GR 142310; (September, 2004) (Digest)
G.R. No. 142310; September 20, 2004
ARRA REALTY CORPORATION and SPOUSES CARLOS ARGUELLES and REMEDIOS DELA RAMA ARGUELLES, petitioners, vs. GUARANTEE DEVELOPMENT CORPORATION AND INSURANCE AGENCY and ENGR. ERLINDA PEĂ‘ALOZA, respondents.
FACTS
Arra Realty Corporation (ARC), through its president Carlos Arguelles, agreed to sell a portion of the second floor of its building to Engineer Erlinda Peñaloza. Peñaloza paid installments and took possession. Unknown to her, ARC mortgaged the entire property to China Banking Corporation. Upon learning of the mortgage, Peñaloza stopped payments, proposed to assume the proportionate loan, and filed an adverse claim on the title. ARC defaulted on its loan, leading to foreclosure and the property’s sale to the bank. ARC then entered a Deed of Conditional Sale with respondent Guarantee Development Corporation and Insurance Agency (GDCIA) to redeem the property. The redemption was completed, and a Deed of Absolute Sale was executed, with GDCIA retaining part of the purchase price to cover potential claims from occupants like Peñaloza. ARC warranted the property was free of occupants, but Peñaloza remained. GDCIA subsequently refused full payment, prompting ARC to sue for rescission of the sale and specific performance.
ISSUE
The primary issue is whether GDCIA was justified in refusing to pay the balance of the purchase price to ARC, thereby warranting the dismissal of ARC’s action for rescission and specific performance.
RULING
The Supreme Court denied ARC’s petition and affirmed the Court of Appeals. GDCIA’s refusal to pay the full balance was legally justified. The Deed of Conditional Sale obligated ARC to deliver the property free of all occupants and encumbrances. ARC breached this warranty, as Peñaloza, a claimant to a portion of the property, remained in possession. This breach entitled GDCIA to withhold payment under the contract’s terms. The retention of a portion of the purchase price was a contractual safeguard agreed upon to answer for such claims. ARC’s argument that GDCIA should have first paid the balance and then sought damages was rejected; a vendee is not required to fulfill its obligation when the vendor is in default. Furthermore, the Court noted that Peñaloza’s separate claim against the parties had been resolved in a prior final and executory decision. Thus, ARC failed to establish a clear right to the reliefs of rescission and specific performance.