G.R. No.

149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner,

vs.
ALEX A. JAUCIAN, respondent.
Iniquitous and unconscionable stipulations
on interest rates, penalties and attorneys
fees are contrary to morals. Consequently,
courts are granted authority to reduce them
equitably. If reasonably exercised, such
authority shall not be disturbed by appellate
courts.
The Case
Before us is a Petition for Review1 under
Rule 45 of the Rules of Court, assailing the
July 19, 2000 Decision2 and the June 14,
2001 Resolution3 of the Court of Appeals
(CA) in CA-GR CV No. 43635. The decretal
portion of the Decision is as follows:
"WHEREFORE, premises considered, the
appealed Decision of the Regional Trial
Court, 5th Judicial Region, Branch 21, Naga
City, dated August 31, 1993, in Civil Case
No. 89-1911 for Sum of Money, is hereby
AFFIRMED in toto."4
The assailed Resolution denied petitioners
Motion for Reconsideration.
The dispositive portion of the August 31,
1993 Decision, promulgated by the
Regional Trial Court (RTC) of Naga City
(Branch 21) and affirmed by the CA, reads
as follows:
"Wherefore, Judgment is hereby rendered
declaring Section I, Central Bank Circular
No. 905, series of 1982 to be of no force
and legal effect, it having been promulgated
by the Monetary Board of the Central Bank
of the Philippines with grave abuse of
discretion amounting to excess of
jurisdiction; declaring that the rate of
interest, penalty, and charges for attorneys
fees agreed upon between the parties are
unconscionable, iniquitous, and in violation
of Act No. 2655, otherwise known as the
Usury Law, as amended; and ordering
Defendant to pay Plaintiff the amount of
FOUR
HUNDRED
SEVENTY-EIGHT
THOUSAND, ONE HUNDRED NINETYFOUR and 54/100 (P478,194.54) PESOS,
Philippine currency, with regular and
compensatory interests thereon at the rate
of twenty-eight (28%) per centum per
annum, computed from August 31, 1993
until full payment of the said amount, and in
addition, an amount equivalent to ten (10%)
per centum of the total amount due and
payable, for attorneys fees, without
pronouncement as to costs."5

When the said loans became overdue and

unpaid, especially when the defendants
checks were dishonored, plaintiff made
repeated oral and written demands for
payment.
"Specifically, the six (6) separate loans
obtained by defendant from plaintiff on
various dates are as follows:
(a) November 13, 1987
P 50,000.00
(b) December 28, 1987
40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total
P320,000.00
"The loans were covered by six (6) separate
promissory notes executed by defendant.
The face value of each promissory notes is
bigger [than] the amount released to
defendant because said face value already
include[d] the interest from date of note to
date of maturity. Said promissory notes,
which indicate the interest of 16% per
month, date of issue, due date, the
corresponding guarantee checks issued by
defendant, penalties and attorneys fees,
are the following:
1. Exhibit D for loan of P40,000.00 on
December 28, 1987, with face value of
P65,000.00;
2. Exhibit E for loan of P50,000.00 on
January 11, 1988, with face value of
P82,000.00;
3. Exhibit F for loan of P50,000.00 on
January 12, 1988, with face value of
P82,000.00;
4. Exhibit G for loan of P100,000.00 on
January 13, 1988, with face value of
P164,000.00;
5. Exhibit H This particular promissory
note covers the second renewal of the
original loan of P50,000.00 on November
13, 1987, which was renewed for the first
time on March 16, 1988 after certain
payments, and which was renewed finally
for the second time on January 4, 1988 also
after certain payments, with a face value of
P56,240.00;
6. Exhibit I This particular promissory
note covers the second renewal of the
original loan of P30,000.00 on January 6,
1988, which was renewed for the first time
on June 4, 1988 after certain payments, and
which was finally renewed for the second
time on August 6, 1988, also after certain
payments, with [a] face value of
P12,760.00;

The Facts
The CA summarized the facts of the case in
this wise:
"The present controversy arose from a case
for collection of money, filed by Alex A.
Jaucian against Restituta Imperial, on
October 26, 1989. The complaint alleges,
inter alia, that defendant obtained from
plaintiff six (6) separate loans for which the
former executed in favor of the latter six (6)
separate promissory notes and issued
several checks as guarantee for payment.

"The particulars about the postdated

checks, i.e., number, amount, date, etc., are
indicated in each of the promissory notes.
Thus, for Exhibit D, four (4) PB checks
were issued; for Exhibit E four (4) checks;
for Exhibit F four (4) checks; for Exhibit G
four (4) checks; for Exhibit H one (1) check;
for Exhibit I one (1) check;
"The arrangement between plaintiff and
defendant regarding these guarantee
checks was that each time a check matures
the defendant would exchange it with cash.

Page 1 of 109

"Although, admittedly, defendant made

several payments, the same were not
enough and she always defaulted whenever
her loans mature[d]. As of August 16, 1991,
the total unpaid amount, including accrued
interest, penalties and attorneys fees, [was]
P2,807,784.20.
"On the other hand, defendant claims that
she was extended loans by the plaintiff on
several occasions, i.e., from November 13,
1987 to January 13, 1988, in the total sum
of P320,000.00 at the rate of sixteen
percent (16%) per month. The notes
mature[d] every four (4) months with
unearned interest compounding every four
(4) months if the loan [was] not fully paid.
The loan releases [were] as follows:
(a) November 13, 1987
P 50,000.00
(b) December 28, 1987
40,000.00
(c) January 6, 1988 30,000.00
(d) January 11, 1988 50,000.00
(e) January 12, 1988 50,000.00
(f) January 13, 1988 100,000.00
Total
P320,000.00
"The loan on November 13, 1987 and
January 6, 1988 ha[d] been fully paid
including the usurious interests of 16% per
month, this is the reason why these were
not included in the complaint.
"Defendant alleges that all the above
amounts were released respectively by
checks drawn by the plaintiff, and the latter
must produce these checks as these were
returned to him being the drawer if only to
serve the truth. The above amount are the
real amount released to the defendant but
the plaintiff by masterful machinations made
it appear that the total amount released was
P462,600.00. Because in his computation
he made it appear that the true amounts
released was not the original amount, since
it include[d] the unconscionable interest for
four months.
"Further, defendant claims that as of
January 25, 1989, the total payments made
by defendants [were] as follows:
a. Paid releases on November 13, 1987 of
P50,000.00 and January 6, 1988 of
P30,000.00 these two items were not
included in the complaint affirming the fact
that these were paid P 80,000.00
b. Exhibit 26 Receipt
231,000.00
c. Exhibit 8-25 Receipt
65,300.00
d. Exhibit 27 Receipt
65,000.00
Total
P441,780.00
Less:
320,000.00
Excess Payment
P121,780.00
"Defendant contends that from all
perspectives the above excess payment of
P121,780.00 is more than the interest that
could be legally charged, and in fact as of
January 25, 1989, the total releases have
been fully paid.
"On 31 August 1993, the trial court rendered
the assailed decision."6
Ruling of the Court of Appeals
On appeal, the CA held that without judicial
inquiry, it was improper for the RTC to rule

on the constitutionality of Section 1, Central

Bank Circular No. 905, Series of 1982.
Nonetheless, the appellate court affirmed
the judgment of the trial court, holding that
the latters clear and detailed computation of
petitioners outstanding
obligation
to
respondent was convincing and satisfactory.

dates. These findings are supported by a

preponderance of evidence. Moreover, the
amount of the outstanding obligation has
been meticulously computed by the trial
court and affirmed by the CA. Petitioner has
not given us sufficient reason why her
cause falls under any of the exceptions to
this rule on the finality of factual findings.

Hence, this Petition.7

Second Issue:
The Issues

the parties stipulated penalty charge of 5

percent per month or 60 percent per annum,
in addition to regular interests and
attorneys fees. Also, there was partial
performance by petitioner when she
remitted P116,540 as partial payment of her
principal obligation of P320,000. Under the
circumstances, the trial court was justified in
reducing the stipulated penalty charge to
the more equitable rate of 14 percent per
annum.

Rate of Interest
Petitioner raises the following arguments for
our consideration:
"1. That the petitioner has fully paid her
obligations even before filing of this case.
"2. That the charging of interest of twentyeight (28%) per centum per annum without
any writing is illegal.
"3. That charging of excessive attorneys
fees is hemorrhagic.
"4. Charging of excessive penalties per
month is in the guise of hidden interest.
"5. The non-inclusion of the husband of the
petitioner at the time the case was filed
should have dismissed this case."8
The Courts Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the
loan before the filing of the case, petitioner
alleges that the two lower courts
misappreciated the facts when they ruled
that she still had an outstanding balance of
P208,430.
This issue involves a question of fact. Such
question exists when a doubt or difference
arises as to the truth or the falsehood of
alleged facts; and when there is need for a
calibration of the evidence, considering
mainly the credibility of witnesses and the
existence and the relevancy of specific
surrounding circumstances, their relation to
each other and to the whole, and the
probabilities of the situation.9
It is a well-entrenched rule that pure
questions of fact may not be the subject of
an appeal by certiorari under Rule 45 of the
Rules of Court, as this remedy is generally
confined to questions of law.10 The
jurisdiction of this Court over cases brought
to it is limited to the review and rectification
of errors of law allegedly committed by the
lower court. As a rule, the latters factual
findings, when adopted and affirmed by the
CA, are final and conclusive and may not be
reviewed on appeal.11
Generally, this Court is not required to
analyze and weigh all over again the
evidence already considered in the
proceedings below.12 In the present case,
we find no compelling reason to overturn
the factual findings of the RTC -- that the
total amount of the loans extended to
petitioner was P320,000, and that she paid
a total of only P116,540 on twenty-nine

The trial court, as affirmed by the CA,

reduced the interest rate from 16 percent to
1.167 percent per month or 14 percent per
annum; and the stipulated penalty charge,
from 5 percent to 1.167 percent per month
or 14 percent per annum.
Petitioner alleges that absent any written
stipulation between the parties, the lower
courts should have imposed the rate of 12
percent per annum only.
The records show that there was a written
agreement between the parties for the
payment of interest on the subject loans at
the rate of 16 percent per month. As
decreed by the lower courts, this rate must
be equitably reduced for being iniquitous,
unconscionable and exorbitant. "While the
Usury Law ceiling on interest rates was
lifted by C.B. Circular No. 905, nothing in
the said circular grants lenders carte
blanche authority to raise interest rates to
levels which will either enslave their
borrowers or lead to a hemorrhaging of their
assets."13
In Medel v. CA,14 the Court found the
stipulated interest rate of 5.5 percent per
month, or 66 percent per annum,
unconscionable. In the present case, the
rate is even more iniquitous and
unconscionable, as it amounts to 192
percent per annum. When the agreed rate is
iniquitous
or
unconscionable,
it
is
considered "contrary to morals, if not
against the law. [Such] stipulation is void."15

The Promissory Note carried a stipulation

for attorneys fees of 25 percent of the
principal amount and accrued interests.
Strictly speaking, this covenant on
attorneys fees is different from that
mentioned in and regulated by the Rules of
Court.18 "Rather, the attorneys fees here
are in the nature of liquidated damages and
the stipulation therefor is aptly called a
penal clause."19 So long as the stipulation
does not contravene the law, morals, public
order or public policy, it is binding upon the
obligor. It is the litigant, not the counsel, who
is the judgment creditor entitled to enforce
the judgment by execution.
Nevertheless, it appears that petitioners
failure to comply fully with her obligation
was not motivated by ill will or malice. The
twenty-nine partial payments she made
were a manifestation of her good faith.
Again, Article 1229 of the Civil Code
specifically empowers the judge to reduce
the civil penalty equitably, when the principal
obligation has been partly or irregularly
complied with. Upon this premise, we hold
that the RTCs reduction of attorneys fees -from 25 percent to 10 percent of the total
amount due and payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioners Husband
Petitioner contends that the case against
her should have been dismissed, because
her husband was not included in the
proceedings before the RTC.

Since the stipulation on the interest rate is

void, it is as if there were no express
contract thereon.16 Hence, courts may
reduce the interest rate as reason and
equity demand. We find no justification to
reverse or modify the rate imposed by the
two lower courts.

We are not persuaded. The husbands nonjoinder does not warrant dismissal, as it is
merely a formal requirement that may be
cured by amendment.20 Since petitioner
alleges that her husband has already
passed away, such an amendment has thus
become moot.

Third and Fourth Issue:

WHEREFORE, the Petition is DENIED.

Costs against petitioner.

Penalties and Attorneys Fees

Article 1229 of the Civil Code states thus:
"The judge shall equitably reduce the
penalty when the principal obligation has
been partly or irregularly complied with by
the debtor. Even if there has been no
performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable."
In exercising this power to determine what
is iniquitous and unconscionable, courts
must consider the circumstances of each
case.17 What may be iniquitous and
unconscionable in one may be totally just
and equitable in another. In the present
case, iniquitous and unconscionable was

Page 2 of 109

G.R. No. 172139

2010

December 8,

JOCELYN M. TOLEDO, Petitioner,

vs.
MARILOU M. HYDEN, Respondent.
It is true that the imposition of an
unconscionable rate of interest on a money
debt is immoral and unjust and the court
may come to the aid of the aggrieved party
to that contract. However, before doing so,
courts have to consider the settled principle
that the law will not relieve a party from the
effects of an unwise, foolish or disastrous
contract if such party had full awareness of
what she was doing.

This Petition for Review on Certiorari1

assails the Decision2 dated August 24,
2005 of the Court of Appeals (CA) in CAG.R. CV No. 79805, which affirmed the
Decision dated March 10, 20033 of the
Regional Trial Court (RTC), Branch 22,
Cebu City in Civil Case No. CEB-22867.
Also assailed is the
Resolution dated March 8, 2006 denying the
motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who
was then the Vice-President of the College
Assurance Plan (CAP) Phils., Inc., obtained
several loans from respondent Marilou M.
Hyden (Marilou). The transactions are
briefly summarized below:
1) August 15, 1993 P 30,000.00
with 6% monthly interest
2) April 21, 1994
100,000.00
3) October 2, 1995 30,000.00
4) October 9, 1995 30,000.00
5) May 22, 1997
100,000.00
with 7% monthly interest
TOTAL AMOUNT OF LOAN P
290,000.00 4
From August 15, 1993 up to December 31,
1997, Jocelyn had been religiously paying
Marilou the stipulated monthly interest by
issuing checks and depositing sums of
money in the bank account of the latter.
However, the total principal amount of
P290,000.00 remained unpaid. Thus, in
April 1998, Marilou visited Jocelyn in her
office at CAP in Cebu City and asked
Jocelyn and the other employees who were
likewise indebted to her to acknowledge
their
debts.
A
document
entitled
"Acknowledgment of Debt"5 for the amount
of P290,000.00 was signed by Jocelyn with
two of her subordinates as witnesses. The
said amount represents the principal
consolidated amount of the aforementioned
previous debts due on December 25, 1998.
Also on said occasion, Jocelyn issued five
checks to Marilou representing renewal
payment of her five previous loans, viz:
Check No. 0010761 dated September 2,
1998
.........
P 30,000.00
Check No. 0010762 dated September 9,
1998
.........
30,000.00
Check No. 0010763 dated September 15,
1998
.........
30,000.00
Check No. 0010764 dated September 22,
1998
.........
100,000.00
Check No. 0010765 dated September 25,
1998
.........
100,000.00
TOTAL P 290,000.00
In June 1998, Jocelyn asked Marilou for the
recall of Check No. 0010761 in the amount
of P30,000.00 and replaced the same with
six checks, in staggered amounts, namely:
Check No. 0010494 dated July 2, 1998 . . . .
.....
P 6,625.00
Check No. 0010495 dated August 2, 1998
.........
6,300.00
Check No. 0010496 dated September 2,
1998
.........
5,975.00
Check No. 0010497 dated October 2, 1998
.........
6,500.00
Check No. 0010498 dated November 2,
1998
.........
5,325.00
Check No. 0010499 dated December 2,
1998
.........
5,000.00

TOTAL P 35,725.00
After honoring Check Nos. 0010494,
0010495 and 0010496, Jocelyn ordered the
stop payment on the remaining checks and
on October 27, 1998, filed with the RTC of
Cebu City a complaint6 against Marilou for
Declaration of Nullity and Payment,
Annulment, Sum of Money, Injunction and
Damages.
Jocelyn averred that Marilou forced,
threatened and intimidated her into signing
the "Acknowledgment of Debt" and at the
same time forced her to issue the seven
postdated checks. She claimed that Marilou
even threatened to sue her for violation of
Batas Pambansa (BP) Blg. 22 or the
Bouncing Checks Law if she will not sign
the said document and draw the abovementioned checks. Jocelyn further claimed
that the application of her total payment of
P528,550.00 to interest alone is illegal,
unfounded, unjust, oppressive and contrary
to law because there was no written
agreement to pay interest.
On November 23, 1998, Marilou filed an
Answer7 with Special Affirmative Defenses
and Counterclaim alleging that Jocelyn
voluntarily obtained the said loans knowing
fully well that the interest rate was at 6% to
7% per month. In fact, a 6% to 7% advance
interest was already deducted from the loan
amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing
that Jocelyn was forced, threatened, or
intimidated in signing the document referred
to as "Acknowledgment of Debt" and in
issuing the postdated checks. Thus, in its
March 10, 2003 Decision the trial court ruled
in favor of Marilou, viz:
WHEREFORE, premised on the foregoing,
the Court hereby declares the document
"Acknowledgment of Debt" valid and
binding. PLAINTIFF is indebted to
DEFENDANT [for] the amount of TWO
HUNDRED
NINETY
THOUSAND
(P290,000.00) PESOS since December 25,
1998 less the amount of EIGHTEEN
THOUSAND NINE HUNDRED (P18,900.00)
PESOS, equivalent to the three checks
made good (P6,625.00 dated 07-02-1998;
P6,300.00
dated
08-02-1998;
and
P5,975.00 dated 09-02-1998).

On appeal, Jocelyn asserts that she had

made payments in the total amount of
P778,000.00 for a principal amount of loan
of only P290,000.00. What is appalling,
according to Jocelyn, was that such
payments covered only the interest because
of the excessive, iniquitous, unconscionable
and exorbitant imposition of the 6% to 7%
monthly interest.
On August 24, 2005, the CA issued its
Decision which provides:
WHEREFORE, premises considered, the
Decision dated March 10, 2003 and the
Order dated April 29, 2003, of the Regional
Trial Court, 7th Judicial Region, Branch 22,
Cebu City, in Civil Case No. CEB-22867 are
hereby AFFIRMED. No pronouncement as
to costs.
SO ORDERED.11
The Motion for Reconsideration12 filed by
Jocelyn was denied by the CA through its
Resolution13 dated March 8, 2006.
Issues
Hence, this petition raising the following
issues:
I.
Whether the CA gravely erred when it held
that the imposition of interest at the rate of
six percent (6%) to seven percent (7%) is
not contrary to law, morals, good customs,
public order or public policy.
II.
Whether the CA gravely erred when it failed
to declare that the "Acknowledgment of
Debt" is an inexistent contract that is void
from the very beginning pursuant to Article
1409 of the New Civil Code.
Petitioners Arguments

No pronouncement as to costs.

Jocelyn posits that the CA erred when it

held that the imposition of interest at the
rates of 6% to 7% per month is not contrary
to law, not unconscionable and not contrary
to morals. She likewise contends that the
CA erred in ruling that the "Acknowledgment
of Debt" is valid and binding. According to
Jocelyn, even assuming that the execution
of said document was not attended with
force, threat and intimidation, the same
must nevertheless be declared null and void
for being contrary to law and public policy.
This is borne out by the fact that the
payments in the total amount of
P778,000.00 was applied to interest
payment alone. This only proves that the
transaction was iniquitous, excessive,
oppressive and unconscionable.

SO ORDERED.8

Respondents Arguments

On March 26, 2003, Jocelyn filed an

Earnest Motion for Reconsideration,9 which
was denied by the trial court in its Order10
dated April 29, 2003 stating that it finds no
sufficient reason to disturb its March 10,
2003 Decision.

On the other hand, Marilou would like this

Court to consider the fact that the document
referred to as "Acknowledgment of Debt"
was executed in the safe surroundings of
the office of Jocelyn and it was witnessed by
two of her staff. If at all there had been
coercion, then Jocelyn could have easily
prevented her staff from affixing their

Consequently, PLAINTIFF
is
hereby
ordered to pay DEFENDANT the amount of
TWO
HUNDRED
SEVENTY
ONE
THOUSAND
ONE
HUNDRED
(P271,100.00) PESOS due on December
25, 1998 with a 12% interest per annum or
1% interest per month until such time that
the said amount shall have been fully paid.

Ruling of the Court of Appeals

Page 3 of 109

signatures to said document. In fact,

petitioner had admitted that she was the
one who went to the tables of her staff to let
them sign the said document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by
Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s.
1982, which suspended the Usury Law
ceiling on interest effective January 1, 1983,
parties to a loan agreement have wide
latitude
to
stipulate
interest
rates.
Nevertheless, such stipulated interest rates
may be declared as illegal if the same is
unconscionable.14 There is certainly
nothing in said circular which grants lenders
carte blanche authority to raise interest
rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their
assets.15 In fact, in Medel v. Court of
Appeals,16 we annulled a stipulated 5.5%
per month or 66% per annum interest with
additional service charge of 2% per annum
and penalty charge of 1% per month on a
P500,000.00 loan for being excessive,
iniquitous, unconscionable and exorbitant.
In this case, however, we cannot consider
the disputed 6% to 7% monthly interest rate
to be iniquitous or unconscionable vis--vis
the principle laid down in Medel. Noteworthy
is the fact that in Medel, the defendantspouses were never able to pay their
indebtedness from the very beginning and
when their obligations ballooned into a
staggering sum, the creditors filed a
collection case against them. In this case,
there was no urgency of the need for money
on the part of Jocelyn, the debtor, which
compelled her to enter into said loan
transactions. She used the money from the
loans to make advance payments for
prospective clients of educational plans
offered by her employer. In this way, her
sales production would increase, thereby
entitling her to 50% rebate on her sales.
This is the reason why she did not mind the
6% to 7% monthly interest. Notably too, a
business transaction of this nature between
Jocelyn and Marilou continued for more
than five years. Jocelyn religiously paid the
agreed amount of interest until she ordered
for stop payment on some of the checks
issued to Marilou. The checks were in fact
sufficiently funded when she ordered the
stop payment and then filed a case
questioning the imposition of a 6% to 7%
interest rate for being allegedly iniquitous or
unconscionable and, hence, contrary to
morals.
It was clearly shown that before Jocelyn
availed of said loans, she knew fully well
that the same carried with it an interest rate
of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said
loans, an advance interest of 6% to 7% was
already deducted from the loan amount, yet
she never uttered a word of protest.
After years of benefiting from the proceeds
of the loans bearing an interest rate of 6%
to 7% per month and paying for the same,
Jocelyn cannot now go to court to have the

said interest rate annulled on the ground

that
it
is
excessive,
iniquitous,
unconscionable, exorbitant, and absolutely
revolting to the conscience of man. "This is
so because among the maxims of equity are
(1) he who seeks equity must do equity, and
(2) he who comes into equity must come
with clean hands. The latter is a frequently
stated maxim which is also expressed in the
principle that he who has done inequity shall
not have equity. It signifies that a litigant
may be denied relief by a court of equity on
the ground that his conduct has been
inequitable, unfair and dishonest, or
fraudulent, or deceitful as to the controversy
in issue." 17
We are convinced that Jocelyn did not come
to court for equitable relief with equity or
with clean hands. It is patently clear from
the above summary of the facts that the
conduct of Jocelyn can by no means be
characterized as nobly fair, just, and
reasonable. This Court likewise notes
certain acts of Jocelyn before filing the case
with the RTC. In September 1998, she
requested Marilou not to deposit her checks
as she can cover the checks only the
following month. On the next month,
Jocelyn again requested for another
extension of one month. It turned out that
she was only sweet-talking Marilou into
believing that she had no money at that
time. But as testified by Serapio
Romarate,18 an employee of the Bank of
Commerce where Jocelyn is one of their
clients, there was an available balance of
P276,203.03 in the latters account and yet
she ordered for the stop payments of the
seven checks which can actually be
covered by the available funds in said
account. She then caught Marilou by
surprise when she surreptitiously filed a
case for declaration of nullity of the
document and for damages.
The document "Acknowledgment of Debt" is
valid and binding.
Jocelyn seeks for the nullification of the
document entitled "Acknowledgment of
Debt" and wants this Court to declare that
she is no longer indebted to Marilou in the
amount of P290,000.00 as she had already
paid a total amount of P778,000.00. She
claims that said document is an inexistent
contract that is void from the very beginning
as clearly provided for by Article 140919 of
the New Civil Code.
Jocelyn further claims that she signed the
said document and issued the seven
postdated
checks
because
Marilou
threatened to sue her for violation of BP Blg.
22.
Jocelyn is misguided. Even if there was
indeed such threat made by Marilou, the
same is not considered as threat that would
vitiate consent. Article 1335 of the New Civil
Code is very specific on this matter. It
provides:
Art. 1335. There is violence when in order to
wrest consent, serious or irresistible force is
employed.
xxxx

Page 4 of 109

A threat to enforce ones claim through

competent authority, if the claim is just or
legal, does not vitiate consent. (Emphasis
supplied.)
Clearly, we cannot grant Jocelyn the relief
she seeks.
As can be seen from the records of the
case, Jocelyn has failed to prove her claim
that she was made to sign the document
"Acknowledgment of Debt" and draw the
seven Bank of Commerce checks through
force, threat and intimidation. As earlier
stressed, said document was signed in the
office of Jocelyn, a high ranking executive of
CAP, and it was Jocelyn herself who went to
the table of her two subordinates to procure
their signatures as witnesses to the
execution of said document. If indeed, she
was forced to sign said document, then
Jocelyn should have immediately taken the
proper legal remedy. But she did not.
Furthermore, it must be noted that after the
execution of said document, Jocelyn
honored the first three checks before filing
the complaint with the RTC. If indeed she
was forced she would never have made
good on the first three checks.
It is provided, as one of the conclusive
presumptions under Rule 131, Section 2(a),
of the Rules of Court that, "Whenever a
party has, by his own declaration, act or
omission, intentionally and deliberately led
another to believe a particular thing to be
true, and to act upon such belief, he cannot,
in any litigation arising out of such
declaration, act or omission, be permitted to
falsify it." This is known as the principle of
estoppel.
"The essential elements of estoppel are: (1)
conduct amounting to false representation
or concealment of material facts or at least
calculated to convey the impression that the
facts are otherwise than, and inconsistent
with, those which the party subsequently
attempts to assert; (2) intent, or at least
expectation, that this conduct shall be acted
upon by, or at least influence, the other
party; and, (3) knowledge, actual or
constructive, of the real facts."20
Here, it is uncontested that Jocelyn had in
fact signed the "Acknowledgment of Debt"
in April 1998 and two of her subordinates
served as witnesses to its execution,
knowing fully well the nature of the contract
she was entering into. Next, Jocelyn issued
five checks in favor of Marilou representing
renewal payment of her loans amounting to
P290,000.00. In June 1998, she asked to
recall Check No. 0010761 in the amount of
P30,000.00 and replaced the same with six
checks, in staggered amounts. All these are
indicia
that
Jocelyn
treated
the
"Acknowledgment of Debt" as a valid and
binding contract.1avvphi1
More significantly, Jocelyn already availed
herself
of
the
benefits
of
the
"Acknowledgment of Debt," the validity of
which she now impugns. As aptly found by
the RTC and the CA, Jocelyn was making a
business out of the loaned amounts. She
was actually using the money to make
advance payments for her prospective
clients so that her sales production would
increase. Accordingly, she did not mind the

6% to 7% interest per month as she was

getting a 50% rebate on her sales.

MILLION was available for domestic bills

purchase.

Clearly, by her own acts, Jocelyn is

estopped from impugning the validity of the
"Acknowledgment of Debt." "[A] party to a
contract cannot deny the validity thereof
after enjoying its benefits without outrage to
ones sense of justice and fairness."21 "It is
a long established doctrine that the law
does not relieve a party from the effects of
an unwise, foolish or disastrous contract,
entered into with all the required formalities
and with full awareness of what she was
doing. Courts have no power to relieve
parties
from
obligations
voluntarily
assumed, simply because their contracts
turned out to be disastrous or unwise
investments."22

To secure the aforesaid loan, PERMANENT

HOMES initially mortgaged three (3)
townhouse units within the Buena Vida
project in Paraaque. At the time, however,
the instant complaint was filed against
SOLIDBANK, a total of thirty six (36)
townhouse units were mortgaged with said
bank.

WHEREFORE, the instant petition for

review on certiorari is DENIED. The
Decision of the Court of Appeals in CA-G.R.
CV No. 79805 dated August 24, 2005
affirming the Decision dated March 10, 2003
of the Regional Trial Court, Branch 22,
Cebu City, in Civil Case No. CEB-22867 is
AFFIRMED.

5. We/I irrevocably authorize Solidbank to

increase or decrease at any time the
interest rate agreed in this Note or Loan on
the basis of, among others, prevailing rates
in the local or international capital markets.
For this purpose, We/I authorize Solidbank
to debit any deposit or placement account
with Solidbank belonging to any one of us.
The adjustment of the interest rate shall be
effective from the date indicated in the
written notice sent to us by the bank, or if no
date is indicated, from the time the notice
was sent.

SO ORDERED.
G.R. No. 171925

July 23, 2010

SOLIDBANK
CORPORATION,
(now
Metropolitan Bank and Trust Company),
Petitioner,
vs.
PERMANENT HOMES, INCORPORATED,
Respondent.
G.R. No. 171925 is a petition for review1
assailing the Decision2 promulgated on 29
June 2005 by the Court of Appeals
(appellate court) as well as the Resolution3
promulgated on 14 March 2006 in CA-G.R.
CV No. 75926. The appellate court granted
the petition filed by Permanent Homes,
Incorporated (Permanent) and reversed the
decision of the Regional Trial Court of
Makati City, Branch 58 (trial court) dated 5
July 2002 in Civil Case No. 98-654. The
appellate
court
ordered
Solidbank
Corporation (Solidbank) and Permanent to
enter into an express agreement about the
applicable interest rates on Permanents
loan. Solidbank was also ordered to render
an accounting of Permanents payments,
not to impose interest on interest upon
Permanents loans, and to release the
remaining
amount
available
under
Permanents omnibus credit line.
The Facts
The appellate court narrated the facts as
follows:
The records disclose that PERMANENT
HOMES is a real estate development
company, and to finance its housing project
known as the "Buena Vida Townhomes"
located
within
Merville
Subdivision,
Paraaque City, it applied and was
subsequently granted by SOLIDBANK with
an "Omnibus Line" credit facility in the total
amount of SIXTY MILLION PESOS. Of the
entire loan, FIFTY NINE MILLION as [sic]
time loan for a term of up to three hundred
sixty (360) days, with interest thereon at
prevailing market rates, and subject to
monthly repricing. The remaining ONE

Of the 60 million available to PERMANENT

HOMES, it availed of a total of 41.5 million
pesos, covered by three (3) promissory
notes, which contain the following
provisions, thus:
"xxx

6. Should We/I disagree to the interest rate

adjustment, We/I shall prepay all amounts
due under this Note or Loan within thirty
(30) days from the receipt by anyone of us
of the written notice. Otherwise, We/I shall
be deemed to have given our consent to the
interest rate adjustment."
Contrary, however, to the specific provisions
as afore-quoted, there was a standing
agreement by the parties that any increase
or decrease in interest rates shall be subject
to the mutual agreement of the parties.
For the first loan availment of PERMANENT
HOMES on March 20, 1997, in the amount
of 19.6 MILLION, from the initial interest
rate of 14.25% per annum (p.a.), the same
was increased 15% p.a. effective May 19,
1997; it was again increased to 26% p.a.
effective July 18, 1997. It was thereafter
reduced to 20% p.a. effective August 18,
1997, and then increased to 24% p.a.
effective September 17, 1997. The rate was
increased further to 30% p.a. effective
October 17, 1997, then decreased to 27%
p.a. on November 17, 1997, and again
increased to 34% p.a. effective December
17, 1997. The rate then decreased to 30%
p.a. on January 16, 1998.
For the second loan availment in the
amount of 18 million, the rate was initially
pegged at 15.75% p.a. on June 24, 1997. A
month later, the rate increased to 23.5%
p.a. It thereafter decreased to 20% p.a.
effective August 24, 1997, but again
increased
to
22.5%
p.a.
effective
September 24, 1997. For the next month,
the rate surged to 30% p.a., and decreased
to 27% p.a. for the month of November. The
rate again surged to 34% p.a. for the month
of December, and was decreased to 30%
p.a. from January 22, 1998 to February 20,
1998.

