In a voluntary sale of property to the government, unlike in eminent domain cases, the payment of legal interest on the purchase price is not a matter of law but is subject to the terms agreed upon by the parties in their contract. This means that if the Deed of Absolute Sale does not include a stipulation for the payment of interest, the seller cannot later claim interest, even if there was a delay between the government’s initial occupation of the property and the final sale agreement. This ruling emphasizes the importance of clearly defining all terms and conditions in a contract of sale to avoid future disputes.

When a Deal is a Deal: Can a Seller Demand More After Agreeing to a Price?

This case revolves around a parcel of land in Davao City, owned by Jose Gamir-Consuelo Diaz Heirs Association, Inc. (respondent). The Republic of the Philippines (petitioner), through the Department of Public Works and Highways (DPWH), took possession of the land in 1957. However, it wasn’t until August 9, 2005, that a Deed of Absolute Sale was executed, with the respondent agreeing to sell the property for P275,099.24. Dissatisfied, the respondent later filed a complaint, seeking interest from 1957, claiming that the agreed price reflected the property’s value at the time of the taking, not the present value. The central legal question is whether the respondent is entitled to receive interest despite the absence of such a stipulation in the Deed of Absolute Sale.

The Supreme Court (SC) tackled the distinction between acquiring property through **eminent domain** versus a **voluntary sale**. Eminent domain is the inherent power of the State to take private property for public use, provided that just compensation is paid. This concept is enshrined in the Constitution, specifically in Article III, Sections 1 and 9, which safeguard against deprivation of property without due process and ensure just compensation for takings. The Court emphasized that just compensation not only involves the correct amount but also its timely payment to adequately cover the property owner’s loss. In this case, the respondent agreed to the valuation of the property and did not contest the consideration stated in the Deed of Absolute Sale.

However, the Court of Appeals (CA) sided with the respondent, stating that the legal interest stemmed from the law, not merely the contract. The appellate court argued that the respondent had little choice but to sign the Deed of Absolute Sale due to the government’s long-standing occupation of the property. The Supreme Court disagreed with the CA. While expropriation is considered an involuntary sale where the landowner is essentially an unwilling seller, this does not preclude the government from entering into a negotiated sale. Should a deed of sale be executed where both parties come to an agreement regarding the price, court intervention would be unnecessary.

The Supreme Court cited *Republic v. Roque, Jr.*, where it recognized that the State could acquire property through either expropriation or voluntary sale, each with distinct legal consequences. In expropriation, the Republic’s acquisition of the property is conditioned on the property being returned if the public purpose does not materialize. A sale contract between the Republic and private persons is not subject to the same condition, unless the parties stipulate it. The CA incorrectly assumed that the execution of a deed of sale did not amount to a waiver on the part of respondent for the payment of interest.

The rationale behind awarding interest in expropriation cases is to compensate landowners for the income they would have earned had they been promptly compensated for their properties when taken. However, it is important to view interest payments in a different light when there is a voluntary sale between the landowner and the government. Expropriation and voluntary sale have different legal implications. In the latter, the parties can freely negotiate the terms and conditions of the contract, including a stipulation concerning the payment of interest. Moreover, the state does not exercise its power of eminent domain when entering into a voluntary sale.

The Court noted that in a long line of cases where legal interest was awarded, either there was a disagreement between the landowner and the government regarding the property’s value, or the state had commenced expropriation proceedings. These cases involved scenarios where no consensual agreement was reached, unlike the present case where both parties freely executed a deed of sale. The Supreme Court emphasized that the contract is the law between the parties, and they are bound by its stipulations. As such, the CA was in error when it relied on the pronouncements in *Apo* because there was no consensual contract between the parties; the landowner did not agree with the valuation done by the DAR on its property.

The award of legal interest in cases where the government acquires private property through voluntary sale is not a matter of law. Unlike expropriation cases or similar actions, a negotiated sale involves an existing contract that governs the parties’ relations and determines their rights and obligations. These contractual stipulations should be complied with in good faith, unless they are contrary to law, morals, good customs, public order, or public policies. The laws relating to contracts should, therefore, govern in case of controversy in their application. The Court found that the respondent agreed to sell its property for the amount stated in the Deed of Absolute Sale, and despite demanding interest prior to the deed’s execution, the Deed itself contained no such provision or any reservation to claim interest.

