G.R. No.

174012

November 14, 2008

MACTAN-CEBU INTERNATIONAL AIRPORT

AUTHORITY, petitioner,
vs.
BENJAMIN TUDTUD, BIENVENIDO TUDTUD, DAVID
TUDTUD, JUSTINIANO BORGA, JOSE BORGA, and FE DEL
ROSARIO, represented by LYDIA ADLAWAN, Attorneyin-fact,respondents.
DECISION
CARPIO MORALES, J.:
The predecessors-in-interest of respondents Benjamin Tudtud
et al. were the owners of a parcel of land in Cebu City,
identified as Lot No. 988 of the Banilad Estate and covered by
Transfer Certificate of Title (TCT) No. 27692.
In 1949, the National Airports Corporation (NAC), a public
corporation of the Republic of the Philippines, embarked on a
program to expand the Cebu Lahug Airport. For this purpose,
it sought to acquire, by negotiated sale or expropriation,
several lots adjoining the then existing airport.
By virtue of a judgment rendered by the third branch of the
Court of First Instance in Civil Case No. R-1881, the NAC
acquired Lot No. 988, among other lots. TCT No. 26792
covering Lot No. 988 was thus cancelled and TCT No. 27919
was issued in its stead in the name of the Republic of the
Philippines. No structures related to the operation of the Cebu
Lahug Airport were constructed on Lot No. 988.
Lot No. 988 was later transferred to the Air Transport Office
(ATO), and still later to petitioner Mactan Cebu International
Airport Authority (MCIAA) in 1990 via Republic Act No. 6958.
When the Mactan International Airport at Lapu Lapu City was
opened for commercial flights, the Cebu Lahug Airport was
closed and abandoned and a significant area thereof was
purchased by the Cebu Property Ventures, Inc. for
development as a commercial complex.
By letter of October 7, 1996 to the general manager of the
MCIAA, Lydia Adlawan, acting as attorney-in-fact of the
original owners of Lot No. 988, demanded to repurchase the
lot at the same price paid at the time of the taking, without
interest, no structures or improvements having been erected
thereon and the Cebu Lahug Airport having been closed and
abandoned, hence, the purpose for which the lot was acquired
no longer existed.1

respondent Melba Limbaco's predecessor-in-interest and NAC

did not contain a provision for the repurchase of the therein
subject lot should the purpose for its acquisition ceased to
exist, this Court allowed Melba Limbaco to recover the lot
based on parole evidence that the NAC promised the right of
repurchase to her predecessor-in-interest.8
The MCIAA disputed the applicability to the present case of
the immediately-cited MCIAA ruling, the NAC having acquired
Lot No. 988 not by a deed of sale but by virtue of a
final judicial decree of expropriation which cannot be modified
by parole evidence.9
After trial, Branch 20 of the Cebu City RTC rendered judgment
in favor of respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiffs as against defendant ordering
the latter to reconvey the entire subject real
property covered by T.C.T. No. 27919 within 15 days from
receipt of this decision.
SO ORDERED.10 (Underscoring supplied)
On appeal,11 the Court of Appeals, by Decision of May 8,
200612 affirmed the RTC decision. Its Motion for
Reconsideration13 having been denied,14 the MCIAA filed the
present petition,15 faulting the appellate court in
"disregarding" the following considerations:
I.
THE JUDGMENT OF EXPROPRIATION IN CIVIL CASE NO. R1881 WAS ABSOLUTE AND UNCONDITIONAL.
II.
RESPONDENTS' CLAIM OF ALLEGED VERBAL ASSURANCES
FROM THE GOVERNMENT VIOLATES THE STATUTE OF
FRAUDS.
III.
THE BEST EVIDENCE SHOWING THE UNCONDITIONAL
ACQUISITION OF LOT 988 IS THE CERTIFICATE OF
TITLE.16 (Underscoring supplied)
In insisting that the judgment in Civil Case No. R-1881 was
absolute and unconditional, the MCIAA cites Fery v.
Municipality of Cabanatuan17 which held that:

As the demand remained unheeded, respondents,

represented by their attorney-in-fact Lydia Adlawan, filed a
Complaint2 before the Regional Trial Court (RTC) of Cebu City,
docketed as Civil Case No. CEB-19464, for reconveyance and
damages with application for preliminary
injunction/restraining order against the MCIAA.

x x x If x x x the decree of expropriation gives to the entity

a fee simple title, then, of course, the land becomes the
absolute property of the expropriator, whether it be the
State, a province, or municipality, and in that case the nonuser does not have the effect of defeating the title acquired
by the expropriation proceedings.

Respondents anchored their complaint on the assurance they

claimed was made by the NAC that the original owners and/or
their successors-in-interest would be entitled to repurchase
the lot when and in the event that it was no longer used for
airport purposes.3

When land has been acquired for public use in fee

simple, unconditionally, either by the exercise of eminent
domain or by purchase, the former owner retains no rights
in the land, and the public use may be abandoned, or the
land may be devoted to a different use, without any
impairment of the estate or title acquired, or any reversion
to the former owner.18 (Italics in the original; underscoring
supplied)

In its Answer with Counterclaim,4 the MCIAA countered

that, inter alia, the decision in Civil Case No. R-1881 did not
lay any condition that the lots subject of expropriation would
revert to their owners in case the expansion of the Cebu
Lahug Airport would not materialize.5
To prove their claim, respondents presented witnesses who
testified that the NAC promised their predecessors-in-interestoriginal owners of Lot No. 988 that it would be returned to
them should the expansion of the Cebu Lahug Airport not
materialize.6 And respondents invoked this Court's ruling
in MCIAA v. Court of Appeals7 involving another lot acquired by
the NAC for the expansion of the Cebu Lahug Airport. In that
case, although the deed of sale between the therein

MCIAA in fact offers the text of the trial court's decision in R1881, inviting attention to the dispositive portion thereof, to
prove that the judgment of expropriation entered in favor of
the government is absolute and unconditional, and that there
is nothing in the decision that would show that the
government made any assurance or stipulation whatsoever to
reconvey the subject lot in case the expansion of the Lahug
airport would not materialize.19
But also in Fery, this Court, passing on the question of
whether a private land which is expropriated for a particular

public use, but which particular public use is abandoned, may

be returned to its former owner, held:
The answer to that question depends upon the character of
the title acquired by the expropriator x x x. If, for example,
land is expropriated for a particular purpose, with the
condition that when that purpose is ended or abandoned
the property shall return to its former owner, then, of
course, when the purpose is terminated or abandoned, the
former owner reacquires the property so expropriated. If, for
example, land is expropriated for a public street and the
expropriation is granted upon conditions that the city
can only use it for a public street, then, of course, when the
city abandons its use as a public street, it returns to the
former owner, unless there is some statutory provision to
the contrary.20 (Underscoring supplied)
That nothing in the trial court's decision in Civil Case No. R1881 indicates a condition attached to the expropriation of
the subject lot, this Court, in Heirs of Timoteo Moreno v.
MCIAA21 involving the rights of another former owner of
lots also involved in Civil Case No. R-1881, noting the
following portion of the body of the said trial court's decision:
As for the public purpose of the expropriation proceeding,
it cannot now be doubted. Although the Mactan Airport is
being constructed, it does not take away the actual
usefulness and importance of the Lahug Airport: it is
handling the air traffic both civilian and military. From it
aircrafts fly to Mindanao and Visayas and pass through it
on their return flights to the North and Manila. Then, no
evidence was adduced to show how soon is the Mactan
Airport to be placed in operation and whether the Lahug
Airport will be closed immediately thereafter. It is for the
other departments of the Government to determine said
matters. The Court cannot substitute its judgment for
those of the said departments and agencies. In the
absence of such a showing, the Court will presume that
the Lahug Airport will continue to be in operation, 22
held:
While the trial court in Civil Case No. R-1881 could have
simply acknowledged the presence of public purpose for
the exercise of eminent domain regardless of the survival
of Lahug Airport, the trial court in its Decision chose not
to do so but instead prefixed its finding of public purpose
upon its understanding that "Lahug Airport will continue
to be in operation." Verily, these meaningful statements
in the body of the Decision warrant the conclusion that
the expropriated properties would remain to be so until it
was confirmed that Lahug Airport was no longer "in
operation". This inference further implies two (2) things:
(a) after the Lahug Airport ceased its undertaking as such
and the expropriated lots were not being used for any
airport expansion project, the rights vis--vis the
expropriated Lots Nos. 916 and 920 as between the State
and their former owners, petitioners herein, must be
equitably adjusted; and, (b) the foregoing
unmistakable declarations in the body of
the Decision should merge with and become an
intrinsic part of the fallo thereof which under the
premises is clearly inadequate since the
dispositive portion is not in accord with the
findings as contained in the body thereof.23

and inconclusive evidence, Chiongbian's testimony as well as

that of her witness as to the existence of the agreement being
hearsay.28
In contrast, in the case at bar, respondents' witness
respondent Justiniano Borga himself, who represented his
mother-one of the original owners of subject lot during the
negotiations between the NAC and the landowners, declared
that the original owners did not oppose the expropriation of
the lot upon the assurance of the NAC that they would
reacquire it if it is no longer needed by the airport.29
Another witness for respondent, Eugenio Amores, an
employee of the NAC, declared that in the course of some
meetings with the landowners when he accompanied the NAC
legal team and was requested to jot down what transpired
thereat, he personally heard the NAC officials give the
assurance claimed by respondents.30
The MCIAA nevertheless urges this Court to reject
respondents' testimonial evidence, citing Article 1403 (2)(e) of
the Civil Code which places agreements for the sale of real
property or an interest therein within the coverage of the
Statute of Frauds.
The Statute of Frauds applies, however, only to executory
contracts.31 It does not apply to contracts which have been
completely or partially performed,32 the rationale thereof
being as follows:
x x x In executory contracts there is a wide field for fraud
because unless they be in writing there is no palpable
evidence of the intention of the contracting parties. The
statute has precisely been enacted to prevent fraud.
However, if a contract has been totally or partially
performed, the exclusion of parol evidence would promote
fraud or bad faith, for it would enable the defendant to keep
the benefits already delivered by him from the transaction
in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him
thereby.33 (Underscoring supplied)
A word on MCIAA's argument that MCIAA v. Court of
Appeals, supra, does not apply to the present case. As
reflected in the earlier-quoted ruling in Fery, the mode of
acquisition for public purpose of a land - whether by
expropriation or by contract - is not material in determining
whether the acquisition is with or without condition.
In fine, the decision in favor of respondents must be affirmed.
The rights and duties between the MCIAA and respondents are
governed by Article 1190 of the Civil Code34 which provides:
When the conditions have for their purpose the
extinguishment of an obligation to give, the parties,
upon the fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration, or improvement of the
thing, the provisions which, with respect to the debtor, are
laid down in the preceding article [Article 1189] shall be
applied to the party who is bound to return.
xxxx

On the Heirs of Moreno's motion for reconsideration, this

Court affirmed its decision, emphasizing that "the fallo of the
decision in Civil Case No. R-1881 must be read in reference to
the other portions of the decision in which it forms a
part[,]"24 and that "[a] reading of the Court's judgment must
not be confined to the dispositive portion alone; rather, it
should be meaningfully construed in unanimity with the ratio
decidendi thereof to grasp the true intent and meaning of a
decision."25
The MCIAA goes on, however, to cite MCIAA v. Court of
Appeals and Chiongbian26 wherein this Court rejected
testimonial evidence of an assurance of a right to repurchase
property acquired by the NAC under the judgment in still the
same Civil Case No. R-1881. The MCIAA's reliance on this case
is misplaced. As this Court noted in Heirs of Timoteo Moreno
v. MCIAA,27 the respondent Chiongbianput forth inadmissible

While the MCIAA is obliged to reconvey Lot No. 988 to

respondents, respondents must return to the MCIAA what they
received as just compensation for the expropriation of Lot No.
988, plus legal interest to be computed from default,35 which
in this case runs from the time the MCIAA complies with its
obligation to the respondents.36
Respondents must likewise pay the MCIAA the necessary
expenses it may have incurred in sustaining Lot No. 988 and
the monetary value of its services in managing it to the extent
that respondents were benefited thereby.
Following Article 118737 of the Civil Code, the MCIAA may keep
whatever income or fruits it may have obtained from Lot No.
988, and respondents need not account for the interests that

the amounts they received as just compensation may have

earned in the meantime.
In accordance with the earlier-quoted Article 1190 of the Civil
Code vis--vis Article 1189 which provides that "[i]f a thing is
improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor x x x," respondents, as
creditors, do not have to settle as part of the process of
restitution the appreciation in value of Lot 988 which is a
natural consequence of nature and time.
WHEREFORE, the petition is, in light of the foregoing
disquisition, DENIED. The May 8, 2006 Decision of the Court
of Appeals affirming that of Branch 20 of the Cebu City
Regional Trial Court is AFFIRMED with MODIFICATION as
follows:
1. Respondents are ORDERED to return to the MCIAA the
just compensation they received for the expropriation of Lot
No. 988 plus legal interest in the case of default, to be
computed from the time the MCIAA complies with its
obligation to reconvey Lot No. 988 to them;
2. Respondents are ORDERED to pay the MCIAA the
necessary expenses it incurred in sustaining Lot No. 988
and the monetary value of its services to the extent that
respondents were benefited thereby;
3. The MCIAA is ENTITLED to keep whatever fruits and
income it may have obtained from Lot No. 988; and
4. Respondents are also ENTITLED to keep whatever
interests the amounts they received as just compensation
may have earned in the meantime, as well as the
appreciation in value of Lot No. 988 which is a natural
consequence of nature and time;
In light of the foregoing modifications, the case is REMANDED
to Branch 20 the Regional Trial Court of Cebu City only for the
purpose of receiving evidence on the amounts that
respondents will have to pay to the MCIAA in accordance with
this Court's decision.
SO ORDERED.
G.R. No. 176625
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY
and AIR TRANSPORTATION OFFICE, Petitioners,
vs.
BERNARDO L. LOZADA, SR., and the HEIRS OF ROSARIO
MERCADO, namely, VICENTE LOZADA, MARIO M.
LOZADA, MARCIA L. GODINEZ, VIRGINIA L. FLORES,
BERNARDO LOZADA, JR., DOLORES GACASAN,
SOCORRO CAFARO and ROSARIO LOZADA, represented
by MARCIA LOZADA GODINEZ, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, seeking to reverse, annul, and set aside the
Decision1 dated February 28, 2006 and the Resolution2 dated
February 7, 2007 of the Court of Appeals (CA) (Cebu City),
Twentieth Division, in CA-G.R. CV No. 65796.
The antecedent facts and proceedings are as follows:
Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88),
with an area of 1,017 square meters, more or less, located in
Lahug, Cebu City. Its original owner was Anastacio Deiparine
when the same was subject to expropriation proceedings,
initiated by the Republic of the Philippines (Republic),
represented by the then Civil Aeronautics Administration
(CAA), for the expansion and improvement of the Lahug
Airport. The case was filed with the then Court of First
Instance of Cebu, Third Branch, and docketed as Civil Case
No. R-1881.

As early as 1947, the lots were already occupied by the U.S.

Army. They were turned over to the Surplus Property
Commission, the Bureau of Aeronautics, the National Airport
Corporation and then to the CAA.
During the pendency of the expropriation proceedings,
respondent Bernardo L. Lozada, Sr. acquired Lot No. 88 from
Deiparine. Consequently, Transfer Certificate of Title (TCT) No.
9045 was issued in Lozadas name.
On December 29, 1961, the trial court rendered judgment in
favor of the Republic and ordered the latter to pay Lozada the
fair market value of Lot No. 88, adjudged at P3.00 per square
meter, with consequential damages by way of legal interest
computed from November 16, 1947the time when the lot
was first occupied by the airport. Lozada received the amount
of P3,018.00 by way of payment.
The affected landowners appealed. Pending appeal, the Air
Transportation Office (ATO), formerly CAA, proposed a
compromise settlement whereby the owners of the lots
affected by the expropriation proceedings would either not
appeal or withdraw their respective appeals in consideration
of a commitment that the expropriated lots would be resold at
the price they were expropriated in the event that the ATO
would abandon the Lahug Airport, pursuant to an established
policy involving similar cases. Because of this promise, Lozada
did not pursue his appeal. Thereafter, Lot No. 88 was
transferred and registered in the name of the Republic under
TCT No. 25057.
The projected improvement and expansion plan of the old
Lahug Airport, however, was not pursued.
Lozada, with the other landowners, contacted then CAA
Director Vicente Rivera, Jr., requesting to repurchase the lots,
as per previous agreement. The CAA replied that there might
still be a need for the Lahug Airport to be used as an
emergency DC-3 airport. It reiterated, however, the assurance
that "should this Office dispose and resell the properties which
may be found to be no longer necessary as an airport, then
the policy of this Office is to give priority to the former owners
subject to the approval of the President."
On November 29, 1989, then President Corazon C. Aquino
issued a Memorandum to the Department of Transportation,
directing the transfer of general aviation operations of the
Lahug Airport to the Mactan International Airport before the
end of 1990 and, upon such transfer, the closure of the Lahug
Airport.
Sometime in 1990, the Congress of the Philippines passed
Republic Act (R.A.) No. 6958, entitled "An Act Creating the
Mactan-Cebu International Airport Authority, Transferring
Existing Assets of the Mactan International Airport and the
Lahug Airport to the Authority, Vesting the Authority with
Power to Administer and Operate the Mactan International
Airport and the Lahug Airport, and For Other Purposes."
From the date of the institution of the expropriation
proceedings up to the present, the public purpose of the said
expropriation (expansion of the airport) was never actually
initiated, realized, or implemented. Instead, the old airport
was converted into a commercial complex. Lot No. 88 became
the site of a jail known as Bagong Buhay Rehabilitation
Complex, while a portion thereof was occupied by
squatters.3 The old airport was converted into what is now
known as the Ayala I.T. Park, a commercial area.1avvphi1
Thus, on June 4, 1996, petitioners initiated a complaint for the
recovery of possession and reconveyance of ownership of Lot
No. 88. The case was docketed as Civil Case No. CEB-18823
and was raffled to the Regional Trial Court (RTC), Branch 57,
Cebu City. The complaint substantially alleged as follows:
(a) Spouses Bernardo and Rosario Lozada were the
registered owners of Lot No. 88 covered by TCT No. 9045;
(b) In the early 1960s, the Republic sought to acquire by
expropriation Lot No. 88, among others, in connection with

its program for the improvement and expansion of the

Lahug Airport;
(c) A decision was rendered by the Court of First Instance in
favor of the Government and against the land owners,
among whom was Bernardo Lozada, Sr. appealed therefrom;
(d) During the pendency of the appeal, the parties entered
into a compromise settlement to the effect that the subject
property would be resold to the original owner at the same
price when it was expropriated in the event that the
Government abandons the Lahug Airport;
(e) Title to Lot No. 88 was subsequently transferred to the
Republic of the Philippines (TCT No. 25057);
(f) The projected expansion and improvement of the Lahug
Airport did not materialize;
(g) Plaintiffs sought to repurchase their property from then
CAA Director Vicente Rivera. The latter replied by giving as
assurance that priority would be given to the previous
owners, subject to the approval of the President, should
CAA decide to dispose of the properties;
(h) On November 29, 1989, then President Corazon C.
Aquino, through a Memorandum to the Department of
Transportation and Communications (DOTC), directed the
transfer of general aviation operations at the Lahug Airport
to the Mactan-Cebu International Airport Authority;
(i) Since the public purpose for the expropriation no longer
exists, the property must be returned to the plaintiffs.4
In their Answer, petitioners asked for the immediate dismissal
of the complaint. They specifically denied that the
Government had made assurances to reconvey Lot No. 88 to
respondents in the event that the property would no longer be
needed for airport operations. Petitioners instead asserted
that the judgment of condemnation was unconditional, and
respondents were, therefore, not entitled to recover the
expropriated property notwithstanding non-use or
abandonment thereof.
After pretrial, but before trial on the merits, the parties
stipulated on the following set of facts:
(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad
Estate, situated in the City of Cebu, containing an area of
One Thousand Seventeen (1,017) square meters, more or
less;
(2) The property was expropriated among several other
properties in Lahug in favor of the Republic of the
Philippines by virtue of a Decision dated December 29,
1961 of the CFI of Cebu in Civil Case No. R-1881;
(3) The public purpose for which the property was
expropriated was for the purpose of the Lahug Airport;
(4) After the expansion, the property was transferred in the
name of MCIAA; [and]
(5) On November 29, 1989, then President Corazon C.
Aquino directed the Department of Transportation and
Communication to transfer general aviation operations of
the Lahug Airport to the Mactan-Cebu International Airport
Authority and to close the Lahug Airport after such
transfer[.]5
During trial, respondents presented Bernardo Lozada, Sr. as
their lone witness, while petitioners presented their own
witness, Mactan-Cebu International Airport Authority legal
assistant Michael Bacarisas.
On October 22, 1999, the RTC rendered its Decision, disposing
as follows:

WHEREFORE, in the light of the foregoing, the Court hereby

renders judgment in favor of the plaintiffs, Bernardo L.
Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente
M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M.
Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario
M. Lozada, represented by their attorney-in-fact Marcia Lozada
Godinez, and against defendants Cebu-Mactan International
Airport Authority (MCIAA) and Air Transportation Office (ATO):
1. ordering MCIAA and ATO to restore to plaintiffs the
possession and ownership of their land, Lot No. 88 Psd-821
(SWO-23803), upon payment of the expropriation price to
plaintiffs; and
2. ordering the Register of Deeds to effect the transfer of
the Certificate of Title from defendant[s] to plaintiffs on Lot
No. [88], cancelling TCT No. 20357 in the name of
defendant MCIAA and to issue a new title on the same lot in
the name of Bernardo L. Lozada, Sr. and the heirs of Rosario
Mercado, namely: Vicente M. Lozada, Mario M. Lozada,
Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr.,
Dolores L. Gacasan, Socorro L. Cafaro and Rosario M.
Lozada.
No pronouncement as to costs.
SO ORDERED.6
Aggrieved, petitioners interposed an appeal to the CA. After
the filing of the necessary appellate briefs, the CA rendered its
assailed Decision dated February 28, 2006, denying
petitioners appeal and affirming in toto the Decision of the
RTC, Branch 57, Cebu City. Petitioners motion for
reconsideration was, likewise, denied in the questioned CA
Resolution dated February 7, 2007.
Hence, this petition arguing that: (1) the respondents utterly
failed to prove that there was a repurchase agreement or
compromise settlement between them and the Government;
(2) the judgment in Civil Case No. R-1881 was absolute and
unconditional, giving title in fee simple to the Republic; and
(3) the respondents claim of verbal assurances from
government officials violates the Statute of Frauds.
The petition should be denied.
Petitioners anchor their claim to the controverted property on
the supposition that the Decision in the pertinent
expropriation proceedings did not provide for the condition
that should the intended use of Lot No. 88 for the expansion
of the Lahug Airport be aborted or abandoned, the property
would revert to respondents, being its former owners.
Petitioners cite, in support of this position, Fery v. Municipality
of Cabanatuan,7 which declared that the Government acquires
only such rights in expropriated parcels of land as may be
allowed by the character of its title over the properties
If x x x land is expropriated for a particular purpose, with the
condition that when that purpose is ended or abandoned the
property shall return to its former owner, then, of course,
when the purpose is terminated or abandoned the former
owner reacquires the property so expropriated. If x x x land is
expropriated for a public street and the expropriation is
granted upon condition that the city can only use it for a
public street, then, of course, when the city abandons its use
as a public street, it returns to the former owner, unless there
is some statutory provision to the contrary. x x x. If, upon the
contrary, however, the decree of expropriation gives to the
entity a fee simple title, then, of course, the land becomes the
absolute property of the expropriator, whether it be the State,
a province, or municipality, and in that case the non-user does
not have the effect of defeating the title acquired by the
expropriation proceedings. x x x.
When land has been acquired for public use in fee simple,
unconditionally, either by the exercise of eminent domain or
by purchase, the former owner retains no right in the land,
and the public use may be abandoned, or the land may be
devoted to a different use, without any impairment of the
estate or title acquired, or any reversion to the former owner.
x x x.8

Contrary to the stance of petitioners, this Court had ruled

otherwise in Heirs of Timoteo Moreno and Maria Rotea v.
Mactan-Cebu International Airport Authority,9 thus
Moreover, respondent MCIAA has brought to our attention a
significant and telling portion in the Decision in Civil Case No.
R-1881 validating our discernment that the expropriation by
the predecessors of respondent was ordered under the
running impression that Lahug Airport would continue in
operation
As for the public purpose of the expropriation proceeding, it
cannot now be doubted. Although Mactan Airport is being
constructed, it does not take away the actual usefulness and
importance of the Lahug Airport: it is handling the air traffic
both civilian and military. From it aircrafts fly to Mindanao and
Visayas and pass thru it on their flights to the North and
Manila. Then, no evidence was adduced to show how soon is
the Mactan Airport to be placed in operation and whether the
Lahug Airport will be closed immediately thereafter. It is up to
the other departments of the Government to determine said
matters. The Court cannot substitute its judgment for those of
the said departments or agencies. In the absence of such
showing, the Court will presume that the Lahug Airport will
continue to be in operation (emphasis supplied).
While in the trial in Civil Case No. R-1881 [we] could have
simply acknowledged the presence of public purpose for the
exercise of eminent domain regardless of the survival of
Lahug Airport, the trial court in its Decision chose not to do so
but instead prefixed its finding of public purpose upon its
understanding that "Lahug Airport will continue to be in
operation." Verily, these meaningful statements in the body of
the Decision warrant the conclusion that the expropriated
properties would remain to be so until it was confirmed that
Lahug Airport was no longer "in operation." This inference
further implies two (2) things: (a) after the Lahug Airport
ceased its undertaking as such and the expropriated lots were
not being used for any airport expansion project, the rights
vis--vis the expropriated Lots Nos. 916 and 920 as between
the State and their former owners, petitioners herein, must be
equitably adjusted; and (b) the foregoing unmistakable
declarations in the body of the Decision should merge with
and become an intrinsic part of the fallo thereof which under
the premises is clearly inadequate since the dispositive
portion is not in accord with the findings as contained in the
body thereof.10
Indeed, the Decision in Civil Case No. R-1881 should be read
in its entirety, wherein it is apparent that the acquisition by
the Republic of the expropriated lots was subject to the
condition that the Lahug Airport would continue its operation.
The condition not having materialized because the airport had
been abandoned, the former owner should then be allowed to
reacquire the expropriated property.11
On this note, we take this opportunity to revisit our ruling in
Fery, which involved an expropriation suit commenced upon
parcels of land to be used as a site for a public market.
Instead of putting up a public market, respondent Cabanatuan
constructed residential houses for lease on the area. Claiming
that the municipality lost its right to the property taken since
it did not pursue its public purpose, petitioner Juan Fery, the
former owner of the lots expropriated, sought to recover his
properties. However, as he had admitted that, in 1915,
respondent Cabanatuan acquired a fee simple title to the
lands in question, judgment was rendered in favor of the
municipality, following American jurisprudence, particularly
City of Fort Wayne v. Lake Shore & M.S. RY. Co., 12McConihay v.
Theodore Wright,13 and Reichling v. Covington Lumber
Co.,14 all uniformly holding that the transfer to a third party of
the expropriated real property, which necessarily resulted in
the abandonment of the particular public purpose for which
the property was taken, is not a ground for the recovery of the
same by its previous owner, the title of the expropriating
agency being one of fee simple.
Obviously, Fery was not decided pursuant to our now sacredly
held constitutional right that private property shall not be
taken for public use without just compensation. 15 It is well
settled that the taking of private property by the
Governments power of eminent domain is subject to two
mandatory requirements: (1) that it is for a particular public

purpose; and (2) that just compensation be paid to the

property owner. These requirements partake of the nature of
implied conditions that should be complied with to enable the
condemnor to keep the property expropriated.16
More particularly, with respect to the element of public use,
the expropriator should commit to use the property pursuant
to the purpose stated in the petition for expropriation filed,
failing which, it should file another petition for the new
purpose. If not, it is then incumbent upon the expropriator to
return the said property to its private owner, if the latter
desires to reacquire the same. Otherwise, the judgment of
expropriation suffers an intrinsic flaw, as it would lack one
indispensable element for the proper exercise of the power of
eminent domain, namely, the particular public purpose for
which the property will be devoted. Accordingly, the private
property owner would be denied due process of law, and the
judgment would violate the property owners right to justice,
fairness, and equity.
In light of these premises, we now expressly hold that the
taking of private property, consequent to the Governments
exercise of its power of eminent domain, is always subject to
the condition that the property be devoted to the specific
public purpose for which it was taken. Corollarily, if this
particular purpose or intent is not initiated or not at all
pursued, and is peremptorily abandoned, then the former
owners, if they so desire, may seek the reversion of the
property, subject to the return of the amount of just
compensation received. In such a case, the exercise of the
power of eminent domain has become improper for lack of the
required factual justification.17
Even without the foregoing declaration, in the instant case, on
the question of whether respondents were able to establish
the existence of an oral compromise agreement that entitled
them to repurchase Lot No. 88 should the operations of the
Lahug Airport be abandoned, we rule in the affirmative.
It bears stressing that both the RTC, Branch 57, Cebu and the
CA have passed upon this factual issue and have declared, in
no uncertain terms, that a compromise agreement was, in
fact, entered into between the Government and respondents,
with the former undertaking to resell Lot No. 88 to the latter if
the improvement and expansion of the Lahug Airport would
not be pursued. In affirming the factual finding of the RTC to
this effect, the CA declared
Lozadas testimony is cogent. An octogenarian widowerretiree and a resident of Moon Park, California since 1974, he
testified that government representatives verbally promised
him and his late wife while the expropriation proceedings
were on-going that the government shall return the property if
the purpose for the expropriation no longer exists. This
promise was made at the premises of the airport. As far as he
could remember, there were no expropriation proceedings
against his property in 1952 because the first notice of
expropriation he received was in 1962. Based on the promise,
he did not hire a lawyer. Lozada was firm that he was
promised that the lot would be reverted to him once the
public use of the lot ceases. He made it clear that the verbal
promise was made in Lahug with other lot owners before the
1961 decision was handed down, though he could not name
the government representatives who made the promise. It
was just a verbal promise; nevertheless, it is binding. The fact
that he could not supply the necessary details for the
establishment of his assertions during cross-examination, but
that "When it will not be used as intended, it will be returned
back, we just believed in the government," does not dismantle
the credibility and truthfulness of his allegation. This Court
notes that he was 89 years old when he testified in November
1997 for an incident which happened decades ago. Still, he is
a competent witness capable of perceiving and making his
perception known. The minor lapses are immaterial. The
decision of the competency of a witness rests primarily with
the trial judge and must not be disturbed on appeal unless it
is clear that it was erroneous. The objection to his
competency must be made before he has given any testimony
or as soon as the incompetency becomes apparent. Though
Lozada is not part of the compromise agreement, 18 he
nevertheless adduced sufficient evidence to support his
claim.19

As correctly found by the CA, unlike in Mactan Cebu

International Airport Authority v. Court of Appeals,20 cited by
petitioners, where respondent therein offered testimonies
which were hearsay in nature, the testimony of Lozada was
based on personal knowledge as the assurance from the
government was personally made to him. His testimony on
cross-examination destroyed neither his credibility as a
witness nor the truthfulness of his words.
Verily, factual findings of the trial court, especially when
affirmed by the CA, are binding and conclusive on this Court
and may not be reviewed. A petition for certiorari under Rule
45 of the Rules of Court contemplates only questions of law
and not of fact.21 Not one of the exceptions to this rule is
present in this case to warrant a reversal of such findings.
As regards the position of petitioners that respondents
testimonial evidence violates the Statute of Frauds, suffice it
to state that the Statute of Frauds operates only with respect
to executory contracts, and does not apply to contracts which
have been completely or partially performed, the rationale
thereof being as follows:
In executory contracts there is a wide field for fraud because
unless they be in writing there is no palpable evidence of the
intention of the contracting parties. The statute has precisely
been enacted to prevent fraud. However, if a contract has
been totally or partially performed, the exclusion of parol
evidence would promote fraud or bad faith, for it would enable
the defendant to keep the benefits already delivered by him
from the transaction in litigation, and, at the same time,
evade the obligations, responsibilities or liabilities assumed or
contracted by him thereby.22
In this case, the Statute of Frauds, invoked by petitioners to
bar the claim of respondents for the reacquisition of Lot No.
88, cannot apply, the oral compromise settlement having
been partially performed. By reason of such assurance made
in their favor, respondents relied on the same by not pursuing
their appeal before the CA. Moreover, contrary to the claim of
petitioners, the fact of Lozadas eventual conformity to the
appraisal of Lot No. 88 and his seeking the correction of a
clerical error in the judgment as to the true area of Lot No. 88
do not conclusively establish that respondents absolutely
parted with their property. To our mind, these acts were simply
meant to cooperate with the government, particularly
because of the oral promise made to them.
The right of respondents to repurchase Lot No. 88 may be
enforced based on a constructive trust constituted on the
property held by the government in favor of the former. On
this note, our ruling in Heirs of Timoteo Moreno is instructive,
viz.:
Mactan-Cebu International Airport Authority is correct in
stating that one would not find an express statement in the
Decision in Civil Case No. R-1881 to the effect that "the
[condemned] lot would return to [the landowner] or that [the
landowner] had a right to repurchase the same if the purpose
for which it was expropriated is ended or abandoned or if the
property was to be used other than as the Lahug Airport." This
omission notwithstanding, and while the inclusion of this
pronouncement in the judgment of condemnation would have
been ideal, such precision is not absolutely necessary nor is it
fatal to the cause of petitioners herein. No doubt, the return or
repurchase of the condemned properties of petitioners could
be readily justified as the manifest legal effect or
consequence of the trial courts underlying presumption that
"Lahug Airport will continue to be in operation" when it
granted the complaint for eminent domain and the airport
discontinued its activities.
The predicament of petitioners involves a constructive trust,
one that is akin to the implied trust referred to in Art. 1454 of
the Civil Code, "If an absolute conveyance of property is made
in order to secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is offered by the
grantor when it becomes due, he may demand the
reconveyance of the property to him." In the case at bar,
petitioners conveyed Lots No. 916 and 920 to the government
with the latter obliging itself to use the realties for the
expansion of Lahug Airport; failing to keep its bargain, the

government can be compelled by petitioners to reconvey the

parcels of land to them, otherwise, petitioners would be
denied the use of their properties upon a state of affairs that
was not conceived nor contemplated when the expropriation
was authorized.
Although the symmetry between the instant case and the
situation contemplated by Art. 1454 is not perfect, the
provision is undoubtedly applicable. For, as explained by an
expert on the law of trusts: "The only problem of great
importance in the field of constructive trust is to decide
whether in the numerous and varying fact situations
presented to the courts there is a wrongful holding of property
and hence a threatened unjust enrichment of the defendant."
Constructive trusts are fictions of equity which are bound by
no unyielding formula when they are used by courts as
devices to remedy any situation in which the holder of legal
title may not in good conscience retain the beneficial interest.
In constructive trusts, the arrangement is temporary and
passive in which the trustees sole duty is to transfer the title
and possession over the property to the plaintiff-beneficiary.
Of course, the "wronged party seeking the aid of a court of
equity in establishing a constructive trust must himself do
equity." Accordingly, the court will exercise its discretion in
deciding what acts are required of the plaintiff-beneficiary as
conditions precedent to obtaining such decree and has the
obligation to reimburse the trustee the consideration received
from the latter just as the plaintiff-beneficiary would if he
proceeded on the theory of rescission. In the good judgment
of the court, the trustee may also be paid the necessary
expenses he may have incurred in sustaining the property, his
fixed costs for improvements thereon, and the monetary value
of his services in managing the property to the extent that
plaintiff-beneficiary will secure a benefit from his acts.
The rights and obligations between the constructive trustee
and the beneficiary, in this case, respondent MCIAA and
petitioners over Lots Nos. 916 and 920, are echoed in Art.
1190 of the Civil Code, "When the conditions have for their
purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall return to
each other what they have received x x x In case of the loss,
deterioration or improvement of the thing, the provisions
which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to
return x x x."23
On the matter of the repurchase price, while petitioners are
obliged to reconvey Lot No. 88 to respondents, the latter must
return to the former what they received as just compensation
for the expropriation of the property, plus legal interest to be
computed from default, which in this case runs from the time
petitioners comply with their obligation to respondents.
Respondents must likewise pay petitioners the necessary
expenses they may have incurred in maintaining Lot No. 88,
as well as the monetary value of their services in managing it
to the extent that respondents were benefited thereby.
Following Article 118724 of the Civil Code, petitioners may
keep whatever income or fruits they may have obtained from
Lot No. 88, and respondents need not account for the
interests that the amounts they received as just compensation
may have earned in the meantime.
In accordance with Article 119025 of the Civil Code vis--vis
Article 1189, which provides that "(i)f a thing is improved by
its nature, or by time, the improvement shall inure to the
benefit of the creditor x x x," respondents, as creditors, do not
have to pay, as part of the process of restitution, the
appreciation in value of Lot No. 88, which is a natural
consequence of nature and time.26
WHEREFORE, the petition is DENIED. The February 28, 2006
Decision of the Court of Appeals, affirming the October 22,
1999 Decision of the Regional Trial Court, Branch 87, Cebu
City, and its February 7, 2007 Resolution are AFFIRMED with
MODIFICATION as follows:
1. Respondents are ORDERED to return to petitioners the
just compensation they received for the expropriation of Lot

No. 88, plus legal interest, in the case of default, to be

computed from the time petitioners comply with their
obligation to reconvey Lot No. 88 to them;
2. Respondents are ORDERED to pay petitioners the
necessary expenses the latter incurred in maintaining Lot
No. 88, plus the monetary value of their services to the
extent that respondents were benefited thereby;
3. Petitioners are ENTITLED to keep whatever fruits and
income they may have obtained from Lot No. 88; and
4. Respondents are also ENTITLED to keep whatever
interests the amounts they received as just compensation
may have earned in the meantime, as well as the
appreciation in value of Lot No. 88, which is a natural
consequence of nature and time;
In light of the foregoing modifications, the case is REMANDED
to the Regional Trial Court, Branch 57, Cebu City, only for the
purpose of receiving evidence on the amounts that
respondents will have to pay petitioners in accordance with
this Courts decision. No costs.
SO ORDERED.
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE
A. CORONEL, ANNABELLE C. GONZALES (for herself and
on behalf of Florida C. Tupper, as attorney-in-fact),
CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and
CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ,
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.

MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last
named, Catalina Balais Mabanag) to consummate the sale of
a parcel of land with its improvements located along
Roosevelt Avenue in Quezon City entered into by the parties
sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:

On our presentation of the TCT already in or name, We will

immediately execute the deed of absolute sale of said
property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the
following:
1. Ramona will make a down payment of Fifty Thousand
(P50,000.00) Pesos upon execution of the document
aforestated;
2. The Coronels will cause the transfer in their names of the
title of the property registered in the name of their
deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property,
the Coronels will execute the deed of absolute sale in favor
of Ramona and the latter will pay the former the whole
balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee
Concepcion D. Alcaraz (hereinafter referred to as
Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in
the name of the Coronels' father was transferred in their
names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property
covered by TCT No. 327043 to intervenor-appellant Catalina
B. Mabanag (hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos
after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the
contract (Exh. "A") with Ramona by depositing the down
payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint
for specific performance against the Coronels and caused
the annotation of a notice of lis pendens at the back of TCT
No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice
of adverse claim covering the same property with the
Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").

On January 19, 1985, defendants-appellants Romulo

Coronel, et al. (hereinafter referred to as Coronels) executed
a document entitled "Receipt of Down Payment" (Exh. "A")
in favor of plaintiff Ramona Patricia Alcaraz (hereinafter
referred to as Ramona) which is reproduced hereunder:

On April 25, 1985, the Coronels executed a Deed of

Absolute Sale over the subject property in favor of Catalina
(Exh. "G"; Exh. "7").

RECEIPT OF DOWN PAYMENT

On June 5, 1985, a new title over the subject property was

issued in the name of Catalina under TCT No. 351582 (Exh.
"H"; Exh. "8").

P1,240,000.00 Total amount

(Rollo, pp. 134-136)
50,000 Down payment

P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No.
119627 of the Registry of Deeds of Quezon City, in the total
amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from
our deceased father, Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the down
payment above-stated.

In the course of the proceedings before the trial court (Branch

83, RTC, Quezon City) the parties agreed to submit the case
for decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits "A"
through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants
(now petitioners) accordingly offered and marked them as
Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the
trial court gave them thirty (30) days within which to
simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding
comment or reply thereof, after which, the case would be
deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution

before Judge Reynaldo Roura, who was then temporarily
detailed to preside over Branch 82 of the RTC of Quezon City.
On March 1, 1989, judgment was handed down by Judge
Roura from his regular bench at Macabebe, Pampanga for the
Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby
rendered ordering defendant to execute in favor of
plaintiffs a deed of absolute sale covering that parcel of
land embraced in and covered by Transfer Certificate of
Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and
encumbrances, and once accomplished, to immediately
deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and
upon receipt thereof, the plaintiffs are ordered to pay
defendants the whole balance of the purchase price
amounting to P1,190,000.00 in cash. Transfer Certificate
of Title No. 331582 of the Registry of Deeds for Quezon
City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are
hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs' claim for
damages and attorney's fees, as well as the
counterclaims of defendants and intervenors are hereby
dismissed.

Presiding Judge, after a meticulous examination of the

documentary evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is
supported by evidence and, therefore, should not be
disturbed.
IN VIEW OF THE FOREGOING, the "Motion for
Reconsideration and/or to Annul Decision and Render
Anew Decision by the Incumbent Presiding Judge" dated
March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December
16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad
Santos (P), JJ.) rendered its decision fully agreeing with the
trial court.
Hence, the instant petition which was filed on March 5, 1992.
The last pleading, private respondents' Reply Memorandum,
was filed on September 15, 1993. The case was, however, reraffled to undersigned ponente only on August 28, 1996, due
to the voluntary inhibition of the Justice to whom the case was
last assigned.

No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the
new presiding judge of the Quezon City RTC but the same was
denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul
the decision and to render anew decision by the
undersigned Presiding Judge should be denied for the
following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties
terminated the presentation of their respective
documentary evidence and when the Presiding Judge at
that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did
not change the fact that the hearing of the case was
terminated before Judge Roura and therefore the same
should be submitted to him for decision; (2) When the
defendants and intervenor did not object to the authority
of Judge Reynaldo Roura to decide the case prior to the
rendition of the decision, when they met for the first time
before the undersigned Presiding Judge at the hearing of
a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have
acquiesced thereto and they are now estopped from
questioning said authority of Judge Roura after they
received the decision in question which happens to be
adverse to them; (3) While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at this Branch of the
Court, he was in all respects the Presiding Judge with full
authority to act on any pending incident submitted before
this Court during his incumbency. When he returned to his
Official Station at Macabebe, Pampanga, he did not lose
his authority to decide or resolve such cases submitted to
him for decision or resolution because he continued as
Judge of the Regional Trial Court and is of co-equal rank
with the undersigned Presiding Judge. The standing rule
and supported by jurisprudence is that a Judge to whom a
case is submitted for decision has the authority to decide
the case notwithstanding his transfer to another branch
or region of the same court (Sec. 9, Rule 135, Rule of
Court).
Coming now to the twin prayer for reconsideration of the
Decision dated March 1, 1989 rendered in the instant
case, resolution of which now pertains to the undersigned

While we deem it necessary to introduce certain refinements

in the disquisition of respondent court in the affirmance of the
trial court's decision, we definitely find the instant petition
bereft of merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document
entitled "Receipt of Down Payment" which was offered in
evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between
Ramona Patricia Alcaraz on the one hand, and the heirs of
Constancio P. Coronel on the other, pertaining to a particular
house and lot covered by TCT No. 119627, as defined in
Article 1305 of the Civil Code of the Philippines which reads as
follows:
Art. 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the
other, to give something or to render some service.
While, it is the position of private respondents that the
"Receipt of Down Payment" embodied a perfected contract of
sale, which perforce, they seek to enforce by means of an
action for specific performance, petitioners on their part insist
that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and
because of the absence of Ramona P. Alcaraz, who left for the
United States of America, said contract could not possibly
ripen into a contract absolute sale.
Plainly, such variance in the contending parties' contentions is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based
on whatever relevant and admissible evidence may be
available on record, this, Court, as were the courts below, is
now called upon to adjudge what the real intent of the parties
was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. 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.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a
contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to

transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered
as a Contract of Sale because the first essential element is
lacking. In a contract to sell, the prospective seller explicity
reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do
is to fulfill is promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In
other words the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which prevents
the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by
the prospective buyer. In Roque vs. Lapuz (96 SCRA 741
[1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner
and the respondent was a contract to sell where the
ownership or title is retained by the seller and is not to
pass until the full payment of the price, such payment
being a positive suspensive condition and 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.

It is essential to distinguish between a contract to sell and a

conditional contract of sale specially in cases where the
subject property is sold by the owner not to the party the
seller contracted with, but to a third person, as in the case at
bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer cannot
seek the relief of reconveyance of the property. There is no
double sale in such case. Title to the property will transfer to
the buyer after registration because there is no defect in the
owner-seller's title per se, but the latter, of course, may be
used for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment
of the suspensive condition, the sale becomes absolute and
this will definitely affect the seller's title thereto. In fact, if
there had been previous delivery of the subject property, the
seller's ownership or title to the property is automatically
transferred to the buyer such that, the seller will no longer
have any title to transfer to any third person. Applying Article
1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such
defect in the seller's title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in
good faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of the
sale.
With the above postulates as guidelines, we now proceed to
the task of deciphering the real nature of the contract entered
into by petitioners and private respondents.

Stated positively, upon the fulfillment of the suspensive

condition which is the full payment of the purchase price, the
prospective seller's obligation to sell the subject property by
entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the Civil
Code which states:

It is a canon in the interpretation of contracts that the words

used therein should be given their natural and ordinary
meaning unless a technical meaning was intended (Tan vs.
Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said "Receipt of Down Payment"
that they

Art. 1479. A promise to buy and sell a determinate thing

for a price certain is reciprocally demandable.

Received from Miss Ramona Patricia Alcaraz of 146

Timog, Quezon City, the sum of Fifty Thousand
Pesos purchase price of our inherited house and lot,
covered by TCT No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.

An accepted unilateral promise to buy or to sell a

determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and
housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
However, if the suspensive condition is fulfilled, the contract
of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to
the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer
although the property may have been previously delivered to
him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.

without any reservation of title until full payment of the

entire purchase price, the natural and ordinary idea
conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its
entirety, it becomes more manifest that there was a clear
intent on the part of petitioners to transfer title to the buyer,
but since the transfer certificate of title was still in the name
of petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new
certificate of title in their names from that of their father, after
which, they promised to present said title, now in their names,
to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of
the purchase price.
The agreement could not have been a contract to sell because
the sellers herein made no express reservation of ownership
or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into
an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and
not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court
may safely presume that, had the certificate of title been in
the names of petitioners-sellers at that time, there would have
been no reason why an absolute contract of sale could not
have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at
bar did not merely promise to sell the properly to private

respondent upon the fulfillment of the suspensive condition.

On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to
execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell
where the sellers, after compliance by the buyer with certain
terms and conditions, promised to sell the property to the
latter. What may be perceived from the respective
undertakings of the parties to the contract is that petitioners
had already agreed to sell the house and lot they inherited
from their father, completely willing to transfer full ownership
of the subject house and lot to the buyer if the documents
were then in order. It just happened, however, that the
transfer certificate of title was then still in the name of their
father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the
certificate of title in their names upon receipt of the down
payment in the amount of P50,000.00. As soon as the new
certificate of title is issued in their names, petitioners were
committed to immediately execute the deed of absolute sale.
Only then will the obligation of the buyer to pay the remainder
of the purchase price arise.
There is no doubt that unlike in a contract to sell which is
most commonly entered into so as to protect the seller
against a buyer who intends to buy the property in installment
by withholding ownership over the property until the buyer
effects full payment therefor, in the contract entered into in
the case at bar, the sellers were the one who were unable to
enter into a contract of absolute sale by reason of the fact
that the certificate of title to the property was still in the name
of their father. It was the sellers in this case who, as it were,
had the impediment which prevented, so to speak, the
execution of an contract of absolute sale.
What is clearly established by the plain language of the
subject document is that when the said "Receipt of Down
Payment" was prepared and signed by petitioners Romeo A.
Coronel, et al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of
petitioners' father, Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus,
on said date, the conditional contract of sale between
petitioners and private respondent Ramona P. Alcaraz became
obligatory, the only act required for the consummation thereof
being the delivery of the property by means of the execution
of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as
evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil
Code, plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.
From the moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the
event which constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of the
parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names
to private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the
buyer on her part, was obliged to forthwith pay the balance of
the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page

9 of their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to
effect the transfer in our names from our deceased father
Constancio P. Coronel, the transfer certificate of title
immediately upon receipt of the downpayment abovestated". The sale was still subject to this suspensive
condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this
condition of first transferring the title to the property
under their names, there could be no perfected contract
of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for
Article 1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is
more controlling than these mere hypothetical arguments is
the fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title
was issued in the names of petitioners as evidenced by TCT
No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a
contract of sale subject only to the suspensive condition that
the sellers shall effect the issuance of new certificate title
from that of their father's name to their names and that, on
February 6, 1985, this condition was fulfilled (Exh. "D"; Exh.
"4").
We, therefore, hold that, in accordance with Article 1187
which pertinently provides
Art. 1187. The effects of conditional obligation to give, once
the condition has been fulfilled, shall retroact to the day of
the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in
each case, the retroactive effect of the condition that has
been complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract
on January 19, 1985 because they were then not yet the
absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of
which the property, rights and obligations to be extent
and value of the inheritance of a person are transmitted
through his death to another or others by his will or by
operation of law.

Petitioners-sellers in the case at bar being the sons and

daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by
operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the
subject property is concerned, such that any rights or
obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights
to the succession are transmitted from the moment of
death of the decedent (Article 777, Civil Code; Cuison vs.
Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may
not be declared unless the creditors have been paid is
rendered moot by the fact that they were able to effect the
transfer of the title to the property from the decedent's name
to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture
contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon.
Having represented themselves as the true owners of the
subject property at the time of sale, petitioners cannot
claim now that they were not yet the absolute owners
thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation when
she rendered impossible the consummation thereof by going
to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs
14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally
rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We note
that these supposed grounds for petitioners' rescission, are
mere allegations found only in their responsive pleadings,
which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11,
Rule 6, Revised Rules of Court). The records are absolutely
bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations
must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]. Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot
justify petitioner-sellers' act of unilaterally and extradicially
rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind the
contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the evidence
on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for
and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D.
Alcaraz with her own personal check (Exh. "B"; Exh. "2") for
and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted
her personal check. Neither did they raise any objection as
regards payment being effected by a third person.
Accordingly, as far as petitioners are concerned, the physical

absence of Ramona P. Alcaraz is not a ground to rescind the

contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price
is concerned. Petitioners who are precluded from setting up
the defense of the physical absence of Ramona P. Alcaraz as
above-explained offered no proof whatsoever to show that
they actually presented the new transfer certificate of title in
their names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with their
agreement. Ramona's corresponding obligation to pay the
balance of the purchase price in the amount of P1,190,000.00
(as buyer) never became due and demandable and, therefore,
she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be considered in
default, to wit:
Art. 1169. Those obliged to deliver or to do something,
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfill his obligation, delay
by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other
petitioner, Catalina B. Mabanag, gave rise to a case of double
sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. 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 if be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in 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 record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale
was registered with the Registry of Deeds of Quezon City
giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead
of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good
faith, acquires possession of the property ahead of the first
buyer. Unless, the second buyer satisfies these requirements,
title or ownership will not transfer to him to the prejudice of
the first buyer.
In his commentaries on the Civil Code, an accepted authority
on the subject, now a distinguished member of the Court,
Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first
in time, stronger in right). Knowledge by the first buyer of
the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith
the second sale (Olivares vs. Gonzales, 159 SCRA 33).

Conversely, knowledge gained by the second buyer of the

first sale defeats his rights even if he is first to register,
since knowledge taints his registration with bad faith (see
also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that it is essential,
to merit the protection of Art. 1544, second paragraph,
that the second realty buyer must act in good faith in
registering his deed of sale (citing Carbonell vs. Court of
Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843,
02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence,
1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case
at bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between
petitioners Coronels and petitioner Mabanag was supposedly
perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was
unaware of any adverse claim or previous sale, for which
reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality
is not whether or not the second buyer was a buyer in good
faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as
February 22, 1985, a notice of lis pendens had been
annotated on the transfer certificate of title in the names of
petitioners, whereas petitioner Mabanag registered the said
sale sometime in April, 1985. At the time of registration,
therefore, petitioner Mabanag knew that the same property
had already been previously sold to private respondents, or,
at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners'
title to the property at the time of the registration of the
property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he
has acquired knowledge that there was a previous sale of
the same property to a third party or that another person
claims said property in a pervious sale, the registration
will constitute a registration in bad faith and will not
confer upon him any right. (Salvoro vs. Tanega, 87 SCRA
349 [1978]; citing Palarca vs. Director of Land, 43 Phil.
146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs.
Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between
petitioners and Ramona P. Alcaraz, perfected on February 6,
1985, prior to that between petitioners and Catalina B.
Mabanag on February 18, 1985, was correctly upheld by both
the courts below.
Although there may be ample indications that there was in
fact an agency between Ramona as principal and Concepcion,
her mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised
in the instant petition, nor in such assumption disputed
between mother and daughter. Thus, We will not touch this
issue and no longer disturb the lower courts' ruling on this
point.
WHEREFORE, premises considered, the instant petition is
hereby DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.
G.R. No. L-24190

July 13, 1926

GEORGE L. PARKS, plaintiff-appellant,

vs.
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC,
CONCEPCION CIRER, and JAMES HILL, her
husband,defendants-appellees.
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and
Municipality of Tarlac.
No appearance for the other appellees.
AVANCEA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the
owners of parcel of land No. 2 referred to in the complaint,
donated it perpetually to the municipality of Tarlac, Province
of Tarlac, under certain conditions specified in the public
document in which they made this donation. The donation
was accepted by Mr. Santiago de Jesus in the same document
on behalf of the municipal council of Tarlac of which he was
the municipal president. The parcel thus donated was later
registered in the name of the donee, the municipality of
Tarlac. On January 15, 1921, Concepcion Cirer and James Hill
sold this parcel to the herein plaintiff George L. Parks. On
August 24, 1923, the municipality of Tarlac transferred the
parcel to the Province of Tarlac which, by reason of this
transfer, applied for and obtained the registration thereof in
its name, the corresponding certificate of title having been
issued to it.
The plaintiff, George L. Parks, alleging that the conditions of
the donation had not been complied with and invoking the
sale of this parcel of land made by Concepcion Cirer and
James Hill in his favor, brought this action against the Province
of Tarlac, the municipality of Tarlac, Concepcion Cirer and
James Hill and prayed that he be declared the absolute owner
entitled to the possession of this parcel, that the transfer of
the same by the municipality of Tarlac to the Province of
Tarlac be annulled, and the transfer certificate issued to the
Province of Tarlac cancelled.
The lower court dismissed the complaint.
The plaintiff has no right of action. If he has any, it is only by
virtue of the sale of this parcel made by Concepcion Cirer and
James Hill in his favor on January 15, 1921, but that sale
cannot have any effect. This parcel having been donated by
Concepcion Cirer and James Hill to the municipality of Tarlac,
which donation was accepted by the latter, the title to the
property was transferred to the municipality of Tarlac. It is true
that the donation might have been revoked for the causes, if
any, provided by the law, but the fact is that it was not
revoked when Concepcion Cirer and James Hill made the sale
of this parcel to the plaintiff. Even supposing that causes
existed for the revocation of this donation, still, it was
necessary, in order to consider it revoked, either that the
revocation had been consented to by the donee, the
municipality of Tarlac, or that it had been judicially decreed.
None of these circumstances existed when Concepcion Cirer
and James Hill sold this parcel to the plaintiff. Consequently,
when the sale was made Concepcion Cirer and James Hill were
no longer the owners of this parcel and could not have sold it
to the plaintiff, nor could the latter have acquired it from
them.
But the appellant contends that a condition precedent having
been imposed in the donation and the same not having been
complied with, the donation never became effective. We find
no merit in this contention. The appellant refers to the
condition imposed that one of the parcels donated was to be
used absolutely and exclusively for the erection of a central
school and the other for a public park, the work to commence
in both cases within the period of six months from the date of
the ratification by the partes of the document evidencing the
donation. It is true that this condition has not been complied
with. The allegation, however, that it is a condition precedent
is erroneous. The characteristic of a condition precedent is
that the acquisition of the right is not effected while said
condition is not complied with or is not deemed complied with.
Meanwhile nothing is acquired and there is only an
expectancy of right. Consequently, when a condition is
imposed, the compliance of which cannot be effected except
when the right is deemed acquired, such condition cannot be

a condition precedent. In the present case the condition that a

public school be erected and a public park made of the
donated land, work on the same to commence within six
months from the date of the ratification of the donation by the
parties, could not be complied with except after giving effect
to the donation. The donee could not do any work on the
donated land if the donation had not really been effected,
because it would be an invasion of another's title, for the land
would have continued to belong to the donor so long as the
condition imposed was not complied with.
The appellant also contends that, in any event, the condition
not having been complied with, even supposing that it was
not a condition precedent but subsequent, the noncompliance thereof is sufficient cause for the revocation of the
donation. This is correct. But the period for bringing an action
for the revocation of the donation has prescribed. That this
action is prescriptible, there is no doubt. There is no legal
provision which excludes this class of action from the statute
of limitations. And not only this, the law itself recognizes
the prescriptibility of the action for the revocation of a
donation, providing a special period of five years for the
revocation by the subsequent birth of children (art. 646, Civil
Code), and one year for the revocation by reason of
ingratitude. If no special period is provided for the prescription
of the action for revocation for noncompliance of the
conditions of the donation (art. 647, Civil Code), it is because
in this respect the donation is considered onerous and is
governed by the law of contracts and the general rules of
prescription. Under the law in force (sec. 43, Code of Civ.
Proc.) the period of prescription of this class of action is ten
years. The action for the revocation of the donation for this
cause arose on April 19, 1911, that is six months after the
ratification of the instrument of donation of October 18, 1910.
The complaint in this action was presented July 5, 1924, more
than ten years after this cause accrued.
By virtue of the foregoing, the judgment appealed from is
affirmed, with the costs against the appellant. So ordered.
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N.
LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND
REMARENE LOPEZ, respondents.

