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 and her son, lawyer Carlos Valdez, Jr., owned a parcel of land. Josefina authorized Carlos, Jr. to sell a portion to respondent Jose Lagon, a client. The agreed consideration was P163,760, with a crucial condition: Lagon must transfer his Rural Bank of Isulan to the property and construct a commercial building within five years. A Deed of Absolute Sale was executed on May 9, 1979, but it only stated a purchase price of P80,000 and omitted the commercialization condition. Lagon later executed a separate affidavit acknowledging this condition. He paid a portion of the price but failed to pay the balance of P61,880 and, more critically, never commenced the bank transfer or construction.
Petitioners demanded payment and later proposed to reduce the sold area proportionately, but Lagon did not respond. Subsequently, petitioners sold a portion of the property to the Philippine Commercial Industrial Bank. Lagon then filed a complaint for specific performance, seeking to compel the petitioners 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, considering the failure of the buyer to comply with a material condition of the agreement.
RULING
The Supreme Court reversed the lower courts and declared the contract rescinded. The Court ruled that the true agreement was a conditional contract of sale, with the commercialization of the property being a primary and indispensable consideration, not a mere secondary promise. This condition was intended by the parties as a causa or motive for the sale, which was proven by the separate affidavit executed by Lagon. His failure to fulfill this condition within the stipulated period constituted a breach that went to the essence of the contract.
The legal logic is grounded in the principle of relativity of contracts under Article 1311 of the Civil Code. The contract is binding only upon the parties and their successors-in-interest. The subsequent sale of a portion of the land to PCIB was valid because Lagon, having breached the condition, had no valid claim or right to the property at that time. The Deed of Absolute Sale was not truly absolute but subject to a suspensive condition. Since Lagon failed to comply, the obligation of the sellers to convey the full title never became effective. The Court ordered the rescission of the contract and directed the petitioners to refund the amounts received from Lagon, with legal interest, thereby restoring the parties to their original positions prior to the agreement.