HEIRS OF PAULINO
ATIENZA, NAMELY, RUFINA L. ATIENZA, ANICIA A. IGNACIO, ROBERTO ATIENZA, MAURA
A. DOMINGO, AMBROCIO ATIENZA, MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A.
GONZALES, REGALADO ATIENZA AND MELITA A. DELA CRUZ PETITIONERS, VS. DOMINGO P.
ESPIDOL,
This case is about the
legal consequences when a buyer in a contract to sell on installment fails to
make the next payments that he promised.
Facts:
Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio, Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz (collectively, the Atienzas)[1] own a 21,959 square meters of registered agricultural land at Valle Cruz, Cabanatuan City.[2] They acquired the land under an emancipation patent[3] through the government's land reform program.[4]
On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell land with a down payment) covering the property.[5] They agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00 in December 2002, and the remaining P974,670.00 in June 2003. Respondent Espidol paid the Atienzas P100,000.00 upon the execution of the contract and paid P30,000.00 in commission to the brokers.
When the Atienzas demanded payment of the second installment of P1,750,000.00 in December 2002, however, respondent Espidol could not pay it. He offered to pay the Atienzas P500.000.00 in the meantime,[6] which they did not accept. Claiming that Espidol breached his obligation, on February 21, 2003 the Atienzas filed a complaint[7] for the annulment of their agreement with damages before the Regional Trial Court (RTC) of Cabanatuan City in Civil Case 4451.
In his answer,[8] respondent Espidol admitted that he was unable to pay the December 2002 second installment, explaining that he lost access to the money which he shared with his wife because of an injunction order issued by an American court in connection with a domestic violence case that she filed against him.[9] In his desire to abide by his obligation, however, Espidol took time to travel to the Philippines to offer P800,000.00 to the Atienzas.
Respondent Espidol also argued that, since their contract was one of sale on installment, his failure to pay the installment due in December 2002 did not amount to a breach. It was merely an event that justified the Atienzas' not to convey the title to the property to him. The non-payment of an installment is not a legal ground for annulling a perfected contract of sale. Their remedy was to bring an action for specific performance. Moreover, Espidol contended that the action was premature since the last payment was not due until June 2003.
Issues:
1. Whether or not the Atienzas could validly sell to respondent Espidol the subject land which they acquired through land reform under Presidential Decree 27[15] (P.D. 27);
2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell they entered into with respondent Espidol on the ground of the latter's failure to pay the second installment when it fell due; and
3. Whether or not the Atienzas' action for cancellation of title was premature absent the notarial notice of cancellation required by R.A. 6552.
Ruling:
One. The Atienzas' title shows on its face
that the government granted title to them on January 9, 1990 by virtue of P.D.
27. This law explicitly prohibits any form of transfer of the land
granted under it except to the government or by hereditary succession to the
successors of the farmer beneficiary.
Upon the enactment of Executive Order 228[17] in 1987, however, the restriction ceased to be absolute. Land reform beneficiaries were allowed to transfer ownership of their lands provided that their amortizations with the Land Bank of the Philippines (Land Bank) have been paid in full.[18] In this case, the Atienzas' title categorically states that they have fully complied with the requirements for the final grant of title under P.D. 27. This means that they have completed payment of their amortization with Land Bank. Consequently, they could already legally transfer their title to another.
Two. It is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in the meantime. When Espidol failed to pay within the period provided in their agreement, the Atienzas were relieved of any obligation to hold the property in reserve for him.
Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last installment of P974,670.00 fell due in June 2003, it cannot be said that the action was premature. Given Espidol's failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the Atienzas' obligation to turn over ownership of the property to him may be regarded as no longer existing.[24] The Atienzas had the right to seek judicial declaration of such non-existent status of that contract to relieve themselves of any liability should they decide to sell the property to someone else. Parenthetically, Espidol never offered to settle the full amount of the price in June 2003, when the last installment fell due, or during the whole time the case was pending before the RTC.
Three. Notice of cancellation by notarial act need not be given before the contract between the Atienzas and respondent Espidol may be validly declare non-existent. R.A. 6552 which mandated the giving of such notice does not apply to this case. The cancellation envisioned in that law pertains to extrajudicial cancellation or one done outside of court,[25] which is not the mode availed of here. The Atienzas came to court to seek the declaration of its obligation under the contract to sell cancelled. Thus, the absence of that notice does not bar the filing of their action.
Upon the enactment of Executive Order 228[17] in 1987, however, the restriction ceased to be absolute. Land reform beneficiaries were allowed to transfer ownership of their lands provided that their amortizations with the Land Bank of the Philippines (Land Bank) have been paid in full.[18] In this case, the Atienzas' title categorically states that they have fully complied with the requirements for the final grant of title under P.D. 27. This means that they have completed payment of their amortization with Land Bank. Consequently, they could already legally transfer their title to another.
