Solid Homes, Inc. vs. Court of Appeals

The failure to annotate a vendor a retro's right of repurchase in the vendee's consolidated certificates of title is not conclusive evidence of malice or bad faith, and the redemption price under Article 1616 is not limited to the statutory items but may include other stipulations agreed upon under Article 1601, except expenses for a consolidation or issuance of new titles made without the judicial order required by Article 1607; in a sale with pacto de retro, the vendee is entitled to immediate possession during the redemption period unless otherwise agreed.

Solid Homes, Inc. was a borrower-mortgagor of State Financing Center, Inc., which held real estate mortgages over Solid Homes' properties in Pasig, Metro Manila. The dispute implicated the Civil Code provisions on conventional redemption, pacto de retro, consolidation of ownership, and pactum commissorium, particularly Articles 1601, 1606, 1607, 1616, and 2088. The Register of Deeds for Rizal was impleaded because the controversy involved the cancellation of Solid Homes' certificates of title and issuance of new titles in State Financing's name.

Solid Homes, Inc. obtained from State Financing Center, Inc. a loan of P10,000,000.00 on June 4, 1979, secured by a real estate mortgage over properties covered by TCT No. 9633 and TCT No. (492194)-11938 in Pasig, Metro Manila. A year later, Solid Homes obtained an additional loan of P1,511,270.03, and on June 4, 1980, the parties executed an Amendment to Real Estate Mortgage increasing the secured credits from P10,000,000.00 to P11,511,270.03. Solid Homes later obtained additional credits and financing facilities of P1,499,811.97, and on March 5, 1982, the parties executed another Amendment to Real Estate Mortgage increasing the secured credits from P11,511,270.03 to P13,011,082.00.

When the obligations became due, State Financing made repeated demands, but Solid Homes failed to pay. On December 16, 1982, State Financing filed a petition for extrajudicial foreclosure of the mortgages with the Provincial Sheriff of Rizal. The sheriff issued a Notice of Sheriff's Sale dated February 4, 1983, setting the mortgaged properties, including the V.V. Soliven Towers II Building, for public auction on March 7, 1983 to satisfy the full mortgage indebtedness, interest, fees, and expenses. Before the auction, Solid Homes made representations that induced State Financing to suspend foreclosure. The parties executed a Memorandum of Agreement/Dacion En Pago dated February 28, 1983.

Under the Memorandum, Solid Homes acknowledged an outstanding obligation of P14,225,178.40, payable within 180 days from signing, with interest of 14% per annum and penalty of 16% per annum from March 1, 1983 until fully paid. If Solid Homes paid 60% of the principal, or P8,535,107.04, within the first 180 days, State Financing would allow the remaining obligation to be restructured at a mutually agreed interest rate. If Solid Homes failed to comply within 180 days, the document would automatically operate as an instrument of dacion en pago without need of any further document, and Solid Homes would transfer, convey, and assign the real properties, including improvements, to State Financing free from liens, in full payment of the outstanding indebtedness. State Financing granted Solid Homes the right to repurchase the properties within 10 months counted from and after the 180 days from signing, at an agreed price of P14,225,178.40, or as reduced under paragraph 5(d), plus all cost of money equivalent to 30% per annum, registration fees, real estate and documentary stamp taxes, and other incidental expenses incurred by State Financing in the transfer and registration of its ownership via dacion en pago.

Solid Homes failed to pay 60% of the principal within 180 days. Pursuant to paragraph 3, State Financing registered the Memorandum with the Register of Deeds in Pasig on September 15, 1983. The Register of Deeds cancelled TCT No. 9633 and TCT No. (492194)-11938 in Solid Homes' name and issued new certificates of title in State Financing's name. In a letter dated October 11, 1983, State Financing informed Solid Homes of the transfer and demanded turnover of possession of the V.V. Soliven Towers II Building. Solid Homes replied on October 14, 1983, asking for 10 days to categorize its position, and on October 24, 1983, it took the position that the Memorandum was null and void because it allowed State Financing, as mortgagee creditor, to appropriate the mortgaged properties, allegedly in contravention of Article 2088 of the Civil Code. State Financing replied on November 3, 1983, stating that Article 2088 was not applicable and reiterating its demand for possession within five days; Solid Homes did not comply.

