Case Summary (G.R. No. 167213)
Contract Formation and Essential Terms
On October 27, 1994, petitioners (sellers/owners) and respondent (buyer) executed a written contract to sell five parcels of land (totaling approximately 50 hectares) covered by specific Torrens titles. The contract set a purchase price of P12,500,000 (P25/sq.m.), required an earnest money of P500,000 (paid upon execution), a downpayment of P3,500,000 due on or before April 30, 1995, and the balance payable within 18 months from payment of the P3.5 million in six equal quarterly installments. The contract expressly provided that title would be transferred upon complete payment of the purchase price and included provisions on settlement of encumbrances, early transfer upon provision of post‑dated checks guaranteed by a reputable bank, occupancy and improvements by the buyer upon payment of earnest money and downpayment, and interest for delay.
Payments Made and Alleged Default
Respondent paid the P500,000 earnest money on October 27, 1994, and later made payments of P1,000,000 on June 30, 1995 and another P1,000,000 on July 6, 1995, totaling P2,500,000 in actual payments under the contract. No further payments were made by respondent thereafter, and petitioners contend that the buyer failed to pay the P3.5 million downpayment by April 30, 1995 and did not complete the remaining installment obligations.
Petitioners’ Demand and Complaint for Rescission
After respondent allegedly ignored a demand letter dated November 28, 1996 (in which petitioners purportedly revoked or cancelled the contract and treated paid sums as damages, while also demanding P10,000,000 for actual damages), petitioners filed on February 21, 1997 before the Regional Trial Court (RTC) of Parañaque a complaint for rescission of contract with damages. The complaint alleged respondent’s failure to perform payment obligations under the contract to sell and sought rescission and damages.
Respondent’s Answer and Allegations
In its answer, respondent alleged that petitioners were the first to violate the contract by preventing access to the properties despite respondent’s payments; that petitioners refused to execute the final contract of sale unless additional legal interest payments were made; and that petitioners’ conduct was motivated by a willingness to accept a higher offer from another purchaser. Respondent also failed to appear at the scheduled pre‑trial conference and did not file a pre‑trial brief, leading the trial court to declare it in default.
Default Proceedings and Trial Court Evidence
Because respondent was declared in default for failing to participate in pre‑trial and not filing a brief, the trial court allowed petitioners to present their evidence ex parte. Petitioners offered testimony from Belen Cordero regarding the contract, respondent’s non‑payment, and resultant damages (actual and moral), and testimony from Ma. Cristina Cleofe concerning an alternate higher offer (P35/sq.m.) that petitioners had allegedly foregone. Respondent moved to set aside the default but the trial court denied the motion and proceeded to render judgment.
RTC Decision: Rescission and Damages Awarded
The RTC, in its decision of November 18, 1997, declared the contract to sell rescinded and ordered respondent to pay petitioners P4,500,000 (computed as P5,000,000 actual damages plus P2,000,000 moral and exemplary damages, less the P2,500,000 previously paid), plus attorney’s fees of P800,000 and costs of suit. The RTC thus treated the matter as a rescission under Article 1191 of the Civil Code, awarding damages and attorney’s fees.
Court of Appeals Ruling and Relief Ordered
On appeal, the Court of Appeals set aside the RTC decision, finding that petitioners’ obligation to convey title did not arise because respondent failed to pay the purchase price in full, characterizing the agreement as a contract to sell rather than a contract of sale. The appellate court declared the contract to sell set aside without payment of damages and ordered petitioners to return the amounts received from respondent. The CA’s decision thereby denied petitioners’ claim to damages and required refund of the payments.
Issues Raised in the Supreme Court Petition
Petitioners’ issues before the Supreme Court included: (1) whether the Court of Appeals erred in ruling on the nature of the contract where such characterization was not assigned as an error on appeal; (2) whether a contract to sell can be rescinded under Article 1191 of the Civil Code; and (3) whether the Court of Appeals erred in setting aside the award of damages.