Page 5 of 109

For the third loan availment on July 15,

1997, in the amount of 3.9 million, the
interest rate was initially pegged at 35%
p.a., but this was decreased to 21% p.a.
from August 14 until September 11, 1997.
The rate increased slightly to 23% p.a. on
September 12, 1997, and surged to 27%
p.a. on October 13, 1997. The rate went
down slightly to 27% p.a. for the month of
November, and to 26% p.a. for the month of
December. The rate, however, again surged
to 30% p.a. on January 12, 1998 before
settling at 29% p.a. for the month of
February.
It is [Permanents] stand that SOLIDBANK
unilaterally and arbitrarily accelerated the
interest rates without any declared basis of
such increases, of which PERMANENT
HOMES had not agreed to, or at the very
least, been informed of. This is contrary to
their earlier agreement that any interest rate
changes will be subject to mutual
agreement of the parties. PERMANENT
HOMES further admits that it was not able
to protest such arbitrary increases at the
time they were imposed by SOLIDBANK, for
fear that SOLIDBANK might cut off the
credit facility it extended to PERMANENT
HOMES. Permanent was then in the midst
of the construction of its project in Merville,
Paraaque City, and SOLIDBANK knew that
it was relying substantially on the credit
facility the latter extended to it.
[Permanent] thus filed a case before the trial
court seeking the following: (1) the
annulment of the increases in interest rates
on the loans it obtained from SOLIDBANK,
on the ground that it was violative of the
principle of mutuality of agreement of the
parties, as enunciated in Article 1409 of the
New Civil Code, (2) the fixing of the interest
rates at the applicable interest rate, and (3)
for the trial court to order SOLIDBANK to
make an accounting of the payments it
made, so as to determine the amount of
refund PERMANENT is entitled to, as well
as to order SOLIDBANK to release the
remaining available balance of the loan it
extended to PERMANENT. In addition,
[Permanent] prays for the payment of
compensatory, moral and exemplary
damages.
SOLIDBANK, on the other hand, avers that
PERMANENT HOMES has no cause of
action against it, in view of the pertinent
provisions of the Omnibus Credit Line and
the promissory notes agreed to and signed
by PERMANENT HOMES. Thus, in
accordance
with
said
provisions,
SOLIDBANK was authorized to, upon due
notice, periodically adjust the interest rates
on PERMANENT HOMES loan availments
during the monthly interest repricing dates,
depending on the changes in prevailing
interest rates in the local and international
capital markets. In fact, SOLIDBANK avers
that four (4) days before July 15, 1997, the
Bangko Sentral ng Pilipinas (BSP) declared
that it could no longer support the Philippine
currency from external speculative forces,
hence, the local currency was allowed to
seek its own exchange rate level. As a
result of the volatile exchange rate ratio,
banks were then hesitant to extend loans,
and in some instances that it granted loans,
they had to ensure that they will not be at
the losing end of the deal, so to speak, by

the repricing of the interest rates every

month.
SOLIDBANK
insists
that
PERMANENT HOMES should not be
allowed to renege on its contractual
obligations, as it freely and voluntarily
bound itself to the provisions of the
Omnibus Credit Line and the promissory
notes.

Engr. Rey A. Romasanta. According to Engr.

Rey, the target date of completion was
August 1997, but in view of the shortage of
funds by reason of SOLIDBANKs refusal for
PERMANENT HOMES to make further
availments on its omnibus credit line, the
project was completed only on February
1998.

PERMANENT HOMES presented as

witnesses Jacqueline S. Lim, its Vice
President and Chief Financial Officer, Engr.
Rey A. Romasanta, its Executive Vice
President and Chief Operating Officer, and
Martha Julia Flores, its Treasury Officer.

PERMANENT HOMES third and final

witness was Martha Julia Flores, its
Treasury Officer, who explained that as
such, it was her who received the late
billings from SOLIDBANK. She would also
call up SOLIDBANK to ask what the
repriced interest rate for the coming interest
period, to no avail, as SOLIDBANK will
merely fax its billings almost always, as
abovementioned, late in the period. Ms.
Flores admitted that she prepared the
tabulation presented before the court, which
showed how late SOLIDBANKs billings
were sent to PERMANENT HOMES, as well
as the computation of interest rates that
SOLIDBANK had allegedly overcharged on
its loan, vis-a-vis the average of the high
and the low published lending rates of
SOLIDBANK.

Counterclaim is likewise dismissed for lack

of evidence to support the same.
SO ORDERED.5
Permanent filed an appeal before the
appellate court.
The Appellate Courts Ruling

On March 24, 1998, the trial court issued a

temporary restraining order (TRO), after a
summary
hearing,
which
enjoined
SOLIDBANK from implementing and
collecting the increases in interest rates and
from initiating any action, including the
foreclosure of the mortgaged properties.
Ms.
Lims
testimony
centered
on
PERMANENT HOMES allegations that the
repricing of the interest rates was done by
SOLIDBANK without any written agreement
entered into between the parties. In fact,
Ms. Lim accounted that SOLIDBANK will
merely advise them of the interest rate for
the period, after said period had already
commenced, and at times very late in the
period,
by
fax
messages.
When
PERMANENT
HOMES
called
SOLIDBANKs attention to the seemingly
surging rates it imposed on its loan,
SOLIDBANK will merely answer that it was
the banks policy, without offering any basis
for such increase. Furthermore, Ms. Lim
also mentioned SOLIDBANKs alleged
practice of imposing interest on unpaid
interest, at the highest rate of 30% p.a.. Ms.
Lim also presented a tabulation, which
presents the number of days their billing
statements were sent late, from the time the
interest period started. It is PERMANENT
HOMES stand that since the purpose of the
billing statements was to inform them
beforehand of the applicable interest rate for
the period, the late billings will clearly show
SOLIDBANKs arbitrary imposition of the
repriced interest rates, as well as its
indifference to PERMANENT HOMES
plight.
To illustrate, for the first loan availment in
the amount of P19.6 million, the billing
statements which should have notified
PERMANENT HOMES of the repriced
interest rates were faxed to PERMANENT
HOMES between eighteen (18) to thirtythree (33) days late. For the second loan
availment in the amount of P18 million, the
faxed billings were late between six (6) to
twenty-one (21) days, and one instance
where PERMANENT HOMES received no
billing at all. For the third loan availment in
the amount of P3.9 million, the faxed billings
were late between seven (7) to twenty-nine
(29) days, and also an instance where
PERMANENT HOMES received no billing at
all.
This practice, according to Ms. Lim, clearly
affected its operations, as the completion of
its construction project was unnecessarily
delayed, to its prejudice and its buyers. This
was the import of the testimony of
PERMANENT HOMES second witness,

SOLIDBANK, to establish its defense,

presented its lone witness, Mr. Cesar Lugtu,
who testified to the effect that, contrary to
PERMANENT HOMES assertions that it
was not promptly informed of the repriced
interest rates, SOLIDBANKs officers
verbally advised PERMANENT HOMES of
the repriced rates at the start of the period,
and even added that their transaction[s]
were based on trust. Aside from these
allegations,
however,
no
written
memorandum or note was presented by
SOLIDBANK to support their assertion that
PERMANENT HOMES was timely advised
of the repriced interests.4

The appellate court granted Permanents

appeal, and set aside the trial courts ruling.
The appellate court not only recognized the
validity of escalation clauses, but also
underscored the necessity of a basis for the
increase in interest rates and of the principle
of mutuality of contracts.
The dispositive portion of the appellate
courts decision reads, thus:
THE FOREGOING CONSIDERED, the
instant appeal is hereby GRANTED, the
assailed decision dated July 5, 2002 is
REVERSED and SET ASIDE, and a new
one is hereby entered as follows:
(1) Unless the parties herein subsequently
enter into an express agreement regarding
the
applicable
interest
rates
on
PERMANENT HOMES loan availments
subsequent to the initial thirty-day (30)
period, the legal rate of twelve percent
(12%) per annum is hereby FIXED, to be
applied on the outstanding balance of the
loan;
(2) SOLIDBANK is ordered to render an
accounting of all the payments made by
PERMANENT HOMES, and in case there is
excess payment by reason of the wrongful
imposition of the repriced interest rates, to
apply such amount to the interest payment
at the legal rate, and thereafter to the
outstanding principal amount;

The Trial Courts Ruling

On 5 July 2002, the trial court promulgated
its Decision in favor of Solidbank. The trial
court ratiocinated and ruled thus:
It becomes crystal clear that there is
sufficient proof to show that the instant case
was instituted by [Permanent] as an afterthought and as an obvious subterfuge
intended to completely lay on the defendant
the blame for the debacle of its Buena Vida
project. An afterthought because the
records of the case show that the complaint
was filed in March 16, 1998, already after it
was
having
difficulty
making
the
amortization payments, the last of which
being in February 1998. A subterfuge
because plaintiff, instead of blaming itself
and its own business judgment that went
sour, would rather put the blame on
[Solidbank], taking advantage of every
conceivable gray area of its contract with
[Solidbank] to avoid its own liabilities. In
fact, this complaint was made the very basis
for [Permanent] to altogether stop the
payment of its loan from [Solidbank]
including the interest payment (TSN, May
07, 1998, p. 60).

(3) SOLIDBANK is directed not to impose

penalties, particularly interest on interest,
upon PERMANENT HOMES loan, there
being no evidence that the latter was in
default on its payments;
(4) SOLIDBANK is hereby ordered to
release the remaining amount available
under the omnibus credit line, subject,
however, to availability of funds on the part
of SOLIDBANK.
No pronouncement as to costs.
SO ORDERED.6
The appellate court resolved to deny
Solidbanks Motion for Reconsideration for
lack of merit.7
The Issues
Solidbank raised the following issues in their
petition:

xxxx

(A) Whether the Honorable Court of Appeals

was correct in ruling that the increases in
the interest rates on [Permanents] loans
are void for having been unilaterally
imposed without basis.

WHEREFORE, finding the complaint not

impressed with merit, judgment is hereby
rendered dismissing the said complaint. The

(B) Whether the Honorable Court of Appeals

was correct in ordering the parties to enter
into an express agreement regarding the

Page 6 of 109

applicable interest rates on Permanents

loan availments subsequent to the initial
thirty-day (30) period.
(C) Whether the Honorable Court of
Appeals was correct in ruling that
[Permanent] is entitled to attorneys fees
notwithstanding the absence of bad faith or
malice on the part of [Solidbank].8
The Courts Ruling
The petition has merit.
The Usury Law had been rendered legally
ineffective by Resolution No. 224 dated 3
December 1982 of the Monetary Board of
the Central Bank, and later by Central Bank
Circular No. 905 which took effect on 1
January 1983. These circulars removed the
ceiling on interest rates for secured and
unsecured loans regardless of maturity. The
effect of these circulars is to allow the
parties to agree on any interest that may be
charged on a loan. The virtual repeal of the
Usury Law is within the range of judicial
notice which courts are bound to take into
account.9 Although interest rates are no
longer subject to a ceiling, the lender still
does not have an unbridled license to
impose increased interest rates. The lender
and the borrower should agree on the
imposed rate, and such imposed rate
should be in writing.
The three promissory notes between
Solidbank and Permanent all contain the
following provisions:
5. We/I irrevocably authorize Solidbank to
increase or decrease at any time the
interest rate agreed in this Note or Loan on
the basis of, among others, prevailing rates
in the local or international capital markets.
For this purpose, We/I authorize Solidbank
to debit any deposit or placement account
with Solidbank belonging to any one of us.
The adjustment of the interest rate shall be
effective from the date indicated in the
written notice sent to us by the bank, or if no
date is indicated, from the time the notice
was sent.
6. Should We/I disagree to the interest rate
adjustment, We/I shall prepay all amounts
due under this Note or Loan within thirty
(30) days from the receipt by anyone of us
of the written notice. Otherwise, We/I shall
be deemed to have given our consent to the
interest rate adjustment.
The stipulations on interest rate repricing
are valid because (1) the parties mutually
agreed on said stipulations; (2) repricing
takes effect only upon Solidbanks written
notice to Permanent of the new interest
rate; and (3) Permanent has the option to
prepay its loan if Permanent and Solidbank
do not agree on the new interest rate. The
phrases "irrevocably authorize," "at any
time" and "adjustment of the interest rate
shall be effective from the date indicated in
the written notice sent to us by the bank, or
if no date is indicated, from the time the
notice
was
sent,"
emphasize
that
Permanent should receive a written notice
from Solidbank as a condition for the
adjustment of the interest rates.

In order that obligations arising from

contracts may have the force of law
between the parties, there must be a
mutuality between the parties based on their
essential equality.10 A contract containing a
condition which makes its fulfillment
dependent
exclusively
upon
the
uncontrolled will of one of the contracting
parties is void.11 There was no showing that
either Solidbank or Permanent coerced
each other to enter into the loan
agreements. The terms of the Omnibus Line
Agreement and the promissory notes were
mutually and freely agreed upon by the
parties.
Moreover, Solidbanks range of lending
rates were consistent with "prevailing rates
in the local or international capital markets."
Permanent presented a tabulation12 of the
range of Solidbanks lending rates, as
reported to Bangko Sentral ng Pilipinas and
compared the lending rates with the interest
rates charged by Solidbank on Permanents
loans, thus:
Solidbanks range of lending rates as per
BSP records
High
Low
Interest rates charged
by Solidbank on Permanents loans
Excess Interest Rate Over the Average
of High and Low Rates
Sept. 12, 1997
25.0% 22.0%
23.0%
Sept. 17, 1997
27.0% 24.0%
24.0%
Sept. 22, 1997
26.0% 23.0%
22.5%
Oct. 13, 1997
29.0% 26.0%
28.0%
Oct. 17, 1997
30.0% 27.0%
30.0%
Oct. 22, 1997
32.0% 29.0%
30.0%
Nov. 12, 1997
28.0% 25.0%
27.0%
Nov. 17, 1997
28.0% 25.0%
27.0%
Nov. 21, 1997
27.0% 24.0%
27.0%
Dec. 12, 1997
25.0% 23.0%
26.0% 2.0%
Dec. 17, 1997
25.0% 23.0%
34.0% 10.0%
Dec. 22, 1997
25.0% 23.0%
32.0% 8.0%
Jan. 12, 1998
26.0% 24.0%
30.0% 5.0%
Jan. 16, 1998
28.0% 25.0%
30.0% 3.5%
Jan. 22, 1998
28.0% 25.0%
30.0% 3.5%
Feb. 9, 1998
27.0% 24.0%
30.0% 3.5%
Feb. 11, 1998
27.0% 24.0%
29.0% 4.5%
Feb. 12, 1998
27.0% 24.0%
30.0% 4.5%
The repriced interest rates from 12
September to 21 November 1997
conformed to the range of Solidbanks
lending rates to other borrowers. The 12
December 1997 to 12 February 1998
repriced
interest
rates
were
not
unconscionably out of line with the upper
range of lending rates to other borrowers.
The interest rate repricing happened at the
height of the Asian financial crises in late
1997, when banks clamped down on
lendings because of higher credit risks

Page 7 of 109

across industries, particularly the real estate

industry.
We also recognize that Solidbank admitted
that it did not promptly send Permanent
written repriced rates, but rather verbally
advised Permanents officers over the
phone at the start of the period. Solidbank
did not present any written memorandum to
support its allegation that it promptly
advised Permanent of the change in interest
rates.13 Solidbank advised Permanent on
the repriced interest rate applicable for the
30-day interest period only after the period
had begun. Permanent presented a
tabulation which showed that Solidbank
either did not send a billing statement, or
sent a billing statement 6 to 33 days late.14
We reproduce the tabulation below:
PN #435 P19.6MM
Reference No.
Interest Period Date
Billing Statements were faxed to Permanent
Number of days Billing Statement was
Late
1 03/20/97 04/18/97 04/17/97 28
2 04/18/97 05/19/97 05/16/97 28
05/19/97 06/19/97
no statement
received
3 06/19/97 07/18/97 07/12/97 23
4 07/18/97 08/18/97 08/05/97 18
5 08/18/97 09/17/97 09/10/97 23
6 09/17/97 10/17/97 10/06/97 19
7 10/17/97 11/17/97 11/11/97 25
8 11/17/97 12/17/97 12/12/97 25
9 12/17/97 01/16/98 01/09/98 23
14 01/16/98 02/20/98 02/18/98 33
PN #969 P18MM
Reference No.
Interest Period Date
Billing Statements were faxed to Permanent
Number of days Billing Statement was
Late
3 06/24/97 07/24/97 07/12/97 18
4 07/24/97 08/22/97 08/05/97 12
5 08/22/97 09/22/97 09/10/97 19
6 09/22/97 10/22/97 10/06/97 14
7 10/22/97 11/21/97 11/11/97 20
8 11/21/97 12/22/97 12/12/97 21
9 12/22/97 01/22/98 01/09/98 18
01/22/98 02/12/97
no statement
received
14 02/12/98 02/20/98 02/18/98 6
PN #1077 P3.9MM
Reference No.
Interest Period Date
Billing Statements were faxed to Permanent
Number of days Billing Statement was
Late
10 07/15/97 08/14/97 08/14/97 30
11 08/14/97 08/26/97 08/26/97 12
5 08/26/97 09/12/97 09/10/97 15
6 09/12/97 10/13/97 10/06/97 24
7 10/13/97 11/12/97 11/11/97 29
12 11/12/97 12/12/97 12/10/97 28
9 12/12/97 01/12/98 01/09/98 28
13 01/12/98 02/09/98 02/09/98 28
02/09/98 02/11/98
no statement
received
14 02/11/98 03/13/98 02/18/98 7
We rule that Solidbanks computation of the
interest due from Permanent should be
adjusted to take effect only upon
Permanents receipt of the written notice
from Solidbank.1avvphi1
WHEREFORE, we GRANT the petition in
part. We SET ASIDE the Decision of the
Court of Appeals promulgated on 29 June
2005 as well as the Resolution promulgated

on 14 March 2006 in CA-G.R. CV No.

75926 and AFFIRM the decision of the
Regional Trial Court of Makati City, Branch
58 dated 5 July 2002 in Civil Case No. 98654 with the MODIFICATION that the
repricing of the interest rates should take
effect only upon Permanent Homes,
Incorporateds receipt of the written notice
from Solidbank Corporation of the
adjustment in interest rate. The records of
this case are therefore remanded to the trial
court for the computation of the proper
interest payments based on the dates of
receipt of written notice.
G.R. No. 189871

August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR
BORDEY, JR., RESPONDENTS.

FELIPE

This is a petition for review on certiorari

assailing the Decision1 dated September
23, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 98591, and the
Resolution2 dated October 9, 2009 denying
petitioners motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for
constructive dismissal before the Arbitration
Branch of the National Labor Relations
Commission (NLRC) against respondents
Gallery Frames (GF) and/or Felipe Bordey,
Jr., docketed as NLRC NCR Case No. 0100519-97.
On October 15, 1998, the Labor Arbiter
rendered a Decision3 in favor of petitioner
and found that he was dismissed from
employment without a valid or just cause.
Thus, petitioner was awarded backwages
and separation pay in lieu of reinstatement
in the amount of P158,919.92. The
dispositive portion of the decision, reads:
With the foregoing, we find and so rule that
respondents failed to discharge the burden
of showing that complainant was dismissed
from employment for a just or valid cause.
All the more, it is clear from the records that
complainant was never afforded due
process before he was terminated. As such,
we are perforce constrained to grant
complainants prayer for the payments of
separation pay in lieu of reinstatement to his
former position, considering the strained
relationship between the parties, and his
apparent reluctance to be reinstated,
computed only up to promulgation of this
decision as follows:
SEPARATION PAY
Date Hired =
August 1990
Rate
=
P198/day
Date of Decision
=
Aug.
18,
1998
Length of Service
=
8 yrs. & 1
month
P198.00 x 26 days x 8 months =
P41,184.00
BACKWAGES
Date Dismissed
=
January 24,
1997
Rate per day
=
P196.00
Date of Decisions
=
Aug.
18,
1998
a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

= P62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day
= P62,986.00
P198.00 x 26 days x 6.4 mos. = P32,947.20
T O T A L = P95.933.76
xxxx
WHEREFORE,
premises
considered,
judgment is hereby rendered finding
respondents guilty of constructive dismissal
and are therefore, ordered:
To pay jointly and severally the complainant
the amount of sixty-two thousand nine
hundred eighty-six pesos and 56/100
(P62,986.56) Pesos representing his
separation pay;
To pay jointly and severally the complainant
the amount of nine (sic) five thousand nine
hundred
thirty-three
and
36/100
(P95,933.36) representing his backwages;
and
All other claims are hereby dismissed for
lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it
was dismissed for lack of merit in the
Resolution5 dated February 29, 2000.
Accordingly, the NLRC sustained the
decision of the Labor Arbiter. Respondents
filed a motion for reconsideration, but it was
denied.6
Dissatisfied, respondents filed a Petition for
Review on Certiorari before the CA. On
August 24, 2000, the CA issued a
Resolution
dismissing
the
petition.
Respondents
filed
a
Motion
for
Reconsideration, but it was likewise denied
in a Resolution dated May 8, 2001.7
Respondents then sought relief before the
Supreme Court, docketed as G.R. No.
151332. Finding no reversible error on the
part of the CA, this Court denied the petition
in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued
certifying that the resolution became final
and executory on May 27, 2002.9 The case
was, thereafter, referred back to the Labor
Arbiter. A pre-execution conference was
consequently scheduled, but respondents
failed to appear.10
On November 5, 2002, petitioner filed a
Motion for Correct Computation, praying
that his backwages be computed from the
date of his dismissal on January 24, 1997
up to the finality of the Resolution of the
Supreme Court on May 27, 2002.11 Upon
recomputation, the Computation and
Examination Unit of the NLRC arrived at an
updated
amount
in
the
sum
of
P471,320.31.12
On December 2, 2002, a Writ of
Execution13 was issued by the Labor
Arbiter ordering the Sheriff to collect from
respondents
the
total
amount
of
P471,320.31. Respondents filed a Motion to
Quash Writ of Execution, arguing, among
other things, that since the Labor Arbiter
awarded separation pay of P62,986.56 and
limited backwages of P95,933.36, no more
recomputation is required to be made of the

Page 8 of 109

said awards. They claimed that after the

decision becomes final and executory, the
same cannot be altered or amended
anymore.14 On January 13, 2003, the
Labor Arbiter issued an Order15 denying
the motion. Thus, an Alias Writ of
Execution16 was issued on January 14,
2003.
Respondents again appealed before the
NLRC, which on June 30, 2003 issued a
Resolution17 granting the appeal in favor of
the
respondents
and
ordered
the
recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment
was issued declaring the Resolution of the
NLRC to be final and executory.
Consequently,
another
pre-execution
conference was held, but respondents failed
to appear on time. Meanwhile, petitioner
moved that an Alias Writ of Execution be
issued to enforce the earlier recomputed
judgment
award
in
the
sum
of
P471,320.31.18
The records of the case were again
forwarded to the Computation and
Examination Unit for recomputation, where
the judgment award of petitioner was
reassessed to be in the total amount of only
P147,560.19.
Petitioner then moved that a writ of
execution be issued ordering respondents
to pay him the original amount as
determined by the Labor Arbiter in his
Decision dated October 15, 1998, pending
the final computation of his backwages and
separation pay.
On January 14, 2003, the Labor Arbiter
issued an Alias Writ of Execution to satisfy
the judgment award that was due to
petitioner in the amount of P147,560.19,
which petitioner eventually received.
Petitioner then filed a Manifestation and
Motion praying for the re-computation of the
monetary award to include the appropriate
interests.19
On May 10, 2005, the Labor Arbiter issued
an Order20 granting the motion, but only up
to the amount of P11,459.73. The Labor
Arbiter reasoned that it is the October 15,
1998 Decision that should be enforced
considering that it was the one that became
final and executory. However, the Labor
Arbiter reasoned that since the decision
states that the separation pay and
backwages are computed only up to the
promulgation of the said decision, it is the
amount of P158,919.92 that should be
executed. Thus, since petitioner already
received P147,560.19, he is only entitled to
the balance of P11,459.73.
Petitioner then appealed before the
NLRC,21 which appeal was denied by the
NLRC in its Resolution22 dated September
27, 2006. Petitioner filed a Motion for
Reconsideration, but it was likewise denied
in the Resolution23 dated January 31, 2007.
Aggrieved, petitioner then sought recourse
before the CA, docketed as CA-G.R. SP No.
98591.

On September 23, 2008, the CA rendered a

Decision24 denying the petition. The CA
opined that since petitioner no longer
appealed the October 15, 1998 Decision of
the Labor Arbiter, which already became
final and executory, a belated correction
thereof is no longer allowed. The CA stated
that there is nothing left to be done except
to enforce the said judgment. Consequently,
it can no longer be modified in any respect,
except to correct clerical errors or mistakes.
Petitioner
filed
a
Motion
for
Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE
COURT
OF APPEALS
SERIOUSLY
ERRED, COMMITTED GRAVE ABUSE OF
DISCRETION AND DECIDED CONTRARY
TO
LAW
IN
UPHOLDING
THE
QUESTIONED RESOLUTIONS OF THE
NLRC WHICH, IN TURN, SUSTAINED THE
MAY 10, 2005 ORDER OF LABOR
ARBITER
MAGAT
MAKING
THE
DISPOSITIVE
PORTION
OF
THE
OCTOBER 15, 1998 DECISION OF LABOR
ARBITER LUSTRIA SUBSERVIENT TO AN
OPINION EXPRESSED IN THE BODY OF
THE SAME DECISION.26
Petitioner argues that notwithstanding the
fact that there was a computation of
backwages in the Labor Arbiters decision,
the same is not final until reinstatement is
made or until finality of the decision, in case
of an award of separation pay. Petitioner
maintains that considering that the October
15, 1998 decision of the Labor Arbiter did
not become final and executory until the
April 17, 2002 Resolution of the Supreme
Court in G.R. No. 151332 was entered in
the Book of Entries on May 27, 2002, the
reckoning point for the computation of the
backwages and separation pay should be
on May 27, 2002 and not when the decision
of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits
that he is also entitled to the payment of
interest from the finality of the decision until
full payment by the respondents.
On their part, respondents assert that since
only separation pay and limited backwages
were awarded to petitioner by the October
15, 1998 decision of the Labor Arbiter, no
more recomputation is required to be made
of said awards. Respondents insist that
since the decision clearly stated that the
separation pay and backwages are
"computed only up to [the] promulgation of
this decision," and considering that
petitioner no longer appealed the decision,
petitioner is only entitled to the award as
computed by the Labor Arbiter in the total
amount of P158,919.92. Respondents
added that it was only during the execution
proceedings that the petitioner questioned
the award, long after the decision had
become final and executory. Respondents
contend that to allow the further
recomputation of the backwages to be
awarded to petitioner at this point of the
proceedings would substantially vary the
decision of the Labor Arbiter as it violates
the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of
Session Delights Ice Cream and Fast Foods
v. Court of Appeals (Sixth Division),27
wherein the issue submitted to the Court for
resolution was the propriety of the
computation of the awards made, and
whether this violated the principle of
immutability of judgment. Like in the present
case, it was a distinct feature of the
judgment of the Labor Arbiter in the abovecited case that the decision already
provided for the computation of the payable
separation pay and backwages due and did
not further order the computation of the
monetary awards up to the time of the
finality of the judgment. Also in Session
Delights, the dismissed employee failed to
appeal the decision of the labor arbiter. The
Court clarified, thus:
In concrete terms, the question is whether a
re-computation in the course of execution of
the labor arbiter's original computation of
the awards made, pegged as of the time the
decision was rendered and confirmed with
modification by a final CA decision, is legally
proper. The question is posed, given that
the petitioner did not immediately pay the
awards stated in the original labor arbiter's
decision; it delayed payment because it
continued with the litigation until final
judgment at the CA level.
A
source
of
misunderstanding
in
implementing the final decision in this case
proceeds from the way the original labor
arbiter framed his decision. The decision
consists essentially of two parts.
The first is that part of the decision that
cannot now be disputed because it has
been confirmed with finality. This is the
finding of the illegality of the dismissal and
the awards of separation pay in lieu of
reinstatement, backwages, attorney's fees,
and legal interests.
The second part is the computation of the
awards made. On its face, the computation
the labor arbiter made shows that it was
time-bound as can be seen from the figures
used in the computation. This part, being
merely a computation of what the first part
of the decision established and declared,
can, by its nature, be re-computed. This is
the part, too, that the petitioner now posits
should no longer be re-computed because
the computation is already in the labor
arbiter's decision that the CA had affirmed.
The public and private respondents, on the
other hand, posit that a re-computation is
necessary because the relief in an illegal
dismissal decision goes all the way up to
reinstatement if reinstatement is to be
made, or up to the finality of the decision, if
separation pay is to be given in lieu
reinstatement.
That the labor arbiter's decision, at the
same time that it found that an illegal
dismissal had taken place, also made a
computation
of
the
award,
is
understandable in light of Section 3, Rule
VIII of the then NLRC Rules of Procedure
which requires that a computation be made.
This Section in part states:

Page 9 of 109

[T]he Labor Arbiter of origin, in cases

involving monetary awards and at all
events, as far as practicable, shall embody
in any such decision or order the detailed
and full amount awarded.
Clearly
implied
from
this
original
computation is its currency up to the finality
of the labor arbiter's decision. As we noted
above, this implication is apparent from the
terms of the computation itself, and no
question would have arisen had the parties
terminated the case and implemented the
decision at that point.
However, the petitioner disagreed with the
labor arbiter's findings on all counts - i.e., on
the finding of illegality as well as on all the
consequent awards made. Hence, the
petitioner appealed the case to the NLRC
which, in turn, affirmed the labor arbiter's
decision. By law, the NLRC decision is final,
reviewable only by the CA on jurisdictional
grounds.
The petitioner appropriately sought to nullify
the NLRC decision on jurisdictional grounds
through a timely filed Rule 65 petition for
certiorari. The CA decision, finding that
NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity,
lapsed to finality and was subsequently
returned to the labor arbiter of origin for
execution.
It was at this point that the present case
arose. Focusing on the core illegal dismissal
portion of the original labor arbiter's
decision, the implementing labor arbiter
ordered the award re-computed; he
apparently read the figures originally
ordered to be paid to be the computation
due had the case been terminated and
implemented at the labor arbiter's level.
Thus, the labor arbiter re-computed the
award to include the separation pay and the
backwages due up to the finality of the CA
decision that fully terminated the case on
the merits. Unfortunately, the labor arbiter's
approved computation went beyond the
finality of the CA decision (July 29, 2003)
and included as well the payment for
awards the final CA decision had deleted specifically, the proportionate 13th month
pay and the indemnity awards. Hence, the
CA issued the decision now questioned in
the present petition.
We see no error in the CA decision
confirming that a re-computation is
necessary as it essentially considered the
labor
arbiter's
original
decision
in
accordance with its basic component parts
as we discussed above. To reiterate, the
first part contains the finding of illegality and
its monetary consequences; the second part
is the computation of the awards or
monetary consequences of the illegal
dismissal, computed as of the time of the
labor arbiter's original decision.28
Consequently, from the above disquisitions,
under the terms of the decision which is
sought to be executed by the petitioner, no
essential
change
is
made
by
a
recomputation as this step is a necessary
consequence that flows from the nature of
the illegality of dismissal declared by the
Labor Arbiter in that decision.29 A
recomputation (or an original computation, if

no previous computation has been made) is

a part of the law specifically, Article 279 of
the Labor Code and the established
jurisprudence on this provision that is read
into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add
up until full satisfaction, as expressed under
Article 279 of the Labor Code. The
recomputation of the consequences of
illegal dismissal upon execution of the
decision does not constitute an alteration or
amendment of the final decision being
implemented. The illegal dismissal ruling
stands; only the computation of monetary
consequences of this dismissal is affected,
and this is not a violation of the principle of
immutability of final judgments.30
That the amount respondents shall now pay
has greatly increased is a consequence that
it cannot avoid as it is the risk that it ran
when it continued to seek recourses against
the Labor Arbiter's decision. Article 279
provides for the consequences of illegal
dismissal in no uncertain terms, qualified
only by jurisprudence in its interpretation of
when separation pay in lieu of reinstatement
is allowed. When that happens, the finality
of the illegal dismissal decision becomes
the reckoning point instead of the
reinstatement that the law decrees. In
allowing separation pay, the final decision
effectively declares that the employment
relationship ended so that separation pay
and backwages are to be computed up to
that point.31
Finally, anent the payment of legal interest.
In the landmark case of Eastern Shipping
Lines, Inc. v. Court of Appeals,32 the Court
laid down the guidelines regarding the
manner of computing legal interest, to wit:
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 12% 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.
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 12% per
annum from such finality until its
satisfaction, this interim period being
deemed to be by then an equivalent to a
forbearance of credit.33
Recently, however, the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 234 of
Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35
Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
The Monetary Board, in its Resolution No.
796 dated 16 May 2013, approved the
following revisions governing the rate of
interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or
forbearance of any money, goods or credits
and the rate allowed in judgments, in the
absence of an express contract as to such
rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection
X305.136 of the Manual of Regulations for
Banks and Sections 4305Q.1,37 4305S.338
and 4303P.139 of the Manual of
Regulations
for
Non-Bank
Financial
Institutions
are
hereby
amended
accordingly.
This Circular shall take effect on 1 July
2013.
Thus, from the foregoing, in the absence of
an express stipulation as to the rate of
interest that would govern the parties, the
rate of legal interest for loans or
forbearance of any money, goods or credits
and the rate allowed in judgments shall no
longer be twelve percent (12%) per annum as reflected in the case of Eastern Shipping
Lines40 and Subsection X305.1 of the
Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of
the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment
by BSP-MB Circular No. 799 - but will now
be six percent (6%) per annum effective
July 1, 2013. It should be noted,
nonetheless, that the new rate could only be
applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per
annum legal interest shall apply only until
June 30, 2013. Come July 1, 2013 the new
rate of six percent (6%) per annum shall be
the prevailing rate of interest when
applicable.
Corollarily, in the recent case of Advocates
for Truth in Lending, Inc. and Eduardo B.
Olaguer v. Bangko Sentral Monetary
Board,41 this Court affirmed the authority of

Page 10 of 109

the BSP-MB to set interest rates and to

issue and enforce Circulars when it ruled
that "the BSP-MB may prescribe the
maximum rate or rates of interest for all
loans or renewals thereof or the
forbearance of any money, goods or credits,
including those for loans of low priority such
as consumer loans, as well as such loans
made by pawnshops, finance companies
and similar credit institutions. It even
authorizes the BSP-MB to prescribe
different maximum rate or rates for different
types of borrowings, including deposits and
deposit substitutes, or loans of financial
intermediaries."
Nonetheless, with regard to those
judgments that have become final and
executory prior to July 1, 2013, said
judgments shall not be disturbed and shall
continue to be implemented applying the
rate of interest fixed therein.1awp++i1
To recapitulate and for future guidance, the
guidelines laid down in the case of Eastern
Shipping Lines42 are 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.1wphi1
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:
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.
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.

to pay his loan with his time deposit with the

latter in the amount of P300,000.00.

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.

On December 22, 1989, petitioners spouses

Florentino and Aurea Mallari (petitioners)
obtained again from respondent bank
another loan of P1.7 million as evidenced by
PN No. BDS 606-895 with a maturity date of
March 22, 1990. They stipulated that the
loan will bear 23% interest p.a., attorney's
fees equivalent to 15% p.a. of the total
amount due, but not less than P200.00, and
penalty and collection charges of 12% p.a.
Petitioners executed a Deed of Real Estate
Mortgage6 in favor of respondent bank
covering petitioners' property under Transfer
Certificate of Title (TCT) No. T-215175 of
the Register of Deeds of Tarlac to answer
for the said loan.

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.
WHEREFORE, premises considered, the
Decision dated September 23, 2008 of the
Court of Appeals in CA-G.R. SP No. 98591,
and the Resolution dated October 9, 2009
are REVERSED and SET ASIDE.
Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time
petitioner was illegally dismissed on
January 24, 1997 up to May 27, 2002, when
the Resolution of this Court in G.R. No.
151332 became final and executory;
(2) separation pay computed from August
1990 up to May 27, 2002 at the rate of one
month pay per year of service; and
(3) interest of twelve percent (12%) per
annum of the total monetary awards,
computed from May 27, 2002 to June 30,
2013 and six percent (6%) per annum from
July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to
make another recomputation of the total
monetary benefits awarded and due to
petitioner in accordance with this Decision.
.
G.R. No. 197861
June 5, 2013
SPOUSES FLORENTINO T. MALLARI and
AUREA V. MALLARI, Petitioners,
vs.
PRUDENTIAL BANK (now BANK OF THE
PHILIPPINE ISLANDS), Respondent.
Before us is a Petition for Review
Certiorari under Rule 45, assailing
Decision1 dated June 17, 2010 and
Resolution2 dated July 20, 2011 of
Court of Appeals (CA) in CA-G.R. CV
65993.

on
the
the
the
No.

The antecedent facts are as follows:

On December 11, 1984, petitioner
Florentino T. Mallari (Florentino) obtained
from respondent Prudential Bank-Tarlac
Branch (respondent bank), a loan in the
amount of P300,000.00 as evidenced by
Promissory Note (PN) No. BD 84-055.3
Under the promissory note, the loan was
subject to an interest rate of 21% per
annum (p.a.), attorney's fees equivalent to
15% of the total amount due but not less
than P200.00 and, in case of default, a
penalty and collection charges of 12% p.a.
of the total amount due. The loan had a
maturity date of January 10, 1985, but was
renewed up to February 17, 1985. Petitioner
Florentino executed a Deed of Assignment4
wherein he authorized the respondent bank

Petitioners failed to settle their loan

obligations with respondent bank, thus, the
latter, through its lawyer, sent a demand
letter to the former for them to pay their
obligations, which when computed up to
January
31,
1992,
amounted
to
P571,218.54 for PN No. BD 84-055 and
P2,991,294.82 for PN No. BDS 606-89.
On February 25, 1992, respondent bank
filed with the Regional Trial Court (RTC) of
Tarlac, a petition for the extrajudicial
foreclosure of petitioners' mortgaged
property for the satisfaction of the latter's
obligation of P1,700,000.00 secured by
such mortgage, thus, the auction sale was
set by the Provincial Sheriff on April 23,
1992.7
On April 10, 1992, respondent bank's
Assistant Manager sent petitioners two (2)
separate Statements of Account as of April
23, 1992, i.e., the loan of P300,000.00 was
increased to P594,043.54, while the
P1,700,000.00
loan
was
already
P3,171,836.18.
On April 20, 1992, petitioners filed a
complaint for annulment of mortgage,
deeds, injunction, preliminary injunction,
temporary restraining order and damages
claiming, among others, that: (1) the
P300,000.00 loan obligation should have
been considered paid, because the time
deposit with the same amount under
Certificate of Time Deposit No. 284051 had
already been assigned to respondent bank;
(2) respondent bank still added the
P300,000.00 loan to the P1.7 million loan
obligation for purposes of applying the
proceeds of the auction sale; and (3) they
realized that there were onerous terms and
conditions imposed by respondent bank
when it tried to unilaterally increase the
charges and interest over and above those
stipulated. Petitioners asked the court to
restrain respondent bank from proceeding
with the scheduled foreclosure sale.
Respondent bank filed its Answer with
counterclaim arguing that: (1) the interest
rates were clearly provided in the
promissory notes, which were used in
computing for interest charges; (2) as early
as January 1986, petitioners' time deposit
was made to apply for the payment of
interest of their P300,000.00 loan; and (3)
the statement of account as of April 10,
1992 provided for a computation of interest
and penalty charges only from May 26,

Page 11 of 109

1989, since the proceeds of petitioners' time

deposit was applied to the payment of
interest and penalty charges for the
preceding period. Respondent bank also
claimed that petitioners were fully apprised
of the bank's terms and conditions; and that
the extrajudicial foreclosure was sought for
the satisfaction of the second loan in the
amount of P1.7 million covered by PN No.
BDS 606-89 and the real estate mortgage,
and not the P300,000.00 loan covered by
another PN No. 84-055.
In an Order8 dated November 10, 1992, the
RTC denied the Application for a Writ of
Preliminary
Injunction.
However,
in
petitioners'
Supplemental
Motion
for
Issuance of a Restraining Order and/or
Preliminary Injunction to enjoin respondent
bank and the Provincial Sheriff from
effecting or conducting the auction sale, the
RTC reversed itself and issued the
restraining order in its Order9 dated January
14, 1993.
Respondent bank filed its Motion to Lift
Restraining Order, which the RTC granted in
its Order10 dated March 9, 1993.
Respondent bank then proceeded with the
extrajudicial foreclosure of the mortgaged
property. On July 7, 1993, a Certificate of
Sale was issued to respondent bank being
the highest bidder in the amount of
P3,500,000.00.
Subsequently, respondent bank filed a
Motion to Dismiss Complaint11 for failure to
prosecute action for unreasonable length of
time to which petitioners filed their
Opposition.12 On November 19, 1998, the
RTC issued its Order13 denying respondent
bank's Motion to Dismiss Complaint.
Trial thereafter ensued. Petitioner Florentino
was presented as the lone witness for the
plaintiffs. Subsequently, respondent bank
filed a Demurrer to Evidence.
On November 15, 1999, the RTC issued its
Order14 granting respondent's demurrer to
evidence, the dispositive portion of which
reads:
WHEREFORE, this case is hereby ordered
DISMISSED. Considering there is no
evidence of bad faith, the Court need not
order the plaintiffs to pay damages under
the general concept that there should be no
premium on the right to litigate.
NO COSTS.
SO ORDERED.15
The RTC found that as to the P300,000.00
loan, petitioners had assigned petitioner
Florentino's time deposit in the amount of
P300,000.00 in favor of respondent bank,
which maturity coincided with petitioners'
loan maturity. Thus, if the loan was unpaid,
which was later extended to February 17,
1985, respondent bank should had just
applied the time deposit to the loan.
However, respondent bank did not, and
allowed the loan interest to accumulate
reaching the amount of P594,043.54 as of
April 10, 1992, hence, the amount of
P292,600.00 as penalty charges was unjust
and without basis.

As to the P1.7 million loan which petitioners

obtained from respondent bank after the
P300,000.00 loan, it had reached the
amount of P3,171,836.18 per Statement of
Account dated April 27, 1993, which was
computed based on the 23% interest rate
and 12% penalty charge agreed upon by
the parties; and that contrary to petitioners'
claim, respondent bank did not add the
P300,000.00 loan to the P1.7 million loan
obligation for purposes of applying the
proceeds of the auction sale.
The RTC found no legal basis for
petitioners' claim that since the total
obligation was P1.7 million and respondent
bank's bid price was P3.5 million, the latter
should return to petitioners the difference of
P1.8 million. It found that since petitioners'
obligation had reached P2,991,294.82 as of
January 31, 1992, but the certificate of sale
was executed by the sheriff only on July 7,
1993, after the restraining order was lifted,
the stipulated interest and penalty charges
from January 31, 1992 to July 7, 1993
added to the loan already amounted to P3.5
million as of the auction sale.
The RTC found that the 23% interest rate
p.a., which was then the prevailing loan rate
of interest could not be considered
unconscionable, since banks are not
hospitable or equitable institutions but are
entities formed primarily for profit. It also
found that Article 1229 of the Civil Code
invoked by petitioners for the reduction of
the interest was not applicable, since
petitioners had not paid any single centavo
of the P1.7 million loan which showed they
had not complied with any part of the
obligation.
Petitioners appealed the RTC decision to
the CA. A Comment was filed by respondent
bank and petitioners filed their Reply
thereto.
On June 17, 2010, the CA issued its
assailed Decision, the dispositive portion of
which reads:
WHEREFORE, the instant appeal is hereby
DENIED. The Order dated November 15,
1999 issued by the Regional Trial Court
(RTC), Branch 64, Tarlac City, in Civil Case
No. 7550 is hereby AFFIRMED.16
The CA found that the time deposit of
P300,000.00 was equivalent only to the
principal amount of the loan of P300,000.00
and would not be sufficient to cover the
interest, penalty, collection charges and
attorney's fees agreed upon, thus, in the
Statement of Account dated April 10, 1992,
the outstanding balance of petitioners' loan
was P594,043.54. It also found not
persuasive petitioners' claim that the
P300,000.00 loan was added to the P1.7
million loan. The CA, likewise, found that
the interest rates and penalty charges
imposed were not unconscionable and
adopted in toto the findings of the RTC on
the matter.
Petitioners
filed
their
Motion
for
Reconsideration, which the CA denied in a
Resolution dated July 20, 2011.

Hence, petitioners filed this petition for

review arguing that:

under the circumstances, we answered in

the negative and held:

THE HON. COURT OF APPEALS ERRED

IN AFFIRMING THE ORDER OF THE RTCBRANCH 64, TARLAC CITY, DATED
NOVEMBER 15, 1999, DESPITE THE
FACT THAT THE SAME IS CONTRARY TO
SETTLED JURISPRUDENCE ON THE
MATTER.17

In Spouses Zacarias Bacolor and Catherine

Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch, this
Court held that the interest rate of 24% per
annum on a loan of P244,000.00, agreed
upon by the parties, may not be considered
as unconscionable and excessive. As such,
the Court ruled that the borrowers cannot
renege on their obligation to comply with
what is incumbent upon them under the
contract of loan as the said contract is the
law between the parties and they are bound
by its stipulations.

The issue for resolution is whether the 23%

p.a. interest rate and the 12% p.a. penalty
charge on petitioners' P1,700,000.00 loan to
which they agreed upon is excessive or
unconscionable under the circumstances.
Parties are free to enter into agreements
and stipulate as to the terms and conditions
of their contract, but such freedom is not
absolute. As Article 1306 of the Civil Code
provides, "The contracting parties may
establish such stipulations, clauses, terms
and conditions as they may deem
convenient, provided they are not contrary
to law, morals, good customs, public order,
or public policy." Hence, if the stipulations in
the contract are valid, the parties thereto are
bound to comply with them, since such
contract is the law between the parties. In
this case, petitioners and respondent bank
agreed upon on a 23% p.a. interest rate on
the P1.7 million loan. However, petitioners
now contend that the interest rate of 23%
p.a. imposed by respondent bank is
excessive or unconscionable, invoking our
ruling in Medel v. Court of Appeals,18 Toring
v. Spouses Ganzon-Olan,19 and Chua v.
Timan.20
We are not persuaded.
In Medel v. Court of Appeals,21 we found
the stipulated interest rate of 66% p.a. or a
5.5% per month on a P500,000.00 loan
excessive, unconscionable and exorbitant,
hence, contrary to morals if not against the
law and declared such stipulation void. In
Toring v. Spouses Ganzon-Olan,22 the
stipulated interest rates involved were 3%
and 3.81% per month on a P10 million loan,
which we find under the circumstances
excessive and reduced the same to 1% per
month. While in Chua v. Timan,23 where the
stipulated interest rates were 7% and 5% a
month, which are equivalent to 84% and
60% p.a., respectively, we had reduced the
same to 1% per month or 12% p.a. We said
that we need not unsettle the principle we
had affirmed in a plethora of cases that
stipulated interest rates of 3% per month
and higher are excessive, unconscionable
and exorbitant, hence, the stipulation was
void for being contrary to morals.24
In this case, the interest rate agreed upon
by the parties was only 23% p.a., or less
than 2% per month, which are much lower
than those interest rates agreed upon by the
parties in the above-mentioned cases.
Thus, there is no similarity of factual milieu
for the application of those cases.
We do not consider the interest rate of 23%
p.a. agreed upon by petitioners and
respondent bank to be unconscionable.
In Villanueva v. Court of Appeals,25 where
the issue raised was whether the 24% p.a.
stipulated interest rate is unreasonable

Page 12 of 109

Also, in Garcia v. Court of Appeals, this

Court sustained the agreement of the
parties to a 24% per annum interest on an
P8,649,250.00 loan finding the same to be
reasonable and clearly evidenced by the
amended credit line agreement entered into
by the parties as well as two promissory
notes executed by the borrower in favor of
the lender.
Based on the above jurisprudence, the
Court finds that the 24% per annum interest
rate, provided for in the subject mortgage
contracts for a loan of P225,000.00, may
not
be
considered
unconscionable.
Moreover, considering that the mortgage
agreement was freely entered into by both
parties, the same is the law between them
and they are bound to comply with the
provisions contained therein.26
Clearly, jurisprudence establish that the
24% p.a. stipulated interest rate was not
considered unconscionable, thus, the 23%
p.a. interest rate imposed on petitioners'
loan in this case can by no means be
considered excessive or unconscionable.
We also do not find the stipulated 12% p.a.
penalty
charge
excessive
or
unconscionable.
In Ruiz v. CA,27 we held:
The 1% surcharge on the principal loan for
every month of default is valid.1wphi1 This
surcharge or penalty stipulated in a loan
agreement in case of default partakes of the
nature of liquidated damages under Art.
2227 of the New Civil Code, and is separate
and distinct from interest payment. Also
referred to as a penalty clause, it is
expressly recognized by law. It is an
accessory undertaking to assume greater
liability on the part of an obligor in case of
breach of an obligation. The obligor would
then be bound to pay the stipulated amount
of indemnity without the necessity of proof
on the existence and on the measure of
damages caused by the breach. x x x28
And in Development Bank of the Philippines
v. Family Foods Manufacturing Co., Ltd.,29
we held that:
x x x The enforcement of the penalty can be
demanded by the creditor only when the
non-performance is due to the fault or fraud
of the debtor. The non-performance gives
rise to the presumption of fault; in order to
avoid the payment of the penalty, the debtor
has the burden of proving an excuse - the
failure of the performance was due to either

force majeure or the acts of the creditor

himself.30
Here, petitioners defaulted in the payment
of their loan obligation with respondent bank
and their contract provided for the payment
of 12% p.a. penalty charge, and since there
was no showing that petitioners' failure to
perform their obligation was due to force
majeure or to respondent bank's acts,
petitioners cannot now back out on their
obligation to pay the penalty charge. A
contract is the law between the parties and
they are bound by the stipulations therein.
WHEREFORE, the petition for review is
DENIED. The Decision dated June 17, 2010
and the Resolution dated July 20, 2011 of
the Court of Appeals are hereby
AFFIRMED.
G.R. No. 118203

July 5, 1996

EMILIO A. SALAZAR and TERESITA

DIZON, petitioners,
vs.
COURT OF APPEALS and JONETTE
BORRES, respondents.
Petitioners seek to set aside the decision 1
of 29 November 1994 of the Court of
Appeals in CA-G.R. CV No. 40197, which
reversed the decision 2 of 3 September
1992 of Branch 66 of the Regional Trial
Court (RTC) of Makati, Metro Manila, in Civil
Case No. 89-4468.
The primary issues presented for our
resolution are whether (a) the so-called
Deed of Absolute Sale executed by
petitioner Emilio A. Salazar in favor of
private respondent Jonette Borres is a
perfected contract of sale or a mere contract
to sell, and (b) the action for specific
performance which the latter filed will lie to
compel the former to deliver the Deed of
Absolute Sale, the Transfer Certificates of
Title, and other documents relative to the
property in question.
The factual antecedents of this case, as
summarized by the trial court, are as
follows:
That defendant Dr. Salazar is the owner of
the two (2) parcels of land with
improvements thereon located at 2914
Finlandia Street, Makati, Metro Manila and
covered by Transfer Certificate of Title Nos.
31038 and 31039 of the Registry of Deeds
of Makati; that Dr. Salazar offered to sell his
properties to Jonette Borres for One Million
pesos (P1,000,000.00) (TSN pp. 7 and 8,
November 5, 1991). The initial proposal
took place at the Dimsum Restaurant,
Makati, whereby it was proposed that the
payment of the consideration was to be
made within six (6) months but was
objected to by Dr. Salazar and he reduced it
to a three (3) months period (TSN Direct
Examination on Jonette Borres p. 22,
November 12, 1991); that sometime on
[May] 28, 1989, Jonette Borres together
with a certain Emilio T. Salazar went to see
Dr. Salazar at the latter's residence in
Bataan bearing a copy of a Deed of
Absolute Sale (Exhibit ("C") and Deed of
Warranty (Exhibit "D") but Dr. Salazar
refused to sign because Jonette Borres did
not have the money ready then. In said

occasion Dr. Salazar further reduced the

period within which plaintiff may purchase
the lots, to one (1) month or up to June 30,
1989 (TSN Direct Examination on Jonette
Borres November 5, [1991], pp. 10 and 11).
Jonette Borres then met again Dr. Salazar
on June 2, 1989 at the Ninoy International
Airport who was about to leave for the
United States of America where he is a
resident. Jonette Borres had with her the
Deed of Absolute Sale and asked Dr.
Salazar to sign said document. Dr. Salazar
reluctantly agreed to sign the document
provided that Jonette Borres pays one half
(1/2) of the consideration or P500,000.00 in
"cash" by June 15, 1989 and the balance
was payable on June 30, 1989 (TSN Direct
Examination on Emilio A. Salazar, May 21,
[1991], p. 9; TSN Cross Examination on
Jonette Borres, November 12, [1991], pp.
29 and 30). It was during this occasion that
Dr. Salazar again emphasized to Jonette
Borres that he needed the money because
he was then buying a property in the United
States (TSN pp. 15-20, November 5, 1991;
pp. 22 and 23, May 21, 1991; and pp. 5657, May 21, 1991).
Plaintiff agreed to the above conditions
(TSN Cross Examination on Jonette Borres
November 12, 1989, p. 32) and Dr. Salazar
constituted co-defendant Teresa Dizon as
custodian at the Deed of Absolute Sale
(Exhibit "C") together with the Titles of the
Land in question with the instruction to
Teresa Dizon not to surrender said
documents to Jonette Borres until upon
payment of the full price in "cash" (TSN
Direct Examination on Emilio A. Salazar,
May 21, [1991], p. 11).
On June 14, 1989 Jonette Borres informed
defendant Dizon that she will be able to pay
the full amount of P1,000,000.00 on June
15, 1989 (TSN Direct Examination Jonette
Borres, November 5, [1991], p. 25) and on
the next day, she then went to the house of
Teresa Dizon to see and get the documents
entrusted to her by Dr. Salazar. The
documents not being in Dizon's possession,
they agreed to meet at Metro Bank West
Avenue Branch to get the documents and
then to proceed to Makati to meet the
plaintiff's business partner a certain Balao
who allegedly gave plaintiff a Far East Bank
and Trust Company check for the amount of
P1,500,000.00 (Exhibit "F") with which to
buy the property (TSN Direct Examination
on Jonette Borres November 5, [1991], pp.
30, 32 and 33). For some reason or another
Jonette Borres and defendant Dizon failed
to proceed to Makati.
In the meantime or on June 16, 1992, Dr.
Salazar made an overseas call to codefendant Dizon to inquire if Jonette Borres
had already paid the down payment of
P500,000.00 and Teresa Dizon replied to
Dr. Salazar that Jonette Borres had not paid
the down payment. Dr. Salazar then ordered
Dizon to stop the sale (TSN Direct
Examination on Emilio A. Salazar, May 21,
[1991], pp. 12 and 13).
As maybe seen from the evidence
presented by the plaintiff and the
defendants, the terms and conditions of the
agreement for the sale of the two (2) parcels
of land owned by Dr. Salazar in favor of the

Page 13 of 109

plaintiff Jonette Borres, are that the

purchase price is in the amount of
P1,000,000.00, fifty percent (50%) of which
or P500,000.00 was to paid on or before
June 15, 1989 while the balance thereof
was to be paid on or before June 30, 1989
(TSN May 21, 1991, p. 27); that the
payment was to be made in "cash" (TSN
May 21, 1991, p. 55); that the place of
payment
is
at
defendant's
bank,
Metropolitan Bank Quezon City Branch
(TSN October 21, 1991, p. 23). 3
The trial court held that the Deed of
Absolute Sale was in reality a contract to
sell, and that since Borres failed to pay
Salazar the downpayment of P500,000.00
on the agreed date, 15 June 1989, the
complaint for specific performance cannot
prosper. It then dismissed the complaint and
ordered Borres to pay the petitioners
P5,000.00 each as attorney's fees and
litigation expenses. 4
In ruling that the Deed of Absolute Sale was
a contract to sell, the trial court considered
pertinent the circumstances attending its
execution. First, that the Deed of Absolute
Sale was "reluctantly signed" by Dr. Salazar,
who was then about to leave for the United
States of America, in order that if Borres
would comply with the terms and conditions
of their agreement, he need not come to the
Philippines just to sign it; hence, it does not
bind Dr. Salazar until the suspensive
condition, i.e., the downpayment of
P500,000.00 to be effected on or before 15
June 1989 and the balance to be paid on or
before 30 June 1989, is complied with.
Second, Borres was not, in fact, financially
prepared to buy the parcels of land on or
before 15 June 1989 considering that
[s]he was just looking for possible buyers or
business partners. First, she requested that
the pertinent documents like the Deed of
Sale (Exhibit "C") and the corresponding
Transfer Certificates of Titles Nos. 31038
and 31039 of the Register of Deeds of Rizal
(Exhibits "A" and "B") be entrusted to her
even before making the downpayment of
P500,000.00 purposely to raise the amount
needed. When Dr. Salazar refused her
request, Jonette Borres approached a
certain businessman P.D. Dionisio for loan
and was turned down when Jonette Borres
cannot [sic] produce the Deed of Absolute
Sale and the Titles of the parcels of land in
question (TSN November 5, 1991, pp. 2025). Then she approached a certain
Benjamin Balao a realtor developer.
Although Balao had issued to her his check
in the amount of P1,500,000.00 (Exhibit "F")
he instructed his bank not to honor his
check without his presence (TSN November
14, 1991, pp. 81 to 84). Jonette Borres
admitted that she was not in a position to
encash the check (Exhibit "F") although it
was payable to "cash" (TSN November 21,
1991, pp. 41 and 44). 5
Salazar's victory was short-lived. On Borre's
appeal from the decision of the trial court,
the Court of Appeals, in its challenged
decision of 29 November 1994, ruled that
the Deed of Absolute Sale, whose existence
and due execution was undisputed, is
perfected contract of sale, with a definite
object and a specific consideration which

the parties had agreed upon. As proof that it

is a contract of sale and not a contract to
sell, the Court of Appeals stressed the
absence of a proviso that the title to the
property is reserved in the vendor until full
payment of the purchase price or that the
vendor may unilaterally rescind the contract
the moment the vendee fails to pay within
the fixed period. 6 Salazar's reluctance to
sign it is of no moment, since there is no
allegation of fraud, forgery, or duress. And
even assuming that Borres failed to pay the
contract price, such failure did not convert
the contract into one without cause or
consideration as to vitiate the validity of the
contract, it not being essential for the
existence of cause that payment or full
payment be made at the time of the
contract. Neither did such failure ipso facto
resolve the contract in question. The
remedy of the vendor, Dr. Emilio A. Salazar,
is to demand specific performance or
rescission, with damages in either case. On
the other hand, the vendee, Jonette Borres,
may demand specific performance, i.e.,
compel the vendor to accept the price and
deliver the title of the land object of the
contract.
The Court of Appeals disagreed with the
trial court's finding that Borres was not in a
position to pay the downpayment because
[o]n June 15, 1989, plaintiff-appellant had a
Far East Bank check payable to her order,
in the amount of P1,500,000.00 more
than the whole agreed purchase price of
P1,000,000.00. Defendant-appellee Teresa
Dizon agreed (on June 14, 1989) to meet
her on June 15, 1989, at Metro Bank West
and thereafter to proceed to Makati in order
to encash the Far East Bank check.
Defendant-appellee Teresa Dizon somehow
managed to manipulate things by making
herself unavailable so that the payment
could not be made on June 15, 1989. (TSN,
Nov. 5, 1991, pp. 27-41). On the next day,
June 16, 1989, defendant-appellee Teresa
Dizon informed plaintiff-appellant that
defendant-appellee Dr. Emilio A. Salazar
called up in the evening of June 15, 1989
asking whether plaintiff-appellant paid on
that day and upon being answered in the
negative, said vendor said that he is
revoking the contract. (TSN, Nov. 5, 1991,
pp. 41-42). Defendant-appellee Teresa
Dizon having her own interested buyer,
evidently acted in bad faith, tried and indeed
succeeded to frustrate the efforts of plaintiffappellant to comply with her reciprocal
obligation to pay the agreed purchase price.
The fact that the Far East Bank check was
payable to the Order of plaintiff-appellant,
and it covers the amount of P1,500,000.00
which is much more than the agreed
purchase price of P1,000,000.00 reveals
that plaintiff-appellant was financially
prepared to comply with her reciprocal
obligation. That plaintiff-appellant filed the
present suit for specific performance on July
6, 1989, bolsters the fact that she is really
willing and able to pay the agreed purchase
price. How and from whom she
borrowed/obtained the said amount, is of no
consequence. 7
Accordingly, the respondent Court reversed
the decision of the trial court and handed
down a new judgment ordering Emilio A.

Salazar to accept from Jonette Borres the

payment representing the purchase price in
the amount of P1 million and thereafter to
comply with his reciprocal obligation to
surrender the original copies of the deed of
absolute sale and torrens title covering the
parcels of land subject of the contract.
Finding petitioner Teresita Dizon to have
"acted in bad faith in frustrating the efforts"
of Borres to comply with her obligation to
pay the purchase price, the appellate court
ordered her to pay Borres the amounts of
P80,000.00 as moral damages; P50,000.00
as exemplary damages; and P100,000.00
as attorney's fees.
Unable to accept the reversal of the trial
court's decision, the petitioners filed the
instant petition wherein they submit that the
Court of Appeals committed grave and
serious errors:
A. . . . in relying on the Deed of Absolute
Sale dated May 30, 1989 notwithstanding
the fact that:
1. BORRES EXECUTED A DEED OF
WARRANTY (EXHS. "D" AND "2") STATING
THEREIN THAT UNTIL AND UNLESS THE
AMOUNT
OF
P1,000,000.00
REPRESENTING THE PURCHASE PRICE
FOR THAT PARCELS OF LAND COVERED
BY TCT NOS. S-31038 AND S-31039 BE
PAID BY HER TO SALAZAR, SHE HAS NO
RIGHT WHATSOEVER TO THE ORIGINAL
COPIES OF THE DEED OF ABSOLUTE
SALE AND THAT SHE HAS NO LEGAL
RIGHT WHATSOEVER TO ANY AND ALL
PERTINENT RECORDS OF THE ABOVEMENTIONED LOTS;
2. UPON HERE BEHEST, BORRES WAS
GIVEN A PHOTOCOPY OF THE DEED OF
ABSOLUTE SALE BY DIZON BUT ONLY
AFTER THE LATTER ERASED THE
SIGNATURE OF SALAZAR AS THE
VENDEE THEREIN.
3. BORRES HAD NOT PAID ANY
PORTION OF THE AGREED PURCHASE
PRICE AND THUS RENDERS THE DEED
OF ABSOLUTE SALE VOID AB INITIO.
B. . . . in concluding that the agreement
between SALAZAR and BORRES is a
contract of sale and thus, perfected upon
agreement on the subject matter and
consideration, notwithstanding the fact that:
1. THE AGREEMENT BETWEEN THE
PARTIES IS ESSENTIALLY A CONTRACT
TO SELL SUBJECT TO A SUSPENSIVE
CONDITION,
THE
BIRTH
OR
EFFECTIVITY OF WHICH SHOULD TAKE
PLACE ONLY IF AND WHEN THE EVENT
WHICH CONSTITUTES THE CONDITION
HAPPENS OR IS FULFILLED. SINCE
BORRES FAILED TO COMPLY WITH HER
OBLIGATION, THE AGREEMENT TO SELL
BECAME STILLBORN;
2. THERE
WAS
AN
EXPRESS
AGREEMENT BETWEEN THE PARTIES
THAT BORRES SHALL BE ENTITLED TO
THE PROPERTY OR ANY RECORDS
PERTAINING THERETO OR ORIGINAL
COPIES OF THE DEED OF ABSOLUTE
SALE ONLY UPON FULL PAYMENT OF
THE PURCHASE PRICE.

Page 14 of 109

C. . . . in holding that DIZON acted in bad

faith and succeeded to frustrate the efforts
of BORRES to comply with her reciprocal
obligation to pay the purchase price
notwithstanding the fact that:
1. AT THE TIME THAT BORRES WAS
OBLIGED TO PAY AT LEAST 50% OF THE
PURCHASE PRICE OR ON JUNE 15,
1989, SHE WAS NOT READY, WILLING
AND ABLE TO DO SO. EVEN ASSUMING
FOR THE SAKE OF ARGUMENT THAT
THE LATTER HAD THE FINANCIAL
CAPABILITY TO MEET HER OBLIGATION,
THE FACT REMAINS THAT SHE FAILED
TO PROPERLY TENDER PAYMENT OF
HER OBLIGATION AND IN CASE TENDER
OF PAYMENT WAS REFUSED, TO
CONSIGN THE SAME IN COURT;
2. DIZON HAD NO REASON TO
FRUSTRATE THE EFFORTS OF BORRES
TO COMPLY WITH HER OBLIGATION TO
PAY THE AGREED PURCHASE PRICE
SINCE SHE WAS MERELY CONSTITUTED
AS CUSTODIAN OF THE DEED OF
ABSOLUTE SALE AND TITLES OF THE
PROPERTY
WITH
SPECIFIC
INSTRUCTIONS TO RELEASE THE SAME
TO BORRES ONLY UPON RECEIPT OF
THE PURCHASE PRICE IN FULL AND IN
CASH WITHIN THE AGREED PERIOD.
D. . . . in ordering Dizon to pay Borres the
amount of P80,000.00 moral damages;
P50,000.00 exemplary damages and
P100,000.00 as attorney's fees by way of
damages notwithstanding the fact that the
evidence adduced before the trial court
clearly shows that BORRES had no cause
of action against the former. 8
We shall first the issue of whether the
agreement between petitioner Salazar and
private respondent Borres is a contract of
sale or a contract to sell.
In a contract of sale, the title to the property
passes to the vendee upon the delivery of
the thing sold; 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.
Otherwise stated, in a contract of sale, the
vendor loses ownership over the property
and cannot recover it until and unless the
contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the
vendor until full payment of the price. In the
latter contract, payment of the price is a
positive suspensive condition, failure of
which is not a breach but an event prevents
the obligation of the vendor to convey title
from becoming effective. 9
If we are to consider only the Deed of
Absolute Sale, 10 we can easily say that the
contract between Salazar and Borres is one
of sale. However, the Deed of Warranty 11
and the oral testimony on the circumstances
surrounding the execution of the Deed of
Absolute Sale, as well as the other pieces of
evidence submitted by Borres, sustain the
finding and conclusion of the trial court that
the true agreement between the parties was
a contract to sell in that the true intent of
Salazar was to transfer ownership of the
property to Borres only after the latter pays
the full consideration.

From the beginning to the end, such

intention of Salazar was unequivocal and
manifest. He rejected Borre's offer to pay
the consideration within six months to give
her time to secure a loan. When Borres
proposed that he lend her the certificates of
title of the lots so that she could secure a
loan from the banks in Manila and be able
to pay, within three months, 12 the
consideration out of the proceeds of the
loan, Salazar agreed provided that she
would assure him that the title would not
pass to her until he is fully paid. Borres
forthwith promised to execute a warranty.
She then prepared a Deed of Absolute Sale
for Salazar's signature and a Deed of
Warranty for her signature. When finally she
presented to him the Deed of Absolute Sale,
Salazar did not sign it and insisted that he
be paid the purchase price at the end of
June 1989; he further told her that he would
not lend her the certificates of title until he is
so paid. He signed it only after Borres
agreed to pay by the end of June 1989 at a
bank in Makati. But he did not give the Deed
of Absolute Sale to her; instead, he told her
to just meet him at the Ninoy Aquino
International Airport on 2 June 1989, when
he would leave for the United States of
America, so she would know to whom he
would entrust the document and other
papers relative to the property. We quote
verbatim Borre's own testimony on direct
examination upon these points:
Q Have you met the owner of the lot
mentioned a while ago?
A Yes, your Honor, I met Dr. Salazar, the
owner, sometime last week of April, 1989 at
Dimsum Restaurant.
Q You met at Dimsum, in what particular
place was that?
A We met at Dimsum Restaurant in Makati
after I was called by Emilio T. Salazar to
meet at Dimsum because Dr. Salazar
wanted to sell the property and he wanted
to talk to you [sic].

A I answered Dr. Salazar that I could buy

or able to buy the properties within six (6)
months because I have to go home to the
province to secure a loan.

Q And you did sign the document?

Q What did Dr. Salazar say regarding your

proposal?

Q After you passed it to Dr. Salazar, what

happened?

A I told Dr. Salazar. Dr. Salazar said that

he could not wait for that six (6) months is a
very long time.

A Dr. Salazar did not sign the document

and told me that he is only going to sign it if
I am going to pay by the end of June and
that he could not lend me the title and he
said he is going to sign it and not to give me
a copy until the purchase price is fully paid.

Q What else did you say?

A I told Dr. Salazar that "it is possible I can
pay within three (3) months' time if your can
lend me the title of your property because
banks here in Manila usually release loans
in three months' time and I will have less
problem to complete the payment of ONE
MILLION PESOS (P1,000,000.00)."
Q So, what did Dr. Salazar say?
A Dr. Salazar said that "if it is the best for
our transaction I can lend you the title
provided I can be assured that the title will
not pass on you until you are fully paid.

A Yes, I did sign it and passed it on to Dr.

Salazar.

Q And what was your reaction with the

statement?
A I said "what about the loan that we have
a greed at Dimsum if you will not lend me
the title and the document that we have
signed new?" Dr. Salazar said "I could not
lend you the title and I care less how your
are going to loan the property and raise the
money you are going to pay me, what is
important to me is you pay me the whole
amount
of
One
Million
Pesos
(P1,000,000.00) not late than June 30,
1989."

Q What was your answer then?

Q And what did you say?
A I told Dr. Salazar that I can execute a
warranty to the effect that the property could
not be transferred to me until I have fully
paid him.
Q What did Dr. Salazar say?

A Since I could not do anything and I really

wanted to buy the property, I agreed to Dr.
Salazar's condition that I pay the property
by the end of June and I will pay only at the
bank in Makati.

A Dr. Salazar said "I will agree to that"

Q And what did Dr. Salazar say?

COURT:

A Dr. Salazar said "okey I will sign this and

have this notarized but I could not lend you
and never have a [copy] of the title as well
as the Deed of Sale and you just wait oat
NAIA and wait if you could have this
document because I am leaving on June 2
for the US. You meet me there".

Dr. Salazar told you that he is agreeable to

the proposal.
A Yes, Dr. Salazar said "you prepare a
craft, the necessary document and bring it
to Bataan.

Q And after that what did Dr. Salazar do?

ATTY. BORRES:

COURT:
Talk to you?
A To discuss the matter of sale to me at
Dimsum Sir

Q And what was your answer to Dr.

Salazar
A I answered Dr. Salazar that "I will be
ever willing to go to Bataan any time you
wanted me to go.

ATTY. BORRES:
Q And you really did go to Bataan.
Q And so you really met at Dimsum.
A Yes, I did.
A Yes, Ma'am.
xxxxxx

xxx

Q What transpired at Dimsum?

ATTY BORRES:
A Dr. Salazar offered me to buy the
properties for a total of ONE MILLION
PESOS (P1,000,000.00) excluding all and
any other expenses that may be involved in
the transfer of the properties in case I am
interested to by [sic], in case Atty. Borres
wanted to buy.

Q And what happened while there in

Bataan?
xxxxxx

xxx

Q And what happened while you got all

seated in the sala of Dr. Salazar.

Q What then was your reply?

A I am interested to buy.
Q Dr. Salazar. . . I asked . . . what did Dr.
Salazar say after that?

A I showed him a document which he

instructed me to prepare and he has read it
and agreed to the Deed of Absolute Sale
and the warranty I made. He gave me back
the documents for signing.

Page 15 of 109

A It was only when that he signed the

document after I have agreed to his
proposal but he was very much stand [sic]
to the payments and he was no longer the
same when I met him at Dimsum. 13
Clearly then, the original intention in the
execution of the Deed of Absolute Sale was
to implement the proposal of Borres that
Salazar "lend" her the transfer certificates of
title so that she could secure a loan from a
bank in Manila whose proceeds would be
applied to the payment of the purchase
price of the property, and the original
purpose of the Deed of Warranty was to
assure Salazar that, as demanded by him,
title to the lots will not pass to her until she
pays the full consideration. The lending of
the certificates of title for the above purpose
could have been accomplished through a
special power of attorney under which
Salazar will authorize her to obtain a loan
and to mortgage the property as security
therefor. But, perhaps anticipating Salazar's
departure to the United States of America
where he resides, Borres, who is a lawyer,
prepared instead a Deed of Absolute Sale
and Deed of Warranty. Notwithstanding
Borre's deliberate characterizations of the

documents, we are convinced that they

were prepared in connection with and in the
implementation of the agreement regarding
the lending of the certificates of title. They
do not weaken the adamantine position of
Salazar not to part with his title to the two
lots until full payment of the agreed price
therefor. Borre's execution of the Deed of
Warranty was in fact a recognition of
Salazar's position. Despite its careful
wordings and phraseology to make some
sort of distinction between Borre's right to
the ownership or title over the lots on the
one hand, and her right to possess or keep
the Deed of Absolute Sale and the other
documents relative to the lots, the totality of
the Deed of Warranty manifests an
indubitable recognition by Borres of the
aforementioned intention of Salazar. She
declares therein as follows:
1. That until and unless the amount of ONE
MILLION
(P1,000,000.00)
PESOS
representing the purchase price for that
parcels of land covered by Transfer
Certificate of Title Nos. S-31038 and S31039 be paid by the undersigned unto Dr.
Emilio A. Salazar, the undersigned has no
absolute right whatsoever to the original
copies of the Deed of Absolute Sale
executed by said Dr. Emilio A. Salazar date
May ____, 1989;
2. That she has no legal right whatsoever
to any and all pertinent records of the
aforementioned lots;
3. That
upon
payment
of
the
aforementioned amount, Dr. Emilio A.
Salazar or his representative is obliged to
surrender the original of these presents
together with all the original documents and
titles
covering
the
sale
of
the
aforementioned lots unto the undersigned.
14
Then, too, in her Memorandum of
Agreement
with
Monteland
Realty
Corporation, 15 dated 15 June 1989, Borres
explicitly mentioned only her "rights and
interests" under the Deed of Absolute Sale
signed by Salazar and therein conveyed,
transferred, and assigned to the said
corporation only such "rights and interest."
Also worth noting is the statement in the
second
whereas
clause
of
the
Memorandum of Agreement that Monteland
Realty Corporation
has full knowledge of the sales [sic] and
conditions of the SELLER-OWNER of the
property . . . that the buyer [Borres] has an
obligation to pay DR. EMILIO SALAZAR the
amount of ONE MILLION PESOS
(P1,000,000.00) and that there is already a
Deed of Absolute Deed of [sic] Sale in favor
of [Borres] of which both copies of the titles
of the properties for sale and all documents
including the Deed of Absolute Sale
aforementioned are including the Deed of
Absolute Sale aforementioned are under the
custody of MS. TERESA DIZON who will
only release the Title and the Deed of
Absolute Sale after the obligation of [Borres]
is fully
paid. 16
The withholding by Salazar through Dizon of
the Deed of Absolute Sale, the certificates
of title, and all other documents relative to

the lots is an additional indubitable proof

that Salazar did not transfer to Borres either
by actual or constructive delivery the
ownership of the two lots. While generally
the execution of a deed of absolute sale
constitutes
constructive
delivery
of
ownership, the withholding by the vendor of
that deed under explicit agreement that it be
delivered together with the certificates of
titles to the vendee only upon the latter's full
payment of the consideration amounts to a
suspension of the effectivity of the deed of
sale as a binding contract.
Undoubtedly, Salazar and Borres mutually
agreed that despite the Deed of Absolute
Sale title to the two lots in question was not
to pass to the latter until full payment of the
consideration of P1 million. The form of the
instrument cannot prevail over the true
intent of the parties as established by the
evidence.
Accordingly, since Borres was unable to pay
the consideration, which was a suspensive
condition, Salazar cannot be compelled to
deliver to her the deed of sale, certificates of
title, and other documents concerning the
two lots. In other words, no right in her favor
and no corresponding obligation on the part
of Salazar were created. Article 1181 of the
Civil Code provides:
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.
Even granting for the sake of argument that,
as ruled by the court of Appeals, the
agreement of Salazar and Borres as
evidenced by the Deed of Absolute Sale
was a perfected contract of sale, Borre's
action for specific performance must
likewise fail. We are in full accord with the
trial court and, perforce, disagree with the
Court of Appeals, that Borres was not ready
to pay P500,000.00 on or before 15 June
1989. That Borres had a check of P1.5
million, or of more than the full consideration
of the two lots, is of no moment. The check,
17 dated 15 June 1989, is a crossed check
payable to "Atty. Jonette Borres," or herein
private respondent. The crossing is of
simple type two parallel lines at the upper
left hand corner without the words "and
company" between the lines. Accordingly, it
cannot be paid to anyone except Borres, or
it can be deposited with a bank where she
keeps an account. 18
There is absolutely no evidence that Borres
encashed the check and tendered to
Salazar thru Dizon the sum of P500,000.00
on 15 June 1989. On the contrary, the
check itself was cancelled as shown by the
word cancelled handwritten across it.
Moreover, the delivery of the check by
Monteland Realty Corporation through
Balao was not unconditional. Per the receipt
19 Borres signed on 15 June 1989,
encashment of the check "it subject to the
verifications as to the authenticity of
documents pertaining to the subject
property." Neither is there evidence that
Borres paid the downpayment on 15 June
1989 with money she got from other
sources. No payment appears to have been
made thereafter or during the pendency of

Page 16 of 109

the case before the trial court or the Court of

Appeals. She should have consigned the
payment in court pursuant to Article 1256 of
the Civil Code for her to be released from
her obligation and, consequently, exact
fulfillment by Salazar of his corresponding
obligation.
The challenged decision of the Court of
Appeals must then be reversed. That of the
trial court must be affirmed, with the
modification consisting in the deletion of the
award of attorney's fees in favor of the
petitioners which we find to be without
basis. The award of attorney's fees as
damages is the exception rather than the
rule; it is not to be given to the defendant
every time the latter prevails. The right to
litigate is so precious that a penalty should
not be charged on those who may exercise
it erroneously, unless, of course such party
acted in bad faith. 20
WHEREFORE, the instant petition is hereby
GRANTED. The challenged decision of 29
November 1994 of the Court of Appeals in
CA-G.R. CV No. 40197 is REVERSED and
SET ASIDE, and the decision of 3
September 1992 of Branch 66 of the
Regional Trial Court of Manila in Civil Case
No. 89-4468 is AFFIRMED, subject to the
modification that the award for attorney's
fees is deleted.
No pronouncement as to costs.
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.
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 January 19, 1985, defendantsappellants 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:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
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.
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. "6C")
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 April 25, 1985, the Coronels executed a
Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh.
"7").
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").
(Rollo, pp. 134-136)
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.

Page 17 of 109

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 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.

therefor a price certain in money or its

equivalent.

fulfillment of the condition agreed upon, that

is, full payment of the purchase price.

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 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.

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, re-raffled to undersigned ponente
only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom
the case was last assigned.
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

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 nonfulfillment 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.
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:
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
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

Page 18 of 109

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.
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.
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
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.
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.

Page 19 of 109

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 above-stated". 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 aboveexplained offered no proof whatsoever to
show that they actually presented the new

Page 20 of 109

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.
xxxxxx

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.)

30 June 1989

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.

The balance of TEN MILLION SEVEN

HUNDRED THOUSAND (P10,700,000.00)
is payable on or before 155 July 1989.
Capital Gains Tax for the account of the
seller. Failure to pay balance on or before
15 July 1989 forfeits the earnest money.
This provided that all papers are in proper
order.6

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.
G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner,

vs.
COURT
OF
APPEALS
and
ENCARNACION
VALDES-CHOY,
respondents.
This is a petition for review on certiorari
seeking to reverse the decision1 of the
Court of Appeals in an action for specific
performance2 filed in the Regional Trial
Court3 by petitioner Tomas K. Chua
("Chua") against respondent Encarnacion
Valdes-Choy ("Valdes-Choy"). Chua sought
to compel Valdes-Choy to consummate the
sale of her paraphernal house and lot in
Makati City. The Court of Appeals reversed
the decision4 rendered by the trial court in
favor of Chua.
The Facts
Valdes-Choy advertised for sale her
paraphernal house and lot ("Property") with
an area of 718 square meters located at No.
40 Tampingco Street corner Hidalgo Street,
San Lorenzo Village, Makati City. The
Property is covered by Transfer Certificate
of Title No. 162955 ("TCT") issued by the
Register of Deeds of Makati City in the
name of Valdes-Choy. Chua responded to
the advertisement. After several meetings,
Chua and Valdes-Choy agreed on a
purchase price of P10,800,000.00 payable
in cash.
On 30 June 1989, Valdes-Choy received
from Chua a check for P100,000.00. The
receipt
("Receipt")
evidencing
the
transaction, signed by Valdes-Choy as
seller, and Chua as buyer, reads:

Page 21 of 109

RECEIPT
RECEIVED from MR. TOMAS K. CHUA
PBCom Check No. 206011 in the amount of
ONE HUNDRED THOUSAND PESOS
ONLY (P100,000.00) as EARNEST MONEY
for the sale of the property located at 40
Tampingco cor. Hidalgo, San Lorenzo
Village, Makati, Metro Manila (Area : 718 sq.
meters).

CONFORME:

ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.7
In the morning of 13 July 1989, Chua
secured from Philippine Bank of Commerce
("PBCom") a manager's check for
P480,000.00. Strangely, after securing the
manager's check, Chua immediately gave
PBCom a verbal stop payment order
claiming that this manager's check for
P480,000.00 "was lost and/or misplaced."8
On the same day, after receipt of Chua's
verbal order, PBCom Assistant Vice
President Julie C. Pe notified in writing9 the
PBCom Operations Group of Chua's stop
payment order.
In the afternoon of 13 July 1989, Chua and
Valdes-Choy met with their respective
counsels to execute the necessary
documents and arrange the payments.10
Valdes-Choy as vendor and Chua as
vendee signed two Deeds of Absolute Sale
("Deeds of Sale"). The first Deed of Sale
covered the house and lot for the purchase
price of P8,000,000.00.11 The second Deed
of Sale covered the furnishings, fixtures and
movable properties contained in the house
for the purchase price of P2,800,000.00.12
The parties also computed the capital gains
tax to amount to P485,000.00.
On 14 July 1989, the parties met again at
the office of Valdes-Choy's counsel. Chua
handed to Valdes-Choy the PBCom
manager's check for P485,000.00 so
Valdes-Choy could pay the capital gains tax
as she did not have sufficient funds to pay
the tax. Valdes-Choy issued a receipt
showing that Chua had a remaining balance
of P10,215,000.00 after deducting the
advances made by Chua. This receipt
reads:
July 14, 1989
Received from MR. TOMAS K. CHUA
PBCom. Check No. 325851 in the amount

of FOUR HUNDRED EIGHTY FIVE

THOUSAND PESOS ONLY (P485,000.00)
as Partial Payment for the sale of the
property located at 40 Tampingco Cor.
Hidalgo St., San Lorenzo Village, Makati,
Metro Manila (Area 718 sq. meters),
covered by TCT No. 162955 of the Registry
of Deeds of Makati, Metro Manila.
The total purchase price of the abovementioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only,
broken down as follows:
SELLING PRICE

P10,800,000.00
EARNEST MONEY
P100,000.00

PARTIAL PAYMENT
485,000.00

585,000.00
BALANCE DUE TO
ENCARNACION VALDEZ-CHOY

P10,215,000.00
PLUS P80,000.00 for documentary stamps
paid in advance by seller

P480,000.00. PBCom Assistant VicePresident Pe, however, testified that the

manager's check was nevertheless honored
because Chua subsequently verbally
advised the bank that he was lifting the
stop-payment order due to his "special
arrangement" with the bank.16
On 15 July 1989, the deadline for the
payment of the balance of the purchase
price, Valdes-Choy suggested to her
counsel that to break the impasse Chua
should
deposit
in
escrow
the
P10,215,000.00 balance.17 Upon such
deposit, Valdes-Choy was willing to cause
the issuance of a new TCT in the name of
Chua even without receiving the balance of
the purchase price. Valdes-Choy believed
this was the only way she could protect
herself if the certificate of title is transferred
in the name of the buyer before she is fully
paid. Valdes-Choy's counsel promised to
relay her suggestion to Chua and his
counsel, but nothing came out of it.
On 17 July 1989, Chua filed a complaint for
specific performance against Valdes-Choy
which the trial court dismissed on 22
November 1989. On 29 November 1989,
Chua re-filed his complaint for specific
performance with damages. After trial in due
course, the trial court rendered judgment in
favor of Chua, the dispositive portion of
which reads:
Applying the provisions of Article 1191 of the
new Civil Code, since this is an action for
specific performance where the plaintiff, as
vendee, wants to pursue the sale, and in
order that the fears of the defendant may be
allayed and still have the sale materialize,
judgment is hereby rendered:

of capital gains tax, to the Makati Register

of Deeds;
c. to pay the required registration fees and
stamps (if not yet advanced by the
defendant) and if needed update the real
estate taxes all to be taken from the funds
deposited with her; and
d. surrender to the plaintiff the new Torrens
title over the property;
4. Should the defendant fail or refuse to
surrender the two deeds of sale over the
property and the fixtures that were prepared
by Atty. Mark Bocobo and executed by the
parties, the Branch Clerk of Court of this
Court is hereby authorized and empowered
to prepare, sign and execute the said deeds
of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the
plaintiff;
a. the sum of P100,000.00 representing
moral and compensatory damages for the
plaintiff; and
b. the sum of P50,000.00 as reimbursement
for plaintiff's attorney's fees and cost of
litigation.
6. Authorizing the Branch Clerk of Court of
this Court to release to the plaintiff, to be
taken from the funds said plaintiff has
deposited with the Court, the amounts
covered at paragraph 5 above;
7.
Ordering
the
release
of
the
P10,295,000.00 to the defendant after
deducting therefrom the following amounts:
a. the capital gains tax paid to the BIR;

80,000.00

I. 1. Ordering the defendant to deliver to the

Court not later than five (5) days from
finality of this decision:

P10,295,000.00

a. the owner's duplicate copy of TCT No.

162955 registered in her name;

x x x.13
On the same day, 14 July 1989, ValdesChoy, accompanied by Chua, deposited the
P485,000.00 manager's check to her
account with Traders Royal Bank. She then
purchased a Traders Royal Bank manager's
check for P480,000.00 payable to the
Commissioner of Internal Revenue for the
capital gains tax. Valdes-Choy and Chua
returned to the office of Valdes-Choy's
counsel and handed the Traders Royal
Bank check to the counsel who undertook to
pay the capital gains tax. It was then also
that Chua showed to Valdes-Choy a
PBCom
manager's
check
for
P10,215,000.00 representing the balance of
the purchase price. Chua, however, did not
give this PBCom manager's check to
Valdes-Choy because the TCT was still
registered in the name of Valdes-Choy.
Chua required that the Property be
registered first in his name before he would
turn over the check to Valdes-Choy. This
angered Valdes-Choy who tore up the
Deeds of Sale, claiming that what Chua
required was not part of their agreement.14
On the same day, 14 July 1989, Chua
confirmed his stop payment order by
submitting to PBCom an affidavit of loss15
of the PBCom Manager's Check for

b. the covering tax declaration and the latest

tax receipt evidencing payment of real
estate taxes;
c. the two deeds of sale prepared by Atty.
Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the
plaintiff, whether notarized or not; and
2. Within five (5) days from compliance by
the defendant of the above, ordering the
plaintiff to deliver to the Branch Clerk of
Court of this Court the sum of
P10,295,000.00 representing the balance of
the consideration (with the sum of
P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or
her duly authorized representative:
a. to make representations with the BIR for
the payment of capital gains tax for the sale
of the house and lot (not to include the
fixtures) and to pay the same from the funds
deposited with her;
b. to present the deed of sale executed in
favor of the plaintiff, together with the
owner's duplicate copy of TCT No. 162955,
real estate tax receipt and proof of payment

Page 22 of 109

b. the expenses incurred in the registration

of the sale, updating of real estate taxes,
and transfer of title; and
c. the amounts paid under this judgment to
the plaintiff.
8. Ordering the defendant to surrender to
the plaintiff or his representatives the
premises with the furnishings intact within
seventy-two (72) hours from receipt of the
proceeds of the sale;
9. No interest is imposed on the payment to
be made by the plaintiff because he had
always been ready to pay the balance and
the premises had been used or occupied by
the defendant for the duration of this case.
II. In the event that specific performance
cannot be done for reasons or causes not
attributable to the plaintiff, judgment is
hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest
money in the sum of P100,000.00, with
interest at the legal rate from June 30, 1989
until fully paid;
2. To refund to the plaintiff the sum of
P485,000.00 with interest at the legal rate
from July 14, 1989 until fully paid;
3. To pay to the plaintiff the sum of
P700,000.00 in the concept of moral
damages and the additional sum of

P300,000.00 in the concept of exemplary

damages; and
4. To pay to the plaintiff the sum of
P100,000.00 as reimbursement of attorney's
fees and cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of
Appeals which reversed the decision of the
trial court. The Court of Appeals handed
down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from
is hereby REVERSED and SET ASIDE, and
another one is rendered:

On the other hand, the trial court found that

Valdes-Choy did not perform her correlative
obligation under the contract to sell to put all
the papers in order. The trial court noted
that as of 14 July 1989, the capital gains tax
had not been paid because Valdes-Choy's
counsel who was suppose to pay the tax did
not do so. The trial court declared that
Valdes-Choy was in a position to deliver
only the owner's duplicate copy of the TCT,
the signed Deeds of Sale, the tax
declarations, and the latest realty tax
receipt. The trial court concluded that these
documents were all useless without the
Bureau of Internal Revenue receipt
evidencing full payment of the capital gains
tax which is a pre-requisite to the issuance
of a new certificate of title in Chua's name.

1. WHETHER THERE IS A PERFECTED

CONTRACT OF SALE OF IMMOVABLE
PROPERTY;
2.
WHETHER
VALDES-CHOY
MAY
RESCIND
THE
CONTRACT
IN
CONTROVERSY WITHOUT OBSERVING
THE PROVISIONS OF ARTICLE 1592 OF
THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF
PAYMENT OF THE BALANCE OF THE
PURCHASE PRICE ON THE PART OF
CHUA (AS VENDEE) WAS JUSTIFIED BY
THE CIRCUMSTANCES OBTAINING AND
MAY NOT BE RAISED AS GROUND FOR
THE AUTOMATIC RESCISSION OF THE
CONTRACT OF SALE;

(1) Dismissing Civil Case No. 89-5772;

(2) Declaring the amount of P100,000.00,
representing earnest money as forfeited in
favor of defendant-appellant;
(3)
Ordering
defendant-appellant
to
return/refund the amount of P485,000.00 to
plaintiff-appellee without interest;
(4)
Dismissing
defendant-appellant's
compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the
costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction
reached an impasse when Valdes-Choy
wanted to be first paid the full consideration
before a new TCT covering the Property is
issued in the name of Chua. On the other
hand, Chua did not want to pay the
consideration in full unless a new TCT is
first issued in his name. The trial court
faulted Valdes-Choy for this impasse.
The trial court held that the parties entered
into a contract to sell on 30 June 1989, as
evidenced by the Receipt for the
P100,000.00 earnest money. The trial court
pointed out that the contract to sell was
subject to the following conditions: (1) the
balance of P10,700,000.00 was payable not
later than 15 July 1989; (2) Valdes-Choy
may stay in the Property until 13 August
1989; and (3) all papers must be "in proper
order" before full payment is made.
The trial court held that Chua complied with
the terms of the contract to sell. Chua
showed that he was prepared to pay
Valdes-Choy the consideration in full on 13
July 1989, two days before the deadline of
15 July 1989. Chua even added P80,000.00
for the documentary stamp tax. He
purchased from PBCom two manager's
checks both payable to Valdes-Choy. The
first check for P485,000.00 was to pay the
capital gains tax. The second check for
P10,215,000.00 was to pay the balance of
the purchase price. The trial court was
convinced that Chua demonstrated his
capacity and readiness to pay the balance
on 13 July 1989 with the production of the
PBCom
manager's
check
for
P10,215,000.00.

The trial court held that Chua's nonpayment of the balance of P10,215,000.00
on the agreed date was due to ValdesChoy's fault.

4. WHETHER THERE IS LEGAL AND

FACTUAL BASIS FOR THE COURT OF
APPEALS TO DECLARE THE "EARNEST
MONEY"
IN
THE
AMOUNT
OF
P100,000.00 AS FORFEITED IN FAVOR
OF VALDES-CHOY;

The Court of Appeals' Ruling

In reversing the trial court, the Court of
Appeals ruled that Chua's stance to pay the
full consideration only after the Property is
registered in his name was not the
agreement of the parties. The Court of
Appeals noted that there is a whale of
difference between the phrases "all papers
are in proper order" as written on the
Receipt, and "transfer of title" as demanded
by Chua.
Contrary to the findings of the trial court, the
Court of Appeals found that all the papers
were in order and that Chua had no valid
reason not to pay on the agreed date.
Valdes-Choy was in a position to deliver the
owner's duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations,
and the latest realty tax receipt. The
Property was also free from all liens and
encumbrances.
The Court of Appeals declared that the trial
court erred in considering Chua's showing
to Valdes-Choy of the PBCom manager's
check for P10,215,000.00 as compliance
with Chua's obligation to pay on or before
15 July 1989. The Court of Appeals pointed
out that Chua did not want to give up the
check unless "the property was already in
his name."20 Although Chua demonstrated
his capacity to pay, this could not be
equated with actual payment which he
refused to do.
The Court of Appeals did not consider the
non-payment of the capital gains tax as
failure by Valdes-Choy to put the papers "in
proper order." The Court of Appeals
explained that the payment of the capital
gains tax has no bearing on the validity of
the Deeds of Sale. It is only after the deeds
are signed and notarized can the final
computation and payment of the capital
gains tax be made.
The Issues
In his Memorandum, Chua raises the
following issues:

Page 23 of 109

5. WHETHER THE TRIAL COURT'S

JUDGMENT IS IN ACCORD WITH LAW,
REASON AND EQUITY DESERVING OF
BEING REINSTATED AND AFFIRMED.21
The issues for our resolution are: (a)
whether the transaction between Chua and
Valdes-Choy is a perfected contract of sale
or a mere contract to sell, and (b) whether
Chua can compel Valdes-Choy to cause the
issuance of a new TCT in Chua's name
even before payment of the full purchase
price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the
absolute owner of the Property which is
registered in her name under TCT
No.162955, free from all liens and
encumbrances. She was ready, able and
willing to deliver to Chua the owner's
duplicate copy of the TCT, the signed Deeds
of Sale, the tax declarations, and the latest
realty tax receipt. There is also no dispute
that on 13 July 1989, Valdes-Choy received
PBCom Check No. 206011 for P100,000.00
as earnest money from Chua. Likewise,
there is no controversy that the Receipt for
the P100,000.00 earnest money embodied
the terms of the binding contract between
Valdes-Choy and Chua.
Further, there is no controversy that as
embodied in the Receipt, Valdes-Choy and
Chua agreed on the following terms: (1) the
balance of P10,215,000.00 is payable on or
before 15 July 1989; (2) the capital gains
tax is for the account of Valdes-Choy; and
(3) if Chua fails to pay the balance of
P10,215,000.00 on or before 15 July 1989,
Valdes-Choy has the right to forfeit the
earnest money, provided that "all papers are
in proper order." On 13 July 1989, Chua
gave Valdes-Choy the PBCom manager's
check for P485,000.00 to pay the capital
gains tax.
Both the trial and appellate courts found that
the balance of P10,215,000.00 was not
actually paid to Valdes-Choy on the agreed
date. On 13 July 1989, Chua did show to

Valdes-Choy the PBCom manager's check

for P10,215,000.00, with Valdes-Choy as
payee. However, Chua refused to give this
check to Valdes-Choy until a new TCT
covering the Property is registered in Chua's
name. Or, as the trial court put it, until there
is proof of payment of the capital gains tax
which is a pre-requisite to the issuance of a
new certificate of title.
First and Second Issues: Contract of Sale or
Contract to Sell?
Chua has consistently characterized his
agreement with Valdez-Choy, as evidenced
by the Receipt, as a contract to sell and not
a contract of sale. This has been Chua's
persistent contention in his pleadings before
the trial and appellate courts.
Chua now pleads for the first time that there
is a perfected contract of sale rather than a
contract to sell. He contends that there was
no reservation in the contract of sale that
Valdes-Choy shall retain title to the Property
until after the sale. There was no agreement
for an automatic rescission of the contract in
case of Chua's default. He argues for the
first time that his payment of earnest money
and its acceptance by Valdes-Choy
precludes the latter from rejecting the
binding effect of the contract of sale. Thus,
Chua claims that Valdes-Choy may not
validly rescind the contract of sale without
following Article 159222 of the Civil Code
which requires demand, either judicially or
by notarial act, before rescission may take
place.
Chua's new theory is not well taken in light
of well-settled jurisprudence. An issue not
raised in the court below cannot be raised
for the first time on appeal, as this is
offensive to the basic rules of fair play,
justice and due process.23 In addition,
when a party deliberately adopts a certain
theory, and the case is tried and decided on
that theory in the court below, the party will
not be permitted to change his theory on
appeal. To permit him to change his theory
will be unfair to the adverse party.24
Nevertheless, in order to put to rest all
doubts on the matter, we hold that the
agreement between Chua and Valdes-Choy,
as evidenced by the Receipt, is a contract to
sell and not a contract of sale. The
distinction between a contract of sale and
contract to sell is well-settled:
In a contract of sale, the title to the property
passes to the vendee upon the delivery of
the thing sold; 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.
Otherwise stated, in a contract of sale, the
vendor loses ownership over the property
and cannot recover it until and unless the
contract is resolved or rescinded; whereas,
in a contract to sell, title is retained by the
vendor until full payment of the price. In the
latter contract, payment of the price is a
positive suspensive condition, failure of
which is not a breach but an event that
prevents the obligation of the vendor to
convey title from becoming effective.25
A perusal of the Receipt shows that the true
agreement between the parties was a

contract to sell. Ownership over the

Property was retained by Valdes-Choy and
was not to pass to Chua until full payment of
the purchase price.
First, the Receipt provides that the earnest
money shall be forfeited in case the buyer
fails to pay the balance of the purchase
price on or before 15 July 1989. In such
event, Valdes-Choy can sell the Property to
other interested parties. There is in effect a
right reserved in favor of Valdes-Choy not to
push through with the sale upon Chua's
failure to remit the balance of the purchase
price before the deadline. This is in the
nature of a stipulation reserving ownership
in the seller until full payment of the
purchase price. This is also similar to giving
the seller the right to rescind unilaterally the
contract the moment the buyer fails to pay
within a fixed period.26
Second, the agreement between Chua and
Valdes-Choy was embodied in a receipt
rather than in a deed of sale, ownership not
having passed between them. The signing
of the Deeds of Sale came later when
Valdes-Choy was under the impression that
Chua was about to pay the balance of the
purchase price. The absence of a formal
deed of conveyance is a strong indication
that the parties did not intend immediate
transfer of ownership, but only a transfer
after full payment of the purchase price.27
Third, Valdes-Choy retained possession of
the certificate of title and all other
documents relative to the sale. When Chua
refused to pay Valdes-Choy the balance of
the purchase price, Valdes-Choy also
refused to turn-over to Chua these
documents.28 These are additional proof
that the agreement did not transfer to Chua,
either by actual or constructive delivery,
ownership of the Property.29
It is true that Article 1482 of the Civil Code
provides that "[W]henever earnest money is
given in a contract of sale, it shall be
considered as part of the price and proof of
the perfection of the contract." However, this
article speaks of earnest money given in a
contract of sale. In this case, the earnest
money was given in a contract to sell. The
Receipt evidencing the contract to sell
stipulates that the earnest money is a
forfeitable deposit, to be forfeited if the sale
is not consummated should Chua fail to pay
the balance of the purchase price. The
earnest money forms part of the
consideration only if the sale is
consummated upon full payment of the
purchase price. If there is a contract of sale,
Valdes-Choy should have the right to
compel Chua to pay the balance of the
purchase price. Chua, however, has the
right to walk away from the transaction, with
no obligation to pay the balance, although
he will forfeit the earnest money. Clearly,
there is no contract of sale. The earnest
money was given in a contract to sell, and
thus Article 1482, which speaks of a
contract of sale, is not applicable.
Since the agreement between Valdes-Choy
and Chua is a mere contract to sell, the full
payment of the purchase price partakes of a
suspensive condition. The non-fulfillment of
the condition prevents the obligation to sell
from arising and ownership is retained by

Page 24 of 109

the seller without further remedies by the

buyer.30 Article 1592 of the Civil Code
permits the buyer to 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
notarial act. However, Article 1592 does not
apply to a contract to sell where the seller
reserves the ownership until full payment of
the price.31
Third and Fourth Issues: Withholding of
Payment of the
Balance of the Purchase Price and
Forfeiture of the Earnest Money
Chua insists that he was ready to pay the
balance of the purchase price but withheld
payment because Valdes-Choy did not fulfill
her contractual obligation to put all the
papers in "proper order." Specifically, Chua
claims that Valdes-Choy failed to show that
the capital gains tax had been paid after he
had advanced the money for its payment.
For the same reason, he contends that
Valdes-Choy may not forfeit the earnest
money even if he did not pay on time.
There is a variance of interpretation on the
phrase "all papers are in proper order" as
written in the Receipt. There is no dispute
though, that as long as the papers are "in
proper order," Valdes-Choy has the right to
forfeit the earnest money if Chua fails to pay
the balance before the deadline.
The trial court interpreted the phrase to
include payment of the capital gains tax,
with the Bureau of Internal Revenue receipt
as proof of payment. The Court of Appeals
held otherwise. We quote verbatim the
ruling of the Court of Appeals on this matter:
The trial court made much fuss in
connection with the payment of the capital
gains tax, of which Section 33 of the
National Internal Revenue Code of 1977, is
the governing provision insofar as its
computation is concerned. The trial court
failed to consider Section 34-(a) of the said
Code, the last sentence of which provides,
that "[t]he amount realized from the sale or
other disposition of property shall be the
sum of money received plus the fair market
value of the property (other than money)
received;" and that the computation of the
capital gains tax can only be finally
assessed by the Commission on Internal
Revenue upon the presentation of the
Deeds of Absolute Sale themselves, without
which any premature computation of the
capital gains tax becomes of no moment. At
any rate, the computation and payment of
the capital gains tax has no bearing insofar
as the validity and effectiveness of the
deeds of sale in question are concerned,
because it is only after the contracts of sale
are finally executed in due form and have
been duly notarized that the final
computation of the capital gains tax can
follow as a matter of course. Indeed, exhibit
D, the PBC Check No. 325851, dated July
13, 1989, in the amount of P485,000.00,
which is considered as part of the
consideration of the sale, was deposited in
the name of appellant, from which she in
turn, purchased the corresponding check in
the amount representing the sum to be paid
for capital gains tax and drawn in the name
of the Commissioner of Internal Revenue,

which then allayed any fear or doubt that

that amount would not be paid to the
Government after all.32
We see no reason to disturb the ruling of
the Court of Appeals.
In a contract to sell, the obligation of the
seller to sell becomes demandable only
upon the happening of the suspensive
condition. In this case, the suspensive
condition is the full payment of the purchase
price by Chua. Such full payment gives rise
to Chua's right to demand the execution of
the contract of sale.
It is only upon the existence of the contract
of sale that the seller becomes obligated to
transfer the ownership of the thing sold to
the buyer. Article 1458 of the Civil Code
defines a contract of sale as follows:
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.

real right. The delivery, therefore, made in

any of the forms provided in articles 1497 to
1505 signifies that the transmission of
ownership from vendor to vendee has taken
place. The delivery of the thing constitutes
an indispensable requisite for the purpose
of acquiring ownership. Our law does not
admit the doctrine of transfer of property by
mere consent; the ownership, the property
right, is derived only from delivery of the
thing. x x x.33 (Emphasis supplied)
In a contract of sale of real property,
delivery is effected when the instrument of
sale is executed in a public document.
When the deed of absolute sale is signed by
the parties and notarized, then delivery of
the real property is deemed made by the
seller to the buyer. Article 1498 of the Civil
Code provides that
Art. 1498. When the sale is made through a
public instrument, the execution thereof
shall be equivalent to the delivery of the
thing which is the object of the contract, if
from the deed the contrary does not appear
or cannot clearly be inferred.
x x x.

x x x. (Emphasis supplied)
Prior to the existence of the contract of sale,
the seller is not obligated to transfer
ownership to the buyer, even if there is a
contract to sell between them. It is also
upon the existence of the contract of sale
that the buyer is obligated to pay the
purchase price to the seller. Since the
transfer of ownership is in exchange for the
purchase price, these obligations must be
simultaneously fulfilled at the time of the
execution of the contract of sale, in the
absence of a contrary stipulation.
In a contract of sale, the obligations of the
seller are specified in Article 1495 of the
Civil Code, as follows:
Art. 1495. The vendor is bound to transfer
the ownership of and deliver, as well as
warrant the thing which is the object of the
sale. (Emphasis supplied)
The obligation of the seller is to transfer to
the buyer ownership of the thing sold. In the
sale of real property, the seller is not
obligated to transfer in the name of the
buyer a new certificate of title, but rather to
transfer ownership of the real property.
There is a difference between transfer of the
certificate of title in the name of the buyer,
and transfer of ownership to the buyer. The
buyer may become the owner of the real
property even if the certificate of title is still
registered in the name of the seller. As
between the seller and buyer, ownership is
transferred not by the issuance of a new
certificate of title in the name of the buyer
but by the execution of the instrument of
sale in a public document.
In a contract of sale, ownership is
transferred upon delivery of the thing sold.
As the noted civil law commentator Arturo
M. Tolentino explains it, Delivery is not only a necessary condition
for the enjoyment of the thing, but is a mode
of acquiring dominion and determines the
transmission of ownership, the birth of the

Similarly, in a contract to sell real property,

once the seller is ready, able and willing to
sign the deed of absolute sale before a
notary public, the seller is in a position to
transfer ownership of the real property to
the buyer. At this point, the seller complies
with his undertaking to sell the real property
in accordance with the contract to sell, and
to assume all the obligations of a vendor
under a contract of sale pursuant to the
relevant articles of the Civil Code. In a
contract to sell, the seller is not obligated to
transfer ownership to the buyer. Neither is
the seller obligated to cause the issuance of
a new certificate of title in the name of the
buyer. However, the seller must put all his
papers in proper order to the point that he is
in a position to transfer ownership of the
real property to the buyer upon the signing
of the contract of sale.
In the instant case, Valdes-Choy was in a
position to comply with all her obligations as
a seller under the contract to sell. First, she
already signed the Deeds of Sale in the
office of her counsel in the presence of the
buyer. Second, she was prepared to turnover the owner's duplicate of the TCT to the
buyer, along with the tax declarations and
latest realty tax receipt. Clearly, at this point
Valdes-Choy was ready, able and willing to
transfer ownership of the Property to the
buyer as required by the contract to sell,
and by Articles 1458 and 1495 of the Civil
Code to consummate the contract of sale.
Chua, however, refused to give to ValdesChoy the PBCom manager's check for the
balance of the purchase price. Chua
imposed the condition that a new TCT
should first be issued in his name, a
condition that is found neither in the law nor
in the contract to sell as evidenced by the
Receipt. Thus, at this point Chua was not
ready, able and willing to pay the full
purchase price which is his obligation under
the contract to sell. Chua was also not in a
position to assume the principal obligation
of a vendee in a contract of sale, which is
also to pay the full purchase price at the

Page 25 of 109

agreed time. Article 1582 of the Civil Code

provides that
Art. 1582. The vendee is bound to accept
delivery and to pay the price of the thing
sold at the time and place stipulated in the
contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated
that Chua should pay the balance of the
purchase price "on or before 15 July 1989."
The signed Deeds of Sale also stipulated
that the buyer shall pay the balance of the
purchase price upon signing of the deeds.
Thus, the Deeds of Sale, both signed by
Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of
EIGHT MILLION PESOS (P8,000,000.00),
Philippine Currency, receipt of which in full
is hereby acknowledged by the VENDOR
from the VENDEE, the VENDOR sells,
transfers and conveys unto the VENDEE,
his heirs, successors and assigns, the said
parcel of land, together with the
improvements existing thereon, free from all
liens and encumbrances.34 (Emphasis
supplied)
Deed of Absolute
furnishings:

Sale

covering

the

xxx
For and in consideration of the sum of TWO
MILLION EIGHT HUNDRED THOUSAND
PESOS
(P2,800,000.00),
Philippine
Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the
VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs,
successors and assigns, the said furnitures,
fixtures and other movable properties
thereon,
free
from
all liens
and
encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused
to pay the balance of the purchase price as
required by the contract to sell, the signed
Deeds of Sale, and Article 1582 of the Civil
Code. Chua was therefore in default and
has only himself to blame for the rescission
by Valdes-Choy of the contract to sell.
Even if measured under existing usage or
custom, Valdes-Choy had all her papers "in
proper order." Article 1376 of the Civil Code
provides that:
Art. 1376. The usage or custom of the place
shall be borne in mind in the interpretation
of the ambiguities of a contract, and shall fill
the omission of stipulations which are
ordinarily established.
Customarily, in the absence of a contrary
agreement, the submission by an individual
seller to the buyer of the following papers
would complete a sale of real estate: (1)
owner's duplicate copy of the Torrens
title;36 (2) signed deed of absolute sale; (3)
tax declaration; and (3) latest realty tax
receipt. The buyer can retain the amount for
the capital gains tax and pay it upon

authority of the seller, or the seller can pay

the tax, depending on the agreement of the
parties.
The buyer has more interest in having the
capital gains tax paid immediately since this
is a pre-requisite to the issuance of a new
Torrens title in his name. Nevertheless, as
far as the government is concerned, the
capital gains tax remains a liability of the
seller since it is a tax on the seller's gain
from the sale of the real estate. Payment of
the capital gains tax, however, is not a prerequisite to the transfer of ownership to the
buyer. The transfer of ownership takes
effect upon the signing and notarization of
the deed of absolute sale.
The recording of the sale with the proper
Registry of Deeds37 and the transfer of the
certificate of title in the name of the buyer
are necessary only to bind third parties to
the transfer of ownership.38 As between the
seller and the buyer, the transfer of
ownership takes effect upon the execution
of a public instrument conveying the real
estate.39 Registration of the sale with the
Registry of Deeds, or the issuance of a new
certificate of title, does not confer ownership
on the buyer. Such registration or issuance
of a new certificate of title is not one of the
modes of acquiring ownership.40
In this case, Valdes-Choy was ready, able
and willing to submit to Chua all the papers
that customarily would complete the sale,
and to pay as well the capital gains tax. On
the other hand, Chua's condition that a new
TCT be first issued in his name before he
pays the balance of P10,215,000.00,
representing 94.58% of the purchase price,
is not customary in a sale of real estate.
Such a condition, not specified in the
contract to sell as evidenced by the Receipt,
cannot be considered part of the "omissions
of stipulations which are ordinarily
established" by usage or custom.41 What is
increasingly becoming customary is to
deposit in escrow the balance of the
purchase price pending the issuance of a
new certificate of title in the name of the
buyer. Valdes-Choy suggested this solution
but unfortunately, it drew no response from
Chua.
Chua had no reason to fear being swindled.
Valdes-Choy was prepared to turn-over to
him the owner's duplicate copy of the TCT,
the signed Deeds of Sale, the tax
declarations, and the latest realty tax
receipt. There was no hindrance to paying
the capital gains tax as Chua himself had
advanced the money to pay the same and
Valdes-Choy had procured a manager's
check payable to the Bureau of Internal
Revenue covering the amount. It was only a
matter of time before the capital gains tax
would be paid. Chua acted precipitately in
filing the action for specific performance a
mere two days after the deadline of 15 July
1989 when there was an impasse. While
this case was dismissed on 22 November
1989, he did not waste any time in re-filing
the same on 29 November 1989.
Accordingly, since Chua refused to pay the
consideration in full on the agreed date,
which is a suspensive condition, Chua
cannot compel Valdes-Choy to consummate

the sale of the Property. Article 1181 of the

Civil Code provides that 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.
Chua acquired no right to compel ValdesChoy to transfer ownership of the Property
to him because the suspensive condition the full payment of the purchase price - did
not happen. There is no correlative
obligation on the part of Valdes-Choy to
transfer ownership of the Property to Chua.
There is also no obligation on the part of
Valdes-Choy to cause the issuance of a
new TCT in the name of Chua since unless
expressly stipulated, this is not one of the
obligations of a vendor.
WHEREFORE, the Decision of the Court of
Appeals in CA-G.R. CV No. 37652 dated 23
February 1995 is AFFIRMED in toto.
.
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.
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

Page 26 of 109

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.
Quiason and Kapunan, JJ., concur.

Page 27 of 109

Separate Opinions

DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion
that the donation in question is onerous
considering the conditions imposed by the
donor on the donee which created
reciprocal obligations upon both parties.
Beyond that, I beg to disagree.
First of all, may I point out an inconsistency
in the majority opinion's description of the
donation in question. In one part, it says that
the donation in question is onerous. Thus,
on page 4 it states:
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., give 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 . . . . (emphasis
supplied)
Yet, in the last paragraph of page 8 it states
that the donation is basically a gratuitous
one. The pertinent portion thereof reads:
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 interest . . .
(emphasis supplied)
Second, the discussion on conditional
obligations is unnecessary. There is no
conditional obligation to speak of in this
case. It seems that the "conditions" imposed
by the donor and as the word is used in the
law of donations is confused with
"conditions" as used in the law of
obligations. In his annotation of Article 764
of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such
as Castan, Perez Gonzalez and Alguer, and
Colin & Capitant, states clearly the context
within which the term "conditions" is used in
the law of donations, to wit:
The word "conditions" in this article does not
refer to uncertain events on which the birth
or extinguishment of a juridical relation
depends, but is used in the vulgar sense of
obligations or charges imposed by the
donor on the donee. It is used, not in its
technical or strict legal sense, but in its
broadest sense. 1 (emphasis supplied)
Clearly then, when the law and the deed of
donation speaks of "conditions" of a
donation, what are referred to are actually

the obligations, charges or burdens

imposed by the donor upon the donee and
which would characterize the donation as
onerous. In the present case, the donation
is, quite obviously, onerous, but it is more
properly called a "modal donation." A modal
donation is one in which the donor imposes
a prestation upon the donee. The
establishment of the medical college as the
condition of the donation in the present case
is one such prestation.
The conditions imposed by the donor Don
Ramon Lopez determines neither the
existence nor the extinguishment of the
obligations of the donor and the donee with
respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez
upon the donee are the very obligations of
the donation to build the medical college
and use the property for the purposes
specified in the deed of donation. It is very
clear
that
those
obligations
are
unconditional, the fulfillment, performance,
existence or extinguishment of which is not
dependent on any future or uncertain event
or past and unknown event, as the Civil
Code would define a conditional obligation.
2
Reliance on the case of Parks vs. Province
of Tarlac 3 as cited on page 5 of the majority
opinion is erroneous in so far as the latter
stated that the condition in Parks is a
resolutory one and applied this to the
present case. A more careful reading of this
Court's decision would reveal that nowhere
did we say, whether explicitly or impliedly,
that the donation in that case, which also
has a condition imposed to build a school
and a public park upon the property
donated, is a resolutory condition. 4 It is
incorrect to say that the "conditions" of the
donation there or in the present case are
resolutory conditions because, applying
Article 1181 of the Civil Code, that would
mean that upon fulfillment of the conditions,
the rights already acquired will be
extinguished. Obviously, that could not have
been the intention of the parties.
What the majority opinion probably had in
mind was that the conditions are resolutory
because if they are not complied with, the
rights of the donee as such will be
extinguished and the donation will be
revoked. To my mind, though, it is more
accurate to state that the conditions here
are not resolutory conditions but, for the
reasons stated above, are the obligations
imposed by the donor.
Third, I cannot subscribe to the view that the
provisions of Article 1197 cannot be applied
here. The conditions/obligations imposed by
the donor herein are subject to a period. I
draw this conclusion based on our previous
ruling which, although made almost 90
years ago, still finds application in the
present case. In Barretto vs. City of Manila,
5 we said that when the contract of
donation, as the one involved therein, has
no fixed period in which the condition should
be fulfilled, the provisions of what is now
Article 1197 (then Article 1128) are
applicable and it is the duty of the court to
fix a suitable time for its fulfillment. Indeed,
from the nature and circumstances of the
conditions/obligations
of
the
present
donation, it can be inferred that a period

was contemplated by the donor. Don

Ramon Lopez could not have intended his
property to remain idle for a long period of
time when in fact, he specifically burdened
the donee with the obligation to set up a
medical college therein and thus put his
property to good use. There is a need to fix
the duration of the time within which the
conditions imposed are to be fulfilled.
It is also important to fix the duration or
period for the performance of the
conditions/obligations in the donation in
resolving the petitioner's claim that
prescription has already barred the present
action. I disagree once more with the ruling
of the majority that the action of the
petitioners is not barred by the statute of
limitations. There is misplaced reliance
again on a previous decision of this Court in
Osmea vs. Rama. 6 That case does not
speak of a deed of donation as erroneously
quoted and cited by the majority opinion. It
speaks of a contract for a sum of money
where the debtor herself imposed a
condition which will determine when she will
fulfill her obligation to pay the creditor, thus,
making the fulfillment of her obligation
dependent upon her will. What we have
here, however, is not a contract for a sum of
money but a donation where the donee has
not imposed any conditions on the
fulfillment of its obligations. Although it is
admitted that the fulfillment of the
conditions/obligations
of
the
present
donation may be dependent on the will of
the donee as to when it will comply
therewith, this did not arise out of a
condition which the donee itself imposed. It
is believed that the donee was not meant to
and does not have absolute control over the
time within which it will perform its
obligations. It must still do so within a
reasonable time. What that reasonable time
is, under the circumstances, for the courts
to determine. Thus, the mere fact that there
is no time fixed as to when the conditions of
the donation are to be fulfilled does not ipso
facto mean that the statute of limitations will
not apply anymore and the action to revoke
the donation becomes imprescriptible.
Admittedly, the donation now in question is
an onerous donation and is governed by the
law on contracts (Article 733) and the case
of Osmea, being one involving a contract,
may apply. But we must not lose sight of the
fact that it is still a donation for which this
Court itself applied the pertinent law to
resolve situations such as this. That the
action to revoke the donation can still
prescribe has been the pronouncement of
this Court as early as 1926 in the case of
Parks which, on this point, finds relevance
in this case. There, this Court said,
[that] this action [for the revocation of the
donation] 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 [four] years for the
revocation by the subsequent birth of
children [Art. 646, now Art. 763], and . . . 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, now Art.

Page 28 of 109

764], 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. 7
More recently, in De Luna v. Abrigo, 8 this
Court reiterated the ruling in Parks and said
that:
It is true that under Article 764 of the New
Civil Code, actions for the revocation of a
donation must be brought within four (4)
years from the non-compliance of the
conditions of the donation. However, it is
Our opinion that said article does not apply
to onerous donations in view of the specific
provision of Article 733 providing that
onerous donations are governed by the
rules on contracts.
In the light of the above, the rules on
contracts and the general rules on
prescription and not the rules on donations
are applicable in the case at bar.
The law applied in both cases is Article
1144(1). It refers to the prescription of an
action upon a written contract, which is what
the deed of an onerous donation is. The
prescriptive period is ten years from the
time the cause of action accrues, and that
is, from the expiration of the time within
which the donee must comply with the
conditions/obligations of the donation. As to
when this exactly is remains to be
determined, and that is for the courts to do
as reposed upon them by Article 1197.
For the reasons expressed above, I register
my dissent. Accordingly, the decision of the
Court of Appeals must be upheld, except its
ruling that the conditions of the donation are
resolutory.
G.R. No. L-5003

June 27, 1953

NAZARIO
TRILLANA,
administratorappellee,
vs.
QUEZON COLLEGE, INC., claimantappellant.
Singson, Barnes, Yap and Blanco for
appellant.
Delgado, Flores & Macapagal for
appellee.
Damasa Crisostomo sent the following letter
to the Board of Trustees of the Quezon
College:
June 1, 1948
The BOARD OF TRUSTEES
Quezon College
Manila
Gentlemen:
Please enter my subscription to dalawang
daan (200) shares of your capital stock with
a par value of P100 each. Enclosed you will
find (Babayaran kong lahat pagkatapos na
ako ay makapag-pahuli ng isda) pesos as
my initial payment and the balance payable
in accordance with law and the rules and
regulations of the Quezon College. I hereby
agree to shoulder the expenses connected
with said shares of stock. I further submit
myself to all lawful demands, decisions or

directives of the Board of Trustees of the

Quezon College and all its duly constituted
officers or authorities (ang nasa itaas ay
binasa at ipinaliwanag sa akin sa wikang
tagalog na aking nalalaman).
Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
Nilagdaan sa aming harapan:
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26,
1948. As no payment appears to have been
made on the subscription mentioned in the
foregoing letter, the Quezon College, Inc.
presented a claim before the Court of First
Instance of Bulacan in her testate
proceeding, for the collection of the sum of
P20,000, representing the value of the
subscription to the capital stock of the
Quezon College, Inc. This claim was
opposed by the administrator of the estate,
and the Court of First Instance of Bulacan,
after hearing issued an order dismissing the
claim of the Quezon College, Inc. on the
ground that the subscription in question was
neither registered in nor authorized by the
Securities and Exchange Commission.
From this order the Quezon College, Inc.
has appealed.
It is not necessary for us to discuss at
length appellant's various assignments of
error relating to the propriety of the ground
relief upon by the trial court, since, as
pointed out in the brief for the administrator
and appellee, there are other decisive
considerations which, though not touched
by the lower court, amply sustained the
appealed order.
It appears that the application sent by
Damasa Crisostomo to the Quezon College,
Inc. was written on a general form indicating
that an applicant will enclose an amount as
initial payment and will pay the balance in
accordance with law and the regulations of
the College. On the other hand, in the letter
actually sent by Damasa Crisostomo, the
latter (who requested that her subscription
for 200 shares be entered) not only did not
enclose any initial payment but stated that
"babayaran kong lahat pagkatapos na ako
ay makapagpahuli ng isda." There is
nothing in the record to show that the
Quezon College, Inc. accepted the term of
payment
suggested
by
Damasa
Crisostomo, or that if there was any
acceptance the same came to her
knowledge during her lifetime. As the
application of Damasa Crisostomo is
obviously at variance with the terms
evidenced in the form letter issued by the
Quezon College, Inc., there was absolute
necessity on the part of the College to
express its agreement to Damasa's offer in
order to bind the latter. Conversely, said
acceptance was essential, because it would
be unfair to immediately obligate the
Quezon College, Inc. under Damasa's
promise to pay the price of the subscription
after she had caused fish to be caught. In
other words, the relation between Damasa
Crisostomo and the Quezon College, Inc.
had only thus reached the preliminary stage

whereby the latter offered its stock for

subscription on the terms stated in the form
letter, and Damasa applied for subscription
fixing her own plan of payment, a
relation, in the absence as in the present
case of acceptance by the Quezon College,
Inc. of the counter offer of Damasa
Crisostomo, that had not ripened into an
enforceable contract.

additional expenses were made known to

petitioner SBTC thru its Vice-President Fely
Sebastian and Supervising Architect Rudy
de la Rama as early as March 1980.
Respondent Ferrer made timely demands
for payment of the increased cost. Said
demands were supported by receipts,
invoices, payrolls and other documents
proving the additional expenses.

Indeed, the need for express acceptance on

the part of the Quezon College, Inc.
becomes the more imperative, in view of the
proposal of Damasa Crisostomo to pay the
value of the subscription after she has
harvested fish, a condition obviously
dependent upon her sole will and, therefore,
facultative in nature, rendering the
obligation void, under article 1115 of the old
Civil Code which provides as follows: "If the
fulfillment of the condition should depend
upon the exclusive will of the debtor, the
conditional obligation shall be void. If it
should depend upon chance, or upon the
will of a third person, the obligation shall
produce all its effects in accordance with the
provisions of this code." It cannot be argued
that the condition solely is void, because it
would have served to create the obligation
to pay, unlike a case, exemplified by
Osmea vs. Rama (14 Phil., 99), wherein
only the potestative condition was held void
because it referred merely to the fulfillment
of an already existing indebtedness.

In March 1981, SBTC thru Assistant VicePresident

Susan
Guanio
and
a
representative of an architectural firm
consulted by SBTC, verified Ferrer's claims
for additional cost. A recommendation was
then made to settle Ferrer's claim but only
for P200,000.00. SBTC, instead of paying
the recommended additional amount,
denied ever authorizing payment of any
amount beyond the original contract price.
SBTC likewise denied any liability for the
additional cost based on Article IX of the
building contract which states:

In the case of Taylor vs. Uy Tieng Piao, et

al. (43 Phil., 873, 879), this Court already
held that "a condition, facultative as to the
debtor, is obnoxious to the first sentence
contained in article 1115 and renders the
whole obligation void."
Wherefore, the appealed order is affirmed,
and it is so ordered with costs against
appellant.
G.R. No. 117009

If at any time prior to the completion of the

work to be performed hereunder, increase in
prices of construction materials and/or labor
shall supervene through no fault on the part
of the contractor whatsoever or any act of
the government and its instrumentalities
which directly or indirectly affects the
increase of the cost of the project, OWNER
shall equitably make the appropriate
adjustment on mutual agreement of both
parties.
Ysmael C. Ferrer then filed a complaint for
breach of contract with damages. The trial
court ruled for Ferrer and ordered
defendants SBTC and Rosito C. Manhit to
pay:
a) P259,417.23 for the increase in price of
labor and materials plus 12% interest
thereon per annum from 15 August 1980
until fully paid;

October 11, 1995

b) P24,000.00 as actual damages;

SECURITY BANK & TRUST COMPANY

and ROSITO C. MANHIT, petitioners,
vs.
COURT OF APPEALS and YSMAEL C.
FERRER, respondents,
In this petition for review under Rule 45 of
the Rules of Court, petitioners seek a review
and reversal of the decision * of respondent
Court of Appeals in CA-G.R. CV No. 40450,
entitled "Ysmael C. Ferrer v. Security Bank
and Trust Company, et. al." dated 31 August
1994, which affirmed the decision ** of the
Regional Trial Court, Branch 63, Makati in
Civil Case No. 42712, a complaint for
breach of contract with damages.
Private respondent Ysmael C. Ferrer was
contracted by herein petitioners Security
Bank and Trust Company (SBTC) and
Rosito C. Manhit to construct the building of
SBTC in Davao City for the price of
P1,760,000.00. The contract dated 4
February 1980 provided that Ferrer would
finish the construction in two hundred (200)
working days. Respondent Ferrer was able
to complete the construction of the building
on 15 August 1980 (within the contracted
period) but he was compelled by a drastic
increase in the cost of construction
materials to incur expenses of about
P300,000.00 on top of the original cost. The

Page 29 of 109

c) P20,000.00 as moral damages;

d) P20,000.00 as exemplary damages;
e) attorney's fees equivalent to 25% of the
principal amount due; and
f) costs of suit.
On appeal, the Court of Appeals affirmed
the trial court decision.
In the present petition for review, petitioners
assign the following errors to the appellate
court:
. . . IN HOLDING THAT PLAINTIFFAPPELLEE HAS, BY PREPONDERANCE
OF EVIDENCE SUFFICIENTLY PROVEN
HIS CLAIM AGAINST THE DEFENDANTSAPPELLANTS.
. . . IN INTERPRETING AN OTHERWISE
CLEAR AND UNAMBIGUOUS PROVISION
OF THE CONSTRUCTION CONTRACT.
. . . IN DISREGARDING THE EXPRESS
PROVISION OF THE CONSTRUCTION
CONTRACT,
THE
LOWER
COURT
VIOLATED DEFENDANTS-APPELLANTS'
CONSTITUTIONAL GUARANTY OF NON

IMPAIRMENT OF THE OBLIGATION OF

CONTRACT. 1
Petitioners argue that under the aforequoted
Article IX of the building contract, any
increase in the price of labor and/or
materials resulting in an increase in
construction cost above the stipulated
contract price will not automatically make
petitioners liable to pay for such increased
cost, as any payment above the stipulated
contract price has been made subject to the
condition that the "appropriate adjustment"
will be made "upon mutual agreement of
both parties". It is contended that since
there was no mutual agreement between
the parties, petitioners' obligation to pay
amounts above the original contract price
never materialized.
Respondent Ysmael C. Ferrer, through
counsel, on the other hand, opposed the
arguments raised by petitioners. It is of note
however that the pleadings filed with this
Court by counsel for Ferrer hardly refute the
arguments raised by petitioners, as the
contents of said pleadings are mostly
quoted portions of the decision of the Court
of Appeals, devoid of adequate discussion
of the merits of respondent's case. The
Court, to be sure, expects more diligence
and legal know-how from lawyers than what
has been exhibited by counsel for
respondent in the present case. Under
these circumstances, the Court had to
review the entire records of this case to
evaluate the merits of the issues raised by
the contending parties.
Article 22 of the Civil Code which embodies
the maxim, Nemo ex alterius incommodo
debet lecupletari (no man ought to be made
rich out of another's injury) states:
Art. 22.
Every person who through an
act of performance by another, or any other
means, acquires or comes into possession
of something at the expense of the latter
without just or legal ground, shall return the
same to him.
The above-quoted article is part of the
chapter of the Civil Code on Human
Relations, the provisions of which were
formulated as "basic principles to be
observed for the rightful relationship
between human beings and for the stability
of the social order, . . . designed to indicate
certain norms that spring from the fountain
of good conscience, . . . guides for human
conduct [that] should run as golden threads
through society to the end that law may
approach its supreme ideal which is the
sway and dominance of justice." 2
In the present case, petitioners' arguments
to support absence of liability for the cost of
construction beyond the original contract
price are not persuasive.
Under the previously quoted Article IX of the
construction contract, petitioners would
make the appropriate adjustment to the
contract price in case the cost of the project
increases through no fault of the contractor
(private respondent). Private respondent
informed petitioners of the drastic increase
in construction cost as early as March 1980.