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City directing
petitioner to reconvey to private respondents the property
donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]),
executed a deed of donation in favor of the latter of a parcel
of land identified as Lot No. 3174-B-1 of the subdivision plan
Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from the
deed of donation
1. The land described shall be utilized by the CPU
exclusively for the establishment and use of a medical
college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any
third party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS",
and the said college shall be under obligation to erect a
cornerstone bearing that name. Any net income from the
land or any of its parks shall be put in a fund to be known as
the "RAMON LOPEZ CAMPUS FUND" to be used for

improvements of said campus and erection of a building

thereon. 1
On 31 May 1989, private respondents, who are the heirs of
Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter
had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated
with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because
it never used the donated property for any other purpose than
that for which it was intended; and, that it did not sell,
transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to
comply with the conditions of the donation and declared it null
and void. The court a quo further directed petitioner to
execute a deed of the reconveyance of the property in favor
of the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June
1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a
period within which the condition must be fulfilled, hence,
until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply
with its part of the bargain. Thus, the appellate court rendered
its decision reversing the appealed decision and remanding
the case to the court of origin for the determination of the
time within which petitioner should comply with the first
condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title of
petitioner are onerous obligations and resolutory conditions of
the donation which must be fulfilled non-compliance of which
would render the donation revocable; (b) in holding that the
issue of prescription does not deserve "disquisition;" and, (c)
in remanding the case to the trial court for the fixing of the
period within which petitioner would establish a medical
college. 2
We find it difficult to sustain the petition. A clear perusal of
the conditions set forth in the deed of donation executed by
Don Ramon Lopez, Sr., gives us no alternative but to conclude
that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the
donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to the
City of Manila requiring the latter to erect schools, construct a
children's playground and open streets on the land was
considered an onerous donation. 3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner
but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional obligations,
the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening
of the event which constitutes the condition. Thus, when a
person donates land to another on the condition that the
latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive
condition but a resolutory one. 4 It is not correct to say that
the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the
owner of the land, otherwise, it would be invading the
property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no
fulfillment or compliance with the condition, such as what

obtains in the instant case, the donation may now be revoked

and all rights which the donee may have acquired under it
shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant
action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a
medical school upon the land donated, depended upon the
exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound
itself to comply with the condition thereof. Since the time
within which the condition should be fulfilled depended
upon the exclusive will of the petitioner, it has been held
that its absolute acceptance and the acknowledgment of its
obligation provided in the deed of donation were sufficient
to prevent the statute of limitations from barring the action
of private respondents upon the original contract which was
the deed of donation. 6
Moreover, the time from which the cause of action accrued for
the revocation of the donation and recovery of the property
donated cannot be specifically determined in the instant case.
A cause of action arises when that which should have been
done is not done, or that which should not have been done is
done. 7 In cases where there is no special provision for such
computation, recourse must be had to the rule that the period
must be counted from the day on which the corresponding
action could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for the
computation of the period. In this case, the starting point
begins with the expiration of a reasonable period and
opportunity for petitioner to fulfill what has been charged
upon it by the donor.
The period of time for the establishment of a medical college
and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years
because of the presence of several factors and circumstances
involved in the erection of an educational institution, such as
government laws and regulations pertaining to education,
building requirements and property restrictions which are
beyond the control of the donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil
Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period
for compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the
different set of circumstances existing in the instant case.
More than a reasonable period of fifty (50) years has already
been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed
to do so. Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to
delay or lead to an unnecessary and expensive multiplication
of suits. 9 Moreover, under Art. 1191 of the Civil Code, when
one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission and the court shall
decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no
more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is
basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in
favor of the least transmission of rights and
interests. 10 Records are clear and facts are undisputed that
since the execution of the deed of donation up to the time of
filing of the instant action, petitioner has failed to comply with
its obligation as donee. Petitioner has slept on its obligation
for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of

the donor, private respondents herein, by means of

reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo,
Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the
decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan
Psd-1144 covered by Transfer Certificate of Title No. T-3910-A
within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
G.R. No. 126444 December 4, 1998
ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA
QUIJADA, DEMETRIO QUIJADA, ELIUTERIA QUIJADA,
EULALIO QUIJADA, and WARLITO QUIJADA, petitioners,
vs.
COURT OF APPEALS, REGALADO MONDEJAR, RODULFO
GOLORAN, ALBERTO ASIS, SEGUNDINO RAS, ERNESTO
GOLORAN, CELSO ABISO, FERNANDO BAUTISTA,
ANTONIO MACASERO, and NESTOR
MAGUINSAY, respondents.

MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad Quijada, filed a
complaint against private respondents for quieting of title,
recovery of possession and ownership of parcels of land with
claim for attorney's fees and damages. The suit was premised
on the following facts found by the court of Appeals which is
materially the same as that found by the trial court:
Plaintiffs-appellees (petitioners) are the children of the late
Trinidad Corvera Vda, de Quijada. Trinidad was one of the
heirs of the late Pedro Corvera and inherited from the latter
the two-hectare parcel of land subject of the case, situated
in the barrio of San Agustin, Talacogon, Agusan del Sur. On
April 5, 1956, Trinidad Quijada together with her sisters
Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes
and brother Epapiadito Corvera executed a conditional deed
of donation (Exh. C) of the two-hectare parcel of land
subject of the case in favor of the Municipality of Talacogon,
the condition being that the parcel of land shall be used
solely and exclusively as part of the campus of the
proposed provincial high school in Talacogon. Apparently,
Trinidad remained in possession of the parcel of land
despite the donation. On July 29, 1962, Trinidad sold one (1)
hectare of the subject parcel of land to defendant-appellant
Regalado Mondejar (Exh. 1). Subsequently, Trinidad verbally
sold the remaining one (1) hectare to defendant-appellant
(respondent) Regalado Mondejar without the benefit of a
written deed of sale and evidenced solely by receipts of
payment. In 1980, the heirs of Trinidad, who at that time
was already dead, filed a complaint for forcible entry (Exh.
E) against defendant-appellant (respondent) Regalado
Mondejar, which complaint was, however, dismissed for
failure to prosecute (Exh. F). In 1987, the proposed
provincial high school having failed to materialize, the
Sangguniang Bayan of the municipality of Talacogon
enacted a resolution reverting the two (2) hectares of land
donated back to the donors (Exh. D). In the meantime,
defendant-appellant (respondent) Regalado Mondejar sold
portions of the land to defendants-appellants (respondents)
Fernando Bautista (Exh. 5), Rodolfo Goloran (Exh. 6), Efren
Guden (Exh. 7) and Ernesto Goloran (Exh. 8).
On July 5, 1988, plaintiffs-appellees (petitioners) filed this
action against defendants-appellants (respondents). In the
complaint, plaintiffs-appellees (petitioners) alleged that
their deceased mother never sold, conveyed, transferred or
disposed of the property in question to any person or entity
much less to Regalado Mondejar save the donation made to
the Municipality of Talacogon in 1956; that at the time of
the alleged sale to Regalado Mondejar by Trinidad Quijada,

the land still belongs to the Municipality of Talacogon,

hence, the supposed sale is null and void.
Defendants-appellants (respondents), on the other hand, in
their answer claimed that the land in dispute was sold to
Regalado Mondejar, the one (1) hectare on July 29, 1962,
and the remaining one (1) hectare on installment basis until
fully paid. As affirmative and/or special defense,
defendants-appellants (respondents) alleged that plaintiffs
action is barred by laches or has prescribed.
The court a quo rendered judgment in favor of plaintiffsappellees (petitioners): firstly because "Trinidad Quijada had
no legal title or right to sell the land to defendant Mondejar
in 1962, 1966, 1967 and 1968, the same not being hers to
dispose of because ownership belongs to the Municipality of
Talacogon (Decision, p. 4; Rollo, p. 39) and, secondly, that
the deed of sale executed by Trinidad Quijada in favor of
Mondejar did not carry with it the conformity and
acquiescence of her children, more so that she was already
63 years old at the time, and a widow (Decision, p. 6; Rollo,
p. 41)." 1
The dispositive portion of the trial court's decision reads:
WHEREFORE, viewed from the above perceptions, the scale
of justice having tilted in favor of the plaintiffs, judgment is,
as it is hereby rendered:
1) ordering the Defendants to return and vacate the two (2)
hectares of land to Plaintiffs as described in Tax Declaration
No. 1209 in the name of Trinidad Quijada;
2) ordering any person acting in Defendants' behalf to
vacate and restore the peaceful possession of the land in
question to Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by
the late Trinidad Quijada in favor of Defendant Regalado
Mondejar as well as the Deeds of Sale/Relinquishments
executed by Mondejar in favor of the other Defendants;
4) ordering Defendants to remove their improvements
constructed on the questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and
severally, the amount of P10,000.00 representing attorney's
fees;
6) ordering Defendants to pays the amount of P8,000.00 as
expenses of litigation; and
7) ordering Defendants to pay the sum of P30,000.00
representing moral damages.
SO ORDERED. 2

same shall be opened but for some reason or another, the

same may in the future be closed" the donated property shall
automatically revert to the donor. 9 Such condition, not being
contrary to law, morals, good customs, public order or public
policy was validly imposed in the donation. 10
When the Municipality's acceptance of the donation was made
known to the donor, the former became the new owner of the
donated property donation being a mode of acquiring and
transmitting ownership 11 notwithstanding the condition
imposed by the donee. The donation is perfected once the
acceptance by the donee is made known to the
donor. 12 According, ownership is immediately transferred to
the latter and that ownership will only revert to the donor if
the resolutory condition is not fulfilled.
In this case, that resolutory condition is the construction of
the school. It has been ruled that when a person donates land
to another on the condition that the latter would build upon
the land a school, the condition imposed is not a condition
precedent or a suspensive condition but a resolutory
one. 13 Thus, at the time of the sales made in 1962 towards
1968, the alleged seller (Trinidad) could not have sold the lots
since she had earlier transferred ownership thereof by virtue
of the deed of donation. So long as the resolutory condition
subsists and is capable of fulfillment, the donation remains
effective and the donee continues to be the owner subject
only to the rights of the donor or his successors-in-interest
under the deed of donation. Since no period was imposed by
the donor on when must the donee comply with the condition,
the latter remains the owner so long as he has tried to comply
with the condition within a reasonable period. Such period,
however, became irrelevant herein when the doneeMunicipality manifested through a resolution that it cannot
comply with the condition of building a school and the same
was made known to the donor. Only then when the nonfulfillment of the resolutory condition was brought to the
donor's knowledge that ownership of the donated property
reverted to the donor as provided in the automatic reversion
clause of the deed of donation.
The donor may have an inchoate interest in the donated
property during the time that ownership of the land has not
reverted to her. Such inchoate interest may be the subject of
contracts including a contract of sale. In this case, however,
what the donor sold was the land itself which she no longer
owns. It would have been different if the donor-seller sold her
interests over the property under the deed of donation which
is subject to the possibility of reversion of ownership arising
from the non-fulfillment of the resolutory condition.
As to laches, petitioners' action is not yet barred thereby.
Laches presupposes failure or neglect for an unreasonable
and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done
earlier; 14 "it is negligence or omission to assert a right within
a reasonable time, thus, giving rise to a presumption that the
party entitled to assert it either has abandoned or declined to
assert it." 15 Its essential elements of:

On appeal, the Court of Appeals reversed and set aside the

judgment a quo 3 ruling that the sale made by Trinidad Quijada
to respondent Mondejar was valid as the former retained an
inchoate interest on the lots by virtue of the automatic
reversion clause in the deed of donation. 4 Thereafter,
petitioners filed a motion for reconsideration. When the CA
denied their motion, 5 petitioners instituted a petition for
review to this Court arguing principally that the sale of the
subject property made by Trinidad Quijada to respondent
Mondejar is void, considering that at that time, ownership was
already transferred to the Municipality of Talacogon. On the
contrary, private respondents contend that the sale was valid,
that they are buyers in good faith, and that petitioners' case is
barred by laches. 6

a) Conduct on the part of the defendant, or of one under

whom he claims, giving rise to the situation complained of;

We affirm the decision of the respondent court.

are absent in this case. Petioners' cause of action to quiet

title commenced only when the property reverted to the
donor and/or his successors-in-interest in 1987. Certainly,
when the suit was initiated the following year, it cannot be
said that petioners had slept on their rights for a long time.
The 1960's sales made by Trinidad Quijada cannot be the
reckoning point as to when petitioners' cause of action
arose. They had no interest over the property at that time

The donation made on April 5, 1956 by Trinidad Quijada and

her brother and sisters 7 was subject to the condition that the
donated property shall be "used solely and exclusively as a
part of the campus of the proposed Provincial High School in
Talacogon." 8 The donation further provides that should "the
proposed Provincial High School be discontinued or if the

b) Delay in asserting complainant's right after he had

knowledge of the defendant's conduct and after he has an
opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant
that the complainant would assert the right on which he
bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is
accorded to the complainant. 16

except under the deed of donation to which private

respondents were not privy. Moreover, petitioners had
previously filed an ejectment suit against private
respondents only that it did not prosper on a technicality.
Be that at it may, there is one thing which militates against
the claim of petitioners. Sale, being a consensual contract, is
perfected by mere consent, which is manifested the moment
there is a meeting of the minds 17 as to the offer and
acceptance thereof on three (3) elements: subject matter,
price and terms of payment of the price. 18Ownership by the
seller on the thing sold at the time of the perfection of the
contract of sale is not an element for its perfection. What the
law requires is that the seller has the right to transfer
ownership at the time the thing sold is
delivered. 19 Perfection per se does not transfer ownership
which occurs upon the actual or constructive delivery of the
thing sold. 20A perfected contract of sale cannot be challenged
on the ground of non-ownership on the part of the seller at
the time of its perfection; hence, the sale is still valid.
The consummation, however, of the perfected contract is
another matter. It occurs upon the constructive or actual
delivery of the subject matter to the buyer when the seller or
her successors-in-interest subsequently acquires ownership
thereof. Such circumstance happened in this case when
petitioners who are Trinidad Quijada's heirs and successorsin-interest became the owners of the subject property upon
the reversion of the ownership of the land to them.
Consequently, ownership is transferred to respondent
Mondejar and those who claim their right from him. Article
1434 of the New Civil Code supports the ruling that the
seller's "title passes by operation of law to the buyer." 21 This
rule applies not only when the subject matter of the contract
of sale is goods, 22 but also to other kinds of property,
including real property. 23
There is also no merit in petitioners' contention that since the
lots were owned by the municipality at the time of the sale,
they were outside the commerce of men under Article 1409
(4) of the NCC; 24 thus, the contract involving the same is
inexistent and void from the beginning. However, nowhere in
Article 1409 (4) is it provided that the properties of a
municipality, whether it be those for public use or its
patrimonial property 25 are outside the commerce of men.
Besides, the lots in this case were conditionally owned by the
municipality. To rule that the donated properties are outside
the commerce of men would render nugatory the
unchallenged reasonableness and justness of the condition
which the donor has the right to impose as owner thereof.
Moreover, the objects referred to as outsides the commerce of
man are those which cannot be appropriated, such as the
open seas and the heavenly bodies.
With respect to the trial court's award of attorney's fees,
litigation expenses and moral damages, there is neither
factual nor legal basis thereof. Attorney's fees and expenses
of litigation cannot, following the general rule in Article 2208
of the New Civil Code, be recovered in this case, there being
no stipulation to that effect and the case does not fall under
any of the
exceptions. 26 It cannot be said that private respondents had
compelled petitioners to litigate with third persons. Neither
can it be ruled that the former acted in "gross and evident
bad faith" in refusing to satisfy the latter's claims considering
that private respondents were under an honest belief that
they have a legal right over the property by virtue of the deed
of sale. Moral damages cannot likewise be justified as none of
the circumstances enumerated under Articles 2219. 27 and
2220 28of the New Civil Code concur in this case
WHEREFORE, by virtue of the foregoing, the assailed decision
of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 156273. August 9, 2005
HEIRS OF TIMOTEO MORENO and MARIA ROTEA,
namely, ESPERANZA R. EDJEC, BERNARDA R. SUELA,
RUBY C. ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE
LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R.

ARQUISOLA, CORAZON ROTEA, FE R. EBORA, CARIDAD

ROTEA, ANGELES VDA. DE RENACIA, JORGE ROTEA,
MARIA LUISA ROTEA-VILLEGAS, ALFREDO R. ROTEA,
represented by his heirs, namely, LIZBETH ROTEA and
ELEPETH ROTEA; LUIS ROTEA, represented by his heir
JENNIFER ROTEA; and ROLANDO R. ROTEA, represented
by his heir ROLANDO R. ROTEA, JR., Petitioners,
vs.
MACTAN-CEBU INTERNATIONAL AIRPORT
AUTHORITY, Respondent.
RESOLUTION
CALLEJO, SR., J.:
This is a Motion for Reconsideration dated November 10, 2003
filed by respondent Mactan-Cebu International Airport
Authority (MCIAA), through the Office of the Solicitor General
(OSG), seeking the reversal of the Decision1dated October 15,
2003,2 the dispositive portion of which reads:
WHEREFORE, the instant Petition for Review is GRANTED.
The Decision of the Court of Appeals in CA-G.R. CV No. 64456
dated 20 December 2001 and its Resolution of 28 November
2002, denying reconsideration of the Decision
are REVERSED and SET ASIDE.
The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in
Civil Case No. CEB 20015 is MODIFIED IN PARTby
(a) ORDERING respondent Mactan-Cebu International Airport
Authority (MCIAA) TO RECONVEY to petitioner Heirs of
Timoteo Moreno and Maria Rotea, namely: Esperanza R. Edjec,
Bernarda R. Suela, Ruby C. Rotea, Bernarda R. Rotea, Elia R.
Vda. de Limbaga, Virginia R. Arbon, Rosalinda R. Arquisola,
Corazon Rotea, Fe R. Ebora, Caridad Rotea, Angeles Vda. de
Renacia, Jorge Rotea, Maria Luisa Rotea-Villegas, Alfredo R.
Rotea, represented by his heirs, namely: Lizbeth Rotea and
Elepeth Rotea; Luis Rotea, represented by his heir Jennifer
Rotea; and Rolando R. Rotea, represented by his heir Rolando
R. Rotea, Jr., Lot No. 916 with an area of 2,355 square meters
and Lot No. 920 consisting of 3,097 square meters in Lahug,
Cebu City, with all the improvements thereon evolving
through nature or time, but excluding those that were
introduced by third parties, i.e., DPWH, which shall be
governed by existing contracts and relevant provisions of law;
(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria
Rotea TO PAY respondent MCIAA what the former received as
just compensation for the expropriation of Lot Nos. 916 and
920 in Civil Case No. R-1881, i.e., P7,065.00 for Lot No. 916
and P9,291.00 for Lot No. 920 with consequential damages by
way of legal interest from 16 November 1947. Petitioners
must likewise PAY respondent MCIAA the necessary expenses
that the latter may have incurred in sustaining the properties
and the monetary value of its services in managing the
properties to the extent that petitioners will secure a benefit
from such acts. Respondent MCIAA however may keep
whatever income or fruits it may have obtained from the
parcels of land, in the same way that petitioners need not
account for the interests that the amounts they received as
just compensation may have earned in the meantime;
(c) ORDERING respondent MCIAA TO CONVEY to petitioners
the improvements it may have built on Lot Nos. 916 and 920,
if any, in which case petitioners SHALL PAY for these
improvements at the prevailing free market price, otherwise,
if petitioners do not want to appropriate such improvements,
or if respondent does not choose to sell them, respondent
MCIAA SHALL REMOVE these improvements WITHOUT ANY
OBLIGATION on the part of petitioners to pay any
compensation to respondent MCIAA from them;
(d) ORDERING petitioners TO PAY the amount so determined
under letter (b) of this dispositive portion as consideration for
the reconveyance of Lot Nos. 916 and 920, as well as the
prevailing free market price of the improvements built thereon
by respondent MCIAA, if any and desired to be bought and
sold by the parties, in ready money or cash PAYABLE within a
period of three hundred sixty-five (365) days from the date
that the amount under letter (b) above is determined with
finality, unless the parties herein stipulate a different scheme

or schedule of payment, otherwise, after the period of three

hundred sixty-five (365) days or the lapse of the compromise
scheme or schedule of payment and the amount so payable is
not settled, the right of repurchase of petitioners and the
obligation of respondent MCIAA to so reconvey Lot Nos. 916
and 920 and/or the improvements shall be DEEMED
FORFEITED and the ownership of those parcels of land
shall VEST ABSOLUTELY upon the respondent MCIAA;
(e) REMANDING the instant case to RTC-Br. 19 of Cebu City
for purposes of determining the amount of compensation for
Lot Nos. 916 and 920 to be paid by petitioners as mandated in
letter (b) hereof, and the value of the prevailing free market
price of the improvements built thereon by respondent MCIAA,
if any and desired to be bought and sold by the parties, and in
general, securing the immediate execution of
this Decision under the premises;
(f) ORDERING petitioners to respect the right of the
Department of Public Works and Highways to its lease
contract until the expiration of the lease period; and
(g) DELETING the award of P60,000.00 for attorneys fees
and P15,000.00 for litigation expenses against respondent
MCIAA and in favor of petitioners.
This Decision is without prejudice to the claim of intervenor
one Richard E. Enchuan on his allegation that he acquired
through deeds of assignment the rights of some of herein
petitioners over Lot Nos. 916 and 920.
No costs.
SO ORDERED.3
A review of the factual milieu of the case reveals that in 1949,
the National Airport Corporation (NAC), as the predecessor of
herein respondent MCIAA, sought to acquire Lot No. 916,
having a total area of 2,355 square meters under Transfer
Certificate of Title (TCT) No. RT-7543 (106) T-13694, and Lot
No. 920 containing an area of 3,097 square meters covered by
TCT No. RT-7544 (107) T-13695 for the proposed expansion of
the Lahug Airport. The two parcels of land located in Lahug,
Cebu City were owned by the spouses Timoteo Moreno and
Maria Rotea.4 The spouses refused to sell their properties
because the proposed price was unacceptably way below the
market value of the lands at that time. As an incentive for the
other owners to cede their lots adjoining the then existing
Lahug Airport, NAC guaranteed them or their successors-ininterest the right to repurchase their properties for the same
price paid by the government in the event that these
properties were no longer used for purposes of the
airport.5 Some landowners executed deeds of conveyance
while others who refused to cede their properties became
defendants in an action for expropriation filed by the Republic
of the Philippines before the Court of First Instance (CFI) of
Cebu, docketed as Civil Case No. R-1881.6 Lot Nos. 916 and
920 were among those included in the expropriation case.
In a Decision7 rendered by the trial court on December 29,
1961, Lot Nos. 916 and 920, along with the other adjoining
lands, were condemned for public use after payment of just
compensation.8 The trial court fixed the price at P3.00 per
square meter for the two lots and ordered the payment
thereof to the owners in the sum of P7,065.00 for Lot No. 916
and P9,291.00 for Lot No. 920, with payment of consequential
damages by way of legal interest from November 16,
1947.9 Thereafter, the subject lands were transferred in the
name of the Republic of the Philippines under TCT No.
5869110 for Lot No. 916 and TCT No. 5869211 for Lot No. 920
and subsequently turned over to MCIAA under Republic Act
(Rep. Act) No. 6958 in 1990.12
Subsequently, the Lahug Airport was abandoned and all its
functions and operations were transferred to the Mactan
Airport. In two various letters sent on different dates, the heirs
of Timoteo Moreno and Maria Rotea, the petitioners herein,
wrote then President Fidel V. Ramos13 and the MCIAA General
Manager,14 requesting for the exercise of their supposed right
to repurchase Lot Nos. 916 and 920 considering that the said
lots intended for the expansion of the Lahug Airport were not

utilized. Their written and verbal demands were ignored by

the respondent.
Consequently, the petitioners filed a complaint for
reconveyance and damages with the Regional Trial Court of
Cebu City docketed as Civil Case No. CEB-20015, against the
respondent asserting their right to reacquire the subject
properties. In the complaint, the petitioners claimed that
assurances were given by the NAC officials regarding the
entitlement of the landowners to repurchase their properties
for the same price paid by NAC in the event that the lots were
no longer used for airport purposes.15 The petitioners further
added that the guaranty of right to repurchase was the
propelling factor that persuaded the registered owners to
continue with the expropriation proceedings. The same reason
was given by the petitioners for not opposing and appealing
the case later on.16
During the pendency of the case, one Richard E. Unchuan
filed a Motion for Transfer of Interest,17 alleging that some of
the petitioners had already assigned to him their respective
rights, interests, participation, and ownership over the subject
properties. Thereafter, the Department of Public Works and
Highways (DPWH), likewise, sought to intervene alleging that
it is the lessee of Lot No. 920 and would be adversely affected
by the outcome of the litigation.18
At the start of the trial, the petitioners presented two
witnesses to support their allegations in the complaint. The
first witness was Esperanza Rotea Edjec, who testified that
when she was just 22 years old, the airport authority
representatives called for a meeting with the landowners
affected by the expropriation. The witness was present during
the gathering and attested that the registered owners of the
lots were assured of the return of the expropriated lands
should the same be no longer utilized as an airport. 19
The next witness was Asterio Uy, a retired government
employee of the Civil Aeronautics Administration (CAA), who
attested that in 1957, he was sent as part of the legal team to
Mactan, Cebu City, tasked to acquire certain lots for the
extension of the Lahug Airport. He added that when the
negotiations broke down, the legal contingent resorted to
expropriation proceedings. Upon instructions from the central
office of CAA in Manila, Atty. Ocampo, the head of the legal
corps which undertook the procurement of the subject lands,
gave the assurance to the landowners that if the airport is
transferred to Mactan, the lots will be returned to their
previous owners.20
The respondent, on the other hand, presented on the witness
stand Michael M. Bacarisas, a legal assistant of the MCIAA.
The witness testified that as a consequence of the
expropriation proceedings, the TCTs of Lot Nos. 916 and 920
were cancelled and in lieu thereof, new ones were issued in
the name of the Republic of the Philippines in 1962. He
pronounced that the decision in Civil Case No. R-1881 did not
expressly impart that the landowners were guaranteed the
reconveyance of the lots to them if the lands expropriated
would not be used for the purpose. On cross-examination, the
witness admitted that he had no personal knowledge of any
agreement between the airport officials and the previous
registered owners of the disputed properties. His research
likewise revealed that a total of 65 lots were expropriated by
the government; 19 lots were the subject of court litigations
concerning their reconveyance; and that out of the 19 lots, 15
lots were already returned to their former owners. Moreover,
Bacarisas alleged that some of the expropriated lots were
recovered by their previous landowners because they were
acquired through negotiated sale wherein the standard
contract had an express provision that should the proposed
expansion of the Lahug Airport not materialize, the
landowners may recover their properties.21
On April 12, 1999, the trial court rendered judgment22 in favor
of the petitioners, granting them the right to repurchase the
properties at the amount originally paid by the respondent in
Civil Case No. R-1881, including consequential damages. The
trial court ruled that the public purpose for which the lands
were expropriated had ceased to exist, therefore, it is but
logical and in the higher interest of substantial justice to give
back the right of ownership of the subject lots to the former
owners.

Aggrieved, the respondent appealed the decision to the Court

of Appeals (CA). On December 20, 2001, the CA reversed the
trial courts decision on the premise that the judgment
affirming the states right to exercise its power of eminent
domain was unconditional. In maintaining a contrary view, the
CA cited Fery v. Municipality of Cabanatuan,23 which held that
when a land has been acquired for public use unconditionally
and in fee simple, the previous owner retains no right in the
land and the title obtained will not, in any way, be impaired.
Another case relied upon by the appellate court was MactanCebu International Airport Authority v. Court of Appeals 24which
is allegedly stare decisis to the case to prevent the exercise of
the right of repurchase as the former dealt with a parcel of
land similarly expropriated under Civil Case No. R-1881;
hence, the same questions relating to the same event have
already been previously litigated and decided by a competent
court.
On February 11, 2002, the petitioners filed a motion for
reconsideration before the CA, which was denied in a
Resolution dated November 28, 2002.
Expectedly, the petitioners filed before this Court a petition
for review of the decision of the CA.
In reversing the decision of the CA, the Court ratiocinated that
the attendance in the case at bar of standing admissible
evidence validating the claim of the petitioners right to
repurchase the expropriated properties took away the instant
case from the ambit of Mactan-Cebu International Airport
Authority v. Court of Appeals, but still within the principles
enunciated in the Fery case.25 This Court moreover added:
Mactan-Cebu International Airport Authority is correct in
stating that one would not find an express statement in the
Decision in Civil Case No. R-1881 to the effect that "the
[condemned] lot would return to [the landowner] or that [the
landowner] had a right to repurchase the same if the purpose
for which it was expropriated is ended or abandoned or if the
property was to be used other than as the Lahug Airport." This
omission notwithstanding, and while the inclusion of this
pronouncement in the judgment of condemnation would have
been ideal, such precision is not absolutely necessary nor is it
fatal to the cause of petitioners herein. No doubt, the return or
repurchase of the condemned properties of petitioners could
be readily justified as the manifest legal effect or
consequence of the trial courts underlying presumption
that "Lahug Airport will continue to be in operation" when it
granted the complaint for eminent domain and the airport
discontinued its activities.
The predicament of petitioners involves a constructive trust,
one that is akin to the implied trust referred to in Art. 1454 of
the Civil Code, "If an absolute conveyance of property is made
in order to secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is offered by
the grantor when it becomes due, he may demand the
reconveyance of the property to him." In the case at bar,
petitioners conveyed Lot Nos. 916 and 920 to the government
with the latter obliging itself to use the realties for the
expansion of Lahug Airport; failing to keep its bargain, the
government can be compelled by petitioners to reconvey the
parcels of land to them, otherwise, petitioners would be
denied the use of their properties upon a state of affairs that
was not conceived nor contemplated when the expropriation
was authorized.26
Respondent MCIAA filed a Motion for Reconsideration 27 dated
November 10, 2003 praying that the Courts decision be
reconsidered and set aside. In the said motion, the respondent
reiterated its earlier claim that: (a) the decision of the trial
court in Civil Case No. R-1881, which granted to MCIAA the
titles to Lot Nos. 916 and 920 in fee simple, has long become
final and executory; (b) this Courts October 15, 2003
Decision, granting the petitioners right of repurchase,
effectively overturns the rulings in Fery v. Municipality of
Cabanatuan,28 MCIAA v. Court of Appeals,29 and Reyes v.
National Housing Authority;30 (c) the petitioners are not
entitled to reconveyance or repurchase of the questioned lots
after the closure of the Lahug Airport; (d) Lot Nos. 916 and
920, which were expropriated in Civil Case No. R-1881, should
not be treated like those lots sold through negotiated sale

with a stipulation for reconveyance or repurchase; and (e)

granting arguendo that petitioners have a right to repurchase
Lot Nos. 916 and 920, the repurchase price should be the fair
market value of the lands.
Additionally, MCIAA filed a Motion to Resolve the Motion for
Reconsideration by the Honorable Court En Bancdated
November 11, 2003, alleging that the present case involves
novel questions of law.
On November 20, 2003, the petitioners filed an Opposition to
the respondents Motion for Reconsideration stating that no
new arguments have been proffered by the respondent to
warrant the reversal of the Courts decision.
We remain unpersuaded by the respondents assertions. The
merits of the case have already been discussed at length in
the challenged decision and to linger further on them herein
would be inordinate. Suffice it to say that the Court considered
the rulings in Fery v. Municipality of Cabanatuan and MactanCebu International Airport Authority v. Court of Appeals which
defined the rights and obligations of landowners, whose
properties were expropriated, "when the public purpose for
which the eminent domain was exercised no longer
subsists."31
The respondent insists that the decision effectively overturned
the ruling in the Fery case which requires that for an
expropriation to be conditional, the judgment must clearly
spell out said condition. The respondent is mistaken. We
reiterate what we stated in our decision, to wit:
In Fery, which was cited in the recent case of Reyes v.
National Housing Authority, we declared that the government
acquires only such rights in expropriated parcels of land as
may be allowed by the character of its title over the
properties
If x x x land is expropriated for a particular purpose, with the
condition that when that purpose is ended or abandoned the
property shall return to its former owner, then, of course,
when the purpose is terminated or abandoned the former
owner reacquires the property so expropriated. If x x x land is
expropriated for a public street and the expropriation is
granted upon condition that the city can only use it for a
public street, it returns to the former owner, unless there is
some statutory provision to the contrary x x x x If, upon the
contrary, however, the decree of expropriation gives to the
entity a fee simple title, then, of course, the land becomes the
absolute property of the expropriator, whether it be the State,
a province, or municipality, and in that case the non-user does
not have the effect of defeating the title acquired by the
expropriation proceedings x x x x When land has been
acquired for public use in fee simple, unconditionally, either
by the exercise of eminent domain or by purchase, the former
owner retains no rights in the land, and the public use may be
abandoned, or the land may be devoted to a different use,
without any impairment of the estate or title acquired, or any
reversion to the former owner x x x x32
It must be pointed out that nothing in the Fery case
bespeaks that there should foremost be an expresscondition
in the dispositive portion of the decision before the
condemned property can be returned to its former owner
after the purpose for its taking has been abandoned or ended.
The indisputable certainty in the present case is that there
was a prior promise by the predecessor of the respondent that
the expropriated properties may be recovered by the former
owners once the airport is transferred to Mactan, Cebu. In
fact, the witness for the respondent testified that 15 lots were
already reconveyed to their previous owners. Intervenor
DPWH, likewise, manifested that Lot No. 920 is the subject of
a memorandum of agreement33 with the respondents
predecessor-in-interest wherein the property was leased to
DPWH. This belated news further bolsters the fact that the
purpose for which the properties were condemned has been
abandoned.
A more pressing discovery unearthed by this Court is that a
significant portion of the subject properties had been
purchased by the Cebu Property Ventures, Inc. for the
development of a commercial complex.34 The respondent, in

its answer, did not deny this allegation in the petitioners

complaint. Section 10, Rule 8 of the Revised Rules of Court
provides:

acquisition of lots for purposes, for airport purposes, you are

referring of course to the acquisition of lot in Mactan?
A: Yes, sir.

Specific denial. A defendant must specify each material

allegation of fact the truth of which he does not admit and,
whenever practicable, shall set forth the substance of the
matters upon which he relies to support his denial. Where a
defendant desires to deny only a part of an averment, he shall
specify so much of it as is true and material and shall deny
only the remainder. Where a defendant is without knowledge
or information sufficient to form a belief as to the truth of a
material averment made in the complaint, he shall so state,
and this shall have the effect of a denial.
Section 11 of the same Rule likewise states that "[m]aterial
averment in the complaint, shall be deemed admitted when
not specifically denied." The predominant precept is that upon
abandonment of real property condemned for public purpose,
the party who originally condemned the property recovers
control of the land if the condemning party continues to use
the property for public purpose; however, if the condemning
authority ceases to use the property for a public purpose,
property reverts to the owner in fee simple.35 The
governments taking of private property, and
then transferring it to private persons under the guise of
public use or purpose is the despotism found in the immense
power of eminent domain.36 Moreover, the direct and
unconstitutional states power to oblige a landowner to
renounce his productive and invaluable possession to another
citizen, who will use it predominantly for his own private gain,
is offensive to our laws.37
Next, the respondent asseverates that the Court departed
from the ruling enunciated in Mactan-Cebu International
Airport Authority v. Court of Appeals. We are not convinced.
Clearly, the respondents contention can prevail only if the
facts of the present case are accurately in point with those in
the other case. We recapitulate our rulings that in MCIAA v.
CA, respondent Virginia Chiongbian proffered "inadmissible
and inconclusive evidence, while in the present case we have
preponderant proof as found by the trial court of the existence
of the right of repurchase in favor of the petitioners." No less
than Asterio Uy, one of the members of the CAA Mactan Legal
Team, which interceded for the acquisition of the lots for the
Lahug Airports expansion, affirmed that persistent
assurances were given to the landowners to the effect that as
soon as the Lahug Airport is abandoned or transferred to
Mactan, the lot owners would be able to reacquire their
properties. Unlike in the case of MCIAA v. CA, where
respondent Chiongbian offered inadmissible evidence for
being hearsay in nature, the petitioners in this case presented
a witness whose testimony was based on his own personal
knowledge. Surely, Uy is a credible witness inasmuch as he
was even tasked by the negotiating panel to directly
communicate to the landowners the instructions from the CAA
main office that the properties will be returned to the original
owners once the Lahug Airport is transferred to Mactan.
Likewise, he cannot be considered as a biased witness as he
was a former employee of the respondents predecessor-ininterest and was merely recalling and informing the court of
the events that transpired during the negotiations for the
expropriations of the lots. Part of Uys testimony is as follows:
Atty. Jacinto
Q: Lahug Airport. In what capacity or what position were you
holding at the time when you were assigned to Cebu for the
purpose of conducting negotiations with the landowners?
Witness
A: I was a member of the CAA Legal Team.
Q: I see, CAA Legal Team. Can you tell the court who were the
members, if you still remember, of that team?
A: I will mention Atty. Ocampo, Atty. Lansang, Atty. Sarigumba
and myself.
Q: You stated that you were sent to Cebu as a member of the
CAA Legal Team to negotiate with the landowners for the

Q: Now what was the purpose of your negotiations also in

Lahug, what was the purpose of those negotiations?
A: The purpose there was to purchase or buy the property
affected by the Lahug extension.
Q: When you say affected, did you have any specific
instructions as to what Lahug airport would be devoted to? I
will reform Your Honor. Since Lahug airport was already in
existence, why did you still have to negotiate with the
adjacent landowners?
A: For the Lahug airport expansion.
Q: Now, how did you conduct the negotiations, in what
manner?
A: We convinced the landowners affected by the expansion to
sell their properties and if they refuse, there is another right of
eminent domain of the government to acquire the properties
through expropriation. And with the assurance that these
properties, I am referring to the properties in Lahug, as soon
as Lahug airport will be transferred to Mactan, that will be the
time that these properties will be returned to the landowners
at the same price.
Q: Why do you say that there was an assurance given, how
did you come to know about this?
A: The assurance was from the Chief of the team, Atty.
Ocampo, through him and accordingly per instruction from
the Central Office in Manila.
Q: As a member of the legal team, did you gave [sic] the
assurance to the landowners or was it Atty. Ocampo?
A: We, because I was made as the spokesman
considering that I am a Boholano who knows the
dialect, Cebuano, and my companions were Tagalogs,
they dont know Cebuano so I participated in the negotiations.
Q: In short, you were the one who conducted the
negotiations?
A: Together with the members of the team, I was there
assisting.38
Moreover, we do not subscribe to the respondents contention
that since the possibility of the Lahug Airports closure was
actually considered by the trial court, a stipulation on
reversion or repurchase was so material that it should not
have been discounted by the court a quo in its decision in Civil
Case No. R-1881, if, in fact, there was one. We find it proper to
cite, once more, this Courts ruling that the fallo of the
decision in Civil Case No. R-1881 must be read in reference to
the other portions of the decision in which it forms a part. A
reading of the Courts judgment must not be confined to the
dispositive portion alone; rather, it should be meaningfully
construed in unanimity with the ratio decidendi thereof to
grasp the true intent and meaning of a decision. 39
On the other hand, we agree with the respondent in asserting
that Lot Nos. 916 and 920 should not be treated like those
lands acquired through negotiated sale with a proviso in their
contracts for reconveyance or repurchase. Be that as it may,
we however find that there is historic as well as rational bases
for affording the petitioners the right of repurchase. We are
cognizant of the incontestable fact that some landowners
immediately sold their properties upon the assurance that
they could repurchase them at the cessation of the Lahug
Airports operations. And, indeed, these landowners who
chose to cede their properties were fortunate to have a

stipulation in their contract of sale vouching for their right of

repurchase. Meanwhile, the landowners who found it
burdensomely difficult to part with their cherished lands
underwent the costly expropriation proceedings which lasted
for a number of years. Inevitably, justice and equity dictates
the reconveyance of the expropriated lots to their previous
owners. One must never fail to overlook the reality that the
power to condemn property is an awesome power of the
State40 and that to compel a citizen to forcibly surrender his
precious property to the enormous governmental power is too
much a sacrifice which deserves more consideration than
those landowners, who, from the very beginning voluntarily
relinquished their ownership.
We now come to the discussion of the amount of repurchase
price. The respondent maintains that the sum to be paid by
the petitioners for Lot Nos. 916 and 920 should be their
prevailing market price, and not the expropriation price which
would be grossly unfair considering that the petitioners were
paid just compensation and the lots are now millions of pesos
in value. Our stand on the amount of repurchase price
remains unperturbed. When the State reconveys land, it
should not profit from sudden appreciations in land values.
Any increase or decrease in market value due to the proposed
improvement may not be considered in determining the
market value. Thus, reconveyance to the original owner shall
be for whatever amount he was paid by the government, plus
legal interest, whether or not the consideration was based on
the lands highest and best use when the sale to the State
occurred.41
WHEREFORE, the motion for reconsideration is DENIED.
SO ORDERED.

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO,
JR., plaintiffs-appellants,
vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and
MANUEL NIETO, JR., defendants-appellees.
Felipe Torres and Associates for plaintiffs-appellants.
V.E. Del Rosario & Associates for defendant-appellee M. Nieto,
Jr.
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil
Promotions, Inc.
RESOLUTION

FERNAN, J.:
This is an appeal interposed by Solomon Boysaw and Alfredo
Yulo, Jr., from the decision dated July 25, 1963 and other
rulings and orders of the then Court of First Instance [CFI] of
Rizal, Quezon City, Branch V in Civil Case No. Q-5063, entitled
"Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus
Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto,
Jr., Defendants," which, among others, ordered them to jointly
and severally pay defendant-appellee Manuel Nieto, Jr., the
total sum of P25,000.00, broken down into P20,000.00 as
moral damages and P5,000.00 as attorney's fees; the
defendants-appellees Interphil Promotions, Inc. and Lope
Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72 as
actual damages and P5,000.00 as attorney's fees; and
defendant-appellee Lope Sarreal, Sr., the additional amount of
P20,000.00 as moral damages aside from costs.
The antecedent facts of the case are as follows:
On May 1, 1961, Solomon Boysaw and his then Manager,
Willie Ketchum, signed with Interphil Promotions, Inc.
represented by Lope Sarreal, Sr., a contract to engage Gabriel
"Flash" Elorde in a boxing contest for the junior lightweight
championship of the world.
It was stipulated that the bout would be held at the Rizal
Memorial Stadium in Manila on September 30, 1961 or not
later than thirty [30] days thereafter should a postponement
be mutually agreed upon, and that Boysaw would not, prior to
the date of the boxing contest, engage in any other such
contest without the written consent of Interphil Promotions,
Inc.
On May 3, 1961, a supplemental agreement on certain details
not covered by the principal contract was entered into by
Ketchum and Interphil. Thereafter, Interphil signed Gabriel
"Flash" Elorde to a similar agreement, that is, to engage
Boysaw in a title fight at the Rizal Memorial Stadium on
September 30, 1961.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a
ten-round non-title bout held in Las Vegas, Nevada, U.S.A. [pp.
26-27, t.s.n., session of March 14, 1963].
On July 2, 1961, Ketchum on his own behalf and on behalf of
his associate Frank Ruskay, assigned to J. Amado Araneta the
managerial rights over Solomon Boysaw.
Presumably in preparation for his engagement with Interphil,
Solomon Boysaw arrived in the Philippines on July 31, 1961.
On September 1, 1961, J. Amado Araneta assigned to Alfredo
J. Yulo, Jr. the managerial rights over Boysaw that he earlier
acquired from Ketchum and Ruskay. The next day, September
2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his
arrival and presence in the Philippines.

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal

informing him of his acquisition of the managerial rights over
Boysaw and indicating his and Boysaw's readiness to comply
with the boxing contract of May 1, 1961. On the same date,
on behalf of Interphil Sarreal wrote a letter to the Games and
Amusement Board [GAB] expressing concern over reports that
there had been a switch of managers in the case of Boysaw,
of which he had not been formally notified, and requesting
that Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties
concerned culminating in the issuance of its decision to
schedule the Elorde-Boysaw fight for November 4, 1961. The
USA National Boxing Association which has supervisory
control of all world title fights approved the date set by the
GAB
Yulo, Jr. refused to accept the change in the fight date,
maintaining his refusal even after Sarreal on September 26,
1961, offered to advance the fight date to October 28, 1961
which was within the 30-day period of allowable
postponements provided in the principal boxing contract of
May 1, 1961.
Early in October 1961, Yulo, Jr. exchanged communications
with one Mamerto Besa, a local boxing promoter, for a
possible promotion of the projected Elorde-Boysaw title bout.
In one of such communications dated October 6, 1961, Yulo
informed Besa that he was willing to approve the fight date of
November 4,1961 provided the same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the fight
contemplated in the May 1, 1961 boxing contract never
materialized.
As a result of the foregoing occurrences, on October 12, 1961,
Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel
Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages
allegedly occasioned by the refusal of Interphil and Sarreal,
aided and abetted by Nieto, Jr., then GAB Chairman, to honor
their commitments under the boxing contract of May 1,1961.
On the first scheduled date of trial, plaintiff moved to
disqualify Solicitor Jorge Coquia of the Solicitor General's
Office and Atty. Romeo Edu of the GAB Legal Department from
appearing for defendant Nieto, Jr. on the ground that the latter
had been sued in his personal capacity and, therefore, was
not entitled to be represented by government counsel. The
motion was denied insofar as Solicitor General Coquia was
concerned, but was granted as regards the disqualification of
Atty. Edu.
The case dragged into 1963 when sometime in the early part
of said year, plaintiff Boysaw left the country without
informing the court and, as alleged, his counsel. He was still
abroad when, on May 13, 1963, he was scheduled to take the
witness stand. Thus, the lower court reset the trial for June 20,
1963. Since Boysaw was still abroad on the later date, another
postponement was granted by the lower court for July 23,
1963 upon assurance of Boysaw's counsel that should Boysaw
fail to appear on said date, plaintiff's case would be deemed
submitted on the evidence thus far presented.
On or about July 16, 1963, plaintiffs represented by a new
counsel, filed an urgent motion for postponement of the July
23, 1963 trial, pleading anew Boysaw's inability to return to
the country on time. The motion was denied; so was the
motion for reconsideration filed by plaintiffs on July 22, 1963.
The trial proceeded as scheduled on July 23, 1963 with
plaintiff's case being deemed submitted after the plaintiffs
declined to submit documentary evidence when they had no
other witnesses to present. When defendant's counsel was
about to present their case, plaintiff's counsel after asking the
court's permission, took no further part in the proceedings.
After the lower court rendered its judgment dismissing the
plaintiffs' complaint, the plaintiffs moved for a new trial. The
motion was denied, hence, this appeal taken directly to this
Court by reason of the amount involved.

From the errors assigned by the plaintiffs, as having been

committed by the lower court, the following principal issues
can be deduced:
1. Whether or not there was a violation of the fight contract
of May 1, 1961; and if there was, who was guilty of such
violation.
2. Whether or not there was legal ground for the
postponement of the fight date from September 1, 1961, as
stipulated in the May 1, 1961 boxing contract, to November
4,1961,
3. Whether or not the lower court erred in the refusing a
postponement of the July 23, 1963 trial.
4. Whether or not the lower court erred in denying the
appellant's motion for a new trial.
5. Whether or not the lower court, on the basis of the
evidence adduced, erred in awarding the appellees
damages of the character and amount stated in the
decision.
On the issue pertaining to the violation of the May 1, 1961
fight contract, the evidence established that the contract was
violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this
fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].
While the contract imposed no penalty for such violation, this
does not grant any of the parties the unbridled liberty to
breach it with impunity. Our law on contracts recognizes the
principle that actionable injury inheres in every contractual
breach. Thus:
Those who in the performance of their obligations are guilty
of fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages. [Art.
1170, Civil Code].
Also:
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. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to
reciprocal obligations. "Reciprocal obligations are those which
arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other. They are to
be performed simultaneously, so that the performance of one
is conditioned upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1
The power to rescind is given to the injured party. "Where the
plaintiff is the party who did not perform the undertaking
which he was bound by the terms of the agreement to
perform 4 he is not entitled to insist upon the performance of
the contract by the defendant, or recover damages by reason
of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581,
Emphasis supplied].
Another violation of the contract in question was the
assignment and transfer, first to J. Amado Araneta, and
subsequently, to appellant Yulo, Jr., of the managerial rights
over Boysaw without the knowledge or consent of Interphil.
The assignments, from Ketchum to Araneta, and from Araneta
to Yulo, were in fact novations of the original contract which,
to be valid, should have been consented to by Interphil.
Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the
knowledge or against the will of the latter, but not without
the consent of the creditor.[Art. 1293, Civil Code, emphasis
supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on

September 5, 1961 of his acquisition of the managerial rights
over Boysaw cannot change the fact that such acquisition,
and the prior acquisition of such rights by Araneta were done
without the consent of Interphil. There is no showing that
Interphil, upon receipt of Yulo's letter, acceded to the
"substitution" by Yulo of the original principal obligor, who is
Ketchum. The logical presumption can only be that, with
Interphil's letter to the GAB expressing concern over reported
managerial changes and requesting for clarification on the
matter, the appellees were not reliably informed of the
changes of managers. Not being reliably informed, appellees
cannot be deemed to have consented to such changes.
Under the law when a contract is unlawfully novated by an
applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with the
substitute.
The consent of the creditor to the change of debtors,
whether in expromision or delegacion is an, indispensable
requirement . . . Substitution of one debtor for another may
delay or prevent the fulfillment of the obligation by reason
of the inability or insolvency of the new debtor, hence, the
creditor should agree to accept the substitution in order
that it may be binding on him.
Thus, in a contract where x is the creditor and y is the
debtor, if y enters into a contract with z, under which he
transfers to z all his rights under the first contract, together
with the obligations thereunder, but such transfer is not
consented to or approved by x, there is no novation. X can
still bring his action against y for performance of their
contract or damages in case of breach. [Tolentino, Civil
Code of the Philippines, Vol. IV, p. 3611.
From the evidence, it is clear that the appellees, instead of
availing themselves of the options given to them by law of
rescission or refusal to recognize the substitute obligor Yulo,
really wanted to postpone the fight date owing to an injury
that Elorde sustained in a recent bout. That the appellees had
the justification to renegotiate the original contract,
particularly the fight date is undeniable from the facts
aforestated. Under the circumstances, the appellees' desire to
postpone the fight date could neither be unlawful nor
unreasonable.
We uphold the appellees' contention that since all the rights
on the matter rested with the appellees, and appellants'
claims, if any, to the enforcement of the contract hung
entirely upon the former's pleasure and sufferance, the GAB
did not act arbitrarily in acceding to the appellee's request to
reset the fight date to November 4, 1961. It must be noted
that appellant Yulo had earlier agreed to abide by the GAB
ruling.
In a show of accommodation, the appellees offered to
advance the November 4, 1961 fight to October 28, 1961 just
to place it within the 30- day limit of allowable postponements
stipulated in the original boxing contract.
The refusal of appellants to accept a postponement without
any other reason but the implementation of the terms of the
original boxing contract entirely overlooks the fact that by
virtue of the violations they have committed of the terms
thereof, they have forfeited any right to its enforcement.
On the validity of the fight postponement, the violations of the
terms of the original contract by appellants vested the
appellees with the right to rescind and repudiate such
contract altogether. That they sought to seek an adjustment
of one particular covenant of the contract, is under the
circumstances, within the appellee's rights.
While the appellants concede to the GAB's authority to
regulate boxing contests, including the setting of dates
thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention
that only Manuel Nieto, Jr. made the decision for
postponement, thereby arrogating to himself the prerogatives
of the whole GAB Board.

The records do not support appellants' contention. Appellant

Yulo himself admitted that it was the GAB Board that set the
questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it
must be stated that one of the strongest presumptions of law
is that official duty has been regularly performed. In this case,
the absence of evidence to the contrary, warrants the full
application of said presumption that the decision to set the
Elorde-Boysaw fight on November 4, 1961 was a GAB Board
decision and not of Manuel Nieto, Jr. alone.

where such testimony has not been contradicted or rebutted.

Thus, we find no reason to disturb the award of P250,000.00
as and for unrealized profits to the appellees.

Anent the lower court's refusal to postpone the July 23, 1963
trial, suffice it to say that the same issue had been raised
before Us by appellants in a petition for certiorari and
prohibition docketed as G.R. No. L-21506. The dismissal by the
Court of said petition had laid this issue to rest, and appellants
cannot now hope to resurrect the said issue in this appeal.

The award of attorney's fees in the amount of P5,000.00 in

favor of defendant-appellee Manuel Nieto, Jr. and another
P5,000.00 in favor of defendants-appellees Interphil
Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be
regarded as excessive considering the extent and nature of
defensecounsels' services which involved legal work for
sixteen [16] months.

On the denial of appellant's motion for a new trial, we find

that the lower court did not commit any reversible error.
The alleged newly discovered evidence, upon which the
motion for new trial was made to rest, consists merely of
clearances which Boysaw secured from the clerk of court prior
to his departure for abroad. Such evidence cannot alter the
result of the case even if admitted for they can only prove
that Boysaw did not leave the country without notice to the
court or his counsel.
The argument of appellants is that if the clearances were
admitted to support the motion for a new trial, the lower court
would have allowed the postponement of the trial, it being
convinced that Boysaw did not leave without notice to the
court or to his counsel. Boysaw's testimony upon his return
would, then, have altered the results of the case.
We find the argument without merit because it confuses the
evidence of the clearances and the testimony of Boysaw. We
uphold the lower court's ruling that:

On the award of actual damages to Interphil and Sarreal, the

records bear sufficient evidence presented by appellees of
actual damages which were neither objected to nor rebutted
by appellants, again because they adamantly refused to
participate in the court proceedings.

However, in the matter of moral damages, we are inclined to

uphold the appellant's contention that the award is not
sanctioned by law and well- settled authorities. Art. 2219 of
the Civil Code provides:
Art. 2219. Moral damages may be recovered in the
following analogous cases:
1) A criminal offense resulting in physical injuries;
2) Quasi-delict causing physical injuries;
3) Seduction, abduction, rape or other lascivious acts;
4) Adultery or concubinage;
5) Illegal or arbitrary detention or arrest;
6) Illegal search;

The said documents [clearances] are not evidence to offset

the evidence adduced during the hearing of the defendants.
In fact, the clearances are not even material to the issues
raised. It is the opinion of the Court that the 'newly
discovered evidence' contemplated in Rule 37 of the Rules
of Court, is such kind of evidence which has reference to
the merits of the case, of such a nature and kind, that if it
were presented, it would alter the result of the judgment. As
admitted by the counsel in their pleadings, such clearances
might have impelled the Court to grant the postponement
prayed for by them had they been presented on time. The
question of the denial of the postponement sought for by
counsel for plaintiffs is a moot issue . . . The denial of the
petition for certiorari and prohibition filed by them, had he
effect of sustaining such ruling of the court . . . [pp. 296297, Record on Appeal].
The testimony of Boysaw cannot be considered newly
discovered evidence for as appellees rightly contend, such
evidence has been in existence waiting only to be elicited
from him by questioning.
We cite with approval appellee's contention that "the two
qualities that ought to concur or dwell on each and every of
evidence that is invoked as a ground for new trial in order to
warrant the reopening . . . inhered separately on two
unrelated species of proof" which "creates a legal monstrosity
that deserves no recognition."
On the issue pertaining to the award of excessive damages, it
must be noted that because the appellants wilfully refused to
participate in the final hearing and refused to present
documentary evidence after they no longer had witnesses to
present, they, by their own acts prevented themselves from
objecting to or presenting proof contrary to those adduced for
the appellees.
On the actual damages awarded to appellees, the appellants
contend that a conclusion or finding based upon the
uncorroborated testimony of a lone witness cannot be
sufficient. We hold that in civil cases, there is no rule requiring
more than one witness or declaring that the testimony of a
single witness will not suffice to establish facts, especially

7) Libel, slander or any other form of defamation;

8) Malicious prosecution;
9) Acts mentioned in Art. 309.
10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29,
30, 32, 34 and 35.
The award of moral damages in the instant case is not based
on any of the cases enumerated in Art. 2219 of the Civil Code.
The action herein brought by plaintiffs-appellants is based on
a perceived breach committed by the defendants-appellees of
the contract of May 1, 1961, and cannot, as such, be
arbitrarily considered as a case of malicious prosecution.
Moral damages cannot be imposed on a party litigant
although such litigant exercises it erroneously because if the
action has been erroneously filed, such litigant may be
penalized for costs.
The grant of moral damages is not subject to the whims and
caprices of judges or courts. The court's discretion in
granting or refusing it is governed by reason and justice. In
order that a person may be made liable to the payment of
moral damages, the law requires that his act be wrongful.
The adverse result of an action does not per se make the
act wrongful and subject the actor to the payment of moral
damages. The law could not have meant to impose a
penalty on the right to litigate; such right is so precious that
moral damages may not be charged on those who may
exercise it erroneously. For these the law taxes costs.
[Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52
O.G., No. 13, p. 5818.]
WHEREFORE, except for the award of moral damages which is
herein deleted, the decision of the lower court is hereby
affirmed.
SO ORDERED.

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE
of the COURT OF FIRST INSTANCE IN QUEZON CITY, et
al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor
Augusto M. Amores and Special Counsel Perfecto V.
Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.

