G.R. No. 160033 , July 1, 2015
TAGAYTAY REALTY CO., INC., Petitioner, vs. ARTURO G. GACUTAN, Respondent.

FACTS

On September 6, 1976, respondent Arturo G. Gacutan entered into a Contract to Sell with petitioner Tagaytay Realty Co., Inc. for the installment purchase of a residential lot in Foggy Heights Subdivision. On June 30, 1976, petitioner executed an express undertaking to complete the development of roads, drainage, water, electrical systems, and amenities (swimming pool, pelota court, tennis/basketball court, bath house, children’s playground, clubhouse) within two years from July 15, 1976. The undertaking stated that failure to complete such development would give the vendee the option to suspend monthly amortization payments until completion without incurring penalty interest, with the period suspended for causes like force majeure or government restrictions. On November 12, 1979, respondent notified petitioner he was suspending amortizations due to the unconstructed amenities. Despite subsequent written demands from respondent, petitioner did not reply and instead sent a statement of account on June 10, 1985, demanding the balance plus interest and penalty. Respondent refused to pay interest and penalty. On October 4, 1990, respondent sued for specific performance in the HLURB, praying petitioner be ordered to accept payment of the balance without interest and penalty and to deliver the title. Petitioner, in its defense, invoked Article 1267 of the Civil Code, citing peso depreciation, increased costs of labor and materials, and increased lot value as justifications for release from the obligation. It also stated it suspended construction because lot buyers had not built houses, leaving amenities to deteriorate. The HLURB Arbiter ruled for respondent, ordering petitioner to accept the balance without interest and penalty and to execute an absolute deed of sale. This was affirmed by the HLURB Board of Commissioners, the Office of the President, and the Court of Appeals.

ISSUE

Was the petitioner released from its obligation to construct the amenities in the Foggy Heights Subdivision?

RULING

No, the petitioner was not relieved from its statutory and contractual obligations to complete the amenities. The Court ruled that the petitioner’s arguments for release under Article 1267 of the Civil Code lacked merit. The law mandates completion under Section 20 of Presidential Decree No. 957, requiring developers to complete subdivision projects, including amenities, within one year from license issuance. The contractual undertaking was clear and the respondent had the right to suspend payments for the petitioner’s non-compliance. The petitioner’s reasons—economic hardships, increased costs, and the absence of resident homeowners—did not constitute the extraordinary, unforeseeable, and absolutely disproportionate change in circumstances required by Article 1267 to release an obligor. The contract itself provided for suspension only due to acts of God, force majeure, or government restrictions, none of which were invoked. The defense of laches was also rejected due to respondent’s repeated written demands. However, the Court modified the monetary award. It found the HLURB Arbiter’s computation of the balance (P8,587.80) erroneous, as it was based on only three years of paid installments, ignoring the 84-month period (from November 1979 to October 1990) during which respondent validly withheld payments due to petitioner’s default. The correct unpaid balance was for the 48-month period from the end of the two-year development period (July 1978) until respondent filed the complaint (October 1990), amounting to P19,965.60. The Court ordered petitioner to accept this amount without interest and penalty, execute the deed of absolute sale, deliver the title, and pay costs.