G.R. No. 168108 April 13, 2007
ENRIQUE C. ABAD, ET AL., Petitioners, vs. GOLDLOOP PROPERTIES, INC., Respondent.

FACTS

Petitioners, the Abad siblings, entered into a Deed of Conditional Sale with respondent Goldloop Properties, Inc. for the sale of 13 parcels of land. The total price was P34,815,300.00, payable as follows: an earnest money of P1,000,000.00; a first payment of P6,765,660.00 upon signing; and the balance on or before December 31, 1997. Paragraph 8 of the Deed stipulated that if the buyer failed to pay the balance within a granted 30-day extension, the earnest money would be forfeited, but the first payment “shall be returned to the BUYER without any additional charges to the SELLER.”
Goldloop failed to pay the balance, citing adverse economic conditions. In a letter dated October 8, 1998, it formally informed petitioners it could not consummate the sale and demanded the return of the P6,765,660.00 first payment pursuant to Paragraph 8. When petitioners refused, Goldloop filed a complaint for collection to recover said amount.

ISSUE

Whether respondent Goldloop Properties, Inc. is entitled to the refund of the P6,765,660.00 first payment as stipulated in the Deed of Conditional Sale.

RULING

Yes, the Supreme Court ruled that Goldloop is entitled to the refund. The Court affirmed the decisions of the lower courts, holding that the contract is the law between the parties. The obligation to return the first payment is clear, express, and demandable under the plain terms of Paragraph 8 of the Deed. The provision explicitly states that upon the buyer’s failure to comply within the extension period, the earnest money is forfeited, “but the first payment check… shall be returned to the BUYER.” The use of the mandatory word “shall” indicates an obligatory duty on the part of the sellers.
The Court rejected petitioners’ argument that the refund was conditional upon a formal request for extension. The legal logic is grounded in the principle of obligatory force of contracts under Article 1159 of the Civil Code. The stipulation is not a penalty clause but a straightforward contractual promise to return a specific sum upon the occurrence of a specified event—the buyer’s default after extension. Since that event occurred, the obligation to refund became incumbent upon petitioners. The Court emphasized that contracts are to be construed according to their literal terms when they are clear, leaving no room for interpretation. The parties’ intent, as manifested in the unambiguous language of Paragraph 8, was to separate the treatment of the earnest money (as forfeitable) from the first payment (as refundable). Therefore, petitioners were legally bound to comply with their contractual commitment to return the amount.