REYES, J.B.L., J.:

Three (3) orders of the Court of First Instance of Rizal (Quezon
City), issued in its Civil Case No. 9435, are sought to be
annulled in this petition for certiorari and prohibition, filed by
herein petitioner University of the Philippines (or UP) against
the above-named respondent judge and the Associated
Lumber Manufacturing Company, Inc. (or ALUMCO). The first
order, dated 25 February 1966, enjoined UP from awarding
logging rights over its timber concession (or Land Grant),
situated at the Lubayat areas in the provinces of Laguna and
Quezon; the second order, dated 14 January 1967, adjudged
UP in contempt of court, and directed Sta. Clara Lumber
Company, Inc. to refrain from exercising logging rights or
conducting logging operations on the concession; and the
third order, dated 12 December 1967, denied reconsideration
of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction
against the enforcement or implementation of the three (3)
questioned orders was issued by this Court, per its resolution
on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from
the public domain and given as an endowment to UP, an
institution of higher learning, to be operated and developed
for the purpose of raising additional income for its support,
pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered
into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the
agreement to 31 December 1965, extendible for a further
period of five (5) years by mutual agreement, to cut, collect
and remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.; that ALUMCO cut
and removed timber therefrom but, as of 8 December 1964, it
had incurred an unpaid account of P219,362.94, which,
despite repeated demands, it had failed to pay; that after it
had received notice that UP would rescind or terminate the
logging agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of
Payments," dated 9 December 1964, which was approved by
the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2
of this paragraph are not sufficient to liquidate the
foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said payments
have been applied shall be paid by the DEBTOR in full no
later than June 30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of
its promises or undertakings in this document, the DEBTOR
agrees without reservation that the CREDITOR shall have
the right and the power to consider the Logging Agreement
dated December 2, 1960 as rescinded without the necessity
of any judicial suit, and the CREDITOR shall be entitled as a
matter of right to Fifty Thousand Pesos (P50,000.00) by way
of and for liquidated damages;

ALUMCO continued its logging operations, but again incurred

an unpaid account, for the period from 9 December 1964 to
15 July 1965, in the amount of P61,133.74, in addition to the
indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent
ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they
had entered in 1960; and on 7 September 1965, UP filed a
complaint against ALUMCO, which was docketed as Civil Case
No. 9435 of the Court of First Instance of Rizal (Quezon City),
for the collection or payment of the herein before stated sums
of money and alleging the facts hereinbefore specified,
together with other allegations; it prayed for and obtained an
order, dated 30 September 1965, for preliminary attachment
and preliminary injunction restraining ALUMCO from
continuing its logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary
injunction UP had taken steps to have another concessionaire
take over the logging operation, by advertising an invitation to
bid; that bidding was conducted, and the concession was
awarded to Sta. Clara Lumber Company, Inc.; the logging
contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to
discharge the writs of attachment and preliminary injunction
but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin
petitioner University from conducting the bidding; on 27
November 1965, it filed a second petition for preliminary
injunction; and, on 25 February 1966, respondent judge issued
the first of the questioned orders, enjoining UP from awarding
logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had
concluded its contract with Sta. Clara Lumber Company, Inc.,
and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose
Rico, the court, in an order dated 14 January 1967, declared
petitioner UP in contempt of court and, in the same order,
directed Sta. Clara Lumber Company, Inc., to refrain from
exercising logging rights or conducting logging operations in
the concession.
The UP moved for reconsideration of the aforesaid order, but
the motion was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land
Grant, which purpose, anyway, is embodied in Act 3608 and,
therefore, conclusively known, respondent ALUMCO did not
deny the foregoing allegations in the petition. In its answer,
respondent corrected itself by stating that the period of the
logging agreement is five (5) years - not seven (7) years, as it
had alleged in its second amended answer to the complaint in
Civil Case No. 9435. It reiterated, however, its defenses in the
court below, which maybe boiled down to: blaming its former
general manager, Cesar Guy, in not turning over management
of ALUMCO, thereby rendering it unable to pay the sum of
P219,382.94; that it failed to pursue the manner of payments,
as stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" because the logs that it had cut turned
out to be rotten and could not be sold to Sta. Clara Lumber
Company, Inc., under its contract "to buy and sell" with said
firm, and which contract was referred and annexed to the
"Acknowledgment of Debt and Proposed Manner of
Payments"; that UP's unilateral rescission of the logging
contract, without a court order, was invalid; that petitioner's
supervisor refused to allow respondent to cut new logs unless
the logs previously cut during the management of Cesar Guy
be first sold; that respondent was permitted to cut logs in the
middle of June 1965 but petitioner's supervisor stopped all
logging operations on 15 July 1965; that it had made several
offers to petitioner for respondent to resume logging
operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat
its contract with ALUMCO rescinded, and may disregard the
same before any judicial pronouncement to that effect.
Respondent ALUMCO contended, and the lower court, in

issuing the injunction order of 25 February 1966, apparently

sustained it (although the order expresses no specific findings
in this regard), that it is only after a final court decree
declaring the contract rescinded for violation of its terms that
U.P. could disregard ALUMCO's rights under the contract and
treat the agreement as breached and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in
the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the
creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil
Code, this Court stated in Froilan vs. Pan Oriental Shipping
Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from
entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without
court intervention. In other words, it is not always
necessary for the injured party to resort to court for
rescission of the contract.
Of course, it must be understood that the act of 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 the final judgment of rescission is rendered when
the law itself requires that he should exercise due diligence to
minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a
reciprocal obligation, 1 since in every case where the
extrajudicial resolution is contested only the final award of the
court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense
that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to
judicial invalidation, unless attack thereon should become
barred by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v.
Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV,
page 140) but, as already observed, in case of abuse or error
by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of
the stipulation being merely to transfer to the defaulter the
initiative of instituting suit, instead of the rescinder.
In fact, even without express provision conferring the power of
cancellation upon one contracting party, the Supreme Court of
Spain, in construing the effect of Article 1124 of the Spanish
Civil Code (of which Article 1191 of our own Civil; Code is
practically a reproduction), has repeatedly held that, a

resolution of reciprocal or synallagmatic contracts may be

made extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la
facultad de resolver las obligaciones
reciprocas para el caso de que uno de los
obligados no cumpliese lo que le
incumbe, facultad que, segun jurisprudencia
de este Tribunal, surge
immediatamente despuesque la otra parte
incumplio su deber, sin necesidad de una
declaracion previa de los Tribunales. (Sent.
of the Tr. Sup. of Spain, of 10 April 1929; 106
Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la
resolucioncomo una "facultad" atribuida a la parte
perjudicada por el incumplimiento del contrato, la cual tiene
derecho do opcion entre exigir el cumplimientoo la
resolucion de lo convenido, que puede ejercitarse, ya en la
via judicial, ya fuera de ella, por declaracion del acreedor, a
reserva, claro es, que si la declaracion de resolucion hecha
por una de las partes se impugna por la otra, queda aquella
sometida el examen y sancion de los Tribunale, que habran
de declarar, en definitiva, bien hecha la resolucion o por el
contrario, no ajustada a Derecho. (Sent. TS of Spain, 16
November 1956; Jurisp. Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el
incumplimiento por una de las partes de su respectiva
prestacion, puedetener lugar con eficacia" 1. o Por la
declaracion de voluntad de la otra hecha
extraprocesalmente, si no es impugnada en juicio luego con
exito. y 2. 0 Por la demanda de la perjudicada, cuando no
opta por el cumplimientocon la indemnizacion de danos y
perjuicios realmente causados, siempre quese acredite,
ademas, una actitud o conducta persistente y rebelde de
laadversa o la satisfaccion de lo pactado, a un hecho
obstativo que de un modoabsoluto, definitivo o irreformable
lo impida, segun el art. 1.124, interpretado por la
jurisprudencia de esta Sala, contenida en las Ss. de 12
mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el
principio del Derecho intermedio, recogido del Canonico,
por el cual fragenti fidem, fides non est servanda. (Ss. de 4
Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, and considering that
the complaint of petitioner University made out aprima
facie case of breach of contract and defaults in payment by
respondent ALUMCO, to the extent that the court below issued
a writ of preliminary injunction stopping ALUMCO's logging
operations, and repeatedly denied its motions to lift the
injunction; that it is not denied that the respondent company
had profited from its operations previous to the agreement of
5 December 1964 ("Acknowledgment of Debt and Proposed
Manner of Payment"); that the excuses offered in the second
amended answer, such as the misconduct of its former
manager Cesar Guy, and the rotten condition of the logs in
private respondent's pond, which said respondent was in a
better position to know when it executed the acknowledgment
of indebtedness, do not constitute on their face sufficient
excuse for non-payment; and considering that whatever
prejudice may be suffered by respondent ALUMCO is
susceptibility of compensation in damages, it becomes plain
that the acts of the court a quo in enjoining petitioner's
measures to protect its interest without first receiving
evidence on the issues tendered by the parties, and in
subsequently refusing to dissolve the injunction, were in grave
abuse of discretion, correctible by certiorari, since appeal was
not available or adequate. Such injunction, therefore, must be
set aside.
For the reason that the order finding the petitioner UP in
contempt of court has open appealed to the Court of Appeals,
and the case is pending therein, this Court abstains from
making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and
the order of the respondent court of 25 February 1966,
granting the Associated Lumber Company's petition for
injunction, is hereby set aside. Let the records be remanded
for further proceedings conformably to this opinion.

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate
of the late SANTIAGO DE ERQUIAGA & HON. FELICIANO
S. GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE
REYNOSO, JOSES V. REYNOSO, JR., EERNESTO , SYLVIA
REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA
REYNOSO, ERLINDA REYNOSO & EMILY
REYNOSO, respondents.
Agrava, Lucero, Gineta & Roxas for petitioners.
Bausa, Ampil, Suarez, Parades & Bausa for private
respondents.

GRINO-AQUINO, J.:
This is a case that began in the Court of First Instance of
Sorsogon in 1970. Although the decision dated September 30,
1972 of the trial court (pp. 79-106, Rollo) became final and
executory because none of the parties appealed, its execution
has taken all of the past seventeen (17) years with the end
nowhere in sight. The delay in writing finis to this case is
attributable to several factors, not the least of which is the
intransigence of the defeated party. Now, worn down by this
attrital suit, both have pleaded for a decision to end this case.
Assailed in this petition for review are:
(a) the decision of the Court of Appeals dated May 31, 1976
in CA-G.R. No. SP 04811, entitled "Africa Valdez Vda. de
Reynoso et al. vs. Hon. Feliciano S. Gonzales and Santiago
de Erquiaga" (pp. 275-290, Rollo);
(b) its resolution dated August 3, 1976, denying the motion
for reconsideration (p. 298, Rollo);
(c) its resolution of August 24, 1977, ordering entry of
judgment (p. 316, Rollo); and
(d) its resolution of October 4, 1977, denying the motion to
set aside the entry of judgment.
Santiago de Erquiaga was the owner of 100% or 3,100 paid-up
shares of stock of the Erquiaga Development Corporation
which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212,
Rollo). On November 4,1968, he entered into an Agreement
with Jose L. Reynoso to sell to the latter his 3,100 shares (or
100%) of Erquiaga Development Corporation for P900,000
payable in installments on definite dates fixed in the contract
but not later than November 30, 1968. Because Reynoso
failed to pay the second and third installments on time, the
total price of the sale was later increased to P971,371.70
payable on or before December 17, 1969. The difference of
P71,371.70 represented brokers' commission and interest (CFI
Decision, pp. 75, 81, 90, 99,Rollo).
As of December 17, 1968, Reynoso was able to pay the total
sum of P410,000 to Erquiaga who thereupon transferred all
his shares (3,100 paid-up shares) in Erquiaga Development
Corporation to Reynoso, as well as the possession of the
Hacienda San Jose, the only asset of the corporation (p. 100,
Rollo). However, as provided in paragraph 3, subparagraph (c)
of the contract to sell, Reynoso pledged 1,500 shares in favor
of Erquiaga as security for the balance of his obligation (p.
100, Rollo). Reynoso failed to pay the balance of P561,321.70
on or before December 17, 1969, as provided in the
promissory notes he delivered to Erquiaga. So, on March 2,
1970, Erquiaga, through counsel, formally informed Reynoso
that he was rescinding the sale of his shares in the Erquiaga
Development Corporation (CFI Decision, pp. 81-100, Rollo).
As recited by the Court of Appeals in its decision under
review, the following developments occurred thereafter:

On March 30, 1970, private respondent Santiago de

Erquiaga filed a complaint for rescission with preliminary
injunction against Jose L. Reynoso and Erquiaga
Development Corporation, in the Court of First Instance of
Sorsogon, Branch I (Civil Case No. 2446).** After issues
have been joined and after trial on the merits, the lower
court rendered judgment (on September 30, 1972),*** the
dispositive portion of which reads as follows:
In view of the foregoing, judgment is hereby rendered in
favor of the plaintiff and against the defendant Jose L.
Reynoso, rescinding the sale of 3,100 paid up shares of
stock of the Erquiaga Development Corporation to the
defendant, and ordering:
(a) The defendant to return and reconvey to the plaintiff the
3,100 paid up shares of stock of the Erquiaga Development
Corporation which now stand in his name in the books of
the corporation;
(b) The defendant to render a full accounting of the fruits he
received by virtue of said 3,100 paid up shares of stock of
the Erquiaga Development Corporation, as well as to return
said fruits received by him to plaintiff Santiago de Erquiaga;
(c) The plaintiff to return to the defendant the amount of
P100,000.00 plus legal interest from November 4,1968, and
the amount of P310,000.00 plus legal interest from
December 17, 1968, until paid;
(d) The defendant to pay the plaintiff as actual damages the
amount of P12,000.00;
(e) The defendant to pay the plaintiff the amount of
P50,000.00 as attorney's fees; and
(f) The defendant to pay the costs of this suit and expenses
of litigation. (Annex A-Petition.)
The parties did not appeal therefrom and it became final
and executory.
On March 21, 1973, the CFI of Sorsogon issued an Order,
pertinent portions of which reads:
It will be noted that both parties having decided not to
appeal, the decision has become final and executory.
Nevertheless, the Court finds merit in the contention of
the plaintiff that the payment to the defendant of the
total sum of P410,000.00 plus the interest, should be
held in abeyance pending rendition of the accounting
by the defendant of the fruits received by him on
account of the 3,100 shares of the capital stock of
Erquiaga Development Corporation. The same may be
said with respect to the sums due the plaintiff from the
defendant for damages and attorney's fees. Indeed it is
reasonable to suppose, as contended by the plaintiff,
that when such accounting is made and the
accounting, as urged by plaintiff, should refer not only
to the dividends due from the shares of stock but to the
products of the hacienda which is the only asset of the
Erquiaga Development Corporation, certain sums may
be found due to the plaintiff from the defendant which
may partially or entirely off set (sic) the amount
adjudged against him in the decision.
It is the sense of the court that the fruits referred to in
the decision include not only the dividends received, if
any, on the 3,100 shares of stocks but more
particularly the products received by the defendant
from the hacienda. The hacienda and the products
thereon produced constitute the physical assets of the
Erquiaga Development Corporation represented by the
shares of stock and it would be absurd to suppose that
any accounting could be made by the defendant
without necessarily taking into account the products
received which could be the only basis for determining
whether dividends are due or not on account of the
investment. The hacienda and its natural fruits as
represented by the shares of stock which the defendant
received as manager and controlling stockholder of the

Erquiaga Development Corporation can not be divorced

from the certificates of stock in order to determine
whether the defendant has correctly reported the
income of the corporation or concealed part of it for his
personal advantage. It is hardly necessary for the Court
to restate an obvious fact that on both legal and
equitable grounds, the Erquiaga Development
Corporation and defendant Jose Reynoso are one and
the same persons as far as the obligation to account for
the products of the hacienda is concerned,' (pp. 4-6,
Annex 1, Answer.)
In the same Order, the CFI of Sorsogon appointed a receiver
upon the filing of a bond in the amount of P100,000.00. The
reasons of the lower court for appointing a receiver 'were
that the matter of accounting of the fruits received by
defendant Reynoso as directed in the decision will take
time; that plaintiff Erquiaga has shown sufficient and
justifiable ground for the appointment of a receiver in order
to preserve the Hacienda which has obviously been
mismanaged by the defendant to a point where the
amortization of the loan with the Development Bank of the
Philippines has been neglected and the arrears in payments
have risen to the amount of P503,510.70 as of October 19,
1972, and there is danger that the Development Bank of
the Philippines may institute foreclosure proceedings to the
damage and prejudice of the plaintiff.' (p. 7, Id.)
On April 26, 1973, defendant Jose L. Reynoso died and he
was substituted by his surviving spouse Africa Valdez Vda.
de Reynoso and children, as party defendants.
Defendants filed a petition for certiorari with a prayer for a
writ of preliminary injunction seeking the annulment of the
aforementioned Order of March 21, 1973. On June 28, 1973,
the Court of Appeals rendered judgment dismissing the
petition with costs against the petitioners, ruling that said
Order is valid and the respondent court did not commit any
grave abuse of discretion in issuing the same (Annex 2,
Id.). Petitioners brought the case up to the Supreme Court
on a petition for review on certiorari which was denied by
said tribunal in a Resolution dated February 5, 1974 (Annex
3, Id.). Petitioners' motion for reconsideration thereof was
likewise denied by the Supreme Court on March 29,1974.
Upon motion of Erquiaga, the CFI of Sorsogon issued an
order, dated February 12,1975, dissolving the receivership
and ordering the delivery of the possession of the Hacienda
San Jose to Erquiaga, the filing of bond by said Erquiaga in
the amount of P410,000.00 conditioned to the payment of
whatever may be due to the substituted heirs of deceased
defendant Reynoso (petitioners herein) after the approval of
the accounting report submitted by Reynoso. Said order
further directed herein petitioners to allow counsel for
Erquiaga to inspect, copy and photograph certain
documents related to the accounting report (Annex B,
Petition).
On March 3,1975, the CFI of Sorsogon approved the
P410,000.00 bond submitted by Erquiaga and the
possession, management and control of the hacienda were
turned over to Erquiaga (Annex C, Petition). Petitioners
(Reynosos) filed their motion for reconsideration which the
CFI of Sorsogon denied in an Order, dated June 23, 1975
(Annex D, Id.).
In an Omnibus Motion, dated July 25,1975, filed by
Erquiaga, and over the objections interposed thereto by
herein petitioners (Reynosos), the CFI of Sorsogon issued an
Order, dated October 9, 1975, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, on the first
count, the defendants are directed (to deliver) to the
plaintiff or his counsel within five (5) days from receipt
of this order the 1,600 shares of stock of the Erquiaga
Development Corporation which are in their possession.
Should the defendants refuse or delay in delivering
such shares of stock, as prayed for, the plaintiff is
authorized:

(a) To call and hold a special meeting of the stockholders of

the Erquiaga Development Corporation to elect the
members of the Board of Directors;
(b) In the said meeting the plaintiff is authorized to vote not
only the 1,500 shares of stock in his name but also the
1,600 shares in the name and possession of the defendants;
(c) The question as to who shall be elected members of the
Board of Directors and officers of the board is left to the
discretion of the plaintiff;
(d) The members of the board and the officers who are
elected are authorized to execute any and all contracts or
agreements under such conditions as may be required by
the Development Bank for the purpose of restructuring the
loan of the Erquiaga Development Corporation with the said
bank.
On the second count, the prayer to strike out all
expenses alleged[ly] incurred by the defendants in the
production of the fruits of Hacienda San Jose and
declaring the obligation of the plaintiff under paragraph
(c) of the judgment to pay the defendant the sum of
P410,000.00 with interest as fully compensated by the
fruits earned by the defendants from the property, as
well as the issuance of a writ of execution against the
defendants to pay the plaintiffs P62,000.00 under
paragraphs (e) and (d) and costs of litigation under
paragraph (f) of the judgment of September 30, 1972,
is denied.
The defendants are once more directed to comply with
the order of February 12, 1975, by answering the
interrogatories propounded by counsel for the plaintiff
and allowing said counsel or his representative to
inspect, copy and photograph the documents
mentioned by the plaintiff during reasonable hours of
any working day within twenty (20) days from receipt
of this order, should the defendants persist in their
refusal or failure to comply with the order, the plaintiff
may inform the court seasonably so that the proper
action may be taken. (Annex J, Id.)
Hence, the present petition for certiorari, prohibition and
mandamus instituted by the substituted defendants, heirs
of the deceased defendant Jose L. Reynoso against the CFI
of Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276281, Rollo.)
On May 31, 1976, the Court of Appeals rendered judgment
holding that:
IN VIEW OF ALL THE FOREGOING, this court finds that the
respondent court had acted with grave abuse of discretion
or in excess of jurisdiction in issuing the assailed order of
October 9, 1975 (Annex A, Petition) insofar only as that part
of the Order (1) giving private respondent voting rights on
the 3,100 shares of stock of the Erquiaga Development
Corporation without first divesting petitioners of their title
thereto and ordering the registration of the same in the
corporation books in the name of private respondent,
pursuant to Section 10, Rule 39 of the Revised Rules of
Court; (2) authorizing corporate meetings and election of
members of the Board of Directors of said corporation and
(3) refusing to order the reimbursement of the purchase
price of the 3,100 shares of stock in the amount of
P410,000.00 plus interests awarded in said final decision of
September 30, 1972 and the set-off therewith of the
amount of P62,000.00 as damages and attorney's fees in
favor of herein private respondent are concerned. Let writs
of certiorari and prohibition issue against the aforesaid acts,
and the writ of preliminary injunction heretofore issued is
hereby made permanent only insofar as (1), (2) and (3)
above are concerned. As to all other matters involved in
said Order of October 9, 1975, the issuance of writs prayed
for in the petition are not warranted and therefore denied.
FINALLY, to give effect to all the foregoing, with a view of
putting an end to a much protracted litigation and for the
best interest of the parties, let a writ of mandamus issue,
commanding the respondent Judge to order (1) the Clerk of

Court of the CFI of Sorsogon to execute the necessary deed

of conveyance to effect the transfer of ownership of the
entire 3,100 shares of stock of the Erquiaga Development
Corporation to private respondent Santiago Erquiaga in
case of failure of petitioners to comply with the Order of
October 9, 1975 insofar as the delivery of the 1,600 shares
of stock to private respondent is concerned, within five (5)
days from receipt hereof; and (2) upon delivery by
petitioners or transfer by the Clerk of Court of said shares of
stock to private respondent, as the case may be, to issue a
writ of execution ordering private respondent to pay
petitioners the amount of P410,000.00 plus interests in
accordance with the final decision of September 30, 1972 in
Civil Case No. 2448, setting-off therewith the amount of
P62,000.00 adjudged in favor of private respondent, and
against petitioners' predecessor-in-interest, Jose L. Reynoso,
in the same decision, as damages and attorney's fees. (pp.
289-290, Rollo.)
It may be seen from the foregoing narration of facts that as of
the time the Court of Appeals rendered its decision on May 31,
1976 (now under review) only the following have been done
by the parties in compliance with the final judgment in the
main case (Civil Case No. 2446):
1. The Hacienda San Jose was returned to Erquiaga on
March 3, 1975 upon approval of Erquiaga's surety bond of
P410,000 in favor of Reynoso;
2. Reynoso has returned to Erquiaga only the pledged 1,500
shares of stock of the Erquiaga Development Corporation,
instead of 3,100 shares, as ordered in paragraph (a) of the
final judgment.
What the parties have not done yet are:
1. Reynoso has not returned 1,600 shares of stock to
Erquiaga as ordered in paragraph (a,) of the decision;
2. Reynoso has not rendered a full accounting of the fruits
he has received from Hacienda San Jose by virtue of the
3,100 shares of stock of the Erquiaga Development
Corporation delivered to him under the sale, as ordered in
paragraph (b) of the decision;
3. Erquiaga has not returned the sum of P100,000 paid by
Reynoso on the sale, with legal interest from November 4,
1968 and P310,000 plus legal interest from December 17,
1968, until paid (total: P410,000) as ordered in paragraph
(c) of the decision;
4. Reynoso has not paid the judgment of Pl2,000 as actual
damages in favor of Erquiaga, under paragraph (d) of the
judgment;
5. .Reynoso has not paid the sum of P50,000 as attorney's
fees to Erquiaga under paragraph (e) of the judgment; and
6. Reynoso has not paid the costs of suit and expenses of
litigation as ordered in paragraph (f) of the final judgment.
The petitioner alleges, in her petition for review, that:
I. The decision of the Court of Appeals requiring the
petitioner to pay the private respondents the sum of
P410,000 plus interest, without first awaiting Reynoso's
accounting of the fruits of the Hacienda San Jose, violates
the law of the case and Article 1385 of the Civil Code, alters
the final order dated February 12, 1975 of the trial court,
and is inequitous.
II. The Court of Appeals erroneously applied the Corporation
Law.
III. The Court of Appeals erred in ordering entry of its
judgment.
We address first the third assignment of error for it will be
futile to discuss the first and second if, after all, the decision
complained of is already final, and the entry of judgment

which the Court of Appeals directed to be made in its

resolution of August 24,1977 (p. 316, Rollo) was proper. After
examining the records, we find that the Court of Appeals'
decision is not yet final. The entry of judgment was
improvident for the Court of Appeals, in its resolution of
December 13, 1976, suspended the proceedings before it
"pending the parties' settlement negotiations" as prayed for in
their joint motion (p. 313, Rollo). Without however giving them
an ultimatum or setting a deadline for the submission of their
compromise agreement, the Court of Appeals, out of the blue,
issued a resolution on August 24, 1977 ordering the Judgment
Section of that Court to enter final judgment in the case (p.
316, Rollo).
We hold that the directive was precipitate and premature.
Erquiaga received the order on September 2, 1977 and filed
on September 12, 1977 (p. 317, Rollo) a motion for
reconsideration which the Court of Appeals denied on October
4, 1977 (p. 322, Rollo). The order of denial was received on
October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga
filed in this Court a timely motion for extension of time to file
a petition for review, and the petition was filed within the
extension granted by this Court.
We now address the petitioners' first and second assignments
of error.
After deliberating on the petition for review, we find no
reversible error in the Court of Appeals' decision directing the
clerk of court of the trial court to execute a deed of
conveyance to Erquiaga of the 1,600 shares of stock of the
Erquiaga Development Corporation still in Reynoso's name
and/or possession, in accordance with the procedure in
Section 10, Rule 39 of the Rules of Court. Neither did it err in
annulling the trial court's order: (1) allowing Erquiaga to vote
the 3,100 shares of Erquiaga Development Corporation
without having effected the transfer of those shares in his
name in the corporate books; and (2) authorizing Erquiaga to
call a special meeting of the stockholders of the Erquiaga
Development Corporation and to vote the 3,100 shares,
without the pre-requisite registration of the shares in his
name. It is a fundamental rule in Corporation Law (Section 35)
that a stockholder acquires voting rights only when the shares
of stock to be voted are registered in his name in the
corporate books.
Until registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee cannot enjoy
the status of a stockholder; he cannot vote nor be voted for,
and he will not be entitled to dividends. The Corporation will
be protected when it pays dividend to the registered owner
despite a previous transfer of which it had no knowledge.
The purpose of registration therefore is two-fold; to enable
the transferee to exercise all the rights of a stockholder,
and to inform the corporation of any change in share
ownership so that it can ascertain the persons entitled to
the rights and subject to the liabilities of a stockholder.
(Corporation Code, Comments, Notes and Selected cases by
Campos & Lopez-Campos, p. 838,1981 Edition.)
The order of respondent Court directing Erquiaga to return the
sum of P410,000 (or net P348,000 after deducting P62,000
due from Reynoso under the decision) as the price paid by
Reynoso for the shares of stock, with legal rate of interest,
and the return by Reynoso of Erquiaga's 3,100 shares with the
fruits(construed to mean not only dividends but also fruits of
the corporation's Hacienda San Jose) is in full accord with Art.
1385 of the Civil Code which provides:
ART. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission
can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which
are the object of the contract are legally in the possession
of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from
the person causing the loss.

The Hacienda San Jose and 1,500 shares of stock have already
been returned to Erquiaga. Therefore, upon the conveyance to
him of the remaining 1,600 shares, Erquiaga (or his heirs)
should return to Reynoso the price of P410,000 which the
latter paid for those shares. Pursuant to the rescission
decreed in the final judgment, there should be simultaneous
mutual restitution of the principal object of the contract to sell
(3,100 shares) and of the consideration paid (P410,000). This
should not await the mutual restitution of the fruits, namely:
the legal interest earned by Reynoso's P410,000 while in the
possession of Erquiaga and its counterpart: the fruits of
Hacienda San Jose which Reynoso received from the time the
hacienda was delivered to him on November 4,1968 until it
was placed under receivership by the court on March 3, 1975.
However, since Reynoso has not yet given an accounting of
those fruits, it is only fair that Erquiaga's obligation to deliver
to Reynoso the legal interest earned by his money, should
await the rendition and approval of his accounting. To this
extent, the decision of the Court of Appeals should be
modified. For it would be inequitable and oppressive to require
Erquiaga to pay the legal interest earned by Reynoso's
P410,000 since 1968 or for the past 20 years (amounting to
over P400,000 by this time) without first requiring Reynoso to
account for the fruits of Erquiaga's hacienda which he
allegedly squandered while it was in his possession from
November 1968 up to March 3, 1975.
WHEREFORE, the petition for review is granted. The payment
of legal interest by Erquiaga to Reynoso on the price of
P410,000 paid by Reynoso for Erquiaga's 3,100 shares of
stock of the Erquiaga Development Corporation should be
computed as provided in the final judgment in Civil Case No.
2446 up to September 30,1972, the date of said judgment.
Since Reynoso's judgment liability to Erquiaga for attorney's
fees and damages in the total sum of P62,000 should be set
off against the price of P410,000 that Erquiaga is obligated to
return to Reynoso, the balance of the judgment in favor of
Reynoso would be only P348,000 which should earn legal rate
of interest after September 30,1972, the date of the
judgment. However, the payment of said interest by Erquiaga
should await Reynoso's accounting of the fruits received by
him from the Hacienda San Jose. Upon payment of P348,000
by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond
shall be deemed cancelled. In all other respects, the decision
of the Court of Appeals in CA-G.R. No, 04811-SP is affirmed.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-42283 March 18, 1985
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,
vs.
URSULA TORRES CALASANZ, ET AL., defendantsappellants.

month. The plaintiffs-appellees paid the monthly installments

until July 1966, when their aggregate payment already
amounted to P4,533.38. On numerous occasions, the
defendants-appellants accepted and received delayed
installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the
plaintiffs-appellees a letter requesting the remittance of past
due accounts.
On January 28, 1967, the defendants-appellants cancelled the
said contract because the plaintiffs-appellees failed to meet
subsequent payments. The plaintiffs' letter with their plea for
reconsideration of the said cancellation was denied by the
defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the
Court of First Instance of Rizal, Seventh Judicial District,
Branch X to compel the defendants-appellants to execute in
their favor the final deed of sale alleging inter alia that after
computing all subsequent payments for the land in question,
they found out that they have already paid the total amount
of P4,533.38 including interests, realty taxes and incidental
expenses for the registration and transfer of the land.
The defendants-appellants alleged in their answer that the
complaint states no cause of action and that the plaintiffsappellees violated paragraph six (6) of the contract to sell
when they failed and refused to pay and/or offer to pay the
monthly installments corresponding to the month of August,
1966 for more than five (5) months, thereby constraining the
defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffsappellees. The dispositive portion of the decision reads:
WHEREFORE, based on the foregoing considerations, the
Court hereby renders judgment in favor of the plaintiffs and
against the defendants declaring that the contract subject
matter of the instant case was NOT VALIDLY cancelled by
the defendants. Consequently, the defendants are ordered
to execute a final Deed of Sale in favor of the plaintiffs and
to pay the sum of P500.00 by way of attorney's fees. Costs
against the defendants.
A motion for reconsideration filed by the defendantsappellants was denied.
As earlier stated, the then Court of Appeals certified the case
to us considering that the appeal involves pure questions of
law.
The defendants-appellants assigned the following alleged
errors of the lower court:
First Assignment of Error

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of First
Instance of Rizal, Seventh Judicial District, Branch X, declaring
the contract to sell as not having been validly cancelled and
ordering the defendants-appellants to execute a final deed of
sale in favor of the plaintiffs-appellees, to pay P500.00
attorney's fees and costs.
The facts being undisputed, the Court of Appeals certified the
case to us since only pure questions of law have been raised
for appellate review.
On December 19, 1957, defendants-appellants Ursula Torres
Calasanz and Tomas Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a
contract to sell a piece of land located in Cainta, Rizal for the
amount of P3,920.00 plus 7% interest per annum.
The plaintiffs-appellees made a downpayment of P392.00
upon the execution of the contract. They promised to pay the
balance in monthly installments of P 41.20 until fully paid, the
installments being due and payable on the 19th day of each

THE LOWER COURT ERRED IN NOT HOLDING THE

CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS
HAVING BEEN LEGALLY AND VALIDLY CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT
TO SELL HAS NOT BEEN LEGALLY AND VALIDLY
CANCELLED, THE LOWER COURT ERRED IN ORDERING
DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN
FAVOR OF THE PLAINTIFF.
Third Assignment of Error
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO
PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S
FEES.
The main issue to be resolved is whether or not the contract
to sell has been automatically and validly cancelled by the
defendants-appellants.

The defendants-appellants submit that the contract was

validly cancelled pursuant to paragraph six of the contract
which provides:
xxx xxx xxx
SIXTH.In case the party of the SECOND PART fails to
satisfy any monthly installments, or any other payments
herein agreed upon, he is granted a month of grace within
which to make the retarded payment, together with the one
corresponding to the said month of grace; it is understood,
however, that should the month of grace herein granted to
the party of the SECOND PART expired; without the
payments corresponding to both months having been
satisfied, an interest of 10% per annum will be charged on
the amounts he should have paid; it is understood further,
that should a period of 90 days elapse, to begin from the
expiration of the month of grace herein mentioned, and the
party of SECOND PART has not paid all the amounts he
should have paid with the corresponding interest up to that
date, the party of the FIRST PART has the right to declare
this contract cancelled and of no effect, and as
consequence thereof, the party of the FIRST PART may
dispose of the parcel of land covered by this contract in
favor of other persons, as if this contract had never been
entered into. In case of such cancellation of the contract, all
the amounts paid in accordance with this 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 payment for the
damages suffered by failure of the party of the SECOND
PART to fulfill his part of the agreement; and the party of
the SECOND PART hereby renounces all his right to demand
or reclaim the return of the same and obliges himself to
peacefully vacate the premises and deliver the same to the
party of the FIRST PART. (Emphasis supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees
failed to pay the August, 1966 installment despite demands
for more than four (4) months. The defendants-appellants
point to Jocson v. Capitol Subdivision (G.R. No. L-6573,
February 28, 1955) where this Court upheld the right of the
subdivision owner to automatically cancel a contract to sell on
the strength of a provision or stipulation similar to paragraph
6 of the contract in this case. The defendants-appellants also
argue that even in the absence of the aforequoted provision,
they had the right to cancel the contract to sell under Article
1191 of the Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that
the Jocson ruling does not apply. They state that paragraph 6
of the contract to sell is contrary to law insofar as it provides
that in case of specified breaches of its terms, the sellers have
the right to declare the contract cancelled and of no effect,
because it granted the sellers an absolute and automatic right
of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal
obligations provides:
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.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party
the right to rescind the contract upon the failure of the other
to perform the obligation assumed thereunder. Moreover,
there is nothing in the law that prohibits the parties from
entering into an agreement that violation of the terms of the
contract would cause its cancellation even without court

intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12

SCRA 276)
Well settled is, however, the rule that a judicial action for
the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions' (Lopez v.
Commissioner of Customs, 37 SCRA 327, and cases cited
therein)
Resort to judicial action for rescission is obviously not
contemplated . . . The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative
resolutory condition which in many cases has been upheld
by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA
504).
The rule that it is not always necessary for the injured party to
resort to court for rescission of the contract when the contract
itself provides that it may be rescinded for violation of its
terms and conditions, was qualified by this Court in University
of the Philippines v. De los Angeles, (35 SCRA 102) where we
explained that:
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
many 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. ... .
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a
reciprocal obligation; (Ocejo, Perez & Co. v. International
Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan
de Dios, et al., 84 Phil. 820) since in every case where the
extrajudicial resolution is contested only the final award of
the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense
that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject
to judicial invalidation, unless attack thereon should
become barred by acquiescence, estoppel or prescription.
The right to rescind the contract for non-performance of one
of its stipulations, therefore, is not absolute. In Universal Food
Corp. v. Court of Appeals (33 SCRA 1) the Court stated that
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. (Song
Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The
question of whether a breach of a contract is substantial
depends upon the attendant circumstances. (Corpus v. Hon.
Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968). ... .
The defendants-appellants state that the plaintiffs-appellees
violated Section two of the contract to sell which provides:
SECOND.That in consideration of the agreement of sale of
the above described property, the party of the SECOND
PART obligates himself to pay to the party of the FIRST PART
the Sum of THREE THOUSAND NINE HUNDRED TWENTY
ONLY (P3,920.00), Philippine Currency, plus interest at the
rate of 7% per annum, as follows:

(a) The amount of THREE HUNDRED NINETY TWO only

(P392.00) when this contract is signed; and
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or
before the 19th day of each month, from this date until the
total payment of the price above stipulated, including
interest.
because they failed to pay the August installment, despite
demand, for more than four (4) months.
The breach of the contract adverted to by the defendantsappellants is so slight and casual when we consider that apart
from the initial downpayment of P392.00 the plaintiffsappellees had already paid the monthly installments for a
period of almost nine (9) years. In other words, in only a short
time, the entire obligation would have been paid.
Furthermore, although the principal obligation was only P
3,920.00 excluding the 7 percent interests, the plaintiffsappellees had already paid an aggregate amount of P
4,533.38. To sanction the rescission made by the defendantsappellants will work injustice to the plaintiffs- appellees. (See
J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would
unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by
the obligee.
also militates against the unilateral act of the defendantsappellants in cancelling the contract.
We agree with the observation of the lower court to the effect
that:
Although the primary object of selling subdivided lots is
business, yet, it cannot be denied that this subdivision is
likewise purposely done to afford those landless, low
income group people of realizing their dream of a little
parcel of land which they can really call their own.
The defendants-appellants cannot rely on paragraph 9 of the
contract which provides:
NINTH.-That whatever consideration of the party of the
FIRST PART may concede to the party of the SECOND PART,
as not exacting a strict compliance with the conditions of
paragraph 6 of this contract, as well as any other
condonation that the party of the FIRST PART may give to
the party of the SECOND PART with regards to the
obligations of the latter, should not be interpreted as a
renunciation on the part of the party of the FIRST PART of
any right granted it by this contract, in case of default or
non-compliance by the party of the SECOND PART.
The defendants-appellants argue that paragraph nine clearly
allows the seller to waive the observance of paragraph 6 not
merely once, but for as many times as he wishes.
The defendants-appellants' contention is without merit. We
agree with the plaintiffs-appellees that when the defendantsappellants, instead of availing of their alleged right to rescind,
have accepted and received delayed payments of
installments, though the plaintiffs-appellees have been in
arrears beyond the grace period mentioned in paragraph 6 of
the contract, the defendants-appellants have waived and are
now estopped from exercising their alleged right of rescission.
In De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long
arrearages, neither they nor their predecessor, Teodoro de
Guzman, even took steps to cancel the option or to eject
the appellees from the home-lot in question. On the
contrary, it is admitted that the delayed payments were
received without protest or qualification. ... Under these

circumstances, We cannot but agree with the lower court

that at the time appellees exercised their option, appellants
had already forfeited their right to invoke the above-quoted
provision regarding the nullifying effect of the non-payment
of six months rentals by appellees by their having accepted
without qualification on July 21, 1964 the full payment by
appellees of all their arrearages.
The defendants-appellants contend in the second assignment
of error that the ledger of payments show a balance of
P671,67 due from the plaintiffs-appellees. They submit that
while it is true that the total monthly installments paid by the
plaintiffs-appellees may have exceeded P3,920.00, a
substantial portion of the said payments were applied to the
interests since the contract specifically provides for a 7%
interest per annum on the remaining balance. The
defendants-appellants rely on paragraph 2 of the contract
which provides:
SECOND.That in consideration of the agreement of sale of
the above described property, the party of the SECOND
PART obligates himself to pay to the party of the FIRST PART
the Sum of THREE THOUSAND NINE HUNDRED TWENTY
ONLY (P 3,920.00), Philippine Currency, plus interest at the
rate of 7% per annum ... . (Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their
submission that since they have already paid the defendantsappellants a total sum of P4,533.38, the defendantsappellants must now be compelled to execute the final deed
of sale pursuant to paragraph 12 of the contract which
provides:
TWELFTH.That once the payment of the sum of P3,920.00,
the total price of the sale is completed, the party to the
FIRST PART will execute in favor of the party of the SECOND
PART, the necessary deed or deeds to transfer to the latter
the title of the parcel of land sold, free from all hens and
encumbrances other than those expressly provided in this
contract; it is understood, however, that au the expenses
which may be incurred in the said transfer of title shall be
paid by the party of the SECOND PART, as above stated.
Closely related to the second assignment of error is the
submission of the plaintiffs-appellees that the contract herein
is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell
entered into by the parties has some characteristics of a
contract of adhesion. The defendants-appellants drafted and
prepared the contract. The plaintiffs-appellees, eager to
acquire a lot upon which they could build a home, affixed their
signatures and assented to the terms and conditions of the
contract. They had no opportunity to question nor change any
of the terms of the agreement. It was offered to them on a
"take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83
SCRA 36 1), we held that:
xxx xxx xxx
... (W)hile generally, stipulations in a contract come about
after deliberate drafting by the parties thereto. . . . there are
certain contracts almost all the provisions of which have
been drafted only by one party, usually a corporation. Such
contracts are called contracts of adhesion, because the only
participation of the party is the signing of his signature or
his "adhesion" thereto. Insurance contracts, bills of
lading, contracts of sale of lots on the installment plan fall
into this category. (Paras, Civil Code of the Philippines,
Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the
plaintiffs-appellees to pay the defendants-appellants the sum
of P3,920.00 plus 7% interest per annum, it is likewise true
that under paragraph 12 the seller is obligated to transfer the
title to the buyer upon payment of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be
construed against the party causing it. We agree with the
observation of the plaintiffs-appellees to the effect that "the
terms of a contract must be interpreted against the party who
drafted the same, especially where such interpretation will

help effect justice to buyers who, after having invested a big

amount of money, are now sought to be deprived of the same
thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and injurious in
its effect which, in essence, and in its entirety is most unfair
to the buyers."
Thus, since the principal obligation under the contract is only
P3,920.00 and the plaintiffs-appellees have already paid an
aggregate amount of P4,533.38, the courts should only order
the payment of the few remaining installments but not uphold
the cancellation of the contract. Upon payment of the balance
of P671.67 without any interest thereon, the defendantsappellants must immediately execute the final deed of sale in
favor of the plaintiffs-appellees and execute the necessary
transfer documents as provided in paragraph 12 of the
contract. The attorney's fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit.
The decision appealed from is AFFIRMED with the modification
that the plaintiffs-appellees should pay the balance of SIX
HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS
(P671.67) without any interests. Costs against the defendantsappellants.
SO ORDERED.
G.R. No. 97347 July 6, 1999
JAIME G. ONG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPOUSES
MIGUEL K. ROBLES and ALEJANDRO M.
ROBLES,respondents.

YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari from the
judgment rendered by the Court of Appeals which, except as
to the award of exemplary damages, affirmed the decision of
the Regional Trial Court of Lucena City, Branch 60, setting
aside the "Agreement of Purchase and Sale" entered into by
herein petitioner and private respondent spouses in Civil Case
No. 85-85.1wphi1.nt
On May 10, 1983, petitioner Jaime Ong, on the one hand, and
respondent spouses Miguel K. Robles and Alejandra Robles, on
the other hand, executed an "Agreement of Purchase and
Sale" respecting two parcels of land situated at Barrio Puri,
San Antonio, Quezon. The terms and conditions of the
contract read:"
1. That for and in consideration of the agreed purchase
price of TWO MILLION PESOS (P2,000,000.00), Philippine
currency, the mode and manner of payment is as follows:
A. The initial payment of SIX HUNDRED THOUSAND
PESOS (P600,000.00) as verbally agreed by the parties,
shall be broken down as follows:
1. P103,499.91 shall be paid, and as already paid by
the BUYER to the SELLERS on March 22, 1983, as
stipulated under the Certification of
undertaking dated March 22, 1983 and covered by a
check of even date.
2. That the sum of P496,500.09 shall be paid directly
by the BUYER to the Bank of Philippine Islands to
answer for the loan of the SELLERS which as of March
15, 1983 amounted to P537,310.10, and for the
interest that may accrued (sic) from March 15, 1983,
up to the time said obligation of the SELLERS with
the said bank has been settled, provided however
that the amount in excess of P496,500.09, shall be
chargeable from the time deposit of
the SELLERS with the aforesaid bank.

B. That the balance of ONE MILLION FOUR HUNDRED

THOUSAND (P1,400,000.00) PESOS shall be paid by
the BUYER to the SELLERS in four (4) equal quarterly
installments of THREE HUNDRED FIFTY THOUSAND
PESOS (P350,000.00), the first to be due and payable
on June 15, 1983, and every quarter thereafter, until
the whole amount is fully paid, by these presents
promise to sell to said BUYER the two (2) parcels of
agricultural land including the rice mill and the
piggery which are the most notable improvements
thereon, situated at Barangay Puri, San Antonio
Quezon, . . .
2. That upon the payment of the total purchase price by
the BUYER the SELLERS bind themselves to deliver to the
former a good and sufficient deed of sale and conveyance
for the described two (2) parcels of land, free and clear from
all liens and encumbrances.
3. That immediately upon the execution of this document,
the SELLERS shall deliver, surrender and transfer
possession of the said parcels of land including all the
improvements that may be found thereon, to the BUYER,
and the latter shall take over from the SELLER the
possession, operation, control and management of the
RICEMILL and PIGGERY found on the aforesaid parcels of
land.
4. That all payments due and payable under this contract
shall be effected in the residence of the SELLERS located at
Barangay Puri, San Antonio, Quezon unless another place
shall have been subsequently designated by both parties in
writing.
xxx xxx xxx

On May 15, 1983, petitioner Ong took possession of the

subject parcels of land together with the piggery, building,
ricemill, residential house and other improvements thereon.
Pursuant to the contract they executed, petitioner paid
respondent spouses the sum of P103,499.91 2 by depositing it
with the United Coconut Planters Bank. Subsequently,
petitioner deposited sums of money with the Bank of
Philippine Islands (BPI), 3 in accordance with their stipulation
that petitioner pay the loan of respondents with BPI.
To answer for his balance of P1,400,000.00 petitioner issued
four (4) post-dated Metro Bank checks payable to respondent
spouses in the amount of P350,0000.00 each, namely: Check
No. 157708 dated June 15, 1983, 4Check No. 157709 dated
September 15, 1983, 5 Check No. 157710 dated December 15,
1983 6 and Check No. 157711 dated March 15, 1984. 7 When
presented for payment, however, the checks were dishonored
due to insufficient funds. Petitioner promised to replace the
checks but failed to do so. To make matters worse, out of the
P496,500.00 loan of respondent spouses with the Bank of the
Philippine Islands, which petitioner, as per agreement, should
have paid, petitioner only managed to dole out no more than
P393,679.60. When the bank threatened to foreclose the
respondent spouses' mortgage, they sold three transformers
of the rice mill worth P51,411.00 to pay off their outstanding
obligation with said bank, with the knowledge and conformity
of petitioner. 8 Petitioner, in return, voluntarily gave the
spouses authority to operate the rice mill. 9 He, however,
continued to be in possession of the two parcels of land while
private respondents were forced to use the rice mill for
residential purposes.
On August 2, 1985, respondent spouses, through counsel,
sent petitioner a demand letter asking for the return of the
properties. Their demand was left unheeded, so, on
September 2, 1985, they filed with the Regional Trial Court of
Lucena City, Branch 60, a complaint for rescission of contract
and recovery of properties with damages. Later, while the
case was still pending with the trial court, petitioner
introduced major improvements on the subject properties by
constructing a complete fence made of hollow blocks and
expanding the piggery. These prompted the respondent
spouses to ask for a writ of preliminary injunction. 10 The trial
court granted the application and enjoined petitioner from

introducing improvements on the properties except for

repairs. 11
On June 1, 1989 the trial court rendered a decision, the
dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered:
a) Ordering that the contract entered into by plaintiff
spouses Miguel K. Robles and Alejandra M. Robles and the
defendant, Jaime Ong captioned "Agreement of Purchase
and Sale," marked as Exhibit "A" set aside;
b) Ordering defendant, Jaime Ong to deliver the two (2)
parcels of land which are the subject matter of Exhibit "A"
together with the improvements thereon to the spouses
Miguel K. Robles and Alejandro M. Robles;
c) Ordering plaintiff spouses, Miguel Robles and Alejandra
Robles to return to Jaime Ong the sum of P497,179.51;
d) Ordering defendant Jaime Ong to pay the plaintiffs the
sum of P100,000.00 as exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs
spouses Miguel K. Robles and Alejandra Robles the sum of
P20,000.00 as attorney's fees and litigation expenses.
The motion of the plaintiff spouses Miguel K. Roles and
Alejandra Robles for the appointment of receivership is
rendered moot and academic.
SO ORDERED.

12

From this decision, petitioner appealed to the Court of

Appeals, which affirmed the decision of the Regional Trial
Court but deleted the award of exemplary damages. In
affirming the decision of the trial court, the Court of Appeals
noted that the failure of petitioner to completely pay the
purchase price is a substantial breach of his obligation which
entitles the private respondents to rescind their contract
under Article 1191 of the New Civil Code. Hence, the instant
petition.
At the outset, it must be stated that the issues raised by the
petitioner are generally factual in nature and were already
passed upon by the Court of Appeals and the trial court. Time
and again, we have stated that it is not the function of the
Supreme Court to assess and evaluate all over again the
evidence, testimonial and documentary, adduced by the
parties to an appeal, particularly where, such as in the case at
bench, the findings of both the trial court and the appellate
court on the matter coincide. There is no cogent reason shown
that would justify the court to discard the factual findings of
the two courts below and to superimpose its own. 13
The only pertinent legal issues raised which are worthy of
discussion are (1) whether the contract entered into by the
parties may be validly rescinded under Article 1191 of the
New Civil Code; and (2) whether the parties had novated their
original contract as to the time and manner of payment.
Petitioner contends that Article 1191 of the New Civil Code is
not applicable since he has already paid respondent spouses a
considerable sum and has therefore substantially complied
with his obligation. He cites Article 1383 instead, to the effect
that where specific performance is available as a remedy,
rescission may not be resorted to.
A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of the
New Civil Code, is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be
valid, by restoration of things to their condition at the moment
prior to the celebration of the contract. 14 It implies a contract,
which even if initially valid, produces a lesion or a pecuniary
damage to someone. 15

On the other hand, Article 1191 of the New Civil Code refers to
rescission applicable to reciprocal obligations. Reciprocal
obligations are those which arise from the same cause, and in
which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of
the other. 16 They are to be performed simultaneously such
that the performance of one is conditioned upon the
simultaneous fulfillment of the other. Rescission of reciprocal
obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383.
Although both presuppose contracts validly entered into and
subsisting and both require mutual restitution when proper,
they are not entirely identical.
While Article 1191 uses the term "rescission," the original
term which was used in the old Civil Code, from which the
article was based, was "resolution. 17" Resolution is a principal
action which is based on breach of a party, while rescission
under Article 1383 is a subsidiary action limited to cases of
rescission for lesion under Article 1381 of the New Civil Code,
which expressly enumerates the following rescissible
contracts:
1. Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one fourth of the value of the things which are the
object thereof;
2. Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
3. Those undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due
them;
4. Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
5. All other contracts specially declared by law to be
subject to rescission.
Obviously, the contract entered into by the parties in the case
at bar does not fall under any of those mentioned by Article
1381. Consequently, Article 1383 is inapplicable.
May the contract entered into between the parties, however,
be rescinded based on Article 1191?
A careful reading of the parties' "Agreement of Purchase and
Sale" shows that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of sale, the
title to the property passes to the vendee upon the delivery of
the thing sold; while in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. 18 In a
contract to sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force. 19
Respondents in the case at bar bound themselves to deliver a
deed of absolute sale and clean title covering the two parcels
of land upon full payment by the buyer of the purchase price
of P2,000,000.00. This promise to sell was subject to the
fulfillment of the suspensive condition of full payment of the
purchase price by the petitioner. Petitioner, however, failed to
complete payment of the purchase price. The non-fulfillment
of the condition of full payment rendered the contract to sell
ineffective and without force and effect. It must be stressed
that the breach contemplated in Article 1191 of the New Civil
Code is the obligor's failure to comply with an
obligation. 20 Failure to pay, in this instance, is not even a
breach but merely an event which prevents the vendor's
obligation to convey title from acquiring binding
force. 21 Hence, the agreement of the parties in the case at
bench may be set aside, but not because of a breach on the
part of petitioner for failure to complete payment of the
purchase price. Rather, his failure to do so brought about a

situation which prevented the obligation of respondent

spouses to convey title from acquiring an obligatory force.
Petitioner insists, however, that the contract was novated as
to the manner and time of payment.
We are not persuaded. Article 1292 of the New Civil Code
states that, "In order that an obligation may be extinguished
by another which substitutes the same, it is imperative that it
be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each
other."
Novation is never presumed, it must be proven as a fact either
by express stipulation of the parties or by implication derived
from an irreconcilable incompatibility between the old and the
new obligation. 22 Petitioner cites the following instances as
proof that the contract was novated: the retrieval of the
transformers from petitioner's custody and their sale by the
respondents to MERALCO on the condition that the proceeds
thereof be accounted for by the respondents and deducted
from the price of the contract; the take-over by the
respondents of the custody and operation of the rice mill; and
the continuous and regular withdrawals by respondent Miguel
Robles of installment sums per vouchers (Exhs. "8" to "47") on
the condition that these installments be credited to
petitioner's account and deducted from the balance of the
purchase price.
Contrary to petitioner's claim, records show that the parties
never even intended to novate their previous agreement. It is
true that petitioner paid respondents small sums of money
amounting to P48,680.00, in contravention of the manner of
payment stipulated in their contract. These installments were,
however, objected to by respondent spouses, and petitioner
replied that these represented the interest of the principal
amount which he owed them. 23 Records further show that
petitioner agreed to the sale of MERALCO transformers by
private respondents to pay for the balance of their subsisting
loan with the Bank of Philippine Islands. Petitioner's letter of
authorization reads:

original agreement as to his manner of payment, the records

are bereft of evidence that respondent spouses willingly
agreed to modify their previous arrangement.
In order for novation to take place, the concurrence of the
following requisites is indispensable: (1) there must be a
previous valid obligation; (2) there must be an agreement of
the parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the
validity of the new contract. 25 The aforesaid requisites are not
found in the case at bench. The subsequent acts of the parties
hardly demonstrate their intent to dissolve the old obligation
as a consideration for the emergence of the new one. We
repeat to the point of triteness, novation is never presumed,
there must be an express intention to novate.
As regards the improvements introduced by petitioner to the
premises and for which he claims reimbursement, we see no
reason to depart from the ruling of the trial court and the
appellate court that petitioner is a builder in bad faith. He
introduced the improvements on the premises knowing fully
well that he has not paid the consideration of the contract in
full and over the vigorous objections of respondent spouses.
Moreover, petitioner introduced major improvements on the
premises even while the case against him was pending before
the trial court.
The award of exemplary damages was correctly deleted by
the Court of Appeals in as much as no moral, temperate,
liquidated or compensatory damages in addition to exemplary
damages were awarded.
WHEREFORE, the decision rendered by the Court of Appeals is
hereby AFFIRMED with the MODIFICATION that respondent
spouses are ordered to return to petitioner the sum of
P48,680.00 in addition to the amounts already awarded. Costs
against petitioner.1wphi1.nt
SO ORDERED.
G.R. No. 129107

September 26, 2001

xxx xxx xxx

Under this authority, it is mutually understood that whatever
payment received from MERALCO as payment to the
transfromers will be considered as partial payment of the
undersigned's obligation to Mr. and Mrs. Miguel K. Robles.
The same will be utilized as partial payment to existing loan
with the Bank of Philippine Islands.
It is also mutually understood that this payment to the Bank
of Philippine Islands will be reimbursed to Mr. and Mrs. Miguel
K. Robles by the undersigned. [Emphasis supplied] 24
It should be noted that while it was. agreed that part of the
purchase price in the sum of P496,500.00 would be directly
deposited by petitioner to the Bank of Philippine Islands to
answer for the loan of respondent spouses, petitioner only
managed to deposit P393,679.60. When the bank threatened
to foreclose the properties, petitioner apparently could not
even raise the sum needed to forestall any action on the part
of the bank. Consequently, he authorized respondent spouses
to sell the three (3) transformers. However, although the
parties agreed to credit the proceeds from the sale of the
transformers to petitioner's obligation, he was supposed to
reimburse the same later to respondent spouses. This can
only mean that there was never an intention on the part of
either of the parties to novate petitioner's manner of
payment.
Petitioner contends that the parties verbally agreed to novate
the manner of payment when respondent spouses proposed
to operate the rice mill on the condition that they will account
for its earnings. We find that this is unsubstantiated by the
evidenced on the record. The tenor of his letter dated August
12, 1984 to respondent spouses, in fact, shows that petitioner
had a "little misunderstanding" with respondent spouses
whom he was evidently trying to appease by authorizing them
to continue temporarily with the operation of the rice mill.
Clearly, while petitioner might have wanted to novate the

ALFONSO L. IRINGAN, petitioner,

vs.
HON. COURT OF APPEALS and ANTONIO PALAO,
represented by his Attorney-in-Fact, FELISA P. DELOS
SANTOS, respondents.
QUISUMBING, J.:
This petition assails the Decision1 dated April 30, 1997 of the
Court of Appeals in CA G.R. CV No. 39949, affirming the
decision of the Regional Trial Court and deleting the award of
attorney's fee.
The facts of the case are based on the records.
On March 22, 1985, private respondent Antonio Palao sold to
petitioner Alfonso Iringan, an undivided portion of Lot No. 992
of the Tuguegarao Cadastre, located at the Poblacion of
Tuguegarao and covered by Transfer Certificate of Title No. T5790. The parties executed a Deed of Sale2 on the same date
with the purchase price of P295,000.00, payable as follows:
(a) P10,000.00 - upon the execution of this
instrument, and for this purpose, the vendor
acknowledges having received the said amount from
the vendee as of this date;
(b) P140,000.00 - on or before April 30, 1985;
(c) P145,000.00 - on or before December 31, 1985.3
When the second payment was due, Iringan paid only
P40,000. Thus, on July 18, 1985, Palao sent a letter 4 to Iringan
stating that he considered the contract as rescinded and that
he would not accept any further payment considering that
Iringan failed to comply with his obligation to pay the full
amount of the second installment.

On August 20, 1985, Iringan through his counsel Atty. Hilarion

L. Aquino,5 replied that they were not opposing the revocation
of the Deed of Sale but asked for the reimbursement of the
following amounts:

On the first issue, petitioner contends that no rescission was

effected simply by virtue of the letter15 sent by respondent
stating that he considered the contract of sale rescinded.
Petitioner asserts that a judicial or notarial act is necessary
before one party can unilaterally effect a rescission.

(a) P50,000.00 - cash received by you;

(b) P3,200.00 - geodetic engineer's fee;
(c) P500.00 - attorney's fee;
(d) the current interest on P53,700.00.6
In response, Palao sent a letter dated January 10, 1986, 7 to
Atty. Aquino, stating that he was not amenable to the
reimbursements claimed by Iringan.
On February 21, 1989, Iringan, now represented by anew
counsel - Atty. Carmelo Z. Lasam, proposed that the P50,000
which he had already paid Palao be reimbursed8 or Palao
could sell to Iringan, an equivalent portion of the land.
Palao instead wrote Iringan that the latter's standing
obligation had reached P61,600, representing payment of
arrears for rentals from October 1985 up to March 1989.9 The
parties failed to arrive at an agreement.

Respondent Palao, on the other hand, contends that the right

to rescind is vested by law on the obligee and since petitioner
did not oppose the intent to rescind the contract, Iringan in
effect agreed to it and had the legal effect of a mutually
agreed rescission.
Article 1592 of the Civil Code is the applicable provision
regarding the sale of an immovable property.
Article 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay, even
after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him
either judicially or by a notarial act. After the demand, the
court may not grant him a new term. (Italics supplied)
Article 1592 requires the rescinding party to serve judicial or
notarial notice of his intent to resolve the contract.16
In the case of Villaruel v. Tan King,17 we ruled in this wise,

10

On July 1, 1991, Palao filed a Complaint for Judicial

Confirmation of Rescission of Contract and Damages against
Iringan and his wife.
In their Answer,11 the spouses alleged that the contract of sale
was a consummated contract, hence, the remedy of Palao was
for collection of the balance of the purchase price and not
rescission. Besides, they said that they had always been ready
and willing to comply with their obligations in accordance with
said contract.
In a Decision12 dated September 25, 1992, the Regional Trial
Court of Cagayan, Branch I, ruled in favor of Palao and
affirmed the rescission of the contract. It disposed,
WHEREFORE, the Court finds that the evidence
preponderates in favor of the plaintiff and against the
defendants and judgment is hereby rendered as follows:
(a) Affirming the rescission of the contract of sale;
(b) Cancelling the adverse claim of the defendants
annotated at the back of TCT No. T-5790;

...since the subject-matter of the sale in question is real

property, it does not come strictly within the provisions of
article 1124 (now Article 1191) of the Civil Code, but is
rather subjected to the stipulations agreed upon by the
contracting parties and to the provisions of article 1504
(now Article 1592) of the Civil Code."18
Citing Manresa, the Court said that the requirement of then
Article 1504, "refers to a demand that the vendor makes upon
the vendee for the latter to agree to the resolution of the
obligation and to create no obstacles to this contractual mode
of extinguishing obligations."19
Clearly, a judicial or notarial act is necessary before a valid
rescission can take place, whether or not automatic rescission
has been stipulated. It is to be noted that the law uses the
phrase "even though"20 emphasizing that when no stipulation
is found on automatic rescission, the judicial or notarial
requirement still applies.
On the first issue, both the trial and appellate courts affirmed
the validity of the alleged mutual agreement to rescind based
on Article 1191 of the Civil Code, particularly paragraphs 1
and 2 thereof.

(c) Ordering the defendants to vacate the premises;

(d) Ordering the defendants to pay jointly and severally the
sum of P100,000.00 as reasonable compensation for use of
the property minus 50% of the amount paid by them; and to
pay P50,000.00 as moral damages; P10,000.00 as
exemplary damages; and P50,000.00 as attorney's fee; and
to pay the costs of suit.
SO ORDERED.13

Article 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 payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter
should become impossible. [Emphasis ours.]

As stated, the Court of Appeals affirmed the above decision.

Hence, this petition for review.

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.

Iringan avers in this petition that the Court of Appeals erred:

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.

1. In holding that the lower court did not err in affirming the
rescission of the contract of sale; and
2. In holding that defendant was in bad faith for "resisting"
rescission and was made liable to pay moral and exemplary
damages.14
We find two issues for resolution: (1) whether or not the
contract of sale was validly rescinded, and (2) whether or not
the award of moral and exemplary damages is proper.

But in our view, even if Article 1191 were applicable,

petitioner would still not be entitled to automatic rescission.
In Escueta v. Pando,21 we ruled that under Article 1124 (now
Article 1191) of the Civil Code, the right to resolve reciprocal
obligations, is deemed implied in case one of the obligors
shall fail to comply with what is incumbent upon him. But that
right must be invoked judicially. The same article also
provides: "The Court shall decree the resolution demanded,

unless there should be grounds which justify the allowance of

a term for the performance of the obligation."
This requirement has been retained in the third paragraph of
Article 1191, which states that "the court shall decree the
rescission claimed, unless there be just cause authorizing the
fixing of a period."
Consequently, even if the right to rescind is made available to
the injured party,22 the obligation is not ipso factoerased by
the failure of the other party to comply with what is
incumbent upon him. The party entitled to rescind should
apply to the court for a decree of rescission. 23 The right cannot
be exercised solely on a party's own judgment that the other
committed a breach of the obligation.24 The operative act
which produces the resolution of the contract is the decree of
the court and not the mere act of the vendor. 25 Since a judicial
or notarial act is required by law for a valid rescission to take
place, the letter written by respondent declaring his intention
to rescind did not operate to validly rescind the contract.
Notwithstanding the above, however, in our view when private
respondent filed an action for Judicial Confirmation of
Rescission and Damages26 before the RTC, he complied with
the requirement of the law for judicial decree of rescission.
The complaint27 categorically stated that the purpose was 1)
to compel appellants to formalize in a public document, their
mutual agreement of revocation and rescission; and/or 2) to
have a judicial confirmation of the said revocation/rescission
under terms and conditions fair, proper and just for both
parties.28 In Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc.,29 we held that even a crossclaim found in the Answer
could constitute a judicial demand for rescission that satisfies
the requirement of the law.30
Petitioner contends that even if the filing of the case were
considered the judicial act required, the action should be
deemed prescribed based on the provisions of Article 1389 of
the Civil Code.31
This provision of law applies to rescissible contracts, 32 as
enumerated and defined in Articles 138033 and 1381.34We
must stress however, that the "rescission" in Article 1381 is
not akin to the term "rescission" in Article 1191 and Article
1592.35 In Articles 1191 and 1592, the rescission is a principal
action which seeks the resolution or cancellation of the
contract while in Article 1381, the action is a subsidiary one
limited to cases of rescission for lesion as enumerated in said
article.36
The prescriptive period applicable to rescission under Articles
1191 and 1592, is found in Article 1144,37 which provides that
the action upon a written contract should be brought within
ten years from the time the right of action accrues. The suit
was brought on July 1, 1991, or six years after the default. It
was filed within the period for rescission. Thus, the contract of
sale between the parties as far as the prescriptive period
applies, can still be validly rescinded.
On the issue of moral and exemplary damages, petitioner
claims that the Court of Appeals erred in finding bad faith on
his part when he resisted the rescission38 and claimed he was
ready to pay but never actually paid respondent,
notwithstanding that he knew that appellee's principal
motivation for selling the lot was to raise money to pay his
SSS loan.39 Petitioner would have us reverse the said CA
findings based on the exception40that these findings were
made on a misapprehension of facts.
The records do not support petitioner's claims. First, per the
records, petitioner knew respondent's reason for selling his
property. As testified to by petitioner 41 and in the
deposition42 of respondent, such fact was made known to
petitioner during their negotiations as well as in the letters
sent to petitioner by Palao.43 Second,petitioner adamantly
refused to formally execute an instrument showing their
mutual agreement to rescind the contract of sale,
notwithstanding that it was petitioner who plainly breached
the terms of their contract when he did not pay the stipulated
price on time, leaving private respondent desperate to find
other sources of funds to payoff his loan. Lastly, petitioner did
not substantiate by clear and convincing proof, his allegation

that he was ready and willing to pay respondent. We are more

inclined to believe his claim of readiness to pay was an
afterthought intended to evade the consequence of his
breach. There is no record to show the existence of such
amount, which could have been reflected, at the very least, in
a bank account in his name, if indeed one existed; or,
alternatively, the proper deposit made in court which could
serve as a formal tender of payment.44 Thus, we find the
award of moral and exemplary damages proper.1wphi1.nt
WHEREFORE, the petition is DENIED. The assailed decision
dated April 30, 1997 of the Court of Appeals in CA G.R. CV No.
39949, affirming the Regional Trial Court decision and deleting
the award of attorney's fees, is hereby AFFIRMED. Costs
against the petitioner.
SO ORDERED.
G.R. No. 83851. March 3, 1993.
VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners,
vs. THE HONORABLE COURT OF APPEALS and RJH TRADING,
represented by RAMON J. HIBIONADA, proprietor, respondents.
Saleto J. Erames and Edilberto V. Logronio for petitioners.
Eugenio O. Original for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S
FAILURE TO COMPLY WITH POSITIVE SUSPENSIVE CONDITION;
CASE AT BAR. The petitioner corporation's obligation to sell
is unequivocally subject to a positive suspensive condition,
i.e., the private respondent's opening, making or indorsing of
an irrevocable and unconditional letter of credit. The former
agreed to deliver the scrap iron only upon payment of the
purchase price by means of an irrevocable and unconditional
letter of credit. Otherwise stated, the contract is not one of
sale where the buyer acquired ownership over the property
subject to the resolutory condition that the purchase price
would be paid after delivery. Thus, there was to be no actual
sale until the opening, making or indorsing of the irrevocable
and unconditional letter of credit. Since what obtains in the
case at bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition
cannot even be considered a breach casual or serious
but simply an event that prevented the obligation of petitioner
corporation to convey title from acquiring binding force. In
Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., this
Court stated: ". . . The upshot of all these stipulations is that
in seeking the ouster of Maritime for failure to pay the price as
agreed upon, Myers was not rescinding (or more properly,
resolving) the contract, but precisely enforcing it according to
its express terms. In its suit Myers was not seeking restitution
to it of the ownership of the thing sold (since it was never
disposed of), such restoration being the logical consequence
of the fulfillment of a resolutory condition, express or implied
(Article 1190); neither was it seeking a declaration that its
obligation to sell was extinguished. What it sought was a
judicial declaration that because the suspensive condition (full
and punctual payment) had not been fulfilled, its obligation to
sell to Maritime never arose or never became effective and,
therefore, it (Myers) was entitled to repossess the property
object of the contract, possession being a mere incident to its
right of ownership. It is elementary that, as stated by Castan,
-- 'b) Si la condicion suspensiva llega a faltar, la obligacion se
tiene por no existente, y el acreedor pierde todo derecho,
incluso el de utilizar las medidas conservativas.'(3 Castan,
Derecho Civil, 7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV
(1), p. 113).'"
2. ID.; ID.; ID.; RESCISSION. The obligation of the petitioner
corporation to sell did not arise; it therefore cannot be
compelled by specific performance to comply with its
prestation. In short, Article 1191 of the Civil Code does not
apply; on the contrary, pursuant to Article 1597 of the Civil
Code, the petitioner corporation may totally rescind, as it did
in this case, the contract. Said Article provides: "ART. 1597.
Where the goods have not been delivered to the buyer, and
the buyer has repudiated the contract of sale, or has
manifested his inability to perform his obligations, thereunder,

or has committed a breach thereof, the seller may totally

rescind the contract of sale by giving notice of his election so
to do to the buyer."

reciprocally demand performance of the obligations

incumbent upon them, i.e., delivery by the vendor and
payment by the vendee.

3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING

UP AND GATHERING OF SCRAP IRON NOT CONSTRUED AS
DELIVERY THEREOF; REASONS THEREFOR. Paragraph 6 of
the Complaint reads: "6. That on May 17, 1983 Plaintiff with
the consent of defendant Ang Tay sent his men to the
stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta.
Catalina, Negros Oriental to dig and gather the scrap iron and
stock the same for weighing." This permission or consent can,
by no stretch of the imagination, be construed as delivery of
the scrap iron in the sense that, as held by the public
respondent, citing Article 1497 of the Civil Code, petitioners
placed the private respondent in control and possession
thereof. In the first place, said Article 1497 falls under the
Chapter Obligations of the Vendor, which is found in Title VI
(Sales), Book IV of the Civil Code. As such, therefore, the
obligation imposed therein is premised on an existing
obligation to deliver the subject of the contract. In the instant
case, in view of the private respondent's failure to comply
with the positive suspensive condition earlier discussed, such
an obligation had not yet arisen. In the second place, it was a
mere accommodation to expedite the weighing and hauling of
the iron in the event that the sale would materialize. The
private respondent was not thereby placed in possession of
and control over the scrap iron. Thirdly, We cannot even
assume the conversion of the initial contract or promise to sell
into a contract of sale by the petitioner corporation's alleged
implied delivery of the scrap iron because its action and
conduct in the premises do not support this conclusion.
Indeed, petitioners demanded the fulfillment of the
suspensive condition and eventually cancelled the contract.

2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR.

From the time the seller gave access to the buyer to enter his
premises, manifesting no objection thereto but even sending
18 or 20 people to start the operation, he has placed the
goods in the control and possession of the vendee and
delivery is effected. For according to Article 1497, "The thing
sold shall be understood as delivered when it is placed in the
control and possession of the vendee." Such action or real
delivery (traditio) is the act that transfers ownership. Under
Article 1496 of the Civil Code, "The ownership of the thing
sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497
to 1501, or in any other manner signifying an agreement that
the possession is transferred from the vendor to the vendee."

4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE

OF AWARD THEREOF; EXEMPLARY DAMAGES. In contracts,
such as in the instant case, moral damages may be recovered
if defendants acted fraudulently and in bad faith, while
exemplary damages may only be awarded if defendants acted
in a wanton, fraudulent, reckless, oppressive or malevolent
manner. In the instant case, the refusal of the petitioners to
deliver the scrap iron was founded on the non-fulfillment by
the private respondent of a suspensive condition. It cannot,
therefore, be said that the herein petitioners had acted
fraudulently and in bad faith or in a wanton, reckless,
oppressive or malevolent manner. What this Court stated in
Inhelder Corp. vs. Court of Appeals needs to be stressed
anew: "At this juncture, it may not be amiss to remind Trial
Courts to guard against the award of exhorbitant (sic)
damages that are way out of proportion to the environmental
circumstances of a case and which, time and again, this Court
has reduced or eliminated. Judicial discretion granted to the
Courts in the assessment of damages must always be
exercised with balanced restraint and measured objectivity."
For, indeed, moral damages are emphatically not intended to
enrich a complainant at the expense of the defendant. They
are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to obviate the moral
suffering he has undergone, by reason of the defendant's
culpable action. Its award is aimed at the restoration, within
the limits of the possible, of the spiritual status quo ante, and
it must be proportional to the suffering inflicted.
ROMERO, J., dissenting:
1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN
PERFECTED; CASE AT BAR. Article 1458 of the Civil Code
has this definition: "By a 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." Article
1475 gives the significance of this mutual undertaking of the
parties, thus: "The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts." Thus,
when the parties entered into the contract entitled "Purchase
and Sale of Scrap Iron" on May 1, 1983, the contract reached
the stage of perfection, there being a meeting of the' minds
upon the object which is the subject matter of the contract
and the price which is the consideration. Applying Article 1475
of the Civil Code, from that moment, the parties may

3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF

PAYMENT NOT ESSENTIAL REQUISITE THEREOF; WHEN
PROVISION CONSIDERED A SUSPENSIVE CONDITION. a
provision in the contract regarding the mode of payment, like
the requirement for the opening of the Letter of Credit in this
case, is not among the essential requirements of a contract of
sale enumerated in Articles 1305 and 1474, the absence of
any of which will prevent the perfection of the contract from
happening. Likewise, it must be emphasized that not every
provision regarding payment should automatically be
classified as a suspensive condition. To do so would change
the nature of most contracts of sale into contracts to sell. For
a provision in the contract regarding the payment of the price
to be considered a suspensive condition, the parties must
have made this clear in certain and unambiguous terms, such
as for instance, by reserving or withholding title to the goods
until full payment by the buyer. This was a pivotal
circumstance in the Luzon Brokerage case where the contract
in question was replete with very explicit provisions such as
the following: "Title to the properties subject of this contract
remains with the Vendor and shall pass to, and be transferred
in the name of the Vendee only upon complete payment of
the full price . . .;" 10 the Vendor (Myers) will execute and
deliver to the Vendee a definite and absolute Deed of Sale
upon full payment of the Vendee . . .; and "should the Vendee
fail to pay any of the monthly installments, when due, or
otherwise fail to comply with any of the terms and conditions
herein stipulated, then this Deed of Conditional Sale shall
automatically and without any further formality, become null
and void." It is apparent from a careful reading of Luzon
Brokerage, as well as the cases which preceded it and the
subsequent ones applying its doctrines, that the mere
insertion of the price and the mode of payment among the
terms and conditions of the agreement will not necessarily
make it a contract to sell. The phrase in the contract "on the
following terms and conditions" is standard form which is not
to be construed as imposing a condition, whether suspensive
or resolutory, in the sense of the happening of a future and
uncertain event upon which an obligation is made to depend.
There must be a manifest understanding that the agreement
is in what may be referred to as "suspended animation"
pending compliance with provisions regarding payment. The
reservation of title to the object of the contract in the seller is
one such manifestation. Hence, it has been decided in the
case of Dignos v. Court of Appeals that, absent a proviso in
the contract that the title to the property is reserved in the
vendor until full payment of the purchase price or a stipulation
giving the vendor the right to unilaterally rescind the contract
the moment the vendee fails to pay within the fixed period,
the transaction is an absolute contract of sale and not a
contract to sell.
4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM
CONTRACT TO SELL; EFFECT OF NON-PAYMENT OF PURCHASE
PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF
CONTRACT. In a contract of sale, the non-payment of the
price is a resolutory condition which extinguishes the
transaction that, for a time, existed and discharges the
obligations created thereunder. On the other hand, "the
parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price." In such
a contract to sell, the full payment of the price is a positive
suspensive condition, such that in the event of non-payment,
the obligation of the seller to deliver and transfer ownership
never arises. Stated differently, in a contract to sell,

ownership is not transferred upon delivery of property but

upon full payment of the purchase price. Consequently, in a
contract of sale, after delivery of the object of the contract
has been made, the seller loses ownership and cannot recover
the same unless the contract is rescinded. But in the contract
to sell, the seller retains ownership and the buyer's failure to
pay cannot even be considered a breach, whether casual or
substantial, but an event that prevented the seller's duty to
transfer title to the object of the contract.
5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT
CORPORATION, ET AL., G.R. NO. L-6618, APRIL 28, 1956,
DISTINGUISHED FROM CASE AT BAR. Worthy of mention
before concluding is Sycip v. National Coconut Corporation, et
al. since, like this case, it involves a failure to open on time
the Letter of Credit required by the seller. In Sycip, after the
buyer offered to buy 2,000 tons of copra, the seller sent a
telegram dated December 19, 1946 to the buyer accepting
the offer but on condition that the latter opens a Letter of
Credit within 48 hours. It was not until December 26, 1946,
however, that the Letter of Credit was opened. The Court,
speaking through Justice Bengzon, held that because of the
delay in the opening of the Letter of Credit; the seller was not
obliged to deliver the goods. Two factors distinguish Sycip
from the case at bar. First, while there has already been a
perfected contract of sale in the instant case, the parties in
Sycip were still undergoing the negotiation process. The
seller's qualified acceptance in Sycip served as a counter offer
which prevented the contract from being perfected. Only an
absolute and unqualified acceptance of a definite offer
manifests the consent necessary to perfect a contract.
Second, the Court found in Sycip that time was of the essence
for the seller who was anxious to sell to other buyers should
the offeror fail to open the Letter of Credit within the
stipulated time. In contrast, there are no indicia in this case
that can lead one to conclude that time was of the essence for
petitioner as would make the eleven-day delay a fundamental
breach of the contract.
6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER
ARTICLE 1191 OF THE CIVIL CODE; WHEN PROPER; DELAY IN
PAYMENT FOR TWENTY DAYS NOT CONSIDERED A
SUBSTANTIAL BREACH OF CONTRACT; CASE AT BAR. The
right to rescind pursuant to Article 1191 is not absolute.
Rescission will not be permitted for slight or casual breach of
the contract. Here, petitioners claim that the breach is so
substantial as to justify rescission . . . I am not convinced that
the circumstances may be characterized as so substantial and
fundamental as to defeat the object of the parties in making
the agreement. None of the alleged defects in the Letter of
Credit would serve to defeat the object of the parties. It is to
be stressed that the purpose of the opening of a Letter of
Credit is to effect payment. The above-mentioned factors
could not have prevented such payment. It is also significant
to note that petitioners sent a telegram to private
respondents on May 23, 1983 cancelling the contract. This
was before they had even received on May 26, 1983 the
notice from the bank about the opening of the Letter of Credit.
How could they have made a judgment on the materiality of
the provisions of the Letter of Credit for purposes of
rescinding the contract even before setting eyes on said
document? To be sure, in the contract, the private
respondents were supposed to open the Letter of Credit on
May 15, 1983 but, it was not until May 26, 1983 or eleven (11)
days later that they did so. Is the eleven-day delay a
substantial breach of the contract as could justify the
rescission of the contract? In Song Fo and Co. v. HawaiianPhilippine Co., it was held that a delay in payment for twenty
(20) days was not a violation of an essential condition of the
contract which would warrant rescission for non-performance.
In the instant case, the contract is bereft of any suggestion
that time was of the essence. On the contrary, it is noted that
petitioners allowed private respondents' men to dig and
remove the scrap iron located in petitioners' premises
between May 17, 1983 until May 30, 1983 or beyond the May
15, 1983 deadline for the opening of the Letter of Credit.
Hence, in the absence of any indication that the time was of
the essence, the eleven-day delay must be deemed a casual
breach which cannot justify a rescission.
DECISION
DAVIDE, JR., J p:

By this petition for review under Rule 45 of the Rules of Court,

petitioners urge this Court to set aside the decision of public
respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1
promulgated on 16 March 1988, which affirmed with
modification, in respect to the moral damages, the decision of
the Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128,
an action for specific performance and damages, filed by the
herein private respondent against the petitioners. The
dispositive portion of the trial court's decision reads as
follows:
"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby
rendered in favor of plaintiff and against the defendants
ordering the latter to pay jointly and severally plaintiff, to wit:
1) The sum of Thirty-Four Thousand Five Hundred Eighty Three
and 16/100 (P34,583.16), as actual damages;
2) The sum of One Hundred Thousand (P100,000.00) Pesos, as
moral damages;
3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary
damages;
4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as
attorney's fees; and
5) The sum of Five Thousand (P5,000.00) Pesos as actual litis
expenses." 2
The public respondent reduced the amount of moral damages
to P25,000.00.
The antecedent facts, summarized by the public respondent,
are as follows:
"On May 1, 1983, herein plaintiff-appellee and defendantsappellants entered into a sale involving scrap iron located at
the stockyard of defendant-appellant corporation at Cawitan,
Sta. Catalina, Negros Oriental, subject to the condition that
plaintiff-appellee will open a letter of credit in the amount of
P250,000.00 in favor of defendant-appellant corporation on or
before May 15, 1983. This is evidenced by a contract entitled
`Purchase and Sale of Scrap Iron' duly signed by both parties.
On May 17, 1983, plaintiff-appellee through his man (sic),
started to dig and gather and (sic) scrap iron at the
defendant-appellant's (sic) premises, proceeding with such
endeavor until May 30 when defendants-appellants allegedly
directed plaintiff-appellee's men to desist from pursuing the
work in view of an alleged case filed against plaintiff-appellee
by a certain Alberto Pursuelo. This, however, is denied by
defendants-appellants who allege that on May 23, 1983, they
sent a telegram to plaintiff-appellee cancelling the contract of
sale because of failure of the latter to comply with the
conditions thereof.
On May 24, 1983, plaintiff-appellee informed defendantsappellants by telegram that the letter of credit was opened
May 12, 1983 at the Bank of the Philippine Islands main office
in Ayala, but then (sic) the transmittal was delayed.
On May 26, 1983, defendants-appellants received a letter
advice from the Dumaguete City Branch of the Bank of the
Philippine Islands dated May 26, 1983, the content of which is
quited (sic) as follows:
'Please be advised that we have received today cable advise
from our Head Office which reads as follows:
'Open today our irrevocable Domestic Letter of Credit No.
01456-d fot (sic) P250,000.00 favor ANG TAY c/o Visayan
Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of
ARMACO-MARSTEEL ALLOY CORPORATION 2nd Floor Alpap 1
Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro
Manila Shipments of about 500 MT of assorted steel scrap
marine/heavy equipment expiring on July 24, 1983 without
recourse at sight draft drawn on Armaco Marsteel Alloy
Corporation accompanied by the following documents:
Certificate of Acceptance by Armaco-Marsteel Alloy

Corporation shipment from Dumaguete City to buyer's

warehouse partial shipment allowed/transhipment (sic) not
allowed'.
For your information'.
On July 19, 1983, plaintiff-appellee sent a series of telegrams
stating that the case filed against him by Pursuelo had been
dismissed and demanding that defendants-appellants comply
with the deed of sale, otherwise a case will be filed against
them.
In reply to those telegrams, defendants-appellants' lawyer, on
July 20, 1983 informed plaintiff-appellee's lawyer that
defendant-appellant corporation is unwilling to continue with
the sale due to plaintiff-appellee's failure to comply with
essential pre-conditions of the contract.
On July 29, 1983, plaintiff-appellee filed the complaint below
with a petition for preliminary attachment. The writ of
attachment was returned unserved because the defendantappellant corporation was no longer in operation and also
because the scrap iron as well as other pieces of machinery
can no longer be found on the premises of the corporation." 3
In his complaint, private respondent prayed for judgment
ordering the petitioner corporation to comply with the
contract by delivering to him the scrap iron subject thereof;
he further sought an award of actual, moral and exemplary
damages, attorney's fees and the costs of the suit. 4
In their Answer with Counterclaim, 5 petitioners insisted that
the cancellation of the contract was justified because of
private respondent's non-compliance with essential preconditions, among which is the opening of an irrevocable and
unconditional letter of credit not later than 15 May 1983.

that the seller agreed to sell and the buyer agreed to buy 'an
undetermined quantity of scrap iron and junk which the seller
will identify and designate.' Thus, it is contended, since no
identification and designation was made, there could be no
delivery. In addition, defendants-appellants maintain that their
obligation to deliver cannot be completed until they furnish
the cargo trucks to haul the weighed materials to the wharf.
The arguments are untenable. Article 1497 of the Civil Code
states:
'The thing sold shall be understood as delivered when it is
placed in the control and possession of the vendee.'
In the case at bar, control and possession over the subject
matter of the contract was given to plaintiff-appellee, the
buyer, when the defendants-appellants as the sellers allowed
the buyer and his men to enter the corporation's premises
and to dig-up the scrap iron. The pieces of scrap iron then
(sic) placed at the disposal of the buyer. Delivery was
therefore complete. The identification and designation by the
seller does not complete delivery.
On the second and third assignments of error, defendantsappellants argue that under Articles 1593 and 1597 of the
Civil Code, automatic rescission may take place by a mere
notice to the buyer if the latter committed a breach of the
contract of sale.
Even if one were to grant that there was a breach of the
contract by the buyer, automatic rescission cannot take place
because, as already (sic) stated, delivery had already been
made. And, in cases where there has already been delivery,
the intervention of the court is necessary to annul the
contract.
As the lower court aptly stated:

During the pre-trial of the case on 30 April 1984, the parties

defined the issues to be resolved; these issues were
subsequently embodied in the pre-trial order, to wit:
"1. Was the contract entitled Purchase and Sale of Scrap Iron,
dated May 1, 1983 executed by the parties cancelled and
terminated before the Complaint was filed by anyone of the
parties; if so, what are the grounds and reasons relied upon by
the cancelling parties; and were the reasons or grounds for
cancelling valid and justified?
2. Are the parties entitled to damages they respectively claim
under the pleadings?" 6
On 29 November 1985, the trial court rendered its judgment,
the dispositive portion of which was quoted earlier.
Petitioners appealed from said decision to the Court of
Appeals which docketed the same as C.A.-G.R. CV No. 08807.
In their Brief, petitioners, by way of assigned errors, alleged
that the trial court erred:
"1. In finding that there was delivery of the scrap iron subject
of the sale;
2. In not finding that plaintiff had not complied with the
conditions in the contract of sale;
3. In finding that defendants-appellants were not justified in
cancelling the sale;
4. In awarding damages to the plaintiff as against the
defendants-appellants;
5. In not awarding damages to defendants-appellants." 7
Public respondent disposed of these assigned errors in this
wise:
"On the first error assigned, defendants-appellants argue that
there was no delivery because the purchase document states

'Respecting these allegations of the contending parties, while

it is true that Article 1593 of the New Civil Code provides that
with respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor, if the
vendee fails to tender the price at the time or period fixed or
agreed, however, automatic rescission is not allowed if the
object sold has been delivered to the buyer (Guevarra vs.
Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the
action being one to rescind judicially and where (sic) Article
1191, supra, thereby applies. There being already an implied
delivery of the items, subject matter of the contract between
the parties in this case, the defendant having surrendered the
premises where the scraps (sic) were found for plaintiff's men
to dig and gather, as in fact they had dug and gathered, this
Court finds the mere notice of resolution by the defendants
untenable and not conclusive on the rights of the plaintiff
(Ocejo Perez vs. Int. Bank, 37 Phi. 631). Likewise, as early as
in the case of Song Fo vs. Hawaiian Philippine Company, it has
been ruled that rescission cannot be sanctioned for a slight or
casual breach (47 Phil. 821).'
In the case of Angeles vs. Calasanz (135 (1935) SCRA 323),
the Supreme Court ruled:
'Article 1191 is explicit. In reciprocal obligations, either party
has the right to rescind the contract upon failure of the other
to perform the obligation assumed thereunder.
Of course, it must be understood that the right 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.'
Thus, rescission in cases falling under Article 1191 of the Civil
Code is always subject to review by the courts and cannot be
considered final.
In the case at bar, the trial court ruled that rescission is
improper because the breach was very slight and the delay in
opening the letter of credit was only 11 days.

'Where time is not of the essence of the agreement, a slight

delay by one party in the performance of his obligation is not
a sufficient ground for rescission of the agreement. Equity and
justice mandates (sic) that the vendor be given additional
(sic) period to complete payment of the purchase price.'
(Taguda vs. Vda. de Leon, 132 SCRA (1984), 722).'
There is no need to discuss the fourth and fifth assigned errors
since these are merely corollary to the first three assigned
errors." 8
Their motion to reconsider the said decision having been
denied by public respondent in its Resolution of 4 May 1988, 9
petitioners filed this petition reiterating the abovementioned
assignment of errors.
There is merit in the instant petition.
Both the trial court and the public respondent erred in the
appreciation of the nature of the transaction between the
petitioner corporation and the private respondent. To this
Court's mind, what obtains in the case at bar is a mere
contract to sell or promise to sell, and not a contract of sale.
The trial court assumed that the transaction is a contract of
sale and, influenced by its view that there was an "implied
delivery" of the object of the agreement, concluded that
Article 1593 of the Civil Code was inapplicable; citing
Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled
that rescission under Article 1191 of the Civil Code could only
be done judicially. The trial court further classified the breach
committed by the private respondent as slight or casual,
foreclosing, thereby, petitioners' right to rescind the
agreement.
Article 1593 of the Civil Code provides:
"ARTICLE 1593. With respect to movable property, the
rescission of the sale shall of right take place in the interest of
the vendor, if the vendee, upon the expiration of the period
fixed for the delivery of the thing, should not have appeared
to receive it, or, having appeared, he should not have
tendered the price at the same time, unless a longer period
has been stipulated for its payment."
Article 1191 provides:
"ARTICLE 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."
xxx xxx xxx
Sustaining the trial court on the issue of delivery, public
respondent cites Article 1497 of the Civil Code which provides:
"ARTICLE 1497. The thing sold shall be understood as
delivered, when it is placed in the control and possession of
the vendee."
In the agreement in question, entitled PURCHASE AND SALE
OF SCRAP IRON, 12 the seller bound and promised itself to sell
the scrap iron upon the fulfillment by the private respondent
of his obligation to make or indorse an irrevocable and
unconditional letter of credit in payment of the purchase
price. Its principal stipulation reads, to wit:
xxx xxx xxx
"Witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy,
an undetermined quantity of scrap iron and junk which the
SELLER will identify and designate now at Cawitan, Sta.
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS
(P0.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at
Cawitan, Sta. Catalina, Neg. Oriental.
2. To cover payment of the purchase price, BUYER will open,
make or indorse an irrevocable and unconditional letter of
credit not later than May 15, 1983 at the Consolidated Bank
and Trust Company, Dumaguete City, Branch, in favor of the
SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND
PESOS (P250,000.00), Philippine Currency.
3. The SELLER will furnish the BUYER free of charge at least
three (3) cargo trucks with drivers, to haul the weighed
materials from Cawitan to the TSMC wharf at Sta. Catalina for
loading on BUYER's barge. All expenses for labor, loading and
unloading shall be for the account of the BUYER.
4. SELLER shall be entitled to a deduction of three percent
(3%) per ton as rust allowance." (Emphasis supplied).
The petitioner corporation's obligation to sell is unequivocally
subject to a positive suspensive condition, i.e., the private
respondent's opening, making or indorsing of an irrevocable
and unconditional letter of credit. The former agreed to
deliver the scrap iron only upon payment of the purchase
price by means of an irrevocable and unconditional letter of
credit. Otherwise stated, the contract is not one of sale where
the buyer acquired ownership over the property subject to the
resolutory condition that the purchase price would be paid
after delivery. Thus, there was to be no actual sale until the
opening, making or indorsing of the irrevocable and
unconditional letter of credit. Since what obtains in the case
at bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition
cannot even be considered a breach casual or serious
but simply an event that prevented the obligation of petitioner
corporation to convey title from acquiring binding force. In
Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., 13
this Court stated:
" . . . The upshot of all these stipulations is that in seeking the
ouster of Maritime for failure to pay the price as agreed upon,
Myers was not rescinding (or more properly, resolving) the
contract, but precisely enforcing it according to its express
terms. In its suit Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of),
such restoration being the logical consequence of the
fulfillment of a resolutory condition, express or implied (article
1190); neither was it seeking a declaration that its obligation
to sell was extinguished. What it sought was a judicial
declaration that because the suspensive condition (full and
punctual payment) had not been fulfilled, its obligation to sell
to Maritime never arose or never became effective and,
therefore, it (Myers) was entitled to repossess the property
object of the contract, possession being a mere incident to its
right of ownership. It is elementary that, as stated by Castan,

'b) Si la condicion suspensiva llega a faltar, la obligacion se

tiene por no existente, y el acreedor pierde todo derecho,
incluso el de utilizar las medidas conservativas.' (3 Cast n,
Derecho Civil, 7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV
(1), p. 113)'."
In the instant case, not only did the private respondent fail to
open, make or indorse an irrevocable and unconditional letter
of credit on or before 15 May 1983 despite his earlier
representation in his 24 May 1983 telegram that he had
opened one on 12 May 1983, the letter of advice received by
the petitioner corporation on 26 May 1983 from the Bank of
the Philippine Islands Dumaguete City branch explicitly makes
reference to the opening on that date of a letter of credit in
favor of petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn
without recourse on ARMACO-MARSTEEL ALLOY CORPORATION
and set to expire on 24 July 1983, which is indisputably not in
accordance with the stipulation in the contract signed by the
parties on at least three (3) counts: (1) it was not opened,

made or indorsed by the private respondent, but by a

corporation which is not a party to the contract; (2) it was not
opened with the bank agreed upon; and (3) it is not
irrevocable and unconditional, for it is without recourse, it is
set to expire on a specific date and it stipulates certain
conditions with respect to shipment. In all probability, private
respondent may have sold the subject scrap iron to ARMACOMARSTEEL ALLOY CORPORATION, or otherwise assigned to it
the contract with the petitioners. Private respondent's
complaint fails to disclose the sudden entry into the picture of
this corporation.
Consequently, the obligation of the petitioner corporation to
sell did not arise; it therefore cannot be compelled by specific
performance to comply with its prestation. In short, Article
1191 of the Civil Code does not apply; on the contrary,
pursuant to Article 1597 of the Civil Code, the petitioner
corporation may totally rescind, as it did in this case, the
contract. Said Article provides:
"ARTICLE 1597. Where the goods have not been delivered to
the buyer, and the buyer has repudiated the contract of sale,
or has manifested his inability to perform his obligations,
thereunder, or has committed a breach thereof, the seller may
totally rescind the contract of sale by giving notice of his
election so to do to the buyer."
The trial court ruled, however, and the public respondent was
in agreement, that there had been an implied delivery in this
case of the subject scrap iron because on 17 May 1983,
private respondent's men started digging up and gathering
scrap iron within the petitioner's premises. The entry of these
men was upon the private respondent's request. Paragraph 6
of the Complaint reads:
"6. That on May 17, 1983 Plaintiff with the consent of
defendant Ang Tay sent his men to the stockyard of Visayan
Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to
dig and gather the scrap iron and stock the same for
weighing." 14

Inhelder Corp. vs. Court of Appeals 18 needs to be stressed

anew:
"At this juncture, it may not be amiss to remind Trial Courts to
guard against the award of exhorbitant (sic) damages that are
way out of proportion to the environmental circumstances of a
case and which, time and again, this Court has reduced or
eliminated. Judicial discretion granted to the Courts in the
assessment of damages must always be exercised with
balanced restraint and measured objectivity."
For, indeed, moral damages are emphatically not intended to
enrich a complainant at the expense of the defendant. They
are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to obviate the moral
suffering he has undergone, by reason of the defendant's
culpable action. Its award is aimed at the restoration, within
the limits of the possible, of the spiritual status quo ante, and
it must be proportional to the suffering inflicted. 19
WHEREFORE, the instant petition is GRANTED. The decision of
public respondent Court of Appeals in C.A.-G.R. CV No. 08807
is REVERSED and Civil Case No. 15128 of the Regional Trial
Court of Iloilo is ordered DISMISSED.
Costs against the private respondent.
SO ORDERED.
Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ .,
concur.
Gutierrez, Jr., J ., On terminal leave.
Melo and Quiason, JJ ., No part.
Separate Opinions
ROMERO, J., dissenting:

This permission or consent can, by no stretch of the

imagination, be construed as delivery of the scrap iron in the
sense that, as held by the public respondent, citing Article
1497 of the Civil Code, petitioners placed the private
respondent in control and possession thereof. In the first
place, said Article 1497 falls under the Chapter 15 Obligations
of the Vendor, which is found in Title VI (Sales), Book IV of the
Civil Code. As such, therefore, the obligation imposed therein
is premised on an existing obligation to deliver the subject of
the contract. In the instant case, in view of the private
respondent's failure to comply with the positive suspensive
condition earlier discussed, such an obligation had not yet
arisen. In the second place, it was a mere accommodation to
expedite the weighing and hauling of the iron in the event
that the sale would materialize. The private respondent was
not thereby placed in possession of and control over the scrap
iron. Thirdly, We cannot even assume the conversion of the
initial contract or promise to sell into a contract of sale by the
petitioner corporation's alleged implied delivery of the scrap
iron because its action and conduct in the premises do not
support this conclusion. Indeed, petitioners demanded the
fulfillment of the suspensive condition and eventually
cancelled the contract.
All told, Civil Case No. 15128 filed before the trial court was
nothing more than the private respondent's preemptive action
to beat the petitioners to the draw.
One last point. This Court notes the palpably excessive and
unconscionable moral and exemplary damages awarded by
the trial court to the private respondent despite a clear
absence of any legal and factual basis therefor. In contracts,
such as in the instant case, moral damages may be recovered
if defendants acted fraudulently and in bad faith, 16 while
exemplary damages may only be awarded if defendants acted
in a wanton, fraudulent, reckless, oppressive or malevolent
manner. 17 In the instant case, the refusal of the petitioners
to deliver the scrap iron was founded on the non-fulfillment by
the private respondent of a suspensive condition. It cannot,
therefore, be said that the herein petitioners had acted
fraudulently and in bad faith or in a wanton, reckless,
oppressive or malevolent manner. What this Court stated in

I vote to dismiss the petition.

Petitioner corporation, Visayan Sawmill Co., Inc., entered into
a contract on May 1, 1983 with private respondent RJH Trading
Co. represented by private respondent Ramon J. Hibionada.
The contract, entitled "PURCHASE AND SALE OF SCRAP IRON,"
stated:
This contract for the Purchase and Sale of Scrap Iron, made
and executed at Dumaguete City, Phil., this 1st day of May,
1983 by and between:
VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER,
and
RAMON J. HIBIONADA, . . . hereinafter called the BUYER,
witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to buy,
an undetermined quantity of scrap iron and junk which the
SELLER will identify and designate now at Cawitan, Sta.
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS
(P.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at
Cawitan, Sta. Catalina, Negros Oriental.
2. To cover payment of the purchase price BUYER will open,
make or indorse an irrevocable and unconditional letter of
credit not later than May 15, 1983 at the Consolidated Bank
and Trust Company, Dumaguete City Branch, in favor of the
SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND
PESOS (P250,000.00), Philippine currency.
3. The SELLER will furnish the BUYER free of charge at least
three (3) cargo trucks with drivers, to haul the weighed
materials from Cawitan to the TSMC wharf at Sta. Catalina for

loading on BUYER'S barge. All expenses for labor, loading and

unloading shall be for the account of the BUYER.
4. SELLER shall be entitled to a deduction of three percent
(3%) per ton as rust allowance.
xxx xxx xxx
On May 17, 1983, the workers of private respondents were
allowed inside petitioner company's premises in order to
gather the scrap iron. However, on May 23, 1983, petitioner
company sent a telegram which stated:
"RAMON HIBIONADA
RJH TRADING
286 QUEZON STREET

condition was not fulfilled, the obligation of petitioners to

convey title did not arise. The lengthy decision of Luzon
Brokerage Co., Inc. v. Maritime Co. Inc. 1 penned by Justice
J.B.L. Reyes, was cited as authority on the assumption that
subject contract is indeed a contract to sell but which will be
shown herein as not quite accurate.
Evidently, the distinction between a contract to sell and a
contract of sale is crucial in this case. Article 1458 of the Civil
Code has this definition: "By a 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."
Article 1475 gives the significance of this mutual undertaking
of the parties, thus: "The contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of
contracts."

ILOILO CITY
DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE
DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON
CANCELLED
VISAYAN SAWMILL CO., INC."
Hibionada wired back on May 24, 1983 the following:
"ANG TAY VISAYAN SAWMILL
DUMAGUETE CITY
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12,
1983 BANK OF PI MAIN OFFICE AYALA AVENUE MAKATI METRO
MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER
REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS
REGARDS.
RAMON HIBIONADA"
On May 26, 1983, petitioner company received the following
advice from the Dumaguete City Branch of The Bank of
Philippine Islands: cdll
"Opened today our Irrevocable Domestic Letter of Credit 201456-4 for P250,000.00 in favor ANG TAY c/o Visayan Sawmill
Co., Inc. Dumaguete City Negros Oriental Account of ARMACOMARSTEEL ALLOW (sic) CORPORATION 2nd Floor Alpap 1
Bldg., 140 Alfaro st. Salcedo Village Makati Metro Manila
Shipments of about 500 MT of assorted steel scrap
marine/heavy equipment expiring on July 23, 1983 without
recourse at slight draft drawn on Armaco-Marsteel Alloy
Corporation accompanied by the following documents:
Certificate of acceptance by Armaco-Marsteel Allow (sic)
Corporation shipment from Dumaguete City to buyer's
warehouse partial shipment allowed/transhipment not
allowed."
Subsequently, petitioners' counsel sent another telegram to
private respondents stating that:
"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE
OF SCRAP IRON TO HIBIONADA DUE TO NON COMPLIANCE
WITH ESSENTIAL PRE CONDITIONS"
Consequently, private respondents filed a complaint for
specific performance and damages with the Regional Trial
Court (RTC) of Iloilo (Branch XXXV) which decided in favor of
private respondents. The RTC decision having been affirmed
by the Court of Appeals, the present petition was filed.
Finding the petition meritorious, the ponencia reversed the
decision of the Court of Appeals. Based on its appreciation of
the contract in question, it has arrived at the conclusion that
herein contract is not a contract of sale but a contract to sell
which is subject to a positive suspensive condition, i.e., the
opening of a letter of credit by private respondents. Since the

Thus, when the parties entered into the contract entitled

"Purchase and Sale of Scrap Iron" on May 1, 1983, the
contract reached the stage of perfection, there being a
meeting of the' minds upon the object which is the subject
matter of the contract and the price which is the
consideration. Applying Article 1475 of the Civil Code, from
that moment, the parties may reciprocally demand
performance of the obligations incumbent upon them, i.e.,
delivery by the vendor and payment by the vendee.
Petitioner, in its petition, admits that "[b]efore the opening of
the letter of credit, buyer Ramon Hibionada went to Mr. Ang
Tay and informed him that the letter of credit was forthcoming
and if it was possible for him (buyer) to start cutting and
digging the scrap iron before the letter of credit arrives and
the former (seller) manifested no objection, and he
immediately sent 18 or 20 people to start the operation." 2
From the time the seller gave access to the buyer to enter his
premises, manifesting no objection thereto but even sending
18 or 20 people to start the operation, he has placed the
goods in the control and possession of the vendee and
delivery is effected. For according to Article 1497, "The thing
sold shall be understood as delivered when it is placed in the
control and possession of the vendee." 3
Such action or real delivery (traditio) is the act that transfers
ownership. Under Article 1496 of the Civil Code, "The
ownership of the thing sold is acquired by the vendee from
the moment it is delivered to him in any of the ways specified
in Articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor
to the vendee."
That payment of the price in any form was not yet effected is
immaterial to the transfer of the right of ownership. In a
contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time,
existed and discharges the obligations created thereunder. 4
On the other hand, "the parties may stipulate that ownership
in the thing shall not pass to the purchaser until he has fully
paid the price." 5 In such a contract to sell, the full payment of
the price is a positive suspensive condition, such that in the
event of non-payment, the obligation of the seller to deliver
and transfer ownership never arises. Stated differently, in a
contract to sell, ownership is not transferred upon delivery of
property but upon full payment of the purchase price. 6
Consequently, in a contract of sale, after delivery of the object
of the contract has been made, the seller loses ownership and
cannot recover the same unless the contract is rescinded. But
in the contract to sell, the seller retains ownership and the
buyer's failure to pay cannot even be considered a breach,
whether casual or substantial, but an event that prevented
the seller's duty to transfer title to the object of the contract.
At the outset, it must be borne in mind that a provision in the
contract regarding the mode of payment, like the requirement
for the opening of the Letter of Credit in this case, is not

among the essential requirements of a contract of sale

enumerated in Articles 1305 7 and 1474, 8 the absence of any
of which will prevent the perfection of the contract from
happening. Likewise, it must be emphasized that not every
provision regarding payment should automatically be
classified as a suspensive condition. To do so would change
the nature of most contracts of sale into contracts to sell. For
a provision in the contract regarding the payment of the price
to be considered a suspensive condition, the parties must
have made this clear in certain and unambiguous terms, such
as for instance, by reserving or withholding title to the goods
until full payment by the buyer. 9 This was a pivotal
circumstance in the Luzon Brokerage case where the contract
in question was replete with very explicit provisions such as
the following: "Title to the properties subject of this contract
remains with the Vendor and shall pass to, and be transferred
in the name of the Vendee only upon complete payment of
the full price . . .;" 10 the Vendor (Myers) will execute and
deliver to the Vendee a definite and absolute Deed of Sale
upon full payment of the Vendee . . .; 11 and "should the
Vendee fail to pay any of the monthly installments, when due,
or otherwise fail to comply with any of the terms and
conditions herein stipulated, then this Deed of Conditional
Sale shall automatically and without any further formality,
become null and void." 12
It is apparent from a careful reading of Luzon Brokerage, as
well as the cases which preceded it 13 and the subsequent
ones applying its doctrines, 14 that the mere insertion of the
price and the mode of payment among the terms and
conditions of the agreement will not necessarily make it a
contract to sell. The phrase in the contract "on the following
terms and conditions" is standard form which is not to be
construed as imposing a condition, whether suspensive or
resolutory, in the sense of the happening of a future and
uncertain event upon which an obligation is made to depend.
There must be a manifest understanding that the agreement
is in what may be referred to as "suspended animation"
pending compliance with provisions regarding payment. The
reservation of title to the object of the contract in the seller is
one such manifestation. Hence, it has been decided in the
case of Dignos v. Court of Appeals 15 that, absent a proviso in
the contract that the title to the property is reserved in the
vendor until full payment of the purchase price or a stipulation
giving the vendor the right to unilaterally rescind the contract
the moment the vendee fails to pay within the fixed period,
the transaction is an absolute contract of sale and not a
contract to sell. 16
In the instant case, nowhere in the contract did it state that
the petitioners reserve title to the goods until private
respondents have opened a letter of credit. Nor is there any
provision declaring the contract as without effect until after
the fulfillment of the condition regarding the opening of the
letter of credit.
Examining the contemporaneous and subsequent conduct of
the parties, which may be relevant in the determination of the
nature and meaning of the contract, 17 it is significant that in
the telegram sent by petitioners to Hibionada on May 23,
1983, it stated that "DUE [TO] YOUR FAILURE TO COMPLY
WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR
PURCHASE SCRAP IRON CANCELLED." And in some of the
pleadings in the course of this litigation, petitioners referred to
the transaction as a contract of sale. 18
In light of the provisions of the contract, contemporaneous
and subsequent acts of the parties and the other relevant
circumstances surrounding the case, it is evident that the
stipulation for the buyer to open a Letter of Credit in order to
cover the payment of the purchase price does not bear the
marks of a suspensive condition. The agreement between the
parties was a contract of sale and the "terms and conditions"
embodied therein which are standard form, are clearly
resolutory in nature, the breach of which may give either
party the option to bring an action to rescind and/or seek
damages. Contrary to the conclusions arrived at in the
ponencia, the transaction is not a contract to sell but a
contract of sale.
However, the determination of the nature of the contract does
not settle the controversy. A breach of the contract was
committed and the rights and liabilities of the parties must be
established. The ponencia, notwithstanding its conclusion that

no contract of sale existed, proceeded to state that petitioner

company may rescind the contract based on Article 1597 of
the Civil Code which expressly applies only to a contract of
sale. It provides:
"ARTICLE 1597. Where the goods have not been delivered to
the buyer, and the buyer has repudiated the contract of sale,
or has manifested his inability to perform his obligations,
thereunder, or has committed a breach thereof, the seller may
totally rescind the contract of sale by giving notice of his
election so to do to the buyer." (Emhasis supplied).
The ponencia was then confronted with the issue of delivery
since Article 1597 applies only "[w]here the goods have not
yet been delivered." In this case, as aforestated, the workers
of private respondents were actually allowed to enter the
petitioners' premises, thus, giving them control and
possession of the goods. At this juncture, it is even
unnecessary to discuss the issue of delivery in relation to the
right of rescission nor to rely on Article 1597. In every contract
which contains reciprocal obligations, the right to rescind is
always implied under Article 1191 of the Civil Code in case
one of the parties fails to comply with his obligations. 19
The right to rescind pursuant to Article 1191 is not absolute.
Rescission will not be permitted for slight or casual breach of
the contract. 20 Here, petitioners claim that the breach is so
substantial as to justify rescission, not only because the Letter
of Credit was not opened on May 15, 1983 as stipulated in the
contract but also because of the following factors: (1) the
Letter of Credit, although opened in favor of petitioners was
made against the account of a certain Marsteel Alloy
Corporation, instead of private respondent's account; (2) the
Letter of Credit referred to "assorted steel scrap" instead of
"scrap iron and junk" as provided in the contract; (3) the
Letter of Credit placed the quantity of the goods at "500 MT"
while the contract mentioned "an undetermined quantity of
scrap iron and junk"; (4) no amount from the Letter of Credit
will be released unless accompanied by a Certificate of
Acceptance; and (5) the Letter of Credit had an expiry date.
I am not convinced that the above circumstances may be
characterized as so substantial and fundamental as to defeat
the object of the parties in making the agreement. 21 None of
the alleged defects in the Letter of Credit would serve to
defeat the object of the parties. It is to be stressed that the
purpose of the opening of a Letter of Credit is to effect
payment. The above-mentioned factors could not have
prevented such payment. It is also significant to note that
petitioners sent a telegram to private respondents on May 23,
1983 cancelling the contract. This was before they had even
received on May 26, 1983 the notice from the bank about the
opening of the Letter of Credit. How could they have made a
judgment on the materiality of the provisions of the Letter of
Credit for purposes of rescinding the contract even before
setting eyes on said document?
To be sure, in the contract, the private respondents were
supposed to open the Letter of Credit on May 15, 1983 but, it
was not until May 26, 1983 or eleven (11) days later that they
did so. Is the eleven-day delay a substantial breach of the
contract as could justify the rescission of the contract?
In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held
that a delay in payment for twenty (20) days was not a
violation of an essential condition of the contract which would
warrant rescission for non-performance. In the instant case,
the contract is bereft of any suggestion that time was of the
essence. On the contrary, it is noted that petitioners allowed
private respondents' men to dig and remove the scrap iron
located in petitioners' premises between May 17, 1983 until
May 30, 1983 or beyond the May 15, 1983 deadline for the
opening of the Letter of Credit. Hence, in the absence of any
indication that the time was of the essence, the eleven-day
delay must be deemed a casual breach which cannot justify a
rescission.
Worthy of mention before concluding is Sycip v. National
Coconut Corporation, et al. 23 since, like this case, it involves
a failure to open on time the Letter of Credit required by the
seller. In Sycip, after the buyer offered to buy 2,000 tons of
copra, the seller sent a telegram dated December 19, 1946 to
the buyer accepting the offer but on condition that the latter

opens a Letter of Credit within 48 hours. It was not until

December 26, 1946, however, that the Letter of Credit was
opened. The Court, speaking through Justice Bengzon, held
that because of the delay in the opening of the Letter of
Credit; the seller was not obliged to deliver the goods.
Two factors distinguish Sycip from the case at bar. First, while
there has already been a perfected contract of sale in the
instant case, the parties in Sycip were still undergoing the
negotiation process. The seller's qualified acceptance in Sycip
served as a counter offer which prevented the contract from
being perfected. Only an absolute and unqualified acceptance
of a definite offer manifests the consent necessary to perfect
a contract. 24 Second, the Court found in Sycip that time was
of the essence for the seller who was anxious to sell to other
buyers should the offeror fail to open the Letter of Credit
within the stipulated time. In contrast, there are no indicia in
this case that can lead one to conclude that time was of the
essence for petitioner as would make the eleven-day delay a
fundamental breach of the contract.
In sum, to my mind, both the trial court and the respondent
Court of Appeals committed no reversible error in their
appreciation of the agreement in question as a contract of
sale and not a contract to sell, as well as holding that the
breach of the contract was not substantial and, therefore,
petitioners were not justified in law in rescinding the
agreement.
PREMISES CONSIDERED, the Petition must be DISMISSED and
the decision of the Court of Appeals AFFIRMED.
G.R. No. 96643. April 23, 1993.
ERNESTO DEIPARINE, JR., petitioner,
vs.
THE HON. COURT OF APPEALS, CESARIO CARUNGAY and
ENGR. NICANOR TRINIDAD, respondents.

constrained to ask for judicial rescission because of the

petitioner's failure to comply with the terms and conditions of
their contract. The other applicable provisions are: Article
1714 . . . Article 1715 . . . Article 1727 . . . It is a basic
principle in human relations, acknowledged in Article 19 of the
Civil Code, that "every person must, in the performance of his
duties, act with justice, give everyone his due, and observe
honesty and good faith." This admonition is reiterated in
Article 1159, which states that "obligations arising from
contracts have the force of law between the contracting
parties and should be complied with in good faith." The
petitioner has ignored these exhortations and is therefore not
entitled to the relief he seeks.
3. ADMINISTRATIVE LAW; THE PHILIPPINE DOMESTIC
CONSTRUCTION BOARD HAS NO POWER TO ADJUDICATE A
CASE FOR RESCISSION OF CONSTRUCTION CONTRACT. The
wording of P.D. 1746 is clear. The adjudicatory powers of the
Philippine Domestic Construction Board are meant to apply
only to public construction contracts. Its power over private
construction contracts is limited to the formulation and
recommendation of rules and procedures for the adjudication
and settlement of disputes involving such (private) contracts.
It therefore has no jurisdiction over cases like the one at bar
which remain cognizable by the regular courts of justice.
4. LEGAL AND JUDICIAL ETHICS; COUNSEL WHO TRIES TO
MISLEAD THE COURT BY DELIBERATELY MISQUOTING THE LAW
IS SUBJECT TO DISCIPLINE. Counsel is obviously trying to
mislead the Court. First, he purposely misquotes Section 6(b),
paragraph 3, substituting the word "the" for "public," . . .
Second, he makes the wrong emphasis in paragraph 5, . . . For
deliberately changing the language of the above-quoted
paragraph 3, Atty. Gregorio B. Escasinas has committed
contempt of this Court and shall be disciplined. As for
paragraph 5, the correct stress should be on the words
"formulate and recommend," which is all the body can do,
rather than on adjudication and settlement."
DECISION

Gregorio B. Escasinas for petitioner.

CRUZ, J p:
Florido and Associates for respondents.
SYLLABUS
1. CIVIL LAW; CONTRACTS; RESCISSION IS USED IN TWO
DIFFERENT CONTEXTS IN THE CIVIL CODE. Deiparine seems
to be confused over the right of rescission, which is used in
two different contexts in the Civil Code. Under the law on
contracts, there are what are called "rescissible contracts"
which are enumerated in Article 1381 . . . There is also a right
of rescission under the law on obligations as granted in Article
1191.
2. ID.; ID.; ARTICLES 19, 1159, 1191, 1714, 1715 AND 1727,
CIVIL CODE ARE APPLICABLE, WHILE ARTICLES 1381, 1385
AND 1725, SAME CODE ARE NOT, IN CASE OF BREACH OF
CONSTRUCTION CONTRACT. The petitioner challenges the
application by the lower court of Article 1191 of the Civil Code
in rescinding the construction agreement. His position is that
the applicable rules are Articles 1385 and 1725 of the Civil
Code . . . Article 1385, upon which Deiparine relies, deals with
the rescission of the contracts enumerated above, which do
not include the construction agreement in question . . . The
construction contract falls squarely under the coverage of
Article 1191 because it imposes upon Deiparine the obligation
to build the structure and upon the Carungays the obligation
to pay for the project upon its completion. Article 1191, unlike
Article 1385, is not predicated on economic prejudice to one
of the parties but on breach of faith by one of them that
violates the reciprocity between them. The violation of
reciprocity between Deiparine and the Carungay spouses, to
wit, the breach caused by Deiparine's failure to follow the
stipulated plans and specifications, has given the Carungay
spouses the right to rescind or cancel the contract. Article
1725 cannot support the petitioner's position either, for this
contemplates a voluntary withdrawal by the owner without
fault on the part of the contractor, who is therefore entitled to
indemnity, and even damages, for the work he has already
commenced. There is no such voluntary withdrawal in the
case at bar. On the contrary, the Carungays have been

This case involves not only the factual issue of breach of

contract and the legal questions of jurisdiction and rescission.
The basic inquiry is whether the building subject of this
litigation is safe enough for its future occupants. The
petitioner says it is, but the private respondents demur. They
have been sustained by the trial court and the appellate
court. The petitioner says they have all erred.
The spouses Cesario and Teresita Carungay entered into an
agreement with Ernesto Deiparine, Jr. on August 13, 19B2, for
the construction of a three-story dormitory in Cebu City. 1 The
Carungays agreed to pay P970,000.00, inclusive of
contractor's fee, and Deiparine bound himself to erect the
building "in strict accordance to (sic) plans and
specifications." Nicanor Trinidad, Jr., a civil engineer, was
designated as the representative of the Carungay spouses,
with powers of inspection and coordination with the
contractor.
Deiparine started the construction on September 1, 1982. 2
On November 6, 1982, Trinidad sent him a document entitled
General Conditions and Specifications which inter alia
prescribed 3,000 psi (pounds per square inch) as the
minimum acceptable compressive strength of the building. 3
In the course of the construction, Trinidad reported to Cesario
Carungay that Deiparine had been deviating from the plans
and specifications, thus impairing the strength and safety of
the building. On September 25, 1982, Carungay ordered
Deiparine to first secure approval from him before pouring
cement. 4 This order was not heeded, prompting Carungay to
send Deiparine another memorandum complaining that the
"construction works are faulty and done haphazardly . . .
mainly due to lax supervision coupled with . . . inexperienced
and unqualified staff." 5 This memorandum was also ignored.
After several conferences, the parties agreed to conduct
cylinder tests to ascertain if the structure thus far built
complied with safety standards. Carungay suggested core

testing. Deiparine was reluctant at first but in the end agreed.

He even promised that if the tests should show total failure, or
if the failure should exceed 10%, he would shoulder all
expenses; otherwise, the tests should be for the account of
Carungay.

3. Adjudicate and settle claims and disputes in the

implementation of the construction contracts and for this
purpose, formulate and adopt the necessary rules and
regulations subject to the approval of the President;
(Emphasis ours).

The core testing was conducted by Geo-Testing International,

a Manila-based firm, on twenty-four core samples. On the
basis of 3,000 psi, all the samples failed; on the basis of 2,500
psi, only three samples passed; and on the basis of 2,000 psi,
nineteen samples failed. 6 This meant that the building was
structurally defective.

Second, he makes the wrong emphasis in paragraph 5, thus:

In view of this finding, the spouses Carungay filed complaint

with the Regional Trial Court of Cebu for the rescission of the
construction contract and for damages. Deiparine moved to
dismiss, alleging that the court had no jurisdiction over
construction contracts, which were now cognizable by the
Philippine Construction Development Board pursuant to
Presidential Decree No. 1746. The motion was denied in an
order dated April 12, 1984.

For deliberately changing the language of the abovequoted

paragraph 3, Atty. Gregorio P. Escasinas has committed
contempt of this Court and shall be disciplined. As for
paragraph 5, the correct stress should be on the words
"formulate and recommend," which is all the body can do,
rather than on "adjudication and settlement."

After trial on the merits, Judge Juanito A. Bernad rendered

judgment: a) declaring the construction agreement rescinded;
b) condemning Deiparine to have forfeited his expenses in the
construction in the same of P244,253.70; c) ordering
Deiparine to reimburse to the spouses Carungay the sum of
P15,104.33 for the core testing; d) ordering Deiparine to
demolish and remove all the existing structures and restore
the premises to their former condition before the construction
began, being allowed at the same time to take back with him
all the construction materials belonging to him; and e)
ordering Deiparine to pay the Carungay spouses attorney's
fees in the amount of P10,000.00 as well as the costs of the
suit. 7
On appeal, the decision was affirmed in toto by the
respondent court on August 14, 1990. 8 His motion for
reconsideration having been denied, petitioner Ernesto
Deiparine, Jr. has come to this Court to question once more
the jurisdiction of the regular courts over the case and the
power of the trial court to grant rescission. He will lose again.
The challenge to the jurisdiction of the trial court is untenable.
P.D. 1746 created the Construction Industry Authority of the
Philippines (CIAP) as the umbrella organization which shall
exercise jurisdiction and supervision over certain
administrative bodies acting as its implementing branches.
The implementing body in this case is the Philippine Domestic
Construction Board (PDCB) and not the inexistent Philippine
Construction Development Board as maintained by Deiparine.
Among the functions of the PDCB under Section 6 of the
decree are to:
xxx xxx xxx
3. Adjudicate and settle claims and implementation of public
construction contracts and for this purpose, formulate and
adopt the necessary rules and regulations subject to the
approval of the President:
xxx xxx xxx
5. Formulate and recommend rules and procedures for the
adjudication and settlement of claims and disputes in the
implementation of contracts in private construction;
(Emphasis supplied)

5. Formulate and recommend rules and procedures for the

ADJUDICATION and SETTLEMENT of CLAIMS and DISPUTES in
the implementation of CONTRACTS in PRIVATE
CONSTRUCTIONS.

