FACTS:
The case involves a contract to sell a 100-square meter lot in Evergreen Executive Village, a subdivision project owned by GPI, entered into by respondent-spouses Eugenio and Angelina Fajardo (Sps. Fajardo) and petitioner-corporation Gotesco Properties, Inc. (GPI). The contract stipulated that Sps. Fajardo would pay the purchase price within 10 years, and GPI would execute a final deed of sale upon full payment.
However, despite Sps. Fajardo's full payment, GPI failed to execute the deed and deliver the title and physical possession of the lot. As a result, Sps. Fajardo filed a complaint for specific performance or rescission of contract with damages against GPI and its board of directors before the Housing and Land Use Regulatory Board (HLURB).
Sps. Fajardo alleged that GPI failed to provide necessary facilities for the subdivision project, failed to provide boundary marks for each lot, and that the mother title of the lot had no technical description and was levied upon by the Bangko Sentral ng Pilipinas without their knowledge.
The HLURB, on appeal, and the Office of the President affirmed the ruling in favor of Sps. Fajardo, holding GPI liable for substantial breach of contract and ordering it to refund the payments made. The Court of Appeals affirmed the ruling, with modification as to the amount to be refunded.
Petitioners argue that GPI should not be held liable for reasons beyond its control and that the individual petitioners should not be held liable for damages and attorney's fees.
ISSUES:
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Whether Sps. Fajardo had the right to rescind the contract due to GPI's failure to execute the deed of sale and deliver the title and possession over the subject lot.
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Whether GPI's non-compliance with its obligations was justified and absolved it from any substantial breach.
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Whether GPI's delay in performing its obligations justified Sps. Fajardo's right to rescind the contract.
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Whether the provisions on rescission under Article 1191 of the Civil Code apply to Article 1385.
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Whether indemnity for damages may be demanded from the person causing the loss.
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Whether the injured party should be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for.
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Whether moral and exemplary damages, attorney's fees, and costs of suit are proper in this case.
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Whether the individual petitioners can be held personally liable for the payment of damages.
RULING:
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Yes, Sps. Fajardo had the right to rescind the contract. The Court found that GPI substantially breached the contract by failing to execute the deed of sale and deliver the title and possession over the subject lot, despite Sps. Fajardo's full payment of the purchase price and prior demand for delivery of the title. Under Article 1191 of the Civil Code, the injured party in a reciprocal obligation may choose between fulfillment and rescission of the obligation if the other party does not comply with what is incumbent upon him. Thus, Sps. Fajardo had the right to rescind the contract.
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No, GPI's non-compliance with its obligations was not justified and did not absolve it from any substantial breach. GPI failed to provide a plausible explanation for the delay in filing the petition for inscription, which was filed almost eight years after it acquired the subject property. Additionally, GPI took no positive action to cause the immediate filing of a new petition for inscription after the dismissal of its earlier petition based on technical defects. The Court found that the long delay in performing GPI's obligation from the date of demand was unreasonable and unjustified. Hence, there was a substantial breach of contract on the part of GPI.
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Yes, GPI's delay in performing its obligations justified Sps. Fajardo's right to rescind the contract. The Court held that the substantial breach of contract by GPI gave Sps. Fajardo the right to rescind the contract pursuant to Article 1191 of the Civil Code. The delay in performing GPI's obligation, despite Sps. Fajardo's demand for delivery of the title and full payment of the purchase price, was unreasonable and unjustified.
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The provisions on rescission under Article 1191 of the Civil Code apply to Article 1385. The Court found no justification to sustain the petitioners' position that Article 1385 does not apply to rescission under Article 1191.
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Indemnity for damages may be demanded from the person causing the loss. The Court held that GPI's unjustified failure to comply with its obligations caused serious anxiety, mental anguish, and sleepless nights to the respondents, justifying the award of moral damages.
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The injured party should be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for. The Court ruled that it is in line with equity and justice, as well as the purpose of PD 957, to protect the buyer against unscrupulous developers, to afford the injured party full recompense by recovering the prevailing market value of the undelivered lot.
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Moral and exemplary damages, attorney's fees, and costs of suit are proper in this case. The Court awarded moral damages to the respondents for the serious anxiety, mental anguish, and sleepless nights caused by GPI's failure to comply with its obligations. Exemplary damages were also awarded to prevent other subdivision developers from committing similar transgressions. Attorney's fees were deemed appropriate considering that the respondents had to engage the services of counsel to file the suit.
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The individual petitioners cannot be held personally liable for the payment of damages. The Court absolved the individual petitioners from personal liability, as there was no showing that they acted maliciously or dealt with the respondents in bad faith.
PRINCIPLES:
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In a contract to sell, the seller's obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase price. (Section 25 of PD 957)
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Rescission in reciprocal obligations is implied in case one of the obligors does not comply with what is incumbent upon him. The injured party may choose between fulfillment and rescission of the obligation, with the payment of damages in either case. (Article 1191 of the Civil Code)
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Rescission abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made. Mutual restitution, which entails the return of the benefits that each party may have received as a result of the contract, is required. (Article 1385 of the Civil Code)
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Rescission under Article 1191 of the Civil Code applies to Article 1385, which provides for the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest.
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Indemnity for damages may be demanded from the person causing the loss.
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The injured party should be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for, in line with the principles of equity and justice.
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Moral damages can be awarded for serious anxiety, mental anguish, and sleepless nights caused by the unjustified failure to comply with contractual obligations.
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Exemplary damages may be awarded to prevent similar transgressions by others.
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Attorney's fees may be awarded when the injured party is constrained to engage the services of counsel to file the suit.
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Officers of a corporation cannot be held personally liable for liabilities of the corporation in the absence of malice and bad faith.