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536 Phil. 1151


[ G.R. NO. 167213, October 31, 2006 ]




Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198, Decision[1] dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial Court (RTC) of Parañaque in Civil Case No. 97-067, and Resolution dated February 21, 2005 denying petitioners' motion for reconsideration.

On or about October 27, 1994,[2] petitioner Belen Cordero (Belen), in her own behalf and as attorney-in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny Boy Cordero and Ladylyn Cordero, entered into a contract to sell[3] with respondent, F.S. Management and Development Corporation, through its chairman Roberto P. Tolentino over five (5) parcels of land located in Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693, 62694, 62695 and 20987. The contract to sell contained the following terms and conditions:
  1. That the BUYER will buy the whole lots above described from the OWNER consisting of 50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00;

  2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which will entitle the latter to enter the property and relocate the same, construct the necessary paths and roads with the help of the necessary parties in the area;

  3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining balance will be paid within 18 mons. (sic) from the date of payment of P3.5 Million pesos in 6 equal quarterly payments or P1,411,000.00 every quarter;

  4. The title will be transferred by the OWNER to the BUYER upon complete payment of the agreed purchase price. Provided that any obligation by the OWNER brought about by encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER which shall be deducted the total purchase price;

  5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete payment if the BUYER can provide post dated checks which shall be in accordance with the time frame of payments as above stated and which shall be guaranteed by a reputable bank;

  6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the BUYER can occupy and introduce improvements in the properties as owner while owner is guaranteeing that the properties will have no tenants or squatters in the properties and cooperate in the development of any project or exercise of ownerships by the BUYER;

  7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the legal interest.[4]
Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the amount of P500,000 on October 27, 1994.[5] She likewise paid P1,000,000 on June 30, 1995 and another P1,000,000 on July 6, 1995. No further payments were made thereafter.[6]

Petitioners thus sent respondent a demand letter dated November 28, 1996[7] informing her that they were revoking/canceling the contract to sell and were treating the payments already made as payment for damages suffered as a result of the breach of contract, and demanding the payment of the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason thereof. Respondent ignored the demand, however.

Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her co-petitioners, filed before the RTC of Parañaque a complaint for rescission of contract with damages[8] alleging that respondent failed to comply with its obligations under the contract to sell, specifically its obligation to pay the downpayment of P3.5 Million by April 30, 1995, and the balance within 18 months thereafter; and that consequently petitioners are entitled to rescind the contract to sell as well as demand the payment of damages.

In its Answer,[9] respondent alleged that petitioners have no cause of action considering that they were the first to violate the contract to sell by preventing access to the properties despite payment of P2.5 Million Pesos; petitioners prevented it from complying with its obligation to pay in full by refusing to execute the final contract of sale unless additional payment of legal interest is made; and petitioners' refusal to execute the final contract of sale was due to the willingness of another buyer to pay a higher price.

In its Pre-trial Order[10] of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997 during which neither respondent's representative nor its counsel failed to appear. And respondent did not submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed the presentation of evidence ex parte by petitioners.[11]

Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on the execution of the contract to sell; the failure of respondent to make the necessary payments in compliance with the contract; the actual and moral damages sustained by petitioners as a result of the breach, including the lost opportunity to sell the properties for a higher price to another buyer, Ma. Cristina Cleofe; and the attorney's fees incurred by petitioners as a result of the suit.[12] Ma. Cristina Cleofe, on the other hand, testified on the offer she made to petitioners to buy the properties at P35.00/sq.m.[13] which was, however, turned down in light of the contract to sell executed by petitioners in favor of the respondent.[14]

Respondent filed a motion to set aside the order of default[15] which was denied by the trial court by Order dated September 12, 1997.[16] Via petition for certiorari, respondent challenged the said order, but it was denied by the Court of Appeals.[17]

Meanwhile, the trial court issued its decision[18] on November 18, 1997, finding for petitioners and ordering respondent to pay damages and attorney's fees. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the Defendant is hereby declared as rescinded and the defendant is likewise ordered to pay the plaintiff:

(1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and P2,000,000.00 in moral and exemplary damages, less defendant's previous payment of P2,500,000.00 under the contract to sell; and

(2) P800,000.00 by way of attorney's fees as well as the costs of suit.

SO ORDERED. (Underscoring supplied)
Before the Court of Appeals to which respondent appealed the trial court's decision, it raised the following errors:
3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million Pesos (P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in declaring defendant-appellant to have acted in wanton disregard of its obligations under the Contract to Sell.

3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million Pesos (P2,000,000.00) as moral and exemplary damages.

3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred Thousand Pesos (P800,000.00) as attorney's fees.[19]
In the assailed decision,[20] the Court of Appeals set aside the contract to sell, it finding that petitioners' obligation thereunder did not arise for failure of respondent to pay the full purchase price. It also set aside the award to petitioners of damages for not being duly proven. And it ordered petitioners to return "the amount received from [respondent]." Thus the dispositive portion of the appellate court's decision reads:
WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch 260 of Parañaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is ENTERED ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of damages. Plaintiffs-appellees are further ORDERED TO RETURN THE AMOUNTS RECEIVED from defendant-appellant. (Underscoring supplied)

Their motion for reconsideration having been denied, petitioners filed the present petition for review which raises the following issues:
  1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact that it was not raised on appeal.
  2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the Civil Code.
  3. Whether or not the Court of Appeals erred in setting aside the award of damages.
Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to sell and the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not having been raised by respondents in the assigned errors. In any event, petitioners claim that the contract to sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191.[21]