The wording of P.D. 1746 is clear. The adjudicatory powers of

the Philippine Domestic Construction Board are meant to
apply only to public construction contracts. Its power over
private construction contracts is limited to the formulation
and recommendation of rules and procedures for the
adjudication and settlement of disputes involving such
(private) contracts. It therefore has no jurisdiction over cases
like the one at bar which remain cognizable by the regular
courts of justice.
On the issue of rescission, Deiparine insists that the
construction agreement does not specify any compressive
strength for the structure nor does it require that the same be
subjected to any kind of stress test. Therefore, since he did
not breach any of his covenants under the agreement, the
court erred in rescinding the contract.
The record shows that Deiparine commenced the construction
soon after the signing of the contract, even before Trinidad
had submitted the contract documents, including the General
Conditions and Specifications.
According to Eduardo Logarta, the petitioner's own project
engineer, Deiparine actually instructed him and some of the
other workers to ignore the specific orders or instructions of
Carungay or Trinidad relative to the construction. 9 Most of
these orders involved safety measures such as: (1) the use of
two concrete vibrators in the pouring of all columns, beams
and slabs; (2) making PVC pipes well-capped to prevent
concrete from setting inside them; (3) the use of 12-mm
reinforcement bars instead of 10-mm bars; (4) the use of
mixed concrete reinforcements instead of hollow block
reinforcements; and (5) securing the approval of the owner or
his representative before any concrete-pouring so that it could
be determined whether the cement mixture complied with
safety standards. Deiparine obviously wanted to avoid
additional expenses which would reduce his profit.
Parenthetically, it is not disputed that Deiparine is not a civil
engineer or an architect but a master mariner and former ship
captain; 10 that Pio Bonilla, a retainer of Deiparine
Construction, was not the supervising architect of the protect;
11 that the real supervisor of the construction was EduardoLogarta, who was only a third year civil engineering student at
the time; 12 that his understudy was Eduardo Martinez, who
had then not yet passed the board examinations; 13 and that
the supposed project engineer, Nilo Paglinawan, was teaching
full-time at the University of San Jose-Recoletos, and had in
fact entered the construction site only after November 4,
1982, although the construction had already begun two
months earlier. 14

Deiparine argues that the Philippine Construction

Development Board (that is, the Philippine Domestic
Construction Board) has exclusive jurisdiction to hear and try
disputes arising from domestic constructions. He invokes the
above-mentioned functions to prove his point.

It was after discovering that the specifications and the field

memorandums were not being followed by Deiparine that
Carungay insisted on the stress tests.

His counsel is obviously trying to mislead the Court. First, he

purposely misquotes Section 6(b), paragraph 3, substituting
the word "the" for "public," thus:

There were actually two sets of specifications. The first

"Specifications" are labeled as such and are but a general
summary of the materials to be used in the construction.
These were prepared by Trinidad prior to the execution of the
contract for the purpose only of complying with the document
requirements of the loan application of Cesario Carungay with

the Development Bank of the Philippines. The other

specifications, which were also prepared by Trinidad, are
entitled "General Conditions and Specifications" and laid down
in detail the requirements of the private respondent in the
construction of his building.

The owner may withdraw at will from the construction of the

work, although it may have been commenced, indemnifying
the contractor for all the latter's expenses, work, and the
usefulness which the owner may obtain therefrom, and
damages.

In his testimony, Deiparine declared that when the contract

was signed on August 13, 1982, it was understood that the
plans and specifications would be given to him by Trinidad
later. 15 Deiparine thus admitted that the plans and
specifications referred to in the construction agreement were
not the first Specifications but the General Conditions and
Specifications submitted by Trinidad in November 1982. This
second set of specifications required a structural compressive
strength of 3,000 psi. 16 It completely belies Deiparine's
contention that no compressive strength of the dormitory was
required.

Deiparine seems to be confused over the right of rescission,

which is used in two different contexts in the Civil Code.

Deiparine further argues that by following the concrete

mixture indicated in the first specifications, that is, 1:2:4, the
structure would still attain a compressive strength of 2,500
psi, which was acceptable for dormitories. According to him,
the 3,000 psi prescribed in the General Conditions and
Specifications was recommended for roads, not for buildings.
In so arguing, he is interpreting the two specifications
together but applying only the first and rejecting the second.

(2) Those agreed upon in representation of absentees, if the

latter suffer the lesion stated in the preceding number:

Deiparine also avers that the contract does not also require
any kind of test to be done on the structure and that, test or
no test, he has not violated the agreement. Nevertheless, he
subjected the building to a cylinder test just to convince
Carungay that the unfinished dormitory was structurally
sound.
A cylinder test is done by taking samples from fresh concrete,
placing them in a cylinder mold and allowing them to harden
for a maximum of 28 days, following which they are subjected
to compression to determine if the cement mixture to be
poured conforms to accepted standards in construction. 17
Carungay was not satisfied with the results of the cylinder test
because they were inconsistent and could easily be falsified
by the simple expedient of replacing the samples with a good
mixture although a different mixture had been used in the
actual pouring. Consequently, Carungay requested core
testing, a more reliable procedure because the specimens
obtained by extracting concrete from the hardened existing
structure would determine its actual strength. The core test is
less prone to manipulation than the cylinder test because the
samples in the former are taken from the building which is
already standing. 18
Deiparine vehemently refused to go along with the core test,
insisting that the results of the cylinder test earlier made were
conclusive enough to prove that the building was structurally
sound. What was the real reason for this refusal? After all,
Carungay would shoulder the expenses if the specimens
passed the core test, unlike the cylinder test, which was for
the petitioner's account. The only logical explanation would be
that Deiparine was not sure that the core test would prove
favorable to him.
We see no reason to disturb the factual finding of the courts
below that Deiparine did not deal with the Carungays in good
faith. His breach of this duty constituted a substantial
violation of the contract correctible by judicial rescission.
The petitioner challenges the application by the lower court of
Article 1191 of the Civil Code in rescinding the construction
agreement. His position is that the applicable rules are
Articles 1385 and 1725 of the Civil Code.
Article 1385 states:
Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he
may be obliged to restore.
Article 1725 provides that in a contract for a piece of work:

Under the law on contracts, there are what are called

"rescissible contracts" which are enumerated in Article 1381
thus:
(1) Those which are entered into by guardians whenever the
wards who they represent suffer lesion by more than onefourth of the value of the things which are the object thereof;

(3) Those undertaken in fraud of creditors when the later

cannot in any other manner collect the claims due them:
(4) Those which refer to things under litigation if they have
been entered into by the defendants without the knowledge
and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject
to rescission.
Article 1385, upon which Deiparine relies, deals with the
rescission of the contracts enumerated above, which do not
include the construction agreement in question.
There is also a right of rescission under the law on obligations
as granted in Article 1191, providing 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.
This was the provision the trial court and the respondent court
correctly applied because it relates to contracts involving
reciprocal obligations like the subject construction contract.
The construction contract fails squarely under the coverage of
Article 1191 because it imposes upon Deiparine the obligation
to build the structure and upon the Carungays the obligation
to pay for the project upon its completion.
Article 1191, unlike Article 1385, is not predicated on
economic prejudice to one of the, parties but on breach of
faith by one of them that violates the reciprocity between
them. 19 The violation of reciprocity between Deiparine and
the Carungay spouses, to wit, the breach caused by
Deiparine's failure to follow the stipulated plans and
specifications, has given the Carungay spouses the right to
rescind or cancel the contract.
Article 1725 cannot support the petitioner's position either, for
this contemplates a voluntary withdrawal by the owner
without fault on the part of the contractor, who is therefore
entitled to indemnity, and even damages, for the work he has
already commenced. there is no such voluntary withdrawal in
the case at bar. On the contrary, the Carungays have been
constrained to ask for judicial rescission because of the

petitioner's failure to comply with the terms and conditions of

their contract.
The other applicable provisions are:
Article 1714. If the contractor agrees to produce the work
from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the
thing. This contract shall be governed by the following articles
as well as by the pertinent provisions on warranty of title and
against hidden defects and the payment of price in a contract
of sale.

payment of the same, and plaintiff to return to defendant

the amount of P15,750.00 representing the partial
payment made to it by defendant for the purchase price
of said machinery and equipment. No pronouncement as
to damages and costs. 1
Defendant-Appellant Dimaporo questions the validity of the
questioned decision in so far as said decision 1) orders him to
return the cassava flour and starch processing machinery and
equipment and 2) orders him to pay plaintiff-appellee Grace
Park Engineering Co. P19,628.93 with interest.

Article 1727. The contractor is responsible for the work done

by persons employed by him.

The records disclose that on April 1, 1954, Grace Park

Engineering, Inc., and Mohamad Ali Dimaporo entered into a
Contract for the Sale of Cassava Flour and Starch Processing
Machinery and Equipment (Exh. A) 2 whereby the corporation
agreed to sell and install, for the consideration of P52,000.00,
a cassava flour and starch processing machinery and
equipment specifically described therein at Dimaporo's place
in Karomatan Lanao Mill Site, within a period of 70 working
days from the date of signing of the contract. It was agreed
that P5,750.00 shall be paid upon signing of the contract;
P10,000.00 shall be paid within 30 days from the date of the
signing of the contract but before machinery and equipment is
loaded at Manila Harbor and P36,750.00 shall be payable in
12 monthly installments as provided in the contract.

While it is true that the stress test was not required in any of
the contract documents, conducting the test was the only
manner by which the owner could determine if the contractor
had been faithfully complying with his presentations under
their agreement. Furthermore, both parties later agreed in
writing that the core test should be conducted. When the
structure failed under this test the Carungay spouses were left
with no other recourse than to rescind their contract.

In view of the foregoing considerations, the Corporation

guaranteed said machinery and equipment to process at least
6 tons of cassava flour and starch per 24-hour day operation,
while Dimaporo undertook to supply at his own expenses the
building wherein shall be housed the machinery and
equipment, laborers needed to complement the operation of
the mill, food, foundation materials, and effective water
system (par. 6, Exh. A).

It is a basic principle in human relations, acknowledged in

Article 19 of the Civil Code, that "every person must, in the
performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith." This admonition is
reiterated in Article 1159, which states that "obligations
arising from contracts have the force of law between the
contracting parties and should be complied with in good
faith." The petitioner has ignored these exhortations and is
therefore not entitled to the relief he seeks.

In compliance with the agreement, defendant paid plaintiff the

amounts of P5,750.00 and P10,000.00 as agreed upon, thus
leaving a balance of P36,750.00.

Article 1715. The contractor shall execute the work in such a

manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its
ordinary or stipulated use. Should the work be not of such
quality, the employer may require that the contractor remove
the defect or execute another work. If the contractor fails or
refuses to comply with this obligation, the employer may have
the defect removed or another work executed, at the
contractor's cost.

WHEREFORE, the challenged decision is hereby AFFIRMED and

the instant petition for review is DENIED, with costs against
the petitioner. For deliberately changing the language of
Section 6(b), paragraph 3, of P.D. No. 1746, Atty. Gregorio B.
Escasinas is hereby fined P1,000.00, with the warning that
repetition of a similar offense will be dealt with more severely.
It is so ordered. Concur.
G.R. No. L-27482 September 10, 1981
GRACE PARK ENGINEERING CO., INC., plaintiff-appellee,
vs.
MOHAMAD ALI DIMAPORO, defendant-appellant.

DE CASTRO,* J.:
Appeal (prior to the effectivity of Republic Act No. 5440) by
Mohamad Ali Dimaporo from a decision of the Court of First
Instance of Rizal, Branch VI (in its Civil Case No. 3828), the
dispositive portion of which reads:
WHEREFORE, all premises considered, judgment is hereby
rendered declaring the rescission of the Contract for the
Sale of Cassava Flour and Starch Processing Machinery
and Equipment, Exh. A, dated April 1, 1954, and ordering
mutual restitution by the parties, defendant to return to
plaintiff the cassava flour and starch processing
machinery and equipment and bear the transportation
expenses thereof to the port of Cotabato, plaintiff
corporation to bear the freight charges thereof for its
shipment to Manila, and, to pay plaintiff the total amount
of P19,628.93 with interest thereon at the rate of 6% per
annum from the date of filing of this complaint until full

It appears on record, however, that during the course of

installation of said machinery and equipment, Dimaporo failed
to comply with his obligations specified in par. 6 of said
contract, so much so that the Corporation was forced to
provide the necessary materials and labor and advance
whatever expenses had been made for that purpose with
previous knowledge and consent given by Dimaporo because
the latter was short of funds during that time.
It took the Corporation one (1) year and three (3) months to
install the said machinery and equipment, after which, it
demanded from Dimaporo complete payment of the balance
due and for all expenses made in advance arising from the
supply of materials and labor which Dimaporo failed to
provide on time. Dimaporo refused to pay on the ground that
the balance of P36,750.00 never became due and
demandable because of the Corporation's failure to complete
the installation of the machinery and equipment within the
stipulated period and place the same in satisfactory running
conditions as guaranteed by it in the contract.
Hence, on October 1, 1955 the Corporation brought an action
against Dimaporo for rescission of the aforesaid contract after
mutual restitution by the parties with provision for damages in
its favor. Dimaporo, in his answer, likewise seeks the
rescission of the contract, after mutual restitution by the
parties, but with provision for the payment by the Corporation
of freight charges that may be incurred due to such
restitution, and with the award of damages in his favor.
After hearing on tile merit, the trial court found both parties
having violated the terms and conditions of the contract,
defendant Dimaporo failing to comply with his obligations
under par. 6 of the contract and plaintiff corporation liable for
installing machinery and equipment that are basically
defective and inadequate. As to who was the first infractor in
point of time, it was not determined by the trial court.
Rescission of the contract was granted but held that parties
should bear his/its own damages, applying article i 192 of the
New Civil Code which provides:

In case both parties have committed a breach of the

obligation, the liability of the first infractor should be
equitably tempered by the Courts. If it cannot be
determined which of the parties first violated the contract,
the same should be deemed extinguished, and each shall
bear his own damages.
From the judgment of the Court below, Dimaporo directly
appealed to this Court imputing seven (7) assignments of
errors committed by the trial court, which may be synthesized
into four (4) main issues:
a) whether he was guilty of breach of contract.
b) whether he was liable to return the machinery and
equipment subject matter of the contract.
c) whether he was liable to pay appellee Corporation the
amount of P19,628.93 with interest.
d) whether he was entitled to the award of damages in his
favor.
Appellant Dimaporo maintained that he has not committed
any breach of contract, Exh. A, particularly par. 6 thereof that
it was appellee Corporation who was guilty thereof, and points
in his appellant's brief testimonial and documentary evidence
in support of the same. Upon the other hand, the trial court, in
its decision, makes the following findings:
From the entire evidence presented, it appears that
defendant had failed to comply with his obligations under
the contract, Exh. A, more particularly with the provisions of
par. 6 thereof. He was unable to furnish sufficient laborers
needed to complete the operations of the mill, food,
foundation materials and effective water systems (Exhs. G,
G-1, I, I-1, J-1, K, R, CC, KK LL NN-1). Under Exh. MM, a daily
work progress report duly certified correct by defendant,
the hammer mill and flash drier were already commercially
operated on December 11, 1954 (Exh. MM-3). This
necessarily gives the impression that the installation of the
mill has been completed in accordance with the contract
and the subsequent failure of the project is due to
defendant's fault. ... Taking into consideration defendant's
failure to comply with this obligation, plaintiff's delay in the
complete installation of the machinery and equipment
seems reasonable and understandable. ... 3
The foregoing is a conclusion of fact of the trial court. The rule
is well-settled that factual findings of the trial court, supported
by substantial evidence, are generally binding on the
Supreme Court. They are entitled to great respect, the lower
court having had the opportunity of weighing carefully what
was testified to and did so without oversight or
neglect. 4 Hence the rule that when a party appeals directly to
this Court, he is deemed to have waived the right to dispute
any finding of fact made by the court below. 5
It is next argued for appellant Dimaporo, that the trial court
erred in ordering the return of the machinery and equipment
subject matter of the contract to appellee corporation and
maintained that although a rescission of the contract is in
order, he has no obligation, however, to return the machinery
and equipment, much less pay the transportation expenses
thereof to the port of Cotabato, since the machinery and
equipment shipped by appellee corporation were never
delivered to appellant. He contended that by reference to the
contract, Exh. A, it is clear that the obligation of the appellee
did not end with the shipment of the machinery and
equipment to the all site; it must also install the machinery
and equipment in such a manner that they would produce at
least 6 tons of cassava flour per 24 hours of operations so
much so that until such machinery and equipment were
installed and shown to be capable of producing at the
warranted rate, there could be no delivery of such machinery
and equipment to appellant.
This contention is in Our opinion, not sustained by the terms
of the contract or by the facts appearing in evidence. It is true
that under par. 8 of the contract, E Exh. A, the "SELLER
warrants that it will deliver all the machinery and equipment
as agreed in par. 4, guaranteed to process at least 6 tons of

cassava flour or starch per 24-hour day operation." However

in said paragraph it was also stipulated that "this warranty of
capacity shall be attained only when properly coordinated to
the necessary manual labor required for the purpose." And
according to the trial court, "the delay of the completion of
the installation as well as the incapacity of the mill to produce
the desired amount of flour/starch as warranted by the
plaintiff under the contract are attributable to defendant's
non-compliance with his obligation to furnish food, materials,
and water system."
Even assuming that there is some degree of plausibility in
appellant's position, still the lower court did not commit any
error in ordering appellant to return the machinery and
equipment to appellee corporation, for when the former, as
defendant in the lower court, filed his Answer to the complaint
of appellee corporation, he prayed for the rescission of the
contract between him and the plaintiff and for mutual
restitution by the parties. 6 To sustain appellant's contention
that he is not liable for the return of machinery and
equipment would be fundamentally contradicting the very
notion of rescission. The first paragraph of article 1385 of the
New Civil Code provides:
Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be
carried out only when he who demands rescission can
return whatever he may be obliged to restore.
Furthermore, when a contract is resolved or rescinded, it is
the duty of the court to require the parties to surrender that
which they have severally received and to place each as far
as practicable in his original situation; and when a resolution
is granted, it has the effect of abrogating the contract in all
parts. The party seeking resolution cannot ask "performance
as to part and resolution as to remainder. 7
The last two issues are both centered on the question of who
is liable for the payment of damages and interests as a result
of the breach of contract. The trial court, in resolving the
issues, applied Article 1192 of the New Civil Code, which as
aforestated, enunciated the rule if both parties committed a
breach of obligation. The trial court find the following facts:
"Both parties have failed to comply with what is respectively
encumbent upon them to do, and the object of the contract is
consequently defeated; defendant failed to comply with his
obligations under the contract, Exh. A; that further scrutiny of
the evidence shows that the machinery and equipment sold
and installed by plaintiff were all along, by themselves,
defective and inadequate. As to who was the first infractor in
point of time, under said circumstances, cannot be specifically
delineated. Hence, parties should bear his/its own damages.
Based on these findings, the trial court ruled, as aforestated in
the dispositive portion, that appellant Dimaporo must pay
appellee corporation the total amount of P19,628.93 which
the latter had spent by way of advances to the former with
which to purchase the necessary materials and supplies at the
rate of 6% per annum; that appellee corporation must return
to appellant the amount of P15,750.00 representing the
partial payment made by it to appellant for the purchase price
of said machinery and equipment. The trial court, however,
made no pronouncement as to damages and costs.
But appellant would contend that the amount of P19,628.93
should be offset by the damages that are due to him by
reason of the violations by the appellee corporation of its
obligation under the contract; that appellee must be required
to pay interests on the amount of P15,750.00 since this
amount paid has already been used by it; and that since the
first infractor was the appellee's corporation, therefore,
damages should be paid by that party to the appellant.
The findings of fact of the trial court that both appellant
Dimaporo and appellee corporation have committed a breach
of obligation are fully supported by the evidence on record. As
We have stated, We are not in a position to disturb the same.
Therefore, it correctly applied Article 1192 of the New Civil
Code to the effect that in case both parties have committed a
breach of obligation and it cannot be determined who was the
first infractor, the contract shall be deemed extinguished and
each shall bear his/its own damages. Consequently, the trial

court committed no reversible error when it ordered appellee

corporation to pay appellant the amount of P15,570.00
representing partial payment of the purchase price of the
machinery and equipment. This is but a consequence of the
decree of rescission granted by the trial court. Neither did it
commit any error when it refused to grant any interest on the
aforesaid amount of P15,570.00. This is also but a
consequence of the enunciated rule that each party should
bear his/its own damages. For the same reasons, We hold that
although appellant is liable to pay the amount of P19,628.93
which appellee corporation had spent by way of advances
with which to purchase the necessary materials and supplies,
however, he is not liable to pay interest thereon at the rate of
6% per annum until full payment of the same, as held by the
lower court. Otherwise, to hold so would be in conflict with the
above-mentioned rule that each party must bear his/its own
damages.
PREMISES CONSIDERED, with the only modification that the
sum of P19,628.93 be paid by appellant Dimaporo to appellee
Grace Park Engineering, Inc., without interest, the judgment
appealed from is affirmed in all other respects. No
pronouncement as to costs.
SO ORDERED.
G.R. No. L-32811 March 31, 1980
FELIPE C. ROQUE, petitioner,
vs.
NICANOR LAPUZ and THE COURT OF
APPEALS, respondents.
Taada, Sanchez, Taada, Taada for petitioner.
N.M. Lapuz for respondent.

GUERRERO, J.:
Appeal by certiorari from the Resolution of the respondent
court 1 dated October 12, 1970 in CA-G.R. No. L-33998-R
entitled "Felipe C. Roque, plaintiff-appellee, versus Nicanor
Lapuz, defendant-appellant" amending its original decision of
April 23, 1970 which affirmed the decision of the Court of First
Instance of Rizal (Quezon City Branch) in Civil Case No. Q4922 in favor of petitioner, and the Resolution of the
respondent court denying petitioner's motion for
reconsideration.
The facts of this case are as recited in the decision of the Trial
Court which was adopted and affirmed by the Court of
Appeals:
Sometime in 1964, prior to the approval by the National
Planning Commission of the consolidation and subdivision
plan of plaintiff's property known as the Rockville
Subdivision, situated in Balintawak, Quezon City, plaintiff
and defendant entered into an agreement of sale covering
Lots 1, 2 and 9, Block 1, of said property, with an aggregate
area of 1,200 square meters, payable in 120 equal monthly
installments at the rate of P16.00, P15.00 per square meter,
respectively. In accordance with said agreement, defendant
paid to plaintiff the sum of P150.00 as deposit and the
further sum of P740.56 to complete the payment of four
monthly installments covering the months of July, August,
September, and October, 1954. (Exhs. A and B). When the
document Exhibit "A" was executed on June 25, 1954, the
plan covering plaintiff's property was merely tentative, and
the plaintiff referred to the proposed lots appearing in the
tentative plan.
After the approval of the subdivision plan by the Bureau of
Lands on January 24, 1955, defendant requested plaintiff
that he be allowed to abandon and substitute Lots 1, 2 and
9, the subject matter of their previous agreement, with Lots
4 and 12, Block 2 of the approved subdivision plan, of the
Rockville Subdivision, with a total area of 725 square
meters, which are corner lots, to which request plaintiff
graciously acceded.

The evidence discloses that defendant proposed to plaintiff

modification of their previous contract to sell because he
found it quite difficult to pay the monthly installments on
the three lots, and besides the two lots he had chosen were
better lots, being corner lots. In addition, it was agreed that
the purchase price of these two lots would be at the uniform
rate of P17.00 per square (meter) payable in 120 equal
monthly installments, with interest at 8% annually on the
balance unpaid. Pursuant to this new agreement, defendant
occupied and possessed Lots 4 and 12, Block 2 of the
approved subdivision plan, and enclosed them, including
the portion where his house now stands, with barbed wires
and adobe walls.
However, aside from the deposit of P150.00 and the amount
of P740.56 which were paid under their previous
agreement, defendant failed to make any further payment
on account of the agreed monthly installments for the two
lots in dispute, under the new contract to sell. Plaintiff
demanded upon defendant not only to pay the stipulated
monthly installments in arrears, but also to make up-to-date
his payments, but defendant, instead of complying with the
demands, kept on asking for extensions, promising at first
that he would pay not only the installments in arrears but
also make up-to-date his payment, but later on refused
altogether to comply with plaintiff's demands.
Defendant was likewise requested by the plaintiff to sign
the corresponding contract to sell in accordance with his
previous commitment. Again, defendant promised that he
would sign the required contract to sell when he shall have
made up-to-date the stipulated monthly installments on the
lots in question, but subsequently backed out of his promise
and refused to sign any contract in noncompliance with
what he had represented on several occasions. And plaintiff
relied on the good faith of defendant to make good his
promise because defendant is a professional and had been
rather good to him (plaintiff).
On or about November 3, 1957, in a formal letter, plaintiff
demanded upon defendant to vacate the lots in question
and to pay the reasonable rentals thereon at the rate of
P60.00 per month from August, 1955. (Exh. "B").
Notwithstanding the receipt of said letter, defendant did not
deem it wise nor proper to answer the same.
In reference to the mode of payment, the Honorable Court of
Appeals found
Both parties are agreed that the period within which to pay
the lots in question is ten years. They however, disagree on
the mode of payment. While the appellant claims that he
could pay the purchase price at any time within a period of
ten years with a gradual proportionate discount on the
price, the appellee maintains that the appellant was bound
to pay monthly installments.
On this point, the trial court correctly held that
It is further argued by defendant that under the agreement
to sell in question, he has the right or option to pay the
purchase price at anytime within a period of ten years from
1954, he being entitled, at the same time, to a graduated
reduction of the price. The Court is constrained to reject this
version not only because it is contradicted by the weight of
evidence but also because it is not consistent with what is
reasonable, plausible and credible. It is highly improbable to
expect plaintiff, or any real estate subdivision owner for that
matter, to agree to a sale of his land which would be
payable anytime in ten years at the exclusive option of the
purchaser. There is no showing that defendant is a friend, a
relative, or someone to whom plaintiff had to be grateful, as
would justify an assumption that he would have agreed to
extend to defendant such an extra- ordinary concession.
Furthermore, the context of the document, Exhibit "B", not
to mention the other evidences on records is indicative that
the real intention of the parties is for the payment of the
purchase price of the lot in question on an equal monthly
installment basis for a period of ten years (Exhibits "A", "II",
"J" and "K").

On January 22, 1960, petitioner Felipe C, Roque (plaintiff

below) filed the complaint against defendant Nicanor Lapuz
(private respondent herein) with the Court of First Instance of
Rizal, Quezon City Branch, for rescission and cancellation of
the agreement of sale between them involving the two lots in
question and prayed that judgment be rendered ordering the
rescission and cancellation of the agreement of sale, the
defendant to vacate the two parcels of land and remove his
house therefrom and to pay to the plaintiff the reasonable
rental thereof at the rate of P60.00 a month from August 1955
until such time as he shall have vacated the premises, and to
pay the sum of P2,000.00 as attorney's fees, costs of the suit
and award such other relief or remedy as may be deemed just
and equitable in the premises.
Defendant filed a Motion to Dismiss on the ground that the
complaint states no cause of action, which motion was denied
by the court. Thereafter, defendant filed his Answer alleging
that he bought three lots from the plaintiff containing an
aggregate area of 1,200 sq. meters and previously known as
Lots 1, 2 and 9 of Block 1 of Rockville Subdivision at P16.00,
P15.00 and P15.00, respectively, payable at any time within
ten years. Defendant admits having occupied the lots in
question.
As affirmative and special defenses, defendant alleges that
the complaint states no cause of action; that the present
action for rescission has prescribed; that no demand for
payment of the balance was ever made; and that the action
being based on reciprocal obligations, before one party may
compel performance, he must first comply what is incumbent
upon him.
As counterclaim, defendant alleges that because of the acts of
the plaintiff, he lost two lots containing an area of 800 sq.
meters and as a consequence, he suffered moral damages in
the amount of P200.000.00; that due to the filing of the
present action, he suffered moral damages amounting to
P100,000.00 and incurred expenses for attorney's fees in the
sum of P5,000.00.
Plaintiff filed his Answer to the Counterclaim and denied the
material averments thereof.
After due hearing, the trial court rendered judgment, the
dispositive portion of which reads:
WHEREFORE, the Court renders judgment in favor of plain.
plaintiff and against the defendant, as follows:
(a) Declaring the agreement of sale between plaintiff and
defendant involving the lots in question (Lots 4 and 12,
Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to
remove his house therefrom and also to pay plaintiff the
reasonable rental thereof at the rate of P60.00 per month
from August, 1955 until he shall have actually vacated the
premises; and
(c) Condemning defendant to pay plaintiff the sum of
P2,000.00 as attorney's fees, as well as the costs of the
suit. (Record on Appeal, p. 118)
(a) Declaring the agreement of sale between plaintiff and
defendant involving the lots in question (Lots 4 and 12,
Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to
remove his house therefrom and also to pay plaintiff the
reasonable rental thereof at the rate of P60.00 per month
from August, 1955 until he shall have actually vacated
premises; and
(c) Condemning defendant to pay plaintiff the sum of
P2,000.00 as attorney's fees, as well as the costs of the
suit. (Record on Appeal. p. 118)

Not satisfied with the decision of the trial court, defendant

appealed to the Court of Appeals. The latter court, finding the
judgment appealed from being in accordance with law and
evidence, affirmed the same.
In its decision, the appellate court, after holding that the
findings of fact of the trial court are fully supported by the
evidence, found and held that the real intention of the parties
is for the payment of the purchase price of the lots in question
on an equal monthly installment basis for the period of ten
years; that there was modification of the original agreement
when defendant actually occupied Lots Nos. 4 and 12 of Block
2 which were corner lots that commanded a better price
instead of the original Lots Nos. 1, 2 and 9, Block I of the
Rockville Subdivision; that appellant's bare assertion that the
agreement is not rescindable because the appellee did not
comply with his obligation to put up the requisite facilities in
the subdivision was insufficient to overcome the presumption
that the law has been obeyed by the appellee; that the
present action has not prescribed since Article 1191 of the
New Civil Code authorizing rescission in reciprocal obligations
upon noncompliance by one of the obligors is the applicable
provision in relation to Article 1149 of the New Civil Code; and
that the present action was filed within five years from the
time the right of action accrued.
Defendant filed a Motion for Reconsideration of the appellate
court's decision on the following grounds:
First Neither the pleadings nor the evidence, testimonial,
documentary or circumstantial, justify the conclusion as to
the existence of an alleged subsequent agreement novatory
of the original contract admittedly entered into between the
parties:
Second There is nothing so unusual or extraordinary, as
would render improbable the fixing of ten ears as the period
within which payment of the stipulated price was to be
payable by appellant;
Third Appellee has no right, under the circumstances on
the case at bar, to demand and be entitled to the rescission
of the contract had with appellant;
Fourth Assuming that any action for rescission is
availability to appellee, the same, contrary to the findings of
the decision herein, has prescribed;
Fifth Assumming further that appellee's action for
rescission, if any, has not yet prescribed, the same is at
least barred by laches;
Sixth Assuming furthermore that a cause of action for
rescission exists, appellant should nevertheless be entitled
to tile fixing of a period within which to comply with his
obligation; and
Seventh At all events, the affirmance of the judgment for
the payment of rentals on the premises from August, 1955
and he taxing of attorney's fees against appellant are not
warranted b the circumstances at bar. (Rollo, pp. 87-88)
Acting on the Motion for Reconsideration, the Court of Appeals
sustained the sixth ground raised by the appellant, that
assuming that a cause of action for rescission exists, he
should nevertheless be entitled to the fixing of a period within
which to comply with his obligation. The Court of Appeals,
therefore, amended its original decision in the following wise
and manner:
WHEREFORE, our decision dated April 23, 1970 is hereby
amended in the sense that the defendant Nicanor Lapuz is
hereby granted a period of ninety (90) days from entry
hereof within which to pay the balance of the purchase
price in the amount of P11,434,44 with interest thereon at
the rate of 8% per annum from August 17, 1955 until fully
paid. In the event that the defendant fails to comply with
his obligation as above stated within the period fixed
herein, our original judgment stands.

Petitioner Roque, as plaintiff-appellee below, filed a Motion for

Reconsideration; the Court of Appeals denied it. He now
comes and appeals to this Court on a writ of certiorari.
The respondent Court of Appeals rationalizes its amending
decision by considering that the house presently erected on
the land subject of the contract is worth P45,000.00, which
improvements introduced by defendant on the lots subject of
the contract are very substantial, and thus being the case, "as
a matter of justice and equity, considering that the removal of
defendant's house would amount to a virtual forfeiture of the
value of the house, the defendant should be granted a period
within which to fulfill his obligations under the agreement."
Cited as authorities are the cases of Kapisanan Banahaw vs.
Dejarme and Alvero, 55 Phil. 338, 344, where it is held that
the discretionary power of the court to allow a period within
which a person in default may be permitted to perform the
stipulation upon which the claim for resolution of the contract
is based should be exercised without hesitation in a case
where a virtual forfeiture of valuable rights is sought to be
enforced as an act of mere reprisal for a refusal of the debtor
to submit to a usurious charge, and the case of Puerto vs. Go
Ye Pin, 47 O.G. 264, holding that to oust the defendant from
the lots without giving him a chance to recover what his
father and he himself had spent may amount to a virtual
forfeiture of valuable rights.
As further reasons for allowing a period within which
defendant could fulfill his obligation, the respondent court
held that there exists good reasons therefor, having in mind
that which affords greater reciprocity of rights (Ramos vs.
Blas, 51 O.G. 1920); that after appellant had testified that
plaintiff failed to comply with his part of the contract to put up
the requisite facilities in the subdivision, plaintiff did not
introduce any evidence to rebut defendant's testimony but
simply relied. upon the presumption that the law has been
obeyed, thus said presumption had been successfully
rebutted as Exhibit "5-D" shows that the road therein shown is
not paved The Court, however, concedes that plaintiff's failure
to comply with his obligation to put up the necessary facilities
in the subdivision will not deter him from asking fr the
rescission of the agreement since this obligation is not
correlative with defendant's obligation to buy the property.
Petitioner assails the decision of the Court of Appeals for the
following alleged errors:
I. The Honorable Court of Appeals erred in applying
paragraph 3, Article 1191 of the Civil Code which refers to
reciprocal obligations in general and, pursuant thereto, in
granting respondent Lapuz a period of ninety (90) days from
entry of judgment within which to pay the balance of the
purchase price.
II. The Honorable Court of Appeals erred in not holding that
Article 1592 of the same Code, which specifically covers
sales of immovable property and which constitutes an
exception to the third paragraph of Article 1191 of said
Code, is applicable to the present case.
III. The Honorable Court of Appeals erred in not holding that
respondent Lapuz cannot avail of the provisions of Article
1191, paragraph 3 of the Civil Code aforesaid because he
did not raise in his answer or in any of the pleadings he filed
in the trial court the question of whether or not he is
entitled, by reason of a just cause, to a fixing of a new
period.
IV. Assuming arguendo that the agreement entered into by
and between petitioner and respondent Lapuz was a mere
promise to sell or contract to sell, under which title to the
lots in question did not pass from petitioner to respondent,
still the Honorable Court of Appeals erred in not holding that
aforesaid respondent is not entitled to a new period within
which to pay petitioner the balance of P11,434.44 interest
due on the purchase price of P12.325.00 of the lots.
V. Assuming arguendo that paragraph 3, Article 1191 of the
Civil Code is applicable and may be availed of by
respondent, the Honorable Court of Appeals nonetheless
erred in not declaring that aid respondent has not shown
the existence of a just cause which would authorize said

Court to fix a new period within which to pay the balance

aforesaid.
VI. The Honorable Court of Appeals erred in reconsidering
its original decision promulgated on April 23, 1970 which
affirmed the decision of the trial court.
The above errors may, however, be synthesized into one issue
and that is, whether private respondent is entitled to the
Benefits of the third paragraph of Article 1191, New Civil
Code, for the fixing of period within which he should comply
with what is incumbent upon him, and that is to pay the
balance of P11,434,44 with interest thereon at the rate of 8%
1et annum from August 17, 1955 until fully paid since private
respondent had paid only P150.00 as deposit and 4 months
intallments amounting to P740.46, or a total of P890.46, the
total price of the two lots agreed upon being P12,325.00.
For his part, petitioner maintains that respondent is not
entitled to the Benefits of paragraph 3, Article 1191, NCC and
that instead, Article 1592 of the New Civil Code which
specifically covers sales of immovable property and which
constitute an exception to the third paragraph of Art. 1191 of
aid Code, is the applicable law to the case at bar.
In resolving petitioner's assignment of errors, it is well that We
lay clown the oda provisions and pertinent rulings of the
Supreme Court bearing on the crucial issue of whether Art.
1191, paragraph 3 of the New Civil Code applies to the case at
Bar as held by the appellate court and supported by the
private respondent, or Art. 1592 of the same Code which
petitioner strongly argues in view of the peculiar facts and
circumstances attending this case. Article 1191, New Civil
Code, provides:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one at the obligors should not
comply with hat is incumbent upon him
The injured partner 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.
Article 1592 also provides:
Art. 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price
at the time agreed upon the rescission of the contract shall
of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for
rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court
may not grant him a new term.
The controlling and latest jurisprudence is established and
settled in the celebrated case of Luzon Brokerage Co., Inc. vs.
Maritime Building Co., Inc. and Myers Building Co., G.R. No. L25885, January 31, 1972, 43 SCRA 93, originally decided in
1972, reiterated in the Resolution on Motion to Reconsider
dated August 18, 1972, 46 SCRA 381 and emphatically
repeated in the Resolution on Second Motion for
Reconsideration promulgated November 16, 1978, 86 SCRA
309, which once more denied Maritimes Second Motion for
Reconsideration of October 7, 1972. In the original decision,
the Supreme Court speaking thru Justice J.B.L. Reyes said:
Under the circumstances, the action of Maritime in
suspending payments to Myers Corporation was a breach of
contract tainted with fraud or malice (dolo), as
distinguished from mere negligence (culpa), "dolo" being
succinctly defined as a "conscious and intention design to
evade the normal fulfillment of existing obligations"

(Capistrano, Civil Code of the Philippines, Vol. 3, page 38),

and therefore incompatible with good faith (Castan,
Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de
Obligaciones, Vol. 1, page 116).
Maritime having acted in bad faith, it was not entitled to ask
the court to give it further time to make payment and
thereby erase the default or breach that it had deliberately
incurred. Thus the lower court committed no error in
refusing to extend the periods for payment. To do otherwise
would be to sanction a deliberate and reiterated
infringement of the contractual obligations incurred by
Maritime, an attitude repugnant to the stability and
obligatory force of contracts.
The decision reiterated the rule pointed out by the Supreme
Court in Manuel vs. Rodriguez, 109 Phil. 1, p. 10, that:
In contracts to sell, where ownership is retained by the
seller and is not to pass until the fun payment of the price,
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 i force
in accordance with Article 1117 of the Old Civil Code. 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." Continuing, the Supreme Court declared:
... appellant overlooks that its contract with appellee Myers
s not the ordinary sale envisaged by Article 1592,
transferring ownership simultaneously with the delivery of
the real property sold, but one in which the vendor retained
ownership of the immovable object of the sale, merely
undertaking to convey it provided the buyer strictly
complied with the terms of the contract (see paragraph [d],
ante page 5). In suing to recover possession of the building
from Maritime appellee Myers is not after the resolution or
setting aside of the contract and the restoration of the
parties to the status quo ante as contemplated by Article
1592, but precisely enforcing the Provisions of the
agreement that it is no longer obligated to part with the
ownership or possession of the property because Maritime
failed to comply with the specific condition precedent,
which is to pay the installments as they fell due.
The distinction between contracts of sale and contracts to
sell with reserved title has been recognized by this Court in
repeated decisions upholding the power of promisors under
contracts to sell in case of failure of the other party to
complete payment, to extrajudicially terminate the
operation of the contract, refuse conveyance and retain the
sums or installments already received, where such rights
are expressly provided for, as in the case at bar.
In the Resolution denying the first Motion for Reconsideration,
46 SCRA 381, the Court again speaking thru Justice J.B.L.
Reyes, reiterated the rule that in a contract to sell, the full
payment of the price through the punctual performance of the
monthly payments is a condition precedent to the execution
of the final sale 4nd to the transfer of the property from the
owner to the proposed buyer; so that there will be no actual
sale until and unless full payment is made.
The Court further ruled that in seeking to oust Maritime for
failure to pay the price as agreed upon, Myers was not
rescinding (or more properly, resolving) the contract but
precisely enforcing it according to its expressed terms. In its
suit, Myers was not seeking restitution to it of the ownership
of the thing sold (since it was never disposed of), such
restoration being the logical consequence of the fulfillment of
a resolutory condition, expressed or implied (Art. 1190);
neither was it seeking a declaration that its obligation to sell
was extinguished. What is sought was a judicial declaration
that because the suspensive condition (full and punctual
payment) had not been fulfilled, its obligation to sell to
Maritime never arose or never became effective and,
therefore, it (Myers) was entitled to repossess the property
object of the contract, possession being a mere incident to its
right of ownership.

The decision also stressed that "there can be no rescission or

resolution of an obligation as yet non-existent, because the
suspensive condition did not happen. Article 1592 of the New
Civil Code (Art. 1504 of Old Civil Code) requiring demand by
suit or notarial act in case the vendor of realty wants to
rescind does not apply to a contract to sell or promise to sell,
where title remains with the vendor until fulfillment to a
positive condition, such as full payment of the price." (Manuel
vs, Rodriguez, 109 Phil. 9)
Maritime's Second Motion for Reconsideration was denied in
the Resolution of the Court dated November 16, 1978, 86
SCRA 305, where the governing law and precedents were
briefly summarized in the strong and emphatic language of
Justice Teehankee, thus:
(a) The contract between the parties was a contract to sell
or conditional sale with title expressly reserved in the
vendor Myers Building Co., Inc. Myers until the suspensive
condition of full and punctual payment of the full price shall
have been met on pain of automatic cancellation of the
contract upon failure to pay any of the monthly installments
when due and retention of the sums theretofore paid as
rentals. When the vendee, appellant Maritime, willfully and
in bad faith failed since March, 1961 to pay the P5,000.
monthly installments notwithstanding that it was punctually
collecting P10,000. monthly rentals from the lessee
Luzon Brokerage Co., Myers was entitled, as it did in law
and fact, to enforce the terms of the contract to sell and to
declare the same terminated and cancelled.
(b) Article 1592 (formerly Article 1504) of the new Civil
Code is not applicable to such contracts to self or
conditional sales and no error was committed by the trial
court in refusing to extend the periods for payment.
(c) As stressed in the Court's decision, "it is irrelevant
whether appellant Maritime's infringement of its contract
was casual or serious" for as pointed out in Manuel vs.
Rodriguez, '(I)n contracts to self. whether ownership is
retained by the seller and is not to pass until the full
payment of the price, 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 ...
(d) It should be noted, however, that Maritimes breach was
far from casual but a most serious breach of contract ...
(e) Even if the contract were considered an unconditional
sale so that Article 1592 of the Civil Code could be deemed
applicable, Myers' answer to the complaint for interpleaded
in the court below constituted a judicial demand for
rescission of the contract and by the very provision of the
cited codal article, 'after the demand, the court may not
grant him a new term for payment; and
(f) Assumming further that Article 1191 of the new Civil
Code governing rescission of reciprocal obligations could be
applied (although Article 1592 of the same Code is
controlling since it deals specifically with sales of real
property), said article provides that '(T)he court shall decree
the rescission claimed, unless there be just cause
authorizing the fixing of a period' and there exists to "just
cause" as shown above for the fixing of a further period. ...
Under the first and second assignments of error which
petitioner jointly discusses, he argues that the agreement
entered into between him and the respondent is a perfected
contract of purchase and sale within the meaning of Article
1475 of the New Civil Code which provides that "the contract
of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon
the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law
governing the form of contract."
Petitioner contends that "(n)othing in the decision of the
courts below would show that ownership of the property
remained with plaintiff for so long as the installments have
not been fully paid. Which yields the conclusion that, by the

delivery of the lots to defendant, ownership likewise was

transferred to the latter." (Brief for the Petitioner, p. 15) And
he concludes that the sale was consummated by the delivery
of the two lots, the subject thereof, by him to the respondent.
Under the findings of facts by the appellate court, it appears
that the two lots subject of the agreement between the
parties herein were delivered by the petitioner to the private
respondent who took possession thereof and occupied the
same and thereafter built his house thereon, enclosing the
lots with adobe stone walls and barbed wires. But the property
being registered under the Land Registration Act, it is the act
of registration of the Deed of Sale which could legally effect
the transfer of title of ownership to the transferee, pursuant to
Section 50 of Act 496. (Manuel vs. Rodriguez, et al., 109 Phil.
1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. Raymundo, 28
Phil. 635: Worcestor vs. Ocampo, 34 Phil. 646). Hence, We
hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title
is retained by the seller and is not to pass until the full
payment of the price, such payment being a positive
suspensive condition and 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.
In the case at bar, there is no writing or document evidencing
the agreement originally entered into between petitioner and
private respondent except the receipt showing the initial
deposit of P150.00 as shown in Exh. "A" and the payment of
the 4- months installment made by respondent corresponding
to July, 1954 to October, 1954 in the sum of P740.56 as shown
in Exh. "B". Neither is there any writing or document
evidencing the modified agreement when the 3 lots were
changed to Lots 4 and 12 with a reduced area of 725 sq.
meters, which are corner lots. This absence of a formal deed
of conveyance is a very strong indication that the parties did
not intend immediate transfer of ownership and title, but only
a transfer after full payment of the price. Parenthetically, We
must say that the standard printed contracts for the sale of
the lots in the Rockville Subdivision on a monthly installment
basis showing the terms and conditions thereof are immaterial
to the case at bar since they have not been signed by either
of the parties to this case.
Upon the law and jurisprudence hereinabove cited and
considering the nature of the transaction or agreement
between petitioner and respondent which We affirm and
sustain to be a contract to sell, the following resolutions of
petitioner's assignment of errors necessarily arise, and so We
hold that:
1. The first and second assignments of errors are without
merit.
The overwhelming weight of authority culminating in
the Luzon Brokerage vs. Maritime cases has laid down the rule
that Article 1592 of the New Civil Code does not apply to a
contract to sell where title remains with the vendor until full
payment of the price as in the case at bar. This is the ruling
in Caridad Estates vs. Santero, 71 Phil. 120; Aldea vs.
Inquimboy 86 Phil. 1601; Jocon vs. Capitol Subdivision, Inc., L6573, Feb. 28, 1955; Miranda vs. Caridad Estates, L-2077
and Aspuria vs. Caridad Estates, L-2121 Oct. 3, 1950, all
reiterated in Manuel vs. Rodriguez, et al. 109 Phil. 1, L-13435,
July 27, 1960. We agree with the respondent Court of Appeals
that Art, 1191 of the New Civil Code is the applicable provision
where the obligee, like petitioner herein, elects to rescind or
cancel his obligation to deliver the ownership of the two lots in
question for failure of the respondent to pay in fun the
purchase price on the basis of 120 monthly equal
installments, promptly and punctually for a period of 10 years.
2. We hold that respondent as obligor is not entitled to the
benefits of paragraph 3 of Art. 1191, NCC Having been in
default, he is not entitled to the new period of 90 days from
entry of judgment within which to pay petitioner the balance
of P11,434.44 with interest due on the purchase price of
P12,325.00 for the two lots.
Respondent a paid P150.00 as deposit under Exh. "A" and
P740.56 for the 4-months installments corresponding to the
months of July to October, 1954. The judgment of the lower

court and the Court of Appeals held that respondent was

under the obligation to pay the purchase price of the lots m
question on an equal monthly installment basis for a period of
ten years, or 120 equal monthly installments. Beginning
November, 1954, respondent began to default in complying
with his obligation and continued to do so for the remaining
116 monthly interest. His refusal to pay further installments
on the purchase price, his insistence that he had the option to
pay the purchase price any time in ten years inspire of the
clearness and certainty of his agreement with the petitioner
as evidenced further by the receipt, Exh. "B", his dilatory
tactic of refusing to sign the necessary contract of sale on the
pretext that he will sign later when he shall have updated his
monthly payments in arrears but which he never attempted to
update, and his failure to deposit or make available any
amount since the execution of Exh "B" on June 28, 1954 up to
the present or a period of 26 years, are all unreasonable and
unjustified which altogether manifest clear bad faith and
malice on the part of respondent puzzle making inapplicable
and unwarranted the benefits of paragraph 3, Art. 1191,
N.C.C. To allow and grant respondent an additional period for
him to pay the balance of the purchase price, which balance is
about 92% of the agreed price, would be tantamount to
excusing his bad faith and sanctioning the deliberate
infringement of a contractual obligation that is repugnant and
contrary to the stability, security and obligatory force of
contracts. Moreover, respondent's failure to pay the
succeeding 116 monthly installments after paying only 4
monthly installments is a substantial and material breach on
his part, not merely casual, which takes the case out of the
application of the benefits of pa paragraph 3, Art. 1191, N.C.C.
At any rate, the fact that respondent failed to comply with the
suspensive condition which is the full payment of the price
through the punctual performance of the monthly payments
rendered petitioner's obligation to sell ineffective and,
therefore, petitioner was entitled to repossess the property
object of the contract, possession being a mere incident to his
right of ownership (Luzon Brokerage Co., Inc. vs. Maritime
Building Co., Inc., et al. 46 SCRA 381).
3. We further rule that there exists no just cause authorizing
the fixing of a new period within which private respondent
may pay the balance of the purchase price. The equitable
grounds or considerations which are the basis of the
respondent court in the fixing of an additional period because
respondent had constructed valuable improvements on the
land, that he has built his house on the property worth
P45,000.00 and placed adobe stone walls with barbed wires
around, do not warrant the fixing of an additional period. We
cannot sanction this claim for equity of the respondent for to
grant the same would place the vendor at the mercy of the
vendee who can easily construct substantial improvements on
the land but beyond the capacity of the vendor to reimburse
in case he elects to rescind the contract by reason of the
vendee's default or deliberate refusal to pay or continue
paying the purchase price of the land. Under this design,
strategem or scheme, the vendee can cleverly and easily
"improve out" the vendor of his land.
More than that, respondent has not been honest, fair and
reciprocal with the petitioner, hence it would not be fair and
reasonable to the petitioner to apply a solution that affords
greater reciprocity of rights which the appealed decision tried
to effect between the parties. As matters stand, respondent
has been enjoying the possession and occupancy of the land
without paying the other 116 monthly installments as they fall
due. The scales of justice are already tipped in respondent,s
favor under the amended decision of the respondent court. It
is only right that We strive and search for the application of
the law whereby every person must, in the exercise of his
rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith
(Art. 19, New Civil Code)
In the case at bar, respondent has not acted in good faith.
With malice and deliberate intent, he has twisted the clear
import of his agreement with the petitioner in order to suit his
ends and delay the fulfillment of his obligation to pay the land
he had enjoyed for the last 26 years, more than twice the
period of ten years that he obliged himself to complete
payment of the price.

4. Respondent's contention that petitioner has not complied

with his obligation to put up the necessary facilities in the
Rockville Subdivision is not sufficient nor does it constitute
good reason to justify the grant of an additional period of 90
days from entry of judgment within which respondent may
pay the balance of the purchase price agreed upon. The
Judgment of the appellate court concedes that petitioner's
failure to comply with his obligation to put up the necessary
facilities in the subdivision will not deter him from asking for
the rescission of the agreement since his obligation is not
correlative with respondent's obligation to buy the property.
Since this is so conceded, then the right of the petitioner to
rescind the agreement upon the happening or in the event
that respondent fails or defaults in any of the monthly
installments would be rendered nugatory and ineffective. The
right of rescission would then depend upon an extraneous
consideration which the law does not contemplate.
Besides, at the rate the two lots were sold to respondent with
a combined area of 725 sq. meters at the uniform price of
P17.00 per sq. meter making a total price of P12,325.00, it is
highly doubtful if not improbable that aside from his obligation
to deliver title and transfer ownership to the respondent as a
reciprocal obligation to that of the respondent in paying the
price in full and promptly as the installments fall due,
petitioner would have assumed the additional obligation "to
provide the subdivision with streets ... provide said streets
with street pavements concrete curbs and gutters, fillings as
required by regulations, adequate drainage facilities, tree
plantings, adequate water facilities" as required under
Ordinance No. 2969 of Quezon City approved on May 11,
1956 (Answer of Defendant, Record on Appeal, pp. 35-36)
which was two years after the agreement in question was
entered intoJune, 1y54.
The fact remains, however, that respondent has not protested
to the petitioner nor to the authorities concerned the alleged
failure of petitioner to put up and provide such facilities in the
subdivision because he knew too well that he has paid only
the aggregate sum of P890.56 which represents more or less
7% of the agreed price of P12,325.00 and that he has not paid
the real estate taxes assessed by the government on his
house erected on the property under litigation. Neither has
respondent made any allegation in his Answer and in all his
pleadings before the court up to the promulgation of the
Resolution dated October 12, 1970 by the Court of Appeals, to
the effect that he was entitled to a new period within which to
comply with his obligation, hence the Court could not proceed
to do so unless the Answer is first amended. (Gregorio
Araneta, Inc. vs. Philippine Sugar Estates Development Co.,
Ltd., G.R. No. L-22558, May 31, 1967, 20 SCRA 330, 335). It is
quite clear that it is already too late in the day for respondent
to claim an additional period within which to comply with his
obligation.
Precedents there are in Philippine jurisprudence where the
Supreme Court granted the buyer of real property additional
period within which to complete payment of the purchase
price on grounds of equity and justice as in (1) J.M. Tuazon
Co., Inc. vs. Javier, 31 SCRA 829 where the vendee religiously
satisfied the monthly installments for eight years and paid a
total of P4,134.08 including interests on the principal
obligation of only P3,691.20, the price of the land; after
default, the vendee was willing to pay all arrears, in fact
offered the same to the vendor; the court granted an
additional period of 60 days -from receipt of judgment for the
vendee to make all installment in arrears plus interest; (2)
in Legarda Hermanos vs. Saldaa, 55 SCRA 324, the Court
ruled that where one purchase, from a subdivision owner two
lots and has paid more than the value of one lot, the former is
entitled to a certificate of title to one lot in case of default.
On the other hand there are also cases where rescission was
not granted and no new or additional period was authorized.
Thus, in Caridad Estates vs. Santero, 71 Phil. 114, the vendee
paid, totalling P7,590.00 or about 25% of the purchase price
of P30,000.00 for the three lots involved and when the vendor
demanded revocation upon the vendee's default two years
after, the vendee offered to pay the arears in check which the
vendor refused; and the Court sustained the revocation and
ordered the vendee ousted from the possession of the land.
In Ayala y Cia vs. Arcache, 98 Phil. 273, the total price of the
land was P457,404.00 payable in installments; the buyer
initially paid P100,000.00 or about 25% of the agreed price;

the Court ordered rescission in view of the substantial breach

and granted no extension to the vendee to comply with his
obligation.
The doctrinal rulings that "a slight or casual breach of contract
is not a ground for rescission. It must be so substantial and
fundamental to defeat the object of the parties" (Gregorio
Araneta Inc. vs. Tuazon de Paterno, L-2886, August 22, 1962;
Villanueva vs. Yulo, L-12985, Dec. 29,1959); that "where time
is not of the essence of t agreement, a slight delay on the part
of one party in the performance of his obligation is not a
sufficient ground for the rescission of the agreement"( Biando
vs. Embestro L-11919, July 27, 1959; cases cited in Notes
appended to Universal Foods Corporation vs. Court of Appeals,
33 SCRA 1), convince and persuade Us that in the case at bar
where the breach, delay or default was committed as early as
in the payment of the fifth monthly installment for November,
1954, that such failure continued and persisted the next
month and every month thereafter in 1955, 1956, 1957 and
year after year to the end of the ten-year period in 1964 (10
years is respondent's contention) and even to this time, now
more than twice as long a time as the original period without
respondent adding, or even offering to add a single centavo to
the sum he had originally paid in 1954 which represents a
mere 7% of the total price agreed upon, equity and justice
may not be invoked and applied. One who seeks equity and
justice must come to court with clean hands, which can hardly
be said of the private respondent.
One final point, on the supposed substantial improvements
erected on the land, respondent's house. To grant the period
to the respondent because of the substantial value of his
house is to make the land an accessory to the house. This is
unjust and unconscionable since it is a rule in Our Law that
buildings and constructions are regarded as mere accessories
to the land which is the principal, following the Roman maxim
"omne quod solo inadeficatur solo cedit" (Everything that is
built on the soil yields to the soil).
Pursuant to Art. 1191, New Civil Code, petitioner is entitled to
rescission with payment of damages which the trial court and
the appellate court, in the latter's original decision, granted in
the form of rental at the rate of P60.00 per month from
August, 1955 until respondent shall have actually vacated the
premises, plus P2,000.00 as attorney's fees. We affirm the
same to be fair and reasonable. We also sustain the right of
the petitioner to the possession of the land, ordering thereby
respondent to vacate the same and remove his house
therefrom.
WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution
appealed from dated October 12, 1970 is hereby REVERSED.
The decision of the respondent court dated April 23, 1970 is
hereby REINSTATED and AFFIRMED, with costs against private
respondent.
SO ORDERED.
G.R. No. 73893
MARGARITA SURIA AND GRACIA R. JOVEN, petitioners,
vs.
HON. INTERMEDIATE APPELLATE COURT, HON. JOSE
MAR GARCIA (Presiding Judge of the RTC of Laguna,
Branch XXIV, Bian, Laguna), and SPOUSES HERMINIO
A. CRISPIN and NATIVIDAD C. CRISPIN,respondents.
De Castro & Cagampang Law Offices for petitioners.
Nelson A. Loyola for private respondents.
RESOLUTION

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of the
Court of Appeals dismissing for lack of merit the petition for
certiorari filed therein.
As factual background, we quote from the Court of Appeals'
decision:
The factual and procedural antecedents of this case may be
briefly stated as follows:
On June 20, 1983, private-respondents filed a complaint
before the Regional Trial Court of Laguna, Branch XXIV, for
rescission of contract and damages, alleging among others:

1. x x x
2. That on March 31, 1975, plaintiffs being the owners of a
parcel of land situated at Barrio San Antonio, San Pedro,
Laguna, entered into a contract denominated as DEED OF
SALE WITH MORTGAGE, with herein defendants, a true copy
of said contract (which is made an integral part hereof) is
hereto attached as ANNEX ."A":
3. x x x
4. That the defendants violated the terms and conditions of
the contract by failing to pay the stipulated installments
and in fact only one installment due in July 1975 (paid very
late in the month of September, 1975) was made all the
others remaining unsettled to the present time;
5. That repeated verbal and written demands were made by
plaintiff upon the defendants for the payment of the
installments, some of said written demands having been
made on September 24, 1981, February 7, 1982, February
24, 1983, March 13, 1983, and April 12, 1983, but
defendants for no justifiable reason failed to comply with
the demands of plaintiffs;
6. x x x
On November 14, 1983, petitioners filed their answer with
counterclaim.
On July 16, 1984, petitioners filed a motion to disniiss
complaint, alleging that:
1. That plaintiffs are not entitled to the subsidiary remedy of
rescission because of the presence of remedy of
foreclosure in the Deed of Sale with Mortgage (Annex "A",
Complaint);
2. That, assuming arguendo that rescission were a proper
remedy, it is apparent in the face of the Complaint that the
plaintiffs failed to comply with the requirements of law,
hence the rescission was ineffective, illegal, null and void,
and invalid.
On July 26, 1984, private-respondents filed their opposition
to the above motion.
In the meantime, on August 6, 1984, petitioners formerly
offered to pay private-respondents all the outstanding
balance under the Deed of Sale with Mortgage, which offer
was rejected by private respondents on August 7, 1984.
On November 26, 1984, the respondent-Court denied the
motion to dismiss. The order reads:
Defendants through counsel filed a Second Motion to
Dismiss dated July 24, 1984 based on an affirmative
defense raised in their answer, that is, that the complaint
fails to state a cause of action for rescission against
defendants because (1) plaintiffs are not entitled to the
subsidiary remedy of rescission because of the presence of
the remedy of foreclosure in the Deed of Sale with Mortgage
(Annex "A", Complaint) and (2) assuming arguendo that
rescission were a proper remedy, it is apparent from the
face of the Complaint that the plaintiffs failed to comply
with the requirements of law, hence the rescission was
ineffective, illegal, null and void, and invalid.
After a careful perusal of the allegations of the complaint
considered in the light of existing applicable law and
jurisprudence touching on the matters in issue, and mindful
of the settled rule that in a motion to dismiss grounded on
lack of cause of action the allegations of the complaint must
be assumed to be true, the Court finds and holds that the
motion to dismiss dated July 24, 1984 filed by defendants
lacks merit and therefore denied the same.
SO ORDERED.
On January 31, 1985, petitioners filed a motion for
reconsideration to which private-respondents filed their
opposition on February 11, 1985. On February 19, 1985,
petitioners filed their reply.
On March 13, 1985, the respondent-Court denied the
motion for reconsideration. The order reads in part:
xxx

xxx

xxx

Perusing the grounds invoked by the defendants in their

Motion for Reconsideration and Reply as well as the
objections raised by plaintiffs in their opposition, and it
appearing that in its Order dated November 26, 1984, the
Court has sufficiently, althou (sic) succinctly stated its
reason for denying the motion to dismiss dated July 16,
1984, that is, for lack of merit, the Court finds no overriding
reason or justification from the grounds invoked in the said
Motion for Reconsideration for it to reconsider, change,
modify, or set aside its Order dated November 26, 1984.
The Court still believes that the two (2) grounds invoked by
defendants in their Motion to Dismiss dated July 16, 1984
are not meritorious when considered in the light of
prevailing law and jurisprudence and the hypothetically
admitted allegations of the complaint, and for that reason it

denied the motion to dismiss in its said order of November

26, 1984.
The instant Motion for Reconsideration is therefore denied
for lack of merit. (Pp, 29-32, Rollo)
The questions raised by petitioner are as follows:
I
IN A DEED OF SALE, WHICH IS COUPLED WITH A MORTGAGE
TO SECURE PAYMENT OF THE BALANCE OF THE PURCHASE
PRICE, MAY THE SELLER RESORT TO THE REMEDY OF
RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE WHICH
PROVIDES FOR THE SUBSIDIARY AND EQUITABLE REMEDY OF
RESCISSION IN CASE OF BREACH OF RECIPROCAL
OBLIGATIONS?
Otherwise stated,
IS THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION
AVAILABLE IN THE PRESENCE OF A REMEDY OF FORECLOSURE
IN THE LIGHT OF THE EXPRESS PROVISION OF ARTICLE 1383
OF THE CIVIL CODE THAT: 'THE ACTION FOR RESCISSION IS
SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT WHEN THE
PARTY SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO
OBTAIN REPARATION FOR THE SAME?
xxx

xxx

xxx

II
MAY THE SELLER LEGALLY DEMAND RESCISSION OF THE DEED
OF SALE WITH MORTGAGE WITHOUT OFFERING TO RESTORE
TO THE BUYER WHAT HE HAS PAID, AS REQUIRED BY ARTICLE
1385, OR COMPLYING WITH THE REQUIREMENTS OF THE
MACEDA LAW (REPUBLIC ACT 6552) GRANTING THE BUYER A
GRACE PERIOD TO PAY WITHOUT INTEREST, AND, IN CASE OF
CANCELLATION IN CASE THE BUYER STILL COULD NOT PAY
WITHIN THE GRACE PERIOD, REQUIRING THE SELLER TO
ORDER PAYMENT OF THE CASH SURRENDER VALUE BEFORE
THE CANCELLATION MAY LEGALLY TAKE EFFECT (SEC. 3[b],
LAST PAR., REP. ACT 6552)?
The petition was denied in a minute resolution on June 13,
1986 but was given due course on September 29, 1986 on a
motion for reconsideration.
The petition is impressed with merit.
The respondent court rejected the petitioners' reliance on
paragraph (H) of the contract which grants to the vendors
mortgagees the right to foreclose "in the event of the failure
of the vendees-mortgagors to comply with any provisions of
this mortgage." According to the appellate court, this
stipulation merely recognizes the right of the vendors to
foreclose and realize on the mortgage but does not preclude
them from availing of other remedies under the law, such as
rescission of contract and damages under Articles 1191 and
1170 of the Civil Code in relation to Republic Act No. 6552.
The appellate court committed reversible error. As will be
explained later, Art. 1191 on reciprocal obligations is not
applicable under the facts of this case. Moreover, Art. 1383 of
the Civil Code provides:
The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage
has no other legal means to obtain reparation for the
same.
The concurring opinion of Justice J.B.L. Reyes in Universal
Food Corp. v. Court of Appeals (33 SCRA 22) was cited by the
appellate court.
In that case, Justice J.B.L. Reyes explained:
xxx

xxx

xxx

... The rescission on account of breach of stipulations is not

predicated on injury to economic interests of the party
plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. It is not a
subsidiary action, and Article 1191 may be scanned without
disclosing anywhere that the action for rescission
thereunder is subordinated to anything other than the
culpable breach of his obligations by the defendant. This
rescission is a principal action retaliatory in character, it
being unjust that a party be held bound to fulfill his
promises when the other violates his. As expressed in the
old Latin aphorism: "Non servanti fidem, non est fides
servanda," Hence, the reparation of damages for the breach
is purely secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to
the existence of that prejudice, because it is the raison d
'etre as well as the measure of the right to rescind. Hence,
where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384. But the operation of
these two articles is limited to the cases of rescission for
lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.

