Romero vs. Court of Appeals

Buyer (P) vs. Seller (D)
GR 107207	[T]

Summary: A seller of a property invokes the right to rescind the contract citing as a ground her own failure to comply with a condition in the agreement to eject the squatters occupying the property.

Rule of Law: Under the law on contracts, the power to rescind is given to the injured party.

Facts: Buyer Virgilio Romero (P) together with his foreign partners decided to put up a central warehouse in Metro Manila. They contacted several real estate brokers and thereafter, were contacted by Alfonso Flores and spouse to offer a parcel of land of the seller Enriqueta Ongsiong (D). Romero (P) found the property suitable for a warehouse, except for the presence of squatters in the area.

A Deed of Conditional Sale was executed between Romero (P) and Ongsiong (D) where they agreed that the seller has the obligation to remove the squatters from the property. While Ongsiong (D) got a favorable judgment on her eviction case against the squatters, she did so at a much later date than the agreed upon 60-day period in the contract. She offered to return the down payment to Romero (P), but he refused to accept and instead offer to underwrite the expenses for the execution of the writ.

On the expiry of the grace period, Romero (P) reminded Onsiong (D) of her obligation to which Ongsiong (D) responded that the Deed of Conditional Sale had been rendered null and void by virtue of her failure to evict the squatters from the premises.

Romero (P) responded that the contract of sale between the parties was perfected from the very moment that there was a meeting of the minds upon the subject lot and the price. The contract had already been partially fulfilled and executed upon receipt of the down payment. Ongsiong (D) is precluded from rejecting its binding effects relying upon her inability to eject the squatters from the premises of subject property during the agreed period. Furthermore, the provisions in the contract do not grant Ongsiong (D) the option or prerogative to rescind and retain the property should she fail to comply with the obligation she has assumed under the contract. The contract clearly shows that the right to rescind and to demand the return/reimbursement of the down payment is granted to Romero (P) for his protection.

Instead of availing of the power to rescind the contract and demand the return of the down payment, Romero (P) had opted to assume the ejectment of the squatters from the premises. And he pointed out that it is basic under the law on contracts that the power to rescind is given to the injured party.

Finally, Romero (P) told Ongsiong (D) that she has not complied with her obligation under their contract in good faith. It is undeniable that she deliberately refused to exert efforts to eject the squatters and retain the property because of the sudden increase in the value of properties in the surrounding areas.

The lower court held that Ongsiong (D) had no right to rescind the contract since it was she who "violated her obligation to eject the squatters from the subject property" and that Romero (P), being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court further ruled that the provision calling for the reimbursement of the down payment amounted to a "penalty clause".

But the decision was reversed on appeal where the court decided that the agreement was a contract with a resolutory condition.

Issues: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his/her own failure?

Ruling: No. Ongsiong's (D) action for rescission is not warranted because she is not the injured party. The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. It is Ongsiong (D) who has failed in her obligation under the contract.

A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Article 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence.
   —Asuncion vs. Court of Appeals, 238 SCRA 602.

In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition.
   —Dignos v. Court of Appeals, GR L-59266, February 29, 1988, 158 SCRA 375.

The term "condition" in a perfected contract of sale pertains to the compliance to a prestation by one party and upon fulfillment, the demand of the reciprocal prestation by the other party. The reciprocal obligations referred to would normally be, in the case of Romero (P), the payment of the agreed purchase price and, in the case of the Ongsiong (D), the fulfillment of certain express warranties (which, in this case, is the timely eviction of the squatters on the property).

It is futile to challenge the agreement here as not being a duly perfected contract. A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees.