Abad vs. Goldloop Properties, Inc.

The obligation to return the first payment under a Deed of Conditional Sale is a pure and unconditional obligation where the contract's terms clearly and unambiguously provide for such return, and the courts may not rewrite the contract or impose conditions the parties did not stipulate. Where the language of a contract is plain and unambiguous, its meaning must be determined from that language alone, and courts cannot make for the parties better or more equitable agreements than they themselves have made.

The petitioners were the registered owners of 13 parcels of titled agricultural land covering a total of 53,562 square meters, situated in the S.C. Malabon Estate in Tanza, Cavite. On August 29, 1997, the respondent corporation, through its President Emmanuel R. Zapanta, entered into a Deed of Conditional Sale with the petitioners for the purchase of the entire land area. The contract fixed the price at P650.00 per square meter, or a total of P34,815,300.00, with specified terms of payment including earnest money, a first payment, and a full payment due on or before December 31, 1997, subject to certain conditions.

Petitioners Enrique C. Abad, Joseph C. Abad, Ma. Sabina C. Abad, Adelaida C. Abad, Cecilia C. Abad, Victoria C. Abad, Victor C. Abad, Cenon C. Abad, Jr., and Juanita C. Abad were the owners of 13 parcels of titled agricultural land covering a total of 53,562 square meters, situated in the S.C. Malabon Estate in Tanza, Cavite. On August 29, 1997, respondent Goldloop Properties, Inc., through its President Emmanuel R. Zapanta, entered into a Deed of Conditional Sale with the petitioners at the price of P650.00 per square meter, or a total of P34,815,300.00 for the entire land area.

The parties agreed on the following terms of payment: an earnest money of P1,000,000.00, evidenced by MBTC Check No. 2930037 dated July 2, 1997; a first payment of P6,765,660.00, covered by MBTC Check No. 2930037198, payable upon signing of the Deed; and the remaining balance of P27,049,640.00, payable on or before December 31, 1997, upon the fulfillment of conditions including verification of the total land area through a site relocation survey to be confirmed by both parties. Paragraph 8 of the Deed provided that in the event the buyer could not comply with its obligation for the balance one week before December 31, 1997, it should forward a formal request for an extension not exceeding 30 days, on a one-time basis. In the event the buyer failed to comply within the extension period, the earnest money of P1,000,000.00 would be forfeited in favor of the seller, but the first payment check of P6,765,660.00 would be returned to the buyer without any additional charges to the seller.

In a letter dated August 28, 1998, Zapanta informed Henry Abad that he would not object to the planned sale of the properties to other parties, provided that 50% of the forfeitable amount of P1,000,000.00 would be returned in addition to the P6,765,660.00 as provided in paragraph 8. He declared that the intended date of purchase had been adversely affected by economic conditions which were never foreseen as a possible contingency. However, in another letter dated October 8, 1998, Zapanta informed Enrique C. Abad that negotiations with the banks had failed due to "the continuing economic downturn" and consequently, the transaction would not be consummated. He then requested that the first payment be returned within five days, in accordance with paragraph 8 of the deed. Respondent reiterated its demand in a letter dated November 5, 1998.

Respondent then filed a Complaint for Collection with Prayer for Writ of Attachment against petitioners, seeking the return of P6,765,660.00 with interest of 24% per annum, attorney's fees equivalent to 25% of the principal amount, P50,000.00 for the premium of the attachment and/or injunction bond, P50,000.00 litigation expenses, and costs of suit. Trial ensued, and the parties presented their respective evidence. The RTC ruled in favor of respondent, limiting the issue to whether petitioners were entitled to refund the P6,765,660.00 paid pursuant to the Deed of Conditional Sale. The trial court found that the purpose of the P1,000,000.00 earnest money was separate and distinct from the P6,765,660.00 first payment, and that the return of the first payment was an unconditional obligation on the part of petitioners.

Petitioners filed a motion for reconsideration, insisting that a close reading of paragraph 8 revealed that respondent as buyer had to comply with three conditions precedent before the first payment could be returned: (a) one week before December 31, 1997, the buyer shall forward a formal request for an extension of the contract; (b) the extension shall not exceed 30 days; and (c) the extension shall be on a one-time basis. Petitioners alleged that these conditions were not fulfilled, and that respondent did not request for an extension within the stipulated period. The RTC denied the motion, holding that when the sale did not materialize, the obligation of petitioners to return the first payment became unqualified and unconditional.

