G.R. No. 126812 November 24, 1998
Goldenrod, Inc., petitioner, vs. Court of Appeals, Pio Barreto & Sons, Inc., Pio Barreto Realty Development, Inc. and Anthony Que, respondents.

FACTS

Pio Barreto and Sons, Inc. owned 43 parcels of land in Quiapo, Manila, mortgaged to United Coconut Planters Bank (UCPB). Facing imminent foreclosure, Goldenrod, Inc. offered to buy the property. On May 25, 1988, Goldenrod’s president wrote to Anthony Que, President of Barreto & Sons, accepting amendments to the offer and enclosing P1 million earnest money, stating it “shall form part of the purchase price.” The assets and liabilities of the expiring Barreto & Sons were transferred to Pio Barreto Realty Development, Inc. The agreement was for Goldenrod to pay P24.5 million to UCPB to settle the loan by June 30, 1988, and a P20 million balance to Barreto Realty in installments. Goldenrod failed to pay UCPB by the deadline and requested extensions, which were ultimately denied. Barreto Realty, at Goldenrod’s request, reconsolidated the titles into two lots, incurring P250,000 in expenses. On August 30, 1988, Goldenrod’s broker informed Que it could not proceed with the purchase due to UCPB’s denial of an extension and demanded a refund of the earnest money. The next day, Barreto Realty sold one lot to Asiaworld Trade Center Phils., Inc., and later transferred the other lot to UCPB via dacion en pago, which UCPB then sold to Asiaworld. Goldenrod’s subsequent demands for the return of the P1 million were refused, leading to a complaint. Private respondents contended the earnest money was agreed to be forfeited for damages if the sale failed. The trial court ordered respondents to return the money, but the Court of Appeals reversed this decision.

ISSUE

In the absence of a specific stipulation, may the seller of real estate keep the earnest money to answer for damages in the event the sale fails due to the fault of the prospective buyer?

RULING

No. The Supreme Court granted the petition, reversed the Court of Appeals, and ordered private respondent Pio Barreto Realty Development, Inc. to return the P1 million earnest money to petitioner Goldenrod, Inc. with legal interest from August 30, 1988. Under Article 1482 of the Civil Code, earnest money given in a contract of sale is considered part of the purchase price and proof of the contract’s perfection. The earnest money here was clearly intended as an advance payment forming part of the price, with no express stipulation for forfeiture. Goldenrod’s notice of inability to proceed constituted an extrajudicial rescission, to which private respondents did not object, as evidenced by their subsequent sales of the property to another party. Under Article 1385, rescission obliges the mutual return of what was given. Allowing the seller to retain the earnest money after selling the property to another would constitute unjust enrichment. Therefore, the vendor is obliged to return the earnest money.