In a dispute over a land sale, the Supreme Court affirmed the Court of Appeals’ decision, ordering specific performance rather than rescission of a Deed of Conditional Sale. The Court emphasized that when one party fails to fulfill their obligations, the injured party has the right to choose between demanding fulfillment or rescinding the contract. This ruling reinforces the importance of upholding contractual agreements and ensuring that parties fulfill their agreed-upon responsibilities, particularly in real estate transactions. This case underscores the principle that those who fail to meet their contractual obligations cannot benefit from their own default.

Conditional Sales Under Scrutiny: Who Bears the Burden of Breach?

This case revolves around a Deed of Conditional Sale between Honorlita Ascano-Cupino and Flaviana Ascano-Colocado (petitioners), and Pacific Rehouse Corporation (Pacific). The agreement involved the sale of land in General Trias, Cavite. Disputes arose regarding the fulfillment of conditions, leading to a legal battle over whether specific performance or rescission was the appropriate remedy. At the heart of the matter was the question of which party had defaulted on their obligations under the contract. This case highlights the critical importance of clearly defined contractual obligations and the consequences of failing to meet them.

The Supreme Court’s analysis centered on identifying the obligations of each party under the Deed of Conditional Sale. Pacific was obligated to make a down payment and pay the remaining balance upon the petitioners completing the necessary documents for the land title transfer. The Ascanos, on the other hand, were required to provide the necessary documents, guarantee the removal of tenants, and shoulder the disturbance compensation. The Court found that Pacific had made substantial payments but the Ascanos had failed to fulfill their obligations, particularly regarding tenant removal and document delivery.

The petitioners argued that Pacific had not paid the full purchase price and had failed to compensate tenants as agreed. However, the Court sided with Pacific. The Court cited Article 1191 of the Civil Code, which addresses the power to rescind obligations in reciprocal agreements, stating:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The Court emphasized that the right to choose between rescission and fulfillment belongs to the injured party—the party who has faithfully fulfilled their obligations or is ready and willing to do so. It found that Pacific, having made significant payments and expressed willingness to fulfill its remaining obligations, was indeed the injured party.

Furthermore, the Court dismissed the petitioners’ reliance on an Addendum to the Deed of Conditional Sale, which allegedly altered the terms of payment and tenant compensation. The Court found that the Addendum was not validly executed, as it was not signed by Pacific’s authorized representative. The Court explained that:

A witness is not a party to the contract and is not automatically converted to a party simply because, under some other extraneous document or circumstance, he has presented himself as the corporation’s authorized representative. Likewise, such act of signing as a witness cannot be taken as evidence of that person’s authority.

The Court thus reaffirmed the original Deed of Conditional Sale as the governing agreement between the parties. The Ascanos were bound by the original terms, including the obligation to ensure tenant removal.

Another critical aspect of the case was the RTC’s initial decision to cancel the contract based on Pacific’s original complaint for rescission, despite Pacific having filed an amended complaint seeking specific performance. The Supreme Court pointed out that this was a clear error, citing Section 8, Rule 10 of the Rules of Court:

SEC. 8. Effect of amended pleadings. – An amended pleading supersedes the pleading that it amends. However, admissions in superseded pleadings may be received in evidence against the pleader; and claims or defenses alleged therein not incorporated in the amended pleading shall be deemed waived.

The Court clarified that the Amended Complaint superseded the original, rendering it functus officio, and the RTC should have based its decision on the Amended Complaint, which sought specific performance. This procedural point underscores the importance of adhering to proper legal procedures in court proceedings.

Regarding the purchase price, the Court affirmed the lower courts’ finding that the agreed price was P5,975,300, as stated in the Deed of Conditional Sale. The petitioners’ claim of a higher price was not supported by sufficient evidence. The Court noted that the Pre-trial Order stipulated the agreed price, and the check vouchers issued by Pacific corroborated this amount. The court noted specifically that:

That on October 1, 1994, plaintiff and defendants] entered into a Deed of Conditional Sale whereby plaintiff obliged itself to purchase the property belonging to defendants for a sum of P5,975,300.00

In conclusion, the Supreme Court upheld the Court of Appeals’ decision, directing specific performance of the Deed of Conditional Sale. The Ascanos were ordered to execute a Deed of Absolute Sale upon Pacific paying the remaining balance of P1,577,530 and to deliver all necessary documents to consummate the sale. The Court’s ruling reinforces the principle of contractual obligations and the rights of the injured party to seek specific performance when the other party fails to fulfill their duties. The case also highlights the significance of following proper legal procedures and the importance of clear, unambiguous contract terms.

FAQs

What was the key issue in this case?	The central issue was whether specific performance or rescission was the appropriate remedy for a breach of a Deed of Conditional Sale. The court needed to determine which party had defaulted on their contractual obligations.
What is a Deed of Conditional Sale?	A Deed of Conditional Sale is a contract where the transfer of ownership is contingent upon the fulfillment of certain conditions, typically the payment of the full purchase price. Until the conditions are met, the seller retains ownership.
What does specific performance mean in this context?	Specific performance is a legal remedy that requires the breaching party to fulfill their obligations under the contract. In this case, it meant the Ascanos had to execute the Deed of Absolute Sale and transfer the land title to Pacific.
Who was deemed the injured party in this case?	Pacific Rehouse Corporation was considered the injured party because they had made substantial payments and were willing to fulfill their remaining obligations. The Ascanos, on the other hand, failed to fulfill their obligations.
What was the role of the Addendum in the case?	The Addendum was an attempt to modify the original Deed of Conditional Sale, but the court ruled it invalid because it was not signed by Pacific’s authorized representative. Therefore, it did not alter the original agreement.
What is the significance of Article 1191 of the Civil Code?	Article 1191 grants the injured party in a reciprocal obligation the right to choose between demanding fulfillment (specific performance) or rescinding the contract, with damages in either case. It provides the legal basis for the court’s decision.
Why did the RTC’s initial decision get overturned?	The RTC based its decision on Pacific’s original complaint for rescission, overlooking the fact that Pacific had filed an amended complaint seeking specific performance. The amended complaint superseded the original.
What was the agreed-upon purchase price for the land?	The court determined that the agreed-upon purchase price was P5,975,300, as stated in the Deed of Conditional Sale. The petitioners’ claim of a higher price was not supported by evidence.
What were the Ascanos’ primary obligations under the Deed?	The Ascanos were obligated to provide the necessary documents for the land title transfer, guarantee the removal of tenants from the property, and shoulder the disturbance compensation.

This case underscores the importance of fulfilling contractual obligations in real estate transactions. The Supreme Court’s decision reaffirms the principle that parties must honor their agreements and that the injured party has the right to seek specific performance when the other party defaults. This ruling provides clarity and reinforces the stability of contractual relationships in the Philippines.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Honorlita Ascano-Cupino, G.R. No. 205113, August 26, 2015