Kwong v. Gargantos
REITERATIONFacts
The Antecedents: Petitioner William G. Kwong sold fifteen (15) lots to respondents under an unnotarized Deed of Conditional Sale for $137,255.00, payable in installments. Respondents initially paid $10,000.00, with the balance due on December 15, 1986. Respondents failed to pay the balance, and a subsequent agreement for staggered payments starting March 1989 also resulted in non-compliance. Petitioner sent demand letters. On May 1, 1990, respondent Anacleto Gargantos, through his brother Atty. Ramon Gargantos (armed with a Special Power of Attorney), paid ₱1,776,200.00. Subsequently, petitioner and Atty. Gargantos executed a notarized Deed of Absolute Sale for 11 lots for ₱500,000.00, and Atty. Gargantos executed a Promissory Note for ₱373,074.95 for the remaining four lots, payable on or before June 30, 1990. Respondent Gargantos again failed to pay the balance, leading to further demand letters. Respondent Gargantos, through counsel, claimed petitioner failed to transfer the titles to the 11 lots prior to the payment of the balance. Petitioner then filed a complaint for rescission of the Deed of Conditional Sale and forfeiture of payments. Procedural History: The Regional Trial Court (RTC) ruled that respondents failed to comply with both the Deed of Conditional Sale and the Promissory Note. It found no novation, as the parties continued to recognize the validity of the conditional sale and the absolute sale was executed without the consent of all respondents. The RTC also found the Deed of Absolute Sale unenforceable as Atty. Gargantos exceeded his powers. The RTC granted rescission, ordering petitioner to refund one-half of the payments made, with respondents forfeiting the other half. The Court of Appeals (CA) reversed the RTC decision, holding that the Deed of Absolute Sale and Promissory Note superseded the Deed of Conditional Sale, thus petitioner had no right to rescind. The CA dismissed petitioner's complaint. The Petition: Petitioner filed a petition for review, arguing that the CA erred in holding that the Deed of Absolute Sale superseded the Deed of Conditional Sale.
Issue(s)
Whether the Deed of Conditional Sale has been superseded by the Deed of Absolute Sale and the Promissory Note. Whether petitioner is entitled to rescind the Deed of Conditional Sale.
Ruling
The petition is denied. The Decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of whether the Deed of Conditional Sale has been superseded by the Deed of Absolute Sale and the Promissory Note: The Court held that novation occurred, extinguishing the Deed of Conditional Sale. Novation requires an express declaration or incompatibility between the old and new obligations. The Deed of Conditional Sale and the Deed of Absolute Sale are of different natures and provide distinct obligations; they cannot co-exist. A conditional sale retains ownership with the vendor until full payment, while an absolute sale transfers title upon delivery. The execution of the Deed of Absolute Sale for 11 lots, even without full payment for all 15 lots, indicated the parties' intention to enter into a new agreement and discard the old one. The subsequent agreements segregated the sale of the 11 lots and addressed the remaining four lots through the Promissory Note. The Court emphasized that the parties' actions and contemporaneous agreements, including the Deed of Absolute Sale and Promissory Note drafted by petitioner's counsel, clearly demonstrated their intention to supplant the Deed of Conditional Sale. The Court noted that the parties' evident intentions, as reflected in their subsequent actions and agreements, must prevail over the literal meaning of the stipulations if there appears to be a contradiction. On the issue of whether petitioner is entitled to rescind the Deed of Conditional Sale: Since the Deed of Conditional Sale had ceased to exist due to novation, there was nothing left to rescind. The Court found that the Deed of Absolute Sale and the Promissory Note were intended to replace the Deed of Conditional Sale, effectively closing the transaction for the 11 lots and leaving only the Promissory Note for the remaining four lots. Petitioner's attempt to rescind the original contract was therefore without basis. The Court also noted that petitioner could not be compelled to deliver the titles to the 11 lots as the respondents did not appeal the CA's dismissal of their counterclaim.
Main Doctrine
The execution of a Deed of Absolute Sale and a Promissory Note, which are incompatible with the terms of a prior Deed of Conditional Sale, constitutes novation, thereby extinguishing the original obligation and precluding rescission of the Deed of Conditional Sale.