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JAIME G. ONG v. CA

FACTS:

Petitioner Jaime Ong and respondent spouses Miguel and Alejandra Robles executed an "Agreement of Purchase and Sale" for two parcels of land. The contract stipulated the mode and manner of payment, including an initial payment, payment to the Bank of Philippine Islands (BPI) to answer for the loan of the sellers, and quarterly installments. Petitioner took possession of the properties and made initial payments and deposits. However, post-dated checks issued by petitioner were dishonored due to insufficient funds, and petitioner failed to replace them. Petitioner also failed to fully pay the seller's loan with BPI. The bank threatened to foreclose, so the sellers sold rice mill transformers to pay off the loan. Petitioner continued to be in possession of the properties and the sellers used the rice mill for residential purposes. Respondent spouses sent a demand letter for the return of the properties, but petitioner did not comply. The spouses filed a complaint for rescission of the contract and recovery of properties with damages. The trial court granted a writ of preliminary injunction to prevent petitioner from introducing improvements on the properties. The trial court later rendered a decision setting aside the agreement, ordering petitioner to deliver the properties to the sellers, and awarding damages and attorney's fees. The Court of Appeals affirmed the decision. Petitioner now seeks review on certiorari, challenging the rescission of the contract and the novation of the original agreement.

ISSUES:

  1. Whether the contract entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code.

  2. Whether the parties had novated their original contract as to the time and manner of payment.

  3. Whether or not there was novation of the original contract.

  4. Whether or not petitioner is entitled to reimbursement for the improvements introduced on the premises.

  5. Whether or not the award of exemplary damages is proper.

RULING:

  1. The contract entered into between the parties may not be rescinded under Article 1191 of the New Civil Code. The agreement between the parties is in the nature of a contract to sell, wherein ownership is reserved by the vendor until full payment of the purchase price. Since the petitioner failed to complete payment of the purchase price, the contract to sell became ineffective and without force and effect. The non-fulfillment of the condition of full payment rendered the contract to sell incapable of being breached.

  2. The court is not persuaded that there was novation as to the manner and time of payment. In order for an obligation to be extinguished by another, it is imperative that it be declared in unequivocal terms or that the old and new obligations be incompatible with each other. In this case, there was no clear declaration or incompatibility of terms regarding the payment of the purchase price. Therefore, there was no novation.

  3. No, there was no novation of the original contract. Novation is never presumed, and it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. In this case, the evidence on record shows that the parties never intended to novate their previous agreement. The subsequent acts of the parties did not demonstrate an intention to dissolve the old obligation and replace it with a new one.

  4. No, petitioner is not entitled to reimbursement for the improvements introduced on the premises. The trial court and the appellate court correctly ruled that petitioner is a builder in bad faith. He introduced improvements knowing that he has not paid the consideration of the contract in full and against the objections of respondent spouses. Moreover, he introduced major improvements even while the case against him was pending.

  5. The award of exemplary damages was correctly deleted by the Court of Appeals. Since no moral, temperate, liquidated, or compensatory damages were awarded, there is no basis for the award of exemplary damages.

PRINCIPLES:

  • Rescission under Article 1191 of the New Civil Code applies to reciprocal obligations, wherein each party is a debtor and creditor of the other and the obligations are to be performed simultaneously.

  • Rescission of reciprocal obligations under Article 1191 is different from rescission under Article 1383, which is limited to cases of rescission for lesion or pecuniary damage.

  • In a contract to sell, ownership is reserved by the vendor until full payment of the purchase price, and failure to pay is not a breach but an event that prevents the vendor's obligation to convey title from acquiring binding force.

  • Novation requires an unequivocal declaration or incompatibility of terms between the old and new obligations.

  • Novation is never presumed and must be proven as a fact, either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation.

  • For novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract.

  • A builder in bad faith is not entitled to reimbursement for the improvements introduced on the premises.

  • Exemplary damages cannot be awarded if there are no other damages such as moral, temperate, liquidated, or compensatory damages.