Within the repurchase period, Solid Homes wrote on April 30, 1984, proposing repayment schemes for repurchase. State Financing replied on May 17, 1984, advising that management was not amenable but counter-proposing an initial payment of P10 million until May 22, 1984, with the balance payable within the remaining repurchase period. Conferences followed among corporate officers. On June 7, 1984, State Financing reiterated the counter-proposal and reminded Solid Homes that it had until June 27, 1984 to exercise the right to repurchase, otherwise it must vacate and turn over possession. On June 18, 1984, Solid Homes sent a letter containing a written offer from C.L. Alma Jose & Sons, Inc. to avail of Solid Homes' right to repurchase the V.V. Soliven Towers II under the Dacion En Pago; Solid Homes requested a 60-day extension of the repurchase period expiring June 27, 1984 to comply with the offer's conditions and thereafter avail of a one-year period to pay the balance based on a verbal commitment of State Financing's President. On June 26, 1984, one day before the expiry date, Solid Homes filed the present action against State Financing and the Register of Deeds for Metro Manila District II (Pasig), seeking annulment of the Memorandum and reinstatement of the mortgages. The trial court found the Memorandum valid and binding, not violative of Article 2088, and a true sale with right of repurchase, not an equitable mortgage; it also found that the registration and issuance of new titles during the repurchase period and without judicial order violated Article 1607, rendering the titles null and void. The Court of Appeals affirmed these findings, including that the failure to annotate the right of repurchase was not by itself indicative of bad faith or malice.

• Damages: Petitioner argued that State Financing's deliberate failure to annotate its right of repurchase in the consolidated titles was attended by bad faith and malice, preventing it from generating funds from prospective buyers to comply with the Agreement and redeem the properties.
• Redemption Price: Petitioner maintained that the inclusion of 30% interest per annum in the redemption price violated Article 1616, which allegedly authorizes only the return of the price of the sale, expenses of the contract and other legitimate payments by reason of the sale, and necessary and useful expenses on the thing sold; because the transfer of titles was null and void, registration fees, documentary stamp taxes, and other incidental expenses incurred by State Financing in the transfer and registration via dacion en pago should not be charged.
• Possession: Petitioner argued that immediate turnover of the properties to State Financing was not stipulated in their Agreement and was unnecessary because State Financing's rights were amply protected by the issuance of new certificates of title in its name.

• Thirty-Day Repurchase Period: Respondent State Financing assigned as error the RTC's grant to Solid Homes of 30 days from finality of judgment within which to exercise its right of repurchase.
• Redemption Price/Rental Value: Respondent assigned as error the RTC's order that Solid Homes pay only 30% per annum as interest and penalty on the principal obligation, instead of reasonable rental value from the time possession of the properties was illegally withheld from State Financing.
• Possession: Respondent assigned as error the RTC's failure to order the immediate turnover of possession of the properties to State Financing as the purchaser a retro from whom no repurchase had been made.
• Article 2088: Respondent pointed out that Article 2088 of the Civil Code was not applicable to the Memorandum of Agreement/Dacion En Pago.

• Damages: Whether Solid Homes is entitled to actual, moral, exemplary, nominal damages and attorney's fees for State Financing's failure to annotate its right of repurchase in the consolidated certificates of title.
• Redemption Price: Whether the redemption price may include the 30% per annum cost of money and the registration fees, documentary stamp taxes, and other incidental expenses incurred by State Financing in the transfer and registration via dacion en pago, under Article 1616 of the Civil Code.
• Procedural Propriety: Whether Solid Homes may raise the composition of the redemption price for the first time on appeal.
• Possession During Redemption Period: Whether Solid Homes must deliver possession of the subject properties to State Financing during the redemption period.