The Supreme Court invoked the **Parol Evidence Rule**, found in Section 9, Rule 130 of the Revised Rules of Court, which states that when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. The Court, citing *Spouses Paras v. Kimwa Construction and Development Corporation*, explained the rationale behind this rule: “reduction to written form, regardless of the formalities observed, forbids any addition to, or contradiction of, the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract.” In simpler terms, the stipulations that are found in a contract were a result of a negotiation, posturing and bargaining between the parties. Thus, stipulations not included are deemed to have been abandoned.

The Parol Evidence Rule is not absolute, and there are exceptions. A party may present evidence to modify, explain, or add to the terms of the written agreement if they put in issue: (a) an intrinsic ambiguity, mistake, or imperfection in the agreement; (b) the failure of the agreement to express the true intent of the parties; (c) the validity of the agreement; or (d) the existence of other terms agreed to after the execution of the agreement. In this case, the Deed of Absolute Sale contained no provision regarding interest, and the respondent made no reservation for any claim of interest. As such, no parol evidence could be admitted to support the respondent’s claim.

The respondent could not rely on its August 1, 2005, letter demanding payment of interest, as this was made prior to the execution of the Deed of Absolute Sale. Therefore, the Supreme Court concluded that the respondent had abandoned its demand for interest by acquiescing to the contract without a stipulation for such payment. The Court emphasized that it must enforce contractual stipulations as agreed upon by the parties and cannot modify contracts or save parties from disadvantageous provisions. Furthermore, the Court disagreed with the CA’s observation that the respondent had no choice but to sign the Deed. There was no allegation that the respondent was coerced or that its consent was vitiated in any way.

The legal principles discussed in this case highlight the crucial importance of clearly documenting all agreed-upon terms in a contract. Parties should ensure that all essential conditions, including payment of interest or any other compensation, are explicitly stated in the written agreement. Failure to do so can result in the loss of rights, as the courts will generally uphold the terms of the written contract based on the Parol Evidence Rule. This ruling underscores the need for careful negotiation and precise documentation in all commercial transactions, particularly when dealing with government entities.

FAQs

What was the key issue in this case?	The central issue was whether the respondent was entitled to receive interest on the purchase price of the land, despite the absence of any stipulation in the Deed of Absolute Sale with the petitioner.
What is the difference between eminent domain and voluntary sale?	Eminent domain is the State’s inherent power to take private property for public use with just compensation, while voluntary sale is a negotiated agreement between the State and a private landowner. In voluntary sale, parties can freely negotiate the terms of the contract.
What is the Parol Evidence Rule?	The Parol Evidence Rule states that when an agreement is reduced to writing, it is considered to contain all the terms agreed upon, and no external evidence can be admitted to contradict or vary those terms.
What are the exceptions to the Parol Evidence Rule?	Exceptions include cases where there is an ambiguity in the written agreement, failure to express the true intent of the parties, issues regarding the validity of the agreement, or existence of subsequent agreements.
Why did the Supreme Court reverse the Court of Appeals’ decision?	The Supreme Court reversed the CA’s decision because the Deed of Absolute Sale did not include any stipulation for the payment of interest, and the respondent did not reserve the right to claim it.
Can a seller claim interest if not stipulated in the Deed of Absolute Sale?	Generally, no. If the Deed of Absolute Sale does not include a provision for interest, the seller is deemed to have waived or abandoned any claim for it, especially in a voluntary sale agreement.
What is considered “just compensation” in eminent domain cases?	Just compensation is the full and fair equivalent of the property taken, which includes not only the correct amount but also the payment within a reasonable time from its taking.
What should parties ensure when entering into a Deed of Absolute Sale?	Parties should ensure that all terms and conditions, including payment of interest, are clearly and explicitly stated in the written agreement to avoid future disputes.

In conclusion, the Supreme Court’s decision emphasizes the significance of clear and comprehensive agreements in property sales to the government. Parties must ensure that all terms, especially those concerning interest payments, are explicitly stated in the contract to avoid future disputes. This ruling serves as a reminder of the importance of meticulous contract drafting and negotiation in all commercial transactions.

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: REPUBLIC OF THE PHILIPPINES VS. JOSE GAMIR-CONSUELO DIAZ HEIRS ASSOCIATION, INC., G.R. No. 218732, November 12, 2018