It is probable that the petitioner's confusion arose from the

defective technique of the new Code that terms both
instances as "rescission" without distinctions between
them; unlike the previous Spanish Civil Code of 1889, that
differentiated "resolution" for breach of stipulations from
"rescission" by reason of lesion or damage. But the
terminological vagueness does not justify confusing one
case with the other, considering the patent difference in
causes and results of either action.
According to the private respondents, the applicable law is
Article 1191 of the Civil Code which provides:
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 fulfilment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfiument, 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.
There is no dispute that the parties entered into a contract of
sale as distinguished from a contract to sell.
By the contract of sale, the vendor obligates himself to
transfer the ownership of and to deliver a determinate thing
to the buyer, who in turn, is obligated to pay a price certain in
money or its equivalent (Art. 1458, Civil Code). From the
respondents' own arguments, we note that they have fully
complied with their part of the reciprocal obligation. As a
matter of fact, they have already parted with the title as
evidenced by the transfer certificate of title in the petitioners'
name as of June 27, 1975.

vendor's adequate remedy, in case of nonpayment, is the

foreclosure of such mortgage. (at pp. 255-256).
xxx

xxx

xxx

There is, therefore, no cause for the resolution of the sale as

prayed for by the plaintiff. His action, at all events, should
have been one for the foreclosure of the mortgage, which is
not the action brought in this case.
Article 1124 of the Civil Code, as we have seen, is not
applicable to this case. Neither is the doctrine enunciated in
the case of Ocejo, Perez & Co. v. International Banking
Corporation (37 Phil. 631), which plaintiff alleges to be
applicable, because that principle has reference to the sale
of personal property. (at p. 257)
The petitioners have offered to pay au past due accounts.
Considering the lower purchasing value of the peso in terms
of prices of real estate today, the respondents are correct in
stating they have suffered losses. However, they are also to
blame for trusting persons who could not or would not comply
with their obligations in time. They could have foreclosed on
the mortgage immediately when it fell due instead of waiting
all these years while trying to enforce the wrong remedy.
WHEREFORE, the petition is hereby GRANTED. The
Intermediate Appellate Court's decision dated November 8,
1985 and the resolution dated December 6, 1985 and
February 28, 1986 are REVERSED and SET ASIDE. The
petitioners are ordered to pay the balance of their
indebtedness under the Deed of Absolute Sale with Mortgage
with legal interests from the second installment due on
October 24, 1975 until fully paid, failing which the
respondents may resort to foreclosure.
SO ORDERED.
G.R. No. 157330

November 23, 2011

The buyer, in tum, fulfilled his end of the bargain when he

executed the deed of mortgage. The payments on an
installment basis secured by the execution of a mortgage took
the place of a cash payment. In other words, the relationship
between the parties is no longer one of buyer and seller
because the contract of sale has been perfected and
consummated. It is already one of a mortgagor and a
mortgagee. In consideration of the petitioners'promise to pay
on installment basis the sum they owe the respondents, the
latter have accepted the mortgage as security for the
obligation.

LINA CALILAP-ASMERON, Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, PABLO
CRUZ,* TRINIDAD CABANTOG,** ENI S.P. ATIENZA and
EMERENCIANA CABANTOG, Respondents.

The situation in this case is, therefore, different from that

envisioned in the cited opinion of Justice J.B.L. Reyes. The
petitioners' breach of obligations is not with respect to the
perfected contract of sale but in the obligations created by
the mortgage contract. The remedy of rescission is not a
principal action retaliatory in character but becomes a
subsidiary one which by law is available only in the absence of
any other legal remedy. (Art. 1384, Civil Code).

The petitioner challenges the decision promulgated on June

21, 2002,1 whereby the Court of Appeals (CA) affirmed the
adverse decision rendered by the Regional Trial Court, Branch
11, in Malolos, Bulacan (RTC) in Civil Case No. 50-M-87
entitled Lina Calilap-Asmeron v. Development Bank of the
Philippines, Pablo Cruz, Trinidad Cabantog, Eni S.P. Atienza,
and Emerenciana Cabantog,2 an action initiated to set aside
the defendant banks rescission of a deed of conditional sale
involving foreclosed property, and to annul the subsequent
sales of the property to other persons.

Foreclosure here is not only a remedy accorded by law but, as

earlier stated, is a specific provision found in the contract
between the parties.

DECISION
BERSAMIN, J.:

The petitioners are correct in citing this Court's ruling

in Villaruel v. Tan King (43 Phil. 251) where we Stated:
At the outset it must be said that since the subject-matter
of the sale in question is real property, it does not come
strictly within the provisions of article 1124 of the Civil
Code, but is rather subjected to the stipulations agreed
upon by the contracting parties and to the provisions of
Article 1504 of the Civil Code.
The "pacto comisorio" of "ley comisoria" is nothing more
than a condition subsequent of the contract of purchase
and sale. Considered carefully, it is the very condition
subsequent that is always attached to all bilateral
obligations according to article 1124; except that when
applied to real property it is not within the scope of said
article 1124, and it is subordinate to the stipulations made
by the contracting parties and to the provisions of the
article on which we are now commenting" (article 1504).
(Manresa, Civil Code, volume 10, page 286, second edition.)
Now, in the contract of purchase and sale before us, the
parties stipulated that the payment of the balance of one
thousand pesos (P1,000) was guaranteed by the mortgage
of the house that was sold. This agreement has the two-fold
effect of acknowledging indisputably that the sale had been
consummated, so much so that the vendee was disposing
of it by mortgaging it to the vendor, and of waiving
the pacto comisorio, that is, the resolution of the sale in the
event of failure to pay the one thousand pesos (P1,000)
such waiver being proved by the execution of the mortgage
to guarantee the payment, and in accord therewith the

Antecedents
On March 17, 1975, the petitioner and her brother Celedonio
Calilap constituted a real estate mortgage over two parcels of
land covered by Transfer Certificate of Title (TCT) No. T164117 and TCT No.T-160929, both of the Registry of Deeds of
Bulacan, to secure the performance of their loan obligation
with respondent Development Bank of the Philippines
(DBP).3 With the principal obligation being ultimately unpaid,
DBP foreclosed the mortgage. The mortgaged parcels of land
were then sold to DBP as the highest bidder. The one-year
redemption period expired on September 1, 1981.4
As to what thereafter transpired, the petitioner and DBP
tendered conflicting versions.
I
Version of Petitioner
The thrust of the petitioners suit is that DBP accorded to her
a preferential right to repurchase the property covered by TCT
No. 164117.5 Her version follows.
In August 1982, the petitioner negotiated with DBP to buy
back the property covered by TCT No. 164117 by

offering P15,000.00 as downpayment. Her offer was rejected

by an executive officer of DBPs Acquired Assets Department,
who required her to pay the full purchase price of P55,500.00
for the property within ten days.6 She returned to DBP with
the amount, only to be told that DBP would not sell back only
one lot. Being made to believe that the lot covered by TCT No.
164117 would be released after paying two amortizations for
the other lot (TCT No. 160929), however, she signed the deed
of conditional sale covering both lots for the total
consideration of P157,000.00.7 When she later on requested
the release of the property under TCT No. 164117 after paying
two quarterly amortizations, DBP did not approve the release.
She continued paying the amortizations until she had
paid P40,000.00 in all, at which point she sought again the
release of the lot under TCT No. 164117. DBP still denied her
request, warning that it would rescind the contract should her
remaining amortizations be still not paid. On August 7, 1985,
DBP rescinded the deed of conditional sale over her
objections.8
On November 25, 1987, DBP sold the lot covered by TCT No.
164117 to respondent Pablo Cruz via a deed of absolute
sale.9 The petitioner consequently filed a complaint for the
rescission of the sale to Cruz on January 30,
1987.10 Notwithstanding their knowledge of her pending suit
against Cruz, respondents Emerenciana Cabantog and Eni S.P.
Atienza still bought the property from Cruz.11 Hence, Cabantog
and Atienza were impleaded as additional defendants by
amendment.

August 31, 1982

The Manager
Acquired Assets Management Department
Development Bank of the Philippines
Makati, Metro Manila
Dear Sir:
This has reference to our former properties consisting of two
parcels of land with an aggregate area of 2,082.5 sq.m.
covered by TCT Nos. T-160929 and T-164117 together with all
the improvements erected thereon located at Bo. Sumpang
Matanda, Malolos, Bulacan.
I wish to inform you that in view of my intense desire to
preserve said properties for our familys use, I am offering to
buy back these properties for P157,000.00, payable on terms,
balance to be paid in five (5) years on the quarterly
amortization plan.
This is my last appeal for your assistance in my wish to
preserve these properties and should I fail to consummate the
sale, I bind myself to whatever rules and regulations the Bank
may impose with regards to my deposit.
If this offer is acceptable to you, I am willing to deposit the
amount of P55,500.00 on or before September 10, 1982.

II
May I be advised accordingly?
Version of Respondents
Thank you.
DBP insisted that the petitioners real intention had been to
repurchase the two lots on installment basis. She manifested
her real intention to that effect in writing through her letter
dated September 14, 1981, thus:

Very truly yours,

(Sgd.)
LINA CALILAP-ASMERON15

September 14, 1981

DEVELOPMENT BANK OF THE PHIL.
Acquired Assests [sic] Department
Makati, Metro Manila
ATTENTION: MR. J.A. SANCHEZ, JR.
Assistant Manager
-----------------------------------------------------------Dear Sir:
I wish to inform your good office that I am interested to
reacquire the mortgage properties consisting of two (2)
parcels of land under TCT Nos. T-160929 and T-164117
located at Sumapa, Malolos, Bulacan.
I would like to reacquire the above stated properties under
installment basis but I am requesting your goodselves [sic] to
extend an extension of time up to the first week of November,
1981 for my money is coming by that time.
Your kind consideration on the above request is most highly
appreciated, I remain.
Very truly yours,
(sgd.)
LINA CALILAP-ASMERON
Co-maker12
The petitioner also sent a telegram on September 15,
1981,13 whereby she similarly expressed to DBP her interest in
reacquiring the properties. On November 16, 1981, DBP
received another telegram from her,14requesting DBP to put
the bidding of the properties on hold. A year later, she sent a
letter dated August 31, 1982 to reiterate her intention to
repurchase the two properties and to offer to
deposit P55,500.00 as initial payment, to wit:

The petitioner subsequently made the downpayment on

September 10, 1992,16 and DBP formally accepted the offer
through its letter dated September 14, 1982, stating therein
the terms and conditions.17 Said terms and conditions, which
were later embodied in the deed of conditional sale executed
on January 21, 1983, included one that bound her to pay the
first amortization of P7,304.15 three months from the
execution of the deed, and the remaining amortizations to be
due and payable every three months thereafter. 18
DBP presented the duplicate copies of the receipts indicating
her timely payment for the first quarterly amortization;
however, she incurred delays in her subsequent
installments.19 She made her last payment amounting
to P4,500.00 on March 12, 1985,20 leaving five quarterly
amortizations unpaid.21
On January 20, 1986, the petitioner sent a handwritten letter
requesting DBP to put on hold any plans of selling the subject
property, viz:
January 20, 1986
Mr. V.M. Macapagal
Executive Officer
Acquired Assets Mgmt. Division
Development Bank of the Philippines
Makati, Metro Manila
Dear Sir:
This is with reference regarding my Sale Acct. No. 617 under
the name of my late brother Celedonio R. Calilap which are
located in Sumapa, Malolos, Bulacan.
In connection with these properties, I have already made an
arrangement that Im going to pay my whole obligations
through a private financier under your Incentive Plan, which
according to my last communication with them it was

extended so I have to make an advance notice of four (4) days

before paying so I may know the exact amount.
I wanted it to be formal, so I send [sic] a letter to your good
office for the reason that last January 17, 1986, your appraiser
went to our place and made an assessment of my properties.
May I request again to please hold any sale of the said
property for Im doing my best to settle my obligation at the
soonest possible time, for sure after a week or two after the
snap election.
Thank you very much for your kind consideration and hoping
for your help regarding my request.
Respectfully yours,
(sgd.)
LINA CALILAP-ASMERON22
DBP replied by its letter dated February 5, 1986, 23 demanding
payment of the petitioners remaining obligation
of P121,013.75 in cash, otherwise, it would be constrained to
sell the property. She responded via telegram,24informing DBP
that she would be arriving on March 4, 1986. The telegram
was followed by a handwritten letter dated March 5,
198625 stating her willingness to pay 10% of her outstanding
obligations.
On March 12, 1986, DBP demanded the immediate remittance
of the promised amount via telegram.26 When she did not pay
the six quarterly amortizations, DBP rescinded the deed of
conditional sale and applied for a writ of possession on
November 17, 1986 in the RTC (Branch 17) in Malolos,
Bulacan. Its application for the writ of possession was granted
on November 18, 1986.27
Ruling of the RTC
Finding the petitioners complaint lacking in merit, the RTC
(Branch 11) rendered its decision on December 28, 1994
dismissing the case.28 It observed that the stipulations in the
deed of conditional sale and the tenor of the petitioners
communications to DBP clearly indicated that she had
intended to repurchase both foreclosed properties, not just
the property covered by TCT No. T-164117, thusly:
Lettered as she is, the plaintiff cannot now seek refuge on the
excuse that what she intends to buy was only the property
covered by TCT No. T-164117. The contents of her letter to the
Manager of the Acquired Assets Division of DBP dated August
31, 1982 (Exh. 1 and its submarkings) and to Asst. Manager
J.A. Sanchez of the DBP dated September 14, 1981 (Exh. 2)
clearly demonstrate in unequivocal terms that she intended to
reacquire both of her foreclosed properties. Moreso, the
telegrams sent by her (Exhs. 3 & 4) to defendant bank clearly
indicates the same intention.
The aforequoted terms and conditions in the conditional sale
which defendant failed to comply are clear and not
susceptible whatsoever to any other interpretation as to the
intention of the contracting parties. It is settled and
fundamental that if the terms of the contract are clear and
leave no doubt upon the intention of the contracting parties,
the literal meaning of the stipulations shall control (Art. 1370,
Civil Code; Filoil Marketing Corp. vs. IAC GR 67115; Mercantile
Ins. Corp. vs.Ysmael GR 43862; Baliuag Transit Corp. vs. CA
GR 80447). In addition, her subsequent acts of writing DBP
and complying with the terms of the conditional sale bolster
the fact of her acquiescence in the said contract which she
voluntarily entered into and she cannot now take a contrary
position.29
Ruling of the CA
The petitioner appealed, contending that:
I
THE LOWER COURT GROSSLY ERRED IN NOT ANNULLING THE
RESCISSION MADE BY THE DEVELOPMENT BANK OF THE

PHILIPPINES (DBP) OF THE CONDITIONAL SALE OF JANUARY 4,

1983, APPELLANT HAVING ALREADY PAID A SUBSTANTIAL
AMOUNT OF P100,000.00 OR ABOUT TWO-THIRDS OF THE
PRICE OR CONSIDERATION.
II
THE LOWER COURT ERRED IN NOT ANNULLING THE SALE
MADE BY DBP TO PABLO CRUZ AS WELL AS THE SALE MADE
BY THE LATTER TO THE OTHER DEFENDANTS.
Yet, on June 21, 2002, the CA affirmed the RTC,30 pointing out
that the petitioner had not presented testimonial or
documentary evidence to support or corroborate her claim
that she had been misled into signing the deed of conditional
sale. It ruled that DBP could rescind the contract pursuant to
the terms of the deed of conditional sale itself, and that DBP
exercised its right to rescind only after she had failed to pay
her quarterly amortizations.31
Issues
In her present appeal, the petitioner submits:
I
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND REVERSIBLE ERROR WHEN IT DISREGARDED THE
TESTIMONIAL EVIDENCE ADDUCED BY THE PETITIONER,
WHICH CLEARLY DETAILED THE TRUTH SURROUNDING THE
EXECUTION OF THE DEED OF CONDITIONAL SALE OF THE
SUBJECT LOT TO RESPONDENT CRUZ, AND THE LATTER TO
CO-RESPONDENTS CABANTOG AND ATIENZA NULL AND VOID
II
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE LOWER COURT
UPHOLDING THE RESPONDENT BANKS RESCISSION OF THE
DEED OF CONDITIONAL SALE CONSIDERING THAT THE
PETITIONER HAD ALREADY PAID A SUBSTANTIAL AMOUNT OF
PHP100,000.00 OR ABOUT TWO-THIRD OF THE FULL
CONSIDERATION OF PHP157,000.00.
The petitioner avers that her testimonial evidence sufficiently
established the facts behind the execution of the deed of
conditional sale; that she thereby proved that she had not
fully understood the terms contained in the deed; that DBP
could not resort to rescission because her nonpayment of the
amortizations was only a slight or casual breach; and that the
sale made by DBP to Cruz was tainted with bad faith, which
was also true with the sale from Cruz to Cabantog and
Atienza.
DBP counters that the petitioner is raising questions of fact in
her present appeal, which is not allowed under Rule 45 of the
Rules of Court; and that it had the right to rescind the deed of
conditional sale under Article 1191 of the Civil Code.
On her part, Remedios Lim-Cruz, who had substituted her
deceased husband, argues that the petitioner did not prove
bad faith on the part of her husband in purchasing the
property from DBP; and that her husband had relied in good
faith on the title of DBP as the registered owner of the
property at the time of the sale.
Ruling
The appeal lacks merit.
I
Appeal under Rule 45 is
limited to questions of law only
The petitioners submissions, that her testimonial evidence
sufficiently established the facts behind the execution of the
deed of conditional sale, and that she had not fully
understood the terms contained in the deed of conditional

sale, involved questions of fact, for the consideration and

resolution of them would definitely require the appreciation of
evidence. As such, her petition for review is dismissible for
raising factual issues. Under Rule 45 of the Rules of Court,
only questions of law may be the proper subject of an appeal
in this Court. The version of Section 1 of Rule 45 in force at
the time the petitioner commenced her present recourse on
April 28, 2003 expressly so stated, to wit:
Section 1. Filing of petition with Supreme Court. A party
desiring to appeal by certiorari from a judgment or final order
or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth. (1a, 2a) (emphasis
supplied)32
To be sure, we have not lacked in reminding that in exercising
its power of review the Court is not a trier of facts and does
not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the
case. For that reason, the findings of facts of the CA are
conclusive and binding on the Court.
It is true that the Court has recognized several exceptions, in
which it has undertaken the review and re-appreciation of the
evidence. Among the exceptions have been: (a) when the
findings of the CA are grounded entirely on speculation,
surmises or conjectures; (b) when the inference made by the
CA is manifestly mistaken, absurd or impossible; (c) when
there is grave abuse of discretion on the part of the CA; (d)
when the judgment of the CA is based on a misapprehension
of facts; (e) when the findings of facts of the CA are
conflicting; (f) when the CA, in making its findings, went
beyond the issues of the case, or its findings are contrary to
the admissions of both the appellant and the appellee; (g)
when the findings of the CA are contrary to those of the trial
court; (h) when the findings of the CA are conclusions without
citation of specific evidence on which they are based; (i) when
the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondent; (j)
when the findings of fact of the CA are premised on the
supposed absence of evidence and contradicted by the
evidence on record; and (k) when the CA manifestly
overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different
conclusion.33
Although the petitioner submits that the CA made findings of
fact not supported by the evidence on record, this case does
not fall under any of the recognized exceptions. Her claim that
she had established the circumstances to prove her having
been misled into signing the deed of conditional sale was
unfounded, for the findings of fact of the CA rested on the
records, as the following excerpt from the assailed decision of
the CA indicates:
Appellant would like this Court to believe that she was misled
by appellee DBPs representatives into signing the Deed of
Conditional Sale even if her original intention was to buy back
only one of the properties, i.e., that which was covered by TCT
No. T-164117. However, a closer scrutiny of the evidence on
record reveals that aside from her bare allegations as to the
circumstances leading to the signing of said Deed of
Conditional Sale, the appellant has not presented other
evidence, testimonial or documentary, to support or
corroborate her claims. On the other hand, appellee DBP has
presented the letter dated August 31, 1982 signed by
appellant herself and addressed to the Manager of the
Acquired Assets Management Department of the appellee
DBP, expressing her intentions to buy back her foreclosed
properties. In fact, she offered therein to pay a total
of P157,000.00 for the two properties with P55,500.00 to be
advanced by her as deposit and the balance to be paid in five
(5) years under a quarterly amortization plan. Said letter has
not been categorically denied by the appellant as during her
testimony she merely feigned any recollections of its content.
Moreover, it is well-settled that bad faith cannot be presumed
and must be established by clear and convincing
evidence.34 (emphasis supplied)

The petitioner apparently relied solely on her bare testimony

to establish her allegation of having been misled, and did not
present other evidence for the purpose. She seemingly forgot
that, firstly, her bare allegation of having been misled was not
tantamount to proof, and that, secondly, she, as the party
alleging a disputed fact, carried the burden of proving her
allegation.35 In other words, her main duty was to establish
her allegation by preponderance of evidence, because her
failure to do so would result in her defeat.36 Alas, she did not
discharge her burden.
On the other hand, the records contained clear indicia of her
real intention vis--vis her reacquisition of the two foreclosed
properties. The letters and telegrams she had dispatched to
DBP expressed the singular intention to repurchase both lots,
not just the one covered by TCT No. 164711. That intention
even became more evident and more definite when she set
down the payment terms for the repurchase of both lots in her
letter of August 31, 1982. Given all these, the CA rightly
concluded that her written communications to DBP had
revealed her earnest desire to re-acquire both foreclosed
properties.
II
Article 1332 of the Civil Code
did not apply to the petitioner
The petitioner would have us consider that she had not given
her full consent to the deed of conditional sale on account of
her lack of legal and technical knowledge. In effect, she
pleads for the application of Article 1332 of the Civil Code,
which provides:
Article 1332. When one of the parties is unable to read, or if
the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to
the former.
We cannot accede to the petitioners plea.
The pertinent terms of the deed of conditional sale read:
NOW THEREFORE for and in consideration of the foregoing
premises and for the total sum of ONE HUNDRED FIFTY SEVEN
THOUSAND PESOS (P157,000.00), Philippine Currency, to be
fully paid as hereinafter set forth, the VENDOR agrees to
convey by way of sale and the VENDEE agrees to buy the
above stated properties covered by TCT Nos. T-160929 and T164117, more particularly described at the back hereof under
the following terms and conditions:
That the downpayment shall be P55,500 and the balance
of P101,500 to be paid in five (5) years on the quarterly
amortization plan at 15% interest per annum the first
amortization of P7,304.15 shall be due and payable 3 mos.
from the date of execution of the Deed of Conditional Sale and
all subsequent amortizations shall be due and payable every
three (3) months thereafter;
That if the vendee fails to sign the sale document within 15
days from date of receipt of our notice of approval of the offer,
the approval hereof shall be deemed automatically revoked
and the deposit forfeited in accordance with the rules and
regulations of the Bank.
The Vendee/s may pay the whole or part of the account under
this contract at anytime during the term hereof; provided,
however, that if the vendee/s is in default in the payment of at
least six monthly amortizations, if payable monthly; two
quarterly amortizations, if payable quarterly; one semi-annual
and annual amortization if payable semi-annually and
annually, the Vendor may, in its option, declare the whole
account due and payable.
xxx
The title to the real estate property and all improvements
thereon shall remain in the name of the vendor until after the

purchase price, advances and interest shall have been fully

paid. The Vendee/s agrees that in the event of his failure to
pay the amortizations or installments as herein provided for,
the contract shall, at the option of the Vendor, be deemed and
considered annulled, and he shall forfeit, and by these
presents, hereby waives whatever right he might have
acquired to the said property. The Vendor shall then be at
liberty to dispose of same as if this contract has never been
made; and in the event of such annulment, all sums of money
paid under the contract shall be considered and treated as
rentals for the use of the property, and the Vendee/s waives
all rights to ask or demand the return thereof and he further
agrees to vacate peacefully and quietly said property, hereby
waiving in favor of the Vendor whatever expenses he may
have incurred in the property in the form of improvement or
under any concept, without any right to reimbursement
whatsoever.
xxx
It is hereby agreed, covenanted and stipulated by and
between the parties hereto that should the Vendor decide to
rescind this contract in view of the failure of the Vendee/s to
pay the amortization/installments, when due, or otherwise
fail/s to comply with any of the terms and conditions herein
stipulated, and the Vendee/s refuse/s to peacefully deliver the
possession of the property hereinbove mentioned to the
Vendor, thereby obliging the Vendor to file suit in court with
the view to taking possession thereof, the Vendee/s hereby
agree/s to pay all the expenses of the suit incident thereto, all
the damages that may be incurred thereby, as well as
attorneys fees which it is hereby agreed, shall be 10% of the
total amount due and outstanding, but in no case shall it be
less than P100.00.37
It is quite notable that the petitioner did not specify which of
the stipulations of the deed of conditional sale she had
difficulty or deficiency in understanding. Her generalized
averment of having been misled should, therefore, be brushed
aside as nothing but a last attempt to salvage a hopeless
position. Our impression is that the stipulations of the deed of
conditional sale were simply worded and plain enough for
even one with a slight knowledge of English to easily
understand.
The petitioner was not illiterate. She had appeared to the trial
court to be educated, its cogent observation of her as
"lettered" (supra, at p. 7 hereof) being based on how she had
composed her correspondences to DBP. Her testimony also
revealed that she had no difficulty understanding English, as
the following excerpt shows:
ATTY. CUISON
Q : Mrs. Witness, last time you identified the document,
captioned as Deed of Conditional Sale which was executed
last January 21, 1983, it was read in English language,
correct?
A : Yes, sir.
Q : And, could you testify in this Court without in need of
interpreter?
A : Yes, sir.
Q : So, you are aware or comfortable with the English
language?
A : Yes, sir.38
Nor was the petitioners ignorance of the true nature of the
deed of conditional sale probably true. By her own admission,
she had asked the bank officer why she had been made to
sign a deed of conditional sale instead of an absolute sale,
which in itself reflected her full discernment of the matters
subject of her dealings with DBP, to wit:
COURT:

Q : Now, before you signed this Deed of Conditional Sale

sometime on January 21, 1983, did you read this document?
A : Yes, your Honor, and I even told the officer of the Bank,
that why it should be a Deed of Probitional Sale when in fact it
should be a Deed of Absolute Sale because I paid already the
full amount of P55,500.00 for the property covered by TCT No.
164117 and they told me that after a few amortizations on the
other property, they are going to release the property which
was paid in full but did not push through, Your Honor.39
Thereby revealed was her distinctive ability to understand
written and spoken English, the language in which the terms
of the contract she signed had been written.
Clearly, Article 1332 of the Civil Code does not apply to the
petitioner. According to Lim v. Court of Appeals,40 the provision
came into being because a sizeable percentage of the
countrys populace had comprised of illiterates, and the
documents at the time had been written either in English or
Spanish, viz:
In calibrating the credibility of the witnesses on this issue, we
take our mandate from Article 1332 of the Civil Code which
provides: "When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake
or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the
former." This substantive law came into being due to the
finding of the Code Commission that there is still a fairly large
number of illiterates in this country, and documents are
usually drawn up in English or Spanish. It is also in accord with
our state policy of promoting social justice. It also
supplements Article 24 of the Civil Code which calls on court
to be vigilant in the protection of the rights of those who are
disadvantaged in life.41 (Emphasis supplied)
III
DBP validly exercised its right to rescind the
deed of conditional sale upon the petitioners default
The petitioner argues that despite the right to rescind due to
nonpayment being stipulated in the deed of conditional sale,
DBP could not exercise its right because her nonpayment of
an obligation constituted only a slight or casual breach that
did not warrant rescission. Moreover, she posits that Article
119142 of the Civil Code empowers the court to fix the period
within which the obligor may comply with the obligation.
The petitioners argument lacks persuasion.
Firstly, a contract is the law between the parties. Absent any
allegation and proof that the contract is contrary to law,
morals, good customs, public order or public policy, it should
be complied with in good faith.43 As such, the petitioner, being
one of the parties in the deed of conditional sale, could not be
allowed to conveniently renounce the stipulations that she
had knowingly and freely agreed to.
Secondly, the issue of whether or not DBP validly exercised
the right to rescind is a factual one that the RTC and the CA
already passed upon and determined. The Court, which is not
a trier of facts, adopts their findings, and sustains the exercise
by DBP of its right to rescind following the petitioners failure
to pay her six monthly amortizations, and after her being
given due notice of the notarial rescission. 44 As a consequence
of the valid rescission, DBP had the legal right to thereafter
sell the property to a person other than the petitioner, like
Cruz. In turn, Cruz could validly sell the property to Cabantog
and Trinidad, which he did.1wphi1
And, thirdly, Article 1191 of the Civil Code did not prohibit the
parties from entering into an agreement whereby a violation
of the terms of the contract would result to its cancellation. In
Pangilinan v. Court of Appeals,45 the Court upheld the vendors
right in a contract to sell to extrajudicially cancel the contract
upon failure of the vendee to pay the installments and even to
retain the sums already paid, holding:

[Article 1191 of the Civil Code] 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. 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. The validity of the stipulation in
the contract providing for automatic rescission upon nonpayment 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 the stipulated price within the
original period fixed in the agreement.
ACCORDINGLY, the petition for review is DENIED for lack of
merit, and the decision of the Court of Appeals promulgated
on June 21, 2002 is AFFIRMED.
Costs of suit shall be paid by the petitioner.
SO ORDERED.
G.R. No. 169790

April 30, 2008

CONGREGATION OF THE RELIGIOUS OF THE VIRGIN

MARY and/or THE SUPERIOR GENERAL OF THE
RELIGIOUS OF THE VIRGIN MARY, represented by The
REVEREND MOTHER MA. CLARITA BALLEQUE,petitioner,
vs.
EMILIO Q. OROLA, JOSEPHINE FATIMA LASERNA OROLA,
MYRNA ANGELINE LASERNA OROLA, MANUEL LASERNA
OROLA, MARJORIE MELBA LASERNA OROLA & ANTONIO
LASERNA OROLA,respondents.
DECISION
NACHURA, J.:
Challenged in this petition for review on certiorari is the Court
of Appeals (CA) Decision1 in CA-G.R. CV. No. 71406 which
modified the Regional Trial Court (RTC) Decision2 in Civil Case
No. V-7382 ordering the rescission of the contract of sale
between the parties in an action for Specific Performance or
Rescission with Damages filed by respondents Emilio,
Josephine Fatima Laserna, Myrna Angeline Laserna, Manuel
Laserna, Marjorie Melba Laserna, & Antonio Laserna, all
surnamed Orola, (respondents) against petitioner
Congregation of the Religious of the Virgin Mary (RVM).3
The undisputed facts, as found by the CA and adopted by RVM
in its petition, follow.
Sometime in April 1999, [petitioner] Religious of the Virgin
Mary (RVM for brevity), acting through its local unit and
specifically through Sr. Fe Enhenco, local Superior of the St.
Marys Academy of Capiz and [respondents] met to discuss
the sale of the latters property adjacent to St. Marys
Academy. Said property is denominated as Lot 159-B-2 and
was still registered in the name of [respondents]
predecessor-in-interest, Manuel Laserna.
In May of 1999, [respondent] Josephine Orola went to
Manila to see the Mother Superior General of the RVM, in
the person of Very Reverend Mother Ma. Clarita Balleque

[VRM Balleque] regarding the sale of the property subject of

this instant case.
A contract to sell dated June 2, 1999 made out in the names
of herein [petitioner] and [respondents] as parties to the
agreement was presented in evidence pegging the total
consideration of the property at P5,555,000.00 with 10% of
the total consideration payable upon the execution of the
contract, and which was already signed by all the
[respondents] and Sr. Ma. Fe Enhenco, R.V.M. [Sr. Enhenco]
as witness.
On June 7, 1999, [respondents] Josephine Orola and Antonio
Orola acknowledged receipt of RCBC Check No. 0005188
dated June 7, 1999 bearing the amount of P555,500.00 as
10% down payment for Lot 159-B-2 from the RVM
Congregation (St. Marys Academy of Cadiz [SMAC]) with
the "conforme" signed by Sister Fe Enginco (sic), Mother
Superior, SMAC.
[Respondents] executed an extrajudicial settlement of the
estate of Trinidad Andrada Laserna dated June 21, 1999
adjudicating unto themselves, in pro indiviso shares, Lot
159-B-2, and which paved the transfer of said lot into their
names under Transfer Certificate of Title No. T-39194 with
an entry date of August 13, 1999.4
Thereafter, respondents, armed with an undated Deed of
Absolute Sale which they had signed, forthwith scheduled a
meeting with VRM Balleque at the RVM Headquarters in
Quezon City to finalize the sale, specifically, to obtain
payment of the remaining balance of the purchase price in the
amount of P4,999,500.00. However, VRM Balleque did not
meet with respondents. Succeeding attempts by respondents
to schedule an appointment with VRM Balleque in order to
conclude the sale were likewise rebuffed.
In an exchange of correspondence between the parties
respective counsels, RVM denied respondents demand for
payment because: (1) the purported Contract to Sell was
merely signed by Sr. Enhenco as witness, and not by VRM
Balleque, head of the corporation sole; and (2) as discussed
by counsels in their phone conversations, RVM will only be in a
financial position to pay the balance of the purchase price in
two years time. Thus, respondents filed with the RTC a
complaint with alternative causes of action of specific
performance or rescission.
After trial, the RTC ruled that there was indeed a perfected
contract of sale between the parties, and granted
respondents prayer for rescission thereof. It disposed of the
case, to wit:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the [respondents] and against the
[petitioner].
1. Dismissing the counterclaim;
2. Ordering the rescission of the Contract to Sell, Exh. "E".
3. Ordering the forfeiture of the downpayment of P555,500
in favor of the [respondents];
4. Ordering [petitioner] corporation sole, the Superior
General of the Religious of the Virgin Mary, to pay
[respondents]:
a. P50,000.00 as exemplary damages;
b. P50,000.00 as attorneys fees.
5. Costs against the [petitioner].
Dissatisfied, both parties filed their respective Notices of
Appeal. The CA dismissed the respondents appeal because of
their failure to file an Appeal Brief. However, RVMs appeal,
where respondents accordingly filed an Appellees Brief,
continued. Subsequently, the CA rendered judgment setting
aside the RTC Decision, to wit:

WHEREFORE, with all the foregoing, the decision of the

Regional Trial Court, Branch 15, Roxas City dated March 1,
2001 in [C]ivil [C]ase [N]o. V-7382 for Specific Performance
or Rescission with Damages is hereby SET ASIDE and a new
one entered GRANTING [respondents] action for specific
performance. [Petitioner RVM] [is] hereby ordered to pay
[respondents] immediately the balance of the total
consideration for the subject property in the amount
of P4,999,500.00 with interest of 6% per annum computed
from June 7, 2000 or one year from the downpayment of the
10% of the total consideration until such time when the
whole obligation has been fully satisfied. In the same way,
[respondents] herein are ordered to immediately deliver the
title of the property and to execute the necessary
documents required for the sale as soon as all requirements
aforecited have been complied by [RVM]. Parties are further
ordered to abide by their reciprocal obligations in good
faith.
All other claims and counterclaims are hereby dismissed for
lack of factual and legal basis.
No pronouncement as to cost.
In modifying the RTC Decision, the CA, albeit sustaining the
trial courts finding on the existence of a perfected contract of
sale between the parties, noted that the records and evidence
adduced did not preponderate for either party on the manner
of effecting payment for the subject property. In short, the CA
was unable to determine from the records if the balance of
the purchase price was due in two (2) years, as claimed by
RVM, or, upon transfer of title to the property in the names of
respondents, as they averred. Thus, the CA applied Articles
13835 and 13846of the Civil Code which pronounce rescission
as a subsidiary remedy covering only the damages caused.
The appellate court then resolved the matter in favor of the
greatest reciprocity of interest pursuant to Article 1378 7 of the
Civil Code. It found that the 2-year period to purchase the
property, which RVM insisted on, had been mooted
considering the time elapsed from the commencement of this
case. Thus, the CA ordered payment of the balance of the
purchase price with 6% interest per annum computed from
June 7, 2000 until complete satisfaction thereof.
Hence, this recourse.
RVM postulates that the order to pay interest is inconsistent
with the professed adherence by the CA to the greatest
reciprocity of interest between the parties. Since mutual
restitution cannot be had when the CA set aside the rescission
of the contract of sale and granted the prayer for specific
performance, RVM argues that the respondents should pay
rentals for the years they continued to occupy, possess, and
failed to turn over to RVM the subject property.
Effectively, the only issue for our resolution is whether RVM is
liable for interest on the balance of the purchase price.
At the outset, we must distinguish between an action for
rescission as mapped out in Article 1191 of the Civil Code and
that provided by Article 1381 of the same Code. The articles
read:
Art. 1191. The power to rescind obligations is impled 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.

Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one
fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion state in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be
subject to rescission.
Article 1191, as presently worded, speaks of the remedy of
rescission in reciprocal obligations within the context of Article
1124 of the Old Civil Code which uses the term "resolution."
The remedy of resolution applies only to reciprocal
obligations8 such that a partys breach thereof partakes of a
tacit resolutory condition which entitles the injured party to
rescission. The present article, as in the Old Civil Code,
contemplates alternative remedies for the injured party who is
granted the option to pursue, as principal actions, either a
rescission or specific performance of the obligation, with
payment of damages in each case. On the other hand,
rescission under Article 1381 of the Civil Code, taken from
Article 1291 of the Old Civil Code, is a subsidiary action, and is
not based on a partys breach of obligation.
The esteemed Mr. Justice J.B.L. Reyes, ingeniously cuts
through the distinction in his concurring opinion in Universal
Food Corporation v. CA:9
I concur with the opinion penned by Mr. Justice Fred Ruiz
Castro, but I would like to add that the argument of
petitioner, that the rescission demanded by the respondentappellee, Magdalo Francisco, should be denied because
under Article 1383 of the Civil Code of the Philippines[,]
rescission can not be demanded except when the party
suffering damage has no other legal means to obtain
reparation, is predicated on a failure to distinguish between
a rescission for breach of contract under Article 1191 of the
Civil Code and a rescission by reason of lesin or economic
prejudice, under Article 1381, et seq. The rescission on
account of breach of stipulations is not predicated on injury
to economic interests of the party plaintiff but on the
breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action,
and Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder is
subordinated to anything other than the culpable breach of
his obligations by the defendant. This rescission is a
principal action retaliatory in character, it being unjust that
a party be held bound to fulfill his promises when the other
violates his. As expressed in the old Latin aphorism: "Non
servanti fidem, non est fides servanda." Hence, the
reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesin or
economic prejudice, the cause of action is subordinated to
the existence of that prejudice, because it is the raison d
etre as well as the measure of the right to rescind. Hence,
where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384. But the operation of
these two articles is limited to the cases of rescission
for lesin enumerated in Article 1381 of the Civil Code of
the Philippines, and does not apply to cases under Article
1191.
It is probable that the petitioners confusion arose from the
defective technique of the new Code that terms both
instances as "rescission" without distinctions between
them; unlike the previous Spanish Civil Code of 1889, that
differentiated "resolution" for breach of stipulations from

"rescission" by reason of lesin or damage. But the

terminological vagueness does not justify confusing one
case with the other, considering the patent difference in
causes and results of either action.
In the case at bench, although the CA upheld the RTCs finding
of a perfected contract of sale between the parties, the former
disagreed with the latter that fraud and bad faith were
attendant in the sale transaction. The appellate court, after
failing to ascertain the parties actual intention on the terms
of payment for the sale, proceeded to apply Articles 1383 and
1384 of the Civil Code declaring rescission as a subsidiary
remedy that may be availed of only when the injured party
has no other legal means to obtain reparation for the damage
caused. In addition, considering the absence of fraud and bad
faith, the CA felt compelled to arrive at a resolution most
equitable for the parties. The CAs most equitable resolution
granted respondents prayer for specific performance of the
sale and ordered RVM to pay the remaining balance of the
purchase price, plus interest. It set aside and deleted the
RTCs order forfeiting the downpayment of P555,500.00 in
favor of, and payment of exemplary damages, attorneys fees
and costs of suit to, respondents.
Nonetheless, RVM is displeased. It strenuously objects to the
CAs imposition of interest. RVM latches on to the CAs
characterization of its resolution as most equitable which,
allegedly, is not embodied in the dispositive portion of the
decision ordering the payment of interest. RVM is of the view
that since the CA decreed specific performance of the
contract without a finding of bad faith by either party, and
respondents retained possession of the subject property for
the duration of the litigation, the imposition of interest is not
keeping with equity without simultaneously requiring
respondents to pay rentals for their continued and
uninterrupted stay thereon. In all, RVM phrases the issue in
metaphysical terms, i.e., the most equitable solution.
We completely disagree. The law, as applied to this factual
milieu, leaves no room for equivocation. Thus, we are not
wont to apply equity in this instance.

Yet, RVM stubbornly argues that given the CAs factual finding
on the absence of fraud or bad faith by either party, its order
to pay interest is inequitable.
The argument is untenable. The absence of fraud and bad
faith by RVM notwithstanding, it is liable to respondents for
interest. In ruling out fraud and bad faith, the CA
correspondingly ordered the fulfillment of the obligation and
deleted the RTCs order of forfeiture of the downpayment
along with payment of exemplary damages, attorneys fees
and costs of suit. But RVMs contention disregards the
common finding by the lower courts of a perfected contract of
sale. As previously adverted to, RVM breached this contract of
sale by refusing to pay the balance of the purchase price
despite the transfer to respondents names of the title to the
property. The 2-year period RVM relies on had long passed and
expired, yet, it still failed to pay. It did not even attempt to pay
respondents the balance of the purchase price after the case
was filed, to amicably end this litigation. In fine, despite a
clear cut equitable decision by the CA, RVM refused to lay the
matter to rest by complying with its obligation and paying the
balance of the agreed price for the property.
Lastly, to obviate confusion, the clear language of Article 1191
mandates that damages shall be awarded in either case of
fulfillment or rescission of the obligation.17 In this regard,
Article 2210 of the Civil Code is explicit that "interest may, in
the discretion of the court, be allowed upon damages awarded
for breach of contract." The ineluctable conclusion is that the
CA correctly imposed interest on the remaining balance of the
purchase price to cover the damages caused the respondents
by RVMs breach.
WHEREFORE, premises considered, the petition is DENIED.
The order granting specific performance and payment of the
balance of the purchase price plus six percent (6%) interest
per annum from June 7, 2000 until complete satisfaction is
hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

As uniformly found by the lower courts, we likewise find that

there was a perfected contract of sale between the parties. A
contract of sale carries the correlative duty of the seller to
deliver the property and the obligation of the buyer to pay the
agreed price.10 As there was already a binding contract of sale
between the parties, RVM had the corresponding obligation to
pay the remaining balance of the purchase price upon the
issuance of the title in the name of respondents. The
supposed 2-year period within which to pay the balance did
not affect the nature of the agreement as a perfected contract
of sale.11 In fact, we note that this 2-year period is neither
reflected in any of the drafts to the contract, 12 nor in the
acknowledgment receipt of the downpayment executed by
respondents Josephine and Antonio with the conformity of Sr.
Enhenco.13 In any event, we agree with the CAs observation
that the 2-year period to effect payment has been mooted by
the lapse of time.

G.R. No. 171076

However, the CA mistakenly applied Articles 1383 and 1384 of

the Civil Code to this case because respondents cause of
action against RVM is predicated on Article 1191 of the same
code for breach of the reciprocal obligation. It is evident from
the allegations in respondents Complaint14 that the instant
case does not fall within the enumerated instances in Article
1381 of the Civil Code. Certainly, the Complaint did not pray
for rescission of the contract based on economic prejudice.

Factual Antecedents

Moreover, contrary to the CAs finding that the evidence did

not preponderate for either party, the records reveal, as
embodied in the trial courts exhaustive disquisition, that RVM
committed a breach of the obligation when it suddenly
refused to execute and sign the agreement and pay the
balance of the purchase price.15 Thus, when RVM refused to
pay the balance and thereby breached the contract,
respondents rightfully availed of the alternative remedies
provided in Article 1191. Accordingly, respondents are entitled
to damages regardless of whichever relief, rescission or
specific performance, would be granted by the lower courts.16

August 1, 2012

GOLDLOOP PROPERTIES INC., Petitioner,

vs.
GOVERNMENT SERVICE INSURANCE
SYSTEM, Respondent.
DECISION
DEL CASTILLO, J.:
This protracted legal battle revolves around the unilateral of
the parties contracts.
In this Petition for Review on Certiorari, petitioner Goldloop
Properties Inc. (Goldloop) assails the September 26, 2005
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
80135 which reversed and set aside the June 23, 2003
Decision2 of the Regional Trial Court (RTC) of Pasay City,
Branch 111 in Civil Case No. 00-0149 for Specific Performance
and Damages. Likewise assailed is the January 11, 2006
Resolution3 of the CA which denied Goldloops Motion for
Reconsideration thereto.
The Government Service Insurance System (GSIS) owns a
2,411-square meter (sq. m.) parcel of land located in ADB
Avenue cor. Sapphire St., Ortigas Center, Pasig City as well as
the Philcomcen Building standing on a portion thereof. On
June 16, 1995, GSIS and Goldloop executed a Memorandum of
Agreement (MOA)4 whereby Goldloop, at its own expense and
account, would renovate the faade of the Philcomcen
Building as well as construct a condominium building on the
1,195 sq. m. portion of said land. Goldloop also undertook to
pay GSIS the amount of P 140,890,000.00 for the portion of
the land on which the condominium building shall stand to be
remitted in eight installments within the four-year period
following the execution of the MOA. Said amount is apart from
the guaranteed revenue of P 1,428.28 million5 that the parties
would share when the project is already completed and the
condominium units sold. It was further agreed that should the
gross sales of the condominium project exceed the said
guaranteed revenue, GSIS would be entitled to 9.86% of the
amount in excess of P1,428.28 million and Goldloop, to the
balance of 90.14%.6
On June 18, 1996, the parties executed an Addendum to the
Memorandum of Agreemen7 (Addendum) to include in the
project the relocation of an existing powerhouse and cistern

tank within the site of the proposed condominium building.

And since by then Goldloop had yet to remit to GSIS the first
and second installment payments of the guaranteed amount,
the Addendum also contained stipulations relative thereto, to
wit:

Twelve
21,133,50
Month 15%
0.00
s
Eighte
en
21,133,50
15%
Month
0.00
s

2. The parties agree that the expense items identified in

Annex "C" 8 as A.1, A.2.1, A.2.2., A.2.3., A.3.1., B.1 and B.2 are
for the account of GSIS; while expense items A.3.2. and B.3
are for the account of GOLDLOOP.

Twent
y-four
21,133,50
15%
Month
0.00
s

3. As a gesture of goodwill and in consideration for the waiver

by GSIS of the interest due from GOLDLOOP by reason of late
payment of the first guaranteed amount under Section 1.1. of
the MOA, GOLDLOOP hereby agrees to absorb expense Item C
of Annex "C" hereof;

Thirty
21,133,50
Month 15%
0.00
s

4. GOLDLOOP shall advance the payments of all the expense

items due from GSIS which shall, however be credited as full
payment of its first guaranteed installment and partial
payment of the second guaranteed installment under Section
1.1. of the MOA;

ThirtySix
14,089,00
10%
Month
0.00
s

5. As further gesture of goodwill and as additional

consideration for the waiver by GSIS of the interest due from
GOLDLOOP by reason of late payment of the first guaranteed
amount under Section 1.1 of the MOA, GOLDLOOP hereby
agrees not to charge the GSIS any interest for the amounts to
be advanced by GOLDLOOP in excess of the amount due as its
first guaranteed installment;

FortyTwo
14,089,00
10%
Month
0.00
s
FortyEight
14,089,00
10%
Month
0.00
s

6. In consideration of the undertakings of GOLDLOOP under

Sections 3 and 5 hereof, the GSIS hereby waives in favor of
GOLDLOOP the interest due from the latter by reason of its
late payment of the first guaranteed amount under Section
1.1 of the MOA.9
Goldloop then performed the necessary preparatory works. 10 It
also formally launched the project11 and conducted the preselling of the condominium units.12 Unfortunately, construction
could not proceed because Mayor Vicente P. Eusebio (Mayor
Eusebio) of Pasig City refused to act on the applications for
building permits filed in November 199613 and July
1997,14 claiming that GSIS owed Pasig City P54 million in
unpaid real estate taxes. The GSIS, for its part, through its
then President and General Manager, Mr. Cesar Sarino
(Sarino), claimed that GSIS is exempt from payment thereof
by virtue of Republic Act (R.A.) No. 8291. 15 Because of this
impasse, Mayor Eusebio opted to hold in abeyance any action
on the applications for building permit until the issue on the
tax exemption provisions of R.A. No. 8291 shall have been
settled by the court through a petition for declaratory relief
that Pasig City intended to file.16
When Mr. Federico C. Pascual (Pascual) was subsequently
appointed as the new President and General Manager of GSIS,
Goldloops President, Mr. Emmanuel R. Zapanta (Zapanta),
apprised him of the situation. Later, however, Goldloop
received from GSIS a letter dated November 23, 1998
informing it of a recommendation17 to rescind the
MOA.18 Zapanta thus wrote GSIS on December 2, 1998 and
reiterated that the work stoppage due to non-issuance of
permit was not Goldloops fault. Assuring GSIS that it would
commence the project as soon as the issue on building
permits is resolved, Zapanta urged GSIS to reconsider its
position.19Despite this, GSIS still sent Goldloop a notice of
rescission20 dated February 23, 2000 stating that 30 days from
the latters receipt thereof, the MOA shall be deemed
rescinded for Goldloops breach of its obligations and
commitments thereunder, specifically for failure to pay the
guaranteed amount of P 140,890,000.00 under Section 1.1
and pursuant to Sections 1.3 and 2.4 of the MOA, viz:
In view of your failure to abide by the provisions of the
Memorandum of Agreement, please be informed that effective
upon the expiration of thirty (30) days from receipt of this
notice, the aforesaid Agreement is deemed rescinded and
terminated for breach of obligations and commitments
pursuant to the following provisions of the Contract:
Section 1.1 That GOLDLOOP PROPERTIES, INC. will pay the
GSIS a guaranteed amount of ONE HUNDRED FORTY
MILLION EIGHT HUNDRED NINETY THOUSAND PESOS
(P140,890,000.00) as payment for the 1,195 sq. m. portion
of the lot on which the second tower will stand in
accordance with the following schedule:
Period
Percen
from
tage
signin
Amount to
of
g of
be
Total
the
Remitted
Amou
Agree
nt
ment
Six
Month 10%
s

P 14,089,
000.00

100%

P 140,890
,000.00

Section 1.3 Payment to GSIS of the amounts provided for in

the preceding paragraphs shall be remitted by GOLDLOOP
within the periods stated therein without need of prior
demand; and failure to so pay within said periods shall
entitle the GSIS to an interest of 18% per annum,
compounded monthly, without prejudice to the other rights
and remedies of the GSIS under this Agreement and under
applicable laws.
xxxx
Section 2.4. Should GOLDLOOP fail to start the construction
works within thirty (30) working days from the date all the
relevant permits and licenses from the concerned agencies
are obtained, or within six (6) months from the date of the
execution of this Agreement, whichever is earlier, or at any
given time abandon the same or otherwise commit any
breach of their obligations and commitments under this
Agreement, this agreement shall be deemed terminated
and cancelled without need of judicial action by giving thirty
(30) days written notice to that effect to GOLDLOOP [which]
hereby agrees to abide by the decision of the
GSIS.21(Underscoring and Emphasis in the original.)
Subsequently, GSIS sent Goldloop a letter22 dated April 27,
2000 informing it that the MOA was already officially
rescinded. It thus ordered Goldloop to vacate the premises
and clear the same of all debris, machineries and equipment
within five days from receipt thereof. Failing which, GSIS
warned that it would undertake the same on Goldloops
account without responsibility on its part for any resulting loss
or damage. Because of this, Goldloop filed on May 17, 2000 a
Complaint23 for Specific Performance with Damages before the
RTC of Pasay City against GSIS. The case was docketed as Civil
Case No. 00-0149 and raffled to Branch 111 of said court.
Proceedings in the Regional Trial Court
In its complaint, Goldloop belied GSISs claim that it has not
paid the guaranteed amount. It asserted that aside from the
amount it expended for the preparatory works undertaken, it
already paid GSIS the sum of P24,824,683.00 in terms of
charges on change order items. This amount was advanced by
Goldloop in favor of GSIS, with the understanding, per the
Addendum, that the same shall be credited as full payment of
the first installment and as partial payment of the second
installment of the guaranteed amount. Goldloop also claimed
to have spent a total of P 44,075,910.70 for design, marketing
fees, project launching, title annotation, waiver, advances of
contractors and other expenses. All in all, Goldloop already
shelled out the amount of P68,890,593.70.24
Goldloop also averred that it was ready, willing and able to
perform all of its obligations under the MOA as shown by the
preparatory works it had undertaken. However, because of
the non-issuance of building permits by Mayor Eusebio, the
project could not push thru. Goldloop further alleged that GSIS
made assurances that it would secure the necessary permits
but GSIS still failed to obtain the same. Goldloop also alleged
that GSIS delayed the issuance of notice to proceed despite
repeated reminders from Goldloop.

