Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

L-39778 September 13, 1985 VIRGILIO SIY, petitioner, vs. COURT OF APPEALS, SERGIO VALDEZ, AND VIRGINIA VALDEZ, respondents. Quintin C. Pardes for petitioner. Romeo L. Mendoza & Assoc. Law Office for private respondent.

GUTIERREZ, JR., J.: This is a petition for review which seeks to annul and set aside the decision of the Court of Appeals, now Intermediate Appellate Court affirming the trial court's decision, ordering, among others, the rescission of the contract of sale entered into between the petitioner and the private respondents. The private respondents, spouses Valdez are the owners of a parcel of land containing an area of 155 square meters, more or less, and the house constructed thereon, situated at No. 333 Jefferson Street, Makati, and covered by Transfer Certificate of Title No. 32718 of the Registry of Deeds of Rizal. There is no dispute that the petitioner and private respondents entered into a contract of sale regarding the said property. The controversy, however, stemmed from subsequent agreements executed by the parties. The first agreement entered into by the petitioner and private respondents was the Deed of Conditional Sale (Exh. A) whereby for and in consideration of P22,000.00, the private respondents as vendors agreed to sell to the petitioner as vendee the lot covered by TCT No. 32718 with all the improvements thereon. The sale was subject to the condition that immediately upon the approval of the petitioner's loan with the Social Security System (SSS) and its payment to the respondents, the vendor shall execute the deed of absolute sale in favor of the vendee. The petitioner applied for a loan with the SSS, through the Home Financing Commission (HFC). Since the property in question was mortgaged to the Government Service Insurance System (GSIS), the HFC requested both parties to execute a Deed of Sale with Assumption of Mortgage (Exh. G) which they did, stating among others that the respondents sell, transfer, and convey to the petitioner the property for and in consideration of the sum of P22,000.00, of which P6,400.00 (representing the amount allegedly incurred by the petitioners for improvements on said property) had been paid and the balance of P15,600. 00 payable upon approval of the petitioners loan with the SSS. In reality, however, the respondents had not received a single centavo from the petitioner at the time. Subsequently, the parties executed three more contracts. The first contract (Exh. I) which was executed more than one month after Exhibit A provided that the respondents agreed to sell the property to the petitioner at P14,000.00 while the latter must negotiate a loan with the SSS in order to settle the amount within a period of thirty days from March 17, 1963. The contract also provided for the payment of rentals by the petitioner at P50.00 a month from March 1, 1963 until the date of final settlement and damages at the rate of P30.00 a day for each day of delay. The next day, another contract was executed by the parties which was essentially the same as Exh. "1". Respondent Virginia Valdez explained that she did not agree with the granting of another thirtyday extension to the petitioner and so Exh. "1" was torn up. However, the respondents changed their minds after the mother of the petitioner pleaded with them for another extension. Thus, Exh. "2" came into being. It provided that the full amount of P14,000.00 would be paid on or before the 30th day from the date of the execution of the contract and that failure of the petitioner to settle his obligation within that period shall make him liable for damages at P30.00 for every day of delay.

The last agreement entered into by the parties, (Exh. 5), provided among others, that the respondents agreed to receive the partial amount of P12,000.00 on the condition that the balance of P4,376.00 is completely paid forty-five days after the date fixed by them and that failure of the petitioner to pay the said balance on the agreed time will entitle the respondents to damages at P20.00 for every day of delay until said balance shall have been fully paid. Within the forty-five (45) days deadline, however, the petitioner failed to pay both the P12,000.00 which was supposed to be received by the respondents upon the execution of the agreement, (Exh. 5) and the balance of P4,376.00. Thus, when the petitioner's loan with the SSS was finally ready for release, he requested the respondents to sign the deed of absolute sale and other papers required by the SSS but the latter refused on the ground that the petitioner had already breached their latest agreement (Exh. 5). The petitioner filed an action for specific performance with writ of preliminary mandatory injunction seeking to compel the respondents to execute the deed of absolute sale of the property and other such documents required by the SSS for the immediate release of the approved loan. In its first decision, the trial court rendered judgment in favor of the petitioner making the following findings: xxx xxx xxx Apparently, the defendants are of the impression that the provision in the agreement that 'failure of the plaintiff to settle said balance on or before the stipulated date will entitle the defendants to collect P20.00 for every day of delay until balance is fully paid' and just because plaintiff so failed to comply with it this will release them from compliance with the condition mentioned in Exhibits 'A' and 'G'. The court agrees with the defendant that plaintiff committed a breach granting that plaintiff failed to comply with the stated proviso, but this is not the breach contemplated by law and cannot be considered a sufficient cause for them to depart from their unfulfilled obligation to the plaintiff because as the provision clearly states, defendants' rights are adequately protected and compensated in the form of damages recoverable from the plaintiff in case of non-compliance by the plaintiff. Under the law (Article 119, New Civil Code), in reciprocal obligations, in case one of the obligors should not comply with what is incumbent upon him, the injured party may choose between the fulfillment and the rescission of the obligation with the payment of damages in either case. In the instant case, plaintiff seeks not rescission but fulfillment of the obligation. It is obvious when the parties herein agreed that the consideration mentioned in Exhibits 'A' & 'G ' that will be paid upon the approval of the loan, they mean approval and release of the loan. Weighing the evidence presented both by the plaintiff and defendants, it is the opinion of the court that the defendants by virtue of their contracts Exhibits 'A' and 'G', the defendants can be compelled to fulfill the condition agreed thereon. In due time, the private respondents filed a motion for reconsideration stating, among others, that the decision of the lower court failed to consider the other contracts executed by the parties. Among them was the agreement marked as Exhibit "5" which would clearly show that there was a limited period within which the petitioner was given time to secure a loan from the SSS and pay P14,000.00, the real consideration for the property agreed upon by the parties. The petitioner filed his opposition to the respondents' motion for reconsideration. The respondents in turn asked the lower court for five (5) days within which to submit a rejoinder. The extension was granted in open court. However, even before the end of the five-day period, the court already issued an order denying the respondents' motion for reconsideration. Another motion to reconsider was, therefore, filed by the respondents praying that their rejoinder be taken into account since the same was filed within the five-day period granted by the court. Realizing its error, another decision was consequently rendered by the trial court, this time, in favor of the private respondents, stating the following:

This Court observes that Exhibit '5' is an implementation or confirmation of the provisions of both Exhibits '1' and '2' which are supplementary contracts providing for a definite period of payment of the agreed purchase price of the property involved herein. This period of payment is not provided for in Exhibits 'A' and 'G' thereby modifying the later contracts in this regard. Article 1374 of the new Civil Code of the Philippines, the Court believes, is also applicable to the instant case wherein it is provided that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken together. Exhibits 'A', 'G', '1', '2' and '5' being complementary contracts, they should be construed to correctly arrive at the true intention of the parties. xxx xxx xxx The wordings of Exhibit '5' when it states that the defendants-spouses agreed to receive the partial amount of P12,000.00 only show that when Exhibit '5' was executed, defendants did not yet receive said amount. It is still to be received, and evidence of the plaintiff is wanting to show that he paid this amount of P12,000.00. Neither is there any showing that the balance of P4,763.00 agreed upon in Exhibit '5' had been paid by the plaintiff within forty-five days from July 9, 1963. This clearly constitutes a breach of their last agreement Exhibit '5'. Article 1191 of the New Civil Code provides that the power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. There is no dispute that all the contracts entered into by the parties herein are reciprocal ones. There is, likewise, no question that the plaintiff is guilty of delay and the defendants- spouses are entitled to damages occasioned by it in the light of the provisions of Article 1170 of the New Civil Code providing that those who, in the performance of their obligations, are guilty of delay and those who, in any manner, contravene the tenor thereof, are liable for damages. The defendants-spouses elected rescission of their agreement of purchase and sale with damages. The petitioner filed a motion for reconsideration which the trial court denied. On appeal, the Court of Appeals affirmed the decision in toto. Hence, this petition. The issues raised are: I WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE FIRST DECISION OF THE TRIAL COURT WAS NOT FINAL WHEN THE SAME WAS SET ASIDE AND SUPERSEDED BY THE SECOND DECISION AND THUS, THE TRIAL COURT HAD NO MORE JURISDICTION TO RENDER SAID SECOND DECISION, AND II WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING THE TRIAL COURT IN ORDERING THE RESCISSION OF THE AGREEMENT (EXHIBIT 5) AND THE PAYMENT OF DAMAGES AND ATTORNEY'S FEES. The petitioner maintains that the motions for reconsideration filed by the respondents are both pro forma because they presented issues which the trial court had already considered and ruled upon and that the second motion for reconsideration merely asked the court to consider two documents which were already submitted by respondents in evidence. The petitioner argues that the said motion did not interrupt the running of the period to appeal and thus, when the second decision was rendered the trial court had already lost its jurisdiction over the case, making such decision null and void.

The above contentions are untenable. In the first place, the very purpose of a motion for reconsideration is to point out the findings and conclusions of the decision which in the movant's view, are not supported by law or the evidence. The movant is, therefore, very often confined to the amplification or further discussion of the same issues already passed upon by the court. Otherwise, his remedy would not be a reconsideration of the decision but a new trial or some other remedy. In the case of Vina v. Court of Appeals (126 SCRA 381-382), we emphasized the nature of a motion for reconsideration. We ruled: Contrary to petitioner's contention, REPUBLIC's Motion for Reconsideration dated January 10, 1973 was not pro forma, even if we were to concede that it was a reiteration of its previous Motion for suspension of the proceedings. ... Among the ends to which a motion for reconsideration is addressed, one is precisely to convince the court that its ruling is erroneous and improper, contrary to the law or the evidence (Rule 37, Section 1, subsection [c]; and in doing so, the movant has to dwell of necessity upon the issues passed upon by the court. If a motion for reconsideration may not discuss these issues, the consequence would be that after a decision is rendered, the losing party would be confined to filing only motions for reopening and new trial. We find in the Rules of Court no warrant for ruling to that effect, a ruling that would, in effect eliminate subsection (c) of Section I of Rule 37. (Guerra Enterprises Co., Inc. v. Court of First Instance of Lanao del Sur, 32 SCRA 317 [1970]). Secondly, as far as the second motion of respondents is concerned, the same should not be strictly construed as a motion for reconsideration although captioned as such because in reality, it is merely a supplementary pleading aimed to call the court's attention to the fact that it had given the respondents five days to file their rejoinder, with which they complied and, therefore, said rejoinder should have been considered before the court acted upon the respondents' first motion for reconsideration. Supplemental pleadings are meant to supply deficiencies in aid of original pleadings, not to entirely substitute the latter (See Pasay City Government v. CFI of Manila, 132 SCRA 169), and neither should they be considered independently nor separately from such original pleadings. We, therefore, hold that the appellate court did not commit grave abuse of discretion in upholding the trial court's jurisdiction when it rendered the second decision. In the second assignment of error, the petitioner contends that the Court of Appeals committed a reversible error in affirming the rescission of the contract when the respondents did not pray for rescission and in ordering the payment of damages and attorney's fees notwithstanding the fact that the complaint for specific performance was not instituted in bad faith. It is noteworthy to mention that in their answer to the petitioner's complaint, the respondents prayed for the annulment of both the Deed of Conditional Sale (Exh. 'A') and the Deed of Sale with Assumption of Mortgage (Exh. 'G') which are the very bases of the supplemental agreements (Exhs. '1', '2' and '5') executed between the petitioner and the respondent. The technical argument that the respondents never prayed for the rescission of the contracts and that the trial court and the appellate court should never have rescinded the same has no merit. Furthermore, by failing to pay the amount of P12,000.00 and the balance of P4,376.00 as stipulated in the contract within the forty-five (45) days period, the petitioner clearly committed a breach of contract which sufficiently and justly entitled the respondents to ask for the rescission of the contracts. In the case of Nagarmull v. Binalbagan-Isabel Sugar Co., Inc. (33 SCRA 52), we ruled that " ... The Breach of contract committed by appellee gave appellant, under the law and even under general principles of fairness, the right to rescind the contract or to ask for its specific performance, in either case with right to demand damages ... It is evident, in the case at bar, that the respondents chose to rescind the contracts after the petitioner repeatedly failed to pay not only the balance but the initial amount as downpayment in consideration of which the contracts or agreements were executed. As a matter of fact, the petitioner later asked the SSS to cancel his loan application. He thereby abandoned his own claim for specific performance. Therefore, the appellate court correctly affirmed the rescission of the above-mentioned

contracts. It also correctly affirmed the payment of attorney's fees. While the petitioner may not have acted in bad faith in filing his complaint, still the payment of attorney's fees is warranted in this case because of the environmental circumstances which compelled the respondents to litigate for the protection of their interests. (See Bert Osmena & Associates v. Court of Appeals, 120 SCRA 401 and Article 2208 (2) New Civil Code). We, however, find the award of damages in the amount of P4,376.00 unwarranted. In their motion for reconsideration, the respondents explained how they arrived at this amount Plaintiff obliged himself to pay P30.00 for everyday of delay after the lapse of thirty days from the execution of the document of March 17, 1963 (Exh. 1Defendants). Thirty days from March 17, 1963 would be April 18, which will mark the beginning of the counting of the days of delays. From April 18, 1963 to July 9, 1963, the number of days of delay was 82 days. Plaintiff requested that this be reduced to 70 days and defendants agreed. At P30.00 per day of delay the amount in 70 days will be P2,100.00. The rental as provided for in the same exhibit 1 for defendants was P50.00 per month. From March 1, 1963 to June 20, 1963, 4 months elapsed. At P50.00 per month the rental would be P200.00. Plaintiff got or utilized adobe stones belonging to defendant which he found in the premises when he and his parents transferred to the lot in question in March 1963 the value of which was P76.00. Adding this to the P2,100.00 which is the amount to be paid for the delay in making payments and the P200.00 for 4 months rental, the total will be P2,376.00. The agreed purchase price was Pl4,000.00 but Pl2,000.00 was the amount of loan the Social Security System was then willing to give to plaintiff so that there will be a shortage of P2,000.00 more to complete the payment of the purchase price. This shortage of P2,000.00 was added to the P2,376.00 and the sum will be P4,376.00. Hence, in the agreement of July 9, 1963, this amount of P4,376.00 was to be paid within 45 days from the date thereof and the P12,000.00 which was the loan then approved by the Social Security System was to be paid to defendants on the day of the execution of the said agreement. xxx xxx xxx It is evident from the motion that the amount of P4,376.00 awarded by the appellate court as damages is mainly based on "P30.00 per day of delay" penalty clause embodied in the agreement marked Exhibit "1". Enforcement of the clause on daily penalties now would result in excessive damages considering that the agreement was entered into way back in 1963. Moreover, the P2,000.00 represents part of the purchase price of the sale which was already rescinded. Under Article 1191 of the Civil Code, "the injured party may choose between the fulfillment and rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible ... ." The law, however, does not authorize the injured party to rescind the obligation and at the same time seek its partial fulfillment under the guise of recovering damages. The appellate court, therefore, erred in including both the penalty clause and the part of the purchase price in the computation of damages. There is no question that the petitioner must pay damages for the use of the house and lot until he vacates the premises. The petitioner and his family have lived in the respondents' house all these years without paying either the price he obligated himself to pay or the monthly rentals he agreed to pay as early as 1963. At the very least, the petitioner should pay P50.00 monthly rentals with legal interest from March, 1963. WHEREFORE, the decision appealed from is MODIFIED in that the award of damages in the amount of P4,376.00 is set aside. The petitioner is ordered to vacate the disputed property and to pay FIFTY PESOS (P50.00) as monthly rentals with interest at the legal rate from March, 1963 up to the time he and his successors-in-interest vacate the property in question. In all other respects, the decision is AFFIRMED. SO ORDERED.

THIRD DIVISION

[G. R. No. 125755. February 24, 2003]

PEDRO MOLINA, petitioner-appellant, vs. HON. COURT OF APPEALS and SPOUSES MARGARITO M. FLORES and NERISA HERRERA,respondents-appellees. D E C I S I O N CARPIOMORALES, J.: His motion for reconsideration having been denied, petitioner brought the present petition for review on certiorari to set aside the decision of April 30, 1996 of the Court of Appeals[1] in CA-G.R. CV No. 46107 which reversed the April 4, 1994 decision of the Regional Trial Court of Cavite, Branch 15[2] in Civil Case No. NC-325 in favor of petitioner. Petitioner Pedro Molina and his siblings Felisa, Felix and Tomas Molina were co-owners of a parcel of land in Naic, Cavite registered in their names under TCT No. T-44010 of the Registry of Deeds of Cavite.[3] On April 23, 1984, petitioner, by Deed of Absolute Sale,[4] conveyed to his sister Felisa his share in the co-owned property. The sale was not, however, registered. The siblings subsequently entered into an agreement wherein they partitioned the property as follows: Lot No. 98-A-1 with an area of 92 square m. for FELIX MOLINA; Lot No. 98-A-2 with an area of 92 square m. for PEDRO MOLINA; Lot No. 98-A-3 with an area of 92 square m. for FELISA MOLINA; Lot No. 98-A-4 with an area of 92 square m. for TOMAS MOLINA; Lot No. 98-A-5 with an area of 43 square m. as the RIGHT OF WAY;[5] More than four years after petitioner executed the Deed of Sale conveying his share of the property to his sister Felisa or on June 13, 1988, upon the request of Felisa, he executed another Deed of Absolute Sale[6] in lieu of the first covering the same share in favor of Felisas son private respondent Margarito Flores and his wife private respondent Nerisa Herrera. The pertinent provisions of the second Deed are reproduced hereunder: xxx That the Vendor is the absolute owner in fee simple of a portion of a parcel of land, situated in the Poblacion, Naic, Cavite, Philippines, known as and more specifically described as follows: x x x That for and in consideration of the sum of EIGHT THOUSAND PESOS ONLY (P8,000.00) Philippine Currency, receipt of which in full is hereby acknowledged by the Vendor from the Vendee, the Vendor hereby sells, transfers and conveys and by these presents have (sic) sold, transferred and conveyed unto the above named Vendee, her (sic) heirs and assigns the (1/4) square meters (sic) portion of the above described parcel of land, free from all kinds of liens and encumbrances whatsoever. (Underscoring supplied). xxx

TCT No. T-170585[7] in the name of respondent spouses covering petitioners share in the co-owned property was accordingly issued. On September 5, 1990, petitioner filed an action for reformation of instrument and/or annulment of document and title with reconveyance and damages before the Regional Trial Court of Cavite, alleging that the Deed of Absolute Sale in favor of respondent spouses does not express the true will and intention of the parties. Respondent spouses maintained that their acquisition of petitioners share was valid, legal and binding.[8] After trial, finding for petitioner, the trial court ordered the annulment of the Deed of Absolute Sale, disposing as follows: Wherefore, this Court finds merit in plaintiffs complaint and hereby orders:
1. The annulment of the contract, Absolute Deed of Sale dated June 13, 1988 among and

between the plaintiff and the defendants which is null and void;
2. The cancellation of TCT No. 170585 of the Register of Deeds of Cavite Province at Trece

Martires City; and

3. The defendants to pay plaintiff reasonable attorneys fees of P5,000.00.

Plus costs of suit. SO ORDERED.[9] Upon recourse to the Court of Appeals, the trial courts decision was reversed and the complaint of petitioner was dismissed, hence the present petition anchored on the following assigned errors:
I. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT

HOLDING THAT THE DEED OF SALE DO (sic) NOT EXPRESS THE TRUE INTENT AND AGREEMENT OF THE PARTIES;
II. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT

FINDING THE TRANSACTION TO BE AN EQUITABLE MORTGAGE AND NOT A DEED OF SALE AND THEREFORE TRANSCENDS THE CORRECT APPLICATION OF ART. 1602 OF THE CIVIL CODE;
III. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT

HOLDING THAT THE ALLEGED SALE WAS NOT A CONSUMATED (sic) CONTRACT OF SALE;
IV. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT

FINDING THAT THE PETITIONER WAS DEFRAUDED BY FELISA MOLINA IN SIGNING THE SIMULATED AND FICTITIOUS DEED OF SALE.[10] Petitioner contends that he signed the Deed of Absolute Sale through the misrepresentations of his sister Felisa who made him believe that what he was signing was only a receipt evidencing his indebtedness to her[11] which, by his own admission, he had incurred on several occasions; that Felisa took advantage of his lack of sufficient education and knowledge of English to defraud him into selling his property; and that parol evidence should be admitted to prove the real nature of the transaction which he claims was one of an equitable mortgage. Petitioner calls attention to the consideration given for his property, P8,000.00, which he claims is inadequate, and to his regular receipt of rentals being paid by the lessee of the

premises, one Erlinda de Guzman which circumstances are allegedly badges of equitable mortgage. Thus he cites Articles 1602 and 1604 of the Civil Code which provide: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending

the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is

that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to usury laws (Emphasis supplied). Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. In issue then is whether the parties intended the Deed of Absolute Sale in favor of respondent to be an equitable mortgage. An equitable mortgage is defined as one which, although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.[12] The intention of the parties to an agreement is shown not necessarily by the terminology used therein but by all the surrounding circumstances, such as the relative situation of the parties at the time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding.[13] For the presumption of an equitable mortgage to arise under Art. 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale, and (b) that their intention was to secure an existing debt by way of a mortgage.[14] In the case at bar, the second requisite is conspicuously absent. Consider the following testimony of petitioner himself: Q: In connection with that issue, do you remember how much you owed your sister? A: Yes, your Honor.

