CKH Industrial and Development Corporation v. Court of Appeals
REITERATIONFacts
1. The Antecedents: This case concerns a dispute over the sale of two parcels of land owned by CKH Industrial and Development Corporation (CKH), represented by Rubi Saw, to Century-Well Phil. Corporation, owned in part by Lourdes Chong, Chong Tak Kei, and Chong Tak Choi. The sale was for P800,000.00. CKH, through Rubi Saw, sought to rescind the sale, alleging non-payment of the purchase price. The private respondents, however, claimed payment was made through a combination of P100,000.00 cash and P700,000.00 through the offsetting of debts owed by the deceased Cheng Kim Heng (husband of Rubi Saw and father of Chong Tak Kei and Chong Tak Choi) to his sons. 2. Procedural History: The petitioners, CKH and Rubi Saw, filed a civil action with the Regional Trial Court (RTC) of Valenzuela, Branch 172, seeking to annul or rescind the Deed of Absolute Sale. The RTC ruled in favor of the petitioners, ordering the rescission of the sale and awarding damages and attorney's fees. Upon appeal, the Court of Appeals (CA) reversed the RTC's decision, finding that payment was indeed made through compensation and ordering the petitioners to pay moral damages and attorney's fees to the private respondents. The CA dismissed the complaint. This decision of the CA is now under review. 3. The Petition: The petitioners, CKH Industrial and Development Corporation and Rubi Saw, have filed a petition for review on certiorari with the Supreme Court, assailing the decision of the Court of Appeals. They argue that the CA erred in finding that the purchase price was validly paid through compensation. The petitioners contend that the Deed of Absolute Sale, as written, does not provide for payment by compensation, and that the requirements for legal or conventional compensation under the Civil Code were not met, as the parties were not mutually creditors and debtors in their own right. They seek to have the CA's decision reversed and the RTC's decision reinstated, with modifications to the awarded damages and costs.
Issue(s)
Whether there was a valid payment of the consideration for the sale of the subject properties, including whether the alleged debts of the deceased Cheng Kim Heng to his sons could be validly compensated with the purchase price of the sale between CKH and Century-Well. Whether the Deed of Absolute Sale, which did not provide for payment by compensation, could be contradicted by parol evidence. Whether the rescission of the contract and modification of the RTC's award were proper.
Ruling
The Supreme Court granted the petition, reversed the decision of the Court of Appeals, and reinstated the decision of the Regional Trial Court, with modifications to delete the award of moral damages and attorney's fees to Rubi Saw and the order for payment of costs. The Court found that there was a failure of consideration, warranting the rescission of the Deed of Absolute Sale.
Ratio Decidendi
On the issue of valid payment of consideration and the validity of compensation: The Court held that there was no valid compensation. The Deed of Absolute Sale explicitly stated that the consideration of P800,000.00 was paid by the VENDEE to the VENDOR, and receipt was acknowledged to the vendor's entire satisfaction. However, the Court emphasized that the parol evidence rule, as provided in Section 9 of Rule 130 of the Rules of Court, prohibits the admission of evidence to contradict the terms of a written agreement, unless specific exceptions apply. The Deed of Sale did not provide for payment by way of compensation or offsetting of debts. The private respondents' claim that the P700,000.00 balance was to be offset against the alleged indebtedness of the deceased Cheng Kim Heng to his sons, Choi and Kei, contradicts the clear terms of the written deed. The Court reiterated that compensation requires that each of the obligors be bound principally and be at the same time a principal creditor of the other, which was not the case here. CKH, the vendor, was not indebted to Century-Well, the vendee, nor were Choi and Kei, the alleged creditors of Cheng Kim Heng, parties to the sale or principal debtors to CKH. The corporate personalities of Century-Well and its stockholders, Choi and Kei, are distinct, and there was no showing that the corporate veil should be pierced. Therefore, the alleged compensation was not valid under Article 1279 of the Civil Code. On the application of the parol evidence rule: The Court applied the parol evidence rule, stating that when the terms of an agreement have been reduced to writing, the writing is considered to contain all the terms agreed upon, and no evidence of other or different terms can be admitted to contradict it. The Deed of Absolute Sale clearly stated the consideration was paid and acknowledged receipt. The private respondents' attempt to prove that the payment was made through compensation, as opposed to the explicit terms of the deed, was an attempt to alter the written agreement. Since none of the exceptions to the parol evidence rule were sufficiently established, the terms of the written deed must prevail. The Court found that the private respondents failed to prove any intrinsic ambiguity, mistake, or failure of the agreement to express the true intent of the parties that would warrant the admission of parol evidence to alter the terms of the sale regarding payment. On the rescission of the contract and modification of the RTC's award: Based on the failure to establish a valid payment of the consideration, either in cash or through valid compensation, the Court found that there was a failure of consideration. Under Article 1191 of the Civil Code, the power to rescind contracts is given when one of the obligors fails to comply with what is incumbent upon him. In this case, the failure of the vendee to pay the stipulated price, as evidenced by the lack of valid compensation, entitled the vendor to seek rescission of the Deed of Absolute Sale. The RTC's finding of lack of payment was thus upheld. While reinstating the RTC's decision to rescind the sale, the Supreme Court deleted the award of moral damages and attorney's fees to Rubi Saw. The Court found no basis for such awards in the records presented. Similarly, the order for payment of costs was also deleted, with the parties to bear their respective costs.
Main Doctrine
The Supreme Court reversed the Court of Appeals, reinstating the Regional Trial Court's decision to rescind the Deed of Absolute Sale due to failure of consideration. The Court held that compensation, as a mode of extinguishing obligations, requires mutual creditors and debtors, which was not present in the offsetting of the purchase price with alleged debts owed by the corporation's deceased president to his sons, who were stockholders of the vendee corporation. The Court emphasized that the Deed of Absolute Sale, which did not provide for compensation, must be upheld under the parol evidence rule, absent any valid exception.