Diego v. Diego
Diego v. Diego
Diego v. Diego
DECISION
DEL CASTILLO , J : p
Meanwhile, the building was leased out to third parties, but Nicolas's share in the rents
were not remitted to him by herein respondent Eduardo, another brother of Nicolas and
designated administrator of the Diego Building. Instead, Eduardo gave Nicolas's monthly
share in the rents to Rodolfo. Despite demands and protestations by Nicolas, Rodolfo and
Eduardo failed to render an accounting and remit his share in the rents and fruits of the
building, and Eduardo continued to hand them over to Rodolfo.
Thus, on May 17, 1999, Nicolas filed a Complaint 6 against Rodolfo and Eduardo before the
RTC of Dagupan City and docketed as Civil Case No. 99-02971-D. Nicolas prayed that
Eduardo be ordered to render an accounting of all the transactions over the Diego Building;
that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the rents; and that
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Eduardo and Rodolfo be held solidarily liable for attorney's fees and litigation expenses.
Rodolfo and Eduardo led their Answer with Counterclaim 7 for damages and attorney's
fees. They argued that Nicolas had no more claim in the rents in the Diego Building since
he had already sold his share to Rodolfo. Rodolfo admitted having remitted only
P250,000.00 to Nicolas. He asserted that he would pay the balance of the purchase price
to Nicolas only after the latter shall have executed a deed of absolute sale.
Ruling of the Regional Trial Court
After trial on the merits, or on April 19, 2005, the trial court rendered its Decision 8
dismissing Civil Case No. 99-02971-D for lack of merit and ordering Nicolas to execute a
deed of absolute sale in favor of Rodolfo upon payment by the latter of the P250,000.00
balance of the agreed purchase price. It made the following interesting pronouncement: DHSACT
Equity and fairness dictate that defendant [sic] has to execute the necessary
document regarding the sale of his share to defendant Rodolfo Diego.
Correspondingly, defendant Rodolfo Diego has to perform his obligation as per
their verbal agreement by paying the remaining balance of P250,000.00. 9
To summarize, the trial court ruled that as early as 1993, Nicolas was no longer entitled to
the fruits of his aliquot share in the Diego Building because he had "ceased to be a co-
owner" thereof. The trial court held that when Nicolas received the P250,000.00
downpayment, a "contract of sale" was perfected. Consequently, Nicolas is obligated to
convey such share to Rodolfo, without right of rescission. Finally, the trial court held that
the P250,000.00 balance from Rodolfo will only be due and demandable when Nicolas
executes an absolute deed of sale. cCAIaD
Issues
The Petition raises the following errors that must be rectified:
I
II
III
IV
VI
Petitioner's Arguments
In his Petition, the Supplement 1 2 thereon, and Reply, 1 3 Nicolas argues that, contrary to
what the CA found, there was no perfected contract of sale even though Rodolfo had
partially paid the price; that in the absence of the third element in a sale contract — the
price — there could be no perfected sale; that failing to pay the required price in full,
Nicolas had the right to rescind the agreement as an unpaid seller.
Nicolas likewise takes exception to the CA nding that Rodolfo was not in default or delay
in the payment of the agreed balance for his (Nicolas's) failure to le a case to x the
period within which payment of the balance should be made. He believes that Rodolfo's
failure to pay within a reasonable time was a substantial and material breach of the
agreement which gave him the right to unilaterally and extrajudicially rescind the
agreement and be discharged of his obligations as seller; and that his repeated written
demands upon Rodolfo to pay the balance granted him such rights. aEHASI
Nicolas further claims that based on his agreement with Rodolfo, there was to be no
transfer of title over his share in the building until Rodolfo has effected full payment of the
purchase price, thus, giving no right to the latter to collect his share in the rentals.
Finally, Nicolas bewails the CA's failure to award damages, attorney's fees and litigation
expenses for what he believes is a case of unjust enrichment at his expense.
Respondents' Arguments
Apart from echoing the RTC and CA pronouncements, respondents accuse the petitioner
of "cheating" them, claiming that after the latter received the P250,000.00 downpayment,
he "vanished like thin air and hibernated in the USA, he being an American citizen," 1 4 only to
come back claiming that the said amount was a mere loan.
They add that the Petition is a mere rehash and reiteration of the petitioner's arguments
below, which are deemed to have been suf ciently passed upon and debunked by the
appellate court.
Our Ruling
The Court finds merit in the Petition. TCaEAD
However, when the case reached this Court, it was ruled that the transaction entered into
by Pablo and Lu was only a contract to sell,
sell not a contract of sale. The Court held thus:
The receipt signed by Pacita Lu merely states that she accepted the sum of fty
thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares
of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the
seller reserves the ownership of the property until full payment of the price which
is a distinguishing feature of a contract to sell, the subsequent acts of the parties
convince us that the Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase price. price
In the instant case, records show that Nicolas signed a mere receipt 2 4 acknowledging
partial payment of P250,000.00 from Rodolfo. It states:
July 8, 1993
(signed)
Nicolas Diego 2 5
In the instant case, the parties were similarly embroiled in an impasse. The parties'
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agreement was likewise embodied only in a receipt. Also, Nicolas did not want to sign the
deed of sale unless he is fully paid. On the other hand, Rodolfo did not want to pay unless a
deed of sale is duly executed in his favor. We thus say, pursuant to our ruling in Chua v.