On appeal, the CA dismissed the appeal and affirmed in toto the ruling of the trial court, citing Article 1370 of the Civil Code and declaring that the disputed paragraph 8 of the deed is plain and unambiguous: in case respondent failed to pay the balance, the earnest money would be forfeited, but the first payment shall be returned to respondent. On petitioners' motion for reconsideration, the CA partly granted the motion and declared that the liability of petitioners is only joint and not in solidum, finding no basis for solidary liability since the subject sale agreement nor the nature of the obligation gave no sign that the liability was solidary.

• Conditions Precedent: Petitioners argued that respondent failed to satisfy the three suspensive conditions under the disputed provision — (a) forwarding a formal request for extension one week before December 31, 1997; (b) the extension not exceeding 30 days; and (c) the extension being on a one-time basis — and thus petitioners were not obliged to return the first payment, and respondent's correlative right to demand performance never arose.

• Obligation with a Period: Petitioners argued that even assuming the CA was correct in its holding, the obligation should nevertheless be deemed one with a period, since even if no period was indicated in the contract, it does not follow that no such period was intended; the parties simply forgot to state the definite period for the return of the payment check.

• Article 1197 Application: Petitioners argued that the remedy available to respondent was not to demand performance of the obligation but to ask the court to fix the period within which to return the first payment, pursuant to Article 1197 of the Civil Code, and that respondent's action for collection must be dismissed since the complaint states no cause of action.

• Correctness of Lower Court Rulings: Respondent insisted that the trial and appellate courts did not commit any error in ordering petitioners to return to it the sum of P6,765,660.00, the obligation being unconditional under the clear terms of the contract.

• Nature of the Obligation: Whether the obligation of petitioners to return the first payment of P6,765,660.00 is an unconditional obligation or not.

• Pure Obligation vs. Obligation with a Period: Whether the obligation to return the first payment, assuming it to be unconditional, is a pure obligation or an obligation with a period.

• Fixing of Period by the Court: Whether the court must first fix the duration of the period within which petitioners have to comply with their obligation before respondent can demand from petitioners the fulfillment of said obligation.

• Nature of the Obligation: Yes, the obligation is unconditional. Paragraph 8 of the contract is clear and unambiguous: unlike the P1,000,000.00 earnest money which would be forfeited in favor of petitioners in case of respondent's failure to deliver the balance, the first payment would be returned to respondent.

• Pure Obligation vs. Obligation with a Period: The obligation is a pure obligation, demandable at once pursuant to Article 1179 of the Civil Code, there being no condition or term or period attached to the obligation to return the first payment.

• Fixing of Period by the Court: No. There is no occasion to apply the first paragraph of Article 1197 since there is no showing that the parties had intended such a period; this matter was not raised in the Answer, the Amended Answer or the Second Amended Answer, and no evidence was offered to prove such intent.

• Nature of the Obligation: The Court held that paragraph 8 of the contract is clear and unambiguous. The obligation to return the first payment can be gleaned from the second part of the disputed provision, which states: "but the first payment check of SIX MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND SIX HUNDRED SIXTY PESOS (PHP6,765,660.00) shall be returned to the BUYER without any additional charges to the SELLER." The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." The Court cited the rule in Bautista vs. Court of Appeals that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids, and the intention of the parties must be gathered from that language alone. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties.

• Pure Obligation vs. Obligation with a Period: The Court noted that the CA, in its Resolution dated May 4, 2005, declared that the obligation to return the subject payment is a pure obligation without a condition or a term or a period, hence demandable at once pursuant to Article 1179 of the New Civil Code. The Court found no reason to disturb this conclusion, as the contract's terms clearly provided for the return of the first payment without any condition or period attached.