Q: How much? A: Ten thousand (P10,000.00) pesos, your Honor.

Q: Do you have any copy of that agreement of your loan? A: None, sir.

Q: How did you receive that amount of money? A: Little by little, sir. Month by month (buwan buwan), sir.

Q: And how long did you receive that amount of ten thousand (P10,000.00) pesos?

A:

Ten months. Every month, I was allowed to received (sic) P1,000.00. None, your Honor. (Emphasis and underscoring supplied).[15]

Q: You did not put up any collateral to your loan? Did you? A:

That the alleged loan was received in installments of P1,000.00 per month for ten months or a total of P10,000.00 in fact indicates that the transaction was not one of a loan but of sale on installment. The alleged inadequacy of the price harped upon by petitioner does not by itself support the conclusion that the property was not at all sold or that the contract was one of a loan.[16] In any event, no proof was presented to show that the value of the 92 sq. m. property located in Naic, Cavite was, at the time the Deed was executed in 1988, considerably higher than the therein stated purchase price P8,000.00. As for petitioners continued receipt of rentals due on the property from its current lessee this Court finds the same as did the appellate court, to be a gesture of generosity, kinship and leniency from his relatives, he being jobless and without visible means of support.[17] Petitioner argues, nevertheless, that assuming arguendo that a contract of sale was entered into, it was not consummated as the entire purchase price was not paid.[18] Assuming that to be so albeit, by the Deed in question petitioner acknowledged receipt of the P8,000.00 purchase price, it does not by itself bar the transfer of the ownership or possession of the property, much less dissolve the contract of sale.[19] The contract remains but the payment of the price is a resolutory condition, and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code[20] which provides: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. That petitioner, prior to the execution of the impugned Deed, signed receipts identically denominated as Kasunduan under which he acknowledged receiving sums of money as paymentfor his property, which receipts were worded in the vernacular and could not have been mistaken or misunderstood for anything else other than as evidence of the sale of his property, seals the case against him. It confirms this Courts earlier observation that the transaction indicated was one of sale on installment. Thus each of the receipts Kasunduan[21] provides: Ako si PEDRO MOLINA, balo, may sapat na gulang, Pilipino, naninirahan sa Naik, Kabite, ay tumanggap ng halagang one thousand (P1,000) sa aking kapatid na si FELISA S. MOLINA bilang tanda na ipinagbibili ko sa kanya ang aking kaparte sa lupang minana naming sa aming mga magulang, nakilala bilang Lote Numero 98-A na may titulo Numero T-44010 na nasa Kalye ZAMORA NAIK, KABITE, x x x Additionally, petitioner affixed his signature on the Deed after its contents were sufficiently explained to him in the vernacular, which was witnessed by two other persons of legal age and duly acknowledged before a notary public. Ironically, petitioners own witness, Nemecio Molina, who was likewise a witness to the execution of the Deed, belied his claim of having no knowledge of the contents of the subject instrument when he took the witness stand:

Q: Now, before the said document was signed by the parties, do you know what was done by the Notary Public, Mariano Villanueva? A: Yes, sir.

Q: What was done by Notary Public Mariano Villanueva before the parties signed the document? A: He read the document to Pedro Molina.

Q: In what vernacular did Atty. Villanueva use the reading of the document, Tagalog or English? A: In English, your Honor.

Q: You mean to say that Notary Public Mariano Villanueva was reading the contents of the sale of the document which is in English? A: Q: A: Yes, sir. And that is all what (sic) Atty. Villanueva did before he required the parties to sign? He told her secretary to translate it in Tagalog.[22] (Underscoring supplied).

More. Another witness to the document, Atty. Edwina Mendoza, testified that prior to the execution of the Deed, the parties thereto approached her to tell [her] that sometime in the future, they will have to execute a deed of conveyance because they are entering to (sic) this kind of transaction,[23] adding that when petitioner was informed that he would actually be selling his property, the latter readily acceded.[24] In fine, this Court finds that the parties to the Deed were fully aware of its contents and meaning, and that there were no acts done or events that occurred prior to, simultaneous to, or after the execution of the Deed that would indicate the intention of any of the parties to have been otherwise than to sell the property to respondent spouses. WHEREFORE, the Petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46107 dated April 30, 1996 is hereby AFFIRMED. SO ORDERED. Puno, (Chairman), Panganiban and Sandoval-Gutierrez, JJ., concur. Corona, J., on leave.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 107898 December 19, 1995 MANUEL LIM and ROSITA LIM, petitioners, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

BELLOSILLO, J.: MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of Malabon with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-MN. The Informations substantially alleged that Manuel and Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc. (LINTON), and with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously with the delivery as payment therefor. When presented to the drawee bank for payment the checks were dishonored as payment on the checks had been stopped and/or for insufficiency of funds to cover the amounts. Despite repeated notice and demand the Lim spouses failed and refused to pay the checks or the value of the goods. On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts of violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the Informations alleged that the Lims issued the checks with knowledge that they did not have sufficient funds or credit with the drawee bank for payment in full of such checks upon presentment. When presented for payment within ninety (90) days from date thereof the checks were dishonored by the drawee bank for insufficiency of funds. Despite receipt of notices of such dishonor the Lims failed to pay the amounts of the checks or to make arrangements for full payment within five (5) banking days. Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former with steel plates, steel bars, flat bars and purlin sticks which it uses in the fabrication, installation and building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and sometimes even up to 90 days credit. On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700 postdated 3 September 1983 in the amount of P51,800.00. 1 On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from LINTON which were delivered at their place of business on the same day. They issued as payment SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2 The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they issued seven SOLIDBANK checks, five of which were Check No. Date of Issue Amount

027683 16 July 1983 P27,900.00 3 027684 23 July 1983 P27,900.00 4 027719 6 Aug. 1983 P32,550.00 5 027720 13 Aug. 1983 P27,900.00 6 027721 27 Aug. 1983 P37,200.00 7 William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7) checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for "insufficiency of funds" with the additional notation "payment stopped" stamped thereon. Despite demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries. Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the Lim spouses maintained an account, testified on the following transactions with respect to the seven (7) checks: CHECK NO. DATE PRESENTED REASON FOR DISHONOR 027683 22 July 1983 Payment Stopped (PS) 8 027684 23 July 1983 PS and Drawn Against Insufficient Fund (DAIF) 9 027699 24 Aug. 1983 PS and DAIF 10 027700 5 Sept. 1983 PS and DAIF 11 027719 9 Aug. 1983 DAIF 12 027720 16 Aug. 1983 PS and DAIF 13 027721 30 Aug. 1983 PS and DAIF 14 Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries made by LINTON but denied that his company's account had insufficient funds to cover the amounts of the checks. He presented the bank ledger showing a balance of P65,752.75. Also, he claimed that he ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in accordance with the specifications in the purchase orders. Rosita Lim was not presented to testify because her statements would only be corroborative. On the basis of the evidence thus presented the trial court held both accused guilty of estafa and violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim. Case No. 1696-MN they were sentenced to an indeterminate penalty of six (6) years and one (1) day of prision mayor as minimum to twelve (12) years and one (1) day of reclusion temporal as maximum plus one (1) year for each additional P10,000.00 with all the accessory penalties provided for by law, and to pay the costs. They were also ordered to indemnify LINTON in the amount of P241,800.00. Similarly sentences were imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to the indemnities awarded, which were P63,455.00 and P51,800.00, respectively. In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight penalty of one (1) year imprisonment with all the accessory penalties provided for by law and to pay the costs. In addition, they were ordered to indemnify LINTON in the amount of P27,900.00. Again, similar sentences were imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities awarded, which were P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and P37,200.00 respectively. 15 On appeal, the accused assailed the decision as they imputed error to the trial court as follows: (a) the regional Trial Court of malabon had no jurisdiction over the cases because the offenses charged ere committed outside its territory; (b) they could not be held liable for estafa because the seven (7) checks were issued by them several weeks after the deliveries of the goods; and, (c) neither could they be held liable for violating B.P. Blg. 22 as they ordered payment of the checks to be stopped because the goods delivered were not those specified by them, besides they had sufficient funds to pay the checks. In the decision of 18 September 1992 16 respondent Court of Appeals acquitted accusedappellants of estafa on the ground that indeed the checks were not made in payment of an

obligation contracted at the time of their issuance. However it affirmed the finding of the trial court that they were guilty of having violated B.P. Blg. 22. 17 On 6 November 1992 their motion for reconsideration was denied. 18 In the case at bench petitioners maintain that the prosecution failed to prove that any of the essential elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of the Regional Trial Court of Malabon. They claim that what was proved was that all the elements of the offense were committed in Kalookan City. The checks were issued at their place of business, received by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City. Furthermore, no evidence whatsoever supports the proposition that they knew that their checks were insufficiently funded. In fact, some of the checks were funded at the time of presentment but dishonored nonetheless upon their instruction to the bank to stop payment. In fine, considering that the checks were all issued, delivered, and dishonored in Kalookan City, the trial court of Malabon exceeded its jurisdiction when it tried the case and rendered judgment thereon. The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment . . ." The gravamen of the offense is knowingly issuing a worthless check. 19 Thus, a fundamental element is knowledge on the part of the drawer of the insufficiency of his funds in 20 or credit with the drawee bank for the payment of such check in full upon presentment. Another essential element is subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 21 It is settled that venue in criminal cases is a vital ingredient of jurisdiction. 22 Section 14, par. (a), Rule 110, of the Revised Rules of Court, which has been carried over in Sec. 15, par. (a), Rule 110 of the 1985 Rules on Criminal Procedure, specifically provides: Sec. 14. Place where action is to be instituted. (a) In all criminal prosecutions the action shall be instituted and tried in the court of the municipality or province wherein the offense was committed or anyone of the essential ingredients thereof took place. If all the acts material and essential to the crime and requisite of its consummation occurred in one municipality or territory, the court therein has the sole jurisdiction to try the case. 23 There are certain crimes in which some acts material and essential to the crimes and requisite to their consummation occur in one municipality or territory and some in another, in which event, the court of either has jurisdiction to try the cases, it being understood that the first court taking cognizance of the case excludes the other. 24 These are the so-called transitory or continuing crimes under which violation of B.P. Blg. 22 is categorized. In other words, a person charged with a transitory crime may be validly tried in any municipality or territory where the offense was in part committed. 25 In determining proper venue in these cases, the following acts material and essential to each crime and requisite to its consummation must be considered: (a) the seven (7) checks were issued to LINTON at its place of business in Balut, Navotas; b) they were delivered to LINTON at the same place; (c) they were dishonored in Kalookan City; and, (d) petitioners had knowledge of the insufficiency of their funds in SOLIDBANK at the time the checks were issued. Since there is no dispute that the checks were dishonored in Kalookan City, it is no longer necessary to discuss where the checks were dishonored. Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the instrument complete in form to a person who takes it as a holder. On the other hand, the

term "holder" refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. In People v. Yabut 26 this Court explained . . . The place where the bills were written, signed, or dated does not necessarily fix or determine the place where they were executed. What is of decisive importance is the delivery thereof. The delivery of the instrument is the final act essential to its consummation as an obligation. An undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the issuance as well as the delivery of the check must be to a person who takes it as a holder, which means "(t)he payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof." Delivery of the check signifies transfer of possession, whether actual or constructive, from one person to another with intent to transfer titlethereto . . . Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed an agent of LINTON with respect to the checks because he was a mere employee. As this Court further explained in People v. Yabut 27 Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency between Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated their dealings. For a contract of agency to exist, the consent of both parties is essential. The principal consents that the other party, the agent, shall act on his behalf, and the agent consents so as to act. It must exist as a fact. The law makes no presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent . . . Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as follows The making, drawing and issuance of a check payment of which is refused by the bank because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangement for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. The prima facie evidence has not been overcome by petitioners in the cases before us because they did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment in full by the drawee bank within five (5) banking days after receiving notices that the checks had not been paid by the drawee bank. InPeople v. Grospe 28 citing People v. Manzanilla 29 we held that ". . . knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing eventuality, whether the accused be within one territory or another." Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as

reiterated in Lim v. Rodrigo 30 that venue or jurisdiction is determined by the allegations in the Information. The Informations in the cases under consideration allege that the offenses were committed in the Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon. 31 We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of Malabon for violation of B.P. Blg. 22 thus Accused-appellants claim that they ordered payment of the checks to be stopped because the goods delivered were not those specified by them. They maintain that they had sufficient funds to cover the amount of the checks. The records of the bank, however, reveal otherwise. The two letters (Exhs. 21 and 22) dated July 23, and August 10, 1983 which they claim they sent to Linton Commercial, complaining against the quality of the goods delivered by the latter, did not refer to the delivery of mild steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the checks in question were issued. Rather, the letters referred to B.1. Lally columns (Sch. #20), which were the subject of other purchase orders. It is true, as accused-appellants point out, that in a case brought by them against the complainant in the Regional Trial Court of Kalookan City (Civil Case No. C10921) the complainant was held liable for actual damages because of the delivery of goods of inferior quality (Exh. 23). But the supplies involved in that case were those of B.I. pipes, while the purchases made by accused-appellants, for which they issued the checks in question, were purchases of mild steel plates and "Z" purlins. Indeed, the only question here is whether accused-appellants maintained funds sufficient to cover the amounts of their checks at the time of issuance and presentment of such checks. Section 3 of B.P. Blg. 22 provides that "notwithstanding receipt of an order to stop payment, the drawee bank shall state in the notice of dishonor that there were no sufficient funds in or credit with such bank for the payment in full of the check, if such be the fact." The purpose of this provision is precisely to preclude the maker or drawer of a worthless check from ordering the payment of the check to be stopped as a pretext for the lack of sufficient funds to cover the check. In the case at bar, the notice of dishonor issued by the drawee bank, indicates not only that payment of the check was stopped but also that the reason for such order was that the maker or drawer did not have sufficient funds with which to cover the checks. . . . Moreover, the bank ledger of accused-appellants' account in Consolidated Bank shows that at the time the checks were presented for encashment, the balance of accused-appellants' account was inadequate to cover the amounts of the checks. 32 . . . WHEREFORE, the decision of the Court of Appeals dated 18 September 1992 affirming the conviction of petitioners Manuel Lim and Rosita Lim In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR No. 07279 (RTC Crim. Case No. 1701-MN); CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC Crim Case No. 1705-MN), the Court finds the accused-appellants MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt of violation of Batas Pambansa Bilang 22 and are hereby sentenced to suffer a STRAIGHT PENALTY OF ONE (1) YEAR IMPRISONMENT in each case, together with all the accessory penalties provided by law, and to pay the costs.

In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both accusedappellants are hereby ordered to indemnify the offended party in the sum of P27,900.00. In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of P32,550.00. In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of P27,900.00. In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of P27,900.00. In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both accused are hereby ordered to indemnify the offended party in the sum of P63,455.00. In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of P51,800.00, and In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of P37,200.00 33 as well as its resolution of 6 November 1992 denying reconsideration thereof, is AFFIRMED. Costs against petitioners. SO ORDERED. Padilla, Davide, Jr., Kapunan and Hermosisima, Jr., JJ., concur.

SECOND DIVISION

[G.R. No. 111257. December 4, 1998]

MERCEDES DEIPARINE, RUFINA DEIPARINE, POLICARPIO DEIPARINE, NICHOLAS DEIPARINE, FRANCISCO DEIPARINE, JR., ARESENIO DEIPARINE, DINA CANADA, THERESA DEIPARINE, SOLITA DEIPARINE, JULIO DEIPARINE, TEOFILO DEIPARINE, ELEUTERIO DEIPARINE, DANTE DEIPARINE, ESTRELLA DEIPARINE AND NICHOLAS DEIPARINE petitioners, vs. HONORABLE COURT OF APPEALS (FIRSTDIVISION), VICENTA DEIPARINE, FORTUNATO DEIPARINE, FELICISIMA DEIPARINE, SALVADOR DEIPARINE, JR., RESTITUTA DEIPARINE, Children and Heirs of deceased SALVADOR DEIPARINE, JR., IRENEO LAROA, DOMINGO LAROA, AND CONCEPCION LAROA, Children and Heirs of deceased FILOMENA DEIPARINE; FROILAN SEGUERRA, only son and HEIRS OF LATE SUPRIANA DEIPARINE; IGNACIA DEIPARINE, ANA DEIPARINE, AND PEDRO DEIPARINE, Children and Heirs of deceased SEGUNDO DEIPARINE, RUFO ABALO, AURELIA ABALAO AND MAGDALENA ABALAO, Children and Heirs of deceased MACARIA DEIPARINE, LEO D. BACUS, PEDRO D. BACUS, DORICA D. BACUS, DIONISIO D. BACUS, AND PRUDY D. BACUS, Heirs of deceased JUSTINIANI DEIPARINE. respondents. DECISION MARTINEZ, J.: This is a case for partition of real estate, declaration of nullity of certain deeds, cancellation of certificate of title, and damages. The property subject of the controversy is a parcel of land denominated as Lot 1938 of the Talisay-Minglanilla Friar Lands Estate located in San Isidro, Talisay, Cebu. The lot was originally owned by Marcelo Deiparine who acquired the same from the government in 1923 under Friar Lands Certificate No. 2008. On April 28, 1923, Marcelo Deiparine was issued Patent No. 11403.[1] When he died sometime in 1929, the subject lot was inherited by his wife Leona Caballero and children Francisca, Filomena, Salvador, Supriana, Segundo, Justiniana, Macaria and Manuel, all surnamed Deiparine. On April 15, 1930, Lot 1938 was subdivided into two (2) lots, Lot 1938-A with an area of 3,599 square meters and Lot 1938-B with an area of 3,608 square meters.[2] Manuel Deiparine took possession of Lot 1938-A and declared it in his name for taxation purposes, in 1966, 1974 and 1980.[3] Upon his death on April 8, 1968, his heirs took possession of Lot 1938-A. Lot 1938-B, on the other hand, was sold to Justiniana Deiparine on October 28, 1933, as evidenced by a deed of sale written in Spanish.[4] Defendant Bacus took possession of the said lot. On September 1982, Vicenta, Fortunato, Felicisima, Salvador Jr., and Restituta, all surnamed Deiparine, children and heirs of Salvador Deiparine Sr.; Ireneo, Domingo and Concepcion, all surnamed Laroa, children and heirs of Filomena Deiparine; Froilan Seguerra, only son and heir of Supriana Deiparine; Ignacia, Ana and Pedro, all surnamed Deiparine, children and heirs of Segundo Deiparine; and Rufo, Aurelia and Magdalena all surnamed Abalo, children and heirs of Macaria Deiparine, filed a complaint[5] for partition against the children and heirs of Manuel Deiparine, namely: Mercedes, Rufina, Policarpio, Nicolas, Eulogia, Francisco, and Arsenio, all surnamed Deiparine, and Justiniana Deiparine, before the then Court of First Instance of Cebu (now Regional Trial Court), which was docketed as Civil Case No. 22368. The complaint was later amended[6] on February 3, 1983 by the substitution of the original defendant Justiniana Deiparine with her heirs Leo, Pedro, Quintin, Ben, Prudy, Dorica and Marciana, all surnamed Bacus. In their complaint, plaintiffs prayed for the immediate partition of Lot 1938 and for defendants to deliver their shares and render an accounting. On November 24, 1982, defendants filed their answer[7] alleging inter alia: that they inherited the lot which they presently occupy from their deceased parents Manuel Deiparine

and the spouses of Simon Bacus and Justiniana Deiparine, who bought their respective portions of Lot 1938 from Marcelo Deiparine and later from their co-heirs; that prescription has set in; and that plaintiffs are in estoppel. On April 5, 1984 or during the pendency of this case, the defendant heirs of Manuel Deiparine executed an Extra-Judicial Declaration of Heirs, adjudicating and partitioning among themselves Lot 1938-A.[8] The following day, April 6, 1984, said heirs, represented by defendant Dina Caada, filed a petition for judicial reconstitution of title over Lot 1938-A with the RTCCebu which was docketed as LRC Rec. No. 3732, containing the allegation, among others, that there is no case pending litigation involving said property[9] On December 5, 1984, the trial court issued an Order[10] ordering the reconstitution of the certificate of title covering the subject parcel of land in the name of Manuel Deiparine. On June 13, 1985, plaintiffs filed a second amended complaint[11] to include as partydefendants Dina Caada, Teresa, Solita, Julio, Teofilo, Eleuterio, Dante, Estrella and Nicolas, all surnamed Deiparine, and Edgar Allan Pagapulaan. The second amended complaint also contained the additional allegations that defendant Dina Caada, a close relative of defendants Deiparine, thru manipulation and in connivance with the other defendants and Edgar Pagapulaan, caused the issuance of a certificate of title to Lot 1938-A in the name of Manuel Deiparine; that verifications with the Bureau of Lands revealed the following forged, fraudulent and falsified documents, to wit: a Deed of Extra-Judicial Declaration of Heirs, with Special Power of Attorney dated April 5, 1984 was executed by the heirs of Manuel Deiparine; a verified Petition for Judicial Reconstitution of Title to Lot 1938-A dated April 4, 1984 was filed by Dina Caada; and a Certification dated April 5, 1984 issued by defendant Edgar Pagapulaan; that due to the misleading effects of said documents, the court in the case for reconstitution of title, ordered the Register of Deeds of Cebu to reconstitute the certificate of title covering Lot 1938-A and consequently, TCT No. RT-3834 (NA) was issued in the name of Manuel Deiparine. They pray that the court declare said deeds as well as TCT No. RT-3834 (NA) null and void ab initio and without force and effect. Traversing the amended complaint, the defendants filed their answer with counterclaim [12] containing basically the same allegations as that in their previous amended answer and alleging that the present case is res judicata on the registration case and that the decision in the registration case could not be collaterally attacked. On October 18, 1988, plaintiffs filed another motion to admit third amended complaint [13] praying that the deed of sale over Lot 1938-B in favor of defendants (the Bacuses) be nullified on the ground that it contained infirmities. On August 10, 1989, the trial court rendered judgment in favor of the defendants ruling that the evidence they have presented sufficiently proves their lawful acquisition of the subject land from Marcelo Deiparine and his heirs. The trial court reasoned that: x x x plaintiffs parents never questioned the occupation of the disputed property by Manuel Deiparine and Justiniana Deiparine and later by their children. They did not protest over the segregation of Lot 1938-A in favor of Manuel Deiparine way back in 1930. They did not question Manuel Deiparines act of securing a tax declaration and a title for his portion. They also did not protest over the tax payments made by Manuel Deiparine and the Bacus spouses, or those effected by the latters children. The aforesaid posture of plaintiffs parents patently indicated their acquiescence to or recognition of Manuels and Justinianas acquisition of the disputed property. Apart from defendants positive testimonial and documentary evidence of such acquisition, therefore, laches and estoppel would operate to bar recovery even by plaintiffs parents. Certainly, plaintiffs position cannot be any better than their parents. On appeal, the aforecited decision was modified by the Court of Appeals[14] in its decision of January 29, 1993, the dispositive portion of which reads: WHEREFORE, the Decision of August 10, 1989 of the RTC-Cebu City, Branch 16, in Civil Case No. R-22368 is hereby MODIFIED as follows:

