Almocera vs. Ong

In a contract to sell, the seller’s failure to complete and deliver the property within the stipulated period constitutes delay and justifies the buyer’s refusal to pay the balance; demand is unnecessary where it would be useless because the seller’s own fault rendered performance impossible. An issue of piercing the veil of corporate fiction raised for the first time on appeal cannot be considered.

Andre T. Almocera was Chairman and Chief Executive Officer of First Builder Multi-Purpose Cooperative (FBMC). Johnny Ong sought to acquire Unit No. 4 of Atrium Townhomes in Cebu City from FBMC under a Contract to Sell dated January 10, 1997. The contract price was P3,400,000, with a P1,000,000 down payment and a P2,400,000 balance payable through a financing institution facilitated by the seller, preferably the Land Bank of the Philippines. The unit was to be completed and conveyed within six months from signing, and the property was mortgaged to LBP at the time of the contract.

Johnny Ong sought to acquire from Andre T. Almocera and First Builder Multi-Purpose Cooperative (FBMC) a townhome described as Unit No. 4 of Atrium Townhomes in Cebu City. The Contract to Sell stated a selling price of P3,400,000 for a lot area of eighty-eight (88) square meters with a three-storey building. Ong paid P1,060,000. According to Ong, before and at the time of the perfection of the Contract to Sell, Almocera and FBMC fraudulently concealed that the property was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). The construction of the house was delayed and remained unfinished. On March 13, 1999, Lot 4-a covered by TCT No. 148818 was advertised in a local tabloid for public auction for foreclosure of mortgage. Ong asserted that had the mortgage and encumbrance been disclosed, he would not have entered into the Contract to Sell.

Almocera and FBMC gave a different account. On March 20, 1995, First Builders Multi-purpose Coop. Inc. borrowed P500,000 from Tommy Ong, Johnny Ong’s brother. The amount was used to finance the documentation requirements of LBP for the funding of the Atrium Town Homes, and the loan was to be applied to payment of one townhouse unit that Tommy Ong might eventually purchase from the project. When the project was under way, Tommy Ong wanted to buy another townhouse for his brother, Johnny Ong, and P150,000 was given as additional partial payment, although the particular unit was not yet identified. On January 10, 1997, Tommy Ong identified Unit No. 4 as Johnny Ong’s chosen unit and tendered P350,000 as a third partial payment. When the Contract to Sell for Unit 4 was being drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made to give Johnny Ong another option. When construction was in full blast, defendants were informed that Tommy Ong’s final choice was Unit 5. Only upon knowing that defendants would be selling Unit 4 to other persons for P4 million did Johnny Ong change his choice from Unit 5 to Unit 4.

The Contract to Sell was signed on January 10, 1997. Under its terms, P1,000,000 was acknowledged as down payment; the balance of P2,400,000 was to be paid through a financing institution facilitated by the seller, preferably LBP; and upon completion, delivery, and acceptance of the townhouse unit, the buyer shall have paid the contract price in full. The seller agreed to complete and convey the unit by way of an Absolute Deed of Sale, together with the Transfer Certificate of Title and Certificate of Occupancy, within six months from the signing of the Contract to Sell. The trial court found that Johnny Ong was able to make a down payment or partial payment of P1,060,000 and that Almocera and FBMC failed to complete the construction of, as well as deliver, the townhouse within six months from the signing of the contract. Johnny Ong was not informed at the time of the perfection of the contract that the subject townhouse was already mortgaged to LBP. The mortgage was foreclosed by LBP, and the townhouse was eventually sold at public auction.

The trial court found Almocera and FBMC guilty of fraud in their dealing with Johnny Ong because the mortgage was not disclosed when the contract was perfected. It also found non-compliance with their obligations under the contract when they failed to complete and deliver the townhouse unit at the agreed time. Johnny Ong was declared justified in suspending further payments and entitled to the return of the down payment. In trying to recover the amount he paid as down payment, Johnny Ong filed a complaint for damages before the RTC of Cebu City against Almocera and FBMC. Almocera and FBMC denied liability, claiming that the foreclosure of the mortgage on the townhouse unit was caused by Johnny Ong’s failure to pay the balance of the price. After pre-trial, trial on the merits ensued; Johnny Ong and his brother Thomas Y. Ong testified, and Almocera testified for the defendants. The Court of Appeals agreed with the trial court that defendants incurred delay when they failed to deliver the townhouse unit within six months, that Johnny Ong’s nonpayment of the balance was proper in light of such delay and the foreclosure and auction, and that Johnny Ong would not have proceeded to buy the townhouse had he known beforehand that the unit was used as collateral with LBP.

• Delay: Petitioner argued that the mere lapse of the stipulated six-month period did not by itself constitute delay; the law requires judicial or extrajudicial demand before an obligor may be declared in default, and no evidence showed a prior demand before the action was instituted.
• Refusal to Pay Balance: Petitioner argued that if there was any delay, it was incurred by respondent because he refused to pay the balance of the contract price.
• Solidary Liability: Petitioner contended that he should not be held solidarily liable with FBMC because FBMC is a separate and distinct entity and the seller of the subject townhouse; as Chairman and Chief Executive Officer, his representation of FBMC in its dealings was a corporate act for which only FBMC should be liable.

