G.R. No. 126083 - Cortes vs. Court of Appeals

Case Summary (G.R. No. 126083)

Factual Background

The parties entered into a contract of sale whereby Villa Esperanza Development Corporation agreed to buy three lots covered by TCT Nos. 31113-A, 31913-A and 32013-A from Antonio R. Cortes for P3,700,000.00. The parties agreed that upon execution of the Deed of Absolute Sale the vendee would pay P2,200,000.00 less advances; the balance of P1,500,000.00 was payable within one year, secured by an irrevocable standby letter of credit. The Corporation advanced P1,213,000.00 to Cortes in 1983. The deed was retained by Cortes for notarization. Cortes later alleged that he surrendered the owner's duplicate copies of the TCTs to the broker and that the Corporation refused to pay the full agreed down payment. The Corporation maintained that it was ready and able to pay but Cortes refused to deliver the TCTs and the original deed.

Trial Court Proceedings

The Corporation filed a complaint for specific performance on January 14, 1985 seeking delivery of the TCTs and the original Deed of Absolute Sale and damages. Cortes answered and counterclaimed, alleging partial delivery and asserting the Corporation’s failure to pay the down payment. On June 24, 1993 the trial court rescinded the contract and ordered Cortes to return P1,213,000.00 with interest. The trial court found that the contract required immediate full payment of P2,200,000.00 upon execution and that the Corporation failed to present evidence of any modification of that term. The court denied the Corporation’s motion for reconsideration on the ground that the Corporation failed to comply with a pre-trial offer by Cortes’ counsel to deliver the titles upon completion of the down payment.

Court of Appeals Decision

On appeal the Court of Appeals reversed and set aside the trial court decision. It found that the parties agreed that the Corporation would pay the full balance of the down payment only upon Cortes’ delivery of the three TCTs. The Court of Appeals determined that Cortes never surrendered the titles to the Corporation. It therefore directed Cortes to execute a Deed of Absolute Sale and to deliver the owner’s duplicate copies of the TCTs simultaneously with the Corporation’s payment of the balance of the purchase price of P2,487,000.00, and it delineated the parties’ sharing of registration expenses and related charges as provided in the deed.

Issues Presented

The principal issue presented to the Supreme Court was whether the trial court correctly rescinded the contract for sale on the basis of the Corporation’s alleged failure to pay the P2,200,000.00 down payment upon execution, or whether the contract required simultaneous performance such that Cortes’ failure to deliver the original notarized deed and the TCTs precluded the Corporation’s payment and justified the Court of Appeals’ order compelling specific performance.

The Parties’ Contentions

Petitioner Cortes contended that he delivered the owner’s duplicate TCTs and the carbon duplicate of the deed to the Corporation and that the Corporation thereby withheld the balance of the down payment, justifying rescission or forfeiture of the partial payment. Respondent Corporation contended that delivery of the original notarized deed and the TCTs never occurred and that the parties agreed that full payment of the P2,200,000.00 down payment would follow delivery of the titles; it maintained that it was ready and willing to pay but that Cortes refused delivery.

Supreme Court Ruling

The Supreme Court affirmed the decision of the Court of Appeals and denied the petition. The Court held that the true agreement of the parties, as shown by testimony and conduct, contemplated reciprocal and simultaneous performance: Cortes’ delivery of the original notarized deed and the TCTs and the Corporation’s payment of the agreed amounts. The Court found no proof that Cortes surrendered the original documents to the Corporation. The Court therefore ordered mutual performance, directing Cortes to deliver the necessary documents and the Corporation to pay the balance, including P2,487,000.00 as the remaining purchase price balance, consistent with the Court of Appeals’ mandate.

Legal Basis and Reasoning

The Court relied on the nature of reciprocal obligations, stating that such obligations arise from the same cause and are to be performed simultaneously so that performance by one party is conditioned on performance by the other. The Court invoked Article 1191 to affirm the implied power to rescind in reciprocal obligations and Article 1169 to explain that in reciprocal obligations neither party incurs delay if the other is not ready to comply; delay by one begins when the other fulfills his obligation. The Court examined the parties’ actual intent through their words and conduct, permitting parol evidence to show that the obligation to pay the P2,200,000.00 down payment was tied to delivery of the titles and the transfer of ownership. The transcript of stenographic notes showed Cortes’ admissions that full payment would be made upon his delivery of the titles and that transfer would occur upon full payment. The Court found Cortes’ testimony that he surrendered titles to the broker uncorroborated and weighed it against the unrebutted testimony of the broker that she did not receive the TCTs. The Court also considered Cortes’ counsel’s pre-trial offer to deliver the documents upon payment as demonstrating that the documents remained with Cortes at that time. Because neither part

Case Syllabus (G.R. No. 126083)

Parties and Procedural Posture

ANTONIO R. CORTES (IN HIS CAPACITY AS ADMINISTRATOR OF THE ESTATE OF CLARO S. CORTES) was the seller and petitioner seeking reinstatement of a trial court judgment rescinding a contract of sale.
VILLA ESPERANZA DEVELOPMENT CORPORATION was the buyer and private respondent which instituted a specific performance action to compel delivery of titles and the original deed.
HON. COURT OF APPEALS was a respondent in the original petition for review and rendered the decision under review dated June 13, 1996 in CA-G.R. CV No. 47856.
The petition challenged the reversal by the Court of Appeals of the June 24, 1993 decision of the Regional Trial Court, Makati, Branch 138, which had rescinded the sale and ordered refund of partial payments.

Key Factual Allegations

The parties contracted for the sale of three lots for a purchase price of P3,700,000.00 and the Corporation advanced P1,213,000.00 on various dates in 1983.
A Deed of Absolute Sale executed in September 1983 provided that upon "execution of this instrument" the vendee would pay P2,200,000.00 less advances and that the balance of P1,500,000.00 would be payable within one year, secured by an irrevocable standby letter of credit.
The Deed contained allocation clauses that registration expenses were to be divided equally and that payment of capital gains tax would be exclusively for the vendor.
The Deed remained with Cortes for notarization according to the parties' account.
On January 14, 1985, VILLA ESPERANZA DEVELOPMENT CORPORATION filed a complaint for specific performance seeking delivery of the three owner’s duplicate TCTs and the original Deed of Absolute Sale, with damages and attorney’s fees.
CORTES answered and counterclaimed, alleging he had surrendered the owner’s duplicate copies and that the Corporation failed to pay in full the agreed down payment; he also alleged occupancy by a lessee requiring disturbance fees.

Trial Court Decision

The Regional Trial Court rescinded the contract on June 24, 1993 and ordered CORTES to return P1,213,000.00 plus interest.
The trial court held that, pursuant to the contract, the Corporation was obliged to pay the full P2,200,000.00 upon execution and that the Corporation presented no evidence of a contrary agreement.
The trial court denied the Corporation’s motion for reconsideration on the ground that the Corporation failed to act on CORTES’ counsel’s pre-trial offer to deliver the TCTs upon payment of the balance.

Court of Appeals Decision

The Court of Appeals reversed the trial court on June 13, 1996 and ordered CORTES to execute a Deed of Absolute Sale and to deliver the owner’s duplicate TCTs simultaneous with the Corporation’s payment of the balance of the purchase price amounting to P2,487,000.00.
The Court of Appeals found that the parties agreed that full payment of the down payment would occur upon delivery of the three TCTs and that no such delivery was proved, thus excusing the Corporation from paying earlier.