Petitioners in turn had the increased cost

evaluated and audited. When private
respondent
demanded
payment
of
P259,417.23, petitioner bank's VicePresident Rosito C. Manhit and the bank's
architectural consultant were directed by the
bank to verify and compute private
respondent's claims of increased cost. A
recommendation was then made to settle
private respondent's claim for P200,000.00.
Despite this recommendation and several
demands from private respondent, SBTC
failed to make payment. It denied
authorizing anyone to make a settlement of
private respondent's claim and likewise
denied any liability, contending that the
absence of a mutual agreement made
private respondent's demand premature and
baseless.
Petitioners' arguments are specious.
It is not denied that private respondent
incurred additional expenses in constructing
petitioner bank's building due to a drastic
and unexpected increase in construction
cost. In fact, petitioner bank admitted liability
for increased cost when a recommendation
was made to settle private respondent's
claim for P200,000.00. Private respondent's
claim for the increased amount was
adequately proven during the trial by
receipts, invoices and other supporting
documents.
Under Article 1182 of the Civil Code, a
conditional obligation shall be void if its
fulfillment depends upon the sole will of the
debtor. In the present case, the mutual
agreement, the absence of which petitioner
bank relies upon to support its non-liability
for the increased construction cost, is in
effect a condition dependent on petitioner
bank's sole will, since private respondent
would naturally and logically give consent to
such an agreement which would allow him
recovery of the increased cost.
Further, it cannot be denied that petitioner
bank derived benefits when private
respondent completed the construction
even at an increased cost.
Hence, to allow petitioner bank to acquire
the constructed building at a price far below
its
actual
construction
cost
would
undoubtedly constitute unjust enrichment for
the bank to the prejudice of private
respondent. Such unjust enrichment, as
previously discussed, is not allowed by law.
Finally, with respect to the award of
attorney's fees to respondent, the Court has
previously held that, "even with the
presence of an agreement between the
parties, the court may nevertheless reduce
attorney's fees though fixed in the contract
when the amount thereof appears to be
unconscionable or unreasonable." 3 As
previously noted, the diligence and legal
know-how exhibited by counsel for private
respondent hardly justify an award of 25%
of the principal amount due, which would be
at least P60,000.00. Besides, the issues in
this case are far from complex and intricate.
The award of attorney's fees is thus reduced
to P10,000.00.

the appealed decision of the Court of

Appeals in CA G.R. CV No. 40450 is
AFFIRMED.
G.R. No. 107207

November 23, 1995

VIRGILIO R. ROMERO, petitioner,

vs.
HON. COURT OF APPEALS and
ENRIQUETA CHUA VDA. DE ONGSIONG,
respondents.
The parties pose this question: May the
vendor demand the rescission of a contract
for the sale of a parcel of land for a cause
traceable to his own failure to have the
squatters on the subject property evicted
within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil
engineer, was engaged in the business of
production, manufacture and exportation of
perlite filter aids, permalite insulation and
processed perlite ore. In 1988, petitioner
and his foreign partners decided to put up a
central warehouse in Metro Manila on a
land area of approximately 2,000 square
meters. The project was made known to
several freelance real estate brokers.
A day or so after the announcement,
Alfonso Flores and his wife, accompanied
by a broker, offered a parcel of land
measuring 1,952 square meters. Located in
Barangay San Dionisio, Paraaque, Metro
Manila, the lot was covered by TCT No.
361402 in the name of private respondent
Enriqueta Chua vda. de Ongsiong.
Petitioner visited the property and, except
for the presence of squatters in the area, he
found the place suitable for a central
warehouse.
Later, the Flores spouses called on
petitioner with a proposal that should he
advance the amount of P50,000.00 which
could be used in taking up an ejectment
case against the squatters, private
respondent would agree to sell the property
for only P800.00 per square meter.
Petitioner expressed his concurrence. On
09 June 1988, a contract, denominated
"Deed of Conditional Sale," was executed
between petitioner and private respondent.
The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the
Municipality of Makati, Philippines this 9th
day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG,
of legal age, widow, Filipino and residing at
105 Simoun St., Quezon City, Metro Manila,
hereinafter referred to as the VENDOR;
-andVIRGILIO R. ROMERO, married to
Severina L. Lat, of Legal age, Filipino, and
residing at 110 San Miguel St., Plainview
Subd.,
Mandaluyong
Metro
Manila,
hereinafter referred to as the VENDEE:
WITNESSETH:

WHEREFORE, with the above modification

in respect of the amount of attorney's fees,

Page 30 of 109

That

WHEREAS, the VENDOR is the owner of

One (1) parcel of land with a total area of
ONE THOUSAND NINE HUNDRED FIFTY
TWO (1,952) SQUARE METERS, more or
less, located in Barrio San Dionisio,
Municipality of Paraaque, Province of
Rizal, covered by TCT No. 361402 issued
by the Registry of Deeds of Pasig and more
particularly described as follows:

while capital gains tax shall be paid by the

VENDOR.

execution of the judgment and ejectment of

the occupants." 5

IN WITNESS WHEREOF, the parties

hereunto signed those (sic) presents in the
City of Makati MM, Philippines on this 9th
day of June, 1988.

xxxxxx

VIRGILIO R. ROMERO
CHUA VDA.

In his letter of 19 June 1989, Atty. Joaquin

Yuseco, Jr., counsel for private respondent,
advised Atty. Apostol that the Deed of
Conditional Sale had been rendered null
and void by virtue of his client's failure to
evict the squatters from the premises within
the agreed 60-day period. He added that
private respondent had "decided to retain
the property." 6

xxx

WHEREAS, the VENDEE, for (sic) has

offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to
the terms and conditions hereinafter
stipulated:

(Sgd.)

(Sgd.)
ENRIQUETA

DE ONGSIONG
Vendee

On 23 June 1989, Atty. Apostol wrote back

to explain:

Vendor

SIGNED IN THE PRESENCE OF:

NOW,
THEREFORE,
for
and
in
consideration of the sum of ONE MILLION
FIVE HUNDRED SIXTY ONE THOUSAND
SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by
VENDEE to in to (sic) manner set forth, the
VENDOR agrees to sell to the VENDEE,
their heirs, successors, administrators,
executors, assign, all her rights, titles and
interest in and to the property mentioned in
the FIRST WHEREAS CLAUSE, subject to
the following terms and conditions:
1. That the sum of FIFTY THOUSAND
PESOS (P50,000.00) ONLY Philippine
Currency, is to be paid upon signing and
execution of this instrument.
2. The balance of the purchase price in the
amount of ONE MILLION FIVE HUNDRED
ELEVEN THOUSAND SIX HUNDRED
PESOS (P1,511,600.00) ONLY shall be paid
45 days after the removal of all squatters
from the above described property.
3. Upon full payment of the overall
purchase price as aforesaid, VENDOR
without necessity of demand shall
immediately sign, execute, acknowledged
(sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free
from all liens and encumbrances and all
Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and
stipulated by and between the parties
hereto that if after 60 days from the date of
the signing of this contract the VENDOR
shall not be able to remove the squatters
from the property being purchased, the
downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the
VENDEE.
That in the event that the VENDEE shall not
be able to pay the VENDOR the balance of
the purchase price of ONE MILLION FIVE
HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY
after 45 days from written notification to the
VENDEE of the removal of the squatters
from the property being purchased, the
FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be
forfeited in favor of the VENDOR.
Expenses for the registration such as
registration fees, documentary stamp,
transfer fee, assurances and such other
fees and expenses as may be necessary to
transfer the title to the name of the VENDEE
shall be for the account of the VENDEE

(Sgd.)

(Sgd.)

Rowena C. Ongsiong
1

Jack M. Cruz

Alfonso Flores, in behalf of private

respondent,
forthwith
received
and
acknowledged a check for P50,000.00 2
from petitioner. 3
Pursuant to the agreement, private
respondent filed a complaint for ejectment
(Civil Case No. 7579) against Melchor Musa
and 29 other squatter families with the
Metropolitan Trial Court of Paraaque. A few
months later, or on 21 February 1989,
judgment was rendered ordering the
defendants to vacate the premises. The
decision was handed down beyond the 60day period (expiring 09 August 1988)
stipulated in the contract. The writ of
execution of the judgment was issued, still
later, on 30 March 1989.
In a letter, dated 07 April 1989, private
respondent sought to return the P50,000.00
she received from petitioner since, she said,
she could not "get rid of the squatters" on
the lot. Atty. Sergio A.F. Apostol, counsel for
petitioner, in his reply of 17 April 1989,
refused the tender and stated:.
Our client believes that with the exercise of
reasonable diligence considering the
favorable decision rendered by the Court
and the writ of execution issued pursuant
thereto, it is now possible to eject the
squatters from the premises of the subject
property, for which reason, he proposes that
he shall take it upon himself to eject the
squatters, provided, that expenses which
shall be incurred by reason thereof shall be
chargeable to the purchase price of the
land. 4
Meanwhile, the Presidential Commission for
the Urban Poor ("PCUD"), through its
Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of
Paraaque for a grace period of 45 days
from 21 April 1989 within which to relocate
and transfer the squatter families. Acting
favorably on the request, the court
suspended the enforcement of the writ of
execution accordingly.
On 08 June 1989, Atty. Apostol reminded
private respondent on the expiry of the 45day grace period and his client's willingness
to "underwrite the expenses for the

Page 31 of 109

The contract of sale between the parties

was perfected from the very moment that
there was a meeting of the minds of the
parties upon the subject lot and the price in
the amount of P1,561,600.00. Moreover, the
contract had already been partially fulfilled
and executed upon receipt of the
downpayment of your client. Ms. Ongsiong
is precluded from rejecting its binding
effects relying upon her inability to eject the
squatters from the premises of subject
property during the agreed period. Suffice it
to state that, the provision of the Deed of
Conditional Sale do not grant her the option
or prerogative to rescind the contract and to
retain the property should she fail to comply
with the obligation she has assumed under
the contract. In fact, a perusal of the terms
and conditions of the contract clearly shows
that the right to rescind the contract and to
demand the return/reimbursement of the
downpayment is granted to our client for his
protection.
Instead, however, of availing himself of the
power to rescind the contract and demand
the
return,
reimbursement
of
the
downpayment, our client had opted to take it
upon himself to eject the squatters from the
premises. Precisely, we refer you to our
letters addressed to your client dated April
17, 1989 and June 8, 1989.
Moreover, it is basic under the law on
contracts that the power to rescind is given
to the injured party. Undoubtedly, under the
circumstances, our client is the injured party.
Furthermore, your client has not complied
with her obligation under their contract in
good faith. It is undeniable that Ms.
Ongsiong deliberately refused to exert
efforts to eject the squatters from the
premises of the subject property and her
decision to retain the property was brought
about by the sudden increase in the value of
realties in the surrounding areas.
Please consider this letter as a tender of
payment to your client and a demand to
execute the absolute Deed of Sale. 7
A few days later (or on 27 June 1989),
private respondent, prompted by petitioner's
continued refusal to accept the return of the
P50,000.00 advance payment, filed with the
Regional Trial Court of Makati, Branch 133,
Civil Case No. 89-4394 for rescission of the
deed of "conditional" sale, plus damages,
and for the consignation of P50,000.00
cash.
Meanwhile, on 25 August 1989, the
Metropolitan Trial Court issued an alias writ

of execution in Civil Case No. 7579 on

motion of private respondent but the
squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June
1990, the Regional Trial Court of Makati 8
rendered decision holding that private
respondent had no right to rescind the
contract since it was she who "violated her
obligation to eject the squatters from the
subject property" and that petitioner, being
the injured party, was the party who could,
under Article 1191 of the Civil Code, rescind
the agreement. The court ruled that the
provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if
the vendor were to fail in her obligation to
free the property from squatters within the
stipulated period or (b), upon the other
hand, the sum's forfeiture by the vendor if
the vendee were to fail in paying the agreed
purchase price, amounted to "penalty
clauses". The court added:
This Court is not convinced of the ground
relied upon by the plaintiff in seeking the
rescission, namely: (1) he (sic) is afraid of
the squatters; and (2) she has spent so
much to eject them from the premises (p. 6,
tsn, ses. Jan. 3, 1990). Militating against her
profession of good faith is plaintiffs conduct
which is not in accord with the rules of fair
play and justice. Notably, she caused the
issuance of an alias writ of execution on
August 25, 1989 (Exh. 6) in the ejectment
suit which was almost two months after she
filed the complaint before this Court on June
27, 1989. If she were really afraid of the
squatters, then she should not have
pursued the issuance of an alias writ of
execution. Besides, she did not even report
to the police the alleged phone threats from
the squatters. To the mind of the Court, the
so-called squatter factor is simply factuitous
(sic). 9
The lower court, accordingly, dismissed the
complaint and ordered, instead, private
respondent to eject or cause the ejectment
of the squatters from the property and to
execute the absolute deed of conveyance
upon payment of the full purchase price by
petitioner.
Private respondent appealed to the Court of
Appeals. On 29 May 1992, the appellate
court rendered its decision. 10 It opined that
the contract entered into by the parties was
subject to a resolutory condition, i.e., the
ejectment of the squatters from the land, the
non-occurrence of which resulted in the
failure of the object of the contract; that
private respondent substantially complied
with her obligation to evict the squatters;
that it was petitioner who was not ready to
pay the purchase price and fulfill his part of
the contract, and that the provision requiring
a mandatory return/reimbursement of the
P50,000.00 in case private respondent
would fail to eject the squatters within the
60-day period was not a penal clause. Thus,
it concluded.
WHEREFORE, the decision appealed from
is REVERSED and SET ASIDE, and a new
one entered declaring the contract of
conditional sale dated June 9, 1988
cancelled and ordering the defendantappellee to accept the return of the
downpayment in the amount of P50,000.00

which was deposited in the court below. No

pronouncement as to costs. 11
Failing to obtain a reconsideration,
petitioner filed this petition for review on
certiorari raising issues that, in fine, center
on the nature of the contract adverted to
and the P50,000.00 remittance made by
petitioner.
A perfected contract of sale may either be
absolute or conditional 12 depending on
whether the agreement is devoid of, or
subject to, any condition imposed on the
passing of title of the thing to be conveyed
or on the obligation of a party thereto. When
ownership is retained until the fulfillment of
a positive condition the breach of the
condition will simply prevent the duty to
convey title from acquiring an obligatory
force. If the condition is imposed on an
obligation of a party which is not complied
with, the other party may either refuse to
proceed or waive said condition (Art. 1545,
Civil Code). Where, of course, the condition
is imposed upon the perfection of the
contract itself, the failure of such condition
would prevent the juridical relation itself
from coming into existence. 13
In determining the real character of the
contract, the title given to it by the parties is
not as much significant as its substance.
For example, a deed of sale, although
denominated as a deed of conditional sale,
may be treated as absolute in nature, if title
to the property sold is not reserved in the
vendor or if the vendor is not granted the
right to unilaterally rescind the contract
predicated
on the fulfillment or non-fulfillment, as the
case may be, of the prescribed condition. 14
The term "condition" in the context of a
perfected contract of sale pertains, in reality,
to the compliance by one party of an
undertaking the fulfillment of which would
beckon, in turn, the demandability of the
reciprocal prestation of the other party. The
reciprocal obligations referred to would
normally be, in the case of vendee, the
payment of the agreed purchase price and,
in the case of the vendor, the fulfillment of
certain express warranties (which, in the
case at bench is the timely eviction of the
squatters on the property).
It would be futile to challenge the agreement
here in question as not being a duly
perfected contract. A sale is at once
perfected when a person (the seller)
obligates himself, for a price certain, to
deliver and to transfer ownership of a
specified thing or right to another (the
buyer) over which the latter agrees. 15
The object of the sale, in the case before
us, was specifically identified to be a 1,952square meter lot in San Dionisio,
Paraaque, Rizal, covered by Transfer
Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein
technically described. The purchase price
was fixed at P1,561,600.00, of which
P50,000.00 was to be paid upon the
execution of the document of sale and the
balance of P1,511,600.00 payable "45 days
after the removal of all squatters from the
above described property."

Page 32 of 109

From the moment the contract is perfected,

the parties are bound not only to the
fulfillment of what has been expressly
stipulated but also to all the consequences
which, according to their nature, may be in
keeping with good faith, usage and law.
Under the agreement, private respondent is
obligated to evict the squatters on the
property. The ejectment of the squatters is a
condition the operative act of which sets into
motion the period of compliance by
petitioner of his own obligation, i.e., to pay
the balance of the purchase price. Private
respondent's failure "to remove the
squatters from the property" within the
stipulated period gives petitioner the right to
either refuse to proceed with the agreement
or waive that condition in consonance with
Article 1545 of the Civil Code. 16 This
option clearly belongs to petitioner and not
to private respondent.
We share the opinion of the appellate court
that the undertaking required of private
respondent
does
not
constitute
a
"potestative condition dependent solely on
his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil
Code 17 but a "mixed" condition "dependent
not on the will of the vendor alone but also
of third persons like the squatters and
government agencies and personnel
concerned." 18 We must hasten to add,
however, that where the so-called
"potestative condition" is imposed not on the
birth of the obligation but on its fulfillment,
only the obligation is avoided, leaving
unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545
of the Civil Code, aforementioned, allows
the obligee to choose between proceeding
with the agreement or waiving the
performance of the condition. It is this
provision which is the pertinent rule in the
case at bench. Here, evidently, petitioner
has waived the performance of the condition
imposed on private respondent to free the
property from squatters. 20
In any case, private respondent's action for
rescission is not warranted. She is not the
injured party. 21 The right of resolution of a
party to an obligation under Article 1191 of
the Civil Code is predicated on a breach of
faith by the other party that violates the
reciprocity between them. 22 It is private
respondent who has failed in her obligation
under the contract. Petitioner did not breach
the agreement. He has agreed, in fact, to
shoulder the expenses of the execution of
the judgment in the ejectment case and to
make arrangements with the sheriff to effect
such execution. In his letter of 23 June
1989, counsel for petitioner has tendered
payment and demanded forthwith the
execution of the deed of absolute sale.
Parenthetically, this offer to pay, having
been made prior to the demand for
rescission, assuming for the sake of
argument that such a demand is proper
under Article 1592 23 of the Civil Code,
would likewise suffice to defeat private
respondent's
prerogative
to
rescind
thereunder.
There is no need to still belabor the
question of whether the P50,000.00
advance payment is reimbursable to
petitioner
or
forfeitable
by
private

respondent, since, on the basis of our

foregoing conclusions, the matter has
ceased to be an issue. Suffice it to say that
petitioner having opted to proceed with the
sale, neither may petitioner demand its
reimbursement from private respondent nor
may private respondent subject it to
forfeiture.
WHEREFORE, the questioned decision of
the Court of Appeals is hereby REVERSED
AND SET ASIDE, and another is entered
ordering petitioner to pay private respondent
the balance of the purchase price and the
latter to execute the deed of absolute sale in
favor of petitioner. No costs.
G.R. No. 112329

January 28, 2000

VIRGINIA A. PEREZ, petitioner,

vs.
COURT OF APPEALS and BF LIFEMAN
INSURANCE
CORPORATION,
respondents.
A contract of insurance, like all other
contracts, must be assented to by both
parties, either in person or through their
agents and so long as an application for
insurance has not been either accepted or
rejected, it is merely a proposal or an offer
to make a contract.
Petitioner Virginia A. Perez assails the
decision of respondent Court of Appeals
dated July 9, 1993 in CA-G.R. CV 35529
entitled,
"BF
Lifeman
Insurance
Corporations; Plaintiff-Appellant versus
Virginia A. Perez. Defendant-Appellee,"
which declared Insurance Policy 056300 for
P50,000.00 issued by private respondent
corporation in favor of the deceased
Primitivo B. Perez, null and void and
rescinded, thereby reversing the decision
rendered by the Regional Trial Court of
Manila, Branch XVI.

Perez, together with all its supporting

papers, to the office of BF Lifeman
Insurance Corporation at Gumaca, Quezon
which office was supposed to forward the
papers to the Manila office.
On November 25, 1987, Perez died in an
accident. He was riding in a banca which
capsized during a storm. At the time of his
death, his application papers for the
additional insurance of P50,000.00 were still
with the Gumaca office. Lalog testified that
when he went to follow up the papers, he
found them still in the Gumaca office and so
he personally brought the papers to the
Manila office of BF Lifeman Insurance
Corporation. It was only on November 27,
1987 that said papers were received in
Manila.
Without knowing that Perez died on
November 25, 1987, BF Lifeman Insurance
Corporation approved the application and
issued the corresponding policy for the
P50,000.00 on December 2, 1987.4
Petitioner Virginia Perez went to Manila to
claim the benefits under the insurance
policies of the deceased. She was paid
P40,000.00 under the first insurance policy
for P20,000.00 (double indemnity in case of
accident) but the insurance company
refused to pay the claim under the
additional policy coverage of P50,000.00,
the proceeds of which amount to
P150,000.00 in view of a triple indemnity
rider on the insurance policy. In its letter' of
January 29, 1988 to Virginia A. Perez, the
insurance company maintained that the
insurance for P50,000.00 had not been
perfected at the time of the death of
Primitivo
Perez.
Consequently,
the
insurance company refunded the amount of
P2,075.00 which Virginia Perez had paid.

The facts of the case as summarized by

respondent Court of Appeals are not in
dispute.

On September 21, 1990, private respondent

BF Lifeman Insurance Corporation filed a
complaint against Virginia A. Perez seeking
the rescission and declaration of nullity of
the insurance contract in question.

Primitivo B. Perez had been insured with

the BF Lifeman Insurance Corporation since
1980 for P20,000.00. Sometime in October
1987, an agent of the insurance corporation,
Rodolfo
Lalog,
visited
Perez
in
Guinayangan, Quezon and convinced him
to apply for additional insurance coverage of
P50,000.00, to avail of the ongoing
promotional discount of P400.00 if the
premium were paid annually.1wphi1.nt

Petitioner Virginia A. Perez, on the other

hand, averred that the deceased had
fulfilled all his prestations under the contract
and all the elements of a valid contract are
present. She then filed a counterclaim
against private respondent for the collection
of P150,000.00 as actual damages,
P100,000.00 as exemplary damages,
P30,000.00 as attorney's fees and
P10,000.00 as expenses for litigation.

On October 20, 1987, Primitivo B. Perez

accomplished an application form for the
additional
insurance
coverage
of
P50,000.00. On the same day, petitioner
Virginia A. Perez, Primitivo's wife, paid
P2,075.00 to Lalog. The receipt issued by
Lalog indicated the amount received was a
"deposit."1 Unfortunately, Lalog lost the
application form accomplished by Perez and
so on October 28, 1987, he asked the latter
to fill up another application form.2 On
November 1, 1987, Perez was made to
undergo the required medical examination,
which he passed.3

On October 25, 1991, the trial court

rendered a decision in favor of petitioner,
the dispositive portion of which reads as
follows:

Pursuant to the established procedure of

the company, Lalog forwarded the
application for additional insurance of

The trial court, in ruling for petitioner, held

that the premium for the additional
insurance of P50,000.00 had been fully paid
and even if the sum of P2,075.00 were to be
considered merely as partial payment, the
same does not affect the validity of the
policy. The trial court further stated that the
deceased had fully complied with the
requirements of the insurance company. He
paid, signed the application form and
passed the medical examination. He should
not be made to suffer the subsequent delay
in the transmittal of his application form to
private respondent's head office since these
were no longer within his control.
The Court of Appeals, however, reversed
the decision of the trial court saying that the
insurance contract for P50,000.00 could not
have been perfected since at the time that
the policy was issued, Primitivo was already
dead.6 Citing the provision in the application
form signed by Primitivo which states that:
. . . there shall be no contract of insurance
unless and until a policy is issued on this
application and that the policy shall not take
effect until the first premium has been paid
and the policy has been delivered to and
accepted by me/us in person while I/we,
am/are in good health
the Court of Appeals held that the contract
of insurance had to be assented to by both
parties and so long as the application for
insurance has not been either accepted or
rejected, it is merely an offer or proposal to
make a contract.
Petitioner's motion for reconsideration
having been denied by respondent court,
the instant petition for certiorari was filed on
the ground that there was a consummated
contract of insurance between the deceased
and BF Lifeman Insurance Corporation and
that the condition that the policy issued by
the corporation be delivered and received
by the applicant in good health, is
potestative, being dependent upon the will
of the insurance company, and is therefore
null and void.
The petition is bereft of merit.
Insurance is a contract whereby, for a
stipulated
consideration,
one
party
undertakes to compensate the other for loss
on a specified subject by specified perils.7 A
contract, on the other hand, is a meeting of
the minds between two persons whereby
one binds himself, with respect to the other
to give something or to render some
service.8 Under Article 1318 of the Civil
Code, there is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;

WHEREFORE PREMISES CONSIDERED,

judgment is hereby rendered in favor of
defendant Virginia A. Perez, ordering the
plaintiff BF Lifeman Insurance Corporation
to pay to her the face value of BF Lifeman
Insurance Policy No. 056300, plus double
indemnity under the SARDI or in the total
amount of P150,000.00 (any refund made
and/or premium deficiency to be deducted
therefrom).
SO ORDERED.5

Page 33 of 109

(2) Object certain which is the subject

matter of the contract;
(3) Cause of the obligation which is
established.
Consent must be manifested by the meeting
of the offer and the acceptance upon the
thing and the cause which are to constitute
the contract. The offer must be certain and
the acceptance absolute.

When Primitivo filed an application for

insurance, paid P2,075.00 and submitted
the results of his medical examination, his
application was subject to the acceptance of
private respondent BF Lifeman Insurance
Corporation. The perfection of the contract
of insurance between the deceased and
respondent
corporation
was
further
conditioned upon compliance with the
following requisites stated in the application
form:
there shall be no contract of insurance
unless and until a policy is issued on this
application and that the said policy shall not
take effect until the premium has been paid
and the policy delivered to and accepted by
me/us in person while I/We, am/are in good
health.9
The assent of private respondent BF
Lifeman Insurance Corporation therefore
was not given when it merely received the
application form and all the requisite
supporting papers of the applicant. Its
assent was given when it issues a
corresponding policy to the applicant. Under
the abovementioned provision, it is only
when the applicant pays the premium and
receives and accepts the policy while he is
in good health that the contract of insurance
is deemed to have been perfected.
It is not disputed, however, that when
Primitivo died on November 25, 1987, his
application papers for additional insurance
coverage were still with the branch office of
respondent corporation in Gumaca and it
was only two days later, or on November
27, 1987, when Lalog personally delivered
the application papers to the head office in
Manila. Consequently, there was absolutely
no way the acceptance of the application
could have been communicated to the
applicant for the latter to accept inasmuch
as the applicant at the time was already
dead. In the case of Enriquez vs. Sun Life
Assurance Co. of Canada,10 recovery on
the life insurance of the deceased was
disallowed on the ground that the contract
for annuity was not perfected since it had
not been proved satisfactorily that the
acceptance of the application ever reached
the knowledge of the applicant.
Petitioner insists that the condition imposed
by respondent corporation that a policy
must have been delivered to and accepted
by the proposed insured in good health is
potestative being dependent upon the will of
the corporation and is therefore null and
void.
We do not agree.
A potestative condition depends upon the
exclusive will of one of the parties. For this
reason, it is considered void. Article 1182 of
the New Civil Code states: When the
fulfillment of the condition depends upon the
sole will the debtor, the conditional
obligation shall be void.
In the case at bar, the following conditions
were imposed by the respondent company
for the perfection of the contract of
insurance:
(a) a policy must have been issued;

(b) the premiums paid; and

(c) the policy must have been delivered to
and accepted by the applicant while he is in
good health.
The condition imposed by the corporation
that the policy must have been delivered to
and accepted by the applicant while he is in
good health can hardly be considered as a
potestative or facultative condition. On the
contrary, the health of the applicant at the
time of the delivery of the policy is beyond
the control or will of the insurance company.
Rather, the condition is a suspensive one
whereby the acquisition of rights depends
upon the happening of an event which
constitutes the condition. In this case, the
suspensive condition was the policy must
have been delivered and accepted by the
applicant while he is in good health. There
was non-fulfillment of the condition,
however, inasmuch as the applicant was
already dead at the time the policy was
issued. Hence, the non-fulfillment of the
condition resulted in the non-perfection of
the contract.
As stated above, a contract of insurance,
like other contracts, must be assented to by
both parties either in person or by their
agents. So long as an application for
insurance has not been either accepted or
rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding
from the date of application, must have
been a completed contract, one that leaves
nothing to be done, nothing to be
completed, nothing to be passed upon, or
determined, before it shall take effect. There
can be no contract of insurance unless the
minds of the parties have met in
agreement.11
Prescinding from the foregoing, respondent
corporation cannot be held liable for gross
negligence. It should be noted that an
application is a mere offer which requires
the overt act of the insurer for it to ripen into
a contract. Delay in acting on the application
does not constitute acceptance even though
the insured has forwarded his first premium
with his application. The corporation may
not be penalized for the delay in the
processing of the application papers.
Moreover, while it may have taken some
time for the application papers to reach the
main office, in the case at bar, the same
was acted upon less than a week after it
was
received.
The
processing
of
applications by respondent corporation
normally takes two to three weeks, the
longest being a month.12 In this case,
however, the requisite medical examination
was undergone by the deceased on
November 1, 1987; the application papers
were forwarded to the head office on
November 27, 1987; and the policy was
issued on December 2, 1987. Under these
circumstances, we hold that the delay could
not be deemed unreasonable so as to
constitute gross negligence.
A final note. It has not escaped our notice
that the Court of Appeals declared
Insurance Policy 056300 for P50,000.00 null
and void and rescinded. The Court of
Appeals corrected this in its Resolution of
the motion for reconsideration filed by
petitioner, thus:

Page 34 of 109

Anent the appearance of the word

"rescinded" in the dispositive portion of the
decision, to which defendant-appellee
attaches undue significance and makes
capital of, it is clear that the use of the
words "and rescinded" is, as it is hereby
declared, a superfluity. It is apparent from
the context of the decision that the
insurance policy in question was found null
and void, and did not have to be
"rescinded".13
True, rescission presupposes the existence
of a valid contract. A contract which is null
and void is no contract at all and hence
could not be the subject of rescission.
WHEREFORE, the decision rendered by
the Court of Appeals in CA-G.R. CV No.
35529 is AFFIRMED insofar as it declared
Insurance Policy No. 056300 for P50,000.00
issued
by
BF
Lifeman
Insurance
Corporation of no force and effect and
hence null and void. No costs.1wphi1.nt\
G.R. No. 146839
March 23, 2011
ROLANDO T. CATUNGAL, JOSE T.
CATUNGAL,
JR.,
CAROLYN
T.
CATUNGAL and ERLINDA CATUNGALWESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
Before the Court is a Petition for Review on
Certiorari, assailing the following issuances
of the Court of Appeals in CA-G.R. CV No.
40627 consolidated with CA-G.R. SP No.
27565: (a) the August 8, 2000 Decision,1
which affirmed the Decision2 dated May 30,
1992 of the Regional Trial Court (RTC),
Branch 27 of Lapu-lapu City, Cebu in Civil
Case No. 2365-L, and (b) the January 30,
2001
Resolution,3
denying
herein
petitioners motion for reconsideration of the
August 8, 2000 Decision.
The relevant factual and procedural
antecedents of this case are as follows:
This controversy arose from a Complaint for
Damages and Injunction with Preliminary
Injunction/Restraining Order4 filed on
December 10, 1990 by herein respondent
Angel S. Rodriguez (Rodriguez), with the
RTC, Branch 27, Lapu-lapu City, Cebu,
docketed as Civil Case No. 2365-L against
the spouses Agapita and Jose Catungal (the
spouses Catungal), the parents of
petitioners.
In the said Complaint, it was alleged that
Agapita T. Catungal (Agapita) owned a
parcel of land (Lot 10963) with an area of
65,246 square meters, covered by Original
Certificate of Title (OCT) No. 1055 in her
name situated in the Barrio of Talamban,
Cebu City. The said property was allegedly
the exclusive paraphernal property of
Agapita.
On April 23, 1990, Agapita, with the consent
of her husband Jose, entered into a
Contract
to
Sell6
with
respondent
Rodriguez. Subsequently, the Contract to
Sell was purportedly "upgraded" into a
Conditional Deed of Sale7 dated July 26,
1990 between the same parties. Both the
Contract to Sell and the Conditional Deed of
Sale were annotated on the title.