The heirs of Filomina Deiparine, Salvador Deiparine, Supriana Deiparine, Segundo Deiparine, Macaria Deiparine, Manuel Deiparine and Justiniana Deiparine, are declared to be co-owners in equal shares (per stirpes) of Lot 1938-A. With respect to Lot 1938-B (Lot 8285), the 6/9 portion of the same is declared to be owned by defendants heirs of Justiniana Deiparine (5/9 portion by virtue of the deed of sale, dated October 28, 1933, and 1/9 portion by succession), while the remaining 3/9 portion is declared owned in common by the heirs of Segundo Deiparine, Macaria Deiparine and Salvador Deiparine who did not consent to the contract of sale. While no partition is effected, Lot 1938-B (Lot 8285) remains to be the co-ownership of said heirs in the aforesaid proportions. Transfer Certificate of Title No. RT-3834 (NA) issued by the Registry of Deeds for the Province of Cebu in the name of Manuel Deiparine is declared null and void. Defendants are ordered to render an accounting of their use and enjoyment of Lot 1938-A and Lot 1938-B, from the filing of the complaint up to the execution of this decision. The parties are further, ordered to submit their project of partition over Lots 1938-A and 1938-B in accordance with the said sharing or proportions, for approval by the lower court, within fortyfive (45) days from the finality of our Decision. No costs. IT IS SO ORDERED. Dissatisfied with the said decision, petitioners filed this petition for review on certiorari alleging that the Court of Appeals erred:

1) . . .in disregarding Exhs. 2 and 3; 2) . . .in not applying the laws on laches, estoppel and prescription; 3) . . .in nullifying the reconstituted titled (TCT No. RT-3834 [NA] and considering the titled lot of
Manuel Deiparine as part of the estate of Marcelo Deiparine;

4) . . .in dismissing the decision of the Trial Court.

The petition essentially raises factual issues which normally are not reviewable by this Court in a petition under Rule 45 which is generally limited only to questions of law. Nevertheless, since the factual findings of the respondent Court of Appeals are at variance with those of the Regional Trial Court, we are compelled to review the records of the case both in the Court of Appeals and the Regional Trial Court.[15] We have painstakingly reviewed the record of the case and find the decision of the respondent Court to be in accord with the evidence on record. We agree with the respondent Courts findings that petitioners evidence consisting of the subdivision plan, tax declarations and tax receipts are not conclusive and indisputable evidence to show that the lot in question was sold to Manuel Deiparine, their predecessor-in-interest. A mere tax declaration does not vest ownership of the property upon the declarant. Neither do tax receipts nor declarations of ownership for taxation purposes constitute adequate evidence of ownership or of the right to possess realty.[16] The subdivision plan prepared at the instance of the petitioners predecessor in-interest cannot likewise be considered in their favor, the same being self-serving.[17] The respondent Courts observation is noteworthy: The fact that a portion of the subject land was sold by the heirs of Marcelo Deiparine to Justiniana Bacus would not lead to the conclusion that the other portion was previously sold to Manuel Deiparine. At most, it would only confirm that the land was earlier subdivided into twoLot 1938-A and Lot 1938-B. B. Anent the second ground, defendants assert that the sale to Manuel Deiparine by Marcelo Deiparine was evidenced by public documents and judicial records.

1.

Defendants contend that the subdivision of the parcel of land into Lot 1938-A and Lot 1938-B was reflected in Exhibit A, the Friar Lands Sales Certificate Register.

While Exhibit A indicates that the whole Lot 1938 consisted of two lots- Lot 1938-A and Lot 1938-B, nowhere could we find in said document any indication that one portion specifically, Lot 1938-A, was owned by Manuel Deiparine. To repeat, the subdivision plan does not prove ownership by Manuel Deiparine of Lot 1938-A even if it was he who caused the subdivision of the property.

2.

With respect to the tax declarations presented by defendants Deiparine, it is not correct for them to say that their predecessor-in-interest, Manuel Deiparine, had paid taxes on Lot 1938-A as early as May, 1923 referring to Exhibits 10, 11, 12 and 13. On the contrary, Official Receipt No. 2585478 (Exhibit 10), dated May 23, 1923, shows that the amount representing the taxes for the parcel of land was received from one Canuto Deiparine with the statement that it was paid by Marcelo Deiparine. The same is true with Official Receipt No. 794164 (Exhibit 11), dated March 28, 1927. On the other hand, Official Receipts Nos. 4066643 and 7069203 (Exhibits 12 and 13), dated May 26, 1924 and April 28, 1925, respectively, show that payments for the realty taxes were received from Canuto Deiparine and not Manuel Deiparine. On the other hand, defendants Deiparines own Exhibit 14 shows that Manuel Deiparine started paying realty taxes only on April 11, 1978.[18]

The Extra-Judicial Declaration of Heirs with Special Power of Attorney, the Petition for Reconstitution of Title for Lot 1938-A, and the Transfer Certificate of Title No. RT-3834 (NA) in the name of Manuel Deiparine, in like manner, can not be considered evidence to prove that the lot in question was sold to petitioners predecessor-in-interest considering that these were executed fraudulently and in bad faith. It must be stressed that the declaration of heirs and the petition for reconstitution were executed and filed only during the pendency of the present case, or more than fifty-four (54) years from the alleged sale. Worse, petitioners even misrepresented to the court in their petition for reconstitution that there is no pending litigation involving the subject property. The statement is clearly deceitful since the present case has long been pending with the RTC when petitioners filed their petition for reconstitution. Petitioners bad faith in having the subject property titled in their name is also manifest when they presented in the reconstitution proceeding a Certification issued by one Edgar Alan Pagapulaan of the Bureau of Lands dated April 6, 1984 certifying that Lot 1938-A is registered in the name of Manuel Deiparine.[19] However, Pagapulaan admitted the falsity of his statement by issuing another Certification dated May 20, 1985 stating that the Friar Lands Sales Certificate was issued to Marcelo Deiparine and not to Manuel Deiparine.[20] Again, we quote with favor the findings of the respondent Court, thus: x At the outset, let it be stated that the existence of a transfer certificate of title in the name of Manuel Deiparine, which could be the subject of reconstitution, was never alleged in the several answers of defendants, not even in their testimonies. If it were true that a transfer certificate of title covering Lot 1938-A was issued to Manuel Deiparine, then why was it that the number of said title was never mentioned? Even in their petition for reconstitution in the regional trial court, the petitioners therein (defendants herein), as represented by Dina Caada, never mentioned that a certificate of title covering Lot 1938-A was issued to Manuel Deiparine. In fact, petitioners alleged in said petition that Lot No. 1938-A was registered in the name of Marcelo Deiparine. Accordingly, they prayed in their petition that: WHEREFORE, this Honorable Court is most respectfully prayed to declare null and void for all legal purposes the original and owners copy of the certificate of title covering Lot 1938-A, situated in San Isidro, Talisay, Cebu which were burned and destroyed, and after due notice and hearing of this petition, to order and direct the Register of Deeds for the Province of Cebu, after payment to him the fees prescribed by law, to immediate (sic) reconstitute the said certificate of title, in the name of Marcelo Deiparine. x x x [21] From the foregoing, it is evident that the reconstitution proceedings of the alleged lost title of petitioners predecessor-in-interest was fraudulent and hence cannot be the source of legitimate rights and benefits. In Republic vs. Court of Appeals,[22] we ruled:

The existence of the two titles of the Government ipso facto nullified the reconstitution proceedings and signified that the evidence in the said proceedings were sham and deceitful and were filed in bad faith. Such humbuggery or imposture cannot be countenanced and cannot be the source of legitimate rights and benefits. x x x x x x x x x

To sustain the validity of the reconstituted titles would be to allow Republic Act No. 26 to be utilized as an instrument for land grabbing x x x or to sanction fraudulent machinations for depriving a registered owner of his land to undermine the stability and security of Torrens titles and to impair the Torrens system of registration. Accordingly, the title [TCT No. RT-3834 (NA)] issued to Manuel Deiparine is null and void. Petitioners possession of the subject lot did not also ripen into ownership for the reason that they possessed the subject lot only as trustees for the other co-owners. In Salvador vs. Court of Appeals[23] we held that: the possession of a co-owner is like that of a trustee and shall not be regarded as adverse to the other co-owners but in fact as beneficial to all of them. Acts which may be considered adverse to strangers may not be considered adverse insofar as coowners are concerned. A mere silent possession by a co-owner, his receipt of rents, fruits or profits from the property, erection of buildings and fences and the planting of trees thereon, and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised acts of possession which unequivocably constituted an ouster or deprivation of the rights of the other co-owners. Thus, in order that a co-owners possession may be deemed adverse to the cestui que trust or the other co-owners, the following elements must concur: (1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or the other co-owners; (2) that such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; and (3) that the evidence thereon must be clear and convincing. We sustain the respondent Courts findings that Manuel Deiparine, during his lifetime, did not by any express or implied act show that he was repudiating the co-ownership. While it is true that he took possession of Lot 1936-A after the death of Marcelo Deiparine, this hardly proves an act of repudiation as there was no showing that the said possession was to the exclusion of the other co-heirs.[24] Finally, the action for partition has not yet prescribed. An action to demand partition is imprescriptible or cannot be barred by laches.[25] Each co-owner may demand at any time the partition of the common property.[26] WHEREFORE, the petition is hereby DENIED for lack of merit. The decision of the Court of Appeals dated January 29, 1993 in CA-G.R. CV No. 24136 is hereby AFFIRMED. SO ORDERED. Melo (Acting Chairman), Puno, and Mendoza, JJ., concur.

THIRD DIVISION

[G.R. No. 108346. July 11, 2001]

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents. DECISION PANGANIBAN, J.: A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.

The Case

Before us is a Petition for Review on Certiorari[1] questioning the Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution[3] dated December 29, 1992 denying petitioners motion for reconsideration.[4] The dispositive portion of the assailed Decision reads: WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision dated November 14, 1990 dismissing the [C]omplaint is REINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED.[5]

The Facts

The factual antecedents of the case, as found by the CA, are as follows: x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon, located at 1918 Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George Raymundo [herein private respondent] is Davids father who negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of said property, which was, however, under lease (Exh. 6, p. 232, Record of Civil Case No. 15952). On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. A; Exh. 1, pp. 11-12, Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following terms and conditions: x x x xxx xxx

That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and valid title as provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land mentioned and described above, together with the house and other improvements thereon.

That the aforesaid parcel of land, together with the house and other improvements thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila, to secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in favor of the said Bank of the Philippine Islands, on______ and which Real Estate Mortgage was ratified before Notary Public for Makati, _______, as Doc. No. ____, Page No. ___, Book No. ___, Series of 1986 of his Notarial Register. That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE. It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for the account of the VENDOR; whereas, the registration fees and transfer tax thereon shall be for the account of the VENDEE. (Exh. A, pp. 11-12, Record). On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano, executed an Undertaking (Exh. C, pp. 13-14, Record), the pertinent portions of which read, as follows: x x x xxx xxx

Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage obligations on the property with the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the terms and conditions of the Deed of Real Estate Mortgage dated _________, signed and executed by Mr. David A. Raymundo with the said Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. ___, Page No. ___, Book No. __, Series of 1986 of his Notarial Register. WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet approved by the mortgagee Bank, I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. David A. Raymundo, in accordance with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests and other charges for late payment. WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of attesting and confirming our private understanding concerning the said mortgage obligations to be assumed. NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with the Bank of the Philippine islands, I, Mrs. Avelina D. Velarde, with the consent of my husband, Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors and assigns, to strictly and faithfully comply with the following terms and conditions: 1. That until such time as my assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor. 2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David

A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr. David A Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect, in the same manner as if (the) same had never been executed or entered into. 3. That I am executing this Undertaking for purposes of binding myself, my heirs, successors and assigns, to strictly and faithfully comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands, and the covenants, stipulations and provisions of this Undertaking. That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philippine Islands. (Exh. C, pp. 1314, Record). This undertaking was signed by Avelina and Mariano Velarde and David Raymundo. It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that plaintiffs were to secure from a bank with defendants help. Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPIs approval of an application for assumption of mortgage by plaintiffs. Pending BPIs approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real estate mortgage. Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three (3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 atP23,000.00; and November 19, 1986 at P23,925.00 (Exh. E, H & J, pp. 15, 17 and 18, Record). On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved (Exh. J, p. 133, Record). This prompted plaintiffs not to make any further payment. On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constitute[d] non-performance of their obligation (Exh. 3, p. 220, Record). In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows: This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987 provided: (a) you deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) you cause the release of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21, 1987. (Exhs. K, 4, p. 223, Record). On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latters failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. 5, pp. 225-226, Record).[6] Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance, nullity of cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who dismissed the Complaint in a Decision dated November 14, 1990.[7] Thereafter, petitioners filed a Motion for Reconsideration.[8] Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15,

1991,[9] Judge Abad Santos granted petitioners Motion for Reconsideration and directed the parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners. Private respondents appealed to the CA.

Ruling of the Court of Appeals

The CA set aside the Order of Judge Abad Santos and reinstated then Judge YnaresSantiagos earlier Decision dismissing petitioners Complaint. Upholding the validity of the rescission made by private respondents, the CA explained its ruling in this wise: In the Deed of Sale with Assumption of Mortgage, it was stipulated that as part of the consideration of this sale, the VENDEE (Velarde) would assume to pay the mortgage obligation on the subject property in the amount of P1.8 million in favor of BPI in the name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of P800,000.00 and the balance of P1.8 million, and the balance of P1.8 million cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale, had to assume the mortgage obligation on the subject property. In other words, the assumption of the mortgage obligation is part of the obligation of Velarde, as vendee, under the contract. Velarde further agreed to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the same were originally signed and executed by the Vendee. (p.2, thereof, p.12, Record). This was reiterated by Velarde in the document entitled Undertaking wherein the latter agreed to continue paying said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of violation by Velarde of any terms and conditions of said deed of real estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be cancelled automatically and of no force and effect (pars. 2 & 3, thereof, pp. 13-14, Record). From these 2 documents, it is therefore clear that part of the consideration of the sale was the assumption by Velarde of the mortgage obligation of Raymundo in the amount of P1.8 million. This would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage in the name of Raymundo. The application with BPI for the approval of the assumption of mortgage would mean that, in case of approval, payment of the mortgage obligation will now be in the name of Velarde. And in the event said application is disapproved, Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage obligation would result in a violation of the contract. And, upon Velardes failure to pay the agreed price, the[n] Raymundo may choose either of two (2) actions - (1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil Code). The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse for Velardes non-payment of the balance of the purchase price. As borne out by the evidence, Velarde had to pay in full in case of BPIs disapproval of the application for assumption of mortgage. What Velarde should have done was to pay the balance of P1.8 million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. K, 4) which was strongly given weight by the lower court in reversing the decision rendered by then Judge Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance in cash but enumerated 3 new conditions which, to the mind of this Court, would constitute a new undertaking or new agreement which is subject to the consent or approval of Raymundo. These 3 conditions were not among those previously agreed upon by Velarde and Raymundo. These are mere offers or, at most, an attempt to novate. But then again, there can be no novation because there was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).

It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with Assumption of Mortgage would be deemed automatically cancelled and of no further force and effect, as if the same had never been executed or entered into. While it is true that even if the contract expressly provided for automatic rescission upon failure to pay the price, the vendee may still pay, he may do so only for as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to the latters failure to comply with their obligation. The rescission was justified in view of Velardes failure to pay the price (balance) which is substantial and fundamental as to defeat the object of the parties in making the agreement. As adverted to above, the agreement of the parties involved a reciprocal obligation wherein the obligation of one is a resolutory condition of the obligation of the other, the nonfulfillment of which entitles the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation by appellees Velarde would create a right to demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellees failure, therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde having violated the contract, they have lost their right to its enforcement and hence, cannot avail of the action for specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635).[10] Hence, this appeal.[11]

The Issues

Petitioners, in their Memorandum,[12] interpose the following assignment of errors: I. The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the contract. II. The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. III. The Court of Appeals erred in holding that petitioners January 7, 1987 letter gave three new conditions constituting mere offers or an attempt to novate necessitating a new agreement between the parties.

The Courts Ruling

The Petition is partially meritorious.

First Issue: Breach of Contract

Petitioners aver that their nonpayment of private respondents mortgage obligation did not constitute a breach of contract, considering that their request to assume the obligation had been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations ceased to be their obligation and, instead, it devolved upon private respondents again.

However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase price. As admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8 million to private respondents in case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when petitioners received notice of the banks disapproval of their application to assume respondents mortgage, they should have paid the balance of the P1.8 million loan. Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a buyer under a contract of sale. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in money or its equivalent.[13] Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery.[14] Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner agreed upon. Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own obligation to pay the full purchase price.

Second Issue Validity of the Rescission

Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the former had signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the disapproval of their application for assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial as would warrant a rescission. They cite several cases[15] in which this Court declared that rescission of a contract would not be permitted for a slight or casual breach. Finally, they argue that they have substantially performed their obligation in good faith, considering that they have already made the initial payment of P800,000 and three (3) monthly mortgage payments. As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents right to rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows: Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible. The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them.[16] The breach contemplated in the said provision is the obligors failure to comply with an existing obligation.[17] When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.[18] In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents right to rescind the same in accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of the right to rescind. Misplaced is petitioners reliance on the cases[19] they cited because the factual circumstances in those cases are not analogous to those in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover, the buyers offer to pay was unconditional and was accepted by the seller. In Zepeda, the breach involved a mere one-week delay in paying the balance ofP1,000, which was actually paid. In Tan, the alleged breach was private respondents delay of only a few days, which was for the purpose of clearing the title to the property; there was no reference whatsoever to the nonpayment of the contract price. In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.

