David Reyes (substituted by Victoria R. Fabella) vs. Jose Lim, et al.

G.R. No. 134241, August 11, 2003; per Carpio, J.

Facts

This is a petition for review on certiorari of the Decision dated 12 May 1998 of the Court of Appeals (CA-G.R. SP No. 46224), dismissing the petition for certiorari assailing the Orders dated 6 March 1997, 3 July 1997 and 3 October 1997 of the Regional Trial Court of Parañaque, Branch 260 (“trial court”) in Civil Case No. 95032.

Reyes and Lim entered a Contract to Sell of the former’s parcel of land in F.B. Harrison St., Pasay City. Among the condition is the down payment of Php10M and conditional payment of Php18M upon the vacation of the lot. In case of the property has not been vacated, a penalty of Php400k/mo shall be incurred by Reyes.

Reyes, upon giving notice to its lessees, Keng and Harrison lumber, failed to vacate their property. He complaint further alleged that Lim connived with Harrison Lumber not to vacate the Property until the

P400,000 monthly penalty would have accumulated and equaled the unpaid purchase price of P18,000,000. Reyes offered to return the P10 million down payment to Lim because Reyes was having problems in removing the lessee from the Property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property. Lim learned that Reyes had already sold the Property to Line One Foods Corporation (“Line One”) on 1 March 1995 for P16,782,840.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million down payment with the cashier of the Regional Trial Court of Parañaque. The trial court granted this motion. On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the ground the Order practically granted the reliefs Lim prayed for in his Amended Answer. The RTC denied Reyes’s motion. Hence, this petition.

Issue

Whether or not the trial court’s orders are valid on grounds of equity.

Ruling

The Supreme Court ruled that, on balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10 million down payment. The application of equity always involves a balancing of the equities in a particular case, a matter addressed to the sound discretion of the court. Here, we find the equities weigh heavily in favor of Lim, who paid the P10 million down payment in good faith only to discover later that Reyes had subsequently sold the Property to another buyer.

The Contract to Sell can no longer be enforced because Reyes himself subsequently sold the Property to Line One. Both Reyes and Lim are now seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the obligation to return the things that are the object of the contract. Rescission is possible only when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante.