Royal Plains View v. Mejia
REITERATIONFacts
The Antecedents: The case involves a parcel of land originally registered under Original Certificate of Title (OCT) No. (P-1324) P-232 in the name of the late Dominador Ramones. Dominador had sold portions of the land to Bias Mejia (father of respondent Nestor Mejia) and Pablo Benitez. Nestor Mejia was in possession of ancient instruments evidencing these sales. Nestor met Renato Padillo, President of Royal Plains View, Inc. (petitioner), and they agreed to split the entire lot. Subsequently, Nestor and petitioner Corporation entered into a Deed of Conditional Sale for a portion of the land covered by Transfer Certificate of Title (TCT) No. T-225549, with petitioner Corporation agreeing to pay P8,000,000.00. A subsequent Deed of Conditional Sale on April 11, 2007, stipulated a remaining balance to be paid in installments. Petitioners alleged a verbal agreement to divide the lot. Nestor later demanded the owner's duplicate copy of TCT No. T-225549, discovering Nestor had sold the entire property to third parties, leading to the issuance of new titles in the names of spouses Egina, which were later cancelled and derivative titles reinstated. Nestor then sent a "Rescission of Deed of Conditional Sale" dated February 5, 2010, alleging petitioners' default in payments. Procedural History: Petitioners filed a Complaint for Declaration of Nullity of the Rescission, Specific Performance, and Sums of Money. The Regional Trial Court (RTC) dismissed the complaint with prejudice, finding badges of fraud and that Nestor could not have been the owner. The Court of Appeals (CA) reversed the RTC, ruling the agreement was a Contract to Sell and that Nestor's rescission was invalid under the Maceda Law, ordering petitioners to pay the balance within 60 days. The CA denied petitioners' motion for reconsideration. The Petition: Petitioners sought review, arguing the CA erred in allowing Nestor, declared in default, to file an appellee's brief, in applying the Maceda Law, in not considering their other prayers, and in not granting equitable relief. They prayed for the return of the title, honor of the Deed of Conditional Sale, splitting of the property, or refund of payments.
Issue(s)
Whether the Court of Appeals erred in requiring respondent Nestor Mejia, who was declared in default in the trial court, to file an appellee's brief. Whether the Court of Appeals erred in applying Republic Act No. 6552 (Maceda Law) to the case. Whether the Court of Appeals erred in not considering the entirety of the original complaint, including prayers for Specific Performance and Damages, and whether the rescission of the contract was valid. Whether the Court of Appeals erred in not granting equitable relief, such as allowing payment of the balance or honoring the alleged gentlemen's agreement to divide the property, and whether the petitioners incurred in delay.
Ruling
The Supreme Court partly granted the petition, modifying the Court of Appeals' decision. It declared the Deed of Conditional Sale valid and subsisting, ordered petitioners to pay the remaining balance within 60 days from finality of the decision, and stipulated that upon full payment, Nestor Mejia shall execute the Deed of Absolute Sale. In case of failure to pay, the Deed of Conditional Sale is deemed cancelled, and payments made will be considered rentals.
Ratio Decidendi
On the propriety of allowing Nestor Mejia to file an appellee's brief despite being declared in default: The Court held that a party declared in default in the trial court is entitled to notice of subsequent proceedings and may appeal the judgment. While a defaulting party loses their right to take part in the trial, this does not preclude them from filing an appellee's brief if they are the winning party in the lower court, or from appealing the judgment. The Court reasoned that the effect of a default order is limited to the stages of the trial court proceedings and does not extinguish the right to appeal or to be heard in the appellate court. To hold otherwise would allow the trial court's default order to interfere with the appellate court's procedure. On the application of R.A. No. 6552 (Maceda Law): The Court ruled that the Maceda Law is not applicable to the instant case. While the contract involved installment payments, it was characterized as a contract to sell, and the property was a six-hectare lot purchased by a real estate company for resale, classifying it as commercial or industrial, not residential. The Court cited Spouses Garcia v. Court of Appeals to support the exclusion of such large landholdings from the Maceda Law's protection. The Court clarified that while the Maceda Law provides specific protections for residential buyers, sellers of industrial and commercial properties can unqualifiedly cancel the contract upon the buyer's default, as established in Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.. On the validity of the rescission and the prayers for Specific Performance and Damages: The Court affirmed the CA's characterization of the April 11, 2007 Deed of Conditional Sale as a contract to sell, not a contract of sale, based on the stipulation that the vendor shall execute a deed of absolute sale only upon full payment of the purchase price. The Court distinguished this from a contract of sale where title passes upon delivery. The Court found Nestor's act of rescinding the contract to be unjustified because he failed to provide the required notice to the petitioners. The Court emphasized that while sellers of industrial or commercial properties have the right to cancel upon default, this cancellation must be made known to the other party, either judicially or extrajudicially, to allow the buyer to question it. The Court cited University of the Philippines v. De Los Angeles for the principle that unilateral rescission is provisional and subject to judicial scrutiny. The Court denied the prayer for specific performance because petitioners failed to fully pay the purchase price, thus Nestor was under no obligation to convey title. The prayer for refund was also denied as the Deed of Conditional Sale remained valid and subsisting. On the issue of equitable relief and default: The alleged gentlemen's agreement to divide the property was not granted due to insufficient evidence and the fact that mere inability to pay is not a justifiable reason to renege on contractual obligations. The Court, however, exercised equitable consideration due to the substantial payments made, allowing petitioners 60 days from finality of the decision to pay the remaining balance, plus 6% interest per annum, to prevent the cancellation of the contract. The Court found that petitioners had not technically incurred in delay because Nestor failed to make a demand, either judicially or extrajudicially, for the payment of the remaining balance after the installment due in December 2009. Article 1169 of the Civil Code requires demand for delay to set in, unless waived or demand is rendered unnecessary by circumstances not present here. Consequently, Nestor's cancellation of the contract was premature and unjustified.
Main Doctrine
In a contract to sell, the seller's act of cancelling the contract upon the buyer's default must be made known to the other party, either judicially or by notarial act, to be valid. Failure to provide such notice renders the cancellation unjustified, and the contract remains subsisting.