Fil-Estate Properties, Inc. vs. Spouses Gonzalo and Consuelo Go

The 1997 Asian financial crisis does not constitute a fortuitous event under Article 1174 of the Civil Code so as to excuse a real estate developer from its contractual obligation to develop and deliver a condominium unit, currency fluctuations being foreseeable everyday occurrences, and a business corporation engaged in pre-selling condominium units being presumed capable of projecting and managing business risks.

Petitioner Fil-Estate Properties, Inc. is a real estate developer that engaged in the pre-selling of condominium units at its "Eight Sto. Domingo Place" project on Sto. Domingo Avenue, Quezon City. Respondent spouses Gonzalo and Consuelo Go contracted to purchase a unit therein. The dispute is governed by Presidential Decree No. 957, "The Subdivision and Condominium Buyers' Protective Decree," which protects buyers of subdivision and condominium units against non-developing owners, and by the Civil Code provisions on reciprocal obligations and fortuitous events.

On December 29, 1995, Fil-Estate Properties, Inc. entered into a contract to sell a condominium unit at "Eight Sto. Domingo Place," a condominium project located on Sto. Domingo Avenue, Quezon City, to spouses Gonzalo and Consuelo Go. The total contract price was set at ₱3,620,000.00, of which the spouses paid a total of ₱3,439,000.07.

Petitioner failed to develop the condominium project. On August 4, 1999, the spouses demanded a refund of the amount they had paid, plus interest. When petitioner did not comply, the spouses filed a complaint before the Housing and Land Use Regulatory Board (HLURB) seeking reimbursement of ₱3,620,000 representing the lump sum price of the condominium unit, plus interest, ₱100,000 in attorney's fees, and expenses of litigation.

In its answer, petitioner claimed that the respondents had no cause of action because the delay in construction was caused by the Asian financial crisis, which it characterized as a fortuitous event beyond its control. Petitioner asserted that it had not committed any fraud, possessed all required government permits, and had not abandoned the project but merely suspended work. It admitted its obligation to complete the project and stated that it had sought an extension from the HLURB. Respondents countered that the delay could not be attributed to the 1997 crisis because petitioner had not even started the project in 1995, when it should have commenced construction so as to complete it by 1997 as stipulated in the contract.

The HLURB Regional Director, the HLURB Board of Commissioners, the Office of the President, and the Court of Appeals all uniformly found that the Asian financial crisis was not a fortuitous event and that petitioner was liable for failing to develop the project. The Court of Appeals additionally noted that there was no crisis in 1995 and 1996 when the project should have been started, and that the project should have been completed by 1997.

• Fortuitous Event: Petitioner argued that the Asian financial crisis was a fortuitous event under Article 1174 of the Civil Code, being unforeseen or inevitable, and that the extreme economic exigency and extraordinary currency fluctuations could not have been reasonably foreseen and were beyond the contemplation of both parties when they entered the contract. Petitioner cited Servando vs. Philippine Steam Navigation Co. to bolster this position.
• No Fault or Fraud: Petitioner maintained that it had not committed any fraud, possessed all required government permits, had not abandoned the project but only suspended work, and admitted its obligation to complete the project, having in fact asked the HLURB for an extension.
• Attorney's Fees: Petitioner argued that the Court of Appeals erred in holding it liable for the payment of attorney's fees.

• No Question of Law Raised: Respondents submitted that the petition should be rejected outright because petitioner had not raised any question of law, the questions of whether the Asian financial crisis is a fortuitous event and whether attorney's fees should be granted being questions of fact which the Court of Appeals recognized as such.
• No Causal Link to the Crisis: Respondents reiterated that the delay in construction was not attributable to the 1997 Asian financial crisis because petitioner did not even start the project in 1995 when it should have, so that it could have finished it in 1997 as stipulated in the contract.

• Fortuitous Event: Whether the Court of Appeals erred in ruling that the Asian financial crisis is not a fortuitous event that would excuse petitioner's delivery of the subject condominium unit to respondents.
• Attorney's Fees: Whether the Court of Appeals erred in holding petitioner liable for the payment of attorney's fees.

• Fortuitous Event: No. The Asian financial crisis is not among the fortuitous events contemplated under Article 1174 of the Civil Code, currency fluctuations being foreseeable everyday occurrences, and a real estate enterprise engaged in pre-selling being presumed capable of projecting and managing business risks.
• Attorney's Fees: Yes, respondents are entitled to reimbursement and attorney's fees. The award was even increased from ₱25,000 to ₱100,000, respondents having been compelled to litigate for over eight years due to petitioner's delay in performing a clear obligation.