Mutual Restitution Required in Rescission

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former. Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore.[20] To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made.[21]

Third Issue Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of petitioners to private respondents were not part of the original contract. By that time, it was already incumbent upon the former to pay the balance of the sale price. They had no right to demand preconditions to the fulfillment of their obligation, which had become due. WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return to petitioners the amount of P874,150, which the latter

paid as a consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of rescission. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Vitug, and Sandoval-Gutierrez, JJ., concur. Gonzaga-Reyes, J., on leave

THIRD DIVISION [G.R. No. 134986. March 17, 2000] CAMPO ASSETS CORPORATION petitioner, vs. CLUB X.O. COMPANY, represented by CHAN YORK GUI (ALLAN), respondent. Jurismis DECISION GONZAGA_REYES, J.: Challenged in this petition for review on certiorari is the decision of the Court of Appeals in CAG. R. SP No. 45128[1] which reversed and set aside the decision of the Regional Trial Court, Pasay City, Branch 111 in Civil Case No. 97-0199[2], affirming the decision of the Metropolitan Trial Court of Pasay City which dismissed the action of Forcible Entry filed by private respondent club X. O. Company (Club X.O.) against Campo Assets Corporation (Campo Assets). The antecedents are as follows: Jjjuris Alma Arambulo (Arambulo) used to operate a food and entertainment business establishment situated at the corner of Roxas Boulevard and San Luis Street, Pasay City pursuant to a Memorandum of Agreement executed on January 5, 1991 between her husband and Campo Assets which had a contract of lease with the owner of the subject premises. Sometime on August 3, 1993, Arambulo renewed the Memorandum of Agreement with Campo Assets to continue operating the business, then known under the name "Hand-in-Hand Disco"; under the renewed Memorandum of Agreement Arambulo agreed to pay a guaranteed monthly income of P88,000 to Campo Assets on or before the 15th day of the month starting June, 1993 and the agreement was co-terminus with the contract of lease between Campo Assets and the owner of the premises.[3] It appears that sometime in June, 1994, Arambulo and Chan York Gui (Allan) entered into a partnership agreement for the operation of the business, which was renamed Club X.O. Disco theater. The partnership was registered as Club X. O. Company with the Securities and Exchange Commission. Club X. O. operated the business and introduced improvements thereon. On January 13, 1996 or thereabout, Campo Assets took possession of the clubs premises, claiming that Arambulo had abandoned the premises and that the re-taking was pursuant to Paragraph VI of the Memorandum of Agreement between Arambulo and Campo Assets, which reads: "VI. In case the premises shall be deserted or vacated before the expiration of this Agreement, the FIRST PARTY shall have the right to enter the same as the agent of the SECOND PARTY either by force or otherwise, without being liable to any prosecution thereof, and the FIRST PARTY shall furthermore have the option to retake and operate the business itself or relet the same as agent of the SECOND PARTY to receive guaranteed P88,000.00 monthly income therefrom, and to apply the same to the payment of the guaranteed income due hereunder holding the SECOND PARTY liable for any deficieny, without prejudice to any right of action against the SECOND PARTY." justice On April 1, 1996, club X. O. Company represented by Allan filed a complaint for forcible entry in the Metropolitan Trial Court, Pasay City docketed as Civil Case No. 256-96 to recover possession of the premises and damages. The case was dismissed for lack of merit. The trial court ruled that there is no privity of contract between plaintiff Club X. O. and defendant Campo assets insofar as the Memorandum of Agreement between Arambulo and Campo Assets is concerned. It also ruled that Arambulo failed to pay the guaranteed income and thus violated the agreement, and worse, abandoned the premises. The court held that the act of Campo Assets in taking possession is pursuant to Paragraph VI, above quoted, of the Memorandum of Agreement between Campo Assets and

Arambulo, which stipulation is valid, being in the nature of a resolutory condition which is not proscribed by law. The above decisions was affirmed in toto by the Regional Trial Court. On petition for review filed with the Court of Appeals, the appellate court reversed the decision of the lower courts. The Court of Appeals held that the Metropolitan Trial Court found that Club X. O. was in prior possession of the property at the time it was taken over by Campo assets, and this fact alone gives Club X. O. a cause of action for forcible entry. If prior possession is lost through force, stealth, or violence, possession should be restored regardless of its title or ownership. The Court of Appeals declared that subject Paragraph VI of the Memorandum of Agreement is void for being against public order and ordered the return of the possession of the subject premises to Club X. O. Jksm Campo Assets has come to this Court by petition for review on certiorari posing only one legal issue, whether Paragraph VI of the Memorandum of Agreement is "void for being against public order". Petitioner contends that the Court of Appeals overlooked the fact that the trial court made a factual finding that the premises had been actually abandoned by Arambulo. Campo Assets then argues that since the leased property was already abandoned, no force was necessary and none was employed in taking over said premises. In its comment, Club X. O. insists that it was in complete possession of the leased premises when the questioned take over took place. Club X. O. entered the premises when the active management of the business was turned over by Arambulo pursuant to their partnership agreement. Accordingly, it had the right to seek redress through the court. Club X. O. claims that buy its own conduct Campo Assets had consented to take-over of the operation of the business by the Club X. O. partnership. Petitioner would confine the core issue as being limited to the validity of the above-quoted stipulation in the Revised Memorandum of Agreement. The bare proposition does not permit an unqualified answer. Es m It is a fundamental principle that parties to a lease contract are not prohibited from agreeing on certain mandatory provisions delineating their respective rights and obligations considering the legal precept that contracts are respected as the law between the contracting parties. The only requirment is that these contractual stipulations, clauses, terms and conditions must not be contrary to law, morals, good customs, public policy or public order.[4] In Viray vs. Intermediate Appellate Courts (IAC)[5], this Court upheld the validity of a stipulation that allowed the lessor to enter and take possession of the leased premises wihtout need of judicial action upon a breach of the lease contract by the lessee. The stipulation subject of the case reads in full as follows: "Upon the failure of the Lessee to comply with any of the terms and conditions which may be imposed by the Lessor prior to and/or upon renewal of this lease agreement as provided in par. 2 above, then the Lessor shall have the right, upon written notice posted at the entrance of the premises leased, to enter and take possession of the said premisesholding in his trust and custody and such possessions and belongings of the Lessee found therein after an inventory of the same in the presence of a witness, all these acts being hereby agreed to by the Lessee as tantamount to his voluntary vacation of the leased premises without the necessity of suit in court."[6] In upholding the validity of the quoted provision, the Court declared that the stipulation is in the nature of a resolutory condition and that such a contractual provision is "not illegal, there being nothing in the law proscribing such an agreement".[7] The validity of a substantially identical condition in a written lease agreement was earlier sustained in Consing vs. Jamandre.[8]Es msc Notably, the stipulation in question in the case of Viray vs. IAC does not give authority to the lessor to use force in retaking possession of the leased premises. However, in the same case

of Viray vs. IAC the Court pointed out that there is considerable authority in American law upholding the validity of stipulations authorizing the use of "all necessary force" or "reasonable force" in making re-entry upon the expiration/termination of the lease, viz: "Although the authorities are not in entire accord, the better view seems to be, even in jurisdictions adopting the view that the landlord cannot forcibly eject a tenant who wrongfully holds without incurring civil liability, that nevertheless, where a lease provides that if the tenants holds over after the expiration of his term, the landlord may enter and take possession of the premises, using all necessary force to obtain the actual possession thereof, and that such entry should not be regarded as a trespass, be sued for as such, or in any wise be considered unlawful, the landlord may forcibly expel the tenant upon the termination of the tenancy, using no more force than is necessary, and will not be liable to the tenant therefor, such a condition in a lease being valid. x x x although there is contrary authority, the rule supported by a substantial number of cases is that despite the effect of forcible entry and detainer statutes, where a lease expressly gives a landlord a right to use such reasonable force as is necessary in making re-entry and dispossessing a tenant, when the landlord becomes entitled to possession because of the termination of the term, the landlord can use force in making re-entry and dispossessing the tenant."[9] Again, it must be noted that the application of the provision is limited to situations where the term of the lease has expired and the logic in allowing the lessor to dispossess the tenant who has padlocked the premises to prevent re-entry by the owner despite the expiration of the term of the lease cannot be assailed. Esmm is In the case at bar, we find that although Paragraph VI of the Memorandum of Agreement employs the prefatory words "in case the premises shall be deserted or vacated before the expiration of the Agreement", which would restrict the operation of the clause to situations wherein the premises are in fact vacated already, and would therefore imply that the re-entry with the use of force if at all, is against property only, the stipulation would not proscribe retaking by use of force against persons despite the fact that the premises are still in the actual possession of another, albeit under a questioned right. Moreover, there is no requirement of notice before re-entry. Jurisprudence supports the view that when parties to a contract expressly reserve an option to terminate or rescind a contract upon the violation of a resolutory condition, notice of resolution must be given to the other party when such right is exercised.[10] In Zulueta vs. Mariano[11], we ruled that resort to courts may be necessary when the right involves the retaking of property which is not voluntarily surrendered by the other party. The rationale for the ruling in Zulueta vs. Mariano is based on the thesis that no one should take the law in to his own hands.[12] In this sense, the stipulation is legally vulnerable. Permitting the use of unqualified force to repossess the property and without condition of notice upon the lessee is fraught with dangerous possibilities. We are inclined to agree with the Court of Appeals that such a broad stipulation cannot be sanctioned for the reason that it would allow the lessor/owner to take the law into his own hands, and undermine the philosophy behind the remedy of forcible entry which is to prevent breach of the peace and criminal disorder[13] and to compel the party out of possession to respect and resort to the law alone to obtain what he claims to be his.[14] At any rate, we do not find it necessary to make a definitive pronouncement on this point because recourse to Paragraph VI was not necessary in this case. The finding of the trial court, which was affirmed by the regional trial court is that Arambulo, the lessee, had deserted and abandoned the leased premises, Campo Assets as lessor had therefore acquired a right of action to judicially eject the lessee. It has been ruled in several cases[15] that when the lessor has licitly terminated the lease and had therefore acquired an affirmative right of action to oust the tenant, such an affirmative right of action constitutes a valid defense against, and is fatal to any action by the lessee against the lessor to regain possession.[16] In the case at bench, it is with more reason that the case of forcibl entry against Campo assets must fail because respondent Club X. O. is not even privy to the contract of lease between Arambulo and Campo Assets. Certainly, in filing the case of forcible entry against Campo Assets, Club X. O. cannot claim a better right than that of the lessee, Arambulo, who had already lost her right to retake possession when she abandoned the leased property. Esmso

Club X. O. insists that it had not abandoned the premises when Campo Assets took over possession thereof. The records show that Club X. O. alleged in its complaint for forcible entry below that Campo Assets sent several security guards who took possession of the premises by means of force and intimidation, padlocked the clubs entrance and in the process even detained some employees of the club for about a day.[17] This allegation was "absolutely denied" in the Answer[18] wherein it was alleged that the lessee Arambulo and Allan had been clandestinely operating the business without involving Campo Assets, and when the latter discovered the fraud, Arambulo and Allan abandoned the business and in the process left their personnel on the abandoned premises, which explains why there were still some employees in the abandoned premises on January 13, 1996 when Campo assets took over possession.[19] The municipal trial court held that Arambulo had abandoned the place. This was affirmed by the regional trial court: "When Alma Arambulo failed to pay the guaranteed income to appellee, she did violate the agreement and worse, she deserted the premises as in fact she abandoned it." This factual finding is binding upon the appellate court, and we find no basis for the statement of the Court of Appeals that "Campo Assets Corporation cannot just barge into the questioned premises and forcibly retake possession of the questioned premises without resorting to the proper judicial processes."[20]Mse sm WHEREFORE, this instant petition is granted. The decision of the Court of Appeals dated August 12, 1998 is hereby SET ASIDE and REVERSED and the Decision of the Regional Trial Court, Branch 111, Pasay City dated June 10, 1997 affirming in toto the Decision of the Metropolitan Trial Court, Branch 46, Pasay City dated January 10, 1997 is hereby REINSTATED. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur. Ex sm

THIRD DIVISION [G.R. No. 133909. February 15, 2000] PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner, vs. MARS CONSTRUCTION ENTERPRISES, INC., respondent. brando DECISION PANGANIBAN, J.: Unilateral rescission of a contract is subject to judicial determination. Contractual stipulations should be interpreted together. Ambiguous ones should be construed to conform to the sense that would result when all the provisions are comprehended jointly. Moreover, doubts should be settled in favor of the greatest reciprocity of interests. The Case Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking the reversal of the May 20, 1998 Decision of the Court of Appeals[1] (CA) in CA-GR CV No. 45009, which affirmed the Regional Trial Court (RTC) of Pasig City (Branch 154). The assailed Decision disposed as follows:[2] "WHEREFORE, [there being] no error in the appealed decision, the same is AFFIRMED in toto." The Facts In its assailed Decision, the Court of Appeals relates the facts of this case as follows:[3] "On July 2, 1982, [Mars Construction Enterprises, Inc., respondent herein] entered into a subcontract/Agreement with x x x Construction & Development Corporation of the Philippines (CDCP) [petitioner herein], later reorganized into the present Philippine National Construction Corporation (PNCC), for the supply of approximately seventy thousand (70,000) cubic meters of aggregates consisting of: micks 1. 2. 3. 4. washed sand, washed " gravel, washed 1-" gravel sub-base.

"On August 7, 1982, [respondent] and CDCP executed Amendment No. 1 increasing the amount of the third party liability coverage from P50,000.00 to P100,000.00. On November 5, 1982, [respondent] and CDCP executed Amendment No. 2 amending the scope of services, as follows: 1. Art. I is hereby amended to read:

ARTICLE I SCOPE OF SERVICES 'The FIRST PARTY [respondent] shall supply approximately SEVENTY THOUSAND (70,000) cubic meters of concrete aggregates consisting of the following:

1. 2. 3. 4. xxx

[W]ashed sand app. 17,500 cu. m. Washed " gravel app. 17,500 cu. m. Me-sm Washed 1 " gravel app. 35,000 cu. m. Sub-base 2" minus crusher run xxx xxx.'

(Exhibit C-1, Folder of Exhibits) "Amendment No. 2 also altered Article IV (5.0) of the original Agreement which provided that (t)he first party guarantees to commence delivery within forty five (45) days after signing of the contract and continue delivery until the quantities enumerated x x x [shall] have been delivered to the jobsite stockpile to read as follows: ARTICLE V DELIVERY 'The FIRST PARTY [respondent] shall deliver a minimum of SIX THOUSAND (6,000) cubic meters of combined concrete aggregate per month until the entire requirements of the SECOND PARTY [petitioner] to complete the Philphos Project shall have been satisfied. (Underscoring supplied.) "Actual delivery of aggregates started only in March of 1983, or a delay of eight (8) months of the 45 days stipulated in the Agreement (Agreement, Article IV (5.0); TSN, September 6, 1985, pp. 9-10). There were also non-deliveries between the period June 1983 to January 1984 (TSN, supra). Thus [petitioner] was constrained to obtain the necessary materials from other sources, incurring additional costs representing the difference between the agreed price of P140.00 per cubic meter under the Agreement and the pricing of the outside sources. The difference in cost was reimbursed by [respondent] in accordance with the default clause under the Agreement that the Second Party [petitioner] can procure from any other quarry operator x x x (and) should such procurement cost the Second Party more than the agreed price above, the excess [would] be for the account of the First Party x x x' (Article VII, no. 7). A total of P1.578 M was thusly paid by [respondent] (TSN, September 5, 1985, p. 12). S-l-x "The controversy arose when [petitioner] refused to accept [respondents] delivery of 17,000.00 cubic meters of washed 1-1/2" gravel, saying that it had no more need for the same. For this, [respondent] claimed the amount of P680,000.00 representing lucrum cessans or unrealized profit with interest at bank rate until fully paid, exemplary damages and attorneys fees. [Respondent] also demanded payment of P118,518.68 (Memorandum for Plaintiff, Record, p. 245) covered by a check tendered by [petitioner] (Exhibit 15) based on a balance on the purchase of 39,200.62 cubic meters of base course amounting to P130,000.00 after deducting half of the overpayment of P23,256.80 made by [respondent] (TSN, April 22, 1986, p. 22). "[Petitioner] denied that it breached the contract and counter-claimed for the amount of P85,120 as price differential of the procurement cost over the agreed price, plus reimbursement of overpayment of P23,256.80 it had made arising from error in measurement. (Answer, Counterclaim). "The lower court rendered judgment, as follows: nigella Wherefore, the foregoing considered, judgment is hereby rendered in favor of plaintiff and against the defendant ordering the defendant to pay plaintiff: a.) the amount of P680,000.00 as

lucrum cessans; b.) the amount of P33,387.91 for the outstanding obligation of PNCC in favor of plaintiff (118,518.68 less price differential of P85,120.77); c.) attorneys fees x x x reduced to the reasonable amount of P50,000.00; and as the costs of litigation." Ruling of the Court of Appeals The CA ruled that the Contract and its amendments impelled petitioner to accept delivery of the washed 1.5-inch gravel from the respondent. The figures in the "Scope of Services" provision were interpreted to mean the minimum quantities to be delivered to the petitioner. The petitioner received a total of 8,162.43 cubic meters of washed 1.5-inch gravel from the respondent and 9,978.06 cubic meters from other sources. Hence, the petitioner actually utilized only 18,140.49 cubic meters of aggregates of this specification, which was only about half of the stipulated 35,000 cubic meters. Clearly, it breached the Contract when it refused to accept delivery of the 17,000 cubic meters of washed 1.5-inch gravel from the respondent. Because of this breach, the respondent was entitled to lucrum cessans, computed by deducting the production cost from the agreed cost per cubic meter of aggregates The outstanding obligation of the petitioner to the respondent was the difference between the subcontractors quitclaim minus the penalty charges for outsourcing aggregates, which respondent incurred for its failure to deliver. The amount was based on the Quitclaim presented by petitioner and the undisputed Backcharge Invoice No. 354 presented by respondent. Sc-slx The CA denied the petitioners prayer for damages arising from the delays in delivery, because respondent had already compensated or paid for such delays. The appellate court rejected petitioners contention that the respondent committed bad faith by entering into a contract that it was financially incapable of fulfilling, inasmuch as this issue had not been raised before the trial court. Hence, this Petition.[4] Issues In its Memorandum, the petitioner submits the following "issues" for the Courts consideration:[5] "i. The honorable Court of Appeals x x x decided that PNCC was compelled to accept the delivery of the 17,000 cubic meters of washed 1-" gravel which is not in accord with law and jurisprudence "ii. The honorable Court of Appeals x x x decided to award the amount of P680,000.00 as lucrum cessans which is not in accord with law and jurisprudence." Sl-xsc The Courts Ruling The Petition has no merit. First Issue: Obligation to Accept Delivery Petitioner contends that it was not under any obligation to accept 17,000 cubic meters of washed 1.5-inch gravel, because the delivery was made after the actual aggregate requirement of the project had already been fully satisfied, and after respondent had defaulted on its contractual undertakings. Interpreting the ContractSl-xm-is Petitioner adds that the respondent had already delivered aggregates, the combined volume of which was about 45 percent over and above that required in Article I, Amendment 2 of the Contract. Hence, the petitioner refused to accept the "excess" delivery in issue.

This contention is incorrect. The various stipulations in a contract should be interpreted together. Ambiguous ones should be so construed as to conform to the sense that would result if all the provisions are comprehended jointly.[6] The "Scope of Services" provision in Amendment 2 stipulated the delivery of 70,000 cubic meters of concrete aggregates consisting of approximately 17,500 cubic meters of washed sand, approximately 17,500 cubic meters of washed .75-inch gravel, 35,000 cubic meters of washed 1.5-inch gravel, and "sub-base 2" minus crusher run. Clearly,at least 35,000 of the 70,000 cubic meters of concrete aggregates that the respondent was supposed to deliver to the petitioner should be washed 1.5-inch gravel. The trial court correctly explained: M-issdaa "x x x Initially, [respondents] scope of services [was] to supply 70,000 cu. m. of concrete aggregates consisting of washed sand, washed "gravel, washed 1-" gravel and sub-base (Art. 1 of the Agreement). This was amended per Amendment No. 2 (Exhibit C) to 70,000 cu. m. of concrete aggregates consisting of washed sand approximately 17,500 cu. m., washed " gravel approximately 17,500 cu. m., washed 1-" gravel approximately 35,000 cu. m., and sub-base 2" minus crusher run. This amendment x x x made the agreement [ambiguous] because the quantity of sub-base 2" minus crusher run was not specified. If said aggregate was included[;] however, the total would definitely be in excess of 70,000 cu. m. x x x [Petitioner] had ordered from [respondent] more than what was specified in the agreement. This act [signified] that the maximum limit of 70,000 cu. m. [was] disregarded [because of] PNCCs needs. What then would be the significance of the quantities stated in Amendment No. 2? We interpret that these are the minimum quantities which must be delivered by [respondent]. Both parties are bound by these figures. x x x."[7] Besides, the stipulation would be too burdensome to the respondent if, as petitioner insists, the breakdown of the specified aggregates were interpreted as mere estimates of the project requirements; the respondent would have then been uncertain as to how much it should deliver. Doubts in contracts should be settled in favor of the greatest reciprocity of interests.[8] Accordingly, these figures, as held by the CA, should be deemed the minimum amounts to be procured and delivered. In this way, both parties would know exactly how much to demand from each other to be able to comply with their respective obligations. Provisional Unilateral Resolution PNCC Project Director H. R. Taylors letter of May 17, 1984 informed the respondent of the final quantities of concrete aggregates to be delivered, with the advice that no other deliveries would be accepted. Hence, the petitioner asserts that, after that advice, it was no longer bound to accept any further deliveries from the respondent. Sd-aad-sc We disagree. Such advice is not a sufficient justification for refusing delivery. The only clause on delivery is Stipulation 2 of Amendment 2, which states that "[t]he FIRST PARTY shall deliver a minimum of SIX THOUSAND (6,000) [c]ubic meters of combined concrete aggregate per month until the entire requirements of the SECOND PARTY to complete the Philphos Project shall have been satisfied."[9] The Contract did not authorize the petitioner to limit, by means of a unilateral advice, the quantity of aggregates that may be delivered. Although there were several occasions when the petitioner advised the respondent on the quality and the quantity of concrete aggregates to be delivered, Mr. Solomon Chu (general manager of respondent) testified that the giving of advice did not become the practice between them.[10] By saying that the quantity specified in the letter was its last order, petitioner unilaterally amended its Contract with the respondent. The act of treating a contract as cancelled or rescinded on account of infractions by the other contracting party is always provisional;[11] that is, contestable and subject to judicial determination.[12] Judicial action is necessary for its rescission in order to afford the other party an opportunity to be heard[13] and to determine if the rescission was proper.[14] When the herein petitioner resolved or rescinded the Agreement without previous court action, it proceeded at its own risk. Only the final judgment of a court will conclusively and finally settle whether such recourse was correct in law.

