G.R. No. 205113 - Ascano-Cupino vs. Pacific Rehouse Corp.

Case Summary (G.R. No. 205113)

Factual Background

On 1 October 1994, the Ascanos and Pacific executed a Deed of Conditional Sale whereby Pacific agreed to purchase the subject land for P5,975,300. Pacific paid a down payment of P1,792,590, leaving an outstanding balance of P4,182,710 to be paid upon specified conditions. These conditions required: first, the completion of documents necessary for the transfer of the certificate of title; second, that the vendors (the Ascanos) would guarantee removal of tenants, squatters, and other occupants, with disturbance compensation to be shouldered by the vendors; and third, the submission by vendors of an Affidavit of Non-Tenancy and land operation transfer documents.

In November 1994 and in 1995, the petitioners requested additional amounts—first P600,000 and then P1,000,000—which Pacific paid as deductible partial payments. On 13 February 1995, petitioners submitted a Barangay Agrarian Reform Council Certification that the property was untenanted and informed Pacific that the remaining documents were being processed. Despite Pacific’s later demands, petitioners failed to deliver the necessary documents in March 1995 and instead informed Pacific that they intended to rescind the contract, refusing to accept Pacific’s tender of further payments totaling P1,005,180.

In the latter part of March 1995, Pacific, through Melecio P. Fortuno, Jr. (Fortuno), opened a savings account with Capitol Bank of General Trias, Cavite in the names of petitioners and deposited P1,005,180, informing petitioners that they were authorized to withdraw the deposit at their convenience. Pacific subsequently discovered that petitioners negotiated a sale of the property to other buyers for a higher consideration. In September 1995, Pacific caused an annotation of an adverse claim on the property’s title and sent multiple demand letters for petitioners to comply. Petitioners continued negotiations for rescission through Atty. Fojas rather than complying with the deed.

On 11 February 1999, Pacific again demanded that petitioners either fulfill their obligations under the conditional sale or return all payments made plus legal interest. Petitioners ignored the demand. On 2 September 1999, Pacific filed a Complaint for Cancellation of Contract, Sum of Money and Damages before the RTC of Trece Martires City. Before pre-trial, Pacific discovered that petitioners had already withdrawn the deposited P1,005,180. Because of petitioners’ withdrawal, Pacific filed an Amended Complaint, changing its cause of action from cancellation to specific performance.

Contentions of the Parties

Petitioners asserted that Pacific was the party in default. They alleged that the true purchase price agreed upon was P200 per square meter, or P11,950,600, and that the lower figure of P5,975,300 in the deed was allegedly inserted at Pacific’s request to reduce taxes. Petitioners also claimed that in October 2004, the parties executed an Addendum to Deed of Conditional Sale which amended item “2” of the original deed so that full payment of the balance would be made within six months, otherwise the sale would automatically be cancelled and all monies received would be refunded to the vendee, less P792,590 taken by Fortuno for disturbance compensation. Petitioners insisted that the addendum showed Pacific undertook payment for the disturbance compensation by means of the deducted amount. They claimed, however, that the tenants were not paid and remained on the property. Petitioners further maintained that Pacific was bound by the addendum because Fortuno was allegedly Pacific’s authorized representative.

Pacific denied the petitioners’ material allegations. Pacific maintained that the purchase price was the amount stated in the deed, P5,975,300. Pacific also insisted it paid the down payment of P1,792,590, leaving a balance of P4,182,710 to be paid upon completion by the vendors of the documents necessary for title transfer. Pacific asserted that it paid additional amounts at petitioners’ requests, contingent on petitioners submitting the needed documents and clearances. Pacific alleged that petitioners failed to deliver the required documents and that Pacific tendered the balance by depositing the P1,005,180 in petitioners’ names. Pacific further asserted that petitioners remained in breach, prompted Pacific to annotate an adverse claim, and led Pacific to file the original complaint and, later, the amended complaint for specific performance.

RTC Proceedings and Decision

The RTC rendered its decision on 15 April 2005. It cancelled the contract and the addendum, and ordered petitioners to return P2,602,000 to Pacific. It also ordered Pacific to pay petitioners P150,000 as damages, P100,000 as attorney’s fees, and litigation expenses.

