Broken promises

Turio entered into a contract to sell with Baby Volcano Realty Inc. (BVR) for the purchase on installment of a residential lot in the Windy Heights Subdivision, then being developed by the latter.

Earlier, BVR executed an express undertaking in favor of Turio, as follows:

“We hereby undertake to complete the development of the roads, curbs, gutters, drainage system, water and electrical systems, as well as all the amenities to be introduced in WINDY HEIGHTS SUBDIVISION, such as, swimming pool, pelota court, tennis and/or basketball court, bath house, children’s playground and a clubhouse within a period of two years from 15 July 1976, on the understanding that failure on their part to complete such development within the stipulated period shall give the VENDEE the option to suspend payment of the monthly amortization on the lot/s he/she purchased until completion of such development without incurring penalty interest.

It is clearly understood, however, that the period or periods during which we cannot pursue said development by reason of any act of God, any act or event constituting force majeure or fortuitous event, or any restriction, regulation, or prohibition by the government or any of its branches or instrumentalities, shall suspend the running of said two-year period and the running thereof shall resume upon the cessation of the cause of the stoppage or suspension of said development.”

Years later, Turio notified BVR that he was suspending his amortizations because the amenities had not been constructed in accordance with the undertaking. Instead of addressing his concerns, BVR sent to him a statement of account demanding the balance of the price, plus interest and penalty. Naturally, Turio refused to pay the interest and penalty.

Later, Turio sued BVR for specific performance in the HLURB. He wanted BVR to be ordered to accept his payment of the balance of the contract without interest and penalty, and to deliver to him the title of the property.

In riposte, BVR sought to be excused from performing its obligations under the contract, invoking Article 1267 of the Civil Code as its basis. It contended that the depreciation of the Philippine peso since the time of the execution of the contract, the increase in the cost of labor and construction materials, and the increase in the value of the lot in question were valid justifications for its release from the obligation to construct the amenities.

Q: Is BVR relieved from its statutory and contractual obligations to complete the amenities?

A: No. Under Section 20 of Presidential Decree No. 957, all developers are mandated to complete their subdivision projects, including the amenities, within one year from the issuance of their licenses.

The provision reads: “Section 20. Time of Completion.- Every owner or developer shall construct and provide the facilities, improvements, infrastructures and other forms of development, including water supply and lighting facilities, which are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any form of advertisement, within one year from the date of the issuance of the license for the subdivision or condominium project or such other period of time as maybe fixed by the Authority.”

Pursuant to Section 30 of P.D. No. 957, the amenities, once constructed, are to be maintained by the developer like the petitioner until a homeowners’ association has been organized to manage the amenities.

There is no question that the petitioner did not comply with its legal obligation to complete the construction of the subdivision project, including the amenities, within one year from the issuance of the license. Instead, it unilaterally opted to suspend the construction of the amenities to avoid incurring maintenance expenses.

Q: When does Article 1267 of the Civil Code apply?

A: Art 1267 applies when the following conditions should concur, namely: (a) the event or change in circumstances could not have been foreseen at the time of the execution of the contract; (b) it makes the performance of the contract extremely difficult but not impossible; (c) it must not be due to the act of any of the parties; and (d) the contract is for a future prestation.

The requisites did not concur herein because the difficulty of performance under Article 1267 of the Civil Code should be such that one party would be placed at a disadvantage by the unforeseen event. Mere inconvenience, or unexpected impediments, or increased expenses did not suffice to relieve the debtor from a bad bargain.

Q: Can Turio, as installment buyer, be excused from paying the annual interest and the penalty?

A: Turio must pay the stipulated annual interest of 12 percent but not the penalty. The monthly installment included the principal and the annual interest, the latter being legally termed the amortization interest. The annual interest was designed to compensate the petitioner for waiting seven years before receiving the total principal amount. As such, the total cost of the lot purchased by the respondent for the seven-year term is inclusive of the contract price of the lot and the amortization interest. The vendor and the vendee are legally free to stipulate for the payment of either the cash price of a subdivision lot or its installment price.

(Source: Tagaytay Realty Co., Inc. vs. Gacutan, G.R. No. 160033, July 1, 2015)

The author is Dean of Lyceum of the Philippines University; Founder, Mawis Law Office; Board of Trustees Member, Philippine Association of Law Schools