While a party is required to indicate in his brief an assignment of errors and only those assigned shall be considered by the appellate court in deciding the case, appellate courts have ample authority to rule on matters not assigned as errors in an appeal if these are indispensable or necessary to the just resolution of the pleaded issues.[22] Thus this Court has allowed the consideration of other grounds or matters not raised or assigned as errors, to wit: 1) grounds affecting jurisdiction over the subject matter; 2) matters which are evidently plain or clerical errors within the contemplation of the law; 3) matters the consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4) matters of record which were raised in the trial court and which have some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; 5) matters closely related to an error assigned; and 6) matters upon which the determination of a question properly assigned is dependent.[23]

In the present case, the nature as well as the characteristics of a contract to sell is determinative of the propriety of the remedy of rescission and the award of damages. As will be discussed shortly, the trial court committed manifest error in applying Article 1191 of the Civil Code to the present case, a fundamental error which "lies at the base and foundation of the proceeding, affecting the judgment necessarily," or, as otherwise expressed, "such manifest error as when removed destroys the foundation of the judgment."[24] Hence, the Court of Appeals correctly ruled on these matters even if they were not raised in the appeal briefs.

Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.[25]

Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the purchase price, Article 1191 of the Civil Code would have no application.

Rayos v. Court of Appeals[26] explained:
Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligations of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x

The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. [Emphasis and underscoring supplied; citations omitted]
The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price."[27] Since respondent failed to fully pay the purchase price, petitioners' obligation to convey title to the properties did not arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their obligation not having arisen.[28] This brings this Court to Republic Act No. 6552 (THE REALTY INSTALLMENT BUYER PROTECTION ACT). In Ramos v. Heruela[29] this Court held:
Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals,[30] the Court declared:
x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments x x x. [Emphasis supplied]
The properties subject of the contract having been intended for commercial, and not for residential, purposes,[31] petitioners are entitled to retain the payments already made by respondent. RA 6552 expressly recognizes the vendor's right to cancel contracts to sell on installment basis industrial and commercial properties with full retention of previous payments.[32] But even assuming that the properties were not intended for commercial or industrial purpose, since respondent paid less than two years of installments, it is not entitled to any refund.[33] It is on this score that a modification of the challenged issuances of the appellate court is in order.

Respecting petitioners' claim for damages, failure to make full payment of the purchase price in a contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that prevents the obligation of the vendor to convey title to the property from arising.[34] Consequently, the award of damages is not warranted in this case.

With regard to attorney's fees, Article 2208[35] of the Civil Code provides that subject to certain exceptions, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this case. It bears stressing that the policy of the law is to put no premium on the right to litigate.[36]

WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution dated February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the MODIFICATION that petitioners are entitled to retain the payments already received from respondent.


Quisumbing, (Chairperson), Carpio, and Velasco, Jr., JJ., concur.
Tinga, J., on leave.

[1] Penned by Associate Justice Jose C. Reyes, Jr. and concurred in by Associate Justices Portia Aliño-Hormachuelos and Josefina Guevara-Salonga.

[2] RTC records, p. 2; CA rollo, p. 39.

[3] Id. at 72-77.

[4] Id. at pp. 75-76.

[5] Id. at 189.

[6] Id. at 190.

[7] Id. at 87-89.

[8] Id. at 1-15.

[9] Id. at 24-30.

[10] Id. at 54.

[11] Id. at 69.

[12] Id. at 187-194.

[13] Id. at 90 & 194.

[14] Id. at 195.

[15] Id. at 101-106.

[16] Id. at 130-131.

[17] CA rollo, pp. 89-92.

[18] RTC Records, pp. 200-203.

[19] CA rollo, pp. 44-45.

[20] Id. at 150-166.

[21] Article 1191 of the Civil Code provides:

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 the 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 of 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.

[22] Hi-Tone Marketing Corporation v. Baikal Realty Corporation, G.R. No. 149992, August 20, 2004, 437 SCRA 121 citing Saura Import and Export Co., Inc. v. Philippine International Surety Co., Inc., No. L-15184, 31 May 1963, 8 SCRA 143; Miguel v. Court of Appeals, No. L-20274, 30 October 1969, 29 SCRA 760; Sociedad Europea de Financion, S.A. v. Court of Appeals, G.R. No. 75787, 21 January 1991, 193 SCRA 105; Larobis v. Court of Appeals, 220 SCRA 639, G.R. No. 104189, 30 March 1993; Logronio v. Talisco, 312 SCRA 52 (1999).

[23] Hi-Tone Marketing Corporation v. Baikal Realty Corporation, supra; Vide Mendoza v. Bautista, G.R. No. 143666, March 18, 2005, 453 SCRA 691.

[24] Mendoza v. Bautista, supra, citing 5 C.J.S. - 1239 Appeal and Error, p. 70.vvv[25]Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No.163075, January 23, 2006, 479 SCRA 462 .

[26] G.R. No. 135528, July 14, 2004 434 SCRA 365.

[27] RTC Records, p. 75.

[28] cf. Padilla v. Paredes, supra.

[29] G.R. No. 145330, October 14, 2005, 473 SCRA 79.

[30] G.R. No. 125347, 19 June 1997, 274 SCRA 467, citing the Resolution on Second Motion for Reconsideration, Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., No. L-25885, November 16, 1978, 86 SCRA 305.

[31] RTC Records, pp. 27 & 48.

[32] Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., supra.

[33] Section 4, RA 6552.

[34] Rayos v. Court of Appeals, supra; Leaño v. Court of Appeals, G.R. No. 129018, November 15, 2001, 369 SCRA 36; Lacanilao v. Court of Appeals, G.R. No. 121200, September 26, 1996, 262 SCRA 486.

[35] Article 2208 provides:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just a equitable that attorney's fees and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.

[36] Ramos v. Heruela, supra.

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