Spouses Cifra v. Court of Appeals
REITERATIONFacts
The Antecedents: This case concerns the interpretation of a contract to sell real property. On December 27, 1985, petitioners, represented by their attorney-in-fact, entered into an agreement with private respondent for the sale of a house and lot for P1.1 million. The agreement stipulated that the buyer would assume an existing mortgage with the Social Security System (SSS) and pay the balance upon the removal of the current tenant and the execution of a deed of absolute sale. An addendum to the agreement outlined penalties for either party backing out of the sale: if the buyer failed to purchase after notice of the tenant's surrender of the premises, the earnest money would be forfeited, and the buyer would pay P20,000.00 plus attorney's fees. Conversely, if the seller failed to sell after the tenant vacated, the seller would return the earnest money and pay the buyer P20,000.00 plus attorney's fees. Procedural History: On May 25, 1986, the petitioners attempted to rescind the contract, offering to return the earnest money. The private respondent, through his counsel, insisted on proceeding with the sale, even offering to buy the property while the tenant was still occupying it. After further correspondence and a lack of response from the petitioners, the private respondent filed an action for specific performance in the Regional Trial Court (RTC). The RTC ruled in favor of the private respondent, ordering the execution of the deed of sale and awarding moral damages and attorney's fees. The petitioners appealed to the Court of Appeals (CA), which affirmed the RTC's decision but deleted the award of moral damages. A motion for reconsideration by the petitioners was denied by the CA. The Petition: Petitioners seek review on certiorari of the CA's decision. They raise two main issues: first, whether the respondent buyer has the right to demand specific performance despite an addendum that arguably allowed the petitioners to cancel the sale by paying liquidated damages; and second, whether the award of attorney's fees is proper given the existence of a penal clause in the contract. Petitioners argue that the contract, particularly the addendum, permitted them to rescind the sale by paying the stipulated damages, and that the lower courts erred in ordering specific performance and awarding attorney's fees when the contract's terms and the parties' subsequent actions indicated an intent to allow for rescission under specific conditions.
Issue(s)
Whether the respondent buyer has the right to demand specific performance from the petitioners to sell the house and lot despite the addendum stipulation recognizing the right of the petitioners to cancel the sale by paying liquidated damages. Whether the award of attorney's fees is proper given that the obligation to sell, when breached, is subject to a penal clause considered a substitute for damages.
Ruling
The petition is granted. The decision of the Court of Appeals is reversed and set aside. The complaint is dismissed, and the contract to sell is rescinded upon petitioners reimbursing private respondent the P5,000.00 earnest money and paying P20,000.00 as damages, as per the agreement. No costs.
Ratio Decidendi
On the right to demand specific performance despite the addendum: The Court held that the literal meaning of the contract's stipulations shall control, especially when the terms are clear and leave no doubt about the parties' intention. The "Earnest Money" agreement, including its addendum, clearly outlined the rights and obligations of both parties in case of withdrawal from the transaction. The addendum provided that if the seller rescinded the contract, they must return the earnest money and pay P20,000.00 plus attorney's fees and costs to the buyer. Conversely, if the buyer failed to purchase after notification of the tenant's surrender, the earnest money would be forfeited, and the buyer would pay P20,000.00 plus attorney's fees and costs to the seller. The Court emphasized that this stipulation, considered the law between the parties, afforded both parties the freedom to back out of the transaction, irrespective of whether the tenant had vacated the premises. Therefore, the action for specific performance must fail because the petitioners were exercising their right to rescind as provided in the contract. On the award of attorney's fees: The Court found that the award of attorney's fees was not proper. The addendum stipulated that in case of litigation arising from the failure of either party to perform their obligations, the losing party would pay attorney's fees and costs. However, the Court noted that it was the private respondent who initiated the court case for specific performance as a result of the petitioners' rescission of the contract. Consequently, the petitioners incurred unnecessary expenses of litigation in defending themselves. Therefore, the private respondent, as the plaintiff who brought the case to court, should not be awarded attorney's fees, and the petitioners, who were compelled to litigate, should not be made to pay them. The Court's final ruling rescinded the contract and ordered the return of earnest money and payment of P20,000.00 in damages, but explicitly excluded attorney's fees.
Main Doctrine
Where a contract to sell real property contains an addendum allowing either party to withdraw from the transaction under specified conditions and penalties, the literal meaning of the stipulations shall control, and contemporaneous and subsequent acts of the parties shall be considered to ascertain their intention. If the contract clearly provides for the consequences of rescission by either party, these provisions shall govern, irrespective of the fulfillment of certain conditions like the vacation of the premises by a tenant.