Goldloop also claimed that during Zapantas courtesy call to

Pascual, the latter allegedly advised the former to just wait for
the resolution of the problem and even remarked that "at any
rate the real estate market is still depressed in view of the
Asian financial crisis." On the same day, Zapanta even
handed to Pascual a letter25dated July 20, 1998 which also
spoke of the same problem.
Hence, Goldloop asserted that the rescission was without
basis and clearly made in bad faith. It therefore asked the RTC
to declare the same as null and void, to direct GSIS to comply
with the provisions of the MOA and the Addendum, and to
secure all the necessary permits from Pasig City. It also prayed
for actual damages of still undetermined amount due to its
alleged continuing character, exemplary damages of P 10
million, attorneys fees of P 500,000.00 and costs of suit.
On June 15, 2000, Goldloop applied for the issuance of a
temporary restraining order (TRO) and/or writ of preliminary
injunction.26 This was on account of its receipt of a
letter27 dated May 29, 2000 from GSIS wherein it was given a
final notice to vacate the premises and to clear it from all
debris, machineries and equipment within five days from
receipt thereof, otherwise, GSIS would undertake the same on
Goldloops account. Goldloop also alleged that GSIS had
already leased the premises to the Department of Interior and
Local Government without its knowledge and
consent.28 Claiming lawful possession and occupancy of the
premises on the strength of the MOA as well as grave and
irreparable damage to it should GSIS take over the property,
Goldloop prayed that GSIS be restrained from disturbing or
interfering with its possession and occupancy of the premises.
Notwithstanding GSISs opposition,29 the RTC granted
Goldloops application for TRO and accordingly ordered GSIS
to cease and desist from doing acts which would in any
manner tend to disturb Goldloops peaceful possession and
occupation of the subject premises.30 Upon the expiration of
the said TRO, Goldloop applied for the issuance of a writ of
preliminary injunction31 which was likewise granted by the trial
court.32 GSIS moved for reconsideration33 but was denied by
the RTC.34
In its Answer with Affirmative Defenses and Compulsory
Counterclaims,35 GSIS contested Goldloops claim that it had
already advanced P24,824,683.00 in expense items supposed
to be for GSISs account. It averred that if at all, the amount
should only be P 21,225,521.08 per the agreed valuation of
said expense items as listed in Annex "C" of the Addendum
and provided further that the works for which said items were
intended were indeed completed. GSIS likewise denied for
lack of knowledge and information Goldloops allegation that
it incurred P44,075,910.70 for other expenses; that it delayed
the issuance of the notice to proceed with the construction;
and that Goldloop apprised Pascual of the situation, both
personally and in writing.
Regarding the issue on tax liability, GSIS denied that it acted
in bad faith in not informing Goldloop of the same as it was
within its right to invoke tax exemption pursuant to its charter.
In gist, GSIS insisted that the rescission of the MOA and the
Addendum was a valid and legitimate exercise of its right
under the provisions thereof; hence, the complaint against it
must be dismissed.
By way of compulsory counterclaims, GSIS prayed for
Goldloop to pay it actual damages for lost income/unrealized
revenues in the amount of P 68,922,360.73, P 10 million
exemplary damages, and P 1 million attorneys fees.
Ruling of the Regional Trial Court
In a Decision36 dated June 23, 2003, the RTC found GSISs
rescission without valid basis. It ruled that the failure to
proceed with the construction was not due to Goldloops fault
and that GSIS was well aware of this. In fact, Sarinos January
16, 1998 letter37 to Goldloop would show that GSIS recognized
that the continuing stand-off between it and the City of Pasig
on the issue of permits was the only stumbling block for
Goldloop to proceed with the construction.
As to Goldloops failure to fully pay the guaranteed amount,
the RTC ruled that the same is likewise attributable to the nonissuance of permits. The RTC noted that when the
construction failed to proceed due to said non-issuance,
would-be buyers who made initial deposits and/or reservation
fees for the condominium units backed out. Goldloop was thus
constrained to return their deposits, some with interest, in the
amount of P 80 million. Said amount was apart from the P 11
million that it already paid to agents and brokers as
commissions. These hindered Goldloop from complying with
its obligation to pay the guaranteed amount.
Consequently, the RTC adjudged GSIS liable to Goldloop for
damages.
The dispositive portion of the trial courts Decision reads:

WHEREFORE, premises considered, judgment is hereby

rendered in favor of plaintiff Goldloop and against defendant
GSIS.
Accordingly, the unilateral cancellation or rescission of the
Memorandum of Agreement and the Addendum to the MOA is
hereby declaredINVALID for lack of valid basis. Hence,
defendant GSIS is hereby directed to comply with the
Memorandum of Agreement dated June 16, 1995 and
Addendum dated June 20, 1995.
Congruently, and pending compliance by defendant GSIS, the
injunction issued on July 10, 2000 is hereby made permanent.
Consistent with the courts finding, defendant GSIS is hereby
directed to pay to plaintiff the following:
1. Actual damages in the amount of P83,082,749.00;
2. Exemplary Damages in the amount of P 5,000,000.00;
3. Attorneys Fees - P 500,000.00;
4. Reimbursement of Filing Fees or Cost of litigation
- P 104,953.50.
SO ORDERED.38
GSIS filed a Notice of Appeal39 which was approved by the RTC
in its Order40 of August 8, 2003.
Ruling of the Court of Appeals
In resolving GSISs appeal, the CA noted that under Section
2.4, Article II of the MOA, GSIS may exercise its right to
rescind, to wit: (1) upon Goldloops failure to start the
construction works within 30 working days from the date all
relevant permits and licenses from concerned agencies are
obtained; (2) or within six months from the date of execution
of the agreement, whichever is earlier; or (3) at any given
time, should Goldloop abandon the project or otherwise
commit any breach of its obligations and commitments.
The CA concluded that GSIS cannot rescind the agreement
based on the first two circumstances considering that
Goldloops failure to proceed with the construction works
within the said periods was the necessary consequence of the
non-issuance of permits which, however, cannot be attributed
to Goldloops fault. Nevertheless, since nine years had already
passed since the execution of the MOA and the Addendum,
Goldloop is deemed to have abandoned the project under the
third circumstance, even if the same be due to a justifiable
cause, that is, the non issuance of permits. The CA declared
that the delay in the implementation of the project has been
detrimental to the interest of GSIS and its members but not on
the part of Goldloop, which, on the contrary, had been
benefiting from the same because it had been using the
property free of charge. To the appellate court, this amounts
to unjust enrichment and, hence, the MOA must be equitably
rescinded under this ground. The CA also extinguished the
obligations of the parties relative thereto and ordered each of
them to bear its own damage. The dispositive portion of the
CAs September 26, 2005 Decision41 reads:
WHEREFORE, premises considered, the appeal is hereby
GRANTED. The June 23, 2003 Decision of the trial court is
REVERSED and SET ASIDE. A new judgment is entered
RESCINDING the MOA and its Addendum, the obligations of
the parties relative thereto are deemed extinguished, and
each to bear its own damages.
SO ORDERED.42
Goldloop filed a Motion for Reconsideration,43 but the same
was denied in the Resolution44 dated January 11, 2006.
Hence, the present Petition for Review on Certiorari.
Issues
Goldloop faults the CA in rescinding the MOA and the
Addendum, in extinguishing the obligations of the parties
relative thereto, in declaring that each party should bear its
own damage and, in discarding the findings of facts and
conclusions of the RTC.45
Our Ruling
The Court upholds the rescission but for a reason different
from that upon which the CA based its conclusion.
Reciprocal obligations of the parties
under the MOA.
"Reciprocal obligations are those which arise from the same
cause, and which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the
obligation of the other." 46 Here, the parties reciprocal
obligations are embodied in Article I of the MOA, viz:
ARTICLE I
ABSOLUTE SALE
Section 1.1 That GOLDLOOP PROPERTIES INC. will pay the
GSIS a guaranteed amount of ONE HUNDRED FORTY MILLION
EIGHT HUNDRED NINETY THOUSAND PESOS
(P 140,890,000.00) as payment for the 1,195 sq. m. portion of

the lot on which the second tower will stand in accordance

with the following schedule:
Period from signing Percentage of
of the Agreement
Total Amount

Amount to be
Remitted

Six Months

10%

P 14,089,000.00

Twelve Months

15%

21,133,500.00

Eighteen Months

15%

21,133,500.00

Twenty-four Months

15%

21,133,500.00

Thirty Months

15%

21,133,500.00

Thirty-Six Months

10%

14,089,000.00

Forty-Two Months

10%

14,089,000.00

Forty-Eight Months

10%

14,089,000.00

100%

P 140,890,000.0
0

Without prejudice to the right of GSIS to collect the interest

provided for in Section 1.3 hereof, the aforesaid periods may
be extended in the event that GOLDLOOP PROPERTIES INC.
fails to obtain all the necessary permits and licenses for
causes beyond the control of GOLDLOOP or by reason of force
majeure.
It is expressly agreed that extension of time[/]period provided
for herein may not be claimed unless GOLDLOOP has, prior to
the expiration of the contract time and within fifteen (15)
calendar days after the circumstances leading to such claim
have arisen, delivered an appropriate written notice to the
GSIS to enable the latter to have [the] reason for extension
investigated. The GSIS shall, on the basis of the facts and
circumstances and of the merits or lack of merit of the
request, grant or deny the request for extension, as it may
deem proper. The decision of the GSIS on this matter shall be
final and binding. Failure to provide such notice constitutes a
waiver by x x x GOLDLOOP of any claim for extension.
Section 1.2 That after the project has been completed and
sold but not later than six (6) months after the 48-month
period, in reference to the schedule of payment in Item 1
above, a calculation of the gross sales net of the 8%
marketing fee will be made. The GSIS will be entitled (in
addition to the guaranteed amount in excess of P140.89
Million) to 9.86% of the amount in excess of the P1,428.28
Million (the guaranteed revenue for sharing) while GOLDLOOP
will be entitled to the balance of 90.14% in case the gross
sales net of the 8% marketing fee does not exceed P1,428.28
Million, the GSIS will not be entitled to any additional amount.
GSIS has the right to full information as to all matters requisite
in the determination of the gross sales relative to this project
that may be in its possession and a full disclosure of any
information that it may deem material and relevant for the
purpose.
Section 1.3 Payment to GSIS of the amounts provided for in
the preceding paragraphs shall be remitted by GOLDLOOP
within the periods stated therein without need of prior notice
or demand; and failure to so pay within said periods shall
entitle the GSIS to an interest of 18% per annum,
compounded monthly, without prejudice to the other rights
and remedies of the GSIS under the Agreement and under
applicable laws.
Section 1.4 GSIS warrants that it has title over the subject
property and subject to the obligation of GOLDLOOP to
undertake the conversion of the same to a condominium
property and the identification of the 1,195 sq. m. of vacant
lot as a unit thereof capable of being legally sold by GSIS to
GOLDLOOP, that same is transferable, free from all liens and
encumbrances whatsoever.
Section 1.5 After full compliance by GOLDLOOP of its
obligations under the preceding Section, GSIS shall execute
[in] its favor, or in favor of its nominee a Deed of Absolute
Sale for the 1,195 sq. m. portion of the subject
property.47 (Emphasis supplied.)
Clearly, Goldloops obligation is to pay for the portion of the
property on which the second tower shall stand and to
construct and develop thereon a condominium building. On
the other hand, GSIS is obliged to deliver to Goldloop the
property free from all liens and encumbrances and to execute
a deed of absolute sale in Goldloops favor.
Goldloop failed to complete its payment
of the guaranteed amount in the manner
prescribed in the contract.
Under Sec. 1.1 of the MOA, Goldloop undertook to pay GSIS
the guaranteed amount of P140,890,000.00, in eight
installments, the first installment of which would fall due on

December 16, 1995 and the subsequent payments every six

months thereafter until June 16, 1999. The dates of payment
may be extended if Goldloop fails to obtain all the necessary
permits and licenses for causes beyond its control or by
reason of force majeure. However, such request for extension
must be in writing and made prior to the expiration of the
contract and within 15 calendar days after the circumstances
leading to such claim for extension have arisen.
Sec. 1.3, on the other hand, provides for the remittance to
GSIS of such payments without need of demand as well as for
the consequence of nonpayment.
Admittedly, Goldloop failed to pay the first installment on
time; hence, the parties stipulated in the Addendum that
Goldloop shall advance the payment for expense items which
were for GSISs account. The money advanced shall then be
credited as full payment of the first installment and the excess
therefrom, as partial payment of the second. By way of said
expense items, Goldloop claimed to have already advanced in
favor of GSIS the sum of P24,824,683.00.48
Assuming said figure is correct for purposes of this discussion,
the same only covers the full payment of the first installment
which is P14,089,000.00 and the excess therefrom, the partial
payment for the P21,133,500.00 second installment.
However, we note that the Addendum was executed on June
18, 1996 or two days after the second installment payment
was supposed to be remitted (June 16, 1996). Hence, by that
time, Goldloops duty to complete the payment for the second
installment had already arisen. However, the records fail to
show that Goldloop, from that time on, endeavored to at least
complete such second installment. Worse, it totally failed to
remit the other subsequent installments. This was confirmed
by Zapanta during the hearing on the application for writ of
preliminary injunction, viz:
ATTY. SILVERA
q
So [is it] not true that under Art. 1, Sec. 1.1 of the MOA,
that is, there is in effect a transaction of sale?
WITNESS Zapanta
a
I dont know what is the meaning of sale.
ATTY. SILVERA
q
Okay, lets put it [this] way, did you review or did you
have an opportunity to review this MOA prior to signing?
a
Well, frankly, GSIS we were all in good faith.
q
You [mean] you were obligated to pay a guaranteed
amount of 140 million and merelyis that your position?
a
That was the agreement, when we say in good faith we
agreed to the 140 million without even foreseeing the
problem.
COURT
q
Of the 140 million provided for, Im speaking only not [of]
your advances but of the 140 million you are supposed to pay
the GSIS, how many times did you pay, and how much?
a
I cannot say Your Honor, because the addendum to the
contract it says there in the advances
q
Okay, according to you the advances are there, it is clear,
24 million.
xxxx
Im asking you whether or not pursuant to the schedule of
payment you are obligated to pay 140 million, right?
Okay, how much have you paid the GSIS in connection with
the schedule of payments?
a
Nothing on this project. (Emphasis supplied.)
q
In other words, you are trying to tell this Court [that]
there were advances which are covered by the MOA?
a
Yes.
q
And this is for the account of GSIS?
a
Yes, Your Honor.
ATTY. SILVERA
q
And there were advances when you were supposed to
start paying this amount?
a
Its already in the agreement.
ATTY. SILVERA
q
If based in this Addendum which is the guiding provision
here, it says here the advances of Goldloop shall be credited
as full payment of the first guaranteed installment and partial
payment of the second installment under Sec. 1.1 of the MOA?
COURT
For the information of the Court, how much is supposed to be
the payment, per month?
a
Per six (6) months Your Honor. COURT
q
Under the scheduled payment?
a
The first payment is 14 million Your Honor. And then after
6 months its 21 million.
q
So far according to you, you have advanced.
a
24 million Your Honor.
ATTY. SILVERA
That covers the whole payment for the first installment. And
there had been no subsequent payment pursuant to Sec. 1.1
of the MOA?.
a.
No sir, we were already up to our neck in our
expenses.49 (Emphasis supplied.)

The RTC ratiocinated that Goldloops failure to comply with the

said obligation was due to the non-issuance of permits.
According to it, Goldloop experienced financial difficulty when
the construction did not push thru since it had to return the
deposits, some with interest, of would-be buyers and had
already paid the commission of brokers and agents of the
condominium units, and these amounted to millions of pesos.
Hence, its failure to pay was justified.
While the Court is inclined to agree with the RTC that the nonissuance of permits indeed affected Goldloops ability to pay,
it cannot, however, ignore the fact that Goldloop itself failed
to avail of the protection granted to it by the MOA in case of
failure to obtain the necessary permits and licenses. Under
the circumstances, Goldloop could have applied for an
extension within which to pay the installments of the
guaranteed amount as clearly provided for under the second
and third paragraphs of said Sec. 1.1. Yet again, the records
are bereft of any showing that it ever availed of such
extension. When asked regarding this, Zapanta evaded the
question and instead answered that the contract has not yet
expired, viz:
ATTY. SILVERA
q
Would you agree with me in case that those permits could
not be secured Goldloop could ask for an extension of time
subject only to the conditions cited in the second paragraph
and 3rd paragraph of Sec. 1.1, Art. 1 of the MOA on page 3?
a
Yes, it says here.
q
And would you please tell us if Goldloop ever availed of
this option afforded by the MOA?
a
Well, insofar as advising the GSIS of the refusal of the
Pasig City we have voluminous paperof that, now with
regard to the filing of an extension of time prior to the
expiration of the contracts, we are contending that the
contract is not expired.50
Apparently, Zapanta would want to impress that Goldloop
could still avail of the said extension had not GSIS untimely
rescinded the agreements on February 23, 2000. This was
because of Goldloops belief that on said date, the four-year
period within which to pay the guaranteed amount had not
yet lapsed considering that the same should have been
reckoned from the date of the execution of the Addendum on
June 18, 1996 and not from the date of the execution of the
MOA on June 16, 1995.51 The Court, however, thinks
otherwise. Sec. 9 of the Addendum reads:
9. GOLDLOOP shall start the renovation of the faade of the
existing tower and construction of the condominium building
on the vacant lot within thirty (30) working days from date all
relevant permits and licenses from concerned agencies are
obtained, or within six (6) months from date of execution of
this Addendum to Memorandum of Agreement, whichever is
earlier. Failure of GOLDLOOP in this respect shall entitle GSIS
to exercise its right provided for under Section 2.4, Article II of
the Memorandum of Agreement.52
From the above, it is clear that said section did not extend the
four-year period within which to pay the guaranteed amount.
In fact, no mention was made regarding this. What was
extended was the period within which Goldloop should have
started the construction, which was changed from six months
from the date of the execution of the MOA to six months from
the date of execution of the Addendum. This is very plain from
the said provision.
Be that as it may, it would be too late in the day for Goldloop
to request for an extension. As may be recalled, such request
must be made not only prior to the expiration of the contract
but also within 15 calendar days after the event leading to
such claim for extension has arisen. And since the problem
with the non-issuance of permits had long arisen during that
time, Goldloop cannot anymore avail of the extension even if
by then the contract has not yet expired.
At this point, it bears to stress that:
It is basic that a contract is the law between the parties, and
the stipulations therein provided that they are not contrary
to law, morals, good customs, public order or public policy
shall be binding as between the parties. In contractual
relations, the law allows the parties much leeway and
considers their agreement to be the law between them. This is
because courts cannot follow one every step of his life and
extricate him from bad bargains x x x relieve him from onesided contracts, or annul the effects of foolish acts. The
courts are obliged to give effect to the agreement and enforce
the contract to the letter.53
Here, as the parties voluntarily and freely executed the MOA
and the Addendum, the terms contained therein are the law
between them.54 Hence, Goldloop should have completed its
payment of the guaranteed amount in the manner prescribed
by the contract. When it could not do so as a consequence of
the non-issuance of permits, it should have asked for an
extension within which to pay the same. However, since

Goldloop neither completed the payment nor sought for an

extension, it is considered to have breached its commitment
and obligation under Sec. 1.1 of the MOA.
GSIS rescinded the contract pursuant to
its right to rescind under the relevant
provisions of the MOA.
Concededly, parties may validly stipulate the unilateral
rescission of a contract."55 Such is the case here since the
parties conferred upon GSIS the right to unilaterally rescind
the MOA in the earlier quoted Sec. 2.4 and hereinafter
reproduced:
Section 2.4. Should GOLDLOOP fail to start the construction
works within the thirty (30) working days from date all
relevant permits and licenses from concerned agencies are
obtained, or within six (6) months from the date of the
execution of this Agreement, whichever is earlier, or at any
given time abandon the same or otherwise commit any
breach of their obligations and commitments under this
Agreement, this agreement shall be deemed terminated and
cancelled without need of judicial action by giving thirty (30)
days written notice to that effect to GOLDLOOP who hereby
agrees to abide by the decision of the GSIS. x x x 56 (Emphasis
supplied.)
Under the above-quoted provision, one of the grounds under
which GSIS may validly rescind the MOA is if at any given
time, Goldloop abandons the construction or otherwise
commit any breach of its obligations and commitments
thereunder.
The February 23, 2000 notice clearly specified that GSIS is
rescinding the contract for failure of Goldloop to pay the
guaranteed amount of P140,890,000.00 under Sec. 1.1 of the
MOA. This falls under the said ground, it being a breach of an
obligation and commitment under the said agreement.
Because of said breach, Sec. 1.3 of the MOA which provides
for the consequence of the nonpayment thereof should be
read in relation to Sec. 2.4.
Under Sec. 1.3, Goldloops failure to pay the guaranteed
amount within the periods provided for in Sec. 1.1 of the MOA
shall entitle GSIS to interest, without prejudice to its other
rights and remedies under the agreement and applicable
laws. This right referred to is the right of rescission under Sec.
2.4 authorizing GSIS to exercise the same upon Goldloops
breach of any of its obligations and commitments. Clearly
therefore, when GSIS rescinded the MOA and the Addendum,
it merely exercised its right to rescind under Sec. 2.4 in
relation to Sec. 1.3 of the MOA.
However, GSIS is not entirely faultless
since it likewise failed in its obligation to
deliver the property free from burden.
GSIS is, however, not entirely faultless. It also failed to comply
with its obligation, although it cannot be conclusively
determined when it actually begun as the same only became
apparent to Goldloop after the execution of the MOA and the
Addendum. This was when the City of Pasig formally notified
GSIS that it was holding in abeyance any action on the latters
application for building permits due to its outstanding real
estate taxes in the amount of P54 million. The fact that GSIS
disputes such tax liability because of its firm stand that it was
tax exempt is beside the point. What is plain is that the
property was by then not free from burden since real estate
taxes were imposed upon it and these taxes remained unpaid.
There was, therefore, on the part of GSIS, a failure to comply
with its obligation to deliver the property free from burden.
This is not to say, however, that Goldloops obligation to pay
the guaranteed amount, as discussed above, did not arise
considering that GSIS could not comply with its concurrent
obligation to deliver the property free from burden. It is well to
note that even before Goldloop became aware of GSISs
supposed tax liability with the City of Pasig through the
latters October 8, 1997 letter, Goldloop was already in default
in its payment of the guaranteed amount. As can be recalled
and again under the assumption that Goldloop advanced
P24,824,683.00 on behalf of GSIS which amount was credited
as full and partial payment of the first and second
installments, the remaining balance for the second installment
should have been paid as early as June 16, 1996. No such
payment was, however, made. The same thing is true with
respect to the third and fourth installments which respectively
became due on December 16, 1996 and June 16, 1997.
Clearly, Goldloop had already defaulted in its payments even
before it became aware of GSISs tax issues. In short, even
before such failure of GSIS became apparent to Goldloop, the
latter had already committed a breach of its own obligation.
As to when GSIS actually committed its breach of failing to
deliver the property free from any burden, the same is a
different matter which will be discussed later.
In view of the rescission, mutual
restitution is required.

As correctly observed by the RTC, the rescissory action taken

by GSIS is pursuant to Article 119157 of the Civil Code. In cases
involving rescission under the said provision, mutual
restitution is required.58 The parties should be brought back to
their original position prior to the inception of the
contract.59 "Accordingly, when a decree of rescission is
handed down, it is the duty of the court to require both parties
to surrender that which they have respectively received and
to place each other as far as practicable in [their] original
situation."60 Pursuant to this, Goldloop should return to GSIS
the possession and control of the property subject of their
agreements while GSIS should reimburse Goldloop whatever
amount it had received from the latter by reason of the MOA
and the Addendum.
Here, out of the total amount of expenses which Goldloop
claims to have incurred for the project, it appears that the
only sum it paid to GSIS was that amount it expended by way
of change order of expense items supposed to be for GSISs
account and, which under the Addendum was to be credited
as full payment and partial payment of the first and second
installments of the guaranteed amount, respectively. The
figure, however, remains disputed. Goldloop alleges that the
same amounts to P24,824,683.00. Yet, there is nothing in the
records to support the same. Said amount was not clearly
specified in Goldloops Consolidated Financial Statements for
years 1995 to 2000 and Auditors Report.61 What is in the
records is a mere self-serving list of expenses that it
submitted and which indicates the said figure as
"Expenses/Charges on Change Orders".62 GSIS, on the other
hand, asserts that the expense items for its account, per
Annex "C" of the Addendum, is only P 21,225,521.08 and
provided that the works for which the items were supposed to
be used, that is, the relocation of the powerhouse and cistern
tank, were indeed completed. Unfortunately, said Annex "C" is
likewise not part of the records of this case and GSIS merely
quoted the relevant portion of the same in its Answer. Be that
as it may, Zapanta testified that the installation of the cistern
tank was already 100% complete,63 although there was no
mention regarding the status of the powerhouse. In view of
this, the Court can only consider the sum spent with respect
to the completed installation of the cistern tank which the
GSIS admitted in its Answer as amounting
to P 4,122,133.19.64 Aside from the said amount, GSIS must
also return to Goldloop all equipment, machineries and other
properties of the latter which may be found in the premises of
the subject property.
Damages
As discussed, both parties failed to comply with their
respective obligations under their agreements. Hence,
relevant is the provision of Article 1192 of the Civil Code
which reads:
Art. 1192. In case both parties have committed a breach of
the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall
be deemed extinguished, and each shall bear his own
damages. (Emphasis suppied.)
In this case, it cannot be determined with certainty which
between the parties is the first infractor. It could be GSIS
because of the high probability that even before the execution
of the agreements, real property taxes were already imposed
and unpaid such that when GSIS applied for building permits,
the tax liability was already in the substantial amount of P54
million. It was just that GSIS could not have been mindful of
the same because of its stand that it is tax exempt. But as this
cannot be conclusively presumed, there exists an uncertainty
as to which between the failure to comply on the part of each
party came first; hence, the last portion of Article 1192 finds
application. Pursuant thereto, the parties respective claims
for damages are thus deemed extinguished and each of them
shall bear its own damage.
WHEREFORE, finding the rescission of the Memorandum of
Agreement and the Addendum to the Memorandum of
Agreement by the Government Service Insurance System to
be proper, the Petition for Review on Certiorari is DENIED.
The Decision dated September 26, 2005 and Resolution dated
January 11, 2006 of the Court of Appeals in CA-G.R. CV No.
80135 are hereby AFFIRMED with MODIFICATIONS.
Goldloop Properties Inc. is DIRECTED to immediately
surrender to the Government Service Insurance System the
control and possession of the 2,411-square meter property
located in ADBAvenue cor. Sapphire St., Ortigas Center, Pasig
City including the Philcomcen Building standing thereon. The
Government Service Insurance System is ORDERED to
reimburse Goldloop Properties Inc. the amount
of P 4,122,133.19 and return to the latter all its equipment,
machineries and other materials which may be found in the
premises of the subject property. The parties respective

claims for damages are deemed EXTINGUISHED and each of

them shall bear its own damage.
SO ORDERED.
G.R. No. 188288

January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court
from the January 30, 2009 Decision1 of the Special Thirteenth
Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586
entitled "Spouses Fernando and Lourdes Viloria v. Continental
Airlines, Inc.," the dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court, Branch
74, dated 03 April 2006, awarding US$800.00 or its peso
equivalent at the time of payment, plus legal rate of interest
from 21 July 1997 until fully paid, [P]100,000.00 as moral
damages, [P]50,000.00 as exemplary damages, [P]40,000.00
as attorneys fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.
Defendant-appellants counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City,
Branch 74 (RTC) rendered a Decision, giving due course to the
complaint for sum of money and damages filed by petitioners
Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes),
collectively called Spouses Viloria, against respondent
Continental Airlines, Inc. (CAI). As culled from the records,
below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States,
Fernando purchased for himself and his wife, Lourdes, two (2)
round trip airline tickets from San Diego, California to Newark,
New Jersey on board Continental Airlines. Fernando purchased
the tickets at US$400.00 each from a travel agency called
"Holiday Travel" and was attended to by a certain Margaret
Mager (Mager). According to Spouses Viloria, Fernando agreed
to buy the said tickets after Mager informed them that there
were no available seats at Amtrak, an intercity passenger
train service provider in the United States. Per the tickets,
Spouses Viloria were scheduled to leave for Newark on August
13, 1997 and return to San Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their
flight to Newark to an earlier date or August 6, 1997. Mager
informed him that flights to Newark via Continental Airlines
were already fully booked and offered the alternative of a
round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would
mean traveling by night, Fernando opted to request for a
refund. Mager, however, denied his request as the subject
tickets are non-refundable and the only option that
Continental Airlines can offer is the re-issuance of new tickets
within one (1) year from the date the subject tickets were
issued. Fernando decided to reserve two (2) seats with
Frontier Air.
As he was having second thoughts on traveling via Frontier
Air, Fernando went to the Greyhound Station where he saw an
Amtrak station nearby. Fernando made inquiries and was told
that there are seats available and he can travel on Amtrak
anytime and any day he pleased. Fernando then purchased
two (2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted
Mager with the Amtrak tickets, telling her that she had misled
them into buying the Continental Airlines tickets by
misrepresenting that Amtrak was already fully booked.

Fernando reiterated his demand for a refund but Mager was

firm in her position that the subject tickets are nonrefundable.
Upon returning to the Philippines, Fernando sent a letter to
CAI on February 11, 1998, demanding a refund and alleging
that Mager had deluded them into purchasing the subject
tickets.3
In a letter dated February 24, 1998, Continental Micronesia
informed Fernando that his complaint had been referred to the
Customer Refund Services of Continental Airlines at Houston,
Texas.4
In a letter dated March 24, 1998, Continental Micronesia
denied Fernandos request for a refund and advised him that
he may take the subject tickets to any Continental ticketing
location for the re-issuance of new tickets within two (2) years
from the date they were issued. Continental Micronesia
informed Fernando that the subject tickets may be used as a
form of payment for the purchase of another Continental
ticket, albeit with a re-issuance fee.5
On June 17, 1999, Fernando went to Continentals ticketing
office at Ayala Avenue, Makati City to have the subject tickets
replaced by a single round trip ticket to Los Angeles, California
under his name. Therein, Fernando was informed that
Lourdes ticket was non-transferable, thus, cannot be used for
the purchase of a ticket in his favor. He was also informed that
a round trip ticket to Los Angeles was US$1,867.40 so he
would have to pay what will not be covered by the value of his
San Diego to Newark round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the
refund of the subject tickets as he no longer wished to have
them replaced. In addition to the dubious circumstances
under which the subject tickets were issued, Fernando claimed
that CAIs act of charging him with US$1,867.40 for a round
trip ticket to Los Angeles, which other airlines priced at
US$856.00, and refusal to allow him to use Lourdes ticket,
breached its undertaking under its March 24, 1998 letter. 6

Continental Airlines agent Ms. Mager was in bad faith when

she was less candid and diligent in presenting to plaintiffs
spouses their booking options. Plaintiff Fernando clearly
wanted to travel via AMTRAK, but defendants agent misled
him into purchasing Continental Airlines tickets instead on the
fraudulent misrepresentation that Amtrak was fully booked. In
fact, defendant Airline did not specifically denied (sic) this
allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were
tricked into buying Continental Airline tickets on Ms. Magers
misleading misrepresentations. Continental Airlines agent Ms.
Mager further relied on and exploited plaintiff Fernandos need
and told him that they must book a flight immediately or risk
not being able to travel at all on the couples preferred date.
Unfortunately, plaintiffs spouses fell prey to the airlines and
its agents unethical tactics for baiting trusting customers." 10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled
that Mager is CAIs agent, hence, bound by her bad faith and
misrepresentation. As far as the RTC is concerned, there is no
issue as to whether Mager was CAIs agent in view of CAIs
implied recognition of her status as such in its March 24, 1998
letter.
The act of a travel agent or agency being involved here, the
following are the pertinent New Civil Code provisions on
agency:
Art. 1868. By the contract of agency a person binds himself to
render some service or to do something in representation or
on behalf of another, with the consent or authority of the
latter.
Art. 1869. Agency may be express, or implied from the acts of
the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting
on his behalf without authority.
Agency may be oral, unless the law requires a specific form.

On September 8, 2000, Spouses Viloria filed a complaint

against CAI, praying that CAI be ordered to refund the money
they used in the purchase of the subject tickets with legal
interest from July 21, 1997 and to pay P1,000,000.00 as moral
damages, P500,000.00 as exemplary damages
and P250,000.00 as attorneys fees.7

As its very name implies, a travel agency binds itself to render

some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
This court takes judicial notice of the common services
rendered by travel agencies that represent themselves as
such, specifically the reservation and booking of local and
foreign tours as well as the issuance of airline tickets for a
commission or fee.

CAI interposed the following defenses: (a) Spouses Viloria

have no right to ask for a refund as the subject tickets are
non-refundable; (b) Fernando cannot insist on using the ticket
in Lourdes name for the purchase of a round trip ticket to Los
Angeles since the same is non-transferable; (c) as Mager is
not a CAI employee, CAI is not liable for any of her acts; (d)
CAI, its employees and agents did not act in bad faith as to
entitle Spouses Viloria to moral and exemplary damages and
attorneys fees. CAI also invoked the following clause printed
on the subject tickets:

The services rendered by Ms. Mager of Holiday Travel agency

to the plaintiff spouses on July 21, 1997 were no different from
those offered in any other travel agency. Defendant airline
impliedly if not expressly acknowledged its principal-agent
relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 an obvious attempt to assuage plaintiffs
spouses hurt feelings.11

3. To the extent not in conflict with the foregoing carriage and

other services performed by each carrier are subject to: (i)
provisions contained in this ticket, (ii) applicable tariffs, (iii)
carriers conditions of carriage and related regulations which
are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in
the United States or Canada and any place outside thereof to
which tariffs in force in those countries apply.8
According to CAI, one of the conditions attached to their
contract of carriage is the non-transferability and nonrefundability of the subject tickets.
The RTCs Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006
Decision, holding that Spouses Viloria are entitled to a refund
in view of Magers misrepresentation in obtaining their
consent in the purchase of the subject tickets. 9The relevant
portion of the April 3, 2006 Decision states:

Furthermore, the RTC ruled that CAI acted in bad faith in

reneging on its undertaking to replace the subject tickets
within two (2) years from their date of issue when it charged
Fernando with the amount of US$1,867.40 for a round trip
ticket to Los Angeles and when it refused to allow Fernando to
use Lourdes ticket. Specifically:
Tickets may be reissued for up to two years from the original
date of issue. When defendant airline still charged plaintiffs
spouses US$1,867.40 or more than double the then going rate
of US$856.00 for the unused tickets when the same were
presented within two (2) years from date of issue, defendant
airline exhibited callous treatment of passengers.12
The Appellate Courts Ruling
On appeal, the CA reversed the RTCs April 3, 2006 Decision,
holding that CAI cannot be held liable for Magers act in the
absence of any proof that a principal-agent relationship
existed between CAI and Holiday Travel. According to the CA,
Spouses Viloria, who have the burden of proof to establish the
fact of agency, failed to present evidence demonstrating that
Holiday Travel is CAIs agent. Furthermore, contrary to

Spouses Vilorias claim, the contractual relationship between

Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of
Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental
Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager.
The trial court held the same view.
We do not agree. By the contract of agency, a person binds
him/herself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. The elements of agency are: (1)
consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a
representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is
representation, there must be, on the part of the principal, an
actual intention to appoint, an intention naturally inferable
from the principals words or actions. In the same manner,
there must be an intention on the part of the agent to accept
the appointment and act upon it. Absent such mutual intent,
there is generally no agency. It is likewise a settled rule that
persons dealing with an assumed agent are bound at their
peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of
proof is upon them to establish it. Agency is never presumed,
neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and
documents so far presented. We find nothing except bare
allegations of plaintiffs-appellees that Mager/Holiday Travel
was acting in behalf of Continental Airlines. From all sides of
legal prism, the transaction in issue was simply a contract of
sale, wherein Holiday Travel buys airline tickets from
Continental Airlines and then, through its employees, Mager
included, sells it at a premium to clients.13

the validity of the subject contracts and limited its claim for a
refund on CAIs alleged breach of its undertaking in its March
24, 1998 letter.
The Respondents Case
In its Comment, CAI claimed that Spouses Vilorias allegation
of bad faith is negated by its willingness to issue new tickets
to them and to credit the value of the subject tickets against
the value of the new ticket Fernando requested. CAI argued
that Spouses Vilorias sole basis to claim that the price at
which CAI was willing to issue the new tickets is
unconscionable is a piece of hearsay evidence an
advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost
US$818.00.15 Also, the advertisement pertains to airfares in
September 2000 and not to airfares prevailing in June 1999,
the time when Fernando asked CAI to apply the value of the
subject tickets for the purchase of a new one. 16 CAI likewise
argued that it did not undertake to protect Spouses Viloria
from any changes or fluctuations in the prices of airline tickets
and its only obligation was to apply the value of the subject
tickets to the purchase of the newly issued tickets.
With respect to Spouses Vilorias claim that they are not
aware of CAIs restrictions on the subject tickets and that the
terms and conditions that are printed on them are ambiguous,
CAI denies any ambiguity and alleged that its representative
informed Fernando that the subject tickets are nontransferable when he applied for the issuance of a new ticket.
On the other hand, the word "non-refundable" clearly appears
on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel
and Mager and that no principal-agency relationship exists
between them. As an independent contractor, Holiday Travel
was without capacity to bind CAI.
Issues

The CA also ruled that refund is not available to Spouses

Viloria as the word "non-refundable" was clearly printed on
the face of the subject tickets, which constitute their contract
with CAI. Therefore, the grant of their prayer for a refund
would violate the proscription against impairment of
contracts.
Finally, the CA held that CAI did not act in bad faith when they
charged Spouses Viloria with the higher amount of
US$1,867.40 for a round trip ticket to Los Angeles. According
to the CA, there is no compulsion for CAI to charge the lower
amount of US$856.00, which Spouses Viloria claim to be the
fee charged by other airlines. The matter of fixing the prices
for its services is CAIs prerogative, which Spouses Viloria
cannot intervene. In particular:
It is within the respective rights of persons owning and/or
operating business entities to peg the premium of the services
and items which they provide at a price which they deem fit,
no matter how expensive or exhorbitant said price may
seem vis--vis those of the competing companies. The
Spouses Viloria may not intervene with the business judgment
of Continental Airlines.14
The Petitioners Case
In this Petition, this Court is being asked to review the findings
and conclusions of the CA, as the latters reversal of the RTCs
April 3, 2006 Decision allegedly lacks factual and legal bases.
Spouses Viloria claim that CAI acted in bad faith when it
required them to pay a higher amount for a round trip ticket
to Los Angeles considering CAIs undertaking to re-issue new
tickets to them within the period stated in their March 24,
1998 letter. CAI likewise acted in bad faith when it disallowed
Fernando to use Lourdes ticket to purchase a round trip to Los
Angeles given that there is nothing in Lourdes ticket
indicating that it is non-transferable. As a common carrier, it is
CAIs duty to inform its passengers of the terms and
conditions of their contract and passengers cannot be bound
by such terms and conditions which they are not made aware
of. Also, the subject contract of carriage is a contract of
adhesion; therefore, any ambiguities should be construed
against CAI. Notably, the petitioners are no longer questioning

To determine the propriety of disturbing the CAs January 30,

2009 Decision and whether Spouses Viloria have the right to
the reliefs they prayed for, this Court deems it necessary to
resolve the following issues:
a. Does a principal-agent relationship exist between CAI and
Holiday Travel?
b. Assuming that an agency relationship exists between CAI
and Holiday Travel, is CAI bound by the acts of Holiday
Travels agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travels
agents and employees, can the representation of Mager as
to unavailability of seats at Amtrak be considered
fraudulent as to vitiate the consent of Spouse Viloria in the
purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are
non-transferable and non-refundable?
e. Is CAI justified in pegging a different price for the round
trip ticket to Los Angeles requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its
obligation to Spouses Viloria to apply the value of the
subject tickets in the purchase of new ones when it refused
to allow Fernando to use Lourdes ticket and in charging a
higher price for a round trip ticket to Los Angeles?
This Courts Ruling
I. A principal-agent relationship exists between CAI
and Holiday Travel.
With respect to the first issue, which is a question of fact that
would require this Court to review and re-examine the
evidence presented by the parties below, this Court takes
exception to the general rule that the CAs findings of fact are
conclusive upon Us and our jurisdiction is limited to the review

of questions of law. It is well-settled to the point of being

axiomatic that this Court is authorized to resolve questions of
fact if confronted with contrasting factual findings of the trial
court and appellate court and if the findings of the CA are
contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he
who alleges that it exists has the burden of proof. Spouses
Viloria, on whose shoulders such burden rests, presented
evidence that fell short of indubitably demonstrating the
existence of such agency.
We disagree. The CA failed to consider undisputed facts,
discrediting CAIs denial that Holiday Travel is one of its
agents. Furthermore, in erroneously characterizing the
contractual relationship between CAI and Holiday Travel as a
contract of sale, the CA failed to apply the fundamental civil
law principles governing agency and differentiating it from
sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation, 18 this
Court explained the nature of an agency and spelled out the
essential elements thereof:
Out of the above given principles, sprung the creation and
acceptance of the relationship of agencywhereby one party,
called the principal (mandante), authorizes another, called the
agent (mandatario), to act for and in his behalf in transactions
with third persons. The essential elements of agency are: (1)
there is consent, express or implied of the parties to establish
the relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts
within the scope of his authority.1avvphi1
Agency is basically personal, representative, and derivative in
nature. The authority of the agent to act emanates from the
powers granted to him by his principal; his act is the act of the
principal if done within the scope of the authority. Qui facit
per alium facit se. "He who acts through another acts
himself."19
Contrary to the findings of the CA, all the elements of an
agency exist in this case. The first and second elements are
present as CAI does not deny that it concluded an agreement
with Holiday Travel, whereby Holiday Travel would enter into
contracts of carriage with third persons on CAIs behalf. The
third element is also present as it is undisputed that Holiday
Travel merely acted in a representative capacity and it is CAI
and not Holiday Travel who is bound by the contracts of
carriage entered into by Holiday Travel on its behalf. The
fourth element is also present considering that CAI has not
made any allegation that Holiday Travel exceeded the
authority that was granted to it. In fact, CAI consistently
maintains the validity of the contracts of carriage that Holiday
Travel executed with Spouses Viloria and that Mager was not
guilty of any fraudulent misrepresentation. That CAI admits
the authority of Holiday Travel to enter into contracts of
carriage on its behalf is easily discernible from its February
24, 1998 and March 24, 1998 letters, where it impliedly
recognized the validity of the contracts entered into by
Holiday Travel with Spouses Viloria. When Fernando informed
CAI that it was Holiday Travel who issued to them the subject
tickets, CAI did not deny that Holiday Travel is its authorized
agent.
Prior to Spouses Vilorias filing of a complaint against it, CAI
never refuted that it gave Holiday Travel the power and
authority to conclude contracts of carriage on its behalf. As
clearly extant from the records, CAI recognized the validity of
the contracts of carriage that Holiday Travel entered into with
Spouses Viloria and considered itself bound with Spouses
Viloria by the terms and conditions thereof; and this
constitutes an unequivocal testament to Holiday Travels
authority to act as its agent. This Court cannot therefore allow
CAI to take an altogether different position and deny that
Holiday Travel is its agent without condoning or giving
imprimatur to whatever damage or prejudice that may result
from such denial or retraction to Spouses Viloria, who relied
on good faith on CAIs acts in recognition of Holiday Travels
authority. Estoppel is primarily based on the doctrine of good
faith and the avoidance of harm that will befall an innocent
party due to its injurious reliance, the failure to apply it in this

case would result in gross travesty of justice.20 Estoppel bars

CAI from making such denial.
As categorically provided under Article 1869 of the Civil Code,
"[a]gency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting
on his behalf without authority."
Considering that the fundamental hallmarks of an agency are
present, this Court finds it rather peculiar that the CA had
branded the contractual relationship between CAI and Holiday
Travel as one of sale. The distinctions between a sale and an
agency are not difficult to discern and this Court, as early as
1970, had already formulated the guidelines that would aid in
differentiating the two (2) contracts. In Commissioner of
Internal Revenue v. Constantino,21 this Court extrapolated that
the primordial differentiating consideration between the two
(2) contracts is the transfer of ownership or title over the
property subject of the contract. In an agency, the principal
retains ownership and control over the property and the agent
merely acts on the principals behalf and under his
instructions in furtherance of the objectives for which the
agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the
property will effect a relinquishment of title, control and
ownership in such a way that the recipient may do with the
property as he pleases.
Since the company retained ownership of the goods, even as
it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the
company's control, the relationship between the company and
the dealer is one of agency, tested under the following
criterion:
"The difficulty in distinguishing between contracts of sale and
the creation of an agency to sell has led to the establishment
of rules by the application of which this difficulty may be
solved. The decisions say the transfer of title or agreement to
transfer it for a price paid or promised is the essence of sale.
If such transfer puts the transferee in the attitude or position
of an owner and makes him liable to the transferor as a debtor
for the agreed price, and not merely as an agent who must
account for the proceeds of a resale, the transaction is a sale;
while the essence of an agency to sell is the delivery to an
agent, not as his property, but as the property of the principal,
who remains the owner and has the right to control sales, fix
the price, and terms, demand and receive the proceeds less
the agent's commission upon sales made. 1 Mechem on Sales,
Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118119)22
As to how the CA have arrived at the conclusion that the
contract between CAI and Holiday Travel is a sale is certainly
confounding, considering that CAI is the one bound by the
contracts of carriage embodied by the tickets being sold by
Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to
travel via Continental Airlines, and this conclusively indicates
the existence of a principal-agent relationship. That the
principal is bound by all the obligations contracted by the
agent within the scope of the authority granted to him is
clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only
be held liable for the tort committed by its agents
employees if it has been established by preponderance
of evidence that the principal was also at fault or
negligent or that the principal exercise control and
supervision over them.
Considering that Holiday Travel is CAIs agent, does it
necessarily follow that CAI is liable for the fault or negligence
of Holiday Travels employees? Citing China Air Lines, Ltd. v.
Court of Appeals, et al.,23 CAI argues that it cannot be held
liable for the actions of the employee of its ticketing agent in
the absence of an employer-employee relationship.

An examination of this Courts pronouncements in China Air

Lines will reveal that an airline company is not completely
exonerated from any liability for the tort committed by its
agents employees. A prior determination of the nature of the
passengers cause of action is necessary. If the passengers
cause of action against the airline company is premised
on culpa aquiliana or quasi-delict for a tort committed by the
employee of the airline companys agent, there must be an
independent showing that the airline company was at fault or
negligent or has contributed to the negligence or tortuous
conduct committed by the employee of its agent. The mere
fact that the employee of the airline companys agent has
committed a tort is not sufficient to hold the airline company
liable. There is no vinculum juris between the airline company
and its agents employees and the contractual relationship
between the airline company and its agent does not operate
to create a juridical tie between the airline company and its
agents employees. Article 2180 of the Civil Code does not
make the principal vicariously liable for the tort committed by
its agents employees and the principal-agency
relationship per se does not make the principal a party to such
tort; hence, the need to prove the principals own fault or
negligence.
On the other hand, if the passengers cause of action for
damages against the airline company is based on contractual
breach or culpa contractual, it is not necessary that there be
evidence of the airline companys fault or negligence. As this
Court previously stated in China Air Lines and reiterated in Air
France vs. Gillego,24 "in an action based on a breach of
contract of carriage, the aggrieved party does not have to
prove that the common carrier was at fault or was negligent.
All that he has to prove is the existence of the contract and
the fact of its non-performance by the carrier."
Spouses Vilorias cause of action on the basis of Magers
alleged fraudulent misrepresentation is clearly one of tort or
quasi-delict, there being no pre-existing contractual
relationship between them. Therefore, it was incumbent upon
Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which
CAIs alleged liability can be substantiated. Apart from their
claim that CAI must be held liable for Magers supposed fraud
because Holiday Travel is CAIs agent, Spouses Viloria did not
present evidence that CAI was a party or had contributed to
Magers complained act either by instructing or authorizing
Holiday Travel and Mager to issue the said misrepresentation.
It may seem unjust at first glance that CAI would consider
Spouses Viloria bound by the terms and conditions of the
subject contracts, which Mager entered into with them on
CAIs behalf, in order to deny Spouses Vilorias request for a
refund or Fernandos use of Lourdes ticket for the re-issuance
of a new one, and simultaneously claim that they are not
bound by Magers supposed misrepresentation for purposes of
avoiding Spouses Vilorias claim for damages and maintaining
the validity of the subject contracts. It may likewise be argued
that CAI cannot deny liability as it benefited from Magers
acts, which were performed in compliance with Holiday
Travels obligations as CAIs agent.
However, a persons vicarious liability is anchored on his
possession of control, whether absolute or limited, on the
tortfeasor. Without such control, there is nothing which could
justify extending the liability to a person other than the one
who committed the tort. As this Court explained in Cangco v.
Manila Railroad Co.:25
With respect to extra-contractual obligation arising
from negligence, whether of act or omission, it is
competent for the legislature to elect and our Legislature
has so elected to limit such liability to cases in which the
person upon whom such an obligation is imposed is morally
culpable or, on the contrary, for reasons of public policy,
to extend that liability, without regard to the lack of
moral culpability, so as to include responsibility for the
negligence of those persons whose acts or omissions
are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over
them. The legislature which adopted our Civil Code has
elected to limit extra-contractual liability with certain welldefined exceptions to cases in which moral culpability can

be directly imputed to the persons to be charged. This moral

responsibility may consist in having failed to exercise due care
in one's own acts, or in having failed to exercise due care in
the selection and control of one's agent or servants, or in the
control of persons who, by reasons of their status, occupy a
position of dependency with respect to the person made liable
for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI
exercised control or supervision over Mager by preponderant
evidence. The existence of control or supervision cannot be
presumed and CAI is under no obligation to prove its denial or
nugatory assertion. Citing Belen v. Belen,27 this Court ruled
in Jayme v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for
defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative
averment. This Court said:
"It is an old and well-settled rule of the courts that the burden
of proving the action is upon the plaintiff, and that if he fails
satisfactorily to show the facts upon which he bases his claim,
the defendant is under no obligation to prove his exceptions.
This [rule] is in harmony with the provisions of Section 297 of
the Code of Civil Procedure holding that each party must
prove his own affirmative allegations, etc." 29 (citations
omitted)
Therefore, without a modicum of evidence that CAI exercised
control over Holiday Travels employees or that CAI was
equally at fault, no liability can be imposed on CAI for Magers
supposed misrepresentation.
III. Even on the assumption that CAI may be held liable
for the acts of Mager, still, Spouses Viloria are not
entitled to a refund. Magers statement cannot be
considered a causal fraud that would justify the
annulment of the subject contracts that would oblige
CAI to indemnify Spouses Viloria and return the money
they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code,
provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable
and may be annulled within four (4) years from the time of the
discovery of the fraud. Once a contract is annulled, the parties
are obliged under Article 1398 of the same Code to restore to
each other the things subject matter of the contract, including
their fruits and interest.
On the basis of the foregoing and given the allegation of
Spouses Viloria that Fernandos consent to the subject
contracts was supposedly secured by Mager through
fraudulent means, it is plainly apparent that their demand for
a refund is tantamount to seeking for an annulment of the
subject contracts on the ground of vitiated consent.
Whether the subject contracts are annullable, this Court is
required to determine whether Magers alleged
misrepresentation constitutes causal fraud. Similar to the
dispute on the existence of an agency, whether fraud
attended the execution of a contract is factual in nature and
this Court, as discussed above, may scrutinize the records if
the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when,
through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. 30 In Samson v.
Court of Appeals,31 causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other." 32
Also, fraud must be serious and its existence must be
established by clear and convincing evidence. As ruled by this
Court in Sierra v. Hon. Court of Appeals, et al.,33 mere
preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil

Code:
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would
not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by
both contracting parties.
To quote Tolentino again, the "misrepresentation constituting
the fraud must be established by full, clear, and convincing
evidence, and not merely by a preponderance thereof. The
deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person
into error; that which cannot deceive a prudent person cannot
be a ground for nullity. The circumstances of each case should
be considered, taking into account the personal conditions of
the victim."34
After meticulously poring over the records, this Court finds
that the fraud alleged by Spouses Viloria has not been
satisfactorily established as causal in nature to warrant the
annulment of the subject contracts. In fact, Spouses Viloria
failed to prove by clear and convincing evidence that Magers
statement was fraudulent. Specifically, Spouses Viloria failed
to prove that (a) there were indeed available seats at Amtrak
for a trip to New Jersey on August 13, 1997 at the time they
spoke with Mager on July 21, 1997; (b) Mager knew about this;
and (c) that she purposely informed them otherwise.
This Court finds the only proof of Magers alleged fraud, which
is Fernandos testimony that an Amtrak had assured him of
the perennial availability of seats at Amtrak, to be wanting. As
CAI correctly pointed out and as Fernando admitted, it was
possible that during the intervening period of three (3) weeks
from the time Fernando purchased the subject tickets to the
time he talked to said Amtrak employee, other passengers
may have cancelled their bookings and reservations with
Amtrak, making it possible for Amtrak to accommodate them.
Indeed, the existence of fraud cannot be proved by mere
speculations and conjectures. Fraud is never lightly inferred; it
is good faith that is. Under the Rules of Court, it is presumed
that "a person is innocent of crime or wrong" and that "private
transactions have been fair and regular."35 Spouses Viloria
failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are
nevertheless deemed to have ratified the subject
contracts.
Even assuming that Magers representation is causal fraud,
the subject contracts have been impliedly ratified when
Spouses Viloria decided to exercise their right to use the
subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, "ratification extinguishes the action to
annul a voidable contract."
Ratification of a voidable contract is defined under Article
1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It
is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an
intention to waive his right.
Implied ratification may take diverse forms, such as by silence
or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing
therefrom.36
Simultaneous with their demand for a refund on the ground of
Fernandos vitiated consent, Spouses Viloria likewise asked for
a refund based on CAIs supposed bad faith in reneging on its
undertaking to replace the subject tickets with a round trip
ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission

of the subject contracts based on contractual breach.
Resolution, the action referred to in Article 1191, is based on
the defendants breach of faith, a violation of the reciprocity
between the parties37 and in Solar Harvest, Inc. v. Davao
Corrugated Carton Corporation,38 this Court ruled that a claim
for a reimbursement in view of the other partys failure to
comply with his obligations under the contract is one for
rescission or resolution.
However, annulment under Article 1390 of the Civil Code and
rescission under Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements to make the contract
valid are present; in annulment, one of the essential elements
to a formation of a contract, which is consent, is absent. In
resolution, the defect is in the consummation stage of the
contract when the parties are in the process of performing
their respective obligations; in annulment, the defect is
already present at the time of the negotiation and perfection
stages of the contract. Accordingly, by pursuing the remedy of
rescission under Article 1191, the Vilorias had impliedly
admitted the validity of the subject contracts, forfeiting their
right to demand their annulment. A party cannot rely on the
contract and claim rights or obligations under it and at the
same time impugn its existence or validity. Indeed, litigants
are enjoined from taking inconsistent positions. 39
V. Contracts cannot be rescinded for a slight or casual
breach.
CAI cannot insist on the non-transferability of the subject
tickets.
Considering that the subject contracts are not annullable on
the ground of vitiated consent, the next question is: "Do
Spouses Viloria have the right to rescind the contract on the
ground of CAIs supposed breach of its undertaking to issue
new tickets upon surrender of the subject tickets?"
Article 1191, as presently worded, states:
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 fulfilment 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.
According to Spouses Viloria, CAI acted in bad faith and
breached the subject contracts when it refused to apply the
value of Lourdes ticket for Fernandos purchase of a round
trip ticket to Los Angeles and in requiring him to pay an
amount higher than the price fixed by other airline
companies.
In its March 24, 1998 letter, CAI stated that "non-refundable
tickets may be used as a form of payment toward the
purchase of another Continental ticket for $75.00, per ticket,
reissue fee ($50.00, per ticket, for tickets purchased prior to
October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAIs
letter from which the restriction on the non-transferability of
the subject tickets can be inferred. In fact, the words used by
CAI in its letter supports the position of Spouses Viloria, that
each of them can use the ticket under their name for the
purchase of new tickets whether for themselves or for some
other person.
Moreover, as CAI admitted, it was only when Fernando had
expressed his interest to use the subject tickets for the

purchase of a round trip ticket between Manila and Los

Angeles that he was informed that he cannot use the ticket in
Lourdes name as payment.
Contrary to CAIs claim, that the subject tickets are nontransferable cannot be implied from a plain reading of the
provision printed on the subject tickets stating that "[t]o the
extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (a)
provisions contained in this ticket, x x x (iii) carriers
conditions of carriage and related regulations which are made
part hereof (and are available on application at the offices of
carrier) x x x." As a common carrier whose business is imbued
with public interest, the exercise of extraordinary diligence
requires CAI to inform Spouses Viloria, or all of its passengers
for that matter, of all the terms and conditions governing their
contract of carriage. CAI is proscribed from taking advantage
of any ambiguity in the contract of carriage to impute
knowledge on its passengers of and demand compliance with
a certain condition or undertaking that is not clearly
stipulated. Since the prohibition on transferability is not
written on the face of the subject tickets and CAI failed to
inform Spouses Viloria thereof, CAI cannot refuse to apply the
value of Lourdes ticket as payment for Fernandos purchase
of a new ticket.
CAIs refusal to accept Lourdes ticket for the purchase
of a new ticket for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for nonperformance of its stipulations is not absolute. The general
rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the
parties in making the agreement.40 Whether a breach is
substantial is largely determined by the attendant
circumstances.41
While CAIs refusal to allow Fernando to use the value of
Lourdes ticket as payment for the purchase of a new ticket is
unjustified as the non-transferability of the subject tickets was
not clearly stipulated, it cannot, however be considered
substantial. The endorsability of the subject tickets is not an
essential part of the underlying contracts and CAIs failure to
comply is not essential to its fulfillment of its undertaking to
issue new tickets upon Spouses Vilorias surrender of the
subject tickets. This Court takes note of CAIs willingness to
perform its principal obligation and this is to apply the price of
the ticket in Fernandos name to the price of the round trip
ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes name as full or partial
payment as the case may be for the purchase of any ticket,
albeit under her name and for her exclusive use. In other
words, CAIs willingness to comply with its undertaking under
its March 24, 1998 cannot be doubted, albeit tainted with its
erroneous insistence that Lourdes ticket is non-transferable.
Moreover, Spouses Vilorias demand for rescission cannot
prosper as CAI cannot be solely faulted for the fact that their
agreement failed to consummate and no new ticket was
issued to Fernando. Spouses Viloria have no right to insist that
a single round trip ticket between Manila and Los Angeles
should be priced at around $856.00 and refuse to pay the
difference between the price of the subject tickets and the
amount fixed by CAI. The petitioners failed to allege, much
less prove, that CAI had obliged itself to issue to them tickets
for any flight anywhere in the world upon their surrender of
the subject tickets. In its March 24, 1998 letter, it was clearly
stated that "[n]on-refundable tickets may be used as a form of
payment toward the purchase of another Continental
ticket"42 and there is nothing in it suggesting that CAI had
obliged itself to protect Spouses Viloria from any fluctuation in
the prices of tickets or that the surrender of the subject tickets
will be considered as full payment for any ticket that the
petitioners intend to buy regardless of actual price and
destination. The CA was correct in holding that it is CAIs right
and exclusive prerogative to fix the prices for its services and
it may not be compelled to observe and maintain the prices of
other airline companies.43
The conflict as to the endorsability of the subject tickets is an
altogether different matter, which does not preclude CAI from
fixing the price of a round trip ticket between Manila and Los

Angeles in an amount it deems proper and which does not

provide Spouses Viloria an excuse not to pay such price, albeit
subject to a reduction coming from the value of the subject
tickets. It cannot be denied that Spouses Viloria had the
concomitant obligation to pay whatever is not covered by the
value of the subject tickets whether or not the subject tickets
are transferable or not.1avvphi1
There is also no showing that Spouses Viloria were
discriminated against in bad faith by being charged with a
higher rate. The only evidence the petitioners presented to
prove that the price of a round trip ticket between Manila and
Los Angeles at that time was only $856.00 is a newspaper
advertisement for another airline company, which is
inadmissible for being "hearsay evidence, twice removed."
Newspaper clippings are hearsay if they were offered for the
purpose of proving the truth of the matter alleged. As ruled
in Feria v. Court of Appeals,:44
[N]ewspaper articles amount to "hearsay evidence, twice
removed" and are therefore not only inadmissible but without
any probative value at all whether objected to or not, unless
offered for a purpose other than proving the truth of the
matter asserted. In this case, the news article is admissible
only as evidence that such publication does exist with the
tenor of the news therein stated.45 (citations omitted)
The records of this case demonstrate that both parties were
equally in default; hence, none of them can seek judicial
redress for the cancellation or resolution of the subject
contracts and they are therefore bound to their respective
obligations thereunder. As the 1st sentence of Article 1192
provides:
Art. 1192. In case both parties have committed a breach
of the obligation, the liability of the first infractor shall
be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his
own damages. (emphasis supplied)
Therefore, CAIs liability for damages for its refusal to accept
Lourdes ticket for the purchase of Fernandos round trip ticket
is offset by Spouses Vilorias liability for their refusal to pay
the amount, which is not covered by the subject tickets.
Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen by
Spouses Viloria upon their surrender of the subject tickets and
Spouses Viloria are obliged to pay whatever amount is not
covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the
Philippines v. Court of Appeals.46 Thus:
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank
failed to comply with its obligation to furnish the entire loan
and Sulpicio M. Tolentino failed to comply with his obligation
to pay his P17,000.00 debt within 3 years as stipulated, they
are both liable for damages.
Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably
tempered by the courts. WE rule that the liability of Island
Savings Bank for damages in not furnishing the entire loan is
offset by the liability of Sulpicio M. Tolentino for damages, in
the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. x x x.47
Another consideration that militates against the propriety of
holding CAI liable for moral damages is the absence of a
showing that the latter acted fraudulently and in bad faith.
Article 2220 of the Civil Code requires evidence of bad faith
and fraud and moral damages are generally not recoverable
in culpa contractual except when bad faith had been
proven.48 The award of exemplary damages is likewise not
warranted. Apart from the requirement that the defendant
acted in a wanton, oppressive and malevolent manner, the
claimant must prove his entitlement to moral damages. 49

WHEREFORE, premises considered, the instant Petition

is DENIED.
SO ORDERED.

