Spouses Remedios Dijamco and Teodoro Dijamco v. Court of Appeals and Premiere Development Bank
REITERATIONFacts
The Antecedents: Spouses Remedios and Teodoro Dijamco (petitioners) obtained four loans from Premiere Development Bank (respondent). The dispute concerns Real Estate Loan No. 2084, secured by a mortgage over a parcel of land in Pasay City. Due to financial difficulties, petitioners failed to remit monthly amortizations for this loan, as well as for two other loans. Petitioners approached Atty. Araos, VP of the bank, who allegedly advised them to settle the smaller loans first and not worry about the ₱210,000.00 loan. The bank, however, alleged it was petitioners' scheme to use the collateral of the settled loans for another loan to pay off the fourth loan, which they failed to do. Procedural History: On March 6, 1983, the bank initiated extrajudicial foreclosure proceedings under Act 3135. A sheriff's sale was scheduled for October 6, 1983, but petitioners requested five successive postponements. On March 7, 1984, a Certificate of Sale was issued, indicating the property was sold at public auction to the bank as the highest bidder for ₱359,881.80. Petitioners failed to redeem the property within the redemption period. On June 11, 1986, petitioner Remedios Dijamco wrote to the bank's president, offering to repurchase the property. The letter proposed paying monthly interest of ₱13,478.00 on a principal of ₱622,095.00 as of May 30, 1986, with a grace period to repurchase within one year until May 30, 1987. A condition stipulated that failure to remit interest payments would automatically revoke the proposal without need of demand, and the bank could enforce its Writ of Possession. Another condition stated that failure to repurchase within the period would render all payments as rentals. The bank, through its president, conformed to this proposal. Petitioners paid six monthly remittances totaling ₱80,872.38 until January 1987, after which they discontinued payments, allegedly upon being informed by Atty. Araos that the amounts would not be deducted from the purchase price. Petitioners filed a complaint on May 13, 1988, seeking recovery of the property for ₱350,000 and damages, alleging fraud and undue advantage. The Regional Trial Court (RTC) dismissed the complaint for lack of merit, and the Court of Appeals (CA) affirmed the dismissal. The Petition: Petitioners seek review of the CA's decision affirming the RTC's dismissal of their complaint.
Issue(s)
Whether the June 11, 1986 agreement constituted a contract of sale or an option to purchase and a contract to sell. Whether petitioners were defrauded or subjected to undue advantage by the respondent bank. Whether petitioners are entitled to the reconveyance of the property and damages.
Ruling
The petition is denied for lack of merit. The Supreme Court affirmed the decision of the Court of Appeals, upholding the dismissal of the petitioners' complaint.
Ratio Decidendi
On the nature of the June 11, 1986 agreement: The Supreme Court held that the RTC and CA correctly dismissed the petitioners' complaint. The Court clarified that the June 11, 1986 agreement was not a contract of sale but rather a contract of option to purchase coupled with a contract to sell. Petitioners admitted that the bank validly acquired the property at the auction sale and that the agreement was entered into after the title was consolidated in the bank's name. The Court distinguished between a contract of sale, where title passes upon delivery, and a contract to sell, where ownership is reserved until full payment. In a contract of sale, non-payment is a negative resolutory condition, while in a contract to sell, full payment is a positive suspensive condition. The Court found that the agreement granted petitioners the right to repurchase within a year, provided they paid monthly interest, and that no transfer of ownership was effected. Crucially, the interest payments were not part of the repurchase price and would be treated as rentals in case of failure to repurchase, aligning with the characteristics of a contract to sell and an option to purchase. The Court cited Article 1479 of the Civil Code, stating that an accepted unilateral promise to buy or sell is binding if supported by a distinct consideration, which in this case was the monthly interest payment. On fraud and undue advantage: The Supreme Court found no evidence of fraud or undue advantage employed by the respondent bank. Petitioners voluntarily entered into the June 11, 1986 agreement. The Court noted that petitioner Remedios Dijamco herself testified that she realized the alleged unfairness of the interest payments after making them but continued to pay for six months. This conduct indicated an understanding and acceptance of the terms, negating claims of deception. The agreement was proposed by the petitioners and accepted by the bank, making it a binding contract between them. The consideration provided by the petitioners (monthly interest payments) was deemed fair and reasonable as it preserved their preferred right to purchase and their continued possession of the property. On entitlement to reconveyance and damages: The Supreme Court ruled that petitioners were not entitled to reconveyance of the property or damages. Their right of redemption had long expired before the June 11, 1986 agreement. The agreement itself contained an automatic revocation clause: failure to remit monthly interest payments would render the proposal automatically revoked without need of formal demand, allowing the bank to enforce its Writ of Possession. Petitioners paid interest for six months but then stopped. This non-compliance with the suspensive condition of timely payment led to the automatic revocation of the option to purchase and the rescission of the contract to sell, as stipulated in the agreement. The Court emphasized that a judicial action for rescission was unnecessary when the contract itself provided for automatic revocation upon violation of its terms. Furthermore, the interest payments made were consideration for the option and continued possession, not part of the purchase price, and thus could not be credited towards the repurchase price upon failure to exercise the option.
Main Doctrine
A contract granting the right to repurchase a foreclosed property within a specified period, conditioned upon monthly interest payments, constitutes a contract of option to purchase and a contract to sell, where failure to make timely interest payments results in the automatic revocation of the option and rescission of the contract to sell.