• Damages: No. The failure to annotate the right of repurchase is not conclusive evidence of malice or bad faith, and Solid Homes failed to prove any legal basis for actual, moral, exemplary, nominal damages or attorney's fees.
• Redemption Price: Yes, in part. Article 1616 is not restrictive or exclusive; the parties' stipulations under Article 1601 may add to the redemption price, but expenses for the issuance of new titles in State Financing's name must be excluded because that issuance was void absent a judicial order under Article 1607.
• Procedural Propriety: No. Only errors specifically assigned and properly argued on appeal may be considered, except jurisdictional, plain, or clerical errors; nevertheless, the Court resolved the redemption-price issue in the interest of substantial justice.
• Possession During Redemption Period: Yes. In a sale with pacto de retro, the vendee has the right to immediate possession unless otherwise agreed, because title and ownership vest immediately subject only to the resolutory condition of repurchase.

• Damages: In a petition for review on certiorari under Rule 45, only questions of law may be raised, and findings of fact of lower courts are conclusive and binding on the Supreme Court except in specified exceptional circumstances. Petitioner did not show any exception. It also failed to support with evidence its claims for actual, moral, punitive/nominal, exemplary damages, and attorney's fees; such claims must each be independently identified and justified and cannot be dealt with in the aggregate. The trial court and the Court of Appeals found the claim for actual damages baseless. Solid Homes failed to prove that State Financing maliciously and in bad faith caused the non-annotation to prevent it from exercising the right of repurchase. Both parties admitted that State Financing informed Solid Homes of the registration and issuance of new titles; Solid Homes exchanged communications and held conferences to arrange payment; a written offer from another corporation was even attached to one communication. Thus, Solid Homes was not prejudiced by the non-annotation. State Financing was not legally bound to cause the annotation, and Solid Homes could have protected its own rights. The only legal transgression was State Financing's failure to observe the proper procedure in consolidating the titles, but this did not automatically entitle petitioner to damages absent convincing proof of malice, bad faith, and actual damages directly and probably caused by the act. The evidence was conjectural. The lower courts already nullified the consolidation for violation of Article 1607. Moral damages cannot be awarded to a corporation, which has no feelings, emotions, or senses. Exemplary damages require entitlement to moral or actual damages, which was absent. Attorney's fees are not warranted when moral and exemplary damages are eliminated and entitlement is not demonstrated. Nominal damages are adjudicated to vindicate a violated right, not to indemnify loss; no right of petitioner was violated by respondent.
• Redemption Price: The Court first noted the procedural rule that higher courts cannot entertain matters neither alleged in the pleadings nor raised during the proceedings below, and that only errors specifically assigned and properly argued in the brief will be considered, except those affecting jurisdiction over the subject matter and plain and clerical errors. Petitioner's lone assignment before the Court of Appeals concerned only the denial of damages, so it was barred from raising the redemption-price issue for the first time before the Supreme Court. Nevertheless, in the interest of substantial justice, the Court resolved the additional question. Article 1616 is not restrictive or exclusive and does not bar additional amounts that the parties may agree upon. Article 1601 requires the vendor to comply with Article 1616 and other stipulations agreed upon. The Memorandum's paragraph 6 granted repurchase at an agreed price of P14,225,178.40, or as reduced under paragraph 5(d), plus all cost of money equivalent to 30% per annum, registration fees, real estate and documentary stamp taxes, and other incidental expenses incurred by State Financing in the transfer and registration of its ownership via dacion en pago. Contracts have the force of law between the contracting parties, subject only to the limitation that their agreements are not contrary to law, morals, customs, public policy, or public order, and the provision did not appear to be so. Petitioner was, however, right that the inclusion of registration fees, documentary stamp taxes, and other incidental expenses incurred in the transfer and registration of ownership via dacion en pago was vague, if not erroneous, because the transfer and issuance of new titles were null and void. Thus, the redemption price shall include only expenses relating to the registration of the dacion en pago, but not the registration and other expenses incurred in the issuance of new certificates of title in State Financing's name.
• Procedural Propriety: On appeal, only errors specifically assigned and properly argued in the brief will be considered, except those affecting jurisdiction over the subject matter and plain and clerical errors. Petitioner's lone assignment before the Court of Appeals concerned only the denial of damages. It was thus barred from raising a new issue in its appeal before the Supreme Court. Nevertheless, in the interest of substantial justice, the Court resolved the additional question on the composition of the redemption price.
• Possession During Redemption Period: The Court of Appeals modified the trial court's decision only insofar as it ordered petitioner to deliver possession of the subject properties to State Financing, the vendee a retro. The Supreme Court found no legal error in this holding. In a contract of sale with pacto de retro, the vendee has a right to the immediate possession of the property sold, unless otherwise agreed upon. In a pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro, subject only to the resolutory condition of repurchase by the vendor a retro within the stipulated period. State Financing was therefore entitled to possession during the redemption period.

