simulated instrument merely to secure the release of the PAG-IBIG loan.
Whether the alleged oral agreement to increase the purchase price (from P270,000 to P330,000) was supported by sufficient evidence, including documentary exhibits.

Whether the petitioners were obligated to have the title released from its encumbrance with PCIB independent of the respondents’ payment performance.
Whether the letter from Urban Bank, in conjunction with the parties’ actions, absolved the petitioners of any liability for the non-release of the title.

Whether the respondents are entitled to specific performance given their failure to meet their contractual obligations.
Whether the award of moral, exemplary, and attorneys’ fees as determined by the trial court was justified and properly substantiated.