Default as Insubstantial BreachSc Petitioner avers that respondent was already in default when the former refused the latter's delivery of 17,000 cubic meters of washed 1.5-inch gravel. Hence, its refusal was justified. We are not persuaded. The contract specifically provided that if the respondent failed to deliver the required aggregates, the petitioner could procure them from other sources so as not to jeopardize the entire construction project. The records reveal that on several occasions, petitioner purchased concrete aggregates from other suppliers.[15] Pursuant to Paragraph 3 of Amendment 2, petitioner imposed penalties for the incremental cost of procuring materials from other sources, which respondent willingly paid in the sum ofP1,577,000. Since petitioner was already compensated for respondent's defaults, such defaults cannot be considered as a substantial breach that justified the rescission of the Contract and the refusal to accept the questioned delivery.[16] Furthermore, when the petitioner exercised its options in case of delay or default on the part of the respondent, the former waived its right to rescind and was thus estopped from rescinding the Contract by reason of such short delivery.[17] Scmis In light of the foregoing, the CA correctly held that petitioner was under obligation to accept and to pay for the 17,000 cubic meters of washed 1.5-inch gravel delivered by the respondent.[18] As found by the CA, the petitioner procured only a total of 18,140.49 cubic meters of washed 1.5inch gravel from the respondent and from other suppliers (9,978.06 and 8,162.43 cubic meters, respectively). Thus, the respondent had the prerogative to supply, and the petitioner was bound to accept, 16,859.51 (or approximately 17,000) cubic meters of 1.5-inch gravel. Parties to a contract are bound to the fulfillment of what has expressly been stipulated.[19] Second Issue: Factual Question of Lost Profits Petitioner avers that the profits which respondent expected to derive from the Agreement were purely speculative, and that the trial and the appellate courts erroneously believed Mr. Chus bare testimony on said profits. Mis sc We are not persuaded. Whether the respondent failed to realize profits -- and if so, how much -and whether the judgment was supported by the evidence presented by it are factual in nature. Factual findings of the trial court, especially when affirmed by the Court of Appeals, as in this case, are binding and conclusive on the Supreme Court. It is not the function of this Court to reexamine the lower courts findings of fact.[20] While there are exceptions to this rule,[21] petitioner has not shown its entitlement to any of them. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur. Mis spped

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 110053 October 16, 1995 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER MANGUBAT, respondents.

REGALADO, J.: This appeal by certiorari sprouted from the judgment of respondent Court of Appeals promulgated on September 9, 1992 in CA-G.R. CV No. 28311, and its resolution dated April 7, 1993 denying petitioner's motion for reconsideration. 1 Said adjudgments, in turn, were rooted in the factual groundwork of this case which is laid out hereunder. On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP) executed a "Deed of Absolute Sale" in favor of respondent spouses Celebrada and Abner Mangubat over a parcel of unregistered land identified as Lot 1, PSU-142380, situated in the Barrio of Toytoy, Municipality of Garchitorena, Province of Camarines Sur, containing an area of 55.5057 hectares, more or less. The land, covered only by a tax declaration, is known to have been originally owned by one Presentacion Cordovez, who, on February 4, 1937, donated it to Luciano Sarmiento. On June 8, 1964, Luciano Sarmiento sold the land to Pacifico Chica. On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00. However, he defaulted in the payment of the loan, hence DBP caused the extrajudicial foreclosure of the mortgage. In the auction sale held on September 9, 1970, DBP acquired the property as the highest bidder and was issued a certificate of sale on September 17, 1970 by the sheriff. The certificate of sale was entered in the Book of Unregistered Property on September 23, 1970. Pacifico Chica failed to redeem the property, and DBP consolidated its ownership over the same. On October 14, 1980, respondent spouses offered to buy the property for P18,599.99. DBP made a counter-offer of P25,500.00 which was accepted by respondent spouses. The parties further agreed that payment was to be made within six months thereafter for it to be considered as cash payment. On July 20, 1981, the deed of absolute sale, which is now being assailed herein, was executed by DBP in favor of respondent spouses. Said document contained a waiver of the seller's warranty against eviction. 2 Thereafter, respondent spouses applied for an industrial tree planting loan with DBP. The latter required the former to submit a certification from the Bureau of Forest Development that the land is alienable and disposable. However, on October 29, 1981, said office issued a certificate attesting to the fact that the said property was classified as timberland, hence not subject to disposition. 3 The loan application of respondent spouses was nevertheless eventually approved by DBP in the sum of P140,000.00, despite the aforesaid certification of the bureau, on the understanding of the parties that DBP would work for the release of the land by the former Ministry of Natural Resources. To secure payment of the loan, respondent spouses executed a real estate mortgage over the land on March 17, 1982, which document was registered in the Registry of Deeds pursuant to Act No. 3344.

The loan was then released to respondent spouses on a staggered basis. After a substantial sum of P118,540.00 had been received by private respondents, they asked for the release of the remaining amount of the loan. It does not appear that their request was acted upon by DBP, ostensibly because the release of the land from the then Ministry of Natural Resources had not been obtained. On July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against DBP in the trial court 4 seeking the annulment of the subject deed of absolute sale on the ground that the object thereof was verified to be timberland and, therefore, is in law an inalienable part of the public domain. They also alleged that petitioner, as defendant therein, acted fraudulently and in bad faith by misrepresenting itself as the absolute owner of the land and in incorporating the waiver of warranty against eviction in the deed of sale. 5 In its answer, DBP contended that it was actually the absolute owner of the land, having purchased it for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage; that there was neither malice nor fraud in the sale of the land under the terms mutually agreed upon by the parties; that assuming arguendo that there was a flaw in its title, DBP can not be held liable for anything inasmuch as respondent spouses had full knowledge of the extent and nature of DBP's rights, title and interest over the land. It further averred that the annulment of the sale and the return of the purchase price to respondent spouses would redound to their benefit but would result in petitioner's prejudice, since it had already released P118,540.00 to the former while it would be left without any security for the P140,000.00 loan; and that in the remote possibility that the land is reverted to the public domain, respondent spouses should be made to immediately pay, jointly and severally, the total amount of P118,540.00 with interest at 15% per annum, plus charges and other expenses. 6 On May 25, 1990, the trial court rendered judgment annulling the subject deed of absolute sale and ordering DBP to return the P25,500.00 purchase price, plus interest; to reimburse to respondent spouses the taxes paid by them, the cost of the relocation survey, incidental expenses and other damages in the amount of P50,000.00; and to further pay them attorney's fees and litigation expenses in the amount of P10,000.00, and the costs of suit. 7 In its recourse to the Court of Appeals, DBP raised the following assignment of errors: 1. The trial court erred in declaring the deed of absolute sale executed between the parties canceled and annulled on the ground that therein defendant-appellant had no title over the property subject of the sale. 2. The trial court erred in finding that defendant-appellant DBP acted fraudulently and in bad faith or that it had misrepresented facts since it had prior knowledge that subject property was part of the public domain at the time of sale to therein plaintiffs-appellees. 3. The trial court erred in finding said plaintiffs-appellees' waiver of warranty against eviction void. 4. The trial court erred awarding to therein plaintiffs-appellees damages arising from an alleged breach of contract. 5. The trial court erred in not ordering said plaintiffs-appellees to pay their loan obligation to defendant-appellant DBP in the amount of P118,540. 8 As substantially stated at the outset, respondent Court of Appeals rendered judgment modifying the disposition of the court below by deleting the award for damages, attorney's fees, litigation expenses and the costs, but affirming the same in all its other aspects. 9 On April 7, 1993, said appellate court also denied petitioner's motion for reconsideration. 10 Not satisfied therewith, DBP interposed the instant petition for review on certiorari, raising the following issues:

1. Whether or not private respondent spouses Celebrada and Abner Mangubat should be ordered to pay petitioner DBP their loan obligation due under the mortgage contract executed between them and DBP; and 2. Whether or not petitioner should reimburse respondent spouses the purchase price of the property and the amount of P11,980.00 for taxes and expenses for the relocation Survey. 11 Considering that neither party questioned the legality and correctness of the judgment of the court a quo, as affirmed by respondent court, ordering the annulment of the deed of absolute sale, such decreed nullification of the document has already achieved finality. We only need The Court of Appeals, after an extensive discussion, found that there had been no bad faith on the part of either party, and this r, therefore, to dwell on the effects of that declaration of nullity.emains uncontroverted as a fact in the case at bar. Correspondingly, respondent court correctly applied the rule that if both parties have no fault or are not guilty, the restoration of what was given by each of them to the other is consequently in order. 12 This is because the declaration of nullity of a contract which is void ab initio operates to restore things to the state and condition in which they were found before the execution thereof. 13 We also find ample support for said propositions in American jurisprudence. The effect of an application of the aforequoted rule with respect to the right of a party to recover the amount given as consideration has been passed upon in the case of Leather Manufacturers National Bank vs. Merchants National Bank 14 where it was held that: "Whenever money is paid upon the representation of the receiver that he has either a certain title in property transferred in consideration of the payment or a certain authority to receive the money paid, when in fact he has no such title or authority, then, although there be no fraud or intentional misrepresentation on his part, yet there is no consideration for the payment, the money remains, in equity and good conscience, the property of the payer and may be recovered back by him." Therefore, the purchaser is entitled to recover the money paid by him where the contract is set aside by reason of the mutual material mistake of the parties as to the identity or quantity of the land sold. 15 And where a purchaser recovers the purchase money from a vendor who fails or refuses to deliver the title, he is entitled as a general rule to interest on the money paid from the time of payment. 16 A contract which the law denounces as void is necessarily no contract whatever, and the acts of the parties in an effort to create one can in no wise bring about a change of their legal status. The parties and the subject matter of the contract remain in all particulars just as they did before any act was performed in relation thereto. 17 An action for money had and received lies to recover back money paid on a contract, the consideration of which has failed. 18 As a general rule, if one buys the land of another, to which the latter is supposed to have a good title, and, in consequence of facts unknown alike to both parties, he has no title at all, equity will cancel the transaction and cause the purchase money to be restored to the buyer, putting both parties in status quo. 19 Thus, on both local and foreign legal principles, the return by DBP to respondent spouses of the purchase price, plus corresponding interest thereon, is ineluctably called for. Petitioner likewise contends that the trial court and respondent Court of Appeals erred in ordering the reimbursement of taxes and the cost of the relocation survey, there being no factual or legal basis therefor. It argues that private respondents merely submitted a "list of damages" allegedly incurred by them, and not official receipts of expenses for taxes and said survey. Furthermore, the same list has allegedly not been identified or even presented at any stage of the proceedings, since it was vigorously objected to by DBP. Contrary to the claim of petitioner, the list of damages was presented in the trial court and was correspondingly marked as "Exhibit P." 20 The said exhibit was, thereafter, admitted by the trial court but only as part of the testimonial evidence for private respondents, as stated in its Order dated August 16, 1988. 21

However, despite that admission of the said list of damages as evidence, we agree with petitioner that the same cannot constitute sufficient legal basis for an award of P4,000.00 and P7,980.00 as reimbursement for land taxes and expenses for the relocation survey, respectively. The list of damages was prepared extrajudicially by respondent spouses by themselves without any supporting receipts as bases thereof or to substantiate the same. That list, per se, is necessarily self-serving and, on that account, should have been declared inadmissible in evidence as the factum probans. In order that damages may be recovered, the best evidence obtainable by the injured party must be presented. Actual or compensatory damages cannot be presumed, but must be duly proved, and so proved with a reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no damages will be awarded. 22 Turning now to the issue of whether or not private respondents should be made to pay petitioner their loan obligation amounting to P118,540.00, we answer in the affirmative. In its legal context, the contract of loan executed between the parties is entirely different and discrete from the deed of sale they entered into. The annulment of the sale will not have an effect on the existence and demandability of the loan. One who has received money as a loan is bound to pay to the creditor an equal amount of the same kind and quality. 23 The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an effect on the validity and efficacy of the principal obligation, for even an obligation that is unsupported by any security of the debtor may also be enforced by means of an ordinary action. Where a mortgage is not valid, as where it is executed by one who is not the owner of the property, 24 or the consideration of the contract is simulated 25 or false, 26 the principal obligation which it guarantees is not thereby rendered null and void. That obligation matures and becomes demandable in accordance with the stipulations pertaining to it. Under the foregoing circumstances, what is lost is only the right to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is the principal obligation. In case of nullity, the mortgage deed remains as evidence or proof of a personal obligation of the debtor, and the amount due to the creditor may be enforced in an ordinary personal action. 27 It was likewise incorrect for the Court of Appeals to deny the claim of petitioner for payment of the loan on the ground that it failed to present the promissory note therefor. While respondent court also made the concession that its judgment was accordingly without prejudice to the filing by petitioner of a separate action for the collection of that amount, this does not detract from the adverse effects of that erroneous ruling on the proper course of action in this case. The fact is that a reading of the mortgage contract 28 executed by respondent spouses in favor of petitioner, dated March 17, 1982, will readily show that it embodies not only the mortgage but the complete terms and conditions of the loan agreement as well. The provisions of said contract, specifically paragraphs 16 and 28 thereof, are so precise and clear as to thereby render unnecessary the introduction of the promissory note which would merely serve the same purpose. Furthermore, respondent Celebrada Mangubat expressly acknowledged in her testimony that she and her husband are indebted to petitioner in the amount of P118,000.00, more or less. 29 Admissions made by the parties in the pleadings or in the course of the trial or other proceedings do not require proof and can not be contradicted unless previously shown to have been made through palpable mistake. 30 Thus, the mortgage contract which embodies the terms and conditions of the loan obligation of respondent spouses, as well as respondent Celebrada Mangubat's admission in open court, are more than adequate evidence to sustain petitioner's claim for payment of private respondents' aforestated indebtedness and for the adjudication of DBP's claim therefor in the very same action now before us.

It is also worth noting that the adjustment and allowance of petitioner's demand by counterclaim or set-off in the present action, rather than by another independent action, is favored or encouraged by law. Such a practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the time of the court. The trend of judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-offs. 31 The rules on counterclaim are designed to achieve the disposition of a whole controversy of the conflicting claims of interested parties at one time and in one action, provided all parties can be brought before the court and the matter decided without prejudicing the rights of any party. 32 WHEREFORE, the judgment appealed from is hereby MODIFIED, by deleting the award of P11,980.00 as reimbursement for taxes and expenses for the relocation survey, and ordering respondent spouses Celebrada and Abner Mangubat to pay petitioner Development Bank of the Philippines the amount of P118,540.00, representing the total amount of the loan released to them, with interest of 15% per annum plus charges and other expenses in accordance with their mortgage contract. In all other respects, the said judgment of respondent Court of Appeals is AFFIRMED. SO ORDERED. Narvasa, C.J., Puno, Mendoza and Francisco, JJ., concur.

SECOND DIVISION [G.R. No. 131074. March 27, 2000] CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. SPOUSES ALFONSO and ANACLETA BICHARA, respondents. DECISION DE LEON, JR., J.: Before us is a petition for review on certiorari praying for the reversal of the Decision[1] and Resolution[2] dated February 28, 1997 and October 17, 1997, respectively, rendered by the Former Special Fourteenth Division[3] of the Court of Appeals in CA-G.R. CV No. 44448. The appellate court reversed the judgment of the trial court and decreed the contract of sale entered into by the opposing parties as rescinded. Supremax The facts are: Respondents SPOUSES ALFONSO and ANACLETA BICHARA were the former registered owners of Lots 621-C-1 and 621-C-2 situated in Legazpi City and covered by Transfer Certificates of Title Nos. 18138[4] and 18139.[5] The two properties have an aggregate area of 811 square meters. On July 19, 1983, the respondents sold the two properties to petitioner CENTRAL BANK OF THE PHILIPPINES for the sum of P405,500. 00, or at P500.00 per square meter.[6] The deed of sale contained the following pertinent stipulations: xxx......xxx......xxx......xxx 2. The VENDEE by virtue of the sale of real property agreed upon shall pay to the VENDORS at the rate of FIVE HUNDRED PESOS (P500.00) per square meter or at a total price of FOUR HUNDRED FIVE THOUSAND FIVE HUNDRED PESOS (P405,500.00), such payment to be effected only after this Deed of Sale shall have been duly registered and a clean title issued in the name of VENDEE. It is agreed that all fees and expenses, cost of documentary and science stamps necessary for the registration of the property with the Registry of Deeds and the transfer of title of the parcels of the land herein sold to the VENDEE as well as the transfer tax due under this transaction shall be borne by the VENDORS; xxx......xxx......xxx......xxx 4. The VENDORS hereby likewise undertake at their expense to fill the parcels of land with an escombro free from waste materials compacted to the street level upon signing of the Deed of Sale to suit the ground for the construction of the regional office of the Central Bank of the Philippines thereat. Petitioner caused the two properties to be consolidated, with several other parcels of land, into a single estate having a total area of 6,700 square meters. Lots 621-C-1 and 621-C-2, shaped roughly like a right triangle, represent twelve per cent of the total area and, more importantly, provide access to Calle Rizal.[7] Juris The record discloses that despite respondents' failure to pay the capital gains tax and other transfer fees, Transfer Certificate of Title No. 25267[8] was nonetheless issued in petitioner's name on September 6, 1983. Two annotations were recorded in the memorandum of encumbrances. The first was a notice of adverse claim in favor of the heirs of Lutgarda Arcos Rempillo filed under Entry No. 58127 dated December 27, 1983. The second was a notice of lis pendens in favor of one Jaime Rempillo, in connection with Civil Case No. 7253 pending before the Court of First Instance of Albay filed under Entry No. 58336 dated January 24, 1984. Both were subsequently cancelled pursuant to a decision in Civil Case No. 7253, per Entry No. 60214 dated September 12, 1984.

