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SPS. DOMINGO v. PIERRE ASTORGA

FACTS:

In this case, Lourdes Paguyo and Pierre Astorga entered into an agreement for the sale of Paguyo's property, consisting of a lot and a building known as the Paguyo Building. The agreement stated that Astorga would pay 50% of the total purchase price within fifteen days and allowed him to receive half of the rental due and use the penthouse. Although Paguyo failed to acquire the lot as agreed, the parties continued their business relationship under the terms of the agreement.

Later on, Paguyo asked Astorga for additional funds for their construction business and proposed a separate sale of the building. She assured Astorga that she would still acquire the lot as previously agreed. Astorga agreed to purchase the building based on her assurance and they executed the necessary documents. Astorga paid an additional amount, renamed the building GINZA Bldg., and registered it in their company's name.

Astorga exercised acts of ownership over the building, paid real estate taxes, obtained fire insurance, and filed an ejectment case against Paguyo, which they won. Subsequently, Paguyo filed a complaint seeking to rescind the previous agreement and return the money paid by Astorga.

The plaintiffs in this case filed a complaint for the rescission of various documents, including the Receipt of Earnest Money, Deed of Real Estate Mortgage, Mutual Undertaking, Deed of Absolute Sale of Building, and Deed of Assignment of Rights and Interest. They alleged that the defendants had failed to produce a certain amount of money that was needed to complete a payment with another party. The defendants claimed that they ordered a stop payment on the check when they learned that the plaintiffs were unable to deliver the land as agreed. The trial court ruled in favor of the defendants, a decision which was affirmed by the Court of Appeals. The plaintiffs then filed a petition with the Supreme Court to question the decision of the Court of Appeals.

The main issue in this case is the interpretation of various documents entered into by the parties. The petitioners argue that the documents were designed to secure their exposure in the projected purchase of the Paguyo lot and building, while the respondents claim that the Deed of Absolute Sale over the building was absolute and unconditional.

ISSUES:

  1. Whether there is just cause authorizing the rescission of the Deed of Absolute Sale of the Building and other documents.

  2. Whether there is adequate consideration in the Deed of Absolute Sale.

  3. Whether the price inadequacy of the building affects the validity of the Deed of Sale.

  4. Whether the contracts should be strictly interpreted against the respondents, considering the alleged disadvantage of the petitioner.

  5. Whether or not the Deed of Sale of the building can be rescinded.

  6. Whether or not the petitioners are entitled to damages and attorney's fees.

RULING:

  1. The court finds no just cause authorizing the rescission of the Deed of Absolute Sale. The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. However, in this case, the court finds no inadequacy of consideration or grounds for rescission.

  2. There is adequate consideration in the Deed of Absolute Sale. The amount of P600,000.00 received by the petitioners is considered value for their money, considering the building stands on a lot owned by another and there were separate owners of the land. Moreover, the economic and political uncertainties at that time, which caused real estate prices to plummet, were taken into consideration in arriving at the amount.

  3. The Court held that the price inadequacy of the building does not affect the validity of the Deed of Sale. Under Articles 1355 and 1470 of the Civil Code, inadequacy of cause or price does not invalidate a contract, unless there is fraud, mistake, or undue influence. The Court emphasized that there is no requirement that the price be equal to the exact value of the subject matter of the sale. Thus, the petitioners' failure to prove any instances mentioned in the said articles that would invalidate or affect the Deed of Sale and related documents resulted in a ruling in favor of the respondents.

  4. The Court also held that the contracts should not be strictly interpreted against the respondents. While Article 24 of the New Civil Code recognizes the need for courts to protect parties who are at a disadvantage, such as due to moral dependence, ignorance, or mental weakness, it does not automatically mean that the contracts in question should be strictly interpreted against the respondents. In this case, the petitioner, who is a cultured individual with business acumen, cannot claim to be the weaker or disadvantaged party, considering the series of negotiations that took place before the execution of the documents. Furthermore, the stipulations in the contracts were plain and unambiguous, leaving no room for interpretation.

  5. The Supreme Court refused to grant rescission of the Deed of Sale of the building, as the petitioners had already enjoyed the benefits of the agreement and cannot later disown it when it does not meet their expectations.

  6. The trial court's award of damages and attorney's fees to the respondents was affirmed by the Court of Appeals. Moral damages were reduced to P30,000, exemplary damages were reduced to P20,000, and attorney's fees were reduced to P20,000.

PRINCIPLES:

  • The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code.

  • The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

  • The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case.

  • In order for rescission to be decreed, there must be just cause authorizing the fixing of a period.

  • Adequacy of consideration is a factor in determining the validity of a contract.

  • Inadequacy of cause or price does not invalidate a contract, unless there is fraud, mistake, or undue influence.

  • There is no requirement that the price be equal to the exact value of the subject matter of the sale.

  • Article 24 of the New Civil Code, which pertains to the protection of parties at a disadvantage, must be applied based on the peculiar circumstances and situation of the parties involved.

  • Contracts should not be strictly interpreted against a party merely because they were prepared by that party.

  • Stipulations in contracts that are plain and unambiguous leave no room for interpretation.

  • A party should not be allowed to disown a validly entered contract after enjoying its benefits and finding it to be unfavorable to their expectations.

  • Moral damages may be awarded in cases of willful injury to property or breach of contract with fraud or bad faith.

  • Exemplary damages are imposed for correction and example when a party acts wantonly, fraudulently, oppressively, or malevolently.

  • Attorney's fees are allowed when exemplary damages are awarded and when a party incurs expenses to protect their interest.

  • Damages should not result in the enrichment of one party at the expense of another, and judicial discretion in assessing damages should be exercised with balanced restraint and objectivity.

  • Factual findings of the appellate court, when coinciding with those of the trial court, are conclusive and carry greater weight. The Supreme Court will not reevaluate the evidence unless there is a showing of lack of support or clear error in the findings.