SPOUSES NAMEAL AND LOURDES BONROSTRO, PETITIONERS, VS. SPOUSES JUAN AND CONSTANCIA LUNA, RESPONDENTS.

Bonrostro versus Luna

The Case

This is the case of Bonrostro versus Luna, a petition for review on certiorari brought by the spouses Nameal and Lourdes Bonrostro against the spouses Juan and Constancia Luna. The Lunas had sued for rescission of a contract to sell a house and lot, and the case reached the Supreme Court on a narrow but exacting question: whether the Court of Appeals correctly modified the trial court's award of interest. The case matters because it gathers in one decision three rules a Bar candidate must command: that a contract to sell is not governed by rescission under Article 1191 of the Civil Code but by the Maceda Law; that a mere letter expressing willingness to pay is not a valid tender of payment and does not stop the running of interest; and that interest may be imposed only when stipulated in writing or, absent stipulation, at the legal rate.

Procedural History

Constancia Luna and her husband Juan Luna filed a complaint for rescission of contract and damages before the Regional Trial Court of Quezon City, Branch 104. The trial court ruled that the Bonrostros' delay was not a substantial breach warranting rescission, declared the contract to sell in force, and ordered the Bonrostros to pay the two installments with interest, and to reimburse the amount the Lunas had paid to the developer. The Lunas appealed to the Court of Appeals. The Court of Appeals held that rescission was not the proper remedy because the contract was a contract to sell governed by the Maceda Law, and that no valid cancellation had been effected. It affirmed the trial court but modified the award of interest, reckoning the two percent monthly interest on the three hundred thousand pesos from May 1, 1993 until fully paid, imposing legal interest on the three hundred thirty thousand pesos from August 1, 1993, and imposing legal interest on the reimbursement. The Lunas no longer assailed that ruling. The Bonrostros filed a partial motion for reconsideration, which the Court of Appeals denied. Hence, this petition for review on certiorari before the Supreme Court.

Facts

In 1992, Constancia Luna, as buyer, entered into a contract to sell with Bliss Development Corporation over a house and lot in New Capitol Estates, Diliman, Quezon City. Barely a year later, Constancia, this time as seller, entered into another contract to sell over the same property with Lourdes Bonrostro for one million two hundred fifty thousand pesos. The price was payable in installments: two hundred thousand pesos upon signing, three hundred thousand pesos on or before April 30, 1993, three hundred thirty thousand pesos on or before July 31, 1993, and four hundred seventeen thousand pesos payable to New Capitol Estate over fifteen years. The contract stipulated that failure to pay the second installment on time would make the buyer liable for two percent monthly interest on the three hundred thousand pesos starting May 1, 1993.

Immediately after signing, the Bonrostros took possession of the property. Except for the two hundred thousand peso down payment, however, Lourdes paid none of the subsequent installments. In January 1994, the Lunas filed the complaint for rescission and damages. The Bonrostros answered that they were willing to pay the balance of six hundred thirty thousand pesos and had asked for a sixty-day extension, but that Constancia and her lawyer failed to appear at the agreed meeting. On November 24, 1993, Lourdes sent the lawyer a letter expressing her desire to pay, but received no response. The Bonrostros also claimed they had paid Bliss forty-six thousand three hundred three pesos and forty-four centavos, and that Constancia had instructed Bliss not to accept amortization payments from anyone.

Issues

• Whether or not the Court of Appeals correctly modified the trial court's decision with respect to the interest on the installments.
• Whether or not the letter of Lourdes dated November 24, 1993 amounted to a valid tender of payment that suspended the running of interest.
• Whether or not the Bonrostros may be relieved from paying interest on the amount the Lunas paid to Bliss as amortizations, on the ground that Constancia prevented them from fulfilling their obligation.

Applicable Provisions

Article 1956 of the Civil Code provides:

No interest shall be due unless it has been expressly stipulated in writing.

This governs the two hundred thousand peso and three hundred thirty thousand peso installments, for which the contract stipulated no interest in case of default.

Article 2209 of the Civil Code provides:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest.

This supplies the legal rate of interest on the installments and on the reimbursement where no rate was agreed upon.

Article 1186 of the Civil Code provides:

The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

The Bonrostros invoked this provision to excuse their non-payment of amortizations to Bliss, but the Court found it inapplicable.

Section 4 of Republic Act Number 6552, the Maceda Law, provides:

In case where less than two years of installment were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

This governs the contract to sell of real property on installment basis and explains why rescission was not the proper remedy.

Ruling

On the first issue, the Court held that the Court of Appeals correctly modified the interest. The Bonrostros relied on the trial court's finding that Lourdes was willing and ready to pay on November 24, 1993, but that finding was reached on the mistaken premise that rescission applied. In a contract to sell, payment of the price is a positive suspensive condition, and its non-payment is not a breach warranting rescission under Article 1191 of the Civil Code but merely an event that prevents the seller from being bound to convey title. Since there was no breach to speak of, the finding of willingness to pay lost significance and could not excuse the Bonrostros from interest.

On the second issue, the Court held that the letter was not a valid tender of payment. Tender of payment is the manifestation by the debtor of a desire to comply with or pay an obligation, and it produces no effect without more; to extinguish the obligation, it must be accompanied by consignation, the deposit of the amount with the proper court. The Court quoted the civilist Tolentino: when the tender is not accompanied by the means of payment, and the debtor takes no immediate step to consign, interest is not suspended. Here the letter expressed willingness but carried no payment, and no consignation followed. The Bonrostros were therefore liable for interest from the date of default until full payment.

On the third issue, the Court held that Article 1186 did not apply. That provision speaks of the obligor preventing fulfillment, but Constancia was the obligee, not the obligor. Even setting that aside, two requisites must concur: intent to prevent fulfillment, and actual prevention of compliance. While Constancia did instruct Bliss not to accept payment from anyone but her, nothing showed that Bliss heeded the instruction or that the Bonrostros were actually refused. The Lunas were thus justified in paying the amortizations to avoid cancellation of the earlier contract, and the Bonrostros were relieved from penalties three times higher than the legal rate. The Court applied Article 2209 and affirmed legal interest at twelve percent per annum.

Doctrine

First, in a contract to sell, payment of the price is a positive suspensive condition; failure to pay is not a breach warranting rescission under Article 1191 of the Civil Code, and sales of real property on installment are governed instead by the Maceda Law.

Second, tender of payment without more produces no effect; to extinguish the obligation and suspend the running of interest, it must be accompanied by actual payment or followed promptly by consignation.

Third, under Article 1956 of the Civil Code, no interest is due unless expressly stipulated in writing; absent stipulation, Article 2209 imposes the legal interest as indemnity for delay.

Fourth, Article 1186 of the Civil Code requires both intent to prevent fulfillment and actual prevention of compliance, and it applies to the obligor, not the obligee.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed; the Bonrostros lost and remained liable for the installments with interest and for reimbursement with legal interest.

Remember This

Memorize this line: a tender of payment without more produces no effect, and interest runs until actual payment or valid consignation. Examiners use this case to test the distinction between a contract of sale and a contract to sell, the requisites of consignation, and the rules on stipulated and legal interest under Articles 1956 and 2209 of the Civil Code.