Jison v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioners spouses Newton and Salvacion Jison entered into a Contract to Sell with private respondent Robert O. Phillips & Sons, Inc. for a subdivision lot. Petitioners paid a down payment and monthly installments. Due to petitioners' failure to build a house as stipulated, their monthly amortization was increased. Petitioners subsequently failed to pay monthly installments on several due dates, although payments were eventually made and accepted. Private respondent sent notices reminding petitioners of the automatic rescission clause. Petitioners again failed to pay installments, leading private respondent to return a check and inform petitioners via letter that the contract was cancelled due to delinquency. Petitioners attempted to pay all overdue installments, but the tender was refused. Petitioners filed a complaint for specific performance, consigning the payments. Procedural History: The trial court dismissed the complaint, declared the contract cancelled, ordered forfeiture of payments, and ruled that the consignation and tender of payment were not valid. The Court of Appeals affirmed the trial court's decision. The Petition: Petitioners sought review of the Court of Appeals' decision, arguing substantial compliance, the invalidity of automatic rescission, and the iniquity of forfeiting all prior payments.
Issue(s)
Whether the Court of Appeals erred in holding that the contract to sell could be automatically rescinded and that the private respondent could unilaterally rescind the contract and reject the consignation of payments; and whether the petitioners had substantially complied with the terms of their agreement. Whether the Court of Appeals erred in holding that the forfeiture of all previous payments made by petitioners was contrary to law, iniquitous, and unconscionable.
Ruling
The Supreme Court modified the decision of the Court of Appeals, reducing the amount forfeited to fifty percent (50%) of the amount already paid, and affirmed the decision in all other respects. Private respondent was ordered to refund the excess amount to petitioners.
Ratio Decidendi
On the issue of substantial compliance, rescission, unilateral rescission, and rejection of consignation: The Court held that while the contract provided for automatic rescission upon failure to pay three or more consecutive monthly installments or to comply with other terms, judicial action for rescission is not always necessary if the contract allows for cancellation. However, even in cases of extrajudicial rescission, notice to the buyer is indispensable. The Court found that private respondent did provide notice of cancellation through a letter dated April 6, 1967, informing petitioners that the contract was cancelled. Therefore, the rescission was considered effective and operative against the petitioners, distinguishing the case from Palay, Inc. v. Clave where the buyer was not informed of the cancellation. The Court affirmed the validity of the rescission, noting that petitioners were informed of the cancellation. The rejection of the tender of payment was also deemed valid in light of the rescinded contract. The Court reiterated that resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court, and if impugned, it is subject to judicial determination. In this case, the court determined that the rescission was warranted. On the issue of forfeiture of payments: While upholding the validity of the rescission and forfeiture clause in the contract, the Court found the forfeiture of the entire amount paid to be iniquitous and unconscionable. Applying Article 2227 and Article 1229 of the Civil Code, the Court ruled that liquidated damages or penalties should be equitably reduced when they are iniquitous or unconscionable, or when the principal obligation has been partly or irregularly complied with. The Court reduced the forfeited amount to fifty percent (50%) of the amount already paid, considering that the possession of the lot reverted to the vendor and that the contract price was relatively small compared to the total payments made.
Main Doctrine
While a contract to sell may be validly rescinded extrajudicially for non-payment of installments, the forfeiture of all payments made, or a substantial portion thereof, may be equitably reduced by the courts if found to be iniquitous or unconscionable, applying the provisions on liquidated damages and penal clauses under the Civil Code.