THIRD DIVISION
[G.R. No. 112330. August 17, 1999]
SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, petitioners,
vs. COURT OF APPEALS AND MRS. ADORACION CUSTODIO, represented by her
Attorney-in-fact, TRINIDAD KALAGAYAN, respondents.
D E C I S I O N
GONZAGA-REYES, J.:
Before us is a Petition for Review
on Certiorari of the decision of the Court of Appeals[1] in CA-G.R. CV No. 32972 entitled MRS. ADORACION
CUSTODIO, represented by her Attorney-in-fact, TRINIDAD KALAGAYAN vs. SPS.
HENRY CO AND ELIZABETH CO AND MELODY CO.
The following facts as found by
the lower court and adopted by the Court of Appeals are undisputed:
“xxx sometime on October 9, 1984, plaintiff entered into a verbal contract with defendant for her purchase of the latter’s house and lot located at 316 Beata St., New Alabang Village, Muntinlupa, Metro Manila, for and in consideration of the sum of $100,000.00. One week thereafter, and shortly before she left for the United States, plaintiff paid to the defendants the amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same may be reserved for her purchase, said earnest money to be deducted from the total purchase price. The purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although the period of payment had already expired, plaintiff paid to the defendant Melody Co in the United States, the sum of $30,000.00, as partial payment of the purchase price. Defendant’s counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15, 1985, demanding that she pay the balance of $70,000.00 and not receiving any response thereto, said lawyer wrote another letter to plaintiff dated August 8, 1986, informing her that she has lost her ‘option to purchase’ the property subject of this case and offered to sell her another property.
Under date of September 5 (1986), Atty. Estrella O. Laysa, counsel
for plaintiff, wrote a letter to Atty. Leopoldo Cotaco informing him that
plaintiff ‘is now ready to pay the remaining balance to complete the sum of
$100,000.00, the agreed amount as selling price’ and on October 24, 1986,
plaintiff filed the instant complaint.”[2]
The Regional Trial Court (RTC)
ruled in favor of private respondent Adoracion Custodio (CUSTODIO) and ordered
the petitioner spouses Henry and Elizabeth Co (COS) to refund the amount of
$30,000.00 in CUSTODIO’s favor. The
dispositive portion of the RTC’s decision reads:
“WHEREFORE, the Court hereby orders:
1. that the earnest money of $1,000.00 and P40,000.00 is hereby forfeited in favor of the defendants, and
2. the defendants are ordered to remit to plaintiff the peso equivalent of THIRTY THOUSAND ($30,000.00) U.S. DOLLARS, at the prevailing rate of exchange at the time of payment.
Costs against plaintiff.
SO ORDERED.”[3]
Not satisfied with the decision,
the COS appealed to the Court of Appeals which affirmed the decision of the
RTC. Hence, this appeal where the COS
assign as sole error the following:
PETITIONER RESPECTFULLY SUBMITS THAT
RESPONDENT COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND THE APPLICABLE DECISIONS OF THE SUPREME COURT.[4]
The COS argue that the Court of
Appeals erred in ruling that CUSTODIO could still exercise her option to pay
the balance of the purchase price of the property. The COS claim that CUSTODIO was in default since she failed to
pay after a demand was made by the petitioners in their March 15, 1985 letter[5]. The COS claim that they never granted CUSTODIO an
extension of time to exercise the “option” contrary to the finding of the Court
of Appeals that a thirty (30) day period of time was granted to her in their
August 8, 1986 letter[6]. Said period refers to another option which the COS
gave CUSTODIO to buy another piece of property and not the Beata property as
they could no longer hold the Beata property for CUSTODIO. In fact, said letter specifically states
that CUSTODIO lost her option to purchase the subject property; that the COS
were willing to apply the payments already made to the payment of the second
property; and that if CUSTODIO failed to purchase the second property within
thirty (30) days, she would forfeit her previous payments. Since CUSTODIO manifested her readiness to
exercise her option to pay the balance of the purchase price of the Beata
property and not the second property, her manifestation was no longer of any
legal effect as this option was no longer available to her. This being the case, the Court of Appeals
should have ruled that the COS properly rescinded their contract with CUSTODIO
over the Beata property pursuant to Article 1191[7] of the Civil Code and should have further ordered her
to pay them damages consequent to the rescission. Moreover, even assuming that they waived the deadline by
accepting the payment of $30,000.00 on January 26, 1986, CUSTODIO still failed
to pay the remaining balance of $70,000.00.