Court of Appeals 3 5 that the agreement between Nicolas and Rodolfo is a contract to sell.
This Court cannot subscribe to the appellate court's view that Nicolas should rst execute
a deed of absolute sale in favor of Rodolfo, before the latter can be compelled to pay the
balance of the price. This is patently ridiculous, and goes against every rule in the book.
This pronouncement virtually places the prospective seller in a contract to sell at the
mercy of the prospective buyer, and sustaining this point of view would place all contracts
to sell in jeopardy of being rendered ineffective by the act of the prospective buyers, who
naturally would demand that the deeds of absolute sale be rst executed before they pay
the balance of the price. Surely, no prospective seller would accommodate.
In fine, "the
the need to execute a deed of absolute sale upon completion of payment
of the price generally indicates that it is a contract to sell, as it implies the
reservation of title in the vendor until the vendee has completed the payment of
the price.
price " 3 6 In addition, "[a] stipulation reserving ownership in the vendor until full
payment of the price is . . . typical in a contract to sell." 3 7 Thus, contrary to the
pronouncements of the trial and appellate courts, the parties to this case only entered into
a contract to sell; as such title cannot legally pass to Rodolfo until he makes full payment
of the agreed purchase price.
c)Nicolas did not surrender or deliver title or possession to Rodolfo.
Moreover, there could not even be a surrender or delivery of title or possession to the
prospective buyer Rodolfo. This was made clear by the nature of the agreement, by
Nicolas's repeated demands for the return of all rents unlawfully and unjustly remitted to
Rodolfo by Eduardo, and by Rodolfo and Eduardo's repeated demands for Nicolas to
execute a deed of sale which, as we said before, is a recognition on their part that
ownership over the subject property still remains with Nicolas. SEAHID
Signi cantly, when Eduardo testi ed, he claimed to be knowledgeable about the terms and
conditions of the transaction between Nicolas and Rodolfo. However, aside from stating
that out of the total consideration of P500,000.00, the amount of P250,000.00 had already
been paid while the remaining P250,000.00 would be paid after the execution of the Deed
of Sale, he never testi ed that there was a stipulation as regards delivery of title or
possession. 3 8
It is also quite understandable why Nicolas belatedly demanded the payment of the
rentals. Records show that the structural integrity of the Diego Building was severely
compromised when an earthquake struck Dagupan City in 1990. 3 9 In order to rehabilitate
the building, the co-owners obtained a loan from a bank. 4 0 Starting May 1994, the
property was leased to third parties and the rentals received were used to pay off the loan.
4 1 It was only in 1996, or after payment of the loan that the co-owners started receiving
their share in the rentals. 4 2 During this time, Nicolas was in the USA but immediately upon
his return, he demanded for the payment of his share in the rentals which Eduardo remitted
to Rodolfo. Failing which, he led the instant Complaint. To us, this bolsters our ndings
that Nicolas did not intend to immediately transfer title over the property.
It must be stressed that it is anathema in a contract to sell that the prospective seller
should deliver title to the property to the prospective buyer pending the latter's payment of
the price in full. It certainly is absurd to assume that in the absence of stipulation, a buyer
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under a contract to sell is granted ownership of the property even when he has not paid the
seller in full. If this were the case, then prospective sellers in a contract to sell would in all
likelihood not be paid the balance of the price.
This ponente has had occasion to rule that "[a] contract to sell is one where the
prospective seller reserves the transfer of title to the prospective buyer until the happening
of an event, such as full payment of the purchase price. What the seller obliges himself to
do is to sell the subject property only when the entire amount of the purchase price has
already been delivered to him. 'In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-ful llment of which prevents the obligation to
sell from arising and thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer.' It does not, by itself, transfer ownership to the buyer."
43
Similarly, we held in Chua v. Court of Appeals 4 7 that "Article 1592 of the Civil Code permits
the buyer to pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by notarial act.
However, Article 1592 does not apply to a contract to sell where the seller reserves the
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ownership until full payment of the price," 4 8 as in this case.
Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the
purchase price, the contract to sell was deemed terminated or cancelled. 4 9 As we have
held in Chua v. Court of Appeals, 5 0 "[s]ince the agreement . . . is a mere contract to sell, the
full payment of the purchase price partakes of a suspensive condition. The non-
ful llment of the condition prevents the obligation to sell from arising and
ownership is retained by the seller without further remedies by the buyer ."