• Failure to Annotate Right of Repurchase Not Conclusive of Bad Faith — The failure to annotate a vendor a retro's right of repurchase in the vendee's consolidated certificates of title does not by itself establish malice or bad faith. Damages require convincing proof of malice, bad faith, and actual damages directly and probably caused by the act. The vendee is not legally bound to cause the annotation, and the vendor must protect its own rights.
• Corporations Not Entitled to Moral Damages — A corporation, being an artificial person without feelings, emotions, or senses, cannot experience physical suffering or mental anguish and is not entitled to moral damages. Consequently, exemplary damages and attorney's fees, which depend on entitlement to moral or actual damages, are also not warranted absent proof.
• Article 1616 Not Restrictive or Exclusive — The redemption price under Article 1616 is not limited to the price of sale, expenses of contract, legitimate payments, and necessary and useful expenses. Article 1601 requires the vendor to comply with Article 1616 and other stipulations agreed upon. Thus, parties may agree on additional amounts such as cost of money, registration fees, and taxes, provided the stipulations are not contrary to law, morals, customs, public policy, or public order.
• Pacto de Retro: Immediate Possession and Ownership in Vendee — In a sale with pacto de retro, the vendee has the right to immediate possession of the property sold, unless otherwise agreed. Title and ownership vest immediately in the vendee a retro, subject only to the resolutory condition of repurchase by the vendor a retro within the stipulated period.
• Article 1607: No Automatic Consolidation Without Judicial Order — In case of real property, consolidation of ownership in the vendee a retro due to the vendor's failure to comply with Article 1616 cannot be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. The lower courts nullified the consolidation and issuance of new titles because this procedure was not followed; the Supreme Court excluded expenses for those new titles from the redemption price.
• Only Questions of Law in Rule 45; Factual Findings Conclusive — In a petition for review on certiorari under Rule 45, only questions of law may be raised. Findings of fact of lower courts are conclusive and binding on the Supreme Court except in specified exceptional circumstances, none of which petitioner showed.
• Damages Must Be Independently Identified and Justified — Claims for actual, moral, punitive/nominal, exemplary damages, and attorney's fees must each be independently identified and justified; they cannot be dealt with in the aggregate because they are not kindred or analogous terms nor governed by coincident rules.
• Assigned Errors Rule — On appeal, only errors specifically assigned and properly argued in the brief will be considered, except those affecting jurisdiction over the subject matter and plain and clerical errors.

• "The only legal transgression of State Financing was its failure to observe the proper procedure in effecting the consolidation of the titles in its name. But this does not automatically entitle the petitioner to damages absent convincing proof of malice and bad faith on the part of private respondent and actual damages suffered by petitioner as a direct and probable consequence thereof." — This passage states the ratio for denying damages despite the procedural violation in consolidating the titles.
• "It is clear, therefore, that the provisions of Art. 1601 require petitioner to 'comply with . . . the other stipulations' of the Memorandum of Agreement/Dacion en Pago it freely entered into with private respondent." — This passage is the basis for allowing the parties' agreed 30% cost of money and other stipulations to form part of the redemption price.
• "Thus, the redemption price shall include only those expenses relating to the registration of the dacion en pago, but not the registration and other expenses incurred in the issuance of new certificates of title in the name of State Financing." — This passage defines the modification to the Court of Appeals judgment on the redemption price.
• "In a contract of sale with pacto de retro, the vendee has a right to the immediate possession of the property sold, unless otherwise agreed upon. It is basic that in a pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro, subject only to the resolutory condition of repurchase by the vendor a retro within the stipulated period." — This passage states the controlling rule on possession during the redemption period.

