Manila Racing Club vs. Manila Jockey Club
The parties entered into a Php1.M contract of sale of land to be paid in five (5) installments. It was agreed that if the vendee (petitioner), fails to pay, the vendor (respondent) can rescind the contract and keep the amount paid by the petitioner as a penalty.
The petitioner paid only Php100,000.00 and failed to pay the other installments. The respondent rescinded and kept the Php100,000.00. The petitioner now files a case in court that the penalty of not returning Php100,000.00 is contrary to law, morals and public policy
- Whether or not there was a valid rescission
- Whether or not forfeiture of the Php100,000.00 as a penalty is justified
Yes and yes. The purpose of the penal clause is to ensure the compliance of the obligation and give damages in case of breach. In the case at bar, the non-performance of the obligation of the petitioner resulted in the penalty.
The penalty of forfeiture of the Php100,000.00 or 8% of the principal, is a just substitution for damages as the respondent lost income and opportunity due to the unpaid usage of the petitioner of their land.