Villanueva v. Gonzaga
REITERATIONFacts
The Antecedents: Petitioners Generoso and Raul Villanueva, Jr. (SECOND PARTY) entered into a Memorandum of Agreement (MOA) with the Estate of Gerardo L. Gonzaga, represented by its Administratrix Ma. Villa J. Gonzaga (FIRST PARTY), for the purchase of 3,240 sq. meters of land for P486,000.00. The property was mortgaged to the Philippine National Bank (PNB). The MOA stipulated that the FIRST PARTY shall cause the release of the lots from the PNB at the earliest possible time, and payment of the balance by the SECOND PARTY was conditioned upon the approval by the PNB of the release of the lots. Petitioners paid P291,600.00 (60% of the price) and introduced improvements. Petitioners requested to use the premises for the milling season, but the Administratrix refused, demanding full payment. Petitioners expressed readiness to pay the balance but demanded the release of the lots from the mortgage. On April 10, 1991, the Administratrix, citing PNB's approval of partial release (dated April 8, 1991), demanded payment of the balance. Petitioners, however, demanded to see the clean titles first. On May 28, 1991, the Administratrix rescinded the MOA. Procedural History: Petitioners filed a complaint for breach of contract, specific performance, and damages, alleging respondents' delay in securing the release of the lots. The RTC-Bacolod City declared the MOA rescinded, ordered petitioners to pay moral damages and attorney's fees, and ordered respondents to refund the payments made by petitioners with legal interest. The Court of Appeals affirmed the rescission but deleted the award for moral damages. The Petition: Petitioners seek review of the Court of Appeals' decision, arguing that respondents failed to comply with their reciprocal obligation to secure the release of the lots, making the demand for payment and subsequent rescission premature.
Issue(s)
Whether respondents failed to comply with their reciprocal obligation of securing the release of the subject lots from mortgage indebtedness with the Philippine National Bank. Whether the delivery of the titles corresponding to the twelve (12) lots subject of the Memorandum of Agreement is a precondition to the payment by the petitioners of the balance of the consideration. Whether petitioners incurred delay in the performance of their reciprocal obligation under the Memorandum of Agreement. Whether there is legal, or even a factual, ground for the rescission of the Memorandum of Agreement.
Ruling
The petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE. The Deed of Rescission dated May 28, 1991 is declared of no legal effect. Petitioners and respondents are restored to the status quo ante before the execution of the Deed of Rescission.
Ratio Decidendi
On the failure to comply with the reciprocal obligation: The Court found that respondents failed to comply with their obligation to secure the release of the lots from the PNB mortgage at the time they demanded payment. The PNB's letter of approval (Exhibit "3-B") was conditional, requiring court approval, payment of amortizations and a portion from the sale, and compliance with other terms. The PNB's Assistant Manager testified that final release papers were only prepared in July 1991, after respondents complied with the conditions. Therefore, the demand for payment in April 1991 and the subsequent rescission in May 1991 were premature. On the delivery of titles as a precondition: The Court held that while the MOA did not explicitly state that the delivery of clean titles was a precondition, the payment of the balance by petitioners was conditioned upon the PNB's approval of the release of the lots from mortgage. The MOA stipulated that a deed of absolute sale would be executed only upon release of the lots and payment of the balance. Petitioners could not be compelled to pay the balance until the suspensive condition of the lots' release from mortgage was met by the respondents. On whether petitioners incurred delay: The Court ruled that petitioners did not incur delay. Delay in the performance of an obligation occurs when the obligor fails to perform his obligation within the time fixed by the contract, or when he fails to perform it in due time. In this case, petitioners' obligation to pay the balance was conditioned upon the release of the lots from the mortgage. Since respondents failed to secure this release within a reasonable time, and their demand for payment was premature, petitioners could not be considered in delay. On the legal ground for rescission: The Court found no legal basis for the rescission of the MOA. The MOA was classified as a conditional contract to sell, not a contract of sale. In a contract to sell, ownership remains with the vendor until full payment, and non-payment is a suspensive condition. The remedy of rescission under Article 1191 of the Civil Code applies to breaches of faith that violate reciprocity, but it does not apply to contracts to sell where the vendor remains the owner until the condition is met. The Court reiterated that in a contract to sell, if the vendor ejects the vendee for failure to meet the condition, the vendor is enforcing the contract, not rescinding it. Since the condition (release from mortgage) was not met by the respondents, their rescission of the MOA was without legal basis.
Main Doctrine
A demand for payment of the balance of the purchase price and subsequent rescission of a contract to sell are premature and without legal basis if the vendor has not yet fulfilled its suspensive condition of securing the release of the property from mortgage, as stipulated in the agreement.