Lim vs. Court of Appeals

Buyer of property (D) vs. Seller (P)
GR 118347	[T]

Summary: The seller of a property invoked her failure to comply with an obligation in the contract to rescind a contract of sale.

Rule of Law: The offending party cannot rescind a contract without violating the principle of mutuality, which prohibits the making of the validity and performance of contracts dependent on the exclusive will of one of the parties.

Facts: Seller Liberty Luna (P) sold a 1,013-sq.m. lot to buyers Vicente and Michael Lim (D) and received P200,000 as earnest money. In the receipt of the money, there was a condition that Luna (P) is responsible for ejecting the squatters occupying the property and shall refund the earnest money if she failed to do so. In addition, if the squatters were ejected and the buyers (D) do not pay the balance, the earnest money shall be forfeited in favor of Luna (P).

Luna (P) failed to eject the squatters. Nonetheless, the buyers (D) did not demand the return of their earnest money. The parties met afterward to negotiate a price increase to facilitate the ejectment of the squatters and agreed to an increase. After a few days, Luna (P) tried to return the earnest money alleging her failure to eject the squatters and claimed that as a result, the contract of sale ceased to exist and she no longer has the obligation to sell and deliver her property to the buyers (D). The buyers (D) refused to accept the refund and Luna (P) informed them (D) that the amount would be deposited in court by consignation. Thereafter, Luna (P) filed a complaint for consignation against the buyers (D).

Issues: Can the buyer lose the acquired right to demand from the seller to sell a property to them because the seller failed to comply with the condition of ejecting squatters from the property?

Ruling: No. The buyers Lim (D) did not lose their right and that the appellate court erred in its decision. The agreement shows a perfected contract of sale. Under Article 1475 of the Civil Code, there is a perfected contract of sale if there is a meeting of the minds on the subject and the price. A sale is a consensual contract requiring only the consent of the parties on these two points. No particular form is required for the validity of their contract and, therefore, upon its perfection, the parties can reciprocally demand performance of their respective obligations. (Dalion vs. Court of Appeals, 182 SCRA 872, 1990)

Luna (P) is erroneous in citing her failure as a condition to void the contract. She fails to distinguish between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with first condition results in the failure of a contract, while failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition.

In this case, there is already a perfected contract. The condition was imposed only on the performance of the obligation. Hence, petitioners have the right to choose whether to demand the return of the earnest money or to proceed with the sale. And they chose to proceed.

Luna (P) is not the injured party. She cannot rescind the contract without violating the principle of mutuality of contracts, which prohibits allowing the validity and performance of contracts to be left to the will of one of the parties.

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 the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
   —Article 1191 of the Civil Code

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* Keywords: rescission