PLATINUM PLANS PHILS V. CUCUECO, 488 SCRA 156 (2006)

FACTS: Respondent Cucueco filed a case for specific performance with damages against petitioner Platinum Plans pursuant to an alleged contract of sale executed by them for the purchase of a condominium unit.

1.      According to the respondent: sometime in July 1993, he offered to buy from petitioner Platinum Plans Phils a condominium unit he was leasing from the latter for P 4 million payable in 2 installments of P2 million with the following terms and conditions:

a.       Cucueco will issue a check for P100,00 as earnest money

b.      He will issue a post-dated check for P1.9 million to be encashed on September 30, 1993 on the condition that he will stop paying rentals for the said unit after September 30

c.       In case Platinum Plans has an outstanding loan of less than P2 million with the bank as of December 1993, Cucueco shall assume the same and pay the difference from the remaining P2 million

1.      Cucueco likewise claimed that Platinum Plans accepted his offer—by encashing the checks he issued. However, he was surprised to learn that Platinum Plans had changed the due date of the installment payment to September 30, 1993.

2.      Respondent argued that there was a perfected sale between him and Platinum plans and as such, he may validly demand from the petitioner to execute the necessary deed of sale transferring ownership and title over the property in his favor

3.      Platinum Plans denied Cucueco’s allegations and asserted that Cucueco’s initial down payment was forfeited based on the following terms and conditions:

a.       The terms of payment only includes two installments (August 1993 and September 1993)

b.      In case of non-compliance on the part of the vendee, all installments made shall be forfeited in favor of the vendor Platinum Plans

c.       Ownership over the property shall not pass until payment of the full purchase price

4.      Petitioners anchor their argument on the claim that there was no meeting of the minds between the two parties, as evidenced by their letter of non-acceptance.

5.      The trial court ruled in favor of Platinum, citing that since the element of consent was absent there was no perfected contract. The trial court ordered Platinum Plans to return the P2 million they had received from Cucueco, and for Cucueco to pay Platinum Plans rentals in arrears for the use of the unit

6.      Upon appeal, CA held that there was a perfected contract despite the fact that both parties never agreed on the date of payment of the remaining balance. CA ordered Cucueco to pay the remaining balance of the purchase price and for Platinum Plans, to execute a deed of sale over the property

ISSUE: WON the contract there is a perfected contract of sale

HELD: No, it is a contract to sell.

In a contract of sale, the vendor cannot recover ownership of the thing sold until and unless the contract itself is resolved and set aside. Art 1592 provides:

In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon, the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.

Based on the above provision, a party who fails to invoke judicially or by notarial act would be prevented from blocking the consummation of the same in light of the precept that mere failure to fulfill the contract does not by itself have the effect of rescission.

On the other hand, a contract to sell is bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite its delivery to the prospective buyer, commits to sell the property exclusively to the prospective buyer  upon fulfillment of the condition agreed upon, i.e., full payment of the purchase price.  Full payment here is considered as a positive suspensive condition.

As a result if the party contracting to sell, because of non-compliance with the suspensive condition, seeks to eject the prospective buyer from, the land, the seller is enforcing the contract and is not resolving it. The failure to pay is not a breach of contract but an event which prevent the obligation to convey title from materializing.

In the present case, neither side was able to produce any written evidence documenting the actual terms of their agreement. The trial court was correct in finding that there was no meeting of minds in this case considering that the acceptance of the offer was not absolute and uncondition. In earlier cases, the SC held that before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established.

Furthermore, the reservation of the title in the name of Platinum Plans clearly indicates an intention of the parties to enter into a contract of sell. Where the seller promises to execute a deed of absolute sale upon completion of the payment of purchase price, the agreement is a contract to sell.

The court cannot, in this case, step in to cure the deficiency by fixing the period pursuant to

1.      The relief sought by Cucueco was for specific performance to compel Platinum Plans to receive the balance of the purchase price

2.      The relief provide in Art 1592 only applies to contracts of sale

3.      Because of the differing dates set by both parties, the court would have no basis for granting Cucueco an extension of time within which to pay the outstanding balance

SELLER CANNOT TREAT THE CONTRACT AS CANCELLED WITHOUT SERVING NOTICE

The act of a party in treating the contract as cancelled should be made known to the other party because this act is subject to scrutiny and review by the courts in cased the alleged defaulter brings the matter for judicial determination as explained in UP v. De los Angeles. In the case at bar, there were repeated written notices sent by Platinum Plans to Cucueco that failure to pay the balance would result in the cancellation of the contract and forfeiture of the down payment already made. Under these circumstance, the cancellation made by Platinum Plans is valid and reasonable (except for the forfeiture of the down payment because Cucueco never agreed to the same)

EFFECTS OF CONTRACT TO SELL

A contract to sell would be rendered ineffective and without force and effect by the non-fulfillment of the buyer’s obligation to pay since this is a suspensive condition to the obligation of the seller to sell and deliver the title of the property. As an effect, the parties stand as if the conditional obligation had never existed. There can be no rescission of an obligation that is still non-existent as the suspensive condition has not yet occurred.

CA’S RELIANCE ON LEVY HERMANOS V. GERVACIO IS MISPLACED

It was unnecessary for CA to distinguish whether the transaction between the parties was an installment sale or a straight sale. In the first place, there is no valid and enforceable contract to speak of.

LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s Enterprises, is a building contractor.

1.    In February 1990, petitioner ordered scaffolding equipments from the respondent amounting to P540, 425.80. He paid a down payment of P150,000 and the balance was to be paid in 10 monthly installments

2.    However, Lo was only able to pay the first 2 monthly installments due to financial difficulties despite demands from the respondent

3.    In October 1990, petitioner and respondent executed a deed of assignment whereby petitioner assigned to respondent his receivables of P335,462.14 from Jomero Realty Corp

4.    But when respondent tried to collect the said credit from Jomero Realty Corp, the latter refused to honor the deed of assignment because it claimed that the petitioner was also indebted to it. As such, KJS sent Lo a demand letter but the latter refused to pay, claiming that his obligation had been extinguished when they executed the deed of assignment

5.    Subsequently, respondent filed an action for recovery of sum of money against petitioner.

6.    Petitioner argued that his obligation was extinguished with the execution of the deed of assignment of credit. Respondent alleged that Jomero Realty Corp refused to honor the deed of assignment because it claimed that the petitioner had outstanding indebtedness to it

7.    The trial court dismissed the complaint on the ground that the assignment of credit extinguished the bligation

8.    Upon appeal, CA reversed the trial court decision and held in favor of KJS.  CA held that

a.    Petitioner failed to comply with his warranty under the deed

b.    The object of the deed did not exist at the time of the transaction, rendering it void under Art 1409 NCC

c.    Petitioner violated the terms of the deed of assignment when he failed to execute and do all acts necessary to effectually enable the respondent to recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation  

HELD: No, the petitioner’s obligation was not extinguished with the execution of the deed of assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt.  In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt.  As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation. However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.  More specifically, the first paragraph of Article 1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment.  When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation. In other words, respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty under the assignment.  Therefore, it necessary for the petitioner to make good its warranty and pay the obligation.

Furthermore, the petitioner  breached his obligation under the Deed of Assignment, to execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof in case the same is later found to be inexistent.  He should be held liable to pay to respondent the amount of his indebtedness.

SORIANO V. BAUTISTA 6 SCRA 946 (1962)

FACTS: Spouses Bautista are the absolute and registered owners of a parcel of land. In May 30, 1956, the said spouses entered into an agreement entitled Kasulatan ng Sanglaan (mortgage)  in favor of spouses Soriano for the amount of P1,800. Simultaneously with the signing of the deed, the spouses Bautista transferred the possession of the subject property to spouses Soriano. The spouses Soriano have, since that date, been in possession of the property and are still enjoying the produce thereof to the exclusion of all other persons

1.    Sometime after May 1956, the spouses Bautista received from spouses Soriano the sum of P450 pursuant to the conditions agreed upon in the document. However, no receipt was issued. The said amount was returned by the spouses Bautista

2.    In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the spouses Soriano have decided to purchase the subject property pursuant to par. 5 of the document which states that “…the mortgagees may purchase the said land absolutely within the 2-year term of the mortgage for P3,900.”

3.    Despite the receipt of the letter, the spouses Bautista refused to comply with Soriano’s demand

4.    As such, spouses Soriano filed a case, praying that they be allowed to consign or deposit with the Clerk of Court the sum of P1,650 as the balance of the purchase price of the land in question

5.    The trial court held in favor of Soriano and ordered Bautista to execute a deed of absolute sale over the said property in favor of Soriano.