G.R. No. 136913 May 12, 2000

ANITA C. BUCE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPS. BERNARDO
C. TIONGCO and ARACELI TIONGCO, SPS. DIONISIO
TIONGCO and LUCILA TIONGCO, and JOSE M.
TIONGCO, respondents.

DAVIDE, JR., C.J.:

The basic issue in this petition is whether the parties intended
an automatic renewal of the lease contract1 when they agreed
that the lease shall be for a period of fifteen years "subject to
renewal for another ten (10) years."
Petitioner leased a 56-square meter parcel of land located at
2068 Quirino Avenue, Pandacan, Manila. The lease contract
was for a period of fifteen years to commence on 1 June 1979
and to end on 1 June 1994 "subject to renewal for another ten
(10) years, under the same terms and conditions." Petitioner
then constructed a building and paid the required monthly
rental of P200. Private respondents, through their
administrator Jose Tiongco, later demanded a gradual
increase in the rental until it reached P400 in 1985. For July
and August 1991, petitioner paid private respondents P1,000
as monthly rental.2
On 6 December 1991, private respondents' counsel wrote
petitioner informing her of the increase in the rent to
P1,576.58 effective January 1992 pursuant to the provisions of
the Rent Control Law.3 Petitioner, however, tendered checks
dated 5 October 1991,4 5 November 1991,5 5 December
1991, 6 5 January 1992,7 31 May 1992,8 and 2 January
1993 9 for only P400 each, payable to Jose Tiongco as
administrator. As might be expected, private respondents
refused to accept the same.
On 9 August 1993, petitioner filed with the Regional Trial Court
of Manila a complaint for specific performance with prayer for
consignation, which was docketed as Civil Case No. 93-67135.
She prayed that private respondents be ordered to accept the
rentals in accordance with the lease contract and to respect
the lease of fifteen years, which was renewable for another
ten years, at the rate of P200 a month.
In their Answer, private respondents countered that petitioner
had already paid the monthly rent of P1,000 for July and
August 1991. Under Republic Act No. 877, as amended, rental
payments should already be P1,576.58 10 per month; hence,
they were justified in refusing the checks for P400 that
petitioner tendered. Moreover, the phrase in the lease
contract authorizing renewal for another ten years does not
mean automatic renewal; rather, it contemplates a mutual
agreement between the parties.
During the pendency of the controversy, counsel for private
respondents wrote petitioner reminding her that the contract
expired on 1 June 1994 and demanding that she pay the
rentals in arrears, which then amounted to P33,000.
On 29 August 1995, the RTC declared the lease contract
automatically renewed for ten years and considered as
evidence thereof (a) the stipulations in the contract giving the
lessee the right to construct buildings and improvements and
(b) the filing by petitioner of the complaint almost one year
before the expiration of the initial term of fifteen years. It then
fixed the monthly rent at P400 from 1 June 1990 to 1 June
1994; P1,000 from 1 June 1994 until 1 June 1999; and P1,500
for the rest of the period or from 1 June 2000 to 1 June 2004,
reasoning that the continuous increase of rent from P200 to
P250 then P300, P400 and finally P1,000 caused "an
inevitable novation of their contract." 11
On appeal, the Court of Appeals reversed the decision of the
RTC, and ordered petitioner to immediately vacate the leased
premises on the ground that the contract expired on 1 June

1994 without being renewed and to pay the rental arrearages

at the rate of P1,000 monthly. 12
According to the Court of Appeals, the phrase in the contract
"this lease shall be for a period of fifteen (15) years effective
June 1, 1979, subject to renewal for another ten (10) years,
under the same terms and conditions" is unclear as to who
may exercise the option to renew. The stipulation allowing the
construction of a building and other improvements and the
fact that the complaint was filed a year before the expiration
of the contract are not indicative of automatic renewal. It
applied the ruling in Fernandez v. Court of Appeals 1 that
without a stipulation that the option to renew the lease is
solely for the benefit of one party any renewal of a lease
contract must be upon the agreement of the parties. Since
private respondents were not agreeable to an extension, the
original term of the lease ended on 1 June 1994. Private
respondents' refusal to accept petitioner's checks for P400
was justified because although the original contract specified
a monthly rental of P200, the tender and acceptance of the
increased rental of P1,000 novated the contract of lease; thus,
petitioner was estopped from claiming that the monthly rental
is otherwise.
The Court of Appeals denied petitioner's motion for
reconsideration. Hence this petition.
Petitioner contends that by ordering her to vacate the
premises, the Appellate Court went beyond the bounds of its
authority because the case she filed before the RTC was for
"Specific Performance" not unlawful detainer. The power to
order the lessee to vacate the leased premises is lodged in
another forum. Additionally, private respondents did not pray
for the ejectment of petitioners from the leased premises in
their Answer with Counterclaim; well-settled is the rule that a
court cannot award relief not prayed for in the complaint or
compulsory counterclaim.
Petitioner further maintains that the phrase "renewable for
another ten years at the option of both parties" in the
Fernandez case clearly indicated the intention of the parties to
renew the contract only upon mutual agreement. Whereas in
this case the contract states, "[T]his lease shall be for a period
of fifteen (15) years effective June 1, 1979, subject to renewal
for another ten (10) years, under the same terms and
conditions," making this stipulation subject to interpretation
with due regard to the contemporaneous and subsequent acts
of the parties. The stipulation in the contract allowing the
lessee to construct buildings and improvements; her filing of
the complaint a year before the expiration of the initial 15year term; and private respondents' acceptance of the
increased rental are contemporaneous and subsequent acts
that signify the intention of the parties to renew the contract.
On the other hand, private respondents aver that even if the
original petition filed before the RTC was not for unlawful
detainer, the order of the Court of Appeals requiring petitioner
to vacate the premises is but a logical consequence of its
finding that the lease contract had expired. To require another
litigation would constitute multiplicity of suits; besides,
petitioner has no other reason to stay in the premises. There
is no basis why Fernandez should not be applied to the case at
bar. Absent contrary stipulation in reciprocal contracts, the
period of lease is deemed to be for the benefit of both parties.
Private respondents argue that the alleged contemporaneous
and subsequent acts do not determine the real intention of
the parties as regards renewal of the lease contract. Had they
intended an automatic renewal of the lease contract they
would have agreed on a 25-year period instead. Correlatively,
private respondents' letter reminding petitioner of the
expiration of the contract on 1 June 1994 and demanding
payment of the rentals in arrears signifies that they are no
longer interested in renewing the contract. Also petitioner's
refusal to pay the increased rental of P1,000 as early as 1991
and private respondents' refusal to accept the P400 tendered
constituted a disagreement on the rate of rental; hence, any
renewal is out of the question.
The basic issue, as agreed upon by the parties, is the correct
interpretation of the contract provision "this lease shall be for

a period of fifteen (15) years effective June 1, 1979, subject to

renewal for another ten (10) years, under the same terms and
conditions."
The literal meaning of the stipulations shall control if the
terms of the contract are clear and leave no doubt upon the
intention of the contracting parties. 14 However, if the terms of
the agreement are ambiguous resort is made to contract
interpretation which is the determination of the meaning
attached to written or spoken words that make the
contract. 15 Also, to ascertain the true intention of the parties,
their actions, subsequent or contemporaneous, must be
principally considered. 16
The phrase "subject to renewal for another ten (10) years" is
unclear on whether the parties contemplated an automatic
renewal or extension of the term, or just an option to renew
the contract; and if what exists is the latter, who may exercise
the same or for whose benefit it was stipulated.
In this jurisdiction, a fine delineation exists between renewal
of the contract and extension of its period. Generally, the
renewal of a contract connotes the death of the old contract
and the birth or emergence of a new one. A clause in a lease
providing for an extension operates of its own force to create
an additional term, but a clause providing for a renewal
merely creates an obligation to execute a new lease contract
for the additional term. As renewal of the contract
contemplates the cessation of the old contract, then it is
necessary that a new one be executed between the parties. 17

may be had only upon their mutual agreement or at the will of

both of them. Since the private respondents were not
amenable to a renewal, they cannot be compelled to execute
a new contract when the old contract terminated on 1 June
1994. It is the owner-lessor's prerogative to terminate the
lease at its expiration. 20 The continuance, effectivity and
fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the
lessee between continuing the payment of the rentals or not,
completely depriving the owner of any say in the matter.
Mutuality does not obtain in such a contract of lease and no
equality exists between the lessor and the lessee since the life
of the contract would be dictated solely by the lessee. 21
After the lease terminated on 1 June 1994 without any
agreement for renewal being reached, petitioner became
subject to ejectment from the premises. 22 It must be noted,
however, that private respondents did not include in their
Answer with Counterclaim a prayer for the restoration of
possession of the leased premises. Neither did they file with
the proper Metropolitan Trial Court an unlawful detainer
suit 2 against petitioner after the expiration of the lease
contact. Moreover, the issues agreed upon by the parties to
be resolved during the pre-trial were the correct interpretation
of the contract and the validity of private respondents' refusal
to accept petitioner's payment of P400 as monthly
rental. 24 They later limited the issue to the first, i.e., the
correct interpretation of the contract. 25 The issue of
possession of the leased premises was not among the issues
agreed upon by the parties or threshed out before the court a
quo. Neither was it raised by private respondents on appeal.

There is nothing in the stipulations in the contract and the

parties' actuation that shows that the parties intended an
automatic renewal or extension of the term of the contract.
Even the RTC conceded that the issue of automatic renewal is
debatable. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the
intention of the lessors to automatically extend the contract.
Considering the original 15-year duration of the contract,
structures would have necessarily been constructed, added,
or built on the property, which in its previous state was an idle
56-square meter lot in the heart of Manila. Petitioner leased
the property for the purpose of turning it into a commercial
establishment and to which it has been transformed as Anita's
Grocery and Store. Neither the filing of the complaint a year
before the expiration of the 15-year term nor private
respondents' acceptance of the increased rentals has any
bearing on the intention of the parties regarding renewal. It
must be recalled that the filing of the complaint was even
spawned by private respondents' refusal to accept the
payment of monthly rental in the amount of only P400.

Accordingly, as correctly contended by the petitioner, the

Court of Appeals went beyond the bounds of its
authority 26 when after interpreting the questioned provision
of the lease contract in favor of the private respondents it
proceeded to order petitioner to vacate the subject premises.

Now on the applicability of Fernandez v. Court of Appeals to

the case at bar. Although the factual scenario in that case with
regard to the renewal option is slightly off-tangent to the case
under consideration because the intention of the parties
therein for future mutual agreement was clearly discernible in
their contract, we cannot completely disregard the
pronouncement of this Court in that case; thus:

HOME DEVELOPMENT MUTUAL FUND and MARILOU

ADEA-PROTOR, petitioners,
vs.
COURT OF APPEALS and DR. CORA J. VIRATA, (CONVIR)
and Associates, Inc., respondents.

[I]n a reciprocal contract like a lease, the period must be

deemed to have been agreed upon for the benefit of both
parties, absent language showing that the term was
deliberately set for the benefit of the lessee or lessor
alone. 18 We are not aware of any presumption in law that
the term was deliberately set for the benefit of the lessee
alone. Koh and Cruz in effect rested upon such a
presumption. But that presumption cannot reasonably be
indulged in casually in an era of rapid economic change,
marked by, among other things, volatile costs of living and
fluctuations in the value of domestic currency. The longer
the period the more clearly unreasonable such a
presumption would be. In an age like that we live in, very
specific language is necessary to show an intent to grant a
unilateral faculty to extend or renew a contract of lease to
the lessee alone or to the lessor alone for that matter. 19
In the case at bar, it was not specifically indicated who may
exercise the option to renew, neither was it stated that the
option was given for the benefit of herein petitioner. Thus,
pursuant to the Fernandez ruling and Article 1196 of the Civil
Code, the period of the lease contract is deemed to have been
set for the benefit of both parties. Renewal of the contract

WHEREFORE, the instant petition is partly GRANTED. The

assailed decision of the Court of Appeals is REVERSED insofar
as it ordered the petitioner to immediately vacate the leased
premises, without prejudice, however, to the filing by the
private respondents of an action for the recovery of
possession of the subject property.
No costs.
SO ORDERED.
G.R. No. 118972 April 3, 1998

PURISIMA, J.:
At bench is a petition for review on certiorari under Rule 45 of
the Revised Rules of Court, to review and set aside the
Decision of the Court of Appeals 1 dated June 30, 1994 in CAGR No. 35240, affirming with modification the Decision dated
March 22, 1991 in Civil Case No. 12715 of Branch
145, 2 Regional Trial Court of Makati City.
The antecedent facts that matter can be culled, as follows:
On January 1, 1985, CONVIR and Associates, Inc., represented
by its President, Dra. Cora J. Virata, and the petitioner, Home
Development Mutual Fund (HDMF), represented by its Senior
Vice-President, Vicente Reventar III, entered into a
CONSULTANCY AGREEMENT by virtue of which the former
obligated itself to render medical services to the employees of
HDMF. The said service contract stipulated, among others:
That this AGREEMENT takes effect on January 1, 1985 up to
December 31, 1985, provided however, that either party

who desires to terminate the contract may serve the other

party a written notice at least thirty (30) days in advance.
On December 16, 1985, Dra. Cora J. Virata wrote petitioner
Marilou O. Adea-Proctor, then Deputy Chief Executive Officer
and Officer-in-Charge of HDMF, to inform that she (Dra. Cora J.
Virata) was assuming from their (petitioners) silence that
subject Agreement was renewed for the succeeding period,
from January 1, 1986 to December 31, 1986. 3
In her Reply-letter, dated December 23, 1985, petitioner
Adea-Proctor notified Dra. Cora J. Virata of the termination of
the contract in question upon its expiration on December 31,
1985; informing Dra. Virata of the appointment by
management of a full-time physician to the vacant plantilla
position, such that her services would not be needed
anymore. 4 But such letter-reply was formally and actually
received by the private respondents only on January 9, 1986.
In the Complaint filed on January 15, 1986, private
respondents averred that petitioners' sudden and unexpected
termination of the Consultancy Agreement, which requires a
written notice thirty (30) days in advance, did not conform
therewith. Consequently, private respondents prayed for
unrealized income of a least Five Hundred Thousand
(P500,000.00) Pesos resulting from loss of business
opportunities, Four Hundred Thousand (P400,000.00) Pesos,
as exemplary damages, One Hundred Thousand
(P100,000.00) Pesos, as litigation expenses, and 25% of the
total amount, as attorney's fees.
In their Answers sent in on January 14, 1986, petitioners AdeaProctor and HDMF sought the dismissal of the Complaint;
contending inter alia that the Complaint states no cause of
action arising from the termination of the contract, upon
expiration of the agreed period. They argued that private
respondents' insistence on the necessity of a notice of
renewal of the contract is predicated on an erroneous
interpretation of its terms, conditions and duration which are
clear.
On March 22, 1991, the trial court of origin came out with a
decision; disposing, as follows:
Wherefore, premises considered, judgment is hereby
rendered, ordering defendant Home Development Mutual
Fund, to pay plaintiff the sum of Fifty Thousand
(P50,000.00) Pesos, in Philippine Currency, as
compensatory damages; and Twenty Thousand
(P20,000.00) Pesos, Philippine Currency, as and by way of
attorney's fees, and costs.
Defendant's counterclaims are dismissed/denied for lack of
merit.
SO ORDERED.
On appeal, the aforesaid judgment was affirmed with
modification by the Court of Appeals, deleting the award of
compensatory damages for want of sufficient evidence to
support the same. With the denial of their motion for
reconsideration, petitioners found their way to this Court via
the present Petition; theorizing, that:
I. THE PUBLIC RESPONDENT ERRED WHEN IT RULED TO THE
EFFECT THAT BECAUSE OF THE RENEWAL OF THE
CONSULTANCY AGREEMENT SINCE 1981, THE 1985
CONSULTANCY AGREEMENT IS DEEMED RENEWED FOR
ANOTHER TERM UNLESS ADVANCED NOTICE OF
TERMINATION/NON-RENEWAL IS SERVED BY EITHER PARTY
TO THE OTHER;
II. THE PUBLIC RESPONDENT ERRED WHEN IT RULED THAT
THE MEDICAL SERVICES OF APPELLEE WAS UNREASONABLY
TERMINATED/NOT RENEWED BECAUSE THE LETTER OF
TERMINATION/NON-RENEWAL "WAS SERVED OR MAILED SO
CLOSE TO THE END OF THE YEAR . . .;
III. THE PUBLIC RESPONDENT ERRED IN HOLDING
PETITIONER LIABLE FOR ATTORNEY'S FEES TO THE
APPELLEE UNDER ART. 19 OF THE NEW CIVIL CODE.

The petition is not impressed with merit.

Our pivot of inquiry is the correct construction or
interpretation of subject Consultancy Agreement, particularly
its provision:
That this agreement takes effect on January 1, 1985 to
December 31, 1985; Provided, however, that either party
who desires to terminate the contract may serve the other
party a written notice at least thirty (30) days in advance.
The first clause of the aforecited stipulation, which is the bone
of petitioners' stance, basically deals with the term of the
contract; while the proviso, which is the core of private
respondents' action, prescribes the manner the service
contract in question could be terminated.
It is petitioners' submission that the first clause referred to is
independent, distinct and separate from the saidproviso, such
that upon the expiration of the period stated in the first
clause, the Consultancy Agreement ceased to have any
binding effect between the contracting parties even though
they (petitioners) did not give any written notice of
termination at least thirty (30) days in advance.
We cannot fathom how contracting parties, who are sui juris,
and knowledgeable of the purposes for which they solemnly
put their Agreement into writing, could be so careless as to
include inconsistent conditions in such a short and simple
provision in their contract sued upon.
Time-honored is the rule that "In the construction of an
instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give
effect to all." 5 Article 1374 of the New Civil Code, on the
other hand, requires 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 jointly." Conformably, to ascertain the true meaning or
import of the controverted provision of subject Consultancy
Agreement, its entiretymust be considered; not merely the
first clause. 6 Consequently, petitioners' interpretation solely
based on the first clause, and which completely ignored the
second clause under scrutiny, cannot be upheld.
The law mandates that "Obligations arising from contracts
have the force of law between the contracting parties and
should be complied with in good faith." 7
Did petitioners comply with their contractual obligation in
good faith, when they served the requisite written notice to
private respondents nine (9) days after the expiration of the
Agreement? The answer to this crucial question is in the
negative.
The second clause of the contractual provision in dispute is to
the effect that written notice of termination should be served
at least thirty (30) days in advance. As a rule, the method of
terminating a contract is primarily determined by the
stipulation of the parties. 8 Thus, the requirements of
contracts as to notice as to the time of giving, form, and
manner of service thereof must be strictly observed
because "In an obligation where a period is designated, it is
presumed to have been established for the benefit of both the
contracting parties." 9 Thus, the unilateral termination of the
contract in question by the herein petitioners is violative of
the principle of mutuality of contracts ordained in Art. 1308 of
the New Civil Code. 10
Petitioner Adea-Proctor contends that on December 26, 1985,
she caused personal delivery of her letter-reply dated
December 23, 1985, addressed to private respondent Dra.
Cora Virata, informing the latter of the impending expiration
of the contract which would not be renewed anymore because
the petitioners planned to fill up the vacant plantilla position
with a full-time physician, as approved by the Board of
Trustees of HDMF. 11However, petitioner Adea-Proctor claims
that when the said letter was delivered by one Ramon Ortega,
petitioners' messenger, to the Makati office of private
respondents, the latter's representative, a certain Rose Sy,
refused to receive it. So, petitioner Adea-Proctor had to send

the said letter by registered mail, on the same day, and

private respondents received it on January 9, 1986
We are not persuaded by petitioners' stance. From the
evidence on hand, it can be unerringly gleaned that within the
first week of January, 1986, respondent Dra. Cora J. Virata was
allowed by petitioners to assume her duties as physician of
petitioner's employees. As ratiocinated by the Court of
Appeals:
For one thing, if it were true that appellant (petitioner
HDMF) was decided in not renewing the consultancy
agreement with appellee (private respondent Cora Virata),
it should have instructed and informed all its employees not
to avail anymore of appellee's medical services. As it was,
appellant allowed its employees to still avail of appellee's
medical services on the first week of January, 1986. 12
Granting ex gratia argumenti that petitioners caused personal
delivery of their letter-reply on December 26, 1985, we
believe that the same could not be deemed a substantial
compliance with their contractual obligation because it was
done just five (5) days prior to the expiration of the contract.
To repeat, what is stipulated is thirty (30) days in advance. As
the trial court stressed:
Necessarily, such notice of termination or nonrenewal must be served within reasonable time, in
fairness to the other party. Under the circumstances
obtaining, however, the defendant's (petitioner
herein) notice on plaintiff (private respondent herein)
was unreasonable, particularly as it was served or
mailed so close to the end of the year and at the
height of the Christmas holidays, factors which were
unduly disadvantageous to plaintiff as it leaves no
sufficient opportunity to prepare for the closure of
the business with other potential clients, to the
detriment of said plaintiff. 13
Indeed, private respondents had every reason to assume that
subject service contract was deemed renewed. As found by
the Court of Appeals:
The evidence shows in this case that since 1981,
appellee's (private respondent herein) consultancy
agreement with appellant (petitioners herein) had
been renewed, without renegotiation, so that
appellee as a practice would continue her services to
appellant even after expiry date of the contract.
These implied renewals of the contract had been
going on as a practice of both appellant and appellee
since 1981, so that at the start of each year, appellee
would just the same, perform her duties as
appellant's physician, with contract to be signed in
the first few months of the year. As this was the
practice, appellee could not be blamed for
performing her professional duties as appellant's
physician even in the absence of a contract. (CA
Decision, p. 5)
Premises studiedly considered, we are of the irresistible
conclusion that the Court of Appeals erred not in adjudging as
renewed the Consultancy Agreement litigated upon.
In the second assigned error, petitioners theorize that the
Court of Appeals erred in ruling that the medical services of
private respondents were unreasonably terminated because
the December 26, 1985 letter of termination "was served or
mailed so close to the end of the year. . ."
We discern nothing reversible in such conclusion arrived at by
public respondent. Ordinarily, what is reasonable time under
the circumstances of a particular case is a mixed question of
law and of fact, for determination by the trier of facts. This
Court is not a trier of facts. Furthermore, well settled is the
doctrine that "the findings of fact by the trial court are
accorded great respect by appellate courts and should not be
disturbed on appeal unless the trial court has overlooked,
ignored, or disregarded some fact or circumstances of
sufficient weight or significance which, if considered, would
alter the situation." 14 The facts of the case, as stated by the

trial court, were adopted by the Court of Appeals. And a

conscientious sifting of the records fails to bring to light any
fact or circumstance militative against the correctness of the
said findings of the trial court and the Court of Appeals.
We are likewise in agreement with the Court of Appeals'
finding that petitioners acted in bad faith for refusing to
comply with private respondents' valid demand. Therefore, it
is just and equitable that attorney's fees be recovered, 15 in
the reasonable amount fixed below.
WHEREFORE, the Decision of the Court of Appeals in C.A.
G.R. No. 35240 is hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.

G.R. No. L-22558

May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO.,
LTD., respondent.
Araneta and Araneta for petitioner.
Rosauro Alvarez and Ernani Cruz Pao for respondent.
REYES, J.B.L., J.:
Petition for certiorari to review a judgment of the Court of
Appeals, in its CA-G.R. No. 28249-R, affirming with
modification, an amendatory decision of the Court of First
Instance of Manila, in its Civil Case No. 36303, entitled
"Philippine Sugar Estates Development Co., Ltd., plaintiff,
versus J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc.,
defendants."
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated
in Quezon City, otherwise known as the Sta. Mesa Heights
Subdivision, and covered by a Torrens title in its name. On July
28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.)
sold a portion thereof with an area of 43,034.4 square meters,
more or less, for the sum of P430,514.00, to Philippine Sugar
Estates Development Co., Ltd. The parties stipulated, among
in the contract of purchase and sale with mortgage, that the
buyer will
Build on the said parcel land the Sto. Domingo
Church and Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of
the land herein sold so that the latter will be a block
surrounded by streets on all four sides; and the
street on the NE side shall be named "Sto. Domingo
Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd.,
finished the construction of Sto. Domingo Church and
Convent, but the seller, Gregorio Araneta, Inc., which began
constructing the streets, is unable to finish the construction of
the street in the Northeast side named (Sto. Domingo Avenue)
because a certain third-party, by the name of Manuel Abundo,
who has been physically occupying a middle part thereof,
refused to vacate the same; hence, on May 7, 1958, Philippine
Sugar Estates Development Co., Lt. filed its complaint against
J. M. Tuason & Co., Inc., and instance, seeking to compel the
latter to comply with their obligation, as stipulated in the
above-mentioned deed of sale, and/or to pay damages in the
event they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta,
Inc. answered the complaint, the latter particularly setting up
the principal defense that the action was premature since its
obligation to construct the streets in question was without a
definite period which needs to he fixed first by the court in a
proper suit for that purpose before a complaint for specific
performance will prosper.
The issues having been joined, the lower court proceeded with
the trial, and upon its termination, it dismissed plaintiff's
complaint (in a decision dated May 31, 1960), upholding the
defenses interposed by defendant Gregorio Araneta,
Inc.1wph1.t
Plaintiff moved to reconsider and modify the above decision,
praying that the court fix a period within which defendants
will comply with their obligation to construct the streets in
question.
Defendant Gregorio Araneta, Inc. opposed said motion,
maintaining that plaintiff's complaint did not expressly or
impliedly allege and pray for the fixing of a period to comply

with its obligation and that the evidence presented at the trial
was insufficient to warrant the fixing of such a period.
On July 16, 1960, the lower court, after finding that "the
proven facts precisely warrants the fixing of such a period,"
issued an order granting plaintiff's motion for reconsideration
and amending the dispositive portion of the decision of May
31, 1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving
defendant Gregorio Araneta, Inc., a period of two (2)
years from notice hereof, within which to comply with
its obligation under the contract, Annex "A".
Defendant Gregorio Araneta, Inc. presented a motion to
reconsider the above quoted order, which motion, plaintiff
opposed.
On August 16, 1960, the lower court denied defendant
Gregorio Araneta, Inc's. motion; and the latter perfected its
appeal Court of Appeals.
In said appellate court, defendant-appellant Gregorio Araneta,
Inc. contended mainly that the relief granted, i.e., fixing of a
period, under the amendatory decision of July 16, 1960, was
not justified by the pleadings and not supported by the facts
submitted at the trial of the case in the court below and that
the relief granted in effect allowed a change of theory after
the submission of the case for decision.
Ruling on the above contention, the appellate court declared
that the fixing of a period was within the pleadings and that
there was no true change of theory after the submission of
the case for decision since defendant-appellant Gregorio
Araneta, Inc. itself squarely placed said issue by alleging in
paragraph 7 of the affirmative defenses contained in its
answer which reads
7. Under the Deed of Sale with Mortgage of July 28,
1950, herein defendant has a reasonable time within
which to comply with its obligations to construct and
complete the streets on the NE, NW and SW sides of
the lot in question; that under the circumstances,
said reasonable time has not elapsed;
Disposing of the other issues raised by appellant which were
ruled as not meritorious and which are not decisive in the
resolution of the legal issues posed in the instant appeal
before us, said appellate court rendered its decision dated
December 27, 1963, the dispositive part of which reads
IN VIEW WHEREOF, judgment affirmed and modified;
as a consequence, defendant is given two (2) years
from the date of finality of this decision to comply
with the obligation to construct streets on the NE,
NW and SW sides of the land sold to plaintiff so that
the same would be a block surrounded by streets on
all four sides.
Unsuccessful in having the above decision reconsidered,
defendant-appellant Gregorio Araneta, Inc. resorted to a
petition for review by certiorari to this Court. We gave it due
course.
We agree with the petitioner that the decision of the Court of
Appeals, affirming that of the Court of First Instance is legally
untenable. The fixing of a period by the courts under Article
1197 of the Civil Code of the Philippines is sought to be
justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that
the contract with respondent Philippine Sugar Estates
Development Co., Ltd. gave petitioner Gregorio Araneta, Inc.
"reasonable time within which to comply with its obligation to
construct and complete the streets." Neither of the courts
below seems to have noticed that, on the hypothesis stated,
what the answer put in issue was not whether the court
should fix the time of performance, but whether or not the
parties agreed that the petitioner should have reasonable
time to perform its part of the bargain. If the contract so
provided, then there was a period fixed, a "reasonable time;"

and all that the court should have done was to determine if
that reasonable time had already elapsed when suit was filed
if it had passed, then the court should declare that petitioner
had breached the contract, as averred in the complaint, and
fix the resulting damages. On the other hand, if the
reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature. But in no
case can it be logically held that under the plea above quoted,
the intervention of the court to fix the period for performance
was warranted, for Article 1197 is precisely predicated on the
absence of any period fixed by the parties.
Even on the assumption that the court should have found that
no reasonable time or no period at all had been fixed (and the
trial court's amended decision nowhere declared any such
fact) still, the complaint not having sought that the Court
should set a period, the court could not proceed to do so
unless the complaint in as first amended; for the original
decision is clear that the complaint proceeded on the theory
that the period for performance had already elapsed, that the
contract had been breached and defendant was already
answerable in damages.
Granting, however, that it lay within the Court's power to fix
the period of performance, still the amended decision is
defective in that no basis is stated to support the conclusion
that the period should be set at two years after finality of the
judgment. The list paragraph of Article 1197 is clear that the
period can not be set arbitrarily. The law expressly prescribes
that
the Court shall determine such period as may under
the circumstances been probably contemplated by
the parties.
All that the trial court's amended decision (Rec. on Appeal, p.
124) says in this respect is that "the proven facts precisely
warrant the fixing of such a period," a statement manifestly
insufficient to explain how the two period given to petitioner
herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves
a two-step process. The Court must first determine that "the
obligation does not fix a period" (or that the period is made to
depend upon the will of the debtor)," but from the nature and
the circumstances it can be inferred that a period was
intended" (Art. 1197, pars. 1 and 2). This preliminary point
settled, the Court must then proceed to the second step, and
decide what period was "probably contemplated by the
parties" (Do., par. 3). So that, ultimately, the Court can not fix
a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown
to have intended. As the record stands, the trial Court appears
to have pulled the two-year period set in its decision out of
thin air, since no circumstances are mentioned to support it.
Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract
shows that the parties were fully aware that the land
described therein was occupied by squatters, because the fact
is expressly mentioned therein (Rec. on Appeal, Petitioner's
Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must
resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought
would not be under their control nor could the same be
determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly
evicted, as contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would
render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; and this very
indefiniteness is what explains why the agreement did not
specify any exact periods or dates of performance.

It follows that there is no justification in law for the setting the

date of performance at any other time than that of the
eviction of the squatters occupying the land in question; and
in not so holding, both the trial Court and the Court of Appeals
committed reversible error. It is not denied that the case
against one of the squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case was rendered.
In view of the foregoing, the decision appealed from is
reversed, and the time for the performance of the obligations
of petitioner Gregorio Araneta, Inc. is hereby fixed at the date
that all the squatters on affected areas are finally evicted
therefrom.
Costs against respondent Philippine Sugar Estates
Development, Co., Ltd. So ordered.
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N.
LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND
REMARENE LOPEZ, respondents.

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City directing
petitioner to reconvey to private respondents the property
donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]),
executed a deed of donation in favor of the latter of a parcel
of land identified as Lot No. 3174-B-1 of the subdivision plan
Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from the
deed of donation
1. The land described shall be utilized by the CPU
exclusively for the establishment and use of a medical
college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to
any third party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS",
and the said college shall be under obligation to erect a
cornerstone bearing that name. Any net income from the
land or any of its parks shall be put in a fund to be known
as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building
thereon. 1
On 31 May 1989, private respondents, who are the heirs of
Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter
had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated
with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because
it never used the donated property for any other purpose than
that for which it was intended; and, that it did not sell,
transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to
comply with the conditions of the donation and declared it null
and void. The court a quo further directed petitioner to

execute a deed of the reconveyance of the property in favor

of the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June
1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a
period within which the condition must be fulfilled, hence,
until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply
with its part of the bargain. Thus, the appellate court rendered
its decision reversing the appealed decision and remanding
the case to the court of origin for the determination of the
time within which petitioner should comply with the first
condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title of
petitioner are onerous obligations and resolutory conditions of
the donation which must be fulfilled non-compliance of which
would render the donation revocable; (b) in holding that the
issue of prescription does not deserve "disquisition;" and, (c)
in remanding the case to the trial court for the fixing of the
period within which petitioner would establish a medical
college. 2
We find it difficult to sustain the petition. A clear perusal of
the conditions set forth in the deed of donation executed by
Don Ramon Lopez, Sr., gives us no alternative but to conclude
that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the
donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to the
City of Manila requiring the latter to erect schools, construct a
children's playground and open streets on the land was
considered an onerous donation. 3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner
but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional obligations,
the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening
of the event which constitutes the condition. Thus, when a
person donates land to another on the condition that the
latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive
condition but a resolutory one. 4 It is not correct to say that
the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the
owner of the land, otherwise, it would be invading the
property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no
fulfillment or compliance with the condition, such as what
obtains in the instant case, the donation may now be revoked
and all rights which the donee may have acquired under it
shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant
action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building
of a medical school upon the land donated,
depended upon the exclusive will of the donee as to
when this condition shall be fulfilled. When petitioner
accepted the donation, it bound itself to comply with
the condition thereof. Since the time within which the
condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that
its absolute acceptance and the acknowledgment of
its obligation provided in the deed of donation were
sufficient to prevent the statute of limitations from
barring the action of private respondents upon the
original contract which was the deed of donation. 6

Moreover, the time from which the cause of action accrued for
the revocation of the donation and recovery of the property
donated cannot be specifically determined in the instant case.
A cause of action arises when that which should have been
done is not done, or that which should not have been done is
done. 7 In cases where there is no special provision for such
computation, recourse must be had to the rule that the period
must be counted from the day on which the corresponding
action could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for the
computation of the period. In this case, the starting point
begins with the expiration of a reasonable period and
opportunity for petitioner to fulfill what has been charged
upon it by the donor.
The period of time for the establishment of a medical college
and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years
because of the presence of several factors and circumstances
involved in the erection of an educational institution, such as
government laws and regulations pertaining to education,
building requirements and property restrictions which are
beyond the control of the donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil
Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period
for compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the
different set of circumstances existing in the instant case.
More than a reasonable period of fifty (50) years has already
been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed
to do so. Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to
delay or lead to an unnecessary and expensive multiplication
of suits. 9 Moreover, under Art. 1191 of the Civil Code, when
one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission and the court shall
decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no
more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is
basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in
favor of the least transmission of rights and
interests. 10 Records are clear and facts are undisputed that
since the execution of the deed of donation up to the time of
filing of the instant action, petitioner has failed to comply with
its obligation as donee. Petitioner has slept on its obligation
for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo,
Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the
decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan
Psd-1144 covered by Transfer Certificate of Title No. T-3910-A
within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.

G.R. No. 206806

June 25, 2014

ARCO PULP AND PAPER CO., INC. and CANDIDA A.

SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style
of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent.
DECISION
LEONEN, J.:
Novation must be stated in clear and unequivocal terms to
extinguish an obligation. It cannot be presumed and may be
implied only if the old and new contracts are incompatible on
every point.
Before us is a petition for review on certiorari1 assailing the
Court of Appeals decision2 in CA-G.R. CV No. 95709, which
stemmed from a complaint3 filed in the Regional Trial Court of
Valenzuela City, Branch 171, for collection of sum of money.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers,
cartons, and other raw materials, under the name Quality
Paper and Plastic Products, Enterprises, to factories engaged
in the paper mill business.4 From February 2007 to March
2007, he delivered scrap papers worth 7,220,968.31 to Arco
Pulp and Paper Company, Inc. (Arco Pulp and Paper) through
its Chief Executive Officer and President, Candida A.
Santos.5 The parties allegedly agreed that Arco Pulp and Paper
would either pay Dan T. Lim the value of the raw materials or
deliver to him their finished products of equivalent value. 6
Dan T. Lim alleged that when he delivered the raw materials,
Arco Pulp and Paper issued a post-dated check dated April 18,
20077 in the amount of 1,487,766.68 as partial payment, with
the assurance that the check would not bounce. 8 When he
deposited the check on April 18, 2007, it was dishonored for
being drawn against a closed account.9
On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement10 where Arco Pulp and
Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his
account. According to the memorandum, the raw materials
would be supplied by Dan T. Lim, through his company,
Quality Paper and Plastic Products. The memorandum of
agreement reads as follows:
Per meeting held at ARCO, April 18, 2007, it has been
mutually agreed between Mrs. Candida A. Santos and Mr. Eric
Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full
width 76 inches at the price of P18.50 per kg. to Megapack
Container for Mr. Eric Sys account. Schedule of deliveries are
as follows:
....
It has been agreed further that the Local OCC materials to be
used for the production of the above Test Liners will be
supplied by Quality Paper & Plastic Products Ent., total of 600
Metric Tons at P6.50 per kg. (price subject to change per
advance notice). Quantity of Local OCC delivery will be based
on the quantity of Test Liner delivered to Megapack Container
Corp. based on the above production schedule.11
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and
Paper demanding payment of the amount of 7,220,968.31,
but no payment was made to him.13
Dan T. Lim filed a complaint14 for collection of sum of money
with prayer for attachment with the Regional Trial Court,
Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp and
Paper filed its answer15 but failed to have its representatives
attend the pre-trial hearing. Hence, the trial court allowed Dan
T. Lim to present his evidence ex parte.16

On September 19, 2008, the trial court rendered a judgment

in favor of Arco Pulp and Paper and dismissed the complaint,
holding that when Arco Pulp and Paper and Eric Sy entered
into the memorandum of agreement, novation took place,
which extinguished Arco Pulp and Papers obligation to Dan T.
Lim.17
Dan T. Lim appealed18 the judgment with the Court of Appeals.
According to him, novation did not take place since the
memorandum of agreement between Arco Pulp and Paper and
Eric Sy was an exclusive and private agreement between
them. He argued that if his name was mentioned in the
contract, it was only for supplying the parties their required
scrap papers, where his conformity through a separate
contract was indispensable.19
On January 11, 2013, the Court of Appeals20 rendered a
decision21 reversing and setting aside the judgment dated
September 19, 2008 and ordering Arco Pulp and Paper to
jointly and severally pay Dan T. Lim the amount
of P7,220,968.31 with interest at 12% per annum from the
time of demand; P50,000.00 moral damages; P50,000.00
exemplary damages; and P50,000.00 attorneys fees.22
The appellate court ruled that the facts and circumstances in
this case clearly showed the existence of an alternative
obligation.23 It also ruled that Dan T. Lim was entitled to
damages and attorneys fees due to the bad faith exhibited by
Arco Pulp and Paper in not honoring its undertaking. 24
Its motion for reconsideration25 having been denied,26 Arco
Pulp and Paper and its President and Chief Executive Officer,
Candida A. Santos, bring this petition for review on certiorari.
On one hand, petitioners argue that the execution of the
memorandum of agreement constituted a novation of the
original obligation since Eric Sy became the new debtor of
respondent. They also argue that there is no legal basis to
hold petitioner Candida A. Santos personally liable for the
transaction that petitioner corporation entered into with
respondent. The Court of Appeals, they allege, also erred in
awarding moral and exemplary damages and attorneys fees
to respondent who did not show proof that he was entitled to
damages.27
Respondent, on the other hand, argues that the Court of
Appeals was correct in ruling that there was no proper
novation in this case. He argues that the Court of Appeals was
correct in ordering the payment of 7,220,968.31 with
damages since the debt of petitioners remains unpaid. 28 He
also argues that the Court of Appeals was correct in holding
petitioners solidarily liable since petitioner Candida A. Santos
was "the prime mover for such outstanding corporate
liability."29 In their reply, petitioners reiterate that novation
took place since there was nothing in the memorandum of
agreement showing that the obligation was alternative. They
also argue that when respondent allowed them to deliver the
finished products to Eric Sy, the original obligation was
novated.30
A rejoinder was submitted by respondent, but it was noted
without action in view of A.M. No. 99-2-04-SC dated November
21, 2000.31
The issues to be resolved by this court are as follows:
1. Whether the obligation between the parties was
extinguished by novation
2. Whether Candida A. Santos was solidarily liable
with Arco Pulp and Paper Co., Inc.
3. Whether moral damages, exemplary damages,
and attorneys fees can be awarded
The petition is denied.

The obligation between the

parties was an alternative
obligation
The rule on alternative obligations is governed by Article 1199
of the Civil Code, which states:
Article 1199. A person alternatively bound by different
prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and
part of the other undertaking.
"In an alternative obligation, there is more than one object,
and the fulfillment of one is sufficient, determined by the
choice of the debtor who generally has the right of
election."32 The right of election is extinguished when the
party who may exercise that option categorically and
unequivocally makes his or her choice known.33
The choice of the debtor must also be communicated to the
creditor who must receive notice of it since: The object of this
notice is to give the creditor . . . opportunity to express his
consent, or to impugn the election made by the debtor, and
only after said notice shall the election take legal effect when
consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.34
According to the factual findings of the trial court and the
appellate court, the original contract between the parties was
for respondent to deliver scrap papers worth P7,220,968.31 to
petitioner Arco Pulp and Paper. The payment for this delivery
became petitioner Arco Pulp and Papers obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had
the option to either (1) pay the price or(2) deliver the finished
products of equivalent value to respondent.35
The appellate court, therefore, correctly identified the
obligation between the parties as an alternative obligation,
whereby petitioner Arco Pulp and Paper, after receiving the
raw materials from respondent, would either pay him the price
of the raw materials or, in the alternative, deliver to him the
finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to
respondent in partial payment for the scrap papers, they
exercised their option to pay the price. Respondents receipt
of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Papers
option to pay.
This choice was also shown by the terms of the memorandum
of agreement, which was executed on the same day. The
memorandum declared in clear terms that the delivery of
petitioner Arco Pulp and Papers finished products would be to
a third person, thereby extinguishing the option to deliver the
finished products of equivalent value to respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract
The trial court erroneously ruled that the execution of the
memorandum of agreement constituted a novation of the
contract between the parties. When petitioner Arco Pulp and
Paper opted instead to deliver the finished products to a third
person, it did not novate the original obligation between the
parties.

(3) Subrogating a third person in the rights of the

creditor. (1203)
Article 1292. In order that an obligation may be extinguished
by another which substitute the same, it is imperative that it
be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each
other. (1204)
Article 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in Articles 1236 and
1237. (1205a)
Novation extinguishes an obligation between two parties
when there is a substitution of objects or debtors or when
there is subrogation of the creditor. It occurs only when the
new contract declares so "in unequivocal terms" or that "the
old and the new obligations be on every point incompatible
with each other."36
Novation was extensively discussed by this court in Garcia v.
Llamas:37
Novation is a mode of extinguishing an obligation by changing
its objects or principal obligations, by substituting a new
debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. Article 1293 of the Civil
Code defines novation as follows:
"Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new
debtor gives him rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of
the debtor: (1) expromision and (2) delegacion. In
expromision, the initiative for the change does not come from
and may even be made without the knowledge of the
debtor, since it consists of a third persons assumption of the
obligation. As such, it logically requires the consent of the
third person and the creditor. In delegacion, the debtor offers,
and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of
these three persons are necessary. Both modes of substitution
by the debtor require the consent of the creditor.
Novation may also be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation
of a new one that takes the place of the former. It is merely
modificatory when the old obligation subsists to the extent
that it remains compatible with the amendatory agreement.
Whether extinctive or modificatory, novation is made either
by changing the object or the principal conditions, referred to
as objective or real novation; or by substituting the person of
the debtor or subrogating a third person to the rights of the
creditor, an act known as subjective or personal novation. For
novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new
contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.

The rules on novation are outlined in the Civil Code, thus:

Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;

Novation may also be express or implied. It is express when

the new obligation declares in unequivocal terms that the old
obligation is extinguished. It is implied when the new
obligation is incompatible with the old one on every point. The
test of incompatibility is whether the two obligations can
stand together, each one with its own independent
existence.38 (Emphasis supplied)

Because novation requires that it be clear and unequivocal, it

is never presumed, thus:

Further, the following requisites must be proven for the

recovery of moral damages:

In the civil law setting, novatio is literally construed as to

make new. So it is deeply rooted in the Roman Law
jurisprudence, the principle novatio non praesumitur that
novation is never presumed.At bottom, for novation tobe a
jural reality, its animus must be ever present, debitum pro
debito basically extinguishing the old obligation for the new
one.39 (Emphasis supplied) There is nothing in the
memorandum of agreement that states that with its
execution, the obligation of petitioner Arco Pulp and Paper to
respondent would be extinguished. It also does not state that
Eric Sy somehow substituted petitioner Arco Pulp and Paper as
respondents debtor. It merely shows that petitioner Arco Pulp
and Paper opted to deliver the finished products to a third
person instead.

An award of moral damages would require certain conditions

to be met, to wit: (1)first, there must be an injury, whether
physical, mental or psychological, clearly sustained by the
claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of
the defendant is the proximate cause of the injury sustained
by the claimant; and (4) fourth, the award of damages is
predicated on any of the cases stated in Article 2219 of the
Civil Code.43

The consent of the creditor must also be secured for the

novation to be valid:

When the obligation became due and demandable, petitioner

Arco Pulp and Paper not only issued an unfunded check but
also entered into a contract with a third person in an effort to
evade its liability. This proves the third requirement.

Novation must be expressly consented to. Moreover, the

conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with
which to deduce a clear and unequivocal intent by the parties
to novate the old agreement.40 (Emphasis supplied)
In this case, respondent was not privy to the memorandum of
agreement, thus, his conformity to the contract need not be
secured. This is clear from the first line of the memorandum,
which states:
Per meeting held at ARCO, April 18, 2007, it has been
mutually agreed between Mrs. Candida A. Santos and Mr. Eric
Sy. . . .41
If the memorandum of agreement was intended to novate the
original agreement between the parties, respondent must
have first agreed to the substitution of Eric Sy as his new
debtor. The memorandum of agreement must also state in
clear and unequivocal terms that it has replaced the original
obligation of petitioner Arco Pulp and Paper to respondent.
Neither of these circumstances is present in this case.

Here, the injury suffered by respondent is the loss

of P7,220,968.31 from his business. This has remained unpaid
since 2007. This injury undoubtedly was caused by petitioner
Arco Pulp and Papers act of refusing to pay its obligations.

As to the fourth requisite, Article 2219 of the Civil Code

provides that moral damages may be awarded in the following
instances:
Article 2219. Moral damages may be recovered in the
following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious
acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;

Petitioner Arco Pulp and Papers act of tendering partial

payment to respondent also conflicts with their alleged intent
to pass on their obligation to Eric Sy. When respondent sent
his letter of demand to petitioner Arco Pulp and Paper, and not
to Eric Sy, it showed that the former neither acknowledged
nor consented to the latter as his new debtor. These acts,
when taken together, clearly show that novation did not take
place. Since there was no novation, petitioner Arco Pulp and
Papers obligation to respondent remains valid and existing.
Petitioner Arco Pulp and Paper, therefore, must still pay
respondent the full amount of P7,220,968.31.

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26,
27, 28, 29, 30, 32, 34, and 35.

Under Article 2220 of the Civil Code, moral damages may be

awarded in case of breach of contract where the breach is due
to fraud or bad faith:

Breaches of contract done in bad faith, however, are not

specified within this enumeration. When a party breaches a
contract, he or she goes against Article 19 of the Civil Code,
which states: Article 19. Every person must, in the exercise of
his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good
faith.

Art. 2220. Willfull injury to property may be a legal ground for

awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith. (Emphasis supplied)

Persons who have the right to enter into contractual relations

must exercise that right with honesty and good faith. Failure
to do so results in an abuse of that right, which may become
the basis of an action for damages. Article 19, however,
cannot be its sole basis:

Moral damages are not awarded as a matter of right but only

after the party claiming it proved that the breach was due to
fraud or bad faith. As this court stated:

Article 19 is the general rule which governs the conduct of

human relations. By itself, it is not the basis of an actionable
tort. Article 19 describes the degree of care required so that
an actionable tort may arise when it is alleged together with
Article 20 or Article 21.44

Petitioners are liable for

damages

Moral damages are not recoverable simply because a contract

has been breached. They are recoverable only if the party
from whom it is claimed acted fraudulently or in bad faith or in
wanton disregard of his contractual obligations. The breach
must be wanton, reckless, malicious or in bad faith, and
oppressive or abusive.42

Article 20 and 21 of the Civil Code are as follows:

Article 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the
latter for the same.

Article 21.Any person who wilfully causes loss or injury to

another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.

Exemplary damages may also be awarded. Under the Civil

Code, exemplary damages are due in the following
circumstances:

To be actionable, Article 20 requires a violation of law, while

Article 21 only concerns with lawful acts that are contrary to
morals, good customs, and public policy:

Article 2232. In contracts and quasi-contracts, the court may

award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent
manner.

Article 20 concerns violations of existing law as basis for an

injury. It allows recovery should the act have been willful or
negligent. Willful may refer to the intention to do the act and
the desire to achieve the outcome which is considered by the
plaintiff in tort action as injurious. Negligence may refer to a
situation where the act was consciously done but without
intending the result which the plaintiff considers as injurious.
Article 21, on the other hand, concerns injuries that may be
caused by acts which are not necessarily proscribed by law.
This article requires that the act be willful, that is, that there
was an intention to do the act and a desire to achieve the
outcome. In cases under Article 21, the legal issues revolve
around whether such outcome should be considered a legal
injury on the part of the plaintiff or whether the commission of
the act was done in violation of the standards of care required
in Article 19.45
When parties act in bad faith and do not faithfully comply with
their obligations under contract, they run the risk of violating
Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force
of law between the contracting parties and should be
complied with in good faith.
Article 2219, therefore, is not an exhaustive list of the
instances where moral damages may be recovered since it
only specifies, among others, Article 21. When a party
reneges on his or her obligations arising from contracts in bad
faith, the act is not only contrary to morals, good customs,
and public policy; it is also a violation of Article 1159.
Breaches of contract become the basis of moral damages, not
only under Article 2220, but also under Articles 19 and 20 in
relation to Article 1159.
Moral damages, however, are not recoverable on the mere
breach of the contract. Article 2220 requires that the breach
be done fraudulently or in bad faith. In Adriano v. Lasala:46
To recover moral damages in an action for breach of contract,
the breach must be palpably wanton, reckless and malicious,
in bad faith, oppressive, or abusive. Hence, the person
claiming bad faith must prove its existence by clear and
convincing evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known
duty through some motive or interest or ill will that partakes
of the nature of fraud. It is, therefore, a question of intention,
which can be inferred from ones conduct and/or
contemporaneous statements.47 (Emphasis supplied)
Since a finding of bad faith is generally premised on the intent
of the doer, it requires an examination of the circumstances in
each case.
When petitioner Arco Pulp and Paper issued a check in partial
payment of its obligation to respondent, it was presumably
with the knowledge that it was being drawn against a closed
account. Worse, it attempted to shift their obligations to a
third person without the consent of respondent.
Petitioner Arco Pulp and Papers actions clearly show "a
dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty through some
motive or interest or ill will that partakes of the nature of
fraud."48 Moral damages may, therefore, be awarded.

Article 2233. Exemplary damages cannot be recovered as a

matter of right; the court will decide whether or not they
should be adjudicated.
Article 2234. While the amount of the exemplary damages
need not be proven, the plaintiff must show that he is entitled
to moral, temperate or compensatory damages before the
court may consider the question of whether or not exemplary
damages should be awarded.
In Tankeh v. Development Bank of the Philippines, 49 we stated
that:
The purpose of exemplary damages is to serve as a deterrent
to future and subsequent parties from the commission of a
similar offense. The case of People v. Ranteciting People v.
Dalisay held that:
Also known as punitive or vindictive damages, exemplary or
corrective damages are intended to serve as a deterrent to
serious wrong doings, and as a vindication of undue sufferings
and wanton invasion of the rights of an injured or a
punishment for those guilty of outrageous conduct. These
terms are generally, but not always, used interchangeably. In
common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings
and for the sense of indignity and humiliation suffered by a
person as a result of an injury that has been maliciously and
wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible
conduct of the defendantassociated with such
circumstances as willfulness, wantonness, malice, gross
negligence or recklessness, oppression, insult or fraud or
gross fraudthat intensifies the injury. The terms punitive or
vindictive damages are often used to refer to those species of
damages that may be awarded against a person to punish
him for his outrageous conduct. In either case, these damages
are intended in good measure to deter the wrongdoer and
others like him from similar conduct in the future. 50 (Emphasis
supplied; citations omitted)
The requisites for the award of exemplary damages are as
follows:
(1) they may be imposed by way of example in
addition to compensatory damages, and only after
the claimant's right to them has been established;
(2) that they cannot be recovered as a matter of
right, their determination depending upon the
amount of compensatory damages that may be
awarded to the claimant; and
(3) the act must be accompanied by bad faith or
done in a wanton, fraudulent, oppressive or
malevolent manner.51
Business owners must always be forthright in their dealings.
They cannot be allowed to renege on their obligations,
considering that these obligations were freely entered into by
them. Exemplary damages may also be awarded in this case
to serve as a deterrent to those who use fraudulent means to
evade their liabilities.
Since the award of exemplary damages is proper, attorneys
fees and cost of the suit may also be recovered.
Article 2208 of the Civil Code states:

Article 2208. In the absence of stipulation, attorney's fees and

expenses of litigation, other than judicial costs, cannot be
recovered, except:

unjustifiable aims or intentions, in which case, the fiction will

be disregarded and the individuals composing it and the two
corporations will be treated as identical.56 (Emphasis supplied)

(1) When exemplary damages are awarded[.]

Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation

According to the Court of Appeals, petitioner Santos was

solidarily liable with petitioner Arco Pulp and Paper, stating
that:

Petitioners argue that the finding of solidary liability was

erroneous since no evidence was adduced to prove that the
transaction was also a personal undertaking of petitioner
Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank, 52 we
stated that:
Basic is the rule in corporation law that a corporation is a
juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. Following this
principle, obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by
the corporation. Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate fraud or an
illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse
legitimate issues.
....
Before a director or officer of a corporation can be held
personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must
allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer
was guilty of gross negligence or bad faith; and (2) the
complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any
of the circumstances that would warrant the piercing of the
veil of corporate fiction is a question of fact which cannot be
the subject of a petition for review on certiorari under Rule 45,
this Court can take cognizance of factual issues if the findings
of the lower court are not supported by the evidence on
record or are based on a misapprehension of
facts.53 (Emphasis supplied)
As a general rule, directors, officers, or employees of a
corporation cannot be held personally liable for obligations
incurred by the corporation. However, this veil of corporate
fiction may be pierced if complainant is able to prove, as in
this case, that (1) the officer is guilty of negligence or bad
faith, and (2) such negligence or bad faith was clearly and
convincingly proven.
Here, petitioner Santos entered into a contract with
respondent in her capacity as the President and Chief
Executive Officer of Arco Pulp and Paper. She also issued the
check in partial payment of petitioner corporations
obligations to respondent on behalf of petitioner Arco Pulp and
Paper. This is clear on the face of the check bearing the
account name, "Arco Pulp & Paper, Co., Inc."54 Any obligation
arising from these acts would not, ordinarily, be petitioner
Santos personal undertaking for which she would be solidarily
liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In
Livesey v. Binswanger Philippines:55
Piercing the veil of corporate fiction is an equitable doctrine
developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful
purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for nonlegitimate purposes, such as to evade a just and due
obligation, or to justify a wrong, to shield or perpetrate fraud
or to carry out similar or inequitable considerations, other

In the present case, We find bad faith on the part of the

[petitioners] when they unjustifiably refused to honor their
undertaking in favor of the [respondent]. After the check in
the amount of 1,487,766.68 issued by [petitioner] Santos was
dishonored for being drawn against a closed account,
[petitioner] corporation denied any privity with [respondent].
These acts prompted the [respondent] to avail of the
remedies provided by law in order to protect his rights.57
We agree with the Court of Appeals. Petitioner Santos cannot
be allowed to hide behind the corporate veil.1wphi1 When
petitioner Arco Pulp and Papers obligation to respondent
became due and demandable, she not only issued an
unfunded check but also contracted with a third party in an
effort to shift petitioner Arco Pulp and Papers liability. She
unjustifiably refused to honor petitioner corporations
obligations to respondent. These acts clearly amount to bad
faith. In this instance, the corporate veil may be pierced, and
petitioner Santos may be held solidarily liable with petitioner
Arco Pulp and Paper.
The rate of interest due on
the obligation must be
reduced in view of Nacar v.
Gallery Frames58
In view, however, of the promulgation by this court of the
decision dated August 13, 2013 in Nacar v. Gallery
Frames,59 the rate of interest due on the obligation must be
modified from 12% per annum to 6% per annum from the
time of demand.
Nacar effectively amended the guidelines stated in Eastern
Shipping v. Court of Appeals,60 and we have laid down the
following guidelines with regard to the rate of legal interest:
To recapitulate and for future guidance, the guidelines laid
down in the case of Eastern Shipping Linesare accordingly
modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The
provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until
the demand can be established with reasonable
certainty. Accordingly, where the demand is
established with reasonable certainty, the interest
shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but

when such certainty cannot be so reasonably

established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to have
been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case,
be on the amount finally adjudged.

According to these guidelines, the interest due on the

obligation of P7,220,968.31 should now be at 6% per annum,
computed from May 5, 2007, when respondent sent his letter
of demand to petitioners. This interest shall continue to be
due from the finality of this decision until its full satisfaction.

3. When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a
forbearance of credit.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos
are hereby ordered solidarily to pay respondent Dan T. Lim the
amount of P7,220,968.31 with interest of 6% per annum at
the time of demand until finality of judgment and its full
satisfaction, with moral damages in the amount
of P50,000.00, exemplary damages in the amount
of P50,000.00, and attorney's fees in the amount
of P50,000.00.

And, in addition to the above, judgments that have become

final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of
interest fixed therein.61 (Emphasis supplied; citations omitted.)

WHEREFORE, the petition is DENIED in part. The decision in

CA-G.R. CV No. 95709 is AFFIRMED.

SO ORDERED.