Despite the issuance of the title, petitioner failed to pay respondent. On its part, respondents did not fill up the lot with escombro despite several demands made by petitioner. Petitioner was thus constrained to undertake the filling up of the said lots, by contracting the services of BGV Construction. The filling up of the lots cost petitioner P45,000.00.[9] Petitioner deducted the said amount from the purchase price payable to respondents.[10] Petitioner, however, still did not pay the respondents. Consequently, on September 7, 1992, respondents commenced Civil Case No. 8645, an action for rescission or specific performance with damages, against petitioner before the Regional Trial Court, Fifth Judicial Region, Branch 7, of Legazpi City. Respondents alleged that petitioner failed to pay the purchase price despite demand. They prayed for the rescission of the contract of sale and the return of the properties, or in the alternative that petitioner be compelled to pay the purchase price plus interest at the rate of 12 % per annum from July 19, 1983, until fully paid, and to pay the capital gains and documentary stamp taxes with the Bureau of Internal Revenue and registration fees with the Register of Deeds.Scjuris Petitioner tendered payment to respondents[11] by Central Bank check no. 483008[12] in the amount of P360,500.00. Respondents refused the tender, however, in view of their complaint for rescission. After receipt of summons, petitioner filed its answer[13] averring that it was justified in delaying payment of the purchase price in view of respondents' breach of several conditions in the contract. First, petitioner alleged that respondents failed to deliver to the former free and legal possession of the two properties, in view of the encumbrances noted in the title, in addition to the presence of squatters who were not evicted by respondents. Second, it claimed that respondents did not fill up the lots with escombro free from waste materials, as agreed upon. Petitioner counterclaimed for damages of P8,000,000.00 representing payments for rentals for the lease of premises it used as a temporary regional office; P100,000.00 as exemplary damages; P50,000.00 as attorney's fees; and costs. On January 22, 1993, petitioner filed a motion for consignation[14] before the trial court. The motion was granted per an Order dated January 26, 1993.[15] After trial, the trial court issued its Decision dated October 26, 1993, [16] the dispositive portion of which states: WHEREFORE, in view of the foregoing, decision is hereby rendered as follows: 1. The plaintiffs are ordered to accept the deposited amount of P360,500.00 in February 1993 at the Office of the RTC Clerk of Court as full payment for the properties in question, considering that the sum of P45,000.00 expended by defendant in undertaking the filling up of the properties is credited to the original purchase price of P405,500.00; 2. The defendant is ordered to pay the plaintiffs legal interest at the rate of six (6) per cent per annum on the original purchase price of P405,000.00 from September 6, 1983 up to July 13, 1992, when the P45,000.00 was credited to the original purchase price (Exhibit 12-c); 3. The defendant is ordered to pay the plaintiffs legal interest at the rate of six (6) per cent per annum on the remaining amount of P360,500.00 from July 14, 1992 up to February 1993, when said amount was deposited at the Office of the RTC Clerk of Court; 4. And other forms of damages sustained by either plaintiffs or defendant are to be borne or shouldered by the respective party. With costs against defendant. Jurissc Both parties appealed the decision to the Court of Appeals. Initially, petitioner's appeal was dismissed for failure to file the docket fees, per a Resolution dated August 22, 1994.[17] The dismissal was recalled subsequently upon petitioner's filing of a Manifestation[18] informing the appellate court that it had withdrawn its appeal at the trial court level. Said manifestation was duly noted.[19]

On February 28, 1997, the appellate court rendered judgment[20] reversing the decision of the trial court. Instead, it ordered the rescission of the contract of sale and the reconveyance of the properties to respondents. The appellate court likewise ordered respondents to reimburse petitioner the cost of filling up the lot with escombro, and petitioner to pay respondents attorney's fees and costs. The motion for reconsideration filed by petitioner was denied in the assailed Resolution of October 17, 1997.[21] Aggrieved by the ruling, petitioner elevated the matter to us via the instant petition, contending that: I THE COURT OF APPEALS FAILED TO RULE THAT PRIVATE RESPONDENTS DID NOT COMPLY WITH THEIR OBLIGATIONS TO CBP IN GOOD FAITH THUS PRIVATE RESPONDENTS ARE NOT ENTITLED AS A MATTER OF RIGHT TO RESCISSION. II THE COURT OF APPEALS FAILED TO RULE THAT CBP WAS JUSTIFIED IN WITHHOLDING PAYMENT OF THE PURCHASE PRICE OF THE SUBJECT LOT SOLD TO THEM BY PRIVATE RESPONDENTS. III THE COURT OF APPEALS FAILED TO RULE THAT THE TRIAL COURT DID NOT COMMIT A REVERSIBLE ERROR WHEN IT ORDERED SPECIFIC PERFORMANCE INSTEAD OF RESCISSION.[22] The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code, which states: Misjuris The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has choosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. The law speaks of the right of the "injured party" to choose between rescission or fulfillment of the obligation, with the payment of damages in either case. Here, respondents claim to be the injured party and consequently seek the rescission of the deed of sale, or in the alternative, its fulfillment but on terms different from those previously agreed upon. Respondents aver that they are entitled to cancel the obligation altogether in view of petitioner's failure to pay the purchase price when the same became due. Petitioner disputes respondent's stand, claiming that if anyone was at fault, it was the latter who dismally failed to comply with their contractual obligations. Hence, it was entitled to withhold payment of the purchase price. An instance where the law clearly allows the vendee to withhold payment of the purchase price is Article 1590 of the Civil Code, which provides: Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a

vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. Jjlex This is not, however, the only justified cause for retention or withholding the payment of the agreed price. A noted authority on civil law states that the vendee is nonetheless entitled if the vendor fails to perform any essential obligation of the contract. Such right is premised not on the aforequoted article, but on general principles of reciprocal obligations.[23] This view is consistent with our rulings in earlier cases[24] that resolution is allowed only for substantial breaches and not for those which are slight or casual. Consider our pronouncement inBorromeo v. Franco:[25] The contract in question contains various clauses and stipulations but the defendants refused to fulfill their promise to sell on the ground that the vendee had not perfected the title papers to the property in question within the six months agreed upon in clause (c). That stipulation was not an essential part of the contract and a failure to comply therewith is no obstacle to the fulfillment of the promise to sell. xxx......xxx......xxx......xxx The obligations which the purchaser, Borromeo, imposed upon himself, to perfect the papers to the property within a period of six months, is not correlative with the obligation to sell the property. These obligations do not arise from the same cause. They create no reciprocal rights between the contracting parties, so that a failure to comply with the stipulation contained in clause (c) on the part of the plaintiff purchaser within the period of six months provided for in the said contract, as he, the plaintiff himself admits, does not give the defendants the right to cancel the obligation which they imposed upon themselves to sell the two houses in question in accordance with the provisions of article 1124 of the Civil Code, since no real juridical bilaterality or reciprocity existed between the two obligations, because the obligation to perfect the title papers to the houses in question is not correlative with the obligation to fulfill the promise to sell such property. One obligation is entirely independent of the other. The latter obligation is not subordinated to nor does it depend upon the fulfillment of the obligation to perfect the title deeds of the property. Certainly, non-payment of the purchase price constitutes a very good reason to rescind a sale, for it violates the very essence of the contract of sale. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.[26] Newmiso We have consequently held that the nonpayment of the purchase price is a resolutory condition, for which the remedy is either rescission or specific performance under Article 1191.[27] This is true for reciprocal obligations, where the obligation of one is a resolutory condition of the other.[28] In reversing the trial court, the Court of Appeals in the case at bench held that: The trial court committed a reversible error when it ordered appellants to accept the amount consigned by appellee with the Clerk of Court as full payment for the two lots sold by appellants to appellee. Appellee's deliberate refusal to pay appellants the purchase price for the two lots for nine (9) long years can not just be regarded as a casual, but substantial and fundamental breach of obligation which defeats the object of the parties. Such substantial and fundamental breach

of obligation committed by appellee gave appellants, under the law, the right to rescind the contract or ask for its specific performance, in either case with right to demand performance [sic]. In the case at bench, appellants were justified in electing rescission instead of specific performance. The deliberate failure of appellee to pay the purchase price for nine (9) long years after the registration of the Deed of Absolute Sale, and the subsequent issuance of a clean title to appellee constitutes a serious and unjustified breach of obligation. In the case of Siy vs. Court of Appeals, 138 SCRA 536, the Supreme Court held: Acctmis It is noteworthy to mention that in their answer to the petitioner's complaint, the respondents prayed for the annulment of both the Deed of Conditional Sale (Exh. A) and the Deed of Sale with Assumption of Mortgage (Exh. G) which are the very bases of the supplemental agreements (Exhs. '1' , '2' and '5') executed between the petitioner and the respondent. The technical argument that the respondents never prayed for the rescission of the contracts and that the trial court and the appellate court should never have rescinded the same has no merit. Furthermore, by failing to pay the amount of P12,000.00 and the balance of P4,376.00 as stipulated in the contract within the forty-five (45) days period, the petitioner clearly committed a breach of contract which sufficiently and justly entitled the respondents to ask for the rescission of the contracts. In the case of Nagarmull v. Binalbagan Isabel Sugar Co., Inc. (33 SCRA 52), we ruled that "x x x The breach of contract committed by appellee gave appellant, under the law and even under general principles of fairness, the right to rescind the contract or to ask for its specific performance, in either case with right to demand damages x x x". It is evident, in the case at bar, that the respondents chose to rescind the contracts after the petitioner repeatedly failed to pay not only the balance but the initial amount as downpayment in consideration of which the contracts or agreements were executed. As a matter of fact, the petitioner later asked the SSS to cancel his loan application. He thereby abandoned his own claim for specific performance. Therefore, the appellate court correctly affirmed the rescission of the above-mentioned contracts. It also correctly affirmed the payment of attorney's fees. While the petitioner may not have acted in bad faith in filing his complaint, still the payment of attorney's fees is warranted in this case because of the environmental circumstances which compelled the respondents to litigate for the protection of their interests [citations omitted]. While appellants are entitled to their claim for attorney's fees, they are not entitled to an award of damages because they were not able to substantiate their claim for damages to have suffered due to the failure of appellee to pay the purchase price of the two lots after the registration of the Deed of absolute Sale with the Register of Deeds of Legaspi City, and the issuance of a clean title to appellee covering the two lots. xxxx xxx......xxx......xxx......xxx In order that damages may be recovered, the best evidence obtainable by the injured party must be presented. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cnnot [sic] rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered and on evidence of the actual amount. If the proof is flimsy and unsubstantial, no damages will be awarded [citation omitted].[29]

We disagree with the appellate court. Misact By law, "[t]he vendee is bound to accept the delivery and to pay the price of the thing sold at the time and place stipulated in the contract."[30] In the case at bench, petitioner's obligation to pay arose as soon as the deed of sale was registered and a clean title was issued. However, petitioner justifies non-payment on respondents' breach of several stipulations in the contract. We have examined these alleged violations vis-a-vis the pertinent provisions of the deed of sale, keeping in mind that only a substantial breach of the terms and conditions thereof will warrant rescission. Whether a breach is substantial is largely determined by the attendant circumstances.[31] Petitioner contends that it was entitled to retain the purchase price due to respondents' failure to pay the capital gains and documentary stamp taxes and other transfer fees. We have read and examined the contract of sale and we have found nothing therein to show that payment of the said taxes and fees to be conditions precedent to petitioner's duty to pay. The stipulation is a standard clause in most contracts of sale and is nothing more than a specification of the party who shall bear such fees and taxes. Petitioner likewise insists that its delay in paying the purchase price was justified since a squatters occupied the premises, contravening the stipulation that the respondent vendors shall convey the properties free from liens and encumbrances. Again, we cannot support petitioner's view. The squatter's illegal occupation cannot be deemed a lien or encumbrance. By the express terms of Article 1590 of the Civil Code, a mere act of trespass will not authorize the suspension of payment of the price. Be that as it may, the usurpation became moot and academic when the squatters left of their own volition in 1988 following a storm.[32] So far, what emerges as clear is that petitioner's obligation to pay was not subject to the foregoing "conditions," only that its demandability is suspended until the opportune time. That arrived upon the registration of the deed of sale and the issuance of a clean title in favor of the petitioner. Relative thereto, the notice of adverse claim and lis pendens became moot issues[33] because they were cancelled less than a year after their inscription. Sdjad We now consider petitioner's final argument, to wit, that it was not obliged to pay until respondents compact the lots to street level with escombro free from waste material. Taking into account the facts of the case, we find that particular argument of petitioner to be well-taken. The use to which the parcels of land was to be devoted was no secret between the parties. The consolidated estate, which incorporated the lots sold by respondents to petitioner, was intended as the site of petitioner's regional office to serve the Bicol region. The project had its peculiar requirements, not the least of which was that since a substantial edifice was to be built on the property, the site had to be made suitable for the purpose. Thus, petitioner specified that the lots be filled up in the manner specified in paragraph 4 of the contract. The importance thereof could not have been lost on respondents. Evidently then, respondents were guilty of non-performance of said stipulation. The deed of sale expressly stipulated that the vendors were to undertake, at their expense, the filling up of the lots with escombro free from waste material compacted to the street level. This was to be accomplished upon the signing of the contract and insofar as petitioner was concerned, respondents' obligation was demandable at once. Other than his testimony, Alfonso Bichara offered no proof tending to show that he had complied in the manner agreed upon. Although he did state that he saw no need to comply with the stipulation because the parcels of land were already level with the street,[34] it was still not shown that the same were in a condition suitable for the construction of petitioner's regional office. We find it hard to believe that the deed of sale would have specified the nature, quantity and quality of the filling material were it not to prepare the lots for the construction. Where the terms of a contract are clear, they should be fulfilled according to the literal tenor of their stipulation.[35] If indeed it were true that the lots were already at street level, petitioner would not have incurred the additional cost of P45,000.00 for having them filled up by the BGV Corporation. On the other hand, respondents argue that, as proof of petitioner's bad faith, the latter could have undertaken the filling up of the lots as early as 1989,[36] when it would have cost only about P9,000.00.[37] The trial court concurred with this view.[38] But we disagree. Petitioner was under

no duty to have done, at the least cost to the latter, what was clearly respondents' obligation from the very beginning. If petitioner was forced to have the subject parcels of land filled up by another party, and subsequently bill respondents, the former was entitled to do so by right.[39]Respondents are not in a position to question the resulting expense. Had they performed their obligation under the contract of sale at the proper time, the expense would surely have been even less than the P9,000.00 estimate in 1989. Sppedsc In this context, the appellate court erred in decreeing the rescission, otherwise called resolution, of the the subject deed of sale. Respondents should not be allowed to rescind the contract where they themselves did not perform their essential obligation thereunder. It should be emphasized that a contract of sale involves reciprocity between the parties. Since respondents were in bad faith, they may not seek the rescission of the agreement they themselves breached.[40] Consequently, the decision rendered by the trial court should be reinstated as being just and proper under the premises. WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the Decision dated February 28, 1997 of the Court of Appeals. The Decision dated October 26, 1993 rendered by the Regional Trial Court of Legazpi City in Civil Case No. 8645 is hereby REINSTATED. No pronouncement as to costs. SO ORDERED. DE LEON, JRJ Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

EN BANC

[G.R. Nos. 135180-81; 135425-26. August 16, 2000]

Heirs of the Late Justice JOSE B. L. REYES represented by ADORACION D. REYES and Heirs of EDMUNDO A. REYES, namely, MA. TERESA P. REYES and CARLOS P. REYES, petitioners, vs. COURT OF APPEALS AND METRO MANILA BUILDERS, INC., respondents. DECISION PARDO, J.: The cases before the Court are consolidated petitions for review on certiorari to nullify: (1) the decision of the Court of Appeals[1] setting aside that of the Metropolitan Trial Court, Pasay City, Branch 45[2] and the orders of the Regional Trial Court, Pasay City branch 231[3], and ordering petitioners to restore the subject property to the possession of respondent MMB, Inc. until the expiration of the lease contract, and (2) the resolution of the Court of Appeals[4] allowing execution pending appeal[5] of its aforesaid decision and issuing a writ of execution[6] depriving petitioners of possession of the leased property and giving its possession to respondent MMB, Inc.[7] which was a deforciant and worse, declaring petitioners guilty of indirect contempt of court and sentencing them to pay a fine of P30,000.00. The factual background of the case dates back to November 30, 1976. Brothers Justice Jose Benedicto Luna Reyes (also known as Justice J. B. L. Reyes) and Dr. Edmundo A. Reyes were co-owners of a parcel of land located at Taft Avenue, Pasay City, near Buendia, with a land area of more than one hectare, covered by two Transfer Certificates of Title [8]. On November 30, 1976, the brothers entered into a 25-year lease contract[9]with Metro Manila Builders, Inc. (MMB, Inc.) at a very low rate of rental (P15,000.00 to P30,000.00 a month) in consideration of the fact that the lessee would cover all present and future improvements in the property with insurance against certain risks and maintain the premises in good, sanitary and tenantable condition at all times. However, in the course of the lease, petitioners found out that respondent MMB, Inc. had not properly maintained the premises or covered the same with an adequate insurance policy. Worse, respondent MMB, Inc. had sub-leased the property to third parties and was earning therefrom about P500,000.00 a month. On December 2, 1996, petitioners served on respondent MMB, Inc. a notice terminating the lease contract and demanding that they vacate and surrender the premises subject of the lease to petitioners. Failing to do so, on February 3, 1997, petitioners filed with the Metropolitan Trial Court, Pasay City, Branch 45 a complaint for unlawful detainer[10] based on breach of the contract of lease. On March 5, 1997, respondent MMB, Inc. filed its answer to the complaint. MMB, Inc. did not deny the violations imputed to it but questioned the absence of a judicial rescission of the contract of lease.[11] On May 9, 1997, the trial court rendered a decision in favor of petitioners, thus: "WHEREFORE, and considering the foregoing, judgment is hereby rendered in favor of the plaintiff heirs of J.B.L. Reyes, thru Adoracion D. Reyes, and heirs of Edmundo Reyes namely Ma. Teresa P. Reyes, and Carlos P. Reyes and against the defendant Metro Manila Builders, Inc. ordering the latter: 1. And all persons claiming right under it to vacate, surrender and cede possession of the leased premises to plaintiffs; 2. To pay plaintiffs, P300,000.00 for every month from notice to vacate until possession is finally turned over to plaintiffs, with legal interest;

3. To pay plaintiff the amount of P20,000.00 as for attorneys fees; and, 4. To pay the cost of suit"[12] On May 16, 1997, petitioners filed with the Metropolitan Trial Court, Pasay City, Branch 45 a motion for execution of the judgment of eviction.[13] On the other hand, respondent appealed the decision to the Regional Trial Court, Pasay City, Branch 113.[14] However, respondents failed to file their appeal memorandum on time and so the court dismissed their appeal. In its appeal to the RTC, respondent MMB, Inc. never raised the issue of jurisdiction. Hence, on November 5, 1997, respondent MMB, Inc. filed an appeal to the Court of Appeals.[15] On November 26, 1997, MTC Branch 45, Pasay City,[16] granted the motion for execution that petitioners filed. Consequently, on December 1, 1997, the trial court issued the corresponding writ of execution.[17] However, on December 8, 1997, the Court of Appeals issued a temporary restraining order[18] against the execution of the ejectment judgment. Even before the appellate court could rule on the injunctive relief, respondent MMB, Inc. withdrew its appeal.[19] In a resolution dated February 17, 1998, the Court of Appeals allowed the withdrawal.[20] Simultaneously with the withdrawal of the first CA case,[21] on February 17, 1998, private respondent also filed a petition for annulment of the ejectment decision before the Regional Trial Court, Pasay City, Branch 231 (RTC 231)[22] on the ground that the MTC had no jurisdiction over the ejectment case. MMB, Inc. prayed for a temporary restraining order and/or preliminary injunction against the execution of the ejectment decision. The court, however, did not issue a temporary restraining order (TRO) against MTC Branch 45, Pasay City. On March 5, 1998, petitioners filed with the Regional Trial Court their memorandum in support of their opposition against the injunctive relief sought by MMB, Inc. [23] On March 20, 1998, petitioners filed with the same court a motion to dismiss.[24] In an attempt to dramatize its plea, on March 23, 1998, respondent MMB, Inc. filed another petition with the Court of Appeals[25], for certiorari and mandamus complaining about what it termed as the sub-silencio denial by the lower court of their application for injunctive relief.[26] On March 23, 1998, the Court of Appeals issued a resolution giving petitioners, as respondents therein, ten ((10) days from notice within which to file their comment on the petition, not a motion to dismiss, and in the meantime, restrained them from enforcing the writ of execution in Civil Case No. 113-97, MTC-Pasay City, Branch 45.[27] Incidentally, the resolution was signed by only two members of the Court of Appeals, Special Fourth Division, namely, Justice Demetrio G. Demetria, ponente, and Justice Ramon A. Barcelona, member, concurring. Justice Omar U. Amin, member, did not sign. Hence, the resolution is void, which the division clerk of court should not have received for filing, much less served on the parties. By law, the attendance of three members of the Court of Appeals shall constitute a quorum for the sessions of a division. The unanimous vote of three members of a division shall be necessary for the pronouncement of a decision, or final resolution which shall be reached in consultation before the writing of the opinion by any member of the division.[28] This rule applies to interlocutory resolutions.[29] True, any member of the Court of Appeals may issue preliminary injunction or temporary restraining order. [30] However, this power is exercised only in case of extreme urgency, and in the tradition of the Supreme Court, the Court en banc or division ratifies or confirms the act of the single justice at the very next session of the Court. On April 14, 1998, upon motion of petitioners, RTC-Pasay 231 issued an order dismissing the petition on the ground that respondent's remedy is appeal in due time which, when withdrawn, was effectively abandoned. The Regional Trial Court, Pasay City, Branch 231, thus ruled: "If jurisdiction was indeed a valid concern of the petitioner, it should have been raised at the first opportunity i.e. At the inception of the ejectment case before the Metropolitan Trial Court. Although, the question of jurisdiction may be raised at any stage of the proceedings, it should not be used as a scheme to delay the proceedings and petitioner cannot feign ignorance or inadvertence in a manner aptly illustrated by the respondents, to wit:

