Gotesco Properties v. Spouses Fajardo
REITERATIONFacts
The Antecedents: Respondent-spouses Eugenio and Angelina Fajardo (Sps. Fajardo) entered into a Contract to Sell with petitioner Gotesco Properties, Inc. (GPI) for a 100-square meter lot. Sps. Fajardo fully paid the purchase price of ₱126,000.00 plus interest on January 17, 2000. Despite full payment and subsequent demands, GPI failed to execute the deed of sale and deliver the title and physical possession of the lot. Sps. Fajardo filed a complaint for specific performance or rescission with damages against GPI and its directors, alleging violations of PD 957, including failure to provide development facilities and the mother title having no technical description and being levied upon by the Bangko Sentral ng Pilipinas (BSP). Procedural History: The HLURB-ENCRFO ruled in favor of Sps. Fajardo, holding GPI liable for substantial breach and ordering rescission, refund of payments with interest, and damages. The HLURB Board of Commissioners affirmed this ruling. The Office of the President (OP) also affirmed the HLURB rulings. The Court of Appeals (CA) affirmed with modification, ordering the refund of the prevailing market value of the property pursuant to Solid Homes v. Tan. The Petition: Petitioners argued that GPI's failure to comply was due to circumstances beyond its control, thus no breach occurred and Sps. Fajardo had no right to rescind. They also argued that individual petitioners should not be held liable for damages as they did not act in bad faith.
Issue(s)
Whether Sps. Fajardo have the right to rescind the contract to sell. Whether Sps. Fajardo are entitled to recover the prevailing market value of the property, plus damages and attorney's fees. Whether the individual petitioners are personally liable for the obligations of GPI.
Ruling
The petition is partly meritorious. The Supreme Court affirmed the CA ruling with modification, absolving the individual petitioners from personal liability.
Ratio Decidendi
On the right to rescind the contract to sell: The Court held that in a contract to sell, the seller's obligation to deliver the title is simultaneous and reciprocal to the buyer's full payment. Section 25 of PD 957 mandates the delivery of title upon full payment. GPI's failure to deliver the title, despite Sps. Fajardo's full payment and demand, constituted a substantial breach of the contract. The Court found no merit in GPI's defense that its non-compliance was due to circumstances beyond its control, noting the unexplained delay in filing the petition for inscription of the technical description and the lack of action after the CA reversed the initial grant. The Court also noted the unresolved annotations from the BSP. Therefore, Sps. Fajardo were accorded the right to rescind the contract under Article 1191 of the Civil Code. On the effects of rescission and recovery of market value, and the award of moral and exemplary damages, attorney's fees, and costs of suit: The Court reiterated that rescission abrogates the contract from its inception and requires mutual restitution, restoring parties to their original positions. This includes returning the price with interest and the fruits of the contract, as provided by Article 1385 of the Civil Code, which applies to rescission under Article 1191. Since GPI benefited from the contract by receiving full payment while Sps. Fajardo remained prejudiced, mutual restitution was required. Consistent with Solid Homes v. Tan, Sps. Fajardo are entitled to recover the prevailing market value of the property, not just the purchase price plus interest, to prevent unjust enrichment and ensure full recompense as intended by PD 957. The Court found proper legal basis for the awards of moral and exemplary damages, attorney's fees, and costs of suit. GPI's unjustified failure to fulfill its obligations caused Sps. Fajardo serious anxiety and mental anguish, justifying moral damages. Exemplary damages were awarded to deter similar transgressions by other developers. Attorney's fees were sustained because Sps. Fajardo were compelled to engage legal counsel to protect their rights. On the liability of individual petitioners: The Court found no basis to hold the individual petitioners personally liable for GPI's obligations. It is settled that corporate officers are not personally liable for corporate debts absent a showing of malice or bad faith. The records did not demonstrate that the individual petitioners acted maliciously or dealt with Sps. Fajardo in bad faith. Therefore, they were absolved from personal liability.
Main Doctrine
In a contract to sell, the seller's obligation to deliver the corresponding certificate of title is simultaneous and reciprocal to the buyer's full payment of the purchase price. Failure to deliver the title upon full payment, without just cause, constitutes a substantial breach, entitling the buyer to rescind the contract and recover the prevailing market value of the property, plus damages and attorney's fees. Corporate officers are not personally liable for corporate obligations absent malice or bad faith.