Appellate Power to Address Unassigned Matters
The Supreme Court reaffirmed that, although appellants must ordinarily assign errors in their briefs, appellate courts may address matters not specifically assigned where such matters are indispensable to the just resolution of the case. The Court cited recognized categories permitting consideration of unassigned issues (e.g., jurisdictional questions, plain or clerical errors, matters necessary for a complete resolution, record matters affecting the issues), and concluded that the nature of the contract and the applicability of rescission were central to the case and properly addressed by the CA.
Characterization: Contract to Sell as Conditional Agreement
The Supreme Court held that the contract was a contract to sell (not a contract of sale) because it expressly provided that title would pass only upon full payment of the purchase price. Under such arrangement, full payment is a positive suspensive condition: the seller’s obligation to transfer title does not arise until that condition is fulfilled. The non‑fulfillment of a positive suspensive condition is not a breach; it prevents the obligation from coming into existence.
Inapplicability of Article 1191 for Non‑existent Obligations
Because the seller’s obligation to convey title had not arisen due to the buyer’s non‑fulfillment of the suspensive condition, the Court held Article 1191 (which presupposes an existing reciprocal obligation and permits rescission upon non‑performance) was inapplicable. The point is that Article 1191 applies to rescission of obligations that are already extant and reciprocal; it does not apply to obligations that have not yet come into being because a suspensive condition has not been satisfied. Consequently, the RTC’s invocation of Article 1191 and its rescission‑based award of damages were manifestly erroneous.
Application of RA 6552 (Maceda Law) and Retention of Payments
The Court turned to Republic Act No. 6552, which governs conditional sales of real property on installment terms. RA 6552 recognizes the vendor’s right to cancel contracts for industrial, commercial, and residential real properties upon buyer’s default and allows the vendor to retain previous payments. The Supreme Court observed that the subject properties were intended for commercial use and thus RA 6552 expressly permits the vendor (petitioners) to cancel and retain prior payments. Even if the properties had not been commercial, Section 4 of RA 6552 provides that a buyer who has paid less than two years of installments is not entitled to a refund; here respondent paid less than two years’ installments and so would not be entitled to a refund under the Act. Based on RA 6552, the Supreme Court modified the CA decision by affirming that petitioners are entitled to retain the payments already received.
Damages and Attorney’s Fees: Rejection by the Supreme Court
The Court held that an award of damages for breach was not warranted because, in a contract to sell where the seller’s obligation never came into existence due to a suspensive condition, non‑payment is not a breach giving rise to damages under Article 1191. Accordingly, the RTC’s award of actual, moral, and exemplary damages was unwarranted. Regarding attorney’s fees, Article 2208 of the Civil Code provides that attorney’s fees are not recoverable in the absence of stipulation except in enumerated exceptions
...continue readingCase Syllabus (G.R. No. 167213)
Parties and Case Identification
- Case citation: 536 Phil. 1151, Third Division, G.R. No. 167213, October 31, 2006.
- Petitioners: Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny Boy Cordero, Ladylyn Cordero and Belen Cordero (Belen acting in her own behalf and as attorney-in-fact for the co-petitioners).
- Respondent: F.S. Management & Development Corporation, represented by its chairman Roberto P. Tolentino.
- Relief sought in Supreme Court: Petition for review from Court of Appeals in CA-G.R. CV No. 66198, Decision dated April 29, 2004 and Resolution dated February 21, 2005.
Material Facts
- On or about October 27, 1994, Belen Cordero, on her own behalf and as attorney-in-fact, entered into a contract to sell with respondent over five parcels of land in Nasugbu, Batangas covered by Transfer Certificate of Title Nos. 62692, 62693, 62694, 62695 and 20987.
- The contract described the properties as consisting of 50 hectares more or less at P25.00 per square meter, with a total purchase price of P12,500,000.00.
