Spouses Francisco v. Honorable Court of Appeals
REITERATIONFacts
The Antecedents: Spouses Lorenzo and Lorenza Francisco (petitioners) entered into a Contract of Development with Engineer Bienvenido C. Mercado (respondent) for the development of a subdivision. Respondent agreed to undertake development at his expense, complete it within 27 months, and advance P200,000.00. In return, respondent would receive 50% of gross sales and manage sales exclusively and irrevocably. Respondent failed to submit monthly reports on collections. Petitioners hired another developer, Nicasio Rosales, Sr., within the contract period. Petitioners demanded an accounting and, later, instructed respondent to stop selling lots and collecting payments. Respondent secured an extension from the Human Settlements Regulatory Commission (HSRC) until July 30, 1987. Petitioners continued to demand compliance with reporting requirements and alleged respondent issued two types of receipts and had only completed 5% of development work. Respondent requested clarification on reporting formats or an audit, assuring he could account for proceeds and attributing delays to petitioners' interference. Petitioners granted respondent conditional authority to resume sales and collections, subject to strict conditions including a joint account and approval for withdrawals. Respondent informed HSRC that the conditional authority violated the Contract, specifically his exclusive sales management rights and withdrawal rights, and attributed delays to petitioners' interference and unjustified stoppage of sales. Procedural History: Respondent filed an action to rescind the Contract and for damages. Petitioners counter-argued that respondent breached the Contract by failing to finish development on time and by allegedly selling one lot to two buyers. The Regional Trial Court (RTC) ruled in favor of respondent, finding that petitioners breached the Contract first by hiring Rosales and interfering with respondent's work. The RTC declared respondent did not incur delay, as the HSRC extended the contract period and petitioners' actions hindered his performance. The RTC found the failure to submit monthly reports a slight infraction and the double sale charge unproven and immaterial. The RTC decreed rescission of the Contract and awarded damages to respondent. The Court of Appeals (CA) affirmed the RTC's decision, refusing to consider a supplemental agreement not formally offered in evidence by petitioners. The Petition: Petitioners filed a petition for review with the Supreme Court, assailing the CA's decision. They argued that delay was an issue, the contract was not extended, the CA erred in not considering the supplemental agreement, the non-submission of reports was a substantial breach, and the double sale was material. Petitioners sought reversal of the CA decision and prayed for damages.
Issue(s)
Whether the Court of Appeals erred in holding that delay is not an issue in this case and that the Contract of Development had not expired and was extended. Whether the Court of Appeals erred in holding that respondent was entitled to rescission due to petitioners' intervention with Nicasio Rosales, Sr., and in not considering the supplemental agreement. Whether the Court of Appeals erred in holding that respondent's non-submission of monthly collection reports was not a serious and substantial breach. Whether the Court of Appeals erred in holding that the alleged double sale was a peripheral issue. Whether the Court of Appeals erred in affirming the RTC decision instead of reversing it and awarding damages to petitioners.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, upholding the rescission of the Contract of Development and the award of damages to respondent, with modifications to the damages awarded. The Court deleted the awards for attorney's fees, temperate damages, and exemplary damages.
Ratio Decidendi
On the issue of delay and contract expiration: The Court held that delay was not an issue as the HSRC granted respondent an extension of time to complete the development work until July 30, 1987. Since the Contract had not expired at the time respondent filed the action for rescission, petitioners' defense that respondent did not finish the development work on time was without basis. The Court emphasized that the HSRC's extension was not contested by the petitioners, and the law at the time authorized HSRC to grant such extensions for subdivision projects. Therefore, respondent did not incur delay as the period granted him to fulfill his obligation. On the issue of petitioners' interference and the supplemental agreement: The Court found that petitioners hampered and interfered with respondent's development work by hiring another developer, Rosales, and by stopping respondent from selling lots and collecting payments, which were the primary source of development funds. In reciprocal obligations, neither party incurs delay if the other does not comply or is not ready to comply with their obligations. The Court refused to consider the supplemental Memorandum of Agreement because it was not formally offered in evidence before the trial court and petitioners failed to provide a satisfactory explanation for its absence. The Court noted that respondent's testimony regarding signing an amended agreement did not identify the specific document presented by petitioners. On the issue of non-submission of monthly reports: The Court reiterated the findings of the lower courts that respondent's non-submission of the monthly report was a slight infraction of the Contract and not a substantial and fundamental breach that would justify cancellation. The Court reasoned that a contract cancellation is not permitted for a casual breach, and the development work continued for over two years despite the lack of a monthly report. Furthermore, petitioners did not invoke Article X (3) of the Contract, which required a written notice of violation, and their letters did not mention the non-submission of reports as the reason for stopping respondent's sales activities. On the issue of double sale: The Court deemed it unnecessary to rule on the materiality of the alleged double sale, as the trial and appellate courts had already found that no double sale took place. The Court's role is generally limited to questions of law, and it does not typically re-examine factual findings unless there are compelling reasons, which were absent in this case. The findings of fact of the lower courts, which were affirmed by the Court of Appeals, became conclusive and binding upon the Supreme Court. On the award of damages: The Court modified the damages awarded by the trial court. It deleted the award of P50,000.00 in temperate damages for besmirched reputation, stating that moral damages, not temperate damages, are awarded for such injury. The Court also deleted the award of exemplary damages, finding no basis in the decisions that petitioners acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Finally, the Court deleted the award of attorney's fees, as the circumstances did not sufficiently show gross and evident bad faith on the part of the petitioners in demanding compliance with a contractual provision.
Main Doctrine
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply with what is incumbent upon him. It is only when one of the parties fulfills his obligation that delay by the other begins. Furthermore, a cancellation of a contract will not be permitted for a slight or casual breach; only a substantial and fundamental breach, which defeats the very object of the parties in making the contract, will justify a cancellation.