Two. It is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in the meantime. When Espidol failed to pay within the period provided in their agreement, the Atienzas were relieved of any obligation to hold the property in reserve for him.
Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last installment of P974,670.00 fell due in June 2003, it cannot be said that the action was premature. Given Espidol's failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the Atienzas' obligation to turn over ownership of the property to him may be regarded as no longer existing.[24] The Atienzas had the right to seek judicial declaration of such non-existent status of that contract to relieve themselves of any liability should they decide to sell the property to someone else. Parenthetically, Espidol never offered to settle the full amount of the price in June 2003, when the last installment fell due, or during the whole time the case was pending before the RTC.
Three. Notice of cancellation by notarial act need not be given before the contract between the Atienzas and respondent Espidol may be validly declare non-existent. R.A. 6552 which mandated the giving of such notice does not apply to this case. The cancellation envisioned in that law pertains to extrajudicial cancellation or one done outside of court,[25] which is not the mode availed of here. The Atienzas came to court to seek the declaration of its obligation under the contract to sell cancelled. Thus, the absence of that notice does not bar the filing of their action.
ABELARDO VALARAO,
GLORIOSA VALARAO AND CARLOS VALARAO, PETITIONERS, VS. COURT OF APPEALS AND
MEDEN A. ARELLANO.
Article 1592 of the Civil Code applies only to contracts of sale, and not to contracts to sell or conditional sales where title passes to the vendee only upon full payment of the purchase price. Furthermore, in order to enforce the automatic forfeiture clause in a deed of conditional sale, the vendors have the burden of proving a contractual breach on the part of the vendee.
Article 1592 of the Civil Code applies only to contracts of sale, and not to contracts to sell or conditional sales where title passes to the vendee only upon full payment of the purchase price. Furthermore, in order to enforce the automatic forfeiture clause in a deed of conditional sale, the vendors have the burden of proving a contractual breach on the part of the vendee.
Facts:
"On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos Valarao as their attorney-in-fact, sold to [Private Respondent] Meden Arellano under a Deed of Conditional Sale a parcel of land situated in the District of Diliman, Q.C., covered by TCT No. 152879 with an area of 1,504 square meters, for the sum of THREE MILLION TWO HUNDRED TWENTY FIVE THOUSAND PESOS (P3,225,000.00) payable under a schedule of payment stated therein.
"In the same Deed of Conditional Sale, the [private respondent] vendee obligated herself to encumber by way of real estate mortgage in favor of [petitioners] vendors her separate piece of property with the condition that upon full payment of the balance of P2,225,000.00, the said mortgage shall become null and void and without further force and effect.
"It
was further stipulated upon that should the vendee fail to pay three (3)
successive monthly installments or any one year-end lump sum payment within the
period stipulated, the sale shall be considered automatically rescinded without
the necessity of judicial action and all payments made by the vendee shall be
forfeited in favor of the vendors by way of rental for the use and occupancy of
the property and as liquidated damages. All improvements introduced by the
vendee to the property shall belong to the vendors without any right of
reimbursement.
"[Private
respondent] appellant alleged that as of September , 1990, she had already paid
the amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand (P2,028,000.00)
[p]esos, although she admitted having failed to pay the installments due in
October and November, 1990. Petitioner, however, [had] tried to pay the
installments due [in] the said months, including the amount due [in] the month
of December, 1990 on December 30 and 31, 1990, but was turned down by the
vendors-[petitioners] thru their maid, Mary Gonzales, who refused to accept the
payment offered. [Private respondent] maintains that on previous occasions, the
same maid was the one who [had] received payments tendered by her. It appears
that Mary Gonzales refused to receive payment allegedly on orders of her
employers who were not at home.
"[Private respondent] then reported the matter to, and sought the help of, the local barangay officials. Efforts to settle the controversy before the barangay proved unavailing as vendors-[petitioners] never appeared in the meetings arranged by the barangay lupon.
"[Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk with [Petitioner] Gloriosa Valarao who told her that she [would] no longer accept the payments being offered and that [private respondent] should instead confer with her lawyer, a certain Atty. Tuazon. When all her efforts to make payment were unsuccessful, [private respondent] sought judicial action by filing this petition for consignation on January 4, 1991.
"On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4 January 1991 notifying her that they were enforcing the provision on automatic rescission as a consequence of which the Deed of Conditional Sale [was deemed] null and void, and xxx all payments made, as well as the improvements introduced on the property, [were] thereby forfeited. The letter also made a formal demand on the [private respondent] to vacate the property should she not heed the demand of [petitioners] to sign a contract of lease for her continued stay in the property .
"[Private respondent] then reported the matter to, and sought the help of, the local barangay officials. Efforts to settle the controversy before the barangay proved unavailing as vendors-[petitioners] never appeared in the meetings arranged by the barangay lupon.