The provisions of the Conditional Deed of

Sale pertinent to the present dispute are
quoted below:
1. The VENDOR for and in consideration of
the sum of TWENTY[-]FIVE MILLION
PESOS (P25,000,000.00) payable as
follows:
a. FIVE HUNDRED THOUSAND PESOS
(P500,000.00) downpayment upon the
signing of this agreement, receipt of which
sum is hereby acknowledged in full from the
VENDEE.
b. The balance of TWENTY[-]FOUR
MILLION FIVE HUNDRED THOUSAND
PESOS (P24,500,000.00) shall be payable
in five separate checks, made to the order
of JOSE Ch. CATUNGAL, the first check
shall be for FOUR MILLION FIVE
HUNDRED
THOUSAND
PESOS
(P4,500,000.00) and the remaining balance
to be paid in four checks in the amounts of
FIVE MILLION PESOS (P5,000,000.00)
each after the VENDEE have (sic)
successfully negotiated, secured and
provided a Road Right of Way consisting of
12 meters in width cutting across Lot 10884
up to the national road, either by widening
the existing Road Right of Way or by
securing a new Road Right of Way of 12
meters in width. If however said Road Right
of Way could not be negotiated, the
VENDEE shall give notice to the VENDOR
for them to reassess and solve the problem
by taking other options and should the
situation ultimately prove futile, he shall take
steps to rescind or cancel the herein
Conditional Deed of Sale.
c. That the access road or Road Right of
Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and
any or all cost relative to the acquisition
thereof shall be borne solely by the
VENDEE. He shall, however, be accorded
with enough time necessary for the success
of his endeavor, granting him a free hand in
negotiating for the passage.
BY THESE PRESENTS, the VENDOR do
hereby agree to sell by way of herein
CONDITIONAL DEED OF SALE to
VENDEE, his heirs, successors and
assigns, the real property described in the
Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to
rescind the sale. In the event the VENDEE
exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE
shall notify the VENDOR by way of a written
notice relinquishing his rights over the
property. The VENDEE shall then be
reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS
(P500,000.00)
representing
the
downpayment, interest free, payable but
contingent upon the event that the
VENDOR shall have been able to sell the
property to another party.8
In accordance with the Conditional Deed of
Sale, Rodriguez purportedly secured the
necessary surveys and plans and through
his efforts, the property was reclassified

from agricultural land into residential land

which he claimed substantially increased
the propertys value. He likewise alleged
that he actively negotiated for the road right
of way as stipulated in the contract.9
Rodriguez further claimed that on August
31, 1990 the spouses Catungal requested
an advance of P5,000,000.00 on the
purchase price for personal reasons.
Rodriquez allegedly refused on the ground
that the amount was substantial and was
not due under the terms of their agreement.
Shortly after his refusal to pay the advance,
he purportedly learned that the Catungals
were offering the property for sale to third
parties.10
Thereafter, Rodriguez received letters dated
October 22, 1990,11 October 24, 199012
and October 29, 1990,13 all signed by Jose
Catungal who was a lawyer, essentially
demanding that the former make up his
mind about buying the land or exercising his
"option" to buy because the spouses
Catungal allegedly received other offers and
they needed money to pay for personal
obligations and for investing in other
properties/business
ventures.
Should
Rodriguez fail to exercise his option to buy
the land, the Catungals warned that they
would consider the contract cancelled and
that they were free to look for other buyers.
In a letter dated November 4, 1990,14
Rodriguez registered his objections to what
he termed the Catungals unwarranted
demands in view of the terms of the
Conditional Deed of Sale which allowed him
sufficient time to negotiate a road right of
way and granted him, the vendee, the
exclusive right to rescind the contract. Still,
on November 15, 1990, Rodriguez
purportedly received a letter dated
November 9, 199015 from Atty. Catungal,
stating that the contract had been cancelled
and terminated.
Contending that the Catungals unilateral
rescission of the Conditional Deed of Sale
was unjustified, arbitrary and unwarranted,
Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a
restraining order be issued enjoining
defendants [the spouses Catungal], their
employees, agents, representatives or other
persons acting in their behalf from offering
the property subject of this case for sale to
third persons; from entertaining offers or
proposals by third persons to purchase the
said property; and, in general, from
performing
acts
in
furtherance
or
implementation of defendants rescission of
their Conditional Deed of Sale with plaintiff
[Rodriguez].
2. After hearing, a writ of preliminary
injunction be issued upon such reasonable
bond as may be fixed by the court enjoining
defendants and other persons acting in their
behalf from performing any of the acts
mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to
plaintiff, jointly and solidarily:

Page 35 of 109

Actual damages in the amount of

P400,000.00 for their unlawful rescission of
the Agreement and their performance of
acts in violation or disregard of the said
Agreement;
Moral damages
P200,000.00;

in

the

amount

of

Exemplary damages in the amount of

P200,000.00; Expenses of litigation and
attorneys fees in the amount of
P100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court
issued a temporary restraining order and set
the application for a writ of preliminary
injunction for hearing on December 21,
1990 with a directive to the spouses
Catungal to show cause within five days
from notice why preliminary injunction
should not be granted. The trial court
likewise ordered that summons be served
on them.17
Thereafter, the spouses Catungal filed their
opposition18 to the issuance of a writ of
preliminary injunction and later filed a
motion to dismiss19 on the ground of
improper
venue. According
to
the
Catungals, the subject property was located
in Cebu City and thus, the complaint should
have been filed in Cebu City, not Lapu-lapu
City. Rodriguez opposed the motion to
dismiss on the ground that his action was a
personal action as its subject was breach of
a contract, the Conditional Deed of Sale,
and not title to, or possession of real
property.20
In an Order dated January 17, 1991,21 the
trial court denied the motion to dismiss and
ruled that the complaint involved a personal
action, being merely for damages with a
prayer for injunction.
Subsequently, on January 30, 1991, the trial
court ordered the issuance of a writ of
preliminary injunction upon posting by
Rodriguez of a bond in the amount of
P100,000.00 to answer for damages that
the defendants may sustain by reason of
the injunction.
On February 1, 1991, the spouses Catungal
filed their Answer with Counterclaim22
alleging that they had the right to rescind
the contract in view of (1) Rodriguezs
failure to negotiate the road right of way
despite the lapse of several months since
the signing of the contract, and (2) his
refusal to pay the additional amount of
P5,000,000.00 asked by the Catungals,
which to them indicated his lack of funds to
purchase the property. The Catungals
likewise contended that Rodriguez did not
have an exclusive right to rescind the
contract and that the contract, being
reciprocal, meant both parties had the right
to rescind.23 The spouses Catungal further
claimed that it was Rodriguez who was in
breach of their agreement and guilty of bad
faith which justified their rescission of the
contract.24 By way of counterclaim, the
spouses Catungal prayed for actual and
consequential damages in the form of

unearned interests from the balance (of the

purchase price in the amount) of
P24,500,000.00, moral and exemplary
damages in the amount of P2,000,000.00,
attorneys fees in the amount of
P200,000.00 and costs of suits and litigation
expenses in the amount of P10,000.00.25
The spouses Catungal prayed for the
dismissal of the complaint and the grant of
their counterclaim.
The Catungals amended their Answer
twice,26 retaining their basic allegations but
amplifying their charges of contractual
breach and bad faith on the part of
Rodriguez and adding the argument that in
view of Article 1191 of the Civil Code, the
power to rescind reciprocal obligations is
granted by the law itself to both parties and
does not need an express stipulation to
grant the same to the injured party. In the
Second
Amended
Answer
with
Counterclaim, the spouses Catungal added
a prayer for the trial court to order the
Register of Deeds to cancel the annotations
of the two contracts at the back of their
OCT.27
On October 24, 1991, Rodriguez filed an
Amended Complaint,28 adding allegations
to the effect that the Catungals were guilty
of
several
misrepresentations
which
purportedly induced Rodriguez to buy the
property at the price of P25,000,000.00.
Among others, it was alleged that the
spouses Catungal misrepresented that their
Lot 10963 includes a flat portion of land
which later turned out to be a separate lot
(Lot 10986) owned by Teodora Tudtud who
sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented
that the road right of way will only traverse
two lots owned by Anatolia Tudtud and her
daughter Sally who were their relatives and
who had already agreed to sell a portion of
the said lots for the road right of way at a
price of P550.00 per square meter.
However, because of the Catungals acts of
offering the property to other buyers who
offered to buy the road lots for P2,500.00
per square meter, the adjacent lot owners
were no longer willing to sell the road lots to
Rodriguez at P550.00 per square meter but
were asking for a price of P3,500.00 per
square meter. In other words, instead of
assisting Rodriguez in his efforts to
negotiate the road right of way, the spouses
Catungal
allegedly
intentionally
and
maliciously
defeated
Rodriguezs
negotiations for a road right of way in order
to justify rescission of the said contract and
enable them to offer the property to other
buyers.

denied.31 However, Atty. Catungal refused

to enter into pre-trial which prompted the
trial court to declare the defendants in
default and to set the presentation of the
plaintiffs evidence on February 14, 1992.32
On December 23, 1991, the Catungals filed
a motion for reconsideration33 of the
December 20, 1991 Order denying their
Urgent Motion to Dismiss but the trial court
denied reconsideration in an Order dated
February 3, 1992.34 Undeterred, the
Catungals subsequently filed a Motion to Lift
and to Set Aside Order of Default35 but it
was likewise denied for being in violation of
the rules and for being not meritorious.36
On February 28, 1992, the Catungals filed a
Petition for Certiorari and Prohibition37 with
the Court of Appeals, questioning the denial
of their motion to dismiss and the order of
default. This was docketed as CA-G.R. SP
No. 27565.
Meanwhile, Rodriguez proceeded to present
his evidence before the trial court.

During the pre-trial held on December 20,

1991, the trial court denied in open court the
Catungals Urgent Motion to Dismiss for
violation of the rules and for being
repetitious and having been previously

THE COURT A QUO ERRED IN

CONSIDERING THE DEFENDANTS AS
HAVING LOST THEIR LEGAL STANDING
IN COURT WHEN AT MOST THEY COULD
ONLY BE CONSIDERED AS IN DEFAULT
AND STILL ENTITLED TO NOTICES OF
ALL
FURTHER
PROCEEDINGS
ESPECIALLY AFTER THEY HAD FILED
THE MOTION TO LIFT THE ORDER OF
DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING
THE
WRIT
[OF]
PRELIMINARY
INJUNCTION
RESTRAINING
THE
EXERCISE OF ACTS OF OWNERSHIP
AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURTS
TERRITORIAL
JURISDICTION
AND
INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION,
THUS THE NULLITY OF THE WRIT.

In a Decision dated May 30, 1992, the trial

court ruled in favor of Rodriguez, finding
that: (a) under the contract it was
complainant (Rodriguez) that had the option
to rescind the sale; (b) Rodriguezs
obligation to pay the balance of the
purchase price arises only upon successful
negotiation of the road right of way; (c) he
proved his diligent efforts to negotiate the
road right of way; (d) the spouses Catungal
were guilty of misrepresentation which
defeated Rodriguezs efforts to acquire the
road right of way; and (e) the Catungals
rescission of the contract had no basis and
was in bad faith. Thus, the trial court made
the injunction permanent, ordered the
Catungals to reduce the purchase price by
the amount of acquisition of Lot 10963
which they misrepresented was part of the
property sold but was in fact owned by a
third party and ordered them to pay
P100,000.00 as damages, P30,000.00 as
attorneys fees and costs.

VI

The Catungals appealed the decision to the

Court of Appeals, asserting the commission
of the following errors by the trial court in
their appellants brief38 dated February 9,
1994:

VII

I
THE COURT A QUO ERRED IN NOT
DISMISSING OF (SIC) THE CASE ON THE
GROUNDS OF IMPROPER VENUE AND
LACK OF JURISDICTION.
II

Despite requesting the trial court for an

extension of time to file an amended
Answer,29 the Catungals did not file an
amended Answer and instead filed an
Urgent Motion to Dismiss30 again invoking
the ground of improper venue. In the
meantime, for failure to file an amended
Answer within the period allowed, the trial
court set the case for pre-trial on December
20, 1991.

IV

THE COURT A QUO ERRED IN

CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT
VENUE WAS PROPERLY LAID AND THE
CASE IS A PERSONAL ACTION, THE
COURT A QUO ERRED IN DECLARING
THE DEFENDANTS IN DEFAULT DURING
THE PRE-TRIAL WHEN AT THAT TIME
THE DEFENDANTS HAD ALREADY FILED
THEIR ANSWER TO THE COMPLAINT.

Page 36 of 109

THE COURT A QUO ERRED IN NOT

RESTRAINING ITSELF MOTU PROP[R]IO
FROM
CONTINUING
WITH
THE
PROCEEDINGS IN THE CASE AND IN
RENDERING DECISION THEREIN IF
ONLY FOR REASON OF COURTESY AND
FAIRNESS
BEING
MANDATED
AS
DISPENSER OF FAIR AND EQUAL
JUSTICE TO ALL AND SUNDRY WITHOUT
FEAR OR FAVOR IT HAVING BEEN
SERVED EARLIER WITH A COPY OF THE
PETITION
FOR
CERTIORARI
QUESTIONING
ITS
VENUE
AND
JURISDICTION IN CA-G.R. NO. SP 27565
IN FACT NOTICES FOR THE FILING OF
COMMENT THERETO HAD ALREADY
BEEN SENT OUT BY THE HONORABLE
COURT
OF
APPEALS,
SECOND
DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID
NOTICE.

THE COURT A QUO ERRED IN DECIDING

THE CASE IN FAVOR OF THE PLAINTIFF
AND AGAINST THE DEFENDANTS ON
THE BASIS OF EVIDENCE WHICH ARE
IMAGINARY, FABRICATED, AND DEVOID
OF TRUTH, TO BE STATED IN DETAIL IN
THE DISCUSSION OF THIS PARTICULAR
ERROR,
AND,
THEREFORE,
THE
DECISION IS REVERSIBLE.39
On August 31, 1995, after being granted
several extensions, Rodriguez filed his
appellees brief,40 essentially arguing the
correctness of the trial courts Decision
regarding the foregoing issues raised by the
Catungals. Subsequently, the Catungals
filed a Reply Brief41 dated October 16,
1995.
From the filing of the appellants brief in
1994 up to the filing of the Reply Brief, the
spouses Catungal were represented by
appellant Jose Catungal himself. However,
a new counsel for the Catungals, Atty. Jesus
N. Borromeo (Atty. Borromeo), entered his
appearance before the Court of Appeals on
September 2, 1997.42 On the same date,
Atty. Borromeo filed a Motion for Leave of

Court to File Citation of Authorities43 and a

Citation of Authorities.44 This would be
followed by Atty. Borromeos filing of an
Additional Citation of Authority and Second
Additional Citation of Authority both on
November 17, 1997.45

II. Do paragraphs 1(b) and 5 of the

Conditional Deed of Sale violate the
principle of mutuality of contracts under
Article 1308 of the Civil Code?

During the pendency of the case with the

Court of Appeals, Agapita Catungal passed
away and thus, her husband, Jose, filed on
February 17, 1999 a motion for Agapitas
substitution by her surviving children.46

Petitioners claimed that the Court of

Appeals should have reversed the trial
courts Decision on the ground of the
alleged nullity of paragraphs 1(b) and 5 of
the
Conditional
Deed
of
Sale
notwithstanding that the same was not
raised as an error in their appellants brief.
Citing Catholic Bishop of Balanga v. Court
of Appeals,54 petitioners argued in the
Petition that this case falls under the
following exceptions:

On August 8, 2000, the Court of Appeals

rendered a Decision in the consolidated
cases CA-G.R. CV No. 40627 and CA-G.R.
SP No. 27565,47 affirming the trial courts
Decision.
In a Motion for Reconsideration dated
August 21, 2000,48 counsel for the
Catungals, Atty. Borromeo, argued for the
first time that paragraphs 1(b) and 549 of
the Conditional Deed of Sale, whether taken
separately or jointly, violated the principle of
mutuality of contracts under Article 1308 of
the Civil Code and thus, said contract was
void ab initio. He adverted to the cases
mentioned in his various citations of
authorities to support his argument of nullity
of the contract and his position that this
issue may be raised for the first time on
appeal.
Meanwhile,
a
Second
Motion
for
Substitution50 was filed by Atty. Borromeo
in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the
Court of Appeals allowed the substitution of
the deceased Agapita and Jose Catungal by
their surviving heirs and denied the motion
for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose
Catungal filed on March 27, 2001 the
present petition for review,51 which
essentially argued that the Court of Appeals
erred in not finding that paragraphs 1(b)
and/or 5 of the Conditional Deed of Sale,
violated the principle of mutuality of
contracts under Article 1308 of the Civil
Code. Thus, said contract was supposedly
void ab initio and the Catungals rescission
thereof was superfluous.
In his Comment,52 Rodriguez highlighted
that (a) petitioners were raising new matters
that cannot be passed upon on appeal; (b)
the validity of the Conditional Deed of Sale
was already admitted and petitioners cannot
be allowed to change theories on appeal;
(c) the questioned paragraphs of the
Conditional Deed of Sale were valid; and (d)
petitioners were the ones who committed
fraud and breach of contract and were not
entitled to relief for not having come to court
with clean hands.
The Court gave due course to the Petition53
and the parties filed their respective
Memoranda.
The issues to be resolved in the case at bar
can be summed into two questions:
I. Are petitioners allowed to raise their
theory of nullity of the Conditional Deed of
Sale for the first time on appeal?

On petitioners change of theory

(3) Matters not assigned as errors on

appeal but consideration of which is
necessary in arriving at a just decision and
complete resolution of the case or to serve
the interest of justice or to avoid dispensing
piecemeal justice;
(4) Matters not specifically assigned as
errors on appeal but raised in the trial court
and are matters of record having some
bearing on the issue submitted which the
parties failed to raise or which the lower
court ignored;
(5) Matters not assigned as errors on
appeal but closely related to an error
assigned; and
(6) Matters not assigned as errors but upon
which the determination of a question
properly assigned is dependent.55
We are not persuaded.
This is not an instance where a party merely
failed to assign an issue as an error in the
brief nor failed to argue a material point on
appeal that was raised in the trial court and
supported by the record. Neither is this a
case where a party raised an error closely
related to, nor dependent on the resolution
of, an error properly assigned in his brief.
This is a situation where a party completely
changes his theory of the case on appeal
and abandons his previous assignment of
errors in his brief, which plainly should not
be allowed as anathema to due process.
Petitioners should be reminded that the
object of pleadings is to draw the lines of
battle between the litigants and to indicate
fairly the nature of the claims or defenses of
both parties.56 In Philippine National
Construction Corporation v. Court of
Appeals,57 we held that "[w]hen a party
adopts a certain theory in the trial court, he
will not be permitted to change his theory on
appeal, for to permit him to do so would not
only be unfair to the other party but it would
also be offensive to the basic rules of fair
play, justice and due process."58
We have also previously ruled that "courts
of justice have no jurisdiction or power to
decide a question not in issue. Thus, a
judgment that goes beyond the issues and
purports to adjudicate something on which
the court did not hear the parties, is not only
irregular but also extrajudicial and invalid.
The rule rests on the fundamental tenets of
fair play."59

Page 37 of 109

During the proceedings before the trial

court, the spouses Catungal never claimed
that the provisions in the Conditional Deed
of Sale, stipulating that the payment of the
balance of the purchase price was
contingent upon the successful negotiation
of a road right of way (paragraph 1[b]) and
granting Rodriguez the option to rescind
(paragraph 5), were void for allegedly
making the fulfillment of the contract
dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph
1(b), the Catungals did not aver in the
Answer (and its amended versions) that the
payment of the purchase price was subject
to the will of Rodriguez but rather they
claimed that paragraph 1(b) in relation to
1(c) only presupposed a reasonable time be
given to Rodriguez to negotiate the road
right of way. However, it was petitioners
theory that more than sufficient time had
already been given Rodriguez to negotiate
the road right of way. Consequently,
Rodriguezs refusal/failure to pay the
balance of the purchase price, upon
demand, was allegedly indicative of lack of
funds and a breach of the contract on the
part of Rodriguez.
Anent paragraph 5 of the Conditional Deed
of Sale, regarding Rodriguezs option to
rescind, it was petitioners theory in the
court a quo that notwithstanding such
provision, they retained the right to rescind
the contract for Rodriguezs breach of the
same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their
theory of the nullity of the Conditional Deed
of Sale in view of the questioned provisions
was only in their Motion for Reconsideration
of the Court of Appeals Decision, affirming
the trial courts judgment. The previous filing
of various citations of authorities by Atty.
Borromeo and the Court of Appeals
resolutions noting such citations were of no
moment. The citations of authorities merely
listed cases and their main rulings without
even any mention of their relevance to the
present case or any prayer for the Court of
Appeals to consider them.1wphi1 In sum,
the Court of Appeals did not err in
disregarding the citations of authorities or in
denying
petitioners
motion
for
reconsideration of the assailed August 8,
2000 Decision in view of the proscription
against changing legal theories on appeal.
Ruling on the questioned provisions of the
Conditional Deed of Sale
Even assuming for the sake of argument
that this Court may overlook the procedural
misstep of petitioners, we still cannot uphold
their belatedly proffered arguments.
At the outset, it should be noted that what
the parties entered into is a Conditional
Deed of Sale, whereby the spouses
Catungal agreed to sell and Rodriguez
agreed to buy Lot 10963 conditioned on the
payment of a certain price but the payment
of the purchase price was additionally made
contingent on the successful negotiation of
a road right of way. It is elementary that "[i]n
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."60
Petitioners rely on Article 1308 of the Civil
Code to support their conclusion regarding
the claimed nullity of the aforementioned
provisions. Article 1308 states that "[t]he
contract must bind both contracting parties;
its validity or compliance cannot be left to
the will of one of them."
Article 1182 of the Civil Code, in turn,
provides:
Art. 1182. When the fulfillment of the
condition depends upon the sole will of the
debtor, the conditional obligation shall be
void. If it depends upon chance or upon the
will of a third person, the obligation shall
take effect in conformity with the provisions
of this Code.
In the past, this Court has distinguished
between a condition imposed on the
perfection of a contract and a condition
imposed merely on the performance of an
obligation. While failure to comply with the
first condition results in the failure of a
contract, failure to comply with the second
merely gives the other party the option to
either refuse to proceed with the sale or to
waive the condition.61 This principle is
evident in Article 1545 of the Civil Code on
sales, which provides in part:
Art. 1545. Where the obligation of either
party to a contract of sale is subject to any
condition which is not performed, such party
may refuse to proceed with the contract or
he may waive performance of the condition
x x x.
Paragraph 1(b) of the Conditional Deed of
Sale, stating that respondent shall pay the
balance of the purchase price when he has
successfully negotiated and secured a road
right of way, is not a condition on the
perfection of the contract nor on the validity
of the entire contract or its compliance as
contemplated in Article 1308. It is a
condition imposed only on respondents
obligation to pay the remainder of the
purchase price. In our view and applying
Article 1182, such a condition is not purely
potestative as petitioners contend. It is not
dependent on the sole will of the debtor but
also on the will of third persons who own the
adjacent land and from whom the road right
of way shall be negotiated. In a manner of
speaking, such a condition is likewise
dependent on chance as there is no
guarantee that respondent and the third
party-landowners would come to an
agreement regarding the road right of way.
This type of mixed condition is expressly
allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v.
Court of Appeals,62 wherein the Court
interpreted the legal effect of a condition in
a deed of sale that the balance of the
purchase price would be paid by the vendee
when the vendor has successfully ejected
the informal settlers occupying the property.
In Romero, we found that such a condition
did not affect the perfection of the contract
but only imposed a condition on the
fulfillment of the obligation to pay the
balance of the purchase price, to wit:

From the moment the contract is perfected,

the parties are bound not only to the
fulfillment of what has been expressly
stipulated but also to all the consequences
which, according to their nature, may be in
keeping with good faith, usage and law.
Under the agreement, private respondent is
obligated to evict the squatters on the
property. The ejectment of the squatters is a
condition the operative act of which sets into
motion the period of compliance by
petitioner of his own obligation, i.e., to pay
the balance of the purchase price. Private
respondent's failure "to remove the
squatters from the property" within the
stipulated period gives petitioner the right to
either refuse to proceed with the agreement
or waive that condition in consonance with
Article 1545 of the Civil Code. This option
clearly belongs to petitioner and not to
private respondent.
We share the opinion of the appellate court
that the undertaking required of private
respondent
does
not
constitute
a
"potestative condition dependent solely on
his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil
Code but a "mixed" condition "dependent
not on the will of the vendor alone but also
of third persons like the squatters and
government agencies and personnel
concerned." We must hasten to add,
however, that where the so-called
"potestative condition" is imposed not on the
birth of the obligation but on its fulfillment,
only the condition is avoided, leaving
unaffected
the
obligation
itself.63
(Emphases supplied.)
From the provisions of the Conditional Deed
of Sale subject matter of this case, it was
the vendee (Rodriguez) that had the
obligation to successfully negotiate and
secure the road right of way. However, in
the decision of the trial court, which was
affirmed by the Court of Appeals, it was
found that respondent Rodriguez diligently
exerted efforts to secure the road right of
way but the spouses Catungal, in bad faith,
contributed to the collapse of the
negotiations for said road right of way. To
quote from the trial courts decision:
It is therefore apparent that the vendees
obligations (sic) to pay the balance of the
purchase price arises only when the roadright-of-way to the property shall have been
successfully negotiated, secured and
provided. In other words, the obligation to
pay the balance is conditioned upon the
acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181
of the New Civil Code. Accordingly, "an
obligation dependent upon a suspensive
condition cannot be demanded until after
the condition takes place because it is only
after the fulfillment of the condition that the
obligation arises." (Javier v[s] CA 183
SCRA) Exhibits H, D, P, R, T, FF and JJ
show that plaintiff [Rodriguez] indeed was
diligent in his efforts to negotiate for a roadright-of-way to the property. The written
offers, proposals and follow-up of his
proposals show that plaintiff [Rodriguez]
went all out in his efforts to immediately
acquire an access road to the property,
even going to the extent of offering
P3,000.00 per square meter for the road
lots (Exh. Q) from the original P550.00 per

Page 38 of 109

sq. meter. This Court also notes that

defendant (sic) [the Catungals] made
misrepresentation in the negotiation they
have entered into with plaintiff [Rodriguez].
(Exhs. F and G) The misrepresentation of
defendant (sic) [the Catungals] as to the
third lot (Lot 10986) to be part and parcel of
the
subject
property [(]Lot
10963)
contributed in defeating the plaintiffs
[Rodriguezs] effort in acquiring the roadright-of-way to the property. Defendants [the
Catungals] cannot now invoke the nonfulfillment of the condition in the contract as
a ground for rescission when defendants
[the Catungals] themselves are guilty of
preventing the fulfillment of such condition.
From the foregoing, this Court is of the
considered view that rescission of the
conditional deed of sale by the defendants
is without any legal or factual basis.64 x x x.
(Emphases supplied.)
In all, we see no cogent reason to disturb
the foregoing factual findings of the trial
court.
Furthermore, it is evident from the language
of paragraph 1(b) that the condition
precedent (for respondents obligation to
pay the balance of the purchase price to
arise) in itself partly involves an obligation to
do, i.e., the undertaking of respondent to
negotiate and secure a road right of way at
his own expense.65 It does not escape our
notice as well, that far from disclaiming
paragraph 1(b) as void, it was the
Catungals contention before the trial court
that said provision should be read in relation
to paragraph 1(c) which stated:
c. That the access road or Road Right of
Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and
any or all cost relative to the acquisition
thereof shall be borne solely by the
VENDEE. He shall, however, be accorded
with enough time necessary for the success
of his endeavor, granting him a free hand in
negotiating for the passage.66 (Emphasis
supplied.)
The Catungals interpretation of the
foregoing stipulation was that Rodriguezs
obligation to negotiate and secure a road
right of way was one with a period and that
period, i.e., "enough time" to negotiate, had
already lapsed by the time they demanded
the payment of P5,000,000.00 from
respondent. Even assuming arguendo that
the Catungals were correct that the
respondents obligation to negotiate a road
right of way was one with an uncertain
period, their rescission of the Conditional
Deed of Sale would still be unwarranted.
Based on their own theory, the Catungals
had a remedy under Article 1197 of the Civil
Code, which mandates:
Art. 1197. If the obligation does not fix a
period, but from its nature and the
circumstances it can be inferred that a
period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the
period when it depends upon the will of the
debtor.

In every case, the courts shall determine

such
period
as
may
under
the
circumstances
have
been
probably
contemplated by the parties. Once fixed by
the courts, the period cannot be changed by
them.
What the Catungals should have done was
to first file an action in court to fix the period
within which Rodriguez should accomplish
the successful negotiation of the road right
of way pursuant to the above quoted
provision. Thus, the Catungals demand for
Rodriguez to make an additional payment of
P5,000,000.00
was
premature
and
Rodriguezs failure to accede to such
demand did not justify the rescission of the
contract.
With respect to petitioners argument that
paragraph 5 of the Conditional Deed of Sale
likewise rendered the said contract void, we
find no merit to this theory. Paragraph 5
provides:
5. That the VENDEE has the option to
rescind the sale. In the event the VENDEE
exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE
shall notify the VENDOR by way of a written
notice relinquishing his rights over the
property. The VENDEE shall then be
reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS
(P500,000.00)
representing
the
downpayment, interest free, payable but
contingent upon the event that the
VENDOR shall have been able to sell the
property to another party.67
Petitioners posited that the above stipulation
was the "deadliest" provision in the
Conditional Deed of Sale for violating the
principle of mutuality of contracts since it
purportedly rendered the contract subject to
the will of respondent.
We do not agree.
It is petitioners strategy to insist that the
Court examine the first sentence of
paragraph 5 alone and resist a correlation of
such sentence with other provisions of the
contract. Petitioners view, however, ignores
a basic rule in the interpretation of contracts
that the contract should be taken as a
whole.
Article 1374 of the Civil Code provides that
"[t]he 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." The same
Code further sets down the rule that "[i]f
some stipulation of any contract should
admit of several meanings, it shall be
understood as bearing that import which is
most adequate to render it effectual."68
Similarly, under the Rules of Court it is
prescribed that "[i]n 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"69 and "for the proper
construction of an instrument, the
circumstances under which it was made,
including the situation of the subject thereof
and of the parties to it, may be shown, so
that the judge may be placed in the position

of those whose
interpret."70

language

he

is

to

of the parties contract that gives effect to all

its provisions.

Bearing in mind the aforementioned

interpretative rules, we find that the first
sentence of paragraph 5 must be taken in
relation with the rest of paragraph 5 and
with the other provisions of the Conditional
Deed of Sale.

In any event, even if we assume for the

sake of argument that the grant to
Rodriguez of an option to rescind, in the
manner provided for in the contract, is
tantamount to a potestative condition, not
being a condition affecting the perfection of
the contract, only the said condition would
be considered void and the rest of the
contract will remain valid. In Romero, the
Court observed that "where the so-called
potestative condition is imposed not on the
birth of the obligation but on its fulfillment,
only the condition is avoided, leaving
unaffected the obligation itself."71

Reading paragraph 5 in its entirety will show

that Rodriguezs option to rescind the
contract is not absolute as it is subject to the
requirement that there should be written
notice to the vendor and the vendor shall
only return Rodriguezs downpayment of
P500,000.00, without interest, when the
vendor shall have been able to sell the
property to another party. That what is
stipulated to be returned is only the
downpayment of P500,000.00 in the event
that Rodriguez exercises his option to
rescind is significant. To recall, paragraph
1(b) of the contract clearly states that the
installments on the balance of the purchase
price shall only be paid upon successful
negotiation and procurement of a road right
of way. It is clear from such provision that
the existence of a road right of way is a
material consideration for Rodriguez to
purchase the property. Thus, prior to him
being able to procure the road right of way,
by express stipulation in the contract, he is
not bound to make additional payments to
the Catungals. It was further stipulated in
paragraph 1(b) that: "[i]f however said road
right of way cannot be negotiated, the
VENDEE shall give notice to the VENDOR
for them to reassess and solve the problem
by taking other options and should the
situation ultimately prove futile, he
[Rodriguez] shall take steps to rescind or
[cancel] the herein Conditional Deed of
Sale." The intention of the parties for
providing subsequently in paragraph 5 that
Rodriguez has the option to rescind the sale
is undeniably only limited to the contingency
that Rodriguez shall not be able to secure
the road right of way. Indeed, if the parties
intended to give Rodriguez the absolute
option to rescind the sale at any time, the
contract would have provided for the return
of all payments made by Rodriguez and not
only the downpayment. To our mind, the
reason only the downpayment was
stipulated to be returned is that the
vendees option to rescind can only be
exercised in the event that no road right of
way is secured and, thus, the vendee has
not made any additional payments, other
than his downpayment.
In sum, Rodriguezs option to rescind the
contract is not purely potestative but rather
also subject to the same mixed condition as
his obligation to pay the balance of the
purchase price i.e., the negotiation of a
road right of way. In the event the condition
is fulfilled (or the negotiation is successful),
Rodriguez must pay the balance of the
purchase price. In the event the condition is
not fulfilled (or the negotiation fails),
Rodriguez has the choice either (a) to not
proceed with the sale and demand return of
his downpayment or (b) considering that the
condition was imposed for his benefit, to
waive the condition and still pay the
purchase price despite the lack of road
access. This is the most just interpretation

Page 39 of 109

It cannot be gainsaid that "contracts have

the force of law between the contracting
parties and should be complied with in good
faith."72 We have also previously ruled that
"[b]eing the primary law between the
parties,
the
contract
governs
the
adjudication of their rights and obligations. A
court has no alternative but to enforce the
contractual stipulations in the manner they
have been agreed upon and written."73 We
find no merit in petitioners contention that
their parents were merely "duped" into
accepting the questioned provisions in the
Conditional Deed of Sale. We note that
although the contract was between Agapita
Catungal and Rodriguez, Jose Catungal
nonetheless signed thereon to signify his
marital consent to the same. We concur with
the trial courts finding that the spouses
Catungals claim of being misled into signing
the contract was contrary to human
experience and conventional wisdom since
it was Jose Catungal who was a practicing
lawyer while Rodriquez was a nonlawyer.74 It can be reasonably presumed
that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and
accepted its provisions before they affixed
their signatures thereon.
After thorough review of the records of this
case, we have come to the conclusion that
petitioners failed to demonstrate that the
Court of Appeals committed any reversible
error in deciding the present controversy.
However, having made the observation that
it was desirable for the Catungals to file a
separate action to fix the period for
respondent Rodriguezs obligation to
negotiate a road right of way, the Court finds
it necessary to fix said period in these
proceedings. It is but equitable for us to
make a determination of the issue here to
obviate further delay and in line with the
judicial policy of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a
period of thirty (30) days from the finality of
this decision to negotiate a road right of
way. In the event no road right of way is
secured by Rodriquez at the end of said
period, the parties shall reassess and
discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of
Sale and, for this purpose, they are given a
period of thirty (30) days to agree on a
course of action. Should the discussions of
the parties prove futile after the said thirty
(30)-day period, immediately upon the
expiration of said period for discussion,
Rodriguez may (a) exercise his option to
rescind the contract, subject to the return of

his downpayment, in accordance with the

provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the
road right of way and pay the balance of the
deducted purchase price as determined in
the RTC Decision dated May 30, 1992.
WHEREFORE, the Decision dated August
8, 2000 and the Resolution dated January
30, 2001 of the Court of Appeals in CA-G.R.
CV No. 40627 consolidated with CA-G.R.
SP No. 27565 are AFFIRMED with the
following modification:
If still warranted, respondent Angel S.
Rodriguez is given a period of thirty (30)
days from the finality of this Decision to
negotiate a road right of way. In the event
no road right of way is secured by
respondent at the end of said period, the
parties shall reassess and discuss other
options as stipulated in paragraph 1(b) of
the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty
(30) days to agree on a course of action.
Should the discussions of the parties prove
futile after the said thirty (30)-day period,
immediately upon the expiration of said
period for discussion, Rodriguez may (a)
exercise his option to rescind the contract,
subject to the return of his downpayment, in
accordance with the provisions of
paragraphs 1(b) and 5 of the Conditional
Deed of Sale or (b) waive the road right of
way and pay the balance of the deducted
purchase price as determined in the RTC
Decision dated May 30, 1992.

