Construction & Equipment Corp. v. Mendoza
REITERATIONFacts
The Antecedents: Jovil Construction and Equipment Corporation (JCEC) entered into a Contract to Sell with Spouses Clarissa Santos Mendoza and Michael Eric V. Mendoza for six parcels of land in Rizal. JCEC paid P5.6 Million of the P11,318,260.00 purchase price and took possession to develop a housing project. However, a third party, Benjamin Catalino, claiming ownership, prevented JCEC from proceeding with construction. JCEC suspended payments due to this disturbance, despite Spouses Mendoza obtaining a writ of preliminary injunction against Catalino. JCEC sought renegotiation, but Spouses Mendoza eventually cancelled the contract and demanded payment of accrued interest. Procedural History: JCEC filed a Complaint for Specific Performance with Damages against Spouses Mendoza, seeking delivery of titles and possession. The Regional Trial Court (RTC) of Quezon City dismissed JCEC's complaint, ruling that the contract was a contract to sell and JCEC's failure to pay the balance after the disturbance was resolved justified the cancellation. The RTC ordered the forfeiture of 50% of JCEC's payments and awarded limited interest to Spouses Mendoza. Both parties appealed to the Court of Appeals (CA). The CA affirmed the RTC's decision, finding that Spouses Mendoza had no obligation to transfer title before full payment and that JCEC's suspension of payment was no longer justified after the injunction was issued. The CA also agreed that JCEC was not liable for punitive interest after the contract's cancellation. The Petition: Both JCEC and Spouses Mendoza filed separate Petitions for Review on Certiorari under Rule 45 of the Rules of Court, assailing the CA's decision. JCEC argued that Spouses Mendoza breached the contract by failing to clear the property and that its suspension of payment was justified. Spouses Mendoza contended that JCEC should be liable for punitive interest as per the contract. The Supreme Court denied both petitions, affirming the CA's decision with a modification regarding the amount to be reimbursed to JCEC, ordering Spouses Mendoza to return P2,628,452.20, which includes a modified calculation of punitive interest for a specific period.
Issue(s)
Whether the CA committed reversible error in affirming the RTC's confirmation of the cancellation or termination of the Contract to Sell. Whether the CA erred in affirming the RTC's ruling that JCEC was not liable for punitive interest counted from the demand made by Spouses Mendoza until its full payment.
Ruling
The petitions are DENIED. The Decision dated April 25, 2019 and the Resolution dated November 5, 2019 of the Court of Appeals in CA-G.R. CV No. 108141 are AFFIRMED with MODIFICATION. Spouses Clarissa Santos Mendoza and Michael Eric V. Mendoza are ordered to reimburse Jovil Construction and Equipment Corporation the sum of P2,628,452.20, which shall earn legal interest of 6% per annum from the date of finality of the Decision until fully paid.
Ratio Decidendi
On the first issue of whether the CA committed reversible error in affirming the RTC's confirmation of the cancellation or termination of the Contract to Sell: The Court affirmed the CA's decision. It reiterated that the transaction was a contract to sell, where full payment of the purchase price is a suspensive condition. The non-fulfillment of this condition prevents the vendor's obligation to sell from arising, and ownership remains with the seller. JCEC's failure to pay the balance in full meant it had no right to compel Spouses Mendoza to deliver the titles. While JCEC's initial suspension of payment was justified due to the disturbance of possession by Catalino's group, this justification ceased after the RTC Rizal issued an injunction and JCEC regained possession. JCEC's subsequent refusal to pay became unjustified, rendering the contract ineffective and validating Spouses Mendoza's termination, subject to the forfeiture of 50% of payments made. On the second issue of whether the CA erred in affirming the RTC's ruling that JCEC was not liable for punitive interest counted from the demand made by Spouses Mendoza until its full payment: The Court agreed with the CA that JCEC could not be penalized with punitive interest after the contract's cancellation. The initial suspension of payment was justified due to the disturbance of possession. Furthermore, the dishonor of JCEC's checks occurred during this period of disturbance, and Spouses Mendoza did not make a demand for payment until March 2001, after the RTC Rizal had issued the injunction. The CA correctly observed that once the contract was cancelled on April 16, 2001, there was no longer a contract to sell to which punitive interest could accrue. The Court, however, modified the amount of punitive interest for the period of March to April 2001, finding JCEC liable for 3% punitive interest on the unpaid balance of P5,718,260.00, amounting to P171,547.80, which should be deducted from the reimbursable amount. This resulted in Spouses Mendoza being ordered to reimburse JCEC P2,628,452.20.
Main Doctrine
In a contract to sell, full payment of the purchase price is a suspensive condition. Failure to fulfill this condition prevents the vendor's obligation to sell from arising, and ownership is retained by the seller. The termination of the contract by the seller due to non-payment is valid, subject to forfeiture provisions, but the seller may be liable for reimbursement of payments made if the termination is due to their fault or if there are specific stipulations.