6.1 What gave petitioner away is its silence on why it failed, nay refused to raise the issue of jurisdiction in its petition before the appellate court. Jurisdiction it is elementary may be raised anytime even before the first time on appeal. (Govt. vs. American Surety Company 11 PHIL 203; Vda De Roxas vs. Rafferty, 37 PHIL 957; People vs. Que Po Lay, 94 PHIL 6400). Furthermore, this Court reiterates that the remedy under Rule 47 is unavailable to the petitioner." It can be availed of only "as the last remedy and cannot be resorted to if the ordinary remedies of a new trial, appeal, petition for relief or other appropriate remedies are available." In this case, appeal is the ordinary remedy which was available to and had in fact been availed of by the petitioner. Lamentably, it caused the withdrawal of its appeal expressing preference and venturing to obtain instead relief under Rule 47 which appears inappropriate under the circumstances."[31] With the imminent expiration of the temporary restraining order, [32] respondent MMB, Inc. filed with the Court of Appeals a series of petitions and motions urging the Court of Appeals to issue injunctive relief.[33] Thus, on May 14, 1998, respondent MMB, Inc. filed with the Court of Appeals a motion for leave of court to admit a supplemental petition.[34] On May 18, 1998, respondent MMB, Inc. filed with the Court of Appeals an urgent motion for the issuance of another temporary restraining order in the second CA case.[35] Respondent sought a TRO to enjoin the MTC-Branch 45, Pasay City from enforcing the writ of execution of the decision in Civil Case No. 113-97 and the Regional Trial Court from proceeding with Civil Case No. 98-0366 pending the resolution of the supplemental petition. Also on the same date, respondent filed with the Court of Appeals a manifestation alleging that it filed with the Regional Trial Court, Quezon City, Branch 88 an action for annulment of the unilateral termination of lease contract and damages.[36] On the ground that such case was still pending, respondents prayed for a temporary restraining order and a writ of preliminary inj unction to prevent the execution of the judgment in Civil Case No. 113-97.[37] On May 20, 1998, respondent MMB, Inc. filed with the Court of Appeals[38] another case seeking to set aside the order of the RTC Pasay, Branch 231, dismissing the action and praying that a temporary restraining order be issued against the MTC-45 Pasay City enjoining the writ of execution issued in Civil Case No. 113-97, to desist from proceeding with CA-G. R. SP No. 47158, to declare the order of respondent judge in Civil Case No. 98-0366 as null and void for being issued in grave abuse of discretion, without or in excess of its jurisdiction, and to declare the TRO/injunction permanent. On May 22, 1998, the Court of Appeals consolidated the second[39] and third[40] CA cases. In the meantime, on June 29, 1998, the Court of Appeals issued a resolution in the third CA case,[41] as follows: "We hereby resolve: a. to require the respondent in CA GR SP. No. 47720 to file the petition, not a motion to dismiss, which may be considered as their answer should we decide to give it due course; b. Considering that respondent's comment and petitioner's reply in C.A. G.R. SP. No. 47158, to set for hearing the application for preliminary injunction on July 15, 1998, at 2:00 A.M. at Paras Hall, Court of Appeals, Ma. Orosa St., Ermita Manila; and c. For a comprehensive appreciation of the consolidated cases before us, to require the RTC Branch 231 of Pasay City to Elevate the Original Records of Civil Case No. 98-0366 and other pertinent pleadings and papers related thereto within five (5) days from notice.[42] On July 2, 1998, respondents filed with the Regional Trial Court, Branch 110, Pasay City a petition seeking a temporary restraining order to enjoin MTC Branch 45, Pasay City, [43] and the sheriff [44] from enforcing the writ of execution issued on December 1, 1997. In compliance with the said resolution, on July 15, 1998, petitioners filed their comment/opposition, alleging that:

a. The petition of private respondent is moot and academic as the entire premises has already been turned over by the sheriff of MTC-45 Albert Zaragoza except 14 lessees which were allowed by the petitioners to remove their improvements within fifteen days; b. Assuming the dismissal of the petition for annulment was erroneous, the remedy is appeal not certiorari; c. Private respondent is guilty of forum shopping as the issue pending in the Second CA Case, which in RTC-Q.C. is docketed as Civil Case No. Q-98-34382 (for annulment of unilateral termination of lease contract) and the third CA Case are one and the same; d. Judge Ylagan committed no abuse of discretion. Petitioners are not guilty of contempt since there is no order violated; e. The dismissal order (April 14, 1998) did not pre-empt the Second CA case; f. Private respondent failed to allege, much less prove, irreparable injury to it. On August 21, 1998, the Court of Appeals promulgated its decision, the dispositive portion of which reads as follows: "WHEREFORE, the decision of the Metropolitan Trial Court, Branch 45, Pasay City in Civil Case No. 113-97 dated May 9, 1997 is SET ASIDE and the orders dated March 23, 1998 and April 14, 1998, issued in Civil Case No. 98-0366 are likewise SET ASIDE. Private respondent is hereby ordered to restore the subject property in the possession of petitioner and are hereby permanently enjoined from further committing acts disturbing physical possession of the subject property by petitioner until after the expiration of the Contract of Lease.[45] On the same date the decision of the Court of Appeals was promulgated, respondent MMB, Inc. filed with that court a very urgent ex-parte motion for execution pending appea1.[46] On August 26, 1998, the Court of Appeals required petitioners to comment on such motion for execution pending appeal within ten (10) days from notice.[47] On August 25, 1998, respondent filed with the Court of Appeals another motion ex-parte for execution pending appeal, motion to cite in contempt and motion to stop demolition.[48] On August 27, 1998, the Court of Appeals issued a resolution stating thus: "a. Considering that discretionary execution may only issue after due hearing pursuant to Section (2)a, Rule 39 of the 1997 Rules on Civil Procedure, to set for hearing the very urgent motion for execution pending appeal on September 1, 1998, at 10:00 AM at Moran Hall, Court of Appeals x x x; "b. To require private respondents and counsel to explain within five (5) days from receipt hereof why they should not be cited for contempt; and "c. To restrain private respondents and all persons acting in their behalf from further demolishing the buildings and improvements on the subject premises.[49] On August 31, 1998, petitioners filed with the Court of Appeals a motion requesting for an extension of time to file explanation on the motion to declare petitioners and counsel in contempt.[50]In a resolution dated September 3, 1998, the Court of Appeals granted the motion, giving petitioners and counsel ten (10) days from September 1, 1998, or up to September 11, 1998, within which to file the explanation.[51] The case was set for oral argument, parties were directed to submit simultaneously their respective memoranda to the very urgent motion for the issuance of a writ of execution pending appeal/motion to stop demolition within ten (10) days from date, or until September 11, 1998.[52] On September 11, 1998, petitioners filed with the Court of Appeals a motion for extension of time to file comment/memorandum for at least five (5) days from September 11, 1998, or up September 16, 1998 .[53] On September 14, 1998, petitioners filed with the Supreme Court a petition for review of the decision of the Court of Appeals.[54] On September 17, 1998, petitioners filed with the Court of

Appeals their consolidated comment to the very urgent motion for execution pending appeal, manifestation/motion to cite in contempt/motion to stop demolition, with motion to defer consideration.[55] The Court of Appeals, however, despite the pending petition with this Court, promulgated on September 18, 1998, its resolution, the dispositive portion of which reads: "Accordingly, this Court hereby RESOLVES to grant the instant petition. "1. A writ of Execution Pending Appeal of the Decision of this Court dated August 21, 1998 is hereby issued. "The Division Clerk of this Court is hereby ordered to furnish a certified true copy of this resolution and the decision of this Court dated August 21, 1998 to the Metropolitan Trial Court, Branch 45, and Regional Trial Court, Branch 231 both of Pasay City. "2. Private respondents and their counsel are hereby adjudged guilty of indirect contempt of this Honorable Court and are hereby sentenced to pay a fine of P30,000.00. Private respondents and counsel are also directed to make a complete restoration to petitioner of the subject property. "SO ORDERED."[56] On September 21, 1998, the Court of Appeals designated a special sheriff[57] to enforce the writ, and on the same day, he evicted petitioners from the premises and restored possession in favor of private respondent.[58] On September 29, 1998, petitioners filed with the Supreme Court a petition for certiorari to nullify the resolution of the Court of Appeals allowing execution pending appeal and the writ of execution issued pursuant thereto and more, finding petitioners guilty of indirect contempt of court and sentencing them to pay a fine of P30,000.00.[59] The issues raised in the petitions may be summed up as to whether or not the Court of Appeals erred: 1. In ruling that the nature of the complaint is for rescission of contract, not ejectment, over which the Metropolitan Trial Court, Pasay City did not have jurisdiction; 2. In directing that respondent MMB, Inc. be restored in possession of the leased premises; 3. In immediately executing its resolution dated September 18, 1998, transferring possession of the property from petitioners to respondent MMB, Inc. by a "special sheriff". 4. In declaring petitioners guilty of indirect contempt of court, and sentencing them to pay a fine of P30,000.00. The crux of the case is whether there was a need for judicial rescission of the contract of lease before respondent MMB, Inc. may be compelled to move out of the leased premises. We find the petitions impressed with merit. We rule that there is no need for a judicial rescission of the lease contract between lessors heirs of Justice J. B. L. Reyes, et al. and lessee MMB, Inc. The contract provides: "Section 18, paragraph 4 (a) In the event of default or breach of any of the condition of this contract x x x. (b) x x x the LESSOR may, in his absolute discretion declare the contract cancelled and terminated and require the TENANT to vacate the leased premises x x x MMB, Inc. violated the following conditions of the contract:

1. Par. 8 requiring MMB, Inc. to cover all buildings and improvements on the leased premises with insurance against fire, earthquake and extended coverage risks; 2. Par. 9 and 10 of the contract requiring MMB, Inc. to maintain the leased premises and all the buildings and improvements thereon in a state of security and first class repair, in a clean and sanitary condition, to repair and restore or reconstruct such damaged on destroyed improvements; 3. Par. 11 of the contract requiring defendant to secure LESSOR's prior written consent before it may assign or transfer any of its rights under the contacts. We have ruled that "there is nothing wrong if the parties to a lease contract agreed on certain mandatory provisions concerning their respective rights and obligations, such as the procurement of the insurance and the rescission clause. For it is well to recall that contracts are respected as the law between the contracting parties, and they may establish such stipulations, clauses, terms and conditions as they may want to include. As long as such agreements are not contrary to law, morals, good customs, public policy or public order they shall have the force of law between them."[60] The law on obligations and contracts does not prohibit parties from entering into agreement providing that a violation of the terms of the contract would cause its cancellation even without judicial intervention.[61] This is what petitioners and respondent entered into, a lease contract with stipulation that the contract is rescinded upon violation of its substantial provisions, which MMB, Inc. does not deny they violated. The basic issue having been disposed of, we need not resolve the other issues petitioners raised. On hindsight, the Court of Appeals declared petitioners guilty of indirect contempt of court because they implemented the writ of execution of the trial court despite the order of the court to elevate the entire original records. And petitioners proceeded to demolish the improvements on the property without authority of the Court of Appeals. However, this was because the temporary restraining order issued by the Court of Appeals had lapsed after sixty (60) days.[62] No more restraining order was in effect until the court decided the case on its merits. Hence, petitioners acted in good faith in the exercise of their proprietary rights. There was no willful disobedience to a lawful order. Petitioners were not guilty of contempt. The salutary rule is that the power to punish for contempt must be exercised on the preservative, not vindictive principle, and on the corrective and not retaliatory idea of punishment.[63] The courts must exercise the power to punish for contempt for purposes that are impersonal because that power is intended as a safeguard not for the judges as persons but for the functions that they exercise.[64] The court must exercise the power of contempt judiciously and sparingly, with utmost self-restraint.[65] One final word. It was bad enough that the Court of Appeals erred in ruling that the lease contract must be judicially rescinded before respondent MMB, Inc. may be evicted from the premises. It was worse that the Court of Appeals immediately enforced its decision pending appeal restoring respondent in possession of the leased premises and worst, appointed a special sheriff to carry out the writ of execution. In the first place, we emphatically rule that the Court of Appeals has no authority to issue immediate execution pending appeal of its own decision. Discretionary execution under Rule 39, Section 2 (a), 1997 Rules of Civil Procedure, as amended, is allowed pending appeal of a judgment or final order of the trial court, upon good reasons to be stated in a special order after due hearing. A judgment of the Court of Appeals cannot be executed pending appeal. Once final and executory, the judgment must be remanded to the lower court, where a motion for its execution may be filed only after its entry.[66] In other words, before its finality, the judgment cannot be executed. There can be no discretionary execution of a decision of the Court of Appeals. In the second place, even in discretionary executions, the same must be firmly founded upon good reasons. The court must state in a special order the "good reasons" justifying the issuance of the writ.[67] The good reasons allowing execution pending appeal must constitute superior circumstances demanding urgency that will outweigh the injuries or damages to the adverse party if the decision is reversed.[68] Jurisprudence teaches us what are "good reasons" that justify a premature execution of judgment, such as "deterioration of commodities subject of litigation" [69] and "the deteriorating condition of the vessel, M/V 'Valiant' . . . left to rot at the pier and without a crew to guard it".[70]In this case, the good reasons given by the Court of Appeals to support the

discretionary execution of its decision are (1) that respondent would be deprived of income from its business endeavors; (2) that "it is of public knowledge" that the Court of Appeals and the Supreme Court are clogged with cases and it may take some time before the decision in the case may attain its finality; and (3) that petitioners acted with bad faith and malice. [71] None of the cited reasons is "good" enough. According to jurisprudence, respondent's precarious financial condition is not a compelling circumstance warranting immediate execution. [72] The assertion that "it is of public knowledge" that the Supreme Court is clogged with cases that may take time to decide mocks the integrity and derides the competence of this Court. The remark erodes and undermines the people's trust and confidence in the judiciary, ironically coming from one of its subordinate courts. This is an assault on the Supreme Court that borders on contempt; we cannot permit such attack to pass without sanction. This we cannot countenance. Litigants, lawyers and judges share the responsibility of unclogging the dockets of the judiciary.[73] No lower court justice or judge may deride, chastise or chide the Supreme Court even speaking "with due respect" in his ponencia. In fact, it is the duty of lower courts to obey the decisions of the Supreme Court and render obeisance to its status as the apex of the hierarchy of courts. "A becoming modesty of inferior courts demands conscious realization of the position that they occupy in the interrelation and operation of the integrated judicial system of the nation."[74] "There is only one Supreme Court from whose decision all other courts should take their bearings" so spoke Justice J. B. L. Reyes.[75] We echo this golden nugget of advice. If a judge of a lower court cannot do so in conscience, he has no alternative but to yield his judicial robe and resign.[76] More, it has been held that urgency resulting from years of delay in the disposal of a case is not a good reason for premature execution of the decision. [77] Bad faith and malice are not indicated simply because petitioners insisted on their rights and exhausted judicial remedies. On the contrary, good faith is always presumed.[78] In the third place, on September 14, 1998, petitioners elevated the decision of the Court of Appeals to the Supreme Court by petition for review.[79] By the mere fact of the filing of the petition, the finality of the Court of Appeals' decision was stayed, and there could be no entry of judgment therein,[80] and, hence, no premature execution could be had. The Court of Appeals adopted its resolution granting execution pending appeal on September 18, 1998, after the petition for review was already filed in the Supreme Court.[81] It thereby encroached on the hallowed grounds of the Supreme Court. Worst of all, the Court of Appeals has no authority to appoint a special sheriff.[82] It appointed an employee of the mailing section, who was not even bonded as required by law.[83] Such display of keen interest in the immediate execution of its decision coupled with the exercise of excessive authority by illegally appointing a "special sheriff' makes the concerned members of the Court of Appeals liable to disciplinary action and the imposition of appropriate penalty.[84] WHEREFORE, the Court declares VOID the resolution of the Court of Appeals, dated September 18, 1998 in CA-G. R. SP No. 47158 and SP No. 47720, and the writ of execution dated September 21, 1998, issued pursuant thereto. Petitioners are acquitted of the charge of contempt of court. The Court REVERSES the decision of the Court of Appeals promulgated on August 21, 1998, in CA-G. R. SP No. 47158 and SP No. 47720, and REINSTATES the decision of the Regional Trial Court, Pasay City, Branch 231, dated March 23, 1998, and order dated April 14, 1998, in Civil Case 98-0366. Costs against respondent MMB, Inc. Let a copy of this decision be furnished to the Presiding Justice, Court of Appeals, Manila, for dissemination to the Associate Justices, Court of Appeals, for their information and guidance. SO ORDERED. Davide, Jr., C.J., Melo, Puno, Kapunan, Mendoza, Panganiban, Quisumbing, Purisima, Buena, Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur. Vitug, J., no part due to close relationship with some parties. Bellosillo, J., no part.

SECOND DIVISION

[G.R. No. 83588. September 29, 1997]

Spouses ADORACION C. PANGILINAN and GEORGE B. PANGILINAN represented in this suit by their Attorney-in-fact, ARCADIO S. MALLARI,petitioner, vs. COURT OF APPEALS, JOSE R. CANLAS and LUIS R. CANLAS and RURAL BANK OF STA. RITA, INC., respondents. DECISION TORRES, JR., J.: This petition for review seeks to set aside the January 14, 1988 decision [1] and May 31, 1988 resolution of the Court of Appeals in CA-GR CV No. 09175 which reversed the December 12, 1985 decision of the Regional Trial Court, Third Judicial Region, Branch XL VIII, San Fernando, Pampanga. On May 18, 1968, petitioners Pangilinan (husband and wife), and the private respondents Jose R. Canlas and Luis R. Canlas entered into a Cotract to Buy and To Sell a subdivision lot at Sto. Nio Village, San Fernando, Pampanga, particularly Lot No. 1, Block 3; with an area of 577 square meters at P 30.00 per square meter, for a total contract price of P 17,310.00, payable on installment basis at P 189.02 a month for 120 months.[2] The sum of P 1, 731 representing 10% of the total price of the lot was paid by the petitioner to the private respondents and thereafter monthly installments which amounted to about 85% of the total price were effected as of January, 1974; the last payment thereof was made on May 14, 1975 (Exh. C-54). [3] Paragraph 5 of the contract provided for automatic extrajudicial rescission upon default in payment of three (3) consecutive monthly installments or to comply with any of the terms and conditions, with forfeitures of installment as rents and as payment for damages. The said contract to buy and to sell as well as the receipts of various payments made by petitioners in favor of private respondents were given by former to Mr. Arcadio S. Mallari. Mr. Mallari equipped with a Special Power of Attorney dated May 15, 1983 from the spouses Adoracion C. Pangilinan and George Pangilinan went personally to the private respondents and requested them to release the title of the lot as he would pay in full the alleged remaining balance of P 1,875.00. The private respondents told him to return after two weeks as they would confer with each other. When he returned, the private respondent Jose R. Canlas told him that they were not in a position to release the title of said lot because the same had already been disposed of. Mr. Mallari discovered that the lot was mortgaged to the Rural Bank of Sta. Rita. On July 25, 1983, after the lapse of eight years from the last date of payment, he instituted a complaint for Specific Performance and Damages docketed as Civil Case No. 6843 entitled "Spouses Adoracion G. Pangilinan, et. al. vs. Jose R. Canlas, et. al. before the Regional Trial Court, Branch XLVIII, San Fernando, Pampanga. On December 12, 1985, the trial court rendered its decision, the decretal part of which provides: In view of all the foregoing, judgment is hereby rendered against the defendants Jose R. Canlas and Luis R. Canlas ordering them the following: 1) to accept the final payment or balance of the consideration of the lot in the amount of P 2,277.82; 2) to execute the final deed of sale of the lot in question in favor of herein plaintiffs;

3) to pay the mortgage loan to the defendant Rural bank for the purpose of releasing the said lot embraced in Transfer Certificate of Title No. 89745-R, Registry of Deeds for the Province of Pampanga in order to free the said lot from encumbrances; 4) to pay the plaintiff the amount of P 5,000.00 for attorneys fees; P 2,000.00 for litigation expenses; 5) to pay plaintiff the amount of P10,000.00 for exemplary damages as a corrective measure due to malevolent act of defendants Canlases; 6) to pay the costs of the suit.

