Title
Spouses Dela Cruz vs. Court of Appeals
Case
G.R. No. 151298
Decision Date
Nov 17, 2004
Sellers sued buyers for breaching a Contract to Sell; parties entered a Compromise Agreement, but buyers failed to comply. RTC upheld agreement; CA nullified it, citing R.A. 6552. SC reversed, ruling RTC had jurisdiction and agreement was valid.
contract to sell
house and lot
compromise agreement

Case Summary (G.R. No. 151298)

Factual Background

The parties contracted for the sale of a house on a 171-sq.m. portion of a 347-sq.m. lot covered by TCT No. 305339 in Town and Country Executive Village, Antipolo. The contract price was P3.3 million, payable by installments with an initial payment of P1.5 million and a balance of P1.8 million to be paid over five years at twenty percent per annum by monthly amortizations of P50,000. The contract provided for an additional five percent interest on late installments and allowed the sellers to cancel the contract or accelerate the balance upon failure to pay three or more installments. Petitioners delivered keys upon the initial payment, and respondents took possession. After the downpayment and a subsequent P50,000 installment, respondents ceased making regular payments.

Trial Court Proceedings

Petitioners filed Civil Case No. 99-5123 seeking cancellation of the Contract to Sell, forfeiture of the downpayment, and collection of interest, penalties and costs. Respondents sought an extension to file an Answer but the parties instead executed a Compromise Agreement on March 2, 1999. The RTC found the Compromise Agreement valid, approved its terms and, upon petitioners’ Motion for Execution, denied respondents’ Motion to Dismiss and ordered issuance of a writ of execution. Respondents’ Motion for Reconsideration was denied, whereupon they filed a petition for certiorari and prohibition with the Court of Appeals.

The Compromise Agreement

The Compromise Agreement recited respondents’ admission of the complaint’s allegations and their explanation of financial difficulty, including a promise to surrender a purported Free Patent as partial payment. Respondents agreed to update their account not later than April 30, 1999 and to resume monthly payments; failure to update by that date would render the Contract to Sell cancelled with forfeiture of past payments in favor of petitioners. The agreement also provided that if respondents updated their account but later defaulted, the contract would likewise be cancelled and respondents would have sixty days from notice to vacate.

Proceedings Before the Court of Appeals

The Court of Appeals granted respondents’ petition and nullified the RTC Decision and the Order denying the Motion to Dismiss. The appellate court characterized the contract as a conditional sale on installment payments governed by Rep. Act No. 6552 and held that certain requirements of that statute had not been observed in the contract and the Compromise Agreement. The CA concluded that the P1.5 million initial payment should be deemed equivalent to thirty monthly installments, that respondents were entitled to a minimum two-month grace period without additional interest, and that upon cancellation respondents must be refunded fifty percent of their total payments; because these statutory protections were not afforded, the CA declared the contract and the Compromise Agreement void.

Issues Presented on Review

The Supreme Court framed two issues for resolution: (1) whether the Housing and Land Use Regulatory Board (HLURB) had jurisdiction over the controversy; and (2) whether the Court of Appeals correctly nullified the Compromise Agreement and the RTC judgment that approved it.

Parties’ Contentions

Petitioners maintained that the HLURB lacked jurisdiction because they were ordinary owners of several subdivision lots and were not owners, developers, dealers, brokers or salesmen as contemplated by P.D. No. 957 and P.D. No. 1344; petitioners also asserted the Compromise Agreement was valid and binding. Respondents argued that the transaction involved the sale of a subdivision house and lot within the meaning of Rep. Act No. 6552 and P.D. No. 957, that petitioners acted as subdivision owners or developers, and that the HLURB therefore had exclusive jurisdiction; respondents further argued that the Compromise Agreement contained terms contrary to Rep. Act No. 6552 and Article 1409 of the Civil Code.

Supreme Court Analysis on Jurisdiction

The Court held that petitioners were not subdivision owners or developers as defined in P.D. No. 957 and that the parcel involved was part of a subdivision owned and developed by Pasig Properties, Inc. The Court reiterated the rule in Roxas v. Court of Appeals, G.R. No. 138955 that HLURB jurisdiction is determined by the nature of the action as pleaded and that the HLURB’s exclusive jurisdiction applies primarily to complaints filed by buyers against owners or developers. Because the complaint in the RTC sought cancellation for nonpayment and ancillary relief, the Court found the case within the jurisdiction of the trial court and not exclusively vested in the HLURB. The Court further emphasized that jurisdiction is determined from the complaint’s allegations and not from defenses interposed by the defendant.

Supreme Court Analysis on Validity of the Compromise Agreement

The Court characterized the Compromise Agreement as a contract that embodies reciprocal concessions to avoid litigation and observed that a valid compromise is binding, has the force of law between the parties, and operates as res judicata under Article 2037 of the Civil Code. The Court noted the grounds for absolute nullity under Article 1409 and found none applicable to the Compromise Agreement. Addressing the CA’s application of Rep. Act No. 6552, the Court distinguished Sections 3 and 4 of the statute: Section 3, which allows inclusion of downpayments in the computation of installments and a fifty percent refund, applies only when at least two years of installments have been paid; Section 4 applies when less than two years of installments were paid and prescribes a grace period of not less than sixty days and a thirty-day period after notice before cancellation. Because respondents had paid only one installment after the downpayment, Section 4 governed and did not entitle respondents to the fifty percent refund or to the CA’s treatment of the downpayment as thirty months of installments. The Court found that respondents failed to update accounts within the prescribed period and that petitioners acted within their rights to seek judicial rescission without first executing a notarial cancellation, citing Olympia Housing, Inc. v. Panasiatic Travel Corporation, G.R. No. 140468.

Ruling and Disposition

The Supreme Court reversed and set aside the Court of Appeals Decision dated September 28, 2001 and Resolution dated December 11, 2001. The Court reinstated the RTC Decision of July 12, 1999 and t

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