Dr. Restituto C. Buenviaje v. Spouses Jovito R. and Lydia B.

Salonga, Jebson Holdings

Topic: Pure and Conditional Obligations; Rescissible Contracts

Facts:
Jebson, an entity engaged in the real estate business, through its EVP Bañez, entered into
a JVA with Spouses Salonga. Under the JVA, the spouses who owned the land would allow
Jebson to construct on the land 10 high-end single detached residential villas. They would
subdivide the property into individual titles and Jebson shall assume the liability to pay their
mortgage loan with Metrobank. Jebson would also be liable to secure the buildings and
development permits and the license to sell from the HLURB.
Out of the 10 units, 7 will belong to Jebson with the remaining 3 belonging to the spouses.
Jebson was allowed to sell its allocated units under such terms as it may deem fit, subject to the
condition that the price agreed upon was with the conformity of the spouses.
Eventually Jebson entered into a Contract to Sell with Buenvaje over one unit without the
consideration of the spouses. Out of the purchase price, a part of it was paid through a “swapping
arrangement” whereby Beunviaje conveyed to Jebson a house and lot, clubhouse membership
shares and more.

However, despite fill payment, Jebson was unable to complete the construction in violation of
the contractual stipulation to finish the same within 12 months from the issuance of the building
permit. Thus, Buenviaje formally demanded the immediate completion and delivery of his unit.
To no avail, Buenviaje filed before the HLURB a complaint for specific performance.
HLURB-RIV rescinded the respective contracts to sell entered into by Jebson and found the
respondents were not legally authorized to sell the units as they have not secured the necessary
Registration Certificate and License to Sell. Furthermore, Jebson failed to complete the
construction of the units as well as to deliver the units to the Buenviaje entitling him to the
refund of their payments. HLURB further found the spouses to be solidarily liable with Jebson
and Bañez as joint venture partners liable to the general buying public.
Upon appeal, HLURB-BOC reversed and set aside the HLURB-RIV’s ruling. HLURB-BOC
held that there was no substantial breach but only a slight or casual one, which did not justify a
rescission of the contracts to sell, especially in view of the fact that the residential units covered
by the said contracts were already at their finishing stages. The proper remedy, therefore, was to
fix the period for completion of the concerned units. Nonetheless, the HLURB-BOC also
invalidated the swapping arrangements and found no basis to hold the spouses solidarily liable
with Jebson and Bañez considering that the JVA does not provide for solidarity for any act or
omission of either party and, in fact, expressly provides that the Spouses shall be free from any
liability from any 3rd party. OP and CA affirmed by finding that the OP correctly sustained the
HLURB Decision holding the recission of the contracts to sell to be impractical.

Issues:
1. Whether or not the grant of the remedy of specific performance in Buenviaje’s favor was
proper under the prevailing circumstances of the case?
2. Whether or not spouses Salonga are not solidarily liable with Jebson and Bañez to Buenviaje
for completion for the completion of the construction and delivery of the unit?
3. Whether or not the “swapping arrangment” was invalid?
Held:
1. YES. The grant of the remedy of specific performance in Buenviaje’s favor was proper.
Specific Performance is defined as the remedy of requiring exact performance of a contract in
the specific form in which it was made, or according to the precise terms agreed upon. It pertains
to the actual accomplishment of a contract by a party bound to fulfill it.
On the other hand, resolution is defined as the “unmaking of a contract for a legally sufficient
reason.” Resolution does not merely terminate the contract and release the parties from further
obligations to each other, but abrogates the contract from its inception and restores the parties to
their original positions as if no contract has been made. Consequently, mutual restitution, which
entails the returm of the benefits that each party may have received as a result of the contract, is
thus required. Notably, resolution under Article 1191 of the Civl Code will not be permitted for a
slight or casual breach, but only for such substantial and fundamental violations as would defeat
the very object of the parties in making the agreement.
In this case, the HLURB-BOC, OP, and the CA all pointed out that Buenviaje primarily prayed
for the remedy of specific performance and only prayed for the remedy of rescission as an
alternative remedy. Thus, it remains apparent that as between the two remedies made available to
him, Buenviaje, had, in fact, chosen the remedy of specific performance and therefore, ought to
be bound by the choice he had made. To add, the fundamental rule is that reliefs granted a
litigant are limited to those specifically prayed for in the complaint; other reliefs prayed for may
be granted only when related to the specific prayers in the pleadings and supported by the
evidence on record. Hence, based on this postulate, the lower tribunals could hardly be faulted
for granting the proper relief in accordance with what Buenviaje himself had claimed.
Relatedly, it is observed that Buenviaje's alternative prayer for resolution is textually consistent
with that portion of Article 1191 of the Civil Code which states that an injured party "may also
seek rescission, even after he has chosen fulfillment, if the latter should become impossible."
Nevertheless, the impossibility of fulfillment was not sufficiently demonstrated in the
proceedings conducted in this case. As the HLURB- BOC pointed out, "[t]here is no finding that
specific performance has become impossible or that there are insuperable legal obstacles to the
completion of the constructed units so as to justify [resolution]."
2. NO. Buenviaje’s claim to be restituted the alleged purchase price of the unit – for which the
spouses were claimed to be solidarily liable – this, holds NO BASIS.

Mutual restitution is the proper consequence of the remedy of resolution. It cannot arise – as it is,
in fact, theoratically incompatible – with the remedy of specific performance, which is the relief
prayed for and consequently, granted to the injured party.
In this case, it is undisputed that Spouses Salonga were not parties to the contract. between
Jebson and Buenviaje. Under Article 1311 of the Civil Code, it is a basic principle in civil law on
relativity of contracts, that contracts can only bind the parties who had entered into it and it
cannot favor or prejudice 3 persons. Contracts take effect only between the parties, their
successors in interest, heirs and assigns. Thus, absent and privity of contract as to them, there is
no basis to hold Spouses Salonga liable for any of the obligations stated under the said contract.
3. NO. The court finds no basis to rescind the aforesaid “swapping arrangement.”
Creditors are given remedies whenever their debtors perform acts or omissions or enter into
contracts that tend to defraud the creditor of what is due to them. Such remedy comes in the form
of rescission under Articles 1381(3) in relation to Articles 1383 and 1384 of the Civil Code.
Rescission is a remedy granted by law to the contracting parties and even to 3 rd persons, to
secure the reparation of damages caused to them by a contract, even if this should be valid, by
restoration of things to their condition at the moment prior to the celebration of the contract. It
implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to
someone. In the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d’etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued.
The records do not support the HLURB-BOC’s finding that this separate arrangement was
entered into in order to defraud Jebson’s creditors under the JVA. The act of Jebson in accepting
non-cash assets as suitable payments was a business decision made by it. While such may have
been the cause of Jebson's inability to timely complete the project (possibly due to the lack of
immediate access to liquid capital at that time), the soundness or unsoundness of that business
decision is not enough for the Court to conclude that the said swaps were entered into to defraud
Spouses. Salonga, notwithstanding the resulting "economic prejudice" to them. As the records
show, Jebson was, in fact, able to receive both cash and non-cash asset payments made by
Buenviaje, and hence, could have properly managed the same to meet its obligations in light of
its financial position.