Cordero v. F.S. Management
REITERATIONFacts
The Antecedents: Petitioners and respondent entered into a contract to sell five parcels of land for P12,500,000.00. Respondent paid P500,000.00 as earnest money and P2,000,000.00 as partial down payment, but failed to pay the remaining P3,500,000.00 by April 30, 1995, and the balance thereafter. Petitioners sent a demand letter to revoke/cancel the contract, which was ignored. Procedural History: Petitioners filed a complaint for rescission of contract with damages. The Regional Trial Court (RTC) declared respondent in default, presented evidence ex parte, and rendered a decision rescinding the contract and ordering respondent to pay damages and attorney's fees. The Court of Appeals (CA) set aside the RTC decision, ordered the setting aside of the contract to sell without damages, and directed petitioners to return the amounts received from respondent. Petitioners' motion for reconsideration was denied. The Petition: Petitioners seek review of the CA decision, raising issues on the nature of the contract, the applicability of Article 1191 of the Civil Code for rescission, and the propriety of the award of damages.
Issue(s)
Whether the Court of Appeals erred in ruling on the nature of the contract despite it not being raised on appeal. Whether a contract to sell may be subject to rescission under Article 1191 of the Civil Code. Whether the Court of Appeals erred in setting aside the award of damages.
Ruling
The Supreme Court affirmed the Court of Appeals' decision with modification, ruling that the contract to sell was rendered ineffective due to the non-fulfillment of the suspensive condition (full payment). Article 1191 of the Civil Code on rescission is inapplicable. Petitioners are entitled to retain the payments made by respondent, consistent with Republic Act No. 6552 (Maceda Law).
Ratio Decidendi
On the issue of the Court of Appeals ruling on matters not raised on appeal: The Court held that appellate courts have the authority to rule on matters not assigned as errors if they are indispensable or necessary for a just resolution of the pleaded issues. In this case, the nature of the contract to sell and the propriety of rescission under Article 1191 were fundamental errors that affected the trial court's judgment, thus justifying the CA's consideration of these issues to arrive at a just decision. The Court cited several instances where appellate courts may consider unassigned errors, including those that are necessary for a complete resolution of the case or to serve the interest of justice. Therefore, the CA did not err in ruling on these matters. On whether a contract to sell may be subject to rescission under Article 1191 of the Civil Code: The Court clarified that under a contract to sell, the seller retains title until the full payment of the purchase price, which is a positive suspensive condition. The non-fulfillment of this condition does not constitute a breach of contract but an event that prevents the seller's obligation to convey title from arising. Consequently, the contract to sell becomes ineffective. Article 1191 of the Civil Code, which deals with rescission, presupposes an existing obligation, and thus cannot apply to a situation where the obligation has not yet arisen due to the non-happening of a suspensive condition. The Court cited Rayos v. Court of Appeals to support this distinction. On whether the Court of Appeals erred in setting aside the award of damages: The Court reiterated that in a contract to sell, the failure to make full payment of the purchase price is not a breach but an event that prevents the seller's obligation to convey title from arising. Therefore, the award of damages, including actual, moral, and exemplary damages, is not warranted in this case. The Court also found that the award of attorney's fees was not proper as none of the exceptions under Article 2208 of the Civil Code were present, and the policy of the law is not to put a premium on the right to litigate. Consequently, the CA correctly set aside the award of damages.
Main Doctrine
In a contract to sell, the full payment of the purchase price is a positive suspensive condition. Failure to pay prevents the seller's obligation to convey title from arising, rendering the contract ineffective. Article 1191 of the Civil Code on rescission does not apply. Instead, Republic Act No. 6552 (Maceda Law) governs, allowing the seller to cancel the contract and retain payments for industrial or commercial properties.