Congregation of the Religious of the Virgin Mary v. Orola
REITERATIONFacts
The Antecedents: Respondents (Orolas) agreed to sell a property to petitioner (Congregation of the Religious of the Virgin Mary - RVM) for P5,555,000.00. A Contract to Sell was executed, with RVM paying a 10% down payment of P555,500.00. Respondents executed an extrajudicial settlement of estate to facilitate the transfer of title to their names. Respondents presented an undated Deed of Absolute Sale and scheduled a meeting to finalize the sale and receive the remaining balance. However, RVM rebuffed their attempts to conclude the sale. Procedural History: RVM denied demand for payment, citing that the Contract to Sell was signed only as a witness by Sr. Enhenco, not by the head of the corporation sole, and that RVM could only pay the balance in two years. Respondents filed a complaint for Specific Performance or Rescission with Damages. The Regional Trial Court (RTC) ruled that a perfected contract of sale existed and ordered rescission, forfeiture of the down payment, and payment of exemplary damages and attorney's fees. The Petition: Both parties appealed. The Court of Appeals (CA) dismissed respondents' appeal but granted RVM's appeal, setting aside the RTC decision. The CA found a perfected contract of sale but, unable to ascertain the terms of payment, applied rescission as a subsidiary remedy. However, the CA ultimately ordered specific performance, directing RVM to pay the balance of P4,999,500.00 with 6% interest per annum from June 7, 2000, and ordered respondents to deliver the title and execute necessary documents. The CA dismissed all other claims and counterclaims. RVM filed a petition for review on certiorari, questioning the imposition of interest.
Issue(s)
Whether RVM is liable for interest on the balance of the purchase price. Whether the CA erred in applying Articles 1383 and 1384 of the Civil Code.
Ruling
The petition is DENIED. The order granting specific performance and payment of the balance of the purchase price plus six percent (6%) interest per annum from June 7, 2000, until complete satisfaction is AFFIRMED. Costs against petitioner.
Ratio Decidendi
On whether RVM is liable for interest on the balance of the purchase price: The Court affirmed the CA's imposition of interest. It reiterated the lower courts' finding of a perfected contract of sale. RVM breached this contract by refusing to pay the balance of the purchase price even after the title was transferred to respondents' names and the supposed two-year period for payment had long passed. The Court clarified that damages, which can include interest, are awarded in cases of breach of reciprocal obligations, whether the remedy chosen is fulfillment or rescission, as mandated by Article 1191 of the Civil Code. Article 2210 of the Civil Code explicitly allows for the discretion of the court to award interest upon damages for breach of contract. Therefore, the imposition of interest was a correct measure to cover damages caused to respondents by RVM's breach. On whether the CA erred in applying Articles 1383 and 1384 of the Civil Code: The Court agreed that the CA erred in applying Articles 1383 and 1384 of the Civil Code. It clarified that the respondents' cause of action was predicated on Article 1191 of the Civil Code, which deals with rescission for breach of reciprocal obligations, not rescission under Article 1381 et seq. which is a subsidiary remedy based on lesion or economic prejudice. The Court distinguished that rescission under Article 1191 is a principal action, not subordinated to other legal means, and is retaliatory in character due to a breach of faith. The CA's finding of a perfected contract and RVM's subsequent refusal to pay constituted a breach of obligation under Article 1191, entitling respondents to remedies of fulfillment or rescission with damages, irrespective of fraud or bad faith.
Main Doctrine
In reciprocal obligations, the injured party may choose between fulfillment and rescission. Damages are awarded in either case. When a perfected contract of sale is breached by the buyer's refusal to pay the balance of the purchase price, the seller is entitled to damages, which may include interest on the unpaid amount.