Her offer to pay the remaining balance came too late as the option given
to her had already been lost. In addition,
the Court of Appeals also erred in ordering the COS to return the $30,000.00
dollars since the August 8, 1986 letter warned CUSTODIO that if the she did not
exercise her option within thirty days, she would lose her option and other
rights and any payments made shall be forfeited. Finally, the COS claim that the Court of Appeals erred in not
granting them attorney’s fees when the law allows recovery therefor considering
that by the defendant’s act or omission, the plaintiff is compelled to litigate
with third persons or to incur expenses to protect his rights.[8]
The core issue is whether or not
the Court of Appeals erred in ordering the COS to return the $30,000.00 paid by
CUSTODIO pursuant to the “option” granted to her over the Beata property?
We rule in the negative.
The COS’ main argument is that
CUSTODIO lost her “option” over the Beata property and her failure to exercise
said option resulted in the forfeiture of any amounts paid by her pursuant to
the August letter.
An option is a contract granting a
privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from
that which the parties may enter into upon the consummation of the option. It must be supported by consideration.[9] An option contract conforms with the second paragraph
of Article 1479 of the Civil Code[10] which reads:
“Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.”
However, the March 15, 1985 letter[11] sent by the COS through their lawyer to the CUSTODIO
reveals that the parties entered into a perfected contract of sale and not an
option contract.
A contract of sale is a consensual
contract and is perfected at the moment there is a meeting of the minds upon
the thing which is the object of the contract and upon the price. From that moment the parties may
reciprocally demand performance subject to the provisions of the law governing
the form of contracts.[12] The elements of a valid contract of sale under Article
1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate
subject matter; and (3) price certain in money or its equivalent.[13] As evidenced by the March 15, 1985 letter, all three
elements of a contract of sale are present in the transaction between the
petitioners and respondent. CUSTODIO’s
offer to purchase the Beata property, subject of the sale at a price of
$100,000.00 was accepted by the COS.
Even the manner of payment of the price was set forth in the
letter. Earnest money in the amounts of
US$1,000.00 and P40,000.00 was already received by the COS. Under Article 1482[14] of the Civil Code, earnest money given in a sale
transaction is considered part of the purchase price and proof of the
perfection of the sale.[15]
Despite the fact that CUSTODIO’s
failure to pay the amounts of US$ 40,000.00 and US$ 60,000.00 on or before
December 4, 1984 and January 5, 1985 respectively was a breach of her
obligation under Article 1191[16] of the Civil Code, the COS did not sue for either
specific performance or rescission of the contract. The COS were of the mistaken belief that CUSTODIO had lost her
“option” over the Beata property when she failed to pay the remaining balance
of $70,000.00 pursuant to their August 8, 1986 letter. In the absence of an express stipulation
authorizing the sellers to extrajudicially rescind the contract of sale, the
COS cannot unilaterally and extrajudicially rescind the contract of sale.[17] Accordingly,
CUSTODIO acted well within her rights when she attempted to pay the remaining
balance of $70,000.00 to complete the sum owed of $100,000.00 as the contract
was still subsisting at that time. When
the COS refused to accept said payment and to deliver the Beata property,
CUSTODIO immediately sued for the rescission of the contract of sale and prayed
for the return of the $30,000.00 she had initially paid.
Under Article 1385[18] of the Civil Code, rescission creates the obligation
to return the things which were the object of the contract but such rescission
can only be carried out when the one who demands rescission can return whatever
he may be obliged to restore. This
principle has been applied to rescission of reciprocal obligations under
Article 1191 of the Civil Code.[19] The Court of Appeals therefore did not err in ordering
the COS to return the amount of $30,000.00 to CUSTODIO after ordering the
rescission of the contract of sale over the Beata property. We quote with approval the Court of Appeals’
decision to wit:
“Since it has been shown that the appellee who was not in default, was willing to perform part of the contract while the appellants were not, rescission of the contract is in order. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him, (Article 1191, same Code). Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest x x x x (Article 1385, same Code).
In the case at bar, the property involved has not been delivered to the appellee. She has therefore nothing to return to the appellants. The price received by the appellants has to be returned to the appellee as aptly ruled by the lower court, for such is a consequence of rescission, which is to restore the parties in their former situations.
