In Felix Plazo Urban Poor Settlers Community Association, Inc. v. Alfredo Lipat, Sr. and Alfredo Lipat, Jr., the Supreme Court ruled that a seller is not obligated to sell property under a Contract to Sell (CTS) if the buyer fails to pay the full purchase price within the stipulated period. The Court emphasized that payment of the full purchase price is a positive suspensive condition, and non-fulfillment prevents the seller’s obligation from arising. This decision clarifies the binding nature of contractual stipulations and the importance of adhering to agreed-upon terms in property transactions, particularly impacting buyers who risk losing their rights if payment obligations are not met.

Expired Contract, Unfulfilled Promise: Can a Buyer Demand Specific Performance?

This case revolves around a Contract to Sell (CTS) executed between Felix Plazo Urban Poor Settlers Community Association, Inc. (petitioner) and Alfredo Lipat, Sr. and Alfredo Lipat, Jr. (respondents) for two parcels of land. The petitioner failed to pay the full purchase price within the 90-day period stipulated in the CTS. Subsequently, the petitioner filed a case for Specific Performance and Damages, seeking to compel the respondents to sell the properties despite the expired contract. The central legal question is whether the petitioner can demand the enforcement of the CTS when it failed to comply with the condition of full payment within the agreed timeframe.

The Supreme Court addressed the issue by emphasizing the principle that contracts are the law between the parties. “From the time the contract is perfected, all parties privy to it are bound not only to the fulfillment of what has been expressly stipulated but likewise to all consequences which, according to their nature, may be in keeping with good faith, usage and law,” the Court stated. In this context, the CTS clearly stipulated a 90-day period for full payment, a condition that the petitioner failed to meet. The Court underscored the nature of a CTS, explaining that the seller’s obligation to sell becomes demandable only upon the occurrence of the suspensive condition. Here, that condition was the timely payment of the full purchase price.

The failure to fulfill the suspensive condition has significant legal consequences. As the Court of Appeals correctly observed, and the Supreme Court affirmed, the non-fulfillment of this condition prevents the perfection of the CTS. In other words, because the buyer did not pay within the agreed timeframe, the seller was not legally bound to transfer the property title. The Supreme Court cited the case of Spouses Garcia, et al. v. Court of Appeals, et al., emphasizing that in a CTS, payment of the full purchase price is a positive suspensive condition. Failure to meet this condition is not considered a breach but rather an event that prevents the seller’s obligation from becoming effective. Consequently, the respondents were within their rights to refuse to enforce the CTS.

The petitioner argued that the 90-day period was subject to the condition that the properties be cleared of all claims from third persons due to pending litigations. However, the Court rejected this argument, invoking the parol evidence rule. This rule, embodied in Rule 130, Section 9 of the Revised Rules on Evidence, generally prohibits the introduction of evidence to vary the terms of a written agreement. The Court quoted Norton Resources and Development Corporation v. All Asia Bank Corporation to explain that the parol evidence rule “forbids any addition to or contradiction of the terms of a written instrument by testimony or other evidence.”

The petitioner attempted to argue that the CTS fell within the exceptions to the parol evidence rule, claiming that the written agreement failed to express the true intent of the parties. Specifically, the petitioner asserted that the CTS was subject to the condition that all pending litigations relative to the properties be settled. The Court found this argument untenable, explaining that parol evidence can only incorporate additional contemporaneous conditions if there is fraud or mistake. In this case, the CTS did not contain any provision pertaining to the settlement of pending litigation as a condition. Furthermore, the petitioner failed to present sufficient evidence to prove fraud or mistake.

Even if the 90-day period had been extended, the Court noted that the petitioner still failed to fulfill its obligation by not making a proper tender of payment and consignation of the price in court. “It is essential that consignation be made in court in order to extinguish the obligation of the buyer to pay the balance of the purchase price,” the Court stated, citing Ursal v. Court of Appeals. Because the petitioner did not attempt to consign the amounts due, the respondents’ obligation to sell never acquired obligatory force. Thus, the seller was released from the obligation to sell.

While the Supreme Court upheld the dismissal of the specific performance case, it also addressed the issue of payments made by the petitioner for the properties. Citing Pilipino Telephone Corporation v. Radiomarine Network (Smartnet) Philippines, Inc., the Court invoked the principle against unjust enrichment. The Court ordered the refund of all sums previously paid by the buyer, stating that “no one should unjustly enrich himself at the expense of another.” In this case, the records were insufficient to accurately compute the payments made by the petitioner. Therefore, the Court remanded the case to the Regional Trial Court (RTC) for a detailed computation of the refund. The RTC was also directed to include the imposition of an interest rate of six percent (6%) per annum, following the ruling in Nacar v. Gallery Frames, et al.

FAQs

What was the key issue in this case?	The key issue was whether the petitioner could compel the respondents to sell properties under a Contract to Sell when the petitioner failed to pay the full purchase price within the stipulated 90-day period.
What is a Contract to Sell?	A Contract to Sell is an agreement where the seller promises to sell property to the buyer upon the fulfillment of certain conditions, typically the payment of the full purchase price. The transfer of title only occurs after the buyer has fully complied with their obligations.
What is a suspensive condition?	A suspensive condition is an event that must occur before an obligation becomes demandable. In a Contract to Sell, the payment of the full purchase price is a positive suspensive condition that triggers the seller’s obligation to transfer the property title.
What is the parol evidence rule?	The parol evidence rule prohibits the introduction of extrinsic evidence, such as oral agreements, to vary, contradict, or add to the terms of a written contract. This rule ensures that written contracts are the definitive expression of the parties’ agreement.
What is the principle of unjust enrichment?	The principle of unjust enrichment prevents a party from unfairly benefiting at the expense of another. In contract law, this principle is often applied to require the refund of payments made when a contract is terminated due to non-performance.
Why was the case remanded to the RTC?	The case was remanded to the RTC for a detailed computation of all payments previously made by the petitioner to the respondents in connection with the Contract to Sell. This was necessary to determine the amount that should be refunded to the petitioner under the principle of unjust enrichment.
What is the significance of consignation in this case?	Consignation, or depositing the payment with the court, is a legal mechanism to extinguish an obligation when the creditor refuses to accept payment. The petitioner’s failure to consign the payment further weakened their claim for specific performance.
What was the final ruling of the Supreme Court?	The Supreme Court affirmed the Court of Appeals’ decision dismissing the case for specific performance but modified it to include a directive for the respondents to refund all payments made by the petitioner, with an interest rate of six percent (6%) per annum.

The Supreme Court’s decision reinforces the importance of fulfilling contractual obligations within the agreed-upon terms. While the petitioner’s failure to pay the full purchase price resulted in the dismissal of their specific performance claim, the Court ensured fairness by ordering a refund of previous payments to prevent unjust enrichment. This case serves as a reminder for parties entering into Contracts to Sell to adhere to the stipulated conditions to safeguard their rights and interests.

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: FELIX PLAZO URBAN POOR SETTLERS COMMUNITY ASSOCIATION, INC. VS. ALFREDO LIPAT, SR. AND ALFREDO LIPAT, JR., G.R. No. 182409, March 20, 2017