• Castillo vs. Court of Appeals, G.R. No. 106472, August 7, 1996 — Cited for the exceptions to the rule that findings of fact of lower courts are conclusive and binding on the Supreme Court.
• Fuentes vs. Court of Appeals, G.R. No. 109849, February 26, 1997 — Also cited for the exceptions to the conclusiveness of factual findings.
• Del Mundo vs. Court of Appeals, 240 SCRA 348, 1995 — Cited for the rule that claims for damages must be independently identified and justified and cannot be aggregated.
• Vda. de Cruzo vs. Carriaga, Jr., 174 SCRA 330, 346, June 28, 1989 — Cited for the requirement of convincing proof of malice and bad faith for damages, and for the rule on possession in pacto de retro.
• LBC Express, Inc. vs. Court of Appeals, 236 SCRA 602, September 21, 1994 — Cited for the rule that a corporation is not entitled to moral damages.
• Philippine Air Lines vs. Miano, 242 SCRA 235, March 8, 1995 — Cited for the rule that attorney's fees are not warranted when moral and exemplary damages are eliminated and entitlement is not demonstrated.
• Lufthansa German Airlines vs. Court of Appeals, 243 SCRA 600, 616, April 21, 1995 — Cited for the rule on nominal damages under Article 2221 of the Civil Code.
• People vs. Echegaray, G.R. No. 117472, February 7, 1997 — Cited for the rule that higher courts cannot entertain matters not alleged in pleadings or raised below, and only assigned errors may be considered on appeal.
• Manila Bay Club Corporation vs. Court of Appeals, 245 SCRA 713, 730, July 11, 1995 — Cited for the rule that contracts have the force of law between the parties, subject to limitations of law, morals, customs, public policy, or public order.
• De Guzman, Jr. vs. Court of Appeals, 156 SCRA 701, 711, December 21, 1987; Flores vs. So, 162 SCRA 117, 121, June 15, 1988 — Cited for the rule that in a pacto de retro sale, title and ownership vest immediately in the vendee a retro, subject to the resolutory condition of repurchase.

• Article 1601, Civil Code — Conventional redemption takes place when the vendor reserves the right to repurchase, with the obligation to comply with Article 1616 and other stipulations agreed upon. The Court used this to require Solid Homes to comply with the Memorandum's additional redemption-price stipulations.
• Article 1606, Civil Code — The vendor may still exercise the right to repurchase within 30 days from final judgment in a civil action on the basis that the contract was a true sale with right to repurchase. The Court of Appeals upheld the RTC's grant of 30 days from finality.
• Article 1607, Civil Code — In case of real property, consolidation of ownership in the vendee a retro due to failure of the vendor to comply with Article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. The lower courts nullified the consolidation and new titles for violation of this provision; the Supreme Court excluded expenses for those new titles from the redemption price.
• Article 1616, Civil Code — The vendor cannot repurchase without returning the price of the sale and, in addition, the expenses of the contract, legitimate payments made by reason of the sale, and necessary and useful expenses on the thing sold. The Court held this provision is not restrictive or exclusive and may be supplemented by the parties' stipulations.
• Article 2088, Civil Code — The prohibition against pactum commissorium. Solid Homes invoked it to argue the Memorandum was void, but the lower courts held the Memorandum did not violate it; the Supreme Court did not disturb that ruling.
• Article 2221, Civil Code — Nominal damages are adjudicated to vindicate or recognize a violated right, not to indemnify loss. The Court cited this in denying nominal damages because no right of petitioner was violated.
• Article 2234, Civil Code — Exemplary damages need not be proved, but the claimant must first show entitlement to moral or actual damages. The Court cited this in denying exemplary damages.
• Section 7, Rule 51, Rules of Court — No error not affecting jurisdiction over the subject matter will be considered unless stated in the assignment of errors and properly argued in the brief, save plain and clerical errors. The Court cited this in holding petitioner barred from raising a new issue on appeal.
• Rule 45, Rules of Court — Petition for review on certiorari; only questions of law may be raised. The Court cited this in refusing to review factual findings on damages.

Narvasa, C.J., Davide, Jr., J., and Francisco, J., concurred. Melo, J., was on leave. No separate concurring opinions are summarized in the text.