Catungal vs Rodriguez

Facts:

 Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) situated in the Barrio of Talamban, Cebu City.  Agapita, with the consent of her husband Jose, entered into a Contract to Sell^[6] with respondent Rodriguez which subsequently purportedly “upgraded” into a Conditional Deed of Sale.Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title.

          The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

          1.price 25 Million pesos

2. downpayment 500 Thousand 

3. balance shall be paid  after the VENDEE have successfully negotiated, secured and provided a Road Right of Way . If however said Road Right of Way could not be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking other options and should the situation ultimately prove futile, he shall take steps to rescind or cancel the herein Conditional Deed of Sale.

 He likewise alleged that he actively negotiated for the road right of way as stipulated in the contract.^[9]

   On August 31, 1990 the spouses Catungal requested an advance of P5,000,000.00 on the purchase price for personal reasons.  Rodriquez allegedly refused on the ground that the amount was substantial and was not due under the terms of their agreement.  The Catungal’s rescinded the contract.

Rodirguez filed a complaint against the Catungal’s for arbitrarily rescinding the contract.  In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the contract it was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguez’s obligation to pay the balance of the purchase price arises only upon successful negotiation of the road right of way; (c) he proved his diligent efforts to negotiate the road right of way; (d) the spouses Catungal were guilty of misrepresentation which defeated Rodriguez’s efforts to acquire the road right of way; and (e) the Catungals’ rescission of the contract had no basis and was in bad faith.  

During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband, Jose, filed on February 17, 1999 a motion for Agapita’s substitution by her surviving children.^[46]

The Catungals alleged that the conditional deed of sale was void ab initio because it violates the mutuality of contract in view of Article 1308 ncc.           Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the aforementioned provisions. Article 1308 states that “[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.”

          Article 1182 of the Civil Code, in turn, provides:

            Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.

Issue

 W/N Conditional Deed of Sale violate the principle of mutuality of contracts under Article 1308 of the Civil Code?   

 .  

 Held:

          

No. In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation.  While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the sale or to waive the condition. This principle is evident in Article 1545 of the Civil Code on sales, which provides in part:

            Art. 1545.        Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase price when he has successfully negotiated and secured a road right of way, is not a condition on the perfection of the contract nor on the validity of the entire contract or its compliance as contemplated in Article 1308.  It is a condition imposed only on respondent’s obligation to pay the remainder of the purchase price. In our view and applying Article 1182, such a condition is not purely potestative as petitioners contend.  It is not dependent on the sole will of the debtor but also on the will of third persons who own the adjacent land and from whom the road right of way shall be negotiated.  

The condition is a mixed condition which is allowed by Article 1182.

"potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.

With respect to petitioners’ argument that paragraph 5 of the Conditional Deed of Sale likewise rendered the said contract void, we find no merit to this theory.  

Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the contract is not absolute as it undeniably only limited to the contingency that Rodriguez shall not be able to secure the road right of way.  .

In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather also subject to the same mixed condition as his obligation to pay the balance of the purchase price – i.e., the negotiation of a road right of way.  In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the purchase price.  In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed with the sale and demand return of his downpayment or (b) considering that the condition was imposed for his benefit, to waive the condition and still pay the purchase price despite the lack of road access.  This is the most just interpretation of the parties’ contract that gives effect to all its provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to rescind, in the manner provided for in the contract, is tantamount to a potestative condition, not being a condition affecting the perfection of the contract, only the said condition would be considered void and the rest of the contract will remain valid.  

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the following MODIFICATION: 

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality of this Decision to negotiate a road right of way. In the event no road right of way is secured by respondent at the end of said period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree on a course of action. Should the discussions of the parties prove futile after the said thirty (30)-day period, immediately upon the expiration of said period for discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase price as determined in the RTC Decision dated May 30, 1992.