PACIENCIA A. DALEON[1] and G.R. No. 186094
CLARO EDUARDO D. JAVIER, JR.,
represented by their Attorney-in-Fact,
GLORIA BAYONA, AXEL LEONARD
DALEON, GINA DALEON, BENJAMIN
A. DALEON, JR., for himself and as
Attorney-in-Fact of NOELA DALEON
VELOSO, LUCY ANN DALEON-BREVA
and PETER A. DALEON,
Petitioners, Present:
CARPIO, J., Chairperson,
- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
MA.
CATALINA P. TAN, FIDEL P.
TAN and
MANUEL P. TAN, Promulgated:
Respondents.
August 23, 2010
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ABAD,
J.:
This
case is about the contractual right of the seller to forfeit the buyer’s
downpayment on the property sold because of the buyer’s refusal to pay
subsequent installments, which refusal had been prompted by a subsequent adverse
claim to the property.
The Facts and the Case
On
November 6, 1997 petitioners Paciencia A. Daleon, Claro Eduardo D. Javier, Jr.,
Axel Leonard Daleon, Gina Daleon, Benjamin A. Daleon, Jr. Noela Daleon Veloso,
Lucy Ann Daleon-Breva, and Peter A. Daleon (the Daleons), on the one hand, and the
respondents Ma. Catalina P. Tan, Fidel P.
Tan and Manuel P. Tan
(the Tans), on the
other, executed a contract to sell[2]
covering the Daleons’ 9.383-hectare of registered land at Ibabang Dupay, Lucena
City,[3] which
they owned pro indiviso,
for the price of P18.766 million.
The contract included a provision, inserted by hand as its paragraph 15-A, which stated that “in
the event that any of the checks paid by the [buyers] should [bounce], this
contract shall be rescinded and the [sellers] shall forfeit 50% of the amount
already paid by the [buyers], while the remaining 50% shall be returned x x x
or placed as outstanding lien [on] the said title.”[4]
Pursuant to the terms of their
agreement, the Tans gave the Daleons a downpayment of P10.861 million and
issued in their favor 12 postdated checks dated December 5, 1997 through
November 5, 1998 in the amount of P658,750.00 per check to cover the
remaining balance of P7.905 million.
On
November 14, 1997, eight days after the parties executed their agreement, one
Bartolome Sy caused to be annotated on the title to the property an adverse claim on the undivided share
of one of the Daleons. For this reason, the
Tans placed a stop payment order on their first postdated check and repeatedly
wrote the Daleons that, until the adverse claim on the property was canceled,
they were stopping payment on their checks.
They invoked their right as buyers in good faith to receive the property
free from all liens and encumbrances.
They also noted the Daleons’ misrepresentation regarding the clean
status of the property. On February 19,
1998 a Consulta was further annotated on the property’s title relative
to Bartolome Sy’s claim.
The
Daleons deposited the first three checks in their bank but these were returned
for the reason “SPO/DAIF” or “stop payment order/drawn against insufficient
funds.” Meanwhile, the Daleons succeeded
in getting a court order that directed the cancellation of Bartolome Sy’s
adverse claim on their title to the property.
They then deposited the other checks that the Tans gave them but these,
too, were returned for the reason “SPO/DAIF.”
On
March 18, 1998 the Tans wrote the Daleons, informing them that they were ready
to make good on their checks provided the Daleons presented to them a clean
title to the property. In addition, they
requested the Daleons to submit to them the documents specified in paragraph 9 of the contract to sell as
a prerequisite to the payment of the last two checks.[5] Meanwhile, the Tans’ stop payment order on
their checks remained in force.
On
October 3, 1998 the Tans wrote the Daleons, stating that the Tans had not yet received
from the Daleons any news about the status of the Bartolome Sy issue. The Tans gave the Daleons five days within
which to deliver the documents mentioned in paragraph 9 of the contract to
sell.
In
response, on November 18, 1998 the Daleons filed an action against the Tans for rescission of
their agreement and enforcement of the penalty
of forfeiture of half of what the Tans already paid pursuant to paragraph 15-A
of such agreement on the ground that the Tans’ breached its terms by placing a
stop payment order on the postdated checks.[6] The Daleons likewise filed a criminal
complaint for violation of the bouncing checks law or Batas Pambansa Bilang 22 (B.P. 22) against the Tans relative to the
dishonored checks.