- Contract terms included: earnest money P500,000.00; downpayment P3,500,000.00 due on or before April 30, 1995; remaining balance payable within 18 months from date of the P3.5M payment, in six equal quarterly payments of P1,411,000.00 each; title to be transferred upon complete payment of the purchase price.
- Additional contractual provisions: obligation to settle existing encumbrances or mortgages by owner or buyer (deducted from purchase price); owner may transfer titles before full payment if buyer provides post-dated checks guaranteed by a reputable bank; buyer may occupy and improve properties upon payment of earnest money and the P3.5M downpayment while owner guarantees no tenants or squatters; delay in payment would entitle seller to legal interest.
Payments Made by Respondent
- Respondent paid the earnest money of P500,000.00 on October 27, 1994.
- Subsequent payments by respondent: P1,000,000.00 on June 30, 1995 and another P1,000,000.00 on July 6, 1995.
- No further payments were made after July 6, 1995.
Pre-suit Demand and Claims by Petitioners
- Petitioners sent respondent a demand letter dated November 28, 1996 notifying revocation/cancellation of the contract to sell.
- The demand letter stated petitioners would treat payments already received as payment for damages sustained due to respondent’s breach and demanded payment of P10,000,000.00 as actual damages for loss of income.
- Respondent ignored the demand.
Complaint and Respondent’s Defenses
- On February 21, 1997, petitioners (through Belen) filed before the Regional Trial Court (RTC) of Parañaque a complaint for rescission of contract with damages, alleging respondent failed to pay the P3.5M downpayment by April 30, 1995 and the balance within 18 months, entitling petitioners to rescind and claim damages.
- In its Answer, respondent contended:
- Petitioners were the first to violate the contract by preventing respondent’s access to the properties despite payment of P2.5M.
- Petitioners prevented respondent from paying in full by refusing to execute the final contract of sale unless additional payment of legal interest was made.
- Petitioners refused to execute the final contract because another buyer was willing to pay a higher price.
Pre-trial, Default, and Trial Evidence
- Pre-trial Order of June 9, 1997 set pre-trial conference for July 8, 1997.
- Respondent’s representative and counsel failed to appear at pre-trial; respondent did not submit a pre-trial brief and was declared in default by the trial court, which allowed petitioners to present evidence ex parte.
- Evidence presented by petitioners:
- Belen Cordero testified regarding execution of the contract; respondent’s failure to make required payments; actual and moral damages sustained including loss of opportunity to sell to another buyer (Ma. Cristina Cleofe); and attorney’s fees incurred.
- Ma. Cristina Cleofe testified she offered to buy the properties at P35.00 per square meter but was turned down due to petitioners’ contract with respondent.
Post-trial Motions and Prior Remedies
- Respondent filed a motion to set aside the order of default, which was denied by the trial court by Order dated September 12, 1997.
- Respondent filed a petition for certiorari in the Court of Appeals challenging the denial of the motion to set aside default; the Court of Appeals denied that petition.
RTC Decision (Trial Court Ruling)
- The trial court rendered decision on November 18, 1997 in favor of petitioners, declaring the contract to sell rescinded and ordering respondent to pay:
- P4,500,000.00 computed as: P5,000,000.00 actual damages and P2,000,000.00 moral and exemplary damages, less defendant’s payments of P2,500,000.00 under the contract (resulting in net P4,500,000.00);
- P800,000.00 as attorney’s fees; and
- costs of suit.
- The dispositive portion was expressly quoted in the record.
Appeal to the Court of Appeals — Assigned Errors
- Respondent appealed to the Court of Appeals and assigned errors including:
- RTC erred in awarding P5,000,000.00 as actual damages and in declaring defendant acted in wanton disregard.
- RTC erred in awarding P2,000,000.00 as moral and exemplary damages.
- RTC erred in awarding P800,000.00 as attorney’s fees.
Court of Appeals Decision
- The Court of Appeals (Decision dated April 29, 2004) set aside the R