Case Summary (G.R. No. 263047)
Applicable Law and Jurisdiction
This case falls under the jurisdiction of the 1987 Philippine Constitution, as the decision was rendered in 2024. The primary legal framework applicable includes the Civil Code provisions related to contracts, specifically those governing obligations and rescission, as well as pertinent stipulations outlined in the Deeds of Conditional Sale.
Background of the Case
In February 2014, the Petitioners, along with the respondent Ivy Orolfo, who acted as their agent, facilitated a sale involving the subject property. Initial agreements were made, resulting in two Deeds of Conditional Sale executed in March 2014. The first deed involved respondents Nodalo, Olaso III, Lim-Tidma, and Orejo, while the second engaged respondents Chiquillo, Orolfo, Gomez, and Nuarin. The contracts stipulated a total sale price of PHP 600,000.00, with advance payments and conditions for unilateral rescission by the vendors upon violations stipulated within the contract.
The Complaints and Violations
In September 2015, the Petitioners filed a complaint for rescission against the respondents due to alleged contractual violations, citing the construction of permanent structures on the property without consent and the conversion of the property into a beach resort that involved renting out cottages. They claimed these actions were inconsistent with the terms of the Deeds of Conditional Sale, particularly regarding the prohibition against assigning or transferring rights without prior consent (paragraph D of the deeds).
Responses by the Respondents
The respondents denied these allegations, contending that they had not breached the terms of the Deeds of Conditional Sale. Additionally, they argued that there were no restrictions communicated to them concerning the kind of improvements they could introduce. They asserted that the business operations conducted on the property were within their rights as vendees and claimed that the Petitioners had previously encouraged them to develop the property into a beach resort.
Rulings of Lower Courts
The Regional Trial Court (RTC) ruled in favor of the respondents, dismissing the petitioners’ complaint for rescission based on findings that no substantial contractual violations occurred. The RTC mandated the Petitioners to accept payment for the outstanding balance and to execute the deeds of absolute sale. The Court of Appeals (CA) upheld the RTC's findings but modified the decision by deleting the moral damages originally awarded to the respondents.
Grounds for Judicial Review
In their petition for review, the Petitioners contended that the CA erred in determining that no substantial breach occurred, arguing that the construction of permanent structures and leasing activities constituted justifiable grounds for rescission. They also raised issues of forum shopping concerning the simultaneous pending cases involving the same subject matter in the Municipal Circuit Trial Court (MCTC) for consignation.
Key Legal Considerations
Nature of the Agreements: The contracts were characterized as Deeds of Conditional Sale, which the Court interpreted as contracts to sell, emphasizing that unilateral rescission rights were stipulated for failures to comply with payment terms or violations of the agreement.
Availability of Rescission: The remedy of rescission under
Case Syllabus (G.R. No. 263047)
Parties and Procedural Posture
- Petitioners are Spouses Noel John M. Kaw and Josephine Caseres-Kaw (Spouses Kaw), owners of a parcel of land in Albay.
- Respondents are Heirs of Marilyn Nodalo, Manuel S. Olaso, Manuel S. Olaso III, Lea Lim-Tidma, Nerissa S. Orejo, Zenaida Chiquillo, Ivy Orolfo, Ronnie Gomez, and Gina Nuarin.
- Spouses Kaw filed a Complaint for Rescission of Contract based on alleged breach by respondents under two Deeds of Conditional Sale covering portions of their land.
- The RTC dismissed the complaint for lack of merit but granted respondents' counterclaims for specific performance and damages.
- The CA affirmed the dismissal of the rescission complaint but deleted the award of moral damages.
- Spouses Kaw filed a Petition for Review on Certiorari assailing the CA decision.
Factual Background
- Spouses Kaw owned a 3,040 square meter property (Lot F, TCT No. T-158628).
- They entered into two separate Deeds of Conditional Sale with respondents for the sale of 2,000 square meters, divided into two equal portions of 1,000 square meters each.
- The purchase price was PHP 1,200,000.00, split into PHP 600,000.00 for each portion, payable initially with PHP 300,000.00 down payment and the balance within six months.
- Respondents began to develop the property into a beach resort, constructing cottages and other amenities, which Spouses Kaw claimed violated the contract terms.
- Spouses Kaw filed a complaint for rescission citing violations: unauthorized leasing and construction of permanent improvements.
- Respondents filed counterclaims for specific performance, alleging Spouses Kaw refused to accept the balance payment.
Nature of the Contracts: Contract to Sell vs. Conditional Sale
- The two Deeds, although titled "Deeds of Conditional Sale," were interpreted by the Court as contracts to sell.
- Key contractual provisions included:
- Vendors' (Spouses Kaw) option unilateral rescission for vendee's breach, especially non-payment.
- Vendors' obligation to execute final deeds of absolute sale only upon full payment.
- Jurisprudence distinguishes contract to sell as where ownership title remains with vendor until full payment; delivery does not automatically transfer title.
Legal Issues Presented
- Whether the CA erred in dismissing the Complaint for Rescission of the Deeds of Conditional Sale based on alleged breaches by respondents.
- Whether respondents committed forum shopping by filing counterclaims despite pending Consignation Cases on the same subject matter.
Court's Findings on Rescission and Breach
- Rescission is an available remedy for reciprocal obligations where substantial or fundamental breach occurs (Article 1191, Civil Code).
- Spouses Kaw failed to prove respondents committed a substantial breach warranting rescission.
- Alleged verbal agreements limiting improvements to temporary light materials were barred by the Parol Evidence Rule.
- Written contracts granted respondents benef