Goldenrod, Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: Pio Barreto and Sons, Inc. (BARRETO & SONS) owned 43 parcels of land mortgaged with UCPB. Facing imminent foreclosure, Goldenrod, Inc. (GOLDENROD) offered to buy the property. On May 25, 1988, GOLDENROD sent a letter agreeing to amendments regarding interest payment and removal of trusses, and enclosed P1 million as earnest money, to form part of the purchase price. The offer stipulated that payment would be effected upon execution of sale documents after reconsolidation of titles. Subsequently, BARRETO & SONS' assets, including the property, were transferred to Pio Barreto Realty Development, Inc. (BARRETO REALTY). The agreement with BARRETO REALTY involved GOLDENROD paying P24.5 million for the outstanding UCPB loan by June 30, 1988, and P20 million balance in installments within 3 years with 18% interest. GOLDENROD failed to pay the UCPB loan by the deadline and requested extensions, which were denied. BARRETO REALTY, pursuant to GOLDENROD's request, reconsolidated the 43 titles into two, incurring P250,000.00 in expenses. On August 30, 1988, GOLDENROD, through its agent Logarta Realty, informed BARRETO REALTY it could not proceed with the purchase due to UCPB's denial of its extension request and demanded a refund of the P1 million earnest money. The next day, BARRETO REALTY sold one lot to Asiaworld Trade Center Phils., Inc. (ASIAWORLD) for P23 million. On October 13, 1988, BARRETO REALTY conveyed the other lot to UCPB via dacion en pago, which UCPB then sold to ASIAWORLD for P24 million. GOLDENROD repeatedly demanded the return of the earnest money, which was unheeded. Procedural History: GOLDENROD filed a complaint with the Regional Trial Court (RTC) of Manila for the return of P1 million and damages. The RTC ruled in favor of GOLDENROD, ordering the return of P1 million with legal interest, P50,000.00 for unrealized profits, and P10,000.00 for attorney's fees, finding no written agreement for forfeiture and that the earnest money was part of the purchase price, thus its retention would constitute unjust enrichment. The Court of Appeals (CA) reversed the RTC decision and ordered the dismissal of the complaint. The Petition: GOLDENROD filed a petition for review with the Supreme Court, alleging that the CA erred in disregarding the RTC's finding that the earnest money should be returned, arguing that the absence of an express stipulation for forfeiture compels its return and that its retention would amount to unjust enrichment.
Issue(s)
Whether the earnest money given in a contract of sale, in the absence of a specific stipulation, can be retained by the seller as damages when the sale fails due to the buyer's fault; and whether the forfeiture of the earnest money in favor of the seller, when it was intended to form part of the purchase price, constitutes unjust enrichment.
Ruling
The Petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its successors and assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully paid, with costs against private respondents.
Ratio Decidendi
On the issue of earnest money, forfeiture, and unjust enrichment: The Court held that under Article 1482 of the Civil Code, earnest money given in a contract of sale is considered part of the purchase price and proof of the perfection of the contract. In this case, the petitioner clearly stated that the earnest money was intended to form part of the purchase price, and this was not objected to by the private respondents. Therefore, the parties could not have intended for the earnest money to be forfeited when the buyer failed to pay the balance, especially in the absence of a clear and express agreement to that effect. The Court reiterated the principle that the right to rescind contracts is not absolute and is subject to judicial scrutiny. In the case of University of the Philippines v. de los Angeles and Adelfa Properties, Inc. v. Court of Appeals, it was held that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. The Court noted that private respondents did not object to the rescission by petitioner. In fact, BARRETO REALTY proceeded to sell the property to another buyer, ASIAWORLD, the day after receiving the broker's letter rescinding the sale, and subsequently conveyed the other lot to UCPB, which also sold it to ASIAWORLD. This action by the private respondents, coupled with their failure to object to the rescission, suggests an admission of the veracity and validity of the rescinding party's claim. Article 1385 of the Civil Code mandates the return of the things that were the object of the contract, together with their fruits and interest, upon rescission. Therefore, by virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from private respondents, who then sold the property to other persons, BARRETO REALTY, as the vendor, had the obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received notice of rescission (August 30, 1988) until the date of payment. It would be inequitable for BARRETO REALTY to retain the P1,000,000.00 payment and also appropriate the proceeds from the subsequent sale to another buyer.
Main Doctrine
In a contract of sale where earnest money is given, it is considered part of the purchase price and proof of the perfection of the contract. If the buyer rescinds the sale without opposition from the seller, and the seller subsequently sells the property to a third party, the seller is obliged to return the earnest money with legal interest.