The
Tans filed their answer with a counterclaim for unrealized income as a result
of their inability to use their downpayment of P10.861 million. They sought the award to them of specific
amounts of moral damages, exemplary damages, attorney’s fees, and expenses of
litigation.
While
the criminal complaint against the Tans did not prosper,[7]
the RTC rendered a decision in the rescission case against them dated February
26, 2007.[8] The RTC a) rescinded the contract to sell
between the parties; b) ordered the forfeiture in favor of the Daleons of P5,430,500.00
or 50% of what the Tans paid them; c) ordered the Daleons to return to the Tans
the remaining 50% or P5,430,500.00 or have this obligation inscribed as
an outstanding lien on the title; and d) ordered the Tans to pay the Daleons P250,000.00
in attorneys fees and expenses of litigation and to pay the costs.[9]
The
Tans appealed the case to the Court of Appeals (CA), which on May 29, 2008 rendered
a decision,[10]
reversing the RTC judgment, ordering the Daleons to return to the Tans the P10,861,000.00
the latter paid with legal interests of 6% per
annum from date of the filing of complaint until its full payment and
further ordering the Daleons to pay the Tans attorney’s fees and expenses of
litigation of P300,000.00 and to pay the cost of suit.
The
CA held in substance that in a contract to sell where the seller retains ownership
until the buyer pays the price in full, such full payment is a positive
suspensive condition. In this situation,
the buyer’s failure to pay the full price does not constitute a contractual breach,
but merely an event that prevents the seller from relinquishing ownership and
delivering the title. Thus, said the CA,
rescission is not available in such case; the buyer’s failure to complete
payment merely prevented the obligation of the seller to convey title.[11]
Following
this theory, the CA held that the Daleons can only cancel the contract to sell
but not rescind it. The Tans failure to
pay the balance of the purchase price merely resulted in setting aside the
contract to sell, placing the parties in the same situation as they were before
the execution of the contract to sell. Paragraph
15-A, said the CA, lost its efficacy as a result of this setting aside of the
contract to sell. Consequently, the Daleons
were duty bound to return the full amount of P10.861 million with 6%
interest per annum, on the principle
that no person shall unjustly enrich himself at the expense of another.
On
January 13, 2009 the CA denied the Daleons’ motion for reconsideration,[12]
prompting the latter to come to this Court.
The
Issue Presented
The
only issue presented in this case is whether or not the CA erred in ruling that
the Daleons were not entitled under the circumstances to rescind the contract
to sell and forfeit in their favor 50% of the Tans’ downpayment of P10.861
million pursuant to paragraph 15-A of that contract.
The
Court’s Ruling
The
Daleons point out that since the parties agreed to the insertion in their
contract to sell of paragraph 15-A, then its provisions should apply given that
the Tans’ checks covering subsequent payments were dishonored upon presentation
to the bank. The Tans cannot object to
the Daleons’ retention of 50% of the P10.861 million downpayment or P5,430,500.00
since this was what paragraph 15-A authorized.
Relying on the principle of mutuality of contracts, the Daleons claim
that no legal impediment stood in the way of implementing the provision since it
is not contrary to law, morals, good customs, public order, or public policy.
The
Court is not prepared to accept the CA’s reason for reversing the RTC decision
in the case. The Court has in a number
of cases affirmed the validity of this legal creature with an ominous name—forfeiture
of initial payments, provided the parties clearly agree on it. We said in Valarao v. Court of Appeals:[13]
As a general
rule, a contract is the law between the parties. Thus, “from the moment the
contract is perfected, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all consequences which,
according to their nature, may be in keeping with good faith, usage and law.”
Also, “the stipulations of the contract being the law between the parties,
courts have no alternative but to enforce them as they were agreed [upon] and
written, there being no law or public policy against the stipulated forfeiture
of payments already made.” However, it must be shown that private
respondent-vendee failed to perform her obligation, thereby giving
petitioners-vendors the right to demand the enforcement of the contract.
