Paciencia A. Daleon v. Ma. Catalina P. Tan

Summary

The Supreme Court resolved a dispute over forfeiture of downpayment in a real estate contract to sell. The Daleons sought to forfeit 50% of the Tans' P10.861 million downpayment when the buyers stopped payment on postdated checks due to an adverse claim on the property title. While recognizing the validity of forfeiture clauses, the Court held that such clauses must be strictly construed and applied equitably. The Court found that the Tans' refusal to pay was justified because the adverse claim created uncertainty over the sellers' ability to deliver clean title, invoking the buyers' right under Articles 1545 and 1547 of the Civil Code to receive property free from encumbrances. The decision establishes that forfeiture is unwarranted when a buyer's non-payment results from legitimate title concerns rather than the buyer's fault, emphasizing the seller's warranty obligations in property transactions.