"[Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk with [Petitioner] Gloriosa Valarao who told her that she [would] no longer accept the payments being offered and that [private respondent] should instead confer with her lawyer, a certain Atty. Tuazon. When all her efforts to make payment were unsuccessful, [private respondent] sought judicial action by filing this petition for consignation on January 4, 1991.
"On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4 January 1991 notifying her that they were enforcing the provision on automatic rescission as a consequence of which the Deed of Conditional Sale [was deemed] null and void, and xxx all payments made, as well as the improvements introduced on the property, [were] thereby forfeited. The letter also made a formal demand on the [private respondent] to vacate the property should she not heed the demand of [petitioners] to sign a contract of lease for her continued stay in the property .
Issues:
I.whether
the requirement of a judicial demand or a notarial act has been fulfilled.
"II
Whether the automatic forfeiture clause is valid and binding between the
parties."
"III Whether the action for consignation may prosper without actual deposit [in court] of the amount due xxx [so as] to produce the effect of payment."
"III Whether the action for consignation may prosper without actual deposit [in court] of the amount due xxx [so as] to produce the effect of payment."
Ruling:
1.
Art. 1592 of the new Civil
Code (Art. 1504 of the old Civil Code) requiring demand by suit or notarial act
in case the vendor of realty wants to rescind does not apply to a contract to
sell or promise to sell, where title remains with the vendor until" full
payment of the price.
In the present case, the
Deed of Conditional Sale is of the same nature as a saleoninstallment or a contract
to sell, which is not covered by Article 1592.
Petitioners-vendors
unmistakably reserved for themselves the title to the property until full
payment of the purchase price by the vendee. Clearly, the agreement was not a
deed of sale, but more in the nature of a contract to sell or of a sale on
installments.[13] Even after the
execution of the Deed of Conditional Sale, the Torrens Certificate of Title
remained with and in the name of the vendors.
II.
As a
general rule, a contract is the law between the parties.[15] Thus, "from the moment the contract is
perfected, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all consequences which, according to their
nature, may be in keeping with good faith, usage and law."[16] Also, "the stipulations of the
contract being the law between the parties, courts have no alternative but to
enforce them as they were agreed [upon] and written, there being no law or
public policy against the stipulated forfeiture of payments already made."[17] However, it must be shown that private
respondent-vendee failed to perform her obligation, thereby giving
petitioners-vendors the right to demand the enforcement of the contract.
We concede the validity of the automatic forfeiture clause, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one yearend lump sum payment. However, petitioners failed to prove the conditions that would warrant the implementation of this clause.
It is clear that petitioners were not justified in refusing to accept the tender of payment made by private respondent on December 30 and 31, 1990. Had they accepted it on either of said dates, she would have paid all three monthly installments due. In other words, there was no deliberate failure on her part to meet her responsibility to pay.[18] The Court takes note of her willingness and persistence to do so, and, petitioners cannot now say otherwise. The fact is: they refused to accept her payment and thus have no reason to demand the enforcement of the automatic forfeiture clause. They cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the past,[19] it is futile for petitioners to insist now that she could not have accepted the aforementioned tender of payment, on the ground that she did not have a special power of attorney to do so. Clearly, they are estopped from denying that she had such authority. Under Article 1241 of the Civil Code, payment through a third person is valid "[I]f by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment."
III.
It would be inequitable to allow the forfeiture of the amount of more than two million pesos already paid by private respondent, a sum which constitutes two thirds of the total consideration. Because she did make a tender of payment which was unjustifiably refused, we hold that petitioners cannot enforce the automatic forfeiture clause of the contract.
We concede the validity of the automatic forfeiture clause, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one yearend lump sum payment. However, petitioners failed to prove the conditions that would warrant the implementation of this clause.
It is clear that petitioners were not justified in refusing to accept the tender of payment made by private respondent on December 30 and 31, 1990. Had they accepted it on either of said dates, she would have paid all three monthly installments due. In other words, there was no deliberate failure on her part to meet her responsibility to pay.[18] The Court takes note of her willingness and persistence to do so, and, petitioners cannot now say otherwise. The fact is: they refused to accept her payment and thus have no reason to demand the enforcement of the automatic forfeiture clause. They cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the past,[19] it is futile for petitioners to insist now that she could not have accepted the aforementioned tender of payment, on the ground that she did not have a special power of attorney to do so. Clearly, they are estopped from denying that she had such authority. Under Article 1241 of the Civil Code, payment through a third person is valid "[I]f by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment."
III.
It would be inequitable to allow the forfeiture of the amount of more than two million pesos already paid by private respondent, a sum which constitutes two thirds of the total consideration. Because she did make a tender of payment which was unjustifiably refused, we hold that petitioners cannot enforce the automatic forfeiture clause of the contract.
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