Heird of Kim v. Quicho

 

Heird of Kim v. Quicho

G.R. No. 249247

March 15, 2021

 

FACTS:

Jasper Quicho approached Mary Kim and proposed to buy the latter’s 250-ton portable crusher installed in a five (5)-hectare lot, which the former will need to start a crushing plant business. A Deed of Conditional Sale was executed where Kim agreed to sell the portable crusher with all the accessories to Quicho for P18,000,000.00 payable in installments. It was also stipulated in the said deed that the contract may be rescinded without need of court action whereby the partial payments made shall be forfeited and considered as rentals in case of breach. A Contract of Lease was also executed for the use of the lot where the crusher would be operated. Kim successfully turned over the portable crusher with the lot to Quicho who paid a total of P9,000,000.00. Quicho failed to settle the succeeding installments which prompted Kim to send a Notice of Rescission of Contracts. Quicho continuously refused to pay his outstanding balance which led Kim to file a complaint for rescission of their contracts before the RTC.

ISSUE:

Whether or not the petitioners can retain the amounts paid by the respondents despite the rescission of the contract.

HELD:

YES. The petitioners can retain the amounts paid by the respondents despite the rescission of the contract. Rescission under Article 1191 will be ordered when a party to a contract fails to comply with his or her obligation. It is a declaration that a contract is void at its inception. Its effect is to restore the parties to their original position, insofar as practicable. However, although rescission repeals the contract from its inception, it does not disregard all the consequences that the contract has created. One such consequence that remains is the validity of the forfeiture or penalty clause stipulated by the parties in a contract. Moreso, the payments made in this case partake of the nature of an earnest money. In a contract to sell, earnest money is generally intended to compensate the seller for the opportunity of not looking for any other buyers. Earnest money is paid for the seller's benefit. It is part of the purchase price while at the same time proof of commitment by the potential buyer. Absent proof of a clear agreement to the contrary, it is intended to be forfeited if the sale does not happen without the seller's fault. In Racelis v. Javier, the Court ruled that "[t]here is no unjust enrichment on the part of the seller should the initial payment be deemed forfeited. After all, the owner could have found other offers or a better deal. The earnest money given by respondents is the cost of holding this search in abeyance."