In its ruling, the RTC treated the case as one for rescission/cancellation and reasoned that petitioners refused to accept Pacific’s tender and refused to withdraw the deposited payment until Pacific allegedly withdrew its tender or until petitioners withdrew the deposited amount for failure of vendors to withdraw their tender of payment. The RTC also held that Pacific’s failure to comply with tenant removal and disturbance compensation did not render the vendors at fault because the disturbance compensation amount had been given through Pacific’s authorized representative, and the tenants still occupied the land. On the basis that the parties were no longer willing to proceed, the RTC ordered cancellation and the corresponding return of amounts.

CA Ruling

On appeal, the CA reversed and set aside the RTC decision in its Decision dated 17 July 2012, and later denied reconsideration through its Resolution dated 8 January 2013. The CA held that the RTC committed reversible error by deciding the case based on the original complaint, despite Pacific’s Amended Complaint changing the relief sought to specific performance. The CA ruled that rescission was not warranted because petitioners were the party who failed to comply with contractual obligations. The CA reasoned that Pacific, as the injured party, elected the remedy of fulfillment through its amended prayer for specific performance.

The CA further found that it was proven and undisputed that Pacific had already paid a total of P4,497,770, leaving a remaining balance of P1,577,530. The CA ordered petitioners to pay the balance upon execution of a Deed of Absolute Sale in favor of Pacific and ordered petitioners to commence at their expense the necessary proceedings for eviction of tenants and/or informal settlers until the property was cleared. It made no pronouncement as to costs.

Supreme Court Resolution: Issues and Disposition

The petitioners raised the central issue of whether specific performance was proper instead of rescission, insisting that cancellation was justified because Pacific allegedly failed to comply with its obligations as vendee. They also maintained that they, not Pacific, were the injured parties and that Pacific was bound by the addendum and the disturbance compensation undertakings.

The Court denied the petition and affirmed the CA. It ruled that the RTC erred when it based its decision on the original complaint, despite the filing of the amended pleading that had superseded the original cause of action and prayer.

Legal Basis and Reasoning

The Court anchored its reasoning on Section 8, Rule 10 of the Rules of Court, holding that an amended pleading supersedes the pleading it amends, and that claims or defenses not incorporated in the amended pleading are deemed waived. The Court observed that once Pacific filed its Amended Complaint changing its prayer to direct petitioners to sign and deliver the deed of absolute sale and to comply with the undertaking embodied in the conditional sale, the original complaint ceased to perform any further function as a pleading and the case stood for trial based on the amended pleading only. The Court thus agreed with the CA that the RTC had committed reversible error by disregarding the amended complaint and granting relief consistent with rescission/cancellation.

On the merits, the Court revisited the respective obligations in the original Deed of Conditional Sale. It identified Pacific’s principal undertakings as paying the down payment and paying the remaining balance upon completion by the vendors of the pertinent documents necessary for transfer of title. It identified the Ascanos’ undertakings as furnishing documents necessary for transfer, guaranteeing removal of tenants and occupants while shouldering disturbance compensation, and furnishing the Affidavit of Non-Tenancy and land operation transfer documents. The Court treated petitioners’ reliance on the Addendum as unavailing because it did not alter the parties’ obligations under the original deed. The Court agreed with the CA that the addendum was not signed by any officer or authorized representative of Pacific, and that Fortuno’s signature did not reflect authority because he signed as a witness and a witness is not automatically converted into a party simply by presenting himself as an authorized representative in another context. Thus, the addendum could not bind Pacific nor change the original reciprocal obligations.

The Court then applied Article 1191 of the Civil Code, emphasizing that in reciprocal obligations, the injured party may choose between fulfillment and rescission, with payment of damages in either case. It held that Pacific was the injured party because petitioners failed to fulfill obligations expressly stated in the deed—specifically, the undertaking to guarantee removal of tenants and to deliver necessary documents for consu

Case Syllabus (G.R. No. 205113)

The case arose from a Rule 45 petition filed by petitioners, Honorlita Ascano-Cupino and Flaviana Ascano-Colocado, to reverse a Court of Appeals (CA) Decision dated 17 July 2012 and Resolution dated 8 January 2013.
The CA Decision reversed and set aside an RTC Decision dated 15 April 2005 in Civil Case No. TM-936.
The Supreme Court denied the petition, affirmed the CA, and thus upheld the CA’s award of specific performance and related directives.

