Dumlao v. Marlon Realty Corporation
REITERATIONFacts
The Antecedents: Spouses Elvira and Cesar Dumlao (petitioners) entered into a Contract to Sell with Marlon Realty Corporation (respondent) for a lot worth ₱218,000.00. Petitioners paid ₱61,000.00 as downpayment, with the balance of ₱157,000.00 to be paid with 24% annual interest within six months. Urban Bank approved petitioners' loan of ₱148,000.00, but release was conditioned on the registration of the mortgage lien and the execution of a deed of absolute sale by the respondent. On November 26, 1992, the parties executed a Compromise Agreement where petitioners agreed to pay ₱38,203.33 in accrued interest by March 26, 1993, and respondent agreed to execute a Deed of Sale. Petitioners paid ₱9,000.00 as buyer's equity. Respondent executed the Deed of Sale on December 1, 1992, but petitioners refused to pay the agreed interest despite demands. Procedural History: Respondent filed a complaint for a sum of money against petitioners. The Metropolitan Trial Court (MTC) dismissed the complaint, holding it was for specific performance cognizable by the Regional Trial Court (RTC). The RTC affirmed the dismissal, not for lack of jurisdiction, but for lack of cause of action. The Court of Appeals (CA) reversed the RTC and MTC, ordering petitioners to pay ₱109,929.79 in accumulated interests as of January 6, 1995, with 2% monthly interest thereafter. The Petition: Petitioners seek review of the CA's decision, arguing they are not liable for interest because the loan proceeds were released directly to the respondent and no interest should accrue pending release.
Issue(s)
Whether petitioners are liable to pay interest on the balance of the purchase price under the Contract to Sell and Compromise Agreement. Whether the CA erred in reversing the RTC and MTC decisions.
Ruling
The petition is denied. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 43366 are affirmed. Petitioners are ordered to pay the sum of ₱109,929.79 representing the accumulated interests as of January 6, 1995, with interest at 2% per month computed from January 6, 1995.
Ratio Decidendi
On whether petitioners are liable to pay interest on the balance of the purchase price: The Supreme Court held that petitioners are liable to pay interest on the balance of the purchase price. Obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith. The terms of the Contract to Sell were clear and unambiguous, explicitly stating that the balance of ₱157,000.00 shall be paid with interest at 24% per annum. Petitioners, having signed the contract, are bound by its terms and conditions. The Court reiterated that the contract is the law between them. The fact that the loan proceeds were intended to be released through Urban Bank or that a deed of sale was executed does not negate the petitioners' obligation to pay the stipulated interest. The respondent, by executing the deed of sale and facilitating the transfer of title, fulfilled its part of the bargain, necessitating the petitioners' fulfillment of their obligation to pay the accrued interest. The Compromise Agreement further solidified this obligation by acknowledging and agreeing to pay accrued interest. On whether the CA erred in reversing the RTC and MTC decisions: The Supreme Court found that the CA did not err in reversing the decisions of the lower courts. The MTC and RTC dismissed the complaint on grounds of jurisdiction and cause of action, respectively. However, the CA correctly characterized the respondent's complaint as one for a sum of money, arising from the breach of the Contract to Sell and the Compromise Agreement. The CA's determination that the Contract to Sell constituted a "unilateral acknowledgment of an existing debt" on the part of the petitioners, particularly concerning the accrued interest, was consistent with the contractual stipulations. The appellate court's order for petitioners to pay the accumulated interests, with subsequent monthly interest, was a proper application of the contractual terms and the principles of contract law. Therefore, the CA's reversal and setting aside of the MTC and RTC judgments were justified.
Main Doctrine
The terms of a contract to sell, when clear and unambiguous, are the law between the parties and must be complied with in good faith. Interest stipulated in the contract accrues on the balance of the purchase price as agreed, regardless of the source of funds for payment or the execution of a deed of sale.