The Supreme Court held that the Government Service Insurance System (GSIS) validly rescinded its agreement with Goldloop Properties Inc. due to Goldloop’s failure to pay the guaranteed amount for a condominium project. Even though GSIS also had an obligation to deliver the property free from encumbrances, Goldloop’s payment default occurred before GSIS’s breach became apparent. This decision underscores the importance of fulfilling contractual obligations, even when the other party may have concurrent duties.

Real Estate Deal Gone Sour: Can Unpaid Taxes Justify Delay in Condominium Construction?

This case arises from a Memorandum of Agreement (MOA) between Goldloop Properties Inc. and the Government Service Insurance System (GSIS) for the construction of a condominium building. The core legal question revolves around whether GSIS rightfully rescinded the MOA due to Goldloop’s failure to pay the guaranteed amount, despite complications arising from unpaid real estate taxes on the property.

The dispute began with a MOA signed in 1995, where Goldloop agreed to construct a condominium on GSIS-owned land, paying GSIS P140,890,000.00 in installments. An Addendum in 1996 modified payment terms, allowing Goldloop to advance payments for certain expenses of GSIS, to be credited against the guaranteed amount. However, construction stalled because the Pasig City Mayor refused to issue building permits, citing GSIS’s unpaid real estate taxes of P54 million. Despite Goldloop’s preparations and pre-selling efforts, the project remained at a standstill.

In 2000, GSIS rescinded the MOA, citing Goldloop’s failure to pay the guaranteed amount. Goldloop filed a complaint for specific performance, arguing that it had already advanced a significant sum and that the non-issuance of permits was not its fault. The Regional Trial Court (RTC) initially sided with Goldloop, but the Court of Appeals (CA) reversed this decision, citing Goldloop’s abandonment of the project due to the long delay. The Supreme Court then took up the case to resolve the issue of rescission.

The Supreme Court emphasized the reciprocal nature of the obligations under the MOA. Reciprocal obligations, as defined in jurisprudence, arise from the same cause, where each party is both a debtor and a creditor of the other. In this case, Goldloop’s primary duty was to pay for the land portion and construct the condominium, while GSIS was obligated to deliver the property free from liens and execute the deed of sale upon full payment. The Court found that Goldloop failed to fulfill its payment obligations as prescribed in the MOA.

While the Addendum allowed Goldloop to advance payments for GSIS’s expenses, these advances were only credited to the initial installments. The records showed that Goldloop did not complete the second installment, nor did it remit subsequent payments. Goldloop also failed to formally request an extension for its payment, which was a recourse available under the MOA in cases of delays due to circumstances beyond its control, like the permit issues.

The MOA explicitly granted GSIS the right to unilaterally rescind the contract if Goldloop failed to start construction or breached its obligations. Section 2.4 of the MOA stated:

Should GOLDLOOP fail to start the construction works within the thirty (30) working days from date all relevant permits and licenses from concerned agencies are obtained, or within six (6) months from the date of the execution of this Agreement, whichever is earlier, or at any given time abandon the same or otherwise commit any breach of their obligations and commitments under this Agreement, this agreement shall be deemed terminated and cancelled without need of judicial action by giving thirty (30) days written notice to that effect to GOLDLOOP who hereby agrees to abide by the decision of the GSIS.

The Court ruled that GSIS’s rescission was justified under this provision, given Goldloop’s failure to pay the guaranteed amount, which constituted a breach of its obligations. Citing precedent, the Court reiterated that contracts are the law between the parties, and their stipulations should be upheld, provided they are not contrary to law, morals, good customs, public order, or public policy.

However, the Court also acknowledged GSIS’s failure to deliver the property free from encumbrances, as the unpaid real estate taxes constituted a burden on the property. This failure meant that GSIS, too, had not fully complied with its obligations under the MOA. Despite this, the Court underscored that Goldloop’s payment default predated its awareness of the GSIS’s tax liabilities, making its breach the primary consideration for the rescission.

Given the rescission, the Court ordered mutual restitution, which is consistent with Article 1191 of the Civil Code. This meant that Goldloop was to return possession of the property to GSIS, and GSIS was to reimburse Goldloop for the amounts it had received by reason of the MOA and Addendum. In determining the amount to be reimbursed, the Court only considered the sum Goldloop spent on the completed installation of the cistern tank, amounting to P4,122,133.19, which GSIS admitted in its Answer.

Since both parties had committed breaches, Article 1192 of the Civil Code was applied. Article 1192 states:

In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.

The Court found it difficult to determine who first violated the contract; thus, it ruled that the claims for damages by both parties were deemed extinguished, and each party would bear its own losses. This was a fair distribution of consequences, considering both parties were at fault in the non-completion of the condominium project.

FAQs

What was the central issue in this case?	The main issue was whether GSIS validly rescinded the MOA with Goldloop due to the latter’s failure to pay the guaranteed amount for a condominium project, despite issues with unpaid real estate taxes on the property.
What were Goldloop’s obligations under the MOA?	Goldloop was obligated to pay GSIS a guaranteed amount of P140,890,000.00 in installments for the land and to construct a condominium building on the property.
What were GSIS’s obligations under the MOA?	GSIS was obligated to deliver the property to Goldloop free from all liens and encumbrances and to execute a deed of absolute sale upon full payment by Goldloop.
Why did GSIS rescind the MOA?	GSIS rescinded the MOA because Goldloop failed to pay the guaranteed amount as stipulated in the agreement, constituting a breach of contract.
Did Goldloop request an extension for its payments?	No, Goldloop did not formally request an extension for its payments, even though the MOA provided a mechanism for such extensions in cases of delays beyond its control.
What is mutual restitution, and how did it apply in this case?	Mutual restitution requires both parties to return what they received under a rescinded contract. Goldloop had to return the property to GSIS, and GSIS had to reimburse Goldloop for the amounts it received.
What amount was GSIS required to reimburse Goldloop?	GSIS was ordered to reimburse Goldloop P4,122,133.19, representing the sum Goldloop spent on the completed installation of the cistern tank.
Why were both parties ordered to bear their own damages?	Because both Goldloop and GSIS had breached their obligations, and the Court could not definitively determine who breached the contract first, each party was ordered to bear its own damages.

This case illustrates the importance of fulfilling contractual obligations, even when unforeseen circumstances arise. It also demonstrates how courts apply the principles of rescission and mutual restitution when both parties are at fault. Understanding the reciprocal nature of contractual duties and the consequences of breach is critical for all parties involved in real estate and other commercial agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Goldloop Properties Inc. vs. Government Service Insurance System, G.R. No. 171076, August 01, 2012