• Fortuitous Event: The question of whether an event is fortuitous is a question of fact, and where the HLURB, the Office of the President, and the Court of Appeals were in agreement, the general rule barring factual questions in a petition for review applies. On the merits, the Court reaffirmed its prior rulings in Asian Construction and Development Corporation vs. Philippine Commercial International Bank and Mondragon Leisure and Resorts Corporation vs. Court of Appeals that the 1997 Asian financial crisis does not constitute a valid justification to renege on obligations and is not a fortuitous event under Article 1174. The Court reasoned that currency fluctuations are everyday occurrences and thus foreseeable; a real estate enterprise engaged in pre-selling condominium units is "concededly a master in projections on commodities and currency movements and business risks." The Court also noted that petitioner encountered difficulties even before the project's scheduled commencement in 1995, further undermining the claim that the 1997 crisis was the cause of non-performance. Respondents were entitled to reimbursement under Section 23 of P.D. No. 957, which provides that a buyer may, at his option, be reimbursed the total amount paid including amortization interest with interest at the legal rate when the developer fails to develop the project according to approved plans and within the time limit. The Court reduced the interest rate from 12% to 6% per annum, conformably with Eastern Shipping Lines, Inc. vs. Court of Appeals, since the obligation breached did not constitute a loan or forbearance of money. The refund was limited to the actual payment of ₱3,439,000.07, not the full contract price of ₱3,620,000.00 that respondents had sought.

• Attorney's Fees: Respondents were entitled to attorney's fees because they were compelled to secure the services of counsel for over eight years to protect their interests due to petitioner's delay in the performance of a clear contractual obligation. The Court deemed it just and equitable to increase the award from ₱25,000 to ₱100,000, reflecting the protracted nature of the litigation caused by petitioner's unjustified non-performance.

• Fortuitous Event (Caso Fortuito) — Under Article 1174 of the Civil Code, no person shall be responsible for events which could not be foreseen, or which though foreseen, were inevitable, except in cases specified by law, stipulation, or when the nature of the obligation requires assumption of risk. The Court held that the 1997 Asian financial crisis does not qualify because currency fluctuations are everyday, foreseeable occurrences, and a business corporation engaged in real estate pre-selling is presumed capable of managing such risks. This doctrine had been established in Asian Construction and Development Corporation vs. Philippine Commercial International Bank and Mondragon Leisure and Resorts Corporation vs. Court of Appeals and was reaffirmed in this case.

• Non-Forfeiture of Payments under P.D. No. 957 — Section 23 of P.D. No. 957 provides that no installment payment made by a buyer in a subdivision or condominium project shall be forfeited in favor of the owner or developer when the buyer desists from further payment due to the developer's failure to develop the project according to approved plans and within the time limit. The buyer may, at his option, be reimbursed the total amount paid including amortization interest, with interest thereon at the legal rate. The Court applied this provision to order the refund of respondents' actual payments plus 6% legal interest from the date of demand.

• Legal Interest on Breached Obligations (Eastern Shipping Lines Doctrine) — When an obligation not constituting a loan or forbearance of money is breached, interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. The Court applied this rule to reduce the HLURB and CA's 12% interest rate to 6%, the obligation being a contractual breach rather than a loan or forbearance.

• "Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation." — This passage articulates the ratio decidendi on the fortuitous event issue, rejecting the proposition that a macroeconomic crisis can excuse a business entity from its contractual obligations.

• "However, a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso fortuito." — This is the canonical formulation of the Court's reasoning distinguishing ordinary business risks from fortuitous events, frequently cited in subsequent jurisprudence on force majeure in commercial contexts.

• "The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged." — Quoted from Eastern Shipping Lines, Inc. vs. Court of Appeals as the controlling rule for computing legal interest on breached obligations, applied here to reduce the rate from 12% to 6%.

• Asian Construction and Development Corporation vs. Philippine Commercial International Bank, G.R. No. 153827, April 25, 2006 — Controlling precedent establishing that the 1997 Asian financial crisis did not constitute a valid justification to renege on obligations; followed and applied in this case.
• Mondragon Leisure and Resorts Corporation vs. Court of Appeals, G.R. No. 154188, June 15, 2005 — Controlling precedent holding that the Asian financial crisis in 1997 is not among the fortuitous events contemplated under Article 1174 of the Civil Code; followed and applied.
• Servando vs. Philippine Steam Navigation Co., No. L-36481-2, October 23, 1982 — Cited by petitioner in support of its fortuitous event argument; effectively distinguished and rejected by the Court.
• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 12, 1994 — Controlling precedent on the proper rate of legal interest for breached obligations not constituting a loan or forbearance of money; applied to reduce the interest rate from 12% to 6%.

• Article 1174, Civil Code — Defines fortuitous events as events which could not be foreseen, or which though foreseen, were inevitable, and exempts a person from liability therefor except in cases specified by law, stipulation, or when the nature of the obligation requires assumption of risk. The Court held that the Asian financial crisis does not qualify under this article.
• Article 1475, Civil Code — Provides that a contract of sale is perfected at the moment there is a meeting of minds upon the thing and the price, and from that moment the parties may reciprocally demand performance. Applied by the HLURB to establish respondents' right to demand performance upon perfection of the contract.
• Article 1191, Civil Code — Provides the power to rescind reciprocal obligations in case of non-compliance, with the injured party having the option between fulfillment and rescission, with damages in either case. Applied to justify rescission and refund with damages.
• Section 23, P.D. No. 957 (The Subdivision and Condominium Buyers' Protective Decree) — Provides for non-forfeiture of payments and the buyer's right to reimbursement of the total amount paid including amortization interest with interest at the legal rate when the developer fails to develop the project. Applied as the statutory basis for respondents' right to refund.

Antonio T. Carpio, Conchita Carpio Morales, Dante O. Tinga, and Presbitero J. Velasco, Jr. concurred. No separate concurring opinions were written.