Parties and Procedural Posture

Petitioners were the vendors and defendants in the RTC action and sought to reinstate the RTC ruling that had cancelled the contract and addendum and ordered restitution.
Respondent, Pacific Rehouse Corporation (Pacific), was the vendee and plaintiff that initiated the RTC case.
Pacific filed a Complaint for Cancellation of Contract, Sum of Money and Damages, but before pre-trial it discovered that petitioners had withdrawn a previously tendered bank deposit.
Pacific then filed an Amended Complaint shifting its cause of action from cancellation to specific performance.
The RTC granted cancellation and ordered return of money, while Pacific appealed to the CA.
The CA reversed the RTC, ordered petitioners to pay Pacific P1,577,530.00 upon execution and delivery of documents, and directed petitioners to commence eviction proceedings at their expense.
Petitioners moved for reconsideration, which the CA denied.
Petitioners later sought a TRO from the Supreme Court, but they withdrew it after they could no longer afford the cash or surety bond required.

Key Factual Allegations

On 1 October 1994, the parties entered into a Deed of Conditional Sale where Pacific agreed to purchase a parcel of land in General Trias, Cavite with an area of 59,753 square meters for P5,975,300.
Pacific paid a down payment of P1,792,590, leaving a balance of P4,182,710 subject to completion of specified conditions.
The deed conditioned the balance payment on: (one) vendors’ completion of documents necessary for transfer of title; (two) vendors’ guarantee of removal of tenants, squatters, and other occupants with disturbance compensation to be paid by vendors; and (three) vendors’ submission of an Affidavit of Non-Tenancy and land operation transfer documents.
After execution, petitioners requested additional sums deductible from the purchase price, and Pacific paid: P600,000 in November 1994 and P1,000,000 in 1995.
Petitioners submitted a Barangay Agrarian Reform Council Certification on 13 February 1995 stating the property was untenanted and informed Pacific that other documents were being processed.
Despite multiple demands, petitioners failed to submit the remaining necessary documents by the following month.
Petitioners instead sought to rescind the contract and refused to accept additional tender payments totaling P1,005,180.
Pacific then opened a savings account in petitioners’ names with Capitol Bank of General Trias, depositing P1,005,180, and informed petitioners they were authorized to withdraw the funds at their convenience.
Pacific later learned that petitioners were negotiating the property’s sale to other buyers, and in September 1995 it caused an annotation of an adverse claim on the property’s title.
Pacific sent demand letters requiring compliance with obligations under the deed, but petitioners negotiated rescission with Pacific through Atty. Fojas.
On 11 February 1999, Pacific again demanded fulfillment of obligations or return of payments with legal interest, and petitioners continued to ignore it.
On 2 September 1999, Pacific filed the RTC complaint for cancellation and damages, and before pre-trial it learned that petitioners had already withdrawn the deposited P1,005,180.
Pacific filed an Amended Complaint for specific performance.
Petitioners alleged that Pacific defaulted and asserted a different true purchase price of P200 per square meter totaling P11,950,600, claiming the deed’s lower amount was inserted to reduce taxes.
Petitioners further alleged that an October 2004 Addendum amended item “2” of the deed so that full balance payment would be made within six months, otherwise cancellation would automatically occur and refunds would be made minus P792,590.00 taken by Fortuno for disturbance compensation.
Petitioners claimed Pacific failed to pay the tenants despite receiving P792,590 through its authorized representative.
Pacific denied that the Addendum bound it, asserting it was not signed by its authorized signatory Dee Hua T. Gatchalian, and it denied the asserted higher purchase price.

RTC Decision

The RTC cancelled the contract and the addendum dated 1 October 1994, and ordered petitioners to return P2,602,000.00 to Pacific.
The RTC also ordered Pacific to pay petitioners damages of P150,000.00, attorney’s fees of P100,000.00, and litigation expenses.
The RTC relied on the parties’ admissions as to the existence of a Deed of Conditional Sale and an addendum and on evidence of Pacific’s payments.
The RTC found that Pacific paid multiple installments and that petitioners refused to accept a tendered amount until Pacific withdrew the bank deposit after petitioners’ refusal.
The RTC addressed petitioners’ defense that Pacific failed to pay tenants’ disturbance compensation and framed the dispute around the addendum and the person who allegedly received tenant compensation.
The RTC found that Fortuno’s signature appeared as authorized representative of Pacific in petitioners’ letter, and it treated that as binding on Pacific.
The RTC concluded that petitioners could not be faulted for refusing to accept full payment because tenants were still occupying the land.
Despite this reasoning, the RTC granted petitioners’ adversarial prayer framing the case as one where rescission/cancellation was warranted because the parties were no longer willing to proceed.
The RTC denied Pacific’s entitlement to damages an