• Fraudulent Concealment: Respondent alleged that defendants fraudulently concealed the fact that, before and at the time of the perfection of the Contract to Sell, the property was already mortgaged to and encumbered with LBP; had he known, he would not have entered into the contract.
• Breach and Damages: Respondent alleged that defendants breached the contract by failing to complete and deliver the townhouse and by selling him a unit that was already mortgaged, leading to foreclosure and sale to a third person; he sought return of the down payment and damages.
• Construction Delay: Respondent claimed that the construction of the house was long delayed and remained unfinished.

• Delay: Whether petitioner and FBMC incurred delay in completing and delivering the townhouse despite the absence of judicial or extrajudicial demand.
• Refusal to Pay Balance: Whether respondent was justified in refusing to pay the balance of the purchase price.
• Solidary Liability: Whether petitioner Almocera may be held solidarily liable with FBMC for damages, considering the separate corporate personality of FBMC and the fact that piercing the veil of corporate fiction was raised for the first time on appeal.
• Damages: Whether the award of moral damages, attorney’s fees, and litigation expenses was proper.

• Delay: No. Demand was not necessary because it would have been useless; the impossibility of performance was due to petitioner and FBMC’s own fault, and their failure to complete and deliver the unit within six months constituted delay under Article 1169 of the Civil Code.
• Refusal to Pay Balance: No. Respondent did not incur delay; his obligation to pay the balance was conditioned on petitioner and FBMC’s completion and delivery of the unit, which they failed to perform. Requiring payment would result in unjust enrichment.
• Solidary Liability: No. The issue of piercing the veil of corporate fiction was raised for the first time on appeal and cannot be considered; points of law not brought to the trial court cannot be raised for the first time on appeal.
• Damages: Yes. The award of moral damages, attorney’s fees, and litigation expenses was proper and reasonable under the circumstances, the lower courts having found fraud, bad faith, and breach.

• Delay: The contract was a contract to sell; ownership remained with the seller until full payment. The parties had reciprocal obligations: petitioner and FBMC were to complete and deliver the townhouse within six months, and respondent was to pay the P2,400,000 balance upon completion, delivery, and acceptance. Article 1169 provides that in reciprocal obligations, neither party incurs delay if the other does not comply or is not ready to comply; from the moment one fulfills, delay by the other begins. Demand is generally required, but not when it would be useless. Here, demand was useless because petitioner and FBMC’s own fault made performance impossible; had they paid their LBP loans, the mortgage would not have been foreclosed and the unit sold to a third person. Their failure to complete and deliver constituted delay and made them liable for damages.
• Refusal to Pay Balance: Respondent’s obligation to pay the balance was conditioned on petitioner and FBMC’s performance. Because they failed to complete and deliver the unit within the agreed period, respondent could not have incurred delay. For failure of one party to assume and perform its obligation, the other party does not incur delay. Respondent was justified in refusing to pay; he never possessed the unit and could no longer own it because ownership had been transferred to a third person not a party to the proceedings. Requiring payment would be inequitable and would unjustly enrich petitioner and FBMC. The down payment of P1,060,000 should be returned. The Court also noted that petitioner and FBMC intentionally failed to inform respondent that the townhouse was already mortgaged to LBP at the time of perfection, which constituted fraud and bad faith.
• Solidary Liability: The issue of piercing the veil of corporate fiction was never raised before the trial court; it was raised for the first time before the Court of Appeals. The Court of Appeals ruled it was too late. The Supreme Court agreed: points of law, theories, issues, and arguments not brought to the attention of the trial court will not be considered by a reviewing court, as they cannot be raised for the first time on appeal. Allowing petitioner to pursue the defense would undermine due process because the adverse party would have no opportunity to present further evidence on the new theory. Thus, the finding of solidary liability was affirmed.
• Damages: The trial court found petitioner and FBMC guilty of fraud in dealing with respondent and non-compliance with their contractual obligations. It awarded moral damages, attorney’s fees, and litigation expenses. The Court of Appeals affirmed, and the Supreme Court found the award proper and reasonable under the circumstances.