No error was committed by the lower court when it did not award
attorney’s fees to the appellants for as has been shown, the appellee’s
complaint is not unfounded.”[20]
We cannot uphold the forfeiture
clause contained in the petitioners’ August 8, 1986 letter. It appears that such condition was
unilaterally imposed by the COS and was not agreed to by CUSTODIO. It cannot therefore be considered as part of
the contract of sale as it lacks the consent of CUSTODIO.[21]
Finally, the Court of Appeals did
not err in not awarding the COS attorney’s fees. Although attorney’s fees may be awarded if the claimant is
compelled to litigate with third persons or to incur expenses to protect his
interest by reason of an unjustified act or omission of the party from whom it
is sought[22], we find that CUSTODIO’s act clearly was not
unjustified.
WHEREFORE, the instant petition is hereby DENIED, and the
appealed decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.
[1] Ninth Division composed of the ponente, J.
Gloria C. Paras (Chairman); and the members, J. Cezar D. Francisco and J.
Buenaventura J. Guerrero, concurring.
[2] Decision,
pp. 3-4.
[3] Decision, p. 4.
[4] Petition,
p. 7; Rollo, p. 14.
[5] “March 15, 1985
Ms.
Adoracion Custodio
3919 Crofton
Way
So. San
Francisco,
California
94080
Dear Ms.
Custodio:
Subject: House and Lot at 316 Beata St.,
New Alabang
Village, Philippines
This has reference
to your offer to buy subject property for US$100,000.00 last 9 October 1984 and
was accepted by its owners, Mr. And Mrs. Henry L. Co, with the amount of
US$1,000.00 and P40,000.00 as “earnest monies” to be deducted at the close of
the escrow.
Per your
agreement, you should pay purchase price as follows:
US$
40,000.00 – on or before December 4, 1984
US$
60,000.00 – on or before January 5, 1985
The only
payment received was on the latter part of January 26, 1985 for US$ 30,000.00.
We wish to
inform your goodself that your delay and non-payment of the balances have
caused some financial expenses, opportunities lost and exchange losses.
We would
appreciate your kind attention and early settlement of this matter.
Very truly
yours,
LEOPOLDO D.
COTACO”
[6] “8 August 1986
Mrs. Adoracion R. Custodio
3919 Crofton Way
So. San Francisco
California 94080
Re: House and Lot at Alabang
Dear Mrs. Custodio:
We wish to advise in behalf of our clients, Mr. And Mrs. HENRY L. CO, that although you have lost your option to purchase their property at Beata St., Alabang, due to your failure to comply with your commitment. Another property, also at Alabang was recently shown to your Attorney-in-fact, Mrs. Trinidad Kalagayan, for her consideration.
As the other property cannot be reserved for you for an indefinite period, our clients are giving you thirty (30) days from receipt hereof whether or not to purchase it.
Should we not hear from you after that period, said property shall be offered for sale to other buyers.
In which case, your option and other rights including any payment made shall be forfeited.
Very truly yours,
APOLINARIO DALMACION &
ASSOCIATES
By:
LEOPOLDO D. COTACO”
[7] “Art.
1191. The power to rescind
obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between he fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing f a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with articles 1385 and
1388 and the Mortgage Law. (1124)”
[8] Petition, pages 7-14.; Rollo, pp. 14-21.
[9] Equatorial Realty Development, Inc. vs.
Mayfair Theater, Inc., 264 SCRA 483 at p. 505 [1996].
[10] Ang
Yu Asuncion vs. Court of Appeals, 238 SCRA 602 at 612 [1994].
[11] See
note 5, Supra.
[12] Article
1475, Civil Code.
[13] City
of Cebu vs. Heirs of Candido Rubi, G.R. No. 128579, April 29, 1999 at p. 7.
[14] “Art.
1482. Whenever earnest money is given
in a contract of sale, it shall be considered as part of the price and as proof
of the perfection of the contract. (1454a)”
[15] Lim vs. Court of Appeals, 263 SCRA 569 at p.
577 [1996].
[16] See note 6, Supra.
[17] Coronel vs. Court of Appeals, 263 SCRA 15 at
p. 35 [1996].
[18] “Art. 1385.
Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore. xxx”
[19] Arturo M. Tolentino. Civil Code of the
Philippines, Vol. IV, at p. 588.
[20] Decision,
p. 8.
[21] Article 1318, Civil Code- “There is no contract unless the
following requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.”
In relation to Article 1319, Civil Code – “Consent is
manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer. xxx”21
[22] Philippine National Bank vs. Court of
Appeals, 256 SCRA 44 at pp. 50-51 [1996].22