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SPS. LEONCIO G. CIFRA v. COURT OF APPEALS

FACTS:

The case involves the interpretation of a contract to sell or promise to sell real property. On December 27, 1985, the petitioners entered into an agreement with the private respondent regarding the purchase of a house and lot in Mandaluyong, Metro Manila. The agreement states that the purchase price of the property is One Million and One Hundred Thousand Pesos (P1.1M) and shall be payable upon the removal of the present tenant and upon the execution of the Deed of Absolute Sale. It is also stated that the buyer shall assume the mortgage or obligation of the seller with the Social Security System (SSS) and that the earnest money of Five Thousand Pesos (P5,000.00) shall form part of the purchase price. Furthermore, the agreement includes provisions for forfeiting the earnest money in case of failure to purchase the property and for damages if either party fails to fulfill their obligations. Subsequently, on May 25, 1986, the petitioners informed the private respondent of their desire to rescind the contract through a letter, citing the long negotiations and the missed opportunity to use the proceeds from the sale. In response, the private respondent's lawyer expressed their intention to pursue the agreement and buy the property at the agreed price, with or without the present tenant still occupying the premises. The private respondent also mentioned the potential court litigation and damages if necessary. Despite several letters exchanged between the parties, no resolution was reached, prompting the private respondent to send a final letter demanding a clear response from the petitioners within ten days, after which they would proceed to court if no response is received.

ISSUES:

  1. Whether or not there was a valid and binding contract between the parties.

  2. Whether or not the trial court erred in ordering the specific performance of the contract.

  3. Whether or not the trial court erred in awarding damages and attorney's fees.

  4. Does the respondent buyer have the right to demand specific performance from the petitioners to sell the house and lot to him despite the fact that he had agreed to a waiver of such a right?

  5. Is the award of attorney's fees proper despite the fact that the obligation to sell is coupled with a penal clause?

RULING:

  1. The Supreme Court held that there was a valid and binding contract between the parties. The court found that there was a meeting of the minds between the parties regarding the sale of the property, as evidenced by their correspondence. The court also noted that the parties had agreed on the price and the terms of payment.

  2. The Supreme Court affirmed the decision of the trial court ordering the specific performance of the contract. The court held that the trial court correctly ordered the execution of the deed of absolute sale in favor of the plaintiff upon payment of the agreed price. The court found that the defendants' refusal to comply with their contractual obligation was not justified.

  3. The Supreme Court modified the decision of the trial court by deleting the award of moral damages. The court held that there was no basis for the award of moral damages, as there was no evidence of bad faith on the part of the defendants. However, the court affirmed the award of attorney's fees, as it was supported by the evidence and the law.

  4. The action for specific performance fails. The petitioners must return the earnest money and pay damages to the buyer. However, they are not liable for attorney's fees as it was the buyer who brought the case to court. The decision of the Court of Appeals is reversed and set aside.

PRINCIPLES:

  • A valid and binding contract requires a meeting of the minds between the parties on the essential elements of the contract, such as the price and terms of payment.

  • Specific performance may be ordered by the court when the party in breach of the contract unjustifiably refuses to perform its obligations.

  • Moral damages may be awarded when there is clear evidence of bad faith or malice on the part of the party in breach of the contract.

  • Attorney's fees may be awarded to the prevailing party when it is supported by the evidence and authorized by law.

  • The provisions of Articles 1370 to 1375 of the Civil Code on the interpretation of contracts apply.

  • The literal meaning of the stipulations in a contract controls, unless they appear to be contrary to the evident intention of the parties.

  • The intention of the contracting parties can be determined through their contemporaneous and subsequent acts.

  • If a stipulation in a contract can have several meanings, it should be understood in a way that renders it effectual.

  • Words in a contract with different significations should be understood in a way that is most in keeping with the nature and object of the contract.

  • Parties to a contract may agree to a stipulation that allows them to back out of the transaction, irrespective of certain conditions being met.

  • Rescission of a contract entails returning the earnest money and paying damages according to the agreement.