G.R. No. 167213 ; October 31, 2006
DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION BAUTISTA, DANNY BOY CORDERO, LADYLYN CORDERO and BELEN CORDERO, petitioners, vs. F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent.

FACTS

Petitioners, represented by Belen Cordero, entered into a Contract to Sell with respondent corporation for five parcels of land in Batangas. The contract stipulated a total price of P12,500,000.00, with an earnest money of P500,000.00, a down payment of P3.5 million due by April 30, 1995, and the balance payable in quarterly installments over 18 months. Respondent paid the earnest money and a total of P2.5 million but failed to pay the full down payment by the stipulated date and made no further payments. Petitioners sent a demand letter revoking the contract and treating the payments as damages. Upon respondent’s failure to comply, petitioners filed a complaint for rescission with damages.
The Regional Trial Court (RTC) declared respondent in default for failure to appear at pre-trial and submit a pre-trial brief. After ex parte proceedings, the RTC rescinded the contract and ordered respondent to pay petitioners P4.5 million in net damages (after deducting the P2.5 million paid) and P800,000.00 in attorney’s fees. The Court of Appeals (CA) reversed this decision, finding the award of damages and attorney’s fees baseless and ruling that petitioners were not entitled to rescission under Republic Act No. 6552 (The Maceda Law).

ISSUE

Whether the Court of Appeals erred in reversing the RTC’s decision which rescinded the contract and awarded damages and attorney’s fees to petitioners.

RULING

The Supreme Court reversed the Court of Appeals and reinstated the RTC decision with modification on the damages. The legal logic is clear: a contract to sell is a bilateral contract where the obligation of the seller to transfer ownership is contingent upon full payment of the purchase price. Respondent’s failure to pay the stipulated installments constituted a breach, giving petitioners the right to rescind under Article 1191 of the Civil Code. The CA incorrectly applied the Maceda Law, which governs sales of real estate on installment payments by the seller. This case involved a contract to sell, not an installment sale where ownership had already passed to the buyer. Here, ownership remained with the sellers-petitioners, and the Maceda Law’s redemption periods were inapplicable.
On damages, the Supreme Court upheld the rescission but found the RTC’s award of actual damages based on a lost opportunity to sell to another buyer speculative and unsubstantiated. Moral and exemplary damages were also deleted due to insufficient proof of bad faith. However, attorney’s fees were properly awarded under Article 2208 of the Civil Code, as respondent’s breach compelled petitioners to litigate. The Court modified the award to P100,000.00 as reasonable attorney’s fees and affirmed the forfeiture of the P2.5 million in installments already paid as compensation, in accordance with the contract’s stipulation and legal principle.