• Contract to Sell — A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event; if the suspensive condition does not take place, the parties stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price. In a contract to sell, ownership is retained by the seller and does not pass to the buyer until full payment. Applied: the parties entered into a Contract to Sell; ownership never passed to respondent, and his obligation to pay the balance depended on completion and delivery.
• Reciprocal Obligations and Delay — Under Article 1169 of the Civil Code, in reciprocal obligations, neither party incurs delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one party fulfills his obligation, delay by the other begins. Demand is generally required, but not when the obligation or law expressly so declares, when the time of performance was a controlling motive, or when demand would be useless, as when the obligor has rendered performance beyond his power. Applied: petitioner and FBMC’s failure to complete and deliver the unit within six months constituted delay; demand was unnecessary because it would have been useless due to their own fault.
• Unjust Enrichment — The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. Its elements are enrichment on the part of the defendant, impoverishment on the part of the plaintiff, and lack of cause. Its main objective is to prevent one from enriching himself at the expense of another. Applied: allowing petitioner and FBMC to keep the P1,060,000 down payment would unjustly enrich them; the amount should be returned.
• Piercing the Veil of Corporate Fiction / Issues Not Raised on Appeal — Points of law, theories, issues, and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. Applied: Almocera’s claim that he should not be solidarily liable because FBMC is a separate and distinct entity, which necessarily involved piercing the veil of corporate fiction, was raised only on appeal and could not be considered.
• Fraud and Bad Faith in Contractual Dealing — Deliberate withholding of a material fact, such as an existing mortgage on the subject property at the time of the perfection of the contract, constitutes fraud and bad faith. Those who in the performance of their obligations are guilty of fraud or who contravene the tenor thereof are liable for damages under Article 1170 of the Civil Code. Applied: petitioner and FBMC failed to disclose the LBP mortgage to respondent, and the trial court found them guilty of fraud; the award of damages was affirmed.

• "A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price." — This passage, quoted from Serrano vs. Caguiat, defines the nature of a contract to sell and identifies full payment as the suspensive condition; it is the doctrinal foundation for the ruling that ownership never passed to respondent and that his obligation to pay the balance depended on the seller’s prior performance.
• "In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins." — This is the Court’s quotation of Article 1169 of the Civil Code, the controlling rule on reciprocal obligations and delay; it explains why respondent did not incur delay when petitioner and FBMC failed to complete and deliver the unit.
• "Demand is not necessary in the instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed and thereafter sold to a third person." — This passage applies the useless-demand exception to Article 1169 and is the ratio for rejecting petitioner’s argument that no demand had been made before suit.
• "To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal." — This passage states the procedural rule that defeated Almocera’s separate-corporate-personality defense and affirmed his solidary liability.

• Serrano vs. Caguiat, G.R. No. 139173, 28 February 2007, 517 SCRA 57, 64-65 — Cited for the definition of a contract to sell as akin to a conditional sale and for the rule that full payment is the suspensive condition.
• Sing Yee vs. Santos, 47 O.G. 6372 (1951) — Cited for the distinction between a contract of sale and a contract to sell: in a contract of sale, non-payment is a negative resolutory condition; in a contract to sell, full payment is a positive suspensive condition, and title remains in the vendor if the vendee does not comply.
• Leaño vs. Court of Appeals, 420 Phil. 836, 848 (2001) — Cited for the rule that failure to fulfill an obligation as stipulated in the contract incurs delay and liability for damages.
• Agustin vs. Court of Appeals, G.R. No. 84751, 6 June 1990, 186 SCRA 375, 383 — Cited for the rule that where one party did not perform the undertaking bound by the agreement, he is not entitled to insist upon performance of the other party; also cited for the rule that for failure of one party to perform, the other party does not incur delay.
• P.C. Javier & Sons, Inc. vs. Court of Appeals, G.R. No. 129552, 29 June 2005, 462 SCRA 36, 47 — Cited for the doctrine of unjust enrichment and its elements.
• Valdez vs. China Banking Corporation, G.R. No. 155009, 12 April 2005, 455 SCRA 687, 696 — Cited for the rule that points of law, theories, issues, and arguments not brought to the trial court cannot be raised for the first time on appeal.
• Abaya vs. Standard-Vacuum Oil Co., 101 Phil. 1262 (1957) — Cited in Agustin vs. Court of Appeals for the rule that the failure of one party to perform its obligation prevents the other from incurring delay.

• Article 1169, Civil Code — Provides that those obliged to deliver or do something incur delay from the time the obligee judicially or extrajudicially demands fulfillment, but demand is not necessary when the obligation or law expressly so declares, when the time of performance was a controlling motive, or when demand would be useless. In reciprocal obligations, neither party incurs delay if the other does not comply or is not ready to comply; from the moment one fulfills, delay by the other begins. Applied: petitioner and FBMC incurred delay; demand was excused as useless; respondent did not incur delay.
• Article 1170, Civil Code — Provides that those who in the performance of their obligations are guilty of fraud or who in any manner contravene the tenor thereof are liable for damages. Cited in the trial court’s finding, affirmed by the Supreme Court, that petitioner and FBMC were guilty of fraud and bad faith in concealing the LBP mortgage.
• Rule 45, 1997 Rules of Civil Procedure — The procedural rule under which Almocera filed the Petition for Review on Certiorari before the Supreme Court. The Court resolved the petition on the merits and denied it.

Consuelo Ynares-Santiago, Ma. Alicia Austria-Martinez, Antonio Eduardo B. Nachura, Ruben T. Reyes.