**Spouses Valenzuela vs. Kalayaan Development & Industrial Corporation, G.R. No. 163244**
### Facts:
Kalayaan Development and Industrial Corporation (Kalayaan) owned a parcel of land covered by Transfer Certificate of Title (TCT) No. T-133026. Spouses Jose T. Valenzuela and Gloria Valenzuela (petitioners) occupied the property and made improvements. Kalayaan demanded they vacate, leading to negotiations where petitioners agreed to purchase 236 square meters for P1,416,000. A Contract to Sell was executed on August 5, 1994, with an initial payment of P500,000 and the balance in twelve monthly installments. Default on any installment would incur a penalty of 3% per month compounded.
Petitioners made partial payments totaling P208,000 but defaulted thereafter. They then requested only a 118 square meters portion be sold, which Kalayaan rejected, demanding settlement of the existing balance. Petitioners proposed having Gloria’s sister, Juliet Flores Giron (Juliet), assume the remaining balance with payments of P10,000 a month, which Kalayaan entertained by accepting some payments.
Despite reminders and demands from Kalayaan’s counsel, the full balance was never settled. Consequently, Kalayaan filed a Complaint for Rescission of Contract and Damages on June 19, 1998. The Regional Trial Court (RTC) of Caloocan City ruled in favor of Kalayaan, ordering the contract rescinded and the premises vacated. Petitioners’ appeal was dismissed by the Court of Appeals (CA).
### Issues:
1. **Validity of formal demand by Kalayaan for payment:**
– Petitioners contended that Kalayaan did not provide a proper notarized demand for rescission.
2. **Application of substantial performance under the New Civil Code:**
– Argued that payments made were substantial, thus fulfilling the contract terms as per Article 1234.
3. **Principle of Novation:**
– Asserted that the payment agreement with Juliet constituted novation of the original contract.
4. **Estoppel:**
– Claimed Kalayaan was barred from rescission due to acceptance of payments from Juliet.
5. **Award of Attorney’s Fees:**
– Petitioners challenged the justification for the awarded attorney’s fees.
### Court’s Decision:
1. **Validity of Demand:**
– The Court upheld that several valid demands were issued by Kalayaan. The contract’s requirement did not specify that demands must be notarized.
2. **Substantial Performance:**
– Petitioners’ partial performance did not meet the doctrine of substantial performance. Non-payment of balance prevented the obligation of Kalayaan to sell the property.
3. **Novation:**
– The claim of novation failed as there was no clear agreement to extinguish the original obligation and create a new one. Kalayaan’s acceptance of partial payments was deemed an act of tolerance, not an agreement to novate.
4. **Estoppel:**
– The arguments of estoppel were rejected since Kalayaan’s acceptance of payments did not amount to waiving their right to rescind due to default.
5. **Attorney’s Fees:**
– Attorney’s fees were upheld; however, reduced from P100,000 to P50,000, considering fairness.
### Doctrine:
– **Contract to Sell and Ownership Reservation:**
– The seller retains title until full payment is made. Non-payment renders the contract ineffective without necessitating rescission processes.
– **No Novation Without Clear Agreement:**
– For novation to be legally recognized, explicit consent to terminate the old contract and establish a new one must exist.
### Class Notes:
– **Contracts to Sell:**
– Seller retains ownership until the total price is paid (Article 1475, Civil Code).
– Full payment as a suspensive condition must be met for obligation to transfer ownership.
– **Substantial Performance (Article 1234, Civil Code):**
– Applicable only when obligations have been substantially met in good faith, not merely partial fulfillment.
– **Principle of Novation (Article 1292, Civil Code):**
– Requires clear, unequivocal terms or complete incompatibility between old and new obligations.
– **Attorney’s Fees:**
– Awarded as actual damages when litigation results from the other party’s non-fulfillment of contractual obligations. Reduced by the Court’s discretion under Article 1229 on equitable grounds.
### Historical Background:
This case revolves around the enforcement of Contract to Sell principles and evidences the rigid application of Civil Code provisions in real estate transactions in the Philippines. It delineates how non-fulfillment leading to non-transfer of property does not constitute a breach but a failure of the event required to actualize the seller’s obligation, emphasizing the need for clear contractual terms and proper execution in property sales.
Leave a Reply