We concede the
validity of the automatic forfeiture clause, which deems any previous payments
forfeited and the contract automatically rescinded upon the failure of the
vendee to pay three successive monthly installments or any one yearend lump sum
payment. However, petitioners failed to
prove the conditions that would warrant the implementation of this clause.[14]
But
a forfeiture clause in a contract of sale, which in a sense is punitive and
confiscatory, is to be construed strictissimi juris[15] and, in resolving a controversy involving it,
the principles of equity must apply to the end that exact justice is achieved.[16]
Here,
the Daleons assumed that they were ready to hand over a clean title to the Tans
had the latter not placed a stop payment order on their checks. This was not the case. The Tans had to place that stop payment for a
valid reason. They agreed to buy the
property believing that the seller’s title was unblemished by any lien or unfavorable
claim. Bartolome Sy’s adverse claim,
which came shortly after the execution of the contract and the initial payment
to the Daleons of P10.861 million, was certainly distressing. Its annotation on the title served as warning
to third parties like the Tans that someone claimed an interest or a better
right to the property than the registered owner.[17] Certainly, the Tans were justified in placing
a stop payment order on their checks to avoid greater loss since it may be
assumed that they did not want to buy such an expensive property that had a
cloud on its title.
Besides,
the Tans had the right to hold the Daleons to their warranties as sellers under
Article 1547 of the Civil Code[18]
that the property was free from charges or encumbrances not known to the buyers.
Further, Article 1545 of the Code
provides that “where the ownership in the thing has not passed, the buyer may
treat the fulfillment by the seller of his obligation to deliver the same as
described and as warranted expressly or by implication in the contract of sale
as a condition of the obligation of the buyer to perform his promise to accept
and pay for the thing.” The Daleons deposited
the initial checks issued to them before they filed a belated action to have
the adverse claim removed from their title.
More, they ignored the Tans’ repeated demand to know what they were
doing regarding that claim.
In
Tan v. Benolirao,[19] the
buyer of land in a contract to sell refused to pay the balance of the purchase
price because of the sudden appearance of an annotation on the sellers’ title, judicially
placed by excluded co-heirs, thus creating a legal lien on the property in
favor of such co-heirs. The Court held
that, because of the annotation, the sellers could no longer compel the buyer
to pay the balance of the purchase price since they could not fulfill their
obligation to transfer a clean title to the latter. The Court held that the buyer’s refusal to
pay the balance cannot justify the sellers’ forfeiture of his downpayment. Thus:
We, therefore,
hold that the contract to sell was terminated when the vendors could no longer
legally compel Tan to pay the balance of the purchase price as a result of the
legal encumbrance which attached to the title of the property. Since Tan’s refusal to pay was due to the supervening
event of a legal encumbrance on the property and not through his own fault or
negligence, we find and so hold that the forfeiture of Tan’s down payment was
clearly unwarranted.[20]
The
above ruling in Tan applies to the
present case.
Although
the Daleons later on successfully dealt with Sy’s adverse claim, they failed and
refused to inform the Tans about it despite the latter’s several written demands
for the Daleons to update them on the issue.
Apparently, although the Tans were still interested in consummating the
sale, the Daleons interest was in keeping their land and forfeiting 50% of the Tan’s
downpayment of P10.861 million. Thus,
instead of seeing the sale through to its end—which was then within reach—the Daleons
took what they thought was a promising prospect offered by paragraph 15-A. The Court cannot, however, tolerate such
covetousness.
As
to the rate of interest that may be awarded on the obligation to return the
downpayment made in this case, the Court takes bearing from the decision in Trade & Investment Development
Corporation of the Philippines v. Roblett Industrial Construction Corporation.[21] Thus, when as in this case an obligation –
not constituting a loan or forbearance of money – is breached, the court may
impose interest on the damages awarded (the return of the downpayment made) at
the rate of 6% per annum. But such interest cannot be adjudged except
when the demand to return the downpayment can be established with reasonable
certainty. Here, such demand may be found
in the counterclaim that the Tans filed in the action against them on January
12, 1999.
The
Court also held that, when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
WHEREFORE, the
Court DENIES the petition and AFFIRMS the decision dated May 29,
2008 and resolution dated January 13, 2009 of the Court of Appeals in CA-G.R. CV 89223 but with MODIFICATION on the interest that petitioners
Paciencia A. Daleon, Claro Eduardo D. Javier, Jr., Axel Leonard Daleon, Gina
Daleon, Benjamin A. Daleon, Jr., Noela Daleon Veloso, Lucy Ann Daleon-Breva,
and Peter A. Daleon are to pay the respondents Ma. Catalina P. Tan, Fidel P. Tan, and Manuel P. Tan on the sum of P10.861
million that the former are to return to the latter. Such interest shall be at the rate of 6% per annum from the date the Tans filed
their counterclaim in the case or from January 12, 1999 and at the rate of 12% per annum based on the accrued amount, from
the time the judgment of this Court becomes final and executory until the
obligation is fully satisfied.