The counterclaim interposed by the defendant Jose R. Canlas are hereby dismissed for lack of evidence. The defendant Rural Bank of Sta. Rita Incorporated is hereby absolved of any liability but its counterclaim is hereby dismissed for lack of evidence. SO ORDERED. [4] Private respondents appealed the abovementioned decision of the Court of Appeals which on January 14, 1988, promulgated its judgment which reversed and set aside the decision of the trial court, to wit: "WHEREFORE, the decision appealed from is hereby SET ASIDE. Another judgment is hereby entered DISMISSING Civil Case No. 6843 before the court below. The counter-claim of defendants-appellants is hereby DISMISSED. SO ORDERED. [5] Petitioner filed a motion for reconsideration but was denied for lack of merit by the Court of Appeals in its resolution of May 31, 1988. Hence, petitioner instituted the instant petition for review raising two (2) assignment of errors, viz.: 1) THE COURT OF APPEALS ERRED THAT A CREDITOR CAN UNILATERALLY AND SUMMARILY RESCIND A CONTRACT TO SELL A SUBDIVISION LOT; 2) THE COURT OF APPEALS ERRED IN RULING THAT HEREIN PETITIONERS ARE GUILTY OF LACHES. Petitioners vigorously argue that automatic rescission of a contract extrajudicially undertaken by a creditor maybe effected only if the defaulter was duly informed of the intention of the creditor to rescind the contract. If the defaulter will not object, then the creditor may proceed to extrajudicially rescind or cancel the contract, however, if the defaulter will manifest his objection, then the matter of rescission will be subjected to judicial determination. They further alleged that even if there is a waiver stipulated in the contract of adhesion, regarding rescission, such waiver will not apply because the waiver must be unequivocal and intelligently made. Moreover, granting that petitioner have committed a breach of contract for their failure to pay the balance of the consideration, yet this breach is slight, considering that 85% of the total consideration for the lot has been paid. The Court is not persuaded. The fifth paragraph of the Contract to Buy and to Sell pertinently reads: This contract shall be considered automatically rescinded and canceled and of no further force or effect, upon failure of the VENDEE to pay when due, three (3) consecutive monthly installments or to comply with any of the terms and conditions hereof, in which case the VENDORS shall have the right to resell said parcel of land to any person or purchaser, as if this contract has never been entered into. In such case of cancellation of this contract, all amounts paid in accordance with the agreement together with all the improvements made on the premises shall be considered as rents paid for the use and occupation of the above-mentioned premises and as and as payment for the damages suffered for the failure of the VENDEE to ful

fill his part of this agreement; and for the VENDEE hereby renounces his right to demand or reclaim the return of the same obliges himself to peacefully vacate the premises and deliver the same to the VENDORS. [6] Article 1592 [7] of the New Civil Code, requiring demand by suit or by notarial act in case the vendor of realty wants to rescind does not apply to a contract to sell but only to contract of sale. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. [8] The applicable provision of law in instant case is Article 1191 of the New Civil Code which provides as follows: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124) Pursuant to the above, the law makes it available to the injured party alternative remedies such as the power to rescind or enforce fulfillment of the contract, with damages in either case if the obligor does not comply with what is incumbent upon him. There is nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper. Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not itself the revocatory act.[9] Moreover, the vendors right in contracts to sell with reserved title to extrajudicially cancel the sale upon failure of the vendee to pay the stipulated installments and retain the sums and installments already received has long been recognized by the well-established doctrine of 39 years standing.[10] The validity of the stipulation in the contract providing for automatic rescission upon non-payment cannot be doubted. It is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach without need of going to court. Thus, rescission under Article 1191 was inevitable due to petitioners failure to pay t he stipulated price within the original period fixed in the agreement. On the second assigned error, petitioners aver that the doctrine of laches is not applicable in this particular case because (1) petitioners failure to pay in full the balance of 15% of the total price of the lot was due to the reneged obligation of the private respondent to improve the subdivision and install facilities; and, (2) the mortgage of the lot to the Rural Bank of Sta. Rita was done without their consent and knowledge. The same has no merit. It must be noted that upon a careful examination of the records of this case, it appears that the contention of the petitioners that their failure to pay the balance of 15% of the total contract price of the lot was due to the inability of the private respondent to improve the subdivision and install facilities which was raised only for the first time on appeal. They did not raised this issue before the lower courts. It is settled that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal.[11] Issues of fact and arguments not adequately brought to the attention of the trial court need not be and ordinarily will not be considered by a reviewing court as they cannot be raised for the first time on appeal.[12] Assuming arguendo that it was raised

before the trial court, the same would be without merit because the failure of the private respondents to install facilities would not deter them from asking for the rescission of the agreement if petitioners failed to comply with their obligation to pay the monthly installments when they become due, otherwise, the right of rescission would be rendered inutile. In the same vein, petitioners by virtue of their contract with private respondents should have complied in good faith with its terms and conditions being the law between them. From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law.[13] The Contract to Buy and to Sell, specifically paragraph 5 thereof, not being contrary to law, morals, good customs, public order or public policy, is valid and binding between the parties thereto. As stated by the appellate court, thus: The peculiar fact that militates against the cause of the appellees is that the appellees spouses Pangilinan did not directly and personally prosecute the present proceedings. As shown from the records, Mr. Mallari had equipped himself with the special power of attorney in his favor by the appellees executed only on May 15, 1983 or about six (should be eight) years from the date of last payment, made on May 14, 1975 for the January, 1974 installment, during which time, the actual buyers, the Pangilinans had not by themselves personally shown interest in compelling the appellants to accept the remaining balance of the purchase price of the said subdivision lot, to execute in their favor the Deed of Absolute Sale and deliver to them the Transfer Certificate of Title over the said property. The aforesaid circumstances constitute laches. There was failure or neglect on the part of the Pangilinan spouses for an unreasonable and unexplained length of time to do that which by exercising due diligence or could have been done earlier, such failure or negligence warrants presumption that they had abandoned or declined to assert such right (Tejado vs. Zamacoma, 138 SCRA 78). Further, the Court of Appeals, stated: The disturbing fact in the case at bar is that the spouses Pangilinan who bought the subject lot from the appellant seller did not directly and personally prosecute the present case from May, 1975 (date of last payment for January, 1974 installment). Mr. Arcadio S. Mallari, the alleged attorney-in-fact of the said spouses, represented them in the instant case which was filed only on July 25, 1983. He has an alleged special power of attorney in his favor by the appellees which appears to have been executed on May 15,1983 or about eight (8) years from the date of last payment on May 14, 1975 by the buyer spouses for the January, 1974 installment. Mr. Mallari was the only witness for the prosecution. He alone identified the said power of attorney executed in his favor and testified on its due execution. The notary public who appears to have notarized the said document was not presented neither did the Pangilinan spouses appear in the lower court. There was no mention in his (Mallari) testimony of the whereabouts of the said Pangilinan spouses nor why the instant case had to be filed by him for them. The Court has doubts whether or not the said Pangilinan spouses are really interested in the prosecution of this case. And more than this, in the mind of the Court, the genuineness of the said special power of attorney has not been satisfactorily proved. It also bears emphasis that from the said last payment on May 14, 1975, for the January, 1974 installment up to the execution of the alleged special power of attorney (assuming the same to be true) in favor of Mr. Mallari, on May 15, 1983, and the filing of Mallari of the instant case (which covers a period of eight (8) years)* the actual buyers, the Pangilinan spouses had not by themselves personally shown interest in compelling the appellants to accept the remaining balance of the purchase price of the subdivision lot, to execute in their favor the Deed of Absolute Sale and deliver to them the Transfer Certificate of Title over the said lot. Such failure/neglect on their part constitutes laches because for an unreasonable and unexplained length of time [eight (8) years], they failed/neglected to do that which by exercising due diligence could or should have been done earlier, and as stated in the decision rendered in the present appeal, such failure or negligence warrants a presumption that they had abadoned or declined to assert such right. Explicitly, spouses Pangilinan instead of being vigilant and diligent in asserting their rights over the subject property had failed to assert their rights when the law requires them to act. Laches or stale demands is based upon grounds of public policy which requires, for the

peace of society, the discouragement of stale claims and unlike the statute of limitations, is not a mere question of time but is principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted.[14] The legal adage finds application in the case at bar. Tempus enim modus tollendi obligationes et actiones, quia tempus currit contra desides et sui juris contemptores For time is a means of dissipating obligations and actions, because time runs against the slothful and careless of their own rights. IN VIEW WHEREOF, the petition is hereby DENIED and the decision of respondent court AFFIRMED in toto. Regalado, (Chairman), and Puno, JJ., concur. Mendoza, J., on leave.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 85733 February 23, 1990 Sps. ENRIQUE and CONSUELO LIM, petitioners, vs. THE HONORABLE COURT OF APPEALS, Sps. TERESITA and OSCAR GUEVARRA, Sps. MARCOS and ANITA ORLINO, Sps. ROMULO and CONSUELO ORLINO and Sps. FELIX and DOLORES ORLINO, respondents. Salonga, Andres, Hernandez & Allado for petitioners. Ocampo, Dizon & Domingo for private respondent Pacific Banking Corporation.

CRUZ, J.: The subject of this controversy is a parcel of land consisting of 1,101 square meters and located in Diliman, Quezon City. It was originally owned by Felix, Manuel and Maria Concepcion Orlino, who mortgaged it to the Progressive Commercial Bank as security for a P100,000.00 loan on July 1, 1965. The loan not having been paid, the mortgage was foreclosed and the bank acquired the property as the highest bidder at the auction sale on March 28, 1969. The mortgagee thereafter transferred all its assets, including the said land, to the Pacific Banking Corporation (PBC). On May 22, 1975, the Orlinos, and their respective spouses (hereinafter referred to as the private respondents), who had remained in possession of the land, made a written offer to PBC to repurchase the property. In response, the bank, through its Assistant Vice-President, sent the following letter dated November 9, 1977, to the private respondents' counsel: This will confirm our agreement concerning the repurchase by your clients, Mr. and Mrs. Oscar C. Guevarra of that certain property situated at 26 Jose Abad Santos, Heroes Hills, Quezon City with an area of 1,1 01 square meters, more or less, under the following terms and conditions: a) The cash consideration shall be P160,000.00 payable in full upon signing of the Deed of Absolute Sale; b) The additional consideration shall consist of your client's conveyance to us of their share of 2,901.15 square meters on the property situated at Camarin, Caloocan City. We understand that your clients will be applying for a loan with a bank. In this connection, we are enclosing a xerox copy of the Transfer Certificate of Title No. 218661 Quezon City, Tax Declaration No. 3092 and Official Receipt No. E-

404723 covering payment of real estate taxes for 1977. Kindly request your clients to expedite the loan so that we can consummate the transaction as soon as possible. Please request your clients to sign their conformity below and return the duplicate thereof for our files. 1 Oscar C. Guevarra, one of the private respondents, indicated the required conformity. One year later, on November 2, 1978, PBC advised the private respondents that if the transaction was not finalized within 30 days, it would consider the offer of other buyers. 2 The record does not show any further development until June 8, 1979, when the private respondents requested PBC to allow them to secure a certified true copy of its Torrens certificate over the land for purposes of its survey and partition among them preparatory to the actual transfer of title to them. 3 PBC granted the request subject to the condition that title would remain with it until the execution of the necessary deed of conveyance. 4 On April 8, 1980, or two years later, PBC reminded the private respondents of its letter of November 2, 1978, but again no action was taken to deliver to it the stipulated consideration for the sale. Finally, on May 14, 1980, PBC executed a deed of sale over the land in favor of the herein petitioners, the spouses Enrique and Consuelo Lim, for the sum of P300,000.00. 5 On September 30, 1980, the private respondents filed a complaint in the Regional Trial Court of Quezon City against the petitioners and PBC for the annulment of the deed of sale on the ground that the subject land had been earlier sold to them. In its judgment for the plaintiffs, the court held that both PBC and the spouses Lim had acted in bad faith when they concluded the sale knowing that "there was a cloud in the status of the property in question." 6 The decision was affirmed in toto by the respondent court, 7 and the petitioners are now before us, urging reversal. The petitioners claim they are purchasers in good faith, having relied on the assurances of PBC as verified from the records in the Registry of Deeds of Quezon City that the land belonged to PBC and was unencumbered. They therefore should have preferential right to the disputed land, which they had registered in their name under TCT No. 268623. For their part, the private respondents insist that as they had a valid and binding earlier deed of sale in their favor, the land could no longer be sold by PBC to the petitioners, who were aware of their prior right. In support of their position that it was not incumbent upon them to go beyond the land records to check the real status of the land, the petitioners cite Seo v. Mangubat 8 where the Court said: In order that a purchaser of land with a Torrens title may be considered as a purchaser in good faith, it is enough that he examines the latest certificate of title which in this case is that issued in the name of the immediate transferor. The purchaser is not bound by the original certificate of title but only by the certificate of title of the person from whom he has purchased the property. xxx xxx xxx Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title; otherwise everyone dealing with property registered under the torrens system would have to inquire in every instance as to whether the title had been regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose of the law. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefore and the law will in no way oblige him to go behind the certificate to determine the condition of the property. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected.

And even assuming that there was an earlier valid sale of the property to the private respondents, the petitioners add, they would still prevail under Article 1544 of the Civil Code, providing as follows: If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The private respondents, however, deny that the petitioners had acted in good faith, pointing to the evidence that Consuelo Lim had, before the execution of the disputed deed of sale, visited the property and been informed of their existing adverse claim thereto. 9 Besides, the said deed contained the following stipulation: That the VENDEE is aware of the fact that the aforementioned property is presently occupied by the former owners and that clearing of the property of its occupants shall be for the exclusive responsibility and account of the vendee. And, indeed, the Court also said in Seno that: The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon the face of the Torrens Certificate of Title and to dispense with the need of inquiring further,except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry. (Emphasis supplied.) As the Court sees it, the real issue is not whether the petitioner acted in good faith but whether there was in fact a prior sale of the same property to the private respondents. Only if it is established that there was indeed a double sale of the property will it be necessary to ascertain if Article 1544 is applicable. Stated differently, the question is: Was the transaction between private respondents and PBC, as embodied in the letter of November 9, 1977, a contract to sell or a contract of sale? It is not enough to say that the contract of sale being consensual, it became effective between the bank and the private respondents as of November 9, 1977. There is no question about that; but such agreement is like putting the cart before the horse. Precisely, our purpose is to ascertain to what particular undertakings the parties have given their mutual consent so we can determine the nature of their agreement. According to Sing Yee v. Santos: 10 ... A distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell (or of exclusive right and privilege to purchase as in this case) where by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be Identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract.

Applying these distinctions, the Court finds that the agreement between PBC and the private respondents was only a contract to sell, not a contact of sale. And the reasons are obvious. There was no immediate transfer of title to the private respondents as would have happened if there had been a sale at the outset. The supposed sale was never registered and TCT No. 218661 in favor of PBC was not replaced with another certificate of title in favor of the private respondents. In their letter to PBC on June 8, 1979, they acknowledged that title to the property would remain with the bank until their transaction shall have been finalized. In response, PBC reiterated the same condition. No less important, the consideration agreed upon by the parties was never paid by the private respondents, to convert the agreement into a contract of sale. In fact, PBC reminded them twice on November 2, 1978, and on April 8, 1980 to comply with their obligations. They did not. Their default was not, as the respondent court described it, "a slight delay" but lasted for all of three years and in fact continued up to the rendition of the decision in the trial court. As payment of the consideration was a positive suspensive condition, title to the subject property never passed to the private respondents. Hence, the property was legally unencumbered and still belonged to PBC on May 14, 1980, when it was sold by the bank to the petitioners. It is true that the contract to sell imposes reciprocal obligations and so cannot be terminated unilaterally by either party. Judicial rescission is required under Article 1191 of the Civil Code. However, this rule is not absolute. We have held that in proper cases, a party may take it upon itself to consider the contract rescinded and act accordingly albeit subject to judicial confirmation, which may or may not be given. It is true that the rescinding party takes a risk that its action may not be approved by the court. But as we said in University of the Philippines v. De los Angeles: 11 Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages. In the case at bar, the private respondents obligated themselves to deliver to the bank the sum of P160,000.00 and their share of 2,901.15 square meters on a property situated in Caloocan City. In the letter of PBC dated November 9, 1977, they were requested to "expedite the loan (they were negotiating for this purpose) so we can consummate the transaction as soon as possible". That was in 1977. In 1978, they were reminded of their obligation and asked to comply within thirty days. They did not. On April 8, 1980, they were reminded of that letter of November 2, 1978, and again asked to comply; but again they did not. Surely, the bank could not be required to wait for them forever, especially so since they remained in possession of the property and there is no record that they were paying rentals. Under the circumstances, PBC had the right to consider the contract to sell between them terminated for non-payment of the stipulated consideration. We hereby confirm that rescission.

Having arrived at these conclusions, the Court no longer finds it necessary to determine if the petitioners acted in bad faith when they purchased the subject property. The private respondents lost all legal interest in the land when their contract to sell was rescinded by PBC for their non-compliance with its provisions. As that contract was rito longer effective when the land was sold by PBC to the petitioners, the private respondents had no legal standing to assail that subsequent transaction. The deed of sale between PBC and the petitioners must therefore be sustained. WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals is REVERSED. TCT No. 268623 in favor of the petitioners is recognized as valid and the complaint for the annulment of the deed of sale dated May 14, 1980, is hereby dismissed. Costs against the private respondents. SO ORDERED. Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

FIRST DIVISION

[G.R. No. 126812. November 24, 1998]

GOLDENROD, INC., petitioner vs. COURT OF APPEALS, PIO BARRETTO & SONS, INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE, respondents. DECISION BELLOSILLO, J.: In the absence of a specific stipulation, may the seller of real estate keep the earnest money to answer for damages in the event the sale fails due to the fault of the prospective buyer? Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three (43) parcels of registered land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETTO & SONS. On 25 May 1988, through its president Sonya G. Mathay, petitioner wrote respondent Anthony Que, President of respondent BARRETTO & SONS, as follows: Thank you for your reply to our letter offering to buy your property in Echague (C. Palanca) Quiapo. We are happy that you have accepted our offer except the two amendments concerning the payment of interest which should be monthly instead of semi-annually and the period to remove the trusses, steel frames etc. which shall be 180 days instead of 90 days only. Please be advised that we agree to your amendments. As to your other query, we prefer that the lots be reconsolidated back to its (sic) mother titles. Enclosed is the earnest money of P1 million which shall form part of the purchase price. Payment of the agreed total consideration shall be effected in accordance with our offer as you have accepted and upon execution of the necessary documents of sale to be implemented after the said reconsolidation of the lots. Kindly acknowledge receipt of the earnest money.

When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY). Petitioners offer to buy the property resulted in its agreement with respondent BARRETTO REALTY that petitioner would pay the following amounts: (a) P24.5 million representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and, (b) P20 million which was the balance of the purchase price of the property to be paid in installments within a 3year period with interest at 18% per annum. Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the deadline set for payment; instead, it asked for an extension of one (1) month or up to 31 July 1988 to settle the obligation, which the bank granted. On 31 July 1988, petitioner requested another extension of sixty (60) days to pay the loan. This time the bank demurred. In the meantime BARRETTO REALTY was able to cause the reconsolidation of the fortythree (43) titles covering the property subject of the purchase into two (2) titles covering Lots 1 and 2, which were issued on 4 August 1988. The reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00. On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for extension of sixty (60) days by asking for a shorter period of thirty (30) days. This was again denied by UCPB. On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation (LOGARTA REALTY), which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for extension of time to pay the obligation. In the same letter, Logarta also demanded the refund of the earnest money of P1 million which petitioner gave to respondent BARRETTO REALTY. On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc. (ASIAWORLD), Lot 2, one of the two (2) consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of dacion the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24 million. On 12 December 1988 Logarta again wrote respondent Que demanding the return of the earnest money to GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its demand, but the same remained unheeded by private respondents. This prompted petitioner to file a complaint with the Regional Trial Court of Manila against private respondents for the return of the amount of P1 million and the payment of damages including lost interests or profits. In their answer, private respondents contended that it was the agreement of the parties that the earnest money of P1 million would be forfeited to answer for losses and damages that might be suffered by private respondents in case of failure by petitioner to comply with the terms of their purchase agreement. On 15 March 1991 the trial court rendered a decision[1] ordering private respondents jointly and severally to pay petitioner P1,000,000.00 with legal interest from 9 February 1989 until fully paid, P50,000.00 representing unrealized profits and P10,000.00 as attorneys fees. The trial court found that there was no written agreement between the parties concerning forfeiture of the earnest money if the sale did not push through. It further declared that the earnest money given by petitioner to respondent BARRETTO REALTY was intended to form part of the purchase price; thus, the refusal of the latter to return the money when the sale was not consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment. Obviously dissatisfied with the decision of the trial court, private respondents appealed to the Court of Appeals which reversed the trial court and ordered the dismissal of the complaint; hence, this petition. Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial court that the earnest money given by petitioner to respondent BARRETTO REALTY should be returned to the former. The absence of an express stipulation that the same shall be forfeited in favor of the seller in case the buyer fails to comply with his obligation is compelling. It argues

that the forfeiture of the money in favor of respondent BARRETTO REALTY would amount to unjust enrichment at the expense of petitioner. We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. By reason of its failure to make payment petitioner, through its agent, informed private respondents that it would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement with private respondents. In University of the Philippines v. de los Angeles,[2] the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. We held further, in the more recent case of Adelfa Properties, Inc. v. Court of Appeals,[3] that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party's claim. Private respondents did not interpose any objection to the rescission by petitioner of the agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13 October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD. Article 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. The vendor is therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale,[4] or when the transaction was called off and the subject property had already been sold to a third person, as what obtained in this case.[5]Therefore, by virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from private respondents who, in turn, sold the property to other persons, private respondent BARRETTO REALTY, as the vendor, had the obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It would be most inequitable if respondent BARRETTO REALTY would be allowed to retain petitioners payment of P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to another.[6] WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its successors and assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully paid, with costs against private respondents. SO ORDERED. Davide Jr. (Chairman), Vitug, Panganiban, and Quisumbing JJ., concur