GR 118347; (October, 1996) (Digest)
G.R. No. 118347 . October 24, 1996.
VICENTE LIM and MICHAEL LIM, petitioners, vs. COURT OF APPEALS and LIBERTY H. LUNA, respondents.
FACTS
Private respondent Liberty Luna sold a parcel of land to petitioners Vicente and Michael Lim for P3,547,600.00. A receipt, serving as the contract, was signed on September 2, 1988. It stipulated that a P200,000.00 earnest money was given, with the balance payable in full after Luna ejected the squatters on the property within 60 days. Luna failed to eject the squatters. Subsequently, on January 17, 1989, the parties met and mutually agreed to increase the purchase price to P4,000,000.00 to facilitate the ejectment. Days later, Luna attempted to return the earnest money, claiming her failure to eject the squatters extinguished her obligation to sell. Upon the buyers’ refusal to accept the refund, Luna filed a complaint for consignation.
ISSUE
Whether the consignation was valid, and whether the contract of sale was extinguished by Luna’s failure to eject the squatters within the original 60-day period.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision with modification. The consignation was invalid. The legal logic is that consignation requires a valid prior tender of payment that was unjustly refused. Here, Luna’s tender was not valid because her obligation to return the earnest money had already been novated. The January 17, 1989 meeting resulted in a mutual agreement to increase the price and continue with the sale. This constituted a novation of the original contract, whereby the new agreement superseded the old one. By agreeing to the new terms, petitioners waived the breach related to the original 60-day period for ejectment. Consequently, Luna’s obligation was no longer to refund the earnest money under the old terms but to proceed with the sale under the new terms. Her attempt to return the money was therefore a refusal to comply with the perfected and binding amended contract. The Court found Luna acted in bad faith, using her own failure as a pretext to back out, likely due to the property’s increased market value. Moral damages and attorney’s fees were awarded to petitioners.