• Fixing of Period by the Court: The Court cannot sustain petitioners' contention that their obligation to return the first payment should be deemed one with a period, and that the Court should fix the period within which they should comply with the obligation. There is no occasion to apply the first paragraph of Article 1197 since there is no showing that the parties had intended such a period. This matter was not raised in the Answer, the Amended Answer or the Second Amended Answer which petitioners filed in the trial court; no evidence was likewise offered to prove such intent. The parties to a contract are bound by their agreement, considering that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith, pursuant to Article 1159 of the Civil Code.

• Plain Meaning Rule — Where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids; the intention of the parties must be gathered from that language, and from that language alone. The Court applied this rule in affirming that paragraph 8 of the Deed of Conditional Sale clearly provided for the return of the first payment to the buyer, and the courts cannot rewrite contracts because they operate harshly or inequitably as to one of the parties.

• Four Corners Rule — A principle which allows courts in some cases to search beneath the semantic surface for clues to meaning; a court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The Court noted that a contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations; where the written terms are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law.

• Pure Obligation — An obligation is pure when it does not contain any condition or term or period upon which its fulfillment or extinguishment depends, hence it is demandable at once. The Court applied this doctrine in holding that the obligation to return the first payment of P6,765,660.00 was a pure obligation, demandable at once pursuant to Article 1179 of the Civil Code.

• Joint vs. Solidary Liability — There is solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity; where none of such elements exists, the liability is only joint. The Court affirmed the CA's modification declaring the petitioners' liability as joint, not in solidum, since the subject sale agreement nor the nature of the obligation gave no sign that the liability was solidary.

• "The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not." — This passage from Bautista v. Court of Appeals, quoted by the Court, articulates the controlling doctrine on contract interpretation and the limits of judicial intervention, forming the ratio decidendi of the decision.

• "If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." — This quotation from Article 1370 of the Civil Code states the cardinal rule in the interpretation of contracts, which the Court applied in affirming that paragraph 8 of the Deed of Conditional Sale plainly required the return of the first payment to the buyer.

• Bautista vs. Court of Appeals, 379 Phil. 386 (2000) — Controlling precedent cited by the Court for the rule that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids, and courts cannot rewrite contracts for the parties.

• Barrera vs. Lorenzo, G.R. No. 130994, September 18, 2002, 389 SCRA 329 — Cited by the CA in support of the rule on literal interpretation of clear contract terms.

• Ong Yong vs. Tiu, G.R. No. 144476, February 1, 2002, 375 SCRA 614 — Cited by the CA in support of the rule on literal interpretation of clear contract terms.

• Mortel vs. KASSCO, Inc., G.R. No. 137823, December 15, 2000, 348 SCRA 391 — Cited by the CA in support of the rule on literal interpretation of clear contract terms.

• Palmares vs. Court of Appeals, G.R. No. 126490, March 31, 1998, 288 SCRA 422 — Cited by the CA in support of the rule on literal interpretation of clear contract terms.

• Riviera Filipina, Inc. vs. Court of Appeals, G.R. No. 117355, April 5, 2002, 380 SCRA 245 — Cited by the CA in support of its holding that the obligation to return the first payment was unconditional.

• Gaw vs. Court of Appeals, G.R. No. 147748, April 19, 2006, 487 SCRA 423 — Cited by the Court for the principle that the parties to a contract are bound by their agreement.

• Article 1370, Civil Code — Provides that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. The Court applied this provision as the cardinal rule in interpreting paragraph 8 of the Deed of Conditional Sale.

• Article 1179, Civil Code — Provides that obligations with a period are demandable at once if they are pure obligations without a condition or term. The Court applied this provision in affirming that the obligation to return the first payment was a pure obligation, demandable at once.

• Article 1197, Civil Code — Provides that if the obligation does not fix a period, but from its nature and circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The Court held that this provision did not apply because there was no showing that the parties had intended such a period.

• Article 1159, Civil Code — Provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. The Court cited this provision in affirming that the parties are bound by their agreement.

• Section 1(d) and (e), Rule 57, Revised Rules of Court — Cited by respondent in its Motion for Grant of Writ of Attachment; the RTC denied the motion, holding that respondent was not guilty of fraud in the non-performance of its obligation.

Ynares-Santiago (Chairperson), Austria-Martinez, Chico-Nazario, and Nachura, JJ., concurred.