6.    Subsequently spouses Bautista filed a case against Soriano, asking the court to order Soriano to accept the payment of the principal obligation and release the mortgage and to make an accounting the harvest for the 2 harvest seasons (1956-1957).

7.    CFI held in Soriano’s favor and ordered the execution of the deed of sale in their favor

8.    Bautista argued that as mortgagors, they cannot be deprived of the right to redeem the mortgaged property, as such right is inherent in and inseparable from a mortgage.

ISSUE: WON spouses Bautista are entitled to redemption of subject property

HELD: No. While the transaction is undoubtedly a mortgage and contains the customary stipulation concerning redemption, it carries the added special provision which renders the mortgagor’s right to redeem defeasible at the election of the mortgagees. There is nothing illegal or immoral in this as this is allowed under Art 1479 NCC which states: “A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise supported by a consideration apart from the price.”

In the case at bar, the mortgagor’s promise is supported by the same consideration as that of the mortgage itself, which is distinct from the consideration in sale should the option be exercised. The mortgagor’s promise was in the nature of a continuing offer, non-withdrawable during a period of 2 years, which upon acceptance by the mortgagees gave rise to a perfected contract of sale.

TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY OTHER PARTY HAS BEEN EXERCISED

The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the purpose intended. Such tender must have been made after the option to purchase had been exercised by spouses Soriano. Bautista’s offer to redeem could be defeated by Soriano’s preemptive right to purchase within the period of 2 years from May 30, 1956. Such right was availed of and spouses Bautista were accordingly notified by Soriano. Offer and acceptance converged and gave rise to a perfected and binding contract of purchase and sale.

REYES V. SPOUSES HAMADA 14 SCRA 215 (1965)

 FACTS: Spouses Hamada owned several properties in Baguio which were mortgaged to PNB. As a result of nonpayment, an extrajudicial foreclosure proceeding was instituted by PNB over the said properties.

1.    The subject properties were sold at a public auction in February 11, 1960 with Arsenio Reyes as the highest bidder.

2.    On the evening of February 10, 1961 (the last day of redemption), the spouses Hamada delivered to the city sheriff checks to cover for the redemption amount which was accepted by the said official

3.    However, the purchaser Reyes refused to recognize the validity of such redemption and thereafter demanded the delivery of possession of the properties which remained with the spouses Hamada

4.    Upon refusal of the spouses Hamada to do the same, Reyes filed a civil case before CFI (Civil Case no. 1025) for the declaration of ownership and right to possession of the subject properties by reason of his purchase thereof at the auction sale in February 1960

5.    During the pendency of the case, Reyes filed another complaint (Civil Case no. 1041) for the recovery of the rentals paid by the tenants of the subject properties on the ground that under Sec 30 of Rule 30 ROC (Old Rules of Court), Reyes as purchaser of the properties, was entitled to the rentals receivable from the tenants which were paid to the mortgagors during and after the period of redemption

6.    CFI dismissed the complaint by reason of the pendency of another action involving the same parties over the same properties.

ISSUE: WON petitioner Reyes is entitled to the rentals received from the subject properties pending the case involving the redemption of the same

HELD: No.  

Petitioner Reyes anchors his argument on Sec 30 Rule 39 where if the properties are being occupied by paying tenants, the right to the rentals thereof is granted to the purchaser of the properties.

In Chan v. Espe, the SC held that the said provision is clear that if the period of redemption the judgment-debtor is in possession of the property sold, he is entitled to retain it and receive its fruits, the purchaser not being entitled to its possession; but if the property is in the possession of a tenant, it is only then that the purchaser is entitled to receive its rents or the reasonable value of its use and occupation. In such case, the purchaser is accountable for the amount received to the judgment-debtor when he effects the redemption.

In short, before the expiration of the 1-year period within which the judgment-debtor or mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of right, the possession of the same. While it is true that the Rules of Court allow the purchaser to receive the rentals from the tenants, the rentals received do not belong to the purchaser but still pertain to the debtor or mortgagor. The rationale for the rule is to secure for the benefit of the debtor or mortgagor the payment of the redemption amount and the consequent return to him of his properties sold at public auction.

In the present case, the question to be resolved in Civil Case no. 1025 is the proper and timely redemption of the properties sold at public auction. It is clear that the right to the rentals during the period of redemption is necessarily included in the issued of timeliness and adequacy of the redemption made or exercised by the mortgagors Hamada.