GR 163075; (January, 2006) (Digest)
G.R. No. 163075 January 23, 2006
AYALA LIFE ASSURANCE, INC., Petitioner, vs. RAY BURTON DEVELOPMENT CORPORATION, Respondent.
FACTS
Petitioner Ayala Life and respondent Ray Burton entered into a Contract to Sell a parcel of land. The contract stipulated that ownership would remain with the seller until full payment of the purchase price. It contained an “Event of Default” clause, providing that if the purchaser defaults for six months, the seller may cancel the contract by written notice and refund payments, less penalties and a 25% liquidated damages deduction. Respondent paid the down payment and several installments but, citing economic crisis, formally notified petitioner in August 1998 of its inability to continue payments and requested contract cancellation and a refund as per the agreement.
Petitioner refused the cancellation. Instead, it filed a complaint for specific performance to compel respondent to pay the remaining balance. The trial court ruled in favor of petitioner, ordering respondent to pay the unpaid balance. On appeal, the Court of Appeals reversed the decision. It held the contract was a contract to sell and, upon respondent’s default and valid notice, the stipulated cancellation and refund procedure should govern, not an action for specific performance.
ISSUE
Whether petitioner’s remedy against respondent, who defaulted in a contract to sell, is an action for specific performance to collect the full price, or whether the stipulated cancellation and refund clause controls.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals. The contract is unequivocally a contract to sell, where ownership is retained by the seller until full payment. The non-payment of an installment is not a breach of contract but a contingent event that prevents the obligation to convey title from arising. Consequently, the seller’s remedy is not an action for specific performance under Article 1191 of the Civil Code for reciprocal obligations.
The parties’ rights are governed by their clear and specific contractual stipulations on default. The contract provided a precise mechanism: upon default lasting six months, the seller may cancel the contract via written notice and refund payments, less penalties and liquidated damages. Respondent’s written notice of inability to pay effectively triggered this provision. Petitioner, by refusing to cancel and instead suing for specific performance, unilaterally sought to alter the agreed terms. The law respects the autonomy of contracts; the stipulated remedy is binding. Therefore, petitioner must comply with the contract by refunding the payments, less the agreed 25% liquidated damages and applicable interest.