Similarly, we held in Reyes v. Tuparan 5 1 that "petitioner's obligation to sell the subject
properties becomes demandable only upon the happening of the positive suspensive
condition, which is the respondent's full payment of the purchase price. Without
respondent's full payment, there can be no breach of contract to speak of
because petitioner has no obligation yet to turn over the title. title Respondent's failure
to pay in full the purchase price in full is not the breach of contract contemplated under
Article 1191 of the New Civil Code but rather just an event that prevents the petitioner
from being bound to convey title to respondent." Otherwise stated, Rodolfo has no right to
compel Nicolas to transfer ownership to him because he failed to pay in full the purchase
price. Correlatively, Nicolas has no obligation to transfer his ownership over his share in
the Diego Building to Rodolfo. 5 2 cDCSET
Thus, it was erroneous for the CA to rule that Nicolas should have led a case to x the
period for Rodolfo's payment of the balance of the purchase price. It was not Nicolas's
obligation to compel Rodolfo to pay the balance; it was Rodolfo's duty to remit it.
It would appear that after Nicolas refused to sign the deed as there was yet no full
payment, Rodolfo and Eduardo hired the services of the Daroya Accounting Of ce "for the
purpose of estimating the amount to which [Nicolas] still owes [Rodolfo] as a
consequence of the unconsummated verbal agreement regarding the former's share in the
co-ownership of [Diego Building] in favor of the latter." 5 3 According to the accountant's
report, after Nicolas revoked his agreement with Rodolfo due to non-payment, the
downpayment of P250,000.00 was considered a loan of Nicolas from Rodolfo. 5 4 The
accountant opined that the P250,000.00 should earn interest at 18%. 5 5 Nicolas however
objected as regards the imposition of interest as it was not previously agreed upon.
Notably, the contents of the accountant's report were not disputed or rebutted by the
respondents. In fact, it was stated therein that "[a]ll the bases and assumptions made
particularly in the xing of the applicable rate of interest have been discussed with
[Eduardo]." 5 6
We nd it irrelevant and immaterial that Nicolas described the termination or cancellation
of his agreement with Rodolfo as one of rescission. Being a layman, he is understandably
not adept in legal terms and their implications. Besides, this Court should not be held
captive or bound by the conclusion reached by the parties. The proper characterization of
an action should be based on what the law says it to be, not by what a party believed it to
be. "A contract is what the law de nes it to be . . . and not what the contracting parties call
it." 5 7 DISEaC
On the other hand, the respondents' additional submission — that Nicolas cheated them by
"vanishing and hibernating" in the USA after receiving Rodolfo's P250,000.00
downpayment, only to come back later and claim that the amount he received was a mere
loan — cannot be believed. How the respondents could have been cheated or
disadvantaged by Nicolas's leaving is beyond comprehension. If there was anybody who
bene ted from Nicolas's perceived "hibernation", it was the respondents, for they certainly
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had free rein over Nicolas's interest in the Diego Building. Rodolfo put off payment of the
balance of the price, yet, with the aid of Eduardo, collected and appropriated for himself
the rents which belonged to Nicolas.
Eduardo is solidarily liable with
Rodolfo as regards the share of Nicolas
in the rents.
For his complicity, bad faith and abuse of authority as the Diego Building administrator,
Eduardo must be held solidarily liable with Rodolfo for all that Nicolas should be entitled to
from 1993 up to the present, or in respect of actual damages suffered in relation to his
interest in the Diego Building. Eduardo was the primary cause of Nicolas's loss, being
directly responsible for making and causing the wrongful payments to Rodolfo, who
received them under obligation to return them to Nicolas, the true recipient. As such,
Eduardo should be principally responsible to Nicolas as well. Suf ce it to state that every
person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith; and every person who,
contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter
for the same. 5 8
Attorney's fees and other costs.
"Although attorney's fees are not allowed in the absence of stipulation, the court can award
the same when the defendant's act or omission has compelled the plaintiff to incur
expenses to protect his interest or where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." 5 9 In the
instant case, it is beyond cavil that petitioner was constrained to le the instant case to
protect his interest because of respondents' unreasonable and unjusti ed refusal to
render an accounting and to remit to the petitioner his rightful share in rents and fruits in
the Diego Building. Thus, we deem it proper to award to petitioner attorney's fees in the
amount of P50,000.00, 6 0 as well as litigation expenses in the amount of P20,000.00 and
the sum of P1,000.00 for each court appearance by his lawyer or lawyers, as prayed for. DIAcTE
Footnotes
32. Id.
33. Id. Emphasis supplied.
34. Id. Emphasis supplied.
37. Id.
38. See TSN, March 21, 2001, pp. 12-21.
41. See Report of Daroya Accounting Office, pp. 1-2; id. at 76-77.
42. Id. at 2; id. at 77.
43. Luzon Development Bank v. Enriquez, G.R. Nos. 168646 & 168666, January 12, 2011, 639
SCRA 332, 351.
44. See Tan v. Benolirao, supra note 17 at 53; Chua v. Court of Appeals, supra note 29 at 43-
44.
59. Alcatel Philippines, Inc. v. I. M. Bongar & Co., Inc., G.R. No. 182946, October 5, 2011, 658
SCRA 741, 743-744.
60. Estores v. Supangan, G.R. No. 175139, April 18, 2012, 670 SCRA 95, 108-109.