GR 140715; (September, 2004) (Digest)
G.R. No. 140715; September 24, 2004
JOSEFINA L. VALDEZ and CARLOS L. VALDEZ, JR., petitioners, vs. COURT OF APPEALS and JOSE LAGON, respondents.
FACTS
Petitioners Josefina Valdez, owner of a parcel of land, and her son, petitioner Carlos Valdez, Jr., her attorney-in-fact, sold a portion of the land to respondent Jose Lagon. The sale was conditioned on Lagon transferring his Rural Bank of Isulan to the property and constructing a commercial building within five years. This condition, however, was not stated in the executed Deed of Absolute Sale, which only indicated a cash consideration of ₱80,000. The actual agreed price was ₱163,760, inclusive of Carlos Jr.’s personal debt to Lagon. Lagon made partial payments but failed to pay the full balance, to transfer the bank, or to commence construction.
After Lagon’s failure, the Valdezes refused to deliver the title. They later sold a portion of the subject lot to the Philippine Commercial Industrial Bank (PCIB). Lagon then filed a complaint for specific performance and damages, seeking to compel the Valdezes to execute the final deed of sale and deliver the title. The trial court ruled in favor of Lagon, a decision affirmed by the Court of Appeals.
ISSUE
Whether the contract of sale between the parties is valid and enforceable, and whether Lagon is entitled to specific performance.
RULING
No. The Supreme Court reversed the lower courts’ decisions. The Court ruled that the contract was subject to a suspensive condition—the transfer of the rural bank and construction of a commercial building—as clearly evidenced by the Affidavit executed by Lagon. Since this condition was not fulfilled within the stipulated period, the obligation of the Valdezes to convey the title did not arise. The Deed of Absolute Sale, while purporting to be absolute, must be read in conjunction with the contemporaneous Affidavit to ascertain the true agreement of the parties.
The failure of the suspensive condition rendered the contract ineffective. Consequently, Lagon is not entitled to specific performance. The principle of restitution under Article 1398 of the Civil Code applies. The Valdezes are ordered to refund the total payments received from Lagon amounting to ₱101,880, with 12% interest per annum from the finality of the decision. The Court emphasized that a party who fails to comply with a condition essential to the obligation cannot demand performance from the other party.