SO
ORDERED.
ROBERTO A. ABAD
Associate Justice
WE
CONCUR:
ANTONIO T. CARPIO
Associate Justice
ANTONIO
EDUARDO B. NACHURA DIOSDADO M. PERALTA
Associate Justice Associate Justice
JOSE CATRAL
Associate Justice
ATTESTATION
I attest that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution and the Division Chairperson’s Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.
RENATO
C. CORONA
Chief Justice
[1]
Also referred to as Pacencia A. Daleon in some parts of the records.
[2]
Rollo, pp. 32-38.
[3]
Covered by Transfer Certificate of Title (TCT) T-80623.
[4]
Rollo, p. 36.
[5] 9. That in addition to
consideration stated in the preceding paragraph, the SECOND PARTY (respondents)
is given the right to stop the payment of the last two (2) checks herein
above-identified without any liability to the FIRST PARTY (petitioners) until
the latter has completed the submission of the following documents to the
SECOND PARTY:
a. Certified Copy of the Death
Certificates of Socorro A. Daleon and Benjamin A. Daleon;
b. Original Copy of the Special Power
of Attorney constituted in favor of BENJAMIN DALEON, JR. by the heirs of
Benjamin Daleon;
c. Original Copy of the Extra-Judicial
Settlement of the Estate of Benjamin A. Daleon;
d. Original Copy of the Extra-Judicial
Settlement of the heirs of Socorro A. Daleon;
e. Original Copy of the Waiver of the
Tenants of the property;
f. Sworn undertaking of all the
co-owners respecting their aggregate landholding;
g. Original Receipts of Updated Tax
Payments;
h. Original Tax Declaration for TCT
No. T-80623;
i. BARC Clearance;
j. Original Special Power of Attorney
duly executed by CLARO EDUARDO JAVIER, JR. before the Consular Official of the
Philippine Embassy or before a duly appointed NOTARY PUBLIC in
[6]
Civil Case 98-164 entitled “Paciencia Daleon, et al. v. Ma. Catalina Tan, et
al.,”
[7]
In a Resolution dated January 6, 2001, the Daleons’ complaint for
violation of B.P. 22 in I.S. 2000-1032 was dismissed by the Lucena City
Prosecutor’s Office on the ground that the 12 postdated checks issued were
sufficiently funded, contrary to the Daleons’ claim that the accounts from
which they were drawn had insufficient funds.
[8]
Rollo, pp. 97-106.
[9]
[10]
[11] Rivera v. Del Rosario, 464 Phil. 783, 801 (2004); Leaño v. Court of Appeals, 420 Phil.
836, 846 (2001); Ong v. Court of Appeals,
369 Phil. 243, 253-254 (1999); Roque v.
Lapuz, 185 Phil. 525, 537 (1980); Manuel
v. Rodriguez, 109 Phil. 1, 10 (1960).
[12]
Rollo, pp. 191-192.
[13]
363 Phil. 495 (1999).
[14]
[15]
Carpenter v. Blanford, 8 B.
& C., 575, 108
[16]
Gray v. Maier etc. Brewery, 2
Cal.App. 653, [84
[17]
Sajonas v. Court of Appeals,
327 Phil. 689, 701-702 (1996).
[18]
Article 1547. In a contract of sale, unless a contrary intention
appears, there is:
(1) An implied warranty on the part of the seller that he
has the right to sell the thing at the time when the ownership is to pass, and
that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing;
(2) An implied warranty that the thing shall be free from
any hidden faults or defects, or any charge or encumbrance not declared or
known to the buyer.
This article shall not, however,
be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other
person professing to sell by virtue of authority in fact or law, for the sale
of a thing in which a third person has a legal or equitable interest.
[19]
G.R. No. 153820, October 16, 2009, 604 SCRA 36.
[20]
[21]
G.R. No. 139290, November 11, 2005, 474 SCRA 510.