Reyes vs. Lim, G.R. No. 134241, 11aug2003

Reyes vs Lim GR 134241
DAVID REYES (Substituted by Victoria R. Fabella) vs. JOSE LIM, CHUY CHENG KENG and
HARRISON LUMBER, INC
G.R. No. 134241, August 11, 2003
FACTS:
(a) On 7 November 1994, Reyes as seller and Lim as buyer entered into a contract to sell ("Contract
to Sell") a parcel of land ("Property") located along F.B. Harrison Street, Pasay City. Harrison
Lumber occupied the Property as lessee with a monthly rental of P35,000. The Contract to Sell
provided for the following terms and conditions:
1. The total consideration for the purchase of the aforedescribed parcel of land together with the
perimeter walls found therein is TWENTY EIGHT MILLION (P28,000,000.00) PESOS payable as
follows:
(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;
(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on or before
March 8, 1995 at 9:30 A.M. at a bank to be designated by the Buyer but upon the complete
vacation of all the tenants or occupants of the property and execution of the Deed of Absolute
Sale. However, if the tenants or occupants have vacated the premises earlier than March 8,
1995, the VENDOR shall give the VENDEE at least one week advance notice for the payment of
the balance and execution of the Deed of Absolute Sale.
2. That in the event, the tenants or occupants of the premises subject of this sale shall not vacate
the premises on March 8, 1995 as stated above, the VENDEE shall withhold the payment of the
balance of P18,000,000.00 and the VENDOR agrees to pay a penalty of Four percent (4%) per
month to the herein VENDEE based on the amount of the downpayment of TEN MILLION
(P10,000,000.00) PESOS until the complete vacation of the premises by the tenants therein.
(b) The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before
the end of January 1995. Reyes also informed Keng and Harrison Lumber that if they failed to
vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month as
provided in the Contract to Sell. The 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.
(c) On 3 May 1995, Keng and Harrison Lumber filed their Answer denying they connived with Lim to
defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an
extension of time to vacate the Property due to their difficulty in finding a new location for their
business. Harrison Lumber claimed that as of March 1995, it had already started transferring
some of its merchandise to its new business location in Malabon.
(d) On 31 May 1995, Lim filed his Answer stating that he was ready and willing to pay the balance of
the purchase price on or before 8 March 1995. Lim requested a meeting with Reyes through the
latters daughter on the signing of the Deed of Absolute Sale and the payment of the balance but
Reyes kept postponing their meeting. On 9 March 1995, 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. After the registration of the Deed of Absolute
Sale, the Register of Deeds issued to Line One TCT No. 134767 covering the Property. Lim
denied conniving with Keng and Harrison Lumber to defraud Reyes.
(e) On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to
supervening facts. These included the filing by Lim of a complaint for estafa against Reyes as
well as an action for specific performance and nullification of sale and title plus damages before
another trial court. The trial court granted the motion in an Order dated 23 November 1995.
(f) In his Amended Answer dated 18 January 1996, Lim prayed for the cancellation of the Contract to
Sell and for the issuance of a writ of preliminary attachment against Reyes. The trial court denied
the prayer for a writ of preliminary attachment in an Order dated 7 October 1996.
(g) 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 Paraaque. The trial court granted
this motion.
Reyes vs Lim GR 134241
(h) 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 trial
court denied Reyes motion in an Order dated 3 July 1997. Citing Article 1385 of the Civil Code,
the trial court ruled that an action for rescission could prosper only if the party demanding
rescission can return whatever he may be obliged to restore should the court grant the rescission.
(i) The trial court denied Reyes Motion for Reconsideration in its Order dated 3 October 1997. In the
same order, the trial court directed Reyes to deposit the P10 million down payment with the Clerk
of Court on or before 30 October 1997.
(j) On 8 December 1997, Reyes filed a Petition for Certiorari with the Court of Appeals. Reyes
prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997 be
set aside for having been issued with grave abuse of discretion amounting to lack of jurisdiction.
On 12 May 1998, the Court of Appeals dismissed the petition for lack of merit.
ISSUE:
(a) Whether the Court of Appeals erred in finding that the trial court could issue the questioned
Orders on grounds of equity when there is an applicable law on the matter, that is, Rules 57 to 61
of the 1997 Rules on Civil Procedure.
HELD:
(a) No. The Court of Appeals did not err. This is a case of silence or insufficiency of the law and the
Rules of Court. In this case, Article 9 of the Civil Code expressly mandates the courts to make a
ruling despite the "silence, obscurity or insufficiency of the laws." This calls for the application of
equity, which "fills the open spaces in the law." Thus, the trial court in the exercise of its equity
jurisdiction may validly order the deposit of the P10 million down payment in court. The purpose
of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure
restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable
to adapt its judgments to the special circumstances of a case because of the inflexibility of its
statutory or legal jurisdiction. Equity is the principle by which substantial justice may be attained in
cases where the prescribed or customary forms of ordinary law are inadequate.

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