Philippine National Bank v. Court of Appeals

G.R. No. 119580 (September 26, 1996)

Facts:

The case revolves around a parcel of land located at the corner of Carlos Palanca and Helios Streets, Sta. Cruz, Manila, owned by the Philippine National Bank (PNB) and covered by Transfer Certificate of Title No. 134695. On July 14, 1983, Lapaz Kaw Ngo made a formal offer to purchase the property, which PNB accepted under certain terms and conditions outlined in a letter dated September 8, 1983. The selling price was set at P5,394,300.00, with an initial deposit of P100,000.00. The agreement stipulated that failure to pay the additional deposit of P978,860.00 would result in the forfeiture of the initial deposit and allow PNB to sell the property to other interested parties.

Lapaz signed the letter-agreement on December 15, 1983, and undertook to clear the property of its occupants at her own expense. However, due to a credit squeeze, she requested adjustments to the payment terms in January 1984. PNB reminded her of her obligations in February 1984, but Lapaz failed to remit the required amounts. Consequently, PNB canceled the sale and forfeited her deposit in October 1984.

In May 1986, PNB approved a revival of the sale under new terms, including a new deposit of P200,000.00 and a reduced selling price. Lapaz accepted the terms except for a condition requiring her to bear the expenses for ejecting current tenants. PNB insisted on this condition, leading to a breakdown in negotiations. Lapaz expressed her willingness to pay the required downpayment contingent upon the property being cleared of tenants, but PNB canceled the agreement in January 1987 due to her failure to pay.

Lapaz subsequently filed an action for specific performance and damages against PNB. The Regional Trial Court ruled in her favor, ordering PNB to comply with the sale without the ejectment condition and awarding damages. PNB appealed the decision to the Court of Appeals, which affirmed the trial court's ruling but deleted the damages awarded.

Legal Issues:

1. Was there a perfected contract of sale between PNB and Lapaz Kaw Ngo despite the conditions imposed?
2. Did the failure of Lapaz to remit the required downpayment negate the existence of a perfected contract?
3. Was the cancellation of the sale by PNB justified given the circumstances?

Arguments:

• Petitioner (PNB):

  • PNB argued that the conditions imposed in the agreements were material and essential for the perfection of the contract. They contended that Lapaz's refusal to accept the condition regarding the ejectment of tenants constituted a rejection of the offer, thus preventing the formation of a valid contract.
  • PNB maintained that the deposits made by Lapaz were not earnest money but were conditional, and her failure to comply with the conditions justified the cancellation of the sale.

• Respondent (Lapaz Kaw Ngo):

  • Lapaz contended that a perfected contract of sale existed upon her acceptance of the terms, regardless of her failure to pay the downpayment. She argued that the conditions did not negate the contract's perfection and that PNB's insistence on the ejectment condition was unreasonable.
  • She asserted that her previous compliance with ejectment expenses under the first agreement should suffice and that PNB's cancellation of the sale was baseless.

Court's Decision and Legal Reasoning:

The Supreme Court granted PNB's petition for review, reversing the decisions of the lower courts. The Court held that the agreements constituted contracts to sell rather than perfected contracts of sale. It emphasized that the obligations of the vendor to convey title were contingent upon the fulfillment of certain conditions, including the payment of the purchase price and the clearing of the property of tenants.

The Court reasoned that the cancellation of the first agreement due to Lapaz's failure to remit the downpayment rendered that contract non-existent, and thus, the revival of the sale in 1986 was a separate transaction. The Court found that Lapaz's refusal to accept the ejectment condition constituted a counter-offer, which PNB did not accept, leading to the failure of negotiations.

The Court clarified that the deposits made by Lapaz were not earnest money in the sense of proving a perfected sale but were part of the consideration for reserving the property. The Court concluded that since the conditions were not fulfilled, PNB was not obligated to proceed with the sale, and Lapaz's complaint for specific performance was dismissed.

Significant Legal Principles Established:

1. Contract to Sell vs. Contract of Sale: The distinction between a contract to sell (where ownership is retained by the seller until certain conditions are met) and a contract of sale (where ownership passes upon delivery) is crucial in determining the obligations of the parties.
2. Perfection of Contracts: A contract is perfected when there is a meeting of minds on the object and the price, but fulfillment of conditions may be necessary for the obligation to convey title to arise.
3. Effect of Conditions: The failure to comply with suspensive conditions in a contract to sell prevents the vendor's obligation to convey title from acquiring binding force.