On September 25, 1974, Dominador, et al.

filed a petition with the Court of First
Instance, Cavite, as a land registration
court, to issue title over Lots 1 and 2 of LRC
Psu-1313, in their names.5
On July 19, 1977, the Land Registration
Commission (hereafter "LRC") rendered a
decision directing the issuance of Original
Certificate of Title No. 0-1816 in the names
of Dominador, et al.
On or about August 22, 1978, Severina filed
with the Court of First Instance of Cavite a
petition for review of the decision alleging
that the land registration proceedings were
fraudulently concealed by Dominador from
her.6
On December 27, 1982, the court resolved
to set aside the decision of July 19, 1977,
and declared Original Certificate of Title No.
0-1816 as null and void.
On July 13, 1987, the Register of Deeds of
Cavite issued Transfer Certificate of Title
No. T-223511 in the names of Severina and
her heirs.7
On February 15, 1990, the trial court issued
an order in favor of Severina's heirs, to wit:8
"WHEREFORE, as prayed for, let the writ of
possession previously issued in favor of
petitioner Severina San Miguel be
implemented."
However, the writ was returned unsatisfied.

G.R. No. 136054

2001

September 5,
On November 28, 1991, the trial court
ordered:9

San Miguel vs Court of Appeals

The case is a petition for review on
certiorari1 of the decision of the Court of
Appeals,2 affirming that of the Regional
Trial Court, Cavite, Branch 19, Bacoor3
ordering petitioners, Heirs of Severina San
Miguel (hereafter, "Severina's heirs") to
surrender to respondents Dominador San
Miguel, et al. (hereafter, "Dominador, et
al."), Transfer Certificate of Title No. 223511
and further directing Severina's heirs to pay
for the capital gains and related expenses
for the transfer of the two (2) lots to
Dominador, et al.
The Facts
This case involves a parcel of land originally
claimed
by
Severina
San
Miguel
(petitioners'
predecessor-in-interest,
hereafter, "Severina"). The land is situated
in Panapan, Bacoor, Cavite with an area of
six hundred thirty two square meters (632
sq. m.), more or less.
Without Severina's knowledge, Dominador
managed to cause the subdivision of the
land into three (3) lots, to wit:4
"LRC Psu-1312 - with an area of 108 square
meters;
"LRC Psu-1313 - Lot 1, with an area of 299
square meters;
"LRC Psu-1313 - Lot 2, with an area of 225
square meters."

"WHEREFORE, as prayed for, let an alias

writ of demolition be issued in favor of
petitioners, Severina San Miguel."
Again, the writ was not satisfied.
On August 6, 1993, Severina's heirs,
decided not to pursue the writs of
possession and demolition and entered into
a compromise with Dominador, et al.
According to the compromise, Severina's
heirs were to sell the subject lots10 to
Dominador, et al. for one and a half million
pesos (P1.5 M) with the delivery of Transfer
Certificate of Title No. T-223511 (hereafter,
"the certificate of title") conditioned upon the
purchase of another lot 11 which was not
yet titled at an additional sum of three
hundred thousand pesos (P300,000.00).
The salient features of the compromise
(hereafter "kasunduan") are:12

SAN MIGUEL sa halagang TATLONG

DAANG LIBONG PISO (P300,000.00);
"7. Na kinikilala ni SAN MIGUEL na ang
tunay na may-ari ng nasabing lote na sakop
ng plano LRC Psu-1312 ay sina LAPINA at
sila na ang magpapatitulo nito at sina
LAPINA ay walang pananagutan sa
pagpapatitulo nito at sa paghahabol ng sino
mang tao;
"8. Na ang nasabing halaga na TATLONG
DAANG LIBONG PISO (P300,000.00) ay
babayaran nina SAN MIGUEL kina LAPINA
sa loob ng dalawang (2) buwan mula sa
petsa ng kasulatang ito at kung hindi
mabayaran nina SAN MIGUEL ang
nasabing halaga sa takdang panahon ay
mawawalan ng kabuluhan ang kasulatang
ito;
"9. Na sina LAPINA at SAN MIGUEL ay
nagkakadunso (sic) rin na ang owner's copy
ng Transfer Certificate of Title No. T-223511
na sumasakop sa Lots 1 at 2, plano LRC
Psu-1313 ay ilalagay lamang nina LAPINA
kina SAN MIGUEL pagkatapos mabayaran
ang nabanggit na P300,000.00"
On the same day, on August 6, 1993,
pursuant to the kasunduan, Severina's heirs
and Dominador, et al. executed a deed of
sale designated as "kasulatan sa bilihan ng
lupa."13
On November 16, 1993, Dominador, et al.
filed with the trial court,14 Branch 19,
Bacoor, Cavite, a motion praying that
Severina's heirs deliver the owner's copy of
the certificate of title to them.15
In time, Severina's heirs opposed the
motion stressing that under the kasunduan,
the certificate of title would only be
surrendered upon Dominador, et al.'s
payment of the amount of three hundred
thousand pesos (P300,000.00) within two
months from August 6, 1993, which was not
complied with.16
Dominador, et al. admitted non-payment of
three
hundred
thousand
pesos
(P300,000.00) for the reason that Severina's
heirs have not presented any proof of
ownership over the untitled parcel of land
covered by LRC-Psu-1312. Apparently, the
parcel of land is declared in the name of a
third party, a certain Emiliano Eugenio.17
Dominador, et al. prayed that compliance
with the kasunduan be deferred until such
time that Severina's heirs could produce
proof of ownership over the parcel of
land.18

"5. Na ang Lot 1 at Lot 2, plano LRC Psu1313 na binabanggit sa itaas na

ipinagkasundo ng mga tagapagmana ni
Severina San Miguel na kilala sa kasulatang
ito sa taguring LAPINA (representing
Severina's heirs), na ilipat sa pangalan nina
SAN MIGUEL (representing Dominador's
heirs) alang alang sa halagang ISANG
MILYON AT LIMANG DAANG LIBONG
PISO (P1,500,000.00) na babayaran nina
SAN MIGUEL kina LAPINA;

Severina's heirs countered that the

arguments of Dominador, et al. were
untenable in light of the provision in the
kasunduan where Dominador, et al.
admitted their ownership over the parcel of
land, hence dispensing with the requirement
that they produce actual proof of title over
it.19 Specifically, they called the trial court's
attention to the following statement in the
kasunduan:20

"6. Na si LAPINA at SAN MIGUEL ay

nagkakasundo na ang lote na sakop ng
plano LRC-Psu-1312, may sukat na 108
metro cuadrado ay ipagbibili na rin kina

"7. Na kinikilala ni SAN MIGUEL na ang

tunay na may-ari ng nasabing lote na sakop
ng plano LRC Psu-1312 ay sina LAPINA at
sila na ang magpapatitulo nito at sina

Page 40 of 109

LAPINA ay walang pananagutan sa

pagpapatitulo nito at sa paghahabol ng sino
mang tao;"
According to Severina's heirs, since
Dominador, et al. have not paid the amount
of
three
hundred
thousand
pesos
(P300,000.00), then they were justified in
withholding release of the certificate of
title.21
The trial court conducted no hearing and
then rendered judgment based on the
pleadings and memoranda submitted by the
parties.
The Trial Court's Ruling
On June 27, 1994, the trial court issued an
order to wit:22

The Court of Appeals added that the other

matters raised in the petition were
"extraneous" to the kasunduan.26 The
Court of Appeals upheld the validity of the
contract of sale and sustained the parties'
freedom to contract. The Court of Appeals
decided, thus:27
"WHEREFORE, the decision appealed from
is hereby AFFIRMED.
"SO ORDERED."
On August 4, 1998, Severina's heirs filed
with the Court of Appeals a motion for
reconsideration of the above decision.28 On
October 14, 1998, the Court of Appeals
denied the motion for reconsideration for
lack of merit.29
Hence, this appeal.30

"WHEREFORE, finding the Motion to Order

to be impressed with merit, the defendantsoppositors-vendors Heirs of Severina San
Miguel are hereby ordered to surrender to
the
movant-plaintiffs-vendees-Heirs
of
Dominador San Miguel the Transfer
Certificates of Title No. 223511 and for
herein defendants-oppositors-vendors to
pay for the capital gains and related
expenses for the transfer of the two lots
subject of the sale to herein movantsplaintiffs-vendees-Heirs of Dominador San
Miguel."
"SO ORDERED."
On July 25, 1994, Severina's heirs filed with
the trial court a motion for reconsideration of
the afore-quoted order.23
On January 23, 1995, the trial court denied
the motion for reconsideration for lack of
merit and further ordered:24
"x x x . . . Considering that the Lots 1 and 2
covered by TCT No. T-223511 had already
been paid since August 6, 1993 by the
plaintiffs-vendees Dominador San Miguel, et
al. (Vide, Kasulatan sa Bilihan ng Lupa,
Rollo, pp. 174-176), herein defendantsvendors-Heirs of Severina San Miguel is
hereby ordered (sic) to deliver the aforesaid
title to the former (Dominador San Miguel,
et al.) within thirty (30) days from receipt of
this order. In case the defendants-vendorsHeirs of Severina San Miguel fail and refuse
to do the same, then the Register of Deeds
of Cavite is ordered to immediately cancel
TCT No. T-223511 in the name of Severina
San Miguel and issue another one in the
name of plaintiffs Dominador San Miguel, et
al.
"Also send a copy of this Order to the
Register of Deeds of the Province of Cavite,
Trece Martires City, for her information and
guidance.
"SO ORDERED."
On February 7, 1995, Severina's heirs
appealed the orders to the Court of
Appeals.25
The Court of Appeals' Ruling
On June 29, 1998, the Court of Appeals
promulgated a decision denying the appeal,
and affirming the decision of the trial court.

The Issues
Severina's heirs submit that the Court of
Appeals erred and committed grave abuse
of discretion: First, when it held that the
kasunduan had no effect on the "kasulatan
sa bilihan ng lupa." Second, when it ordered
them to surrender the certificate of title to
Dominador, et al., despite non-compliance
with their prior obligations stipulated under
the kasunduan. Third, when it did not find
that the kasunduan was null and void for
having been entered into by Dominador, et
al. fraudulently and in bad faith.31
We find the above issues raised by
Severina's heirs to be factual. The question
whether the prerequisites to justify release
of the certificate of title to Dominador, et al.
have been complied with is a question of
fact.32
However, we sift through the arguments and
identify the main legal issue, which is
whether Dominador, et al. may be
compelled to pay the three hundred
thousand pesos (P300,000.00) as agreed
upon in the kasunduan (as a pre-requisite
for the release of the certificate of title),
despite Severina's heirs' lack of evidence of
ownership over the parcel of land covered
by LRC Psu-1312.
The Court's Ruling
We resolve the issue in the negative, and
find the petition without merit.
Severina's heirs anchor their claim on the
kasunduan, stressing on their freedom to
stipulate and the binding effect of contracts.
This argument is misplaced.33 The Civil
Code provides:
ARTICLE 1306.
The
contracting
parties may establish such stipulations,
clauses, terms and conditions as they may
deem convenient provided they are not
contrary to law, morals, good customs,
public order or public policy (italics ours).
It is basic that the law is deemed written into
every contract.34 Although a contract is the
law between the parties, the provisions of
positive law which regulate contracts are
deemed written therein and shall limit and
govern the relations between the parties.35
The Civil Code provisions on "sales" state:

Page 41 of 109

ARTICLE 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 a price certain in money or its
equivalent. . . .
ARTICLE 1459.
The thing must be licit
and the vendor must have a right to transfer
the ownership thereof at the time it is
delivered.
ARTICLE 1495.
The vendor is bound
to transfer the ownership of and deliver, as
well as warrant the thing which is the object
of sale (emphasis ours).
True, in contracts of sale, the vendor need
not possess title to the thing sold at the
perfection of the contract.36 However, the
vendor must possess title and must be able
to transfer title at the time of delivery. In a
contract of sale, title only passes to the
vendee upon full payment of the stipulated
consideration, or upon delivery of the thing
sold.37
Under the facts of the case, Severina's heirs
are not in a position to transfer title. Without
passing on the question of who actually
owned the land covered by LRC Psu -1312,
we note that there is no proof of ownership
in favor of Severina's heirs. In fact, it is a
certain Emiliano Eugenio, who holds a tax
declaration over the said land in his
name.38 Though tax declarations do not
prove ownership of the property of the
declarant, tax declarations and receipts can
be strong evidence of ownership of land
when accompanied by possession for a
period
sufficient
for
prescription.39
Severina's heirs have nothing to counter this
document.
Therefore, to insist that Dominador, et al.
pay the price under such circumstances
would result in Severina's heirs' unjust
enrichment.40 Basic is the principle in law,
"Niguno
non
deue
enriquecerse
tortizamente condano de otro."41 The
essence of a sale is the transfer of title or an
agreement to transfer it for a price actually
paid or promised.42 In Nool v. Court of
Appeals,43 we held that if the sellers cannot
deliver the object of the sale to the buyers,
such contract may be deemed to be
inoperative. By analogy, such a contract
may fall under Article 1405, No. 5 of the
Civil Code, to wit:
ARTICLE 1405.
The
following
contracts are inexistent and void from the
beginning: . . .
(5) Those which contemplate an impossible
service.
xxx

xxx

xxx

Severina's heirs insist that delivery of the

certificate of title is predicated on a
condition payment of three hundred
thousand pesos (P300,000.00) to cover the
sale of Lot 3 of LRO Psu 1312. We find this
argument not meritorious. The condition
cannot be honored for reasons aforediscussed. Article 1183 of the Civil Code
provides that,

"Impossible conditions, those contrary to

good customs or public policy and those
prohibited by law shall annul the obligation
which depends upon them. If the obligation
is divisible, that part thereof which is not
affected by the impossible or unlawful
condition shall be valid, x x x"
Hence, the non-payment of the three
hundred thousand pesos (P300,000.00) is
not a valid justification for refusal to deliver
the certificate of title.
Besides, we note that the certificate of title
covers Lots 1 and 2 of LRC Psu-1313,
which were fully paid for by Dominador, et
al. Therefore, Severina's heirs are bound to
deliver the certificate of title covering the
lots.
The Fallo
WHEREFORE, the petition is DENIED and
the decision of the Court of Appeals in CAG.R. CV No. 48430 is AFFIRMED in toto.
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-SWO25042 (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. R1881.
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 MactanCebu
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

Page 42 of 109

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 nonuse 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-SWO25042 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;

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.

(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 (SWO23803), 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

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

Page 43 of 109

Moreover, respondent MCIAA has brought

to our attention a significant and telling
portion in the Decision in Civil Case No. R1881 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. R1881 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.,12
McConihay 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 widower-retiree 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

Page 44 of 109

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
discontinued its activities.

the

airport

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 plaintiffbeneficiary. 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 plaintiffbeneficiary 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

petitioners in accordance with this Courts

decision. No costs.

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.

M. D. TAYLOR, plaintiff-appellant,
vs.
UY TIENG PIAO and TAN LIUAN, doing
business under the firm name and style
of Tan Liuan & Company, defendants.
Uy TIENG PIAO, defendant-appellant.

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

G.R. No. L-16109

October 2, 1922

Cohn, Fisher and DeWitt and William C.

Brady for plaintiff-appellant.
Gabriel La O for defendant-appellant Uy
Tieng Piao.
Crossfield and O'Brien for Tan Liuan and
Tan Liyan and Co.
This case comes by appeal from the Court
of First Instance of the city of Manila, in a
case where the court awarded to the plaintiff
the sum of P300, as damages for breach of
contract. The plaintiff appeals on the ground
that the amount of damages awarded is
inadequate; while the defendant Uy Tieng
Piao appeals on the ground that he is not
liable at all. The judgment having been
heretofore affirmed by us in a brief opinion,
we now avail ourselves of the occasion of
the filing of a motion to rehear by the
attorneys for the plaintiff to modify the
judgment in a slight measure and to state
more fully the reasons underlying our
decision.

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:

It appears that on December 12, 1918, the

plaintiff contracted his services to Tan Liuan
and Co., as superintendent of an oil factory
which the latter contemplated establishing in
this city. The period of the contract extended
over two years from the date mentioned;
and the salary was to be at the rate of P600
per month during the first year and P700 per
month during the second, with electric light
and water for domestic consumption, and a
residence to live in, or in lieu thereof P60
per month.

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;

At the time this agreement was made the

machinery for the contemplated factory had
not been acquired, though ten expellers had
been ordered from the United States; and
among the stipulations inserted in the
contract with the plaintiff was a provision to
the following effect:

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;

It is understood and agreed that should the

machinery to be installed in the said factory
fail, for any reason, to arrive in the city of
Manila within a period of six months from
date hereof, this contract may be cancelled
by the party of the second part at its option,
such cancellation, however, not to occur
before the expiration of such six months.

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

Page 45 of 109

The machinery above referred to did not

arrive in the city of Manila within the six
months succeeding the making of the
contract; nor was other equipment
necessary for the establishment of the
factory at any time provided by the
defendants. The reason for this does not
appear with certainty, but a preponderance
of the evidence is to the effect that the
defendants, in the first months of 1919,
seeing that the oil business no longer
promised large returns, either cancelled the
order for the machinery from choice or were
unable to supply the capital necessary to

finance the project. At any rate on June 28,

1919, availing themselves in part of the
option given in the clause above quoted, the
defendants communicated in writing to the
plaintiff the fact that they had decided to
rescind the contract, effective June 30th
then current, upon which date he was
discharged. The plaintiff thereupon instituted
this action to recover damages in the
amount of P13,000, covering salary and
perquisites due and to become due under
the contract.

the Civil Code. Says he: "It is entirely licit to

leave fulfillment to the will of either of the
parties in the negative form of rescission, a
case frequent in certain contracts (the
letting of service for hire, the supplying of
electrical energy, etc.), for in such supposed
case neither is the article infringed, nor is
there any lack of equality between the
persons contracting, since they remain with
the same faculties in respect to fulfillment."
(Manresa, 2d ed., vol. 8, p. 610.) 1awph!
l.net

The case for the plaintiff proceeds on the

idea that the stipulation above quoted,
giving to the defendants the right to cancel
the contract upon the contingency of the
nonarrival of the machinery in Manila within
six months, must be understood as
applicable only in those cases where such
nonarrival is due to causes not having their
origin in the will or act of the defendants, as
delays caused by strikes or unfavorable
conditions of transporting by land or sea;
and it is urged that the right to cancel
cannot be admitted unless the defendants
affirmatively show that the failure of the
machinery to arrive was due to causes of
that character, and that it did not have its
origin in their own act or volition. In this
connection the plaintiff relies on article 1256
of the Civil Code, which is to the effect that
the validity and fulfillment of contracts
cannot be left to the will of one of the
contracting parties, and to article 1119,
which says that a condition shall be deemed
fulfilled if the obligor intentially impedes its
fulfillment.

Undoubtedly one of the consequences of

this stipulation was that the employers were
left in a position where they could dominate
the contingency, and the result was about
the same as if they had been given an
unqualified option to dispense with the
services of the plaintiff at the end of six
months. But this circumstance does not
make the stipulation illegal.

It will be noted that the language conferring

the right of cancellation upon the
defendants is broad enough to cover any
case of the nonarrival of the machinery, due
to whatever cause; and the stress in the
expression "for any reason" should
evidently fall upon the word "any." It must
follow of necessity that the defendants had
the right to cancel the contract in the
contingency that occurred, unless some
clear and sufficient reason can be adduced
for limiting the operation of the words
conferring the right of cancellation. Upon
this point it is our opinion that the language
used in the stipulation should be given
effect in its ordinary sense, without
technicality or circumvention; and in this
sense it is believed that the parties to the
contract must have understood it.
Article 1256 of the Civil Code in our opinion
creates no impediment to the insertion in a
contract for personal service of a resolutory
condition permitting the cancellation of the
contract by one of the parties. Such a
stipulation, as can be readily seen, does not
make either the validity or the fulfillment of
the contract dependent upon the will of the
party to whom is conceded the privilege of
cancellation; for where the contracting
parties have agreed that such option shall
exist, the exercise of the option is as much
in the fulfillment of the contract as any other
act which may have been the subject of
agreement. Indeed, the cancellation of a
contract in accordance with conditions
agreed upon beforehands is fulfillment.
In this connection, we note that the
commentator Manresa has the following
observation with respect to article 1256 of

The case of Hall vs. Hardaker (61 Fla., 267)

cited by the appellant Taylor, though
superficially somewhat analogous, is not
precisely in point. In that case one Hardaker
had contracted to render competent and
efficient service as manager of a
corporation, to which position it was
understood he was to be appointed. In the
same contract it was stipulated that if "for
any reason" Hardaker should not be given
that position, or if he should not be
permitted to act in that capacity for a stated
period, certain things would be done by
Hall. Upon being installed in the position
aforesaid, Hardaker failed to render efficient
service and was discharged. It was held that
Hall was released from the obligation to do
the things that he had agreed to perform.
Some of the judges appear to have thought
that the case turned on the meaning of the
phrase "for any reason," and the familiar
maxim was cited that no man shall take
advantage of his own wrong. The result of
the case must have been the same from
whatever point of view, as there was an
admitted failure on the part of Hardaker to
render competent service. In the present
case there was no breach of contract by the
defendants; and the argument to the
contrary apparently suffers from the logical
defect of assuming the very point at issue.
But it will be said that the question is not so
much one concerning the legality of the
clause referred to as one concerning the
interpretation of the resolutory clause as
written, the idea being that the court should
adjust its interpretation of said clause to the
supposed precepts of article 1256, by
restricting its operation exclusively to cases
where the nonarrival of the machinery may
be due to extraneous causes not referable
to the will or act of the defendants. But even
when the question is viewed in this aspect
their result is the same, because the
argument for the restrictive interpretation
evidently proceeds on the assumption that
the clause in question is illegal in so far as it
purports to concede to the defendants the
broad right to cancel the contract upon
nonarrival of the machinery due to any
cause; and the debate returns again to the
point whether in a contract for the prestation
of service it is lawful for the parties to insert
a provision giving to the employer the power
to cancel the contract in a contingency
which may be dominated by himself. Upon

Page 46 of 109

this point what has already been said must

suffice.
As we view the case, there is nothing in
article 1256 which makes it necessary for us
to warp the language used by the parties
from its natural meaning and thereby in
legal effect to restrict the words "for any
reason," as used in the contract, to mean
"for any reason not having its origin in the
will or acts of the defendants." To impose
this interpretation upon those words would
in our opinion constitute an unjustifiable
invasion of the power of the parties to
establish the terms which they deem
advisable, a right which is expressed in
article 1255 of the Civil Code and
constitutes one of the most fundamental
conceptions of contract right enshrined in
the Code.
The view already expressed with regard to
the legality and interpretation of the clause
under consideration disposes in a great
measure of the argument of the appellant in
so far as the same is based on article 1119
of the Civil Code. This provision supposes a
case where the obligor intentionally
impedes the fulfillment of a condition which
would entitle the obligee to exact
performance from the obligor; and an
assumption underlying the provision is that
the obligor prevents the obligee from
performing some act which the obligee is
entitled to perform as a condition precedent
to the exaction of what is due to him. Such
an act must be considered unwarranted and
unlawful, involving per se a breach of the
implied terms of the contract. The article can
have no application to an external
contingency which, like that involved in this
case, is lawfully within the control of the
obligor.
In Spanish jurisprudence a condition like
that here under discussion is designated by
Manresa a facultative condition (vol. 8, p.
611), and we gather from his comment on
articles 1115 and 1119 of the Civil Code that
a condition, facultative as to the debtor, is
obnoxious to the first sentence contained in
article 1115 and renders the whole
obligation void (vol. 8, p. 131). That
statement is no doubt correct in the sense
intended by the learned author, but it must
be remembered that he evidently has in
mind the suspensive condition, such as is
contemplated in article 1115. Said article
can have no application to the resolutory
condition, the validity of which is recognized
in article 1113 of the Civil Code. In other
words, a condition at once facultative and
resolutory may be valid even though the
condition is made to depend upon the will of
the obligor.
If it were apparent, or could be
demonstrated, that the defendants were
under a positive obligation to cause the
machinery to arrive in Manila, they would of
course be liable, in the absence of
affirmative proof showing that the nonarrival
of the machinery was due to some cause
not having its origin in their own act or will.
The contract, however, expresses no such
positive obligation, and its existence cannot
be implied in the fact of stipulation, defining
the conditions under which the defendants
can cancel the contract.

Our conclusion is that the Court of First

Instance committed no error in rejecting the
plaintiff's claim in so far as damages are
sought for the period subsequent to the
expiration of the first six months, but in
assessing the damages due for the sixmonth period, the trial judge evidently
overlooked the item of P60, specified in the
plaintiff's fourth assignment of error, which
represents commutation of house rent for
the month of June, 1919. This amount the
plaintiff is clearly entitled to recover, in
addition to the P300 awarded in the court
below.
We note that Uy Tieng Piao, who is sued as
a partner with Tan Liuan, appealed from the
judgment holding him liable as a member of
the firm of Tan Liuan and Co.; and it is
insisted in his behalf that he was not bound
by the act of Tan Liuan as manager of Tan
Liuan and Co. in employing the plaintiff.
Upon this we will merely say that the
conclusion stated by the trial court in the
next to the last paragraph of the decision
with respect to the liability of this appellant
in our opinion in conformity with the law and
facts.
The judgment appealed from will be
modified by declaring that the defendants
shall pay to the plaintiff the sum of P360,
instead of P300, as allowed by the lower
court, and as thus modified the judgment
will be affirmed with interest from November
4, 1919, as provided in section 510 of the
Code of Civil Procedure, and with costs. So
ordered.
G.R. No. 172346

July 24, 2013

SPOUSES NAMEAL and LOURDES

BONROSTRO, Petitioners,
vs.
SPOUSES JUAN and CONSTANCIA
LUNA, Respondents
Questioned in this case is the Court of
Appeals' (CA) disquisition on the matter of
interest.
Petitioners spouses Nameal and Lourdes
Bonrostro (spouses Bonrostro) assail
through this Petition for Review on
Certiorari1 the April 15, 2005 Decision2 of
the CA in CA-G.R. CV No. 56414 which
affirmed with modifications the April 4, 1997
Decision3 of the Regional Trial Court (RTC)
of Quezon City, Branch 104 in Civil Case
No. Q-94-18895. They likewise question the
CA April17, 2006 Resolution4 denying their
motion for partial reconsideration.
Factual Antecedents
In 1992, respondent Constancia Luna
(Constancia), as buyer, entered into a
Contract to Sell5 with Bliss Development
Corporation (Bliss) involving a house and lot
identified as Lot 19, Block 26 of New Capitol
Estates in Diliman, Quezon City. Barely a
year after, Constancia, this time as the
seller, entered into another Contract to Sell6
with petitioner Lourdes Bonrostro (Lourdes)
concerning the same property under the
following terms and conditions:
1. The stipulated price of P1,250,000.00
shall be paid by the VENDEE to the
VENDOR in the following manner:

(a) P200,000.00 upon signing x x x the

Contract To Sell,
(b) P300,000.00 payable on or before April
30, 1993,
(c) P330,000.00 payable on or before July
31, 1993,
(d) P417,000.00 payable to the New Capitol
Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to
pay the second installment on time, the
VENDEE will pay starting May 1, 1993 a 2%
interest on the P300,000.00 monthly.
Likewise, in the event the VENDEE fails to
pay the amount of P630,000.00 on the
stipulated time, this CONTRACT TO SELL
shall likewise be deemed cancelled and
rescinded and x x x 5% of the total contract
price of P1,250,000.00 shall be deemed
forfeited in favor of the VENDOR. Unpaid
monthly amortization shall likewise be
deducted from the initial down payment in
favor of the VENDOR.7
Immediately after the execution of the said
second contract, the spouses Bonrostro
took possession of the property. However,
except for the P200,000.00 down payment,
Lourdes failed to pay any of the stipulated
subsequent amortization payments.
Ruling of the Regional Trial Court
On January 11, 1994, Constancia and her
husband, respondent Juan Luna (spouses
Luna), filed before the RTC a Complaint8
for Rescission of Contract and Damages
against the spouses Bonrostro praying for
the rescission of the contract, delivery of
possession of the subject property, payment
by the latter of their unpaid obligation, and
awards of actual, moral and exemplary
damages, litigation expenses and attorneys
fees.

On April 4, 1997, the RTC rendered its

Decision13 focusing on the sole issue of
whether the spouses Bonrostros delay in
their payment of the installments constitutes
a substantial breach of their obligation
under the contract warranting rescission.
The RTC ruled that the delay could not be
considered a substantial breach considering
that Lourdes (1) requested for an extension
within which to pay; (2) was willing and
ready to pay as early as the last week of
October 1993 and even wrote Atty. Carbon
about this on November 24, 1993; (3) gave
Constancia
a
down
payment
of
P200,000.00; and, (4) made payment to
Bliss.
The dispositive portion of the said Decision
reads:
WHEREFORE, in view of the foregoing,
judgment is hereby rendered as follows:
1.) Declaring the Contract to Sell executed
by the plaintiff Constancia and defendant
Lourdes with respect to the house and lot
located at Blk. 26, Lot 19, New Capitol
Estates, Diliman, Quezon City to be in force
and effect. And that Lourdes Bonrostro must
remain in the possession of the premises.
2.) Ordering the defendants to pay plaintiffs
within 60 days from receipt of this decision
the sum of P300,000.00 plus an interest of
2% per month from April 1993 to November
1993.
3.) Ordering the defendants to pay plaintiffs
within sixty (60) days from receipt of this
decision the sum of P330,000.00 plus an
interest of 2% per month from July 1993 to
November 1993.
4.) Ordering the defendants to reimburse
plaintiffs the sum of P214,492.62 which
plaintiffs paid to Bliss Development
Corporation.
No pronouncement as to Cost.

In
their
Answer
with
Compulsory
Counterclaim,9 the spouses Bonrostro
averred that they were willing to pay their
total balance of P630,000.00 to the spouses
Luna after they sought from them a 60-day
extension to pay the same.10 However,
during the time that they were ready to pay
the said amount in the last week of October
1993, Constancia and her lawyer, Atty.
Arlene Carbon (Atty. Carbon), did not show
up at their rendezvous. On November 24,
1993, Lourdes sent Atty. Carbon a letter11
expressing her desire to pay the balance,
but received no response from the latter.
Claiming that they are still willing to settle
their obligation, the spouses Bonrostro
prayed that the court fix the period within
which they can pay the spouses Luna.
The spouses Bonrostro likewise belied that
they were not paying the monthly
amortization to New Capitol Estates and
asserted that on November 18, 1993, they
paid Bliss, the developer of New Capitol
Estates, the amount of P46,303.44. Later
during
trial,
Lourdes
testified
that
Constancia instructed Bliss not to accept
amortization payments from anyone as
evidenced by her March 4, 1993 letter12 to
Bliss.

Page 47 of 109

SO ORDERED.14
As their Motion for Reconsideration15 was
likewise denied in an Order16 dated July
15, 1997, the spouses Luna appealed to the
CA.17
Ruling of the Court of Appeals
In its Decision18 of April 15, 2005, the CA
concluded that since the contract entered
into by and between the parties is a
Contract to Sell, rescission is not the proper
remedy. Moreover, the subject contract
being specifically a contract to sell a real
property on installment basis, it is governed
by Republic Act No. 655219 or the Maceda
Law, Section 4 of which states:
Sec. 4. In case where less than two years of
installment were paid, the seller shall give
the buyer a grace period of not less than
sixty days from the date the installment
became due.
If the buyer fails to pay the installments due
at the expiration of the grace period, the
seller may cancel the contract after thirty
days from receipt by the buyer of the notice
of cancellation or the demand for rescission

of the contract by a notarial act. (Emphases

supplied)
The CA held that while the spouses Luna
sent the spouses Bonrostro letters20
rescinding the contract for non-payment of
the sum of P630,000.00, the same could not
be considered as valid and effective
cancellation under the Maceda Law since
they were made within the 60-day grace
period and were not notarized. The CA
concluded that there being no cancellation
effected in accordance with the procedure
prescribed by law, the contract therefore
remains valid and subsisting.
The CA also affirmed the RTCs finding that
Lourdes was ready to pay her obligation on
November 24, 1993.

SO ORDERED.22
The spouses Luna no longer assailed the
ruling. On the other hand, the spouses
Bonrostro filed a Partial Motion for
Reconsideration23 questioning the abovementioned modifications. The CA, however,
denied for lack of merit the said motion in a
Resolution24 dated April 17, 2006.
Hence, this
Certiorari.

Petition

for

Review

on

Nevertheless, there is a need to modify the

appealed decision insofar as (i) the interest
imposed on the sum of P300,000.00 is only
for the period April 1993 to November 1993;
(ii) the interest imposed on the sum of
P330,000.00 is 2% per month and is only
for the period July 1993 to November 1993;
(iii) it does not impose interest on the
amount of P214,492.62 which was paid by
Constancia to BLISS in behalf of Lourdes x
xx
The rule is that no interest shall be due
unless it has been expressly stipulated in
writing (Art. 1956, Civil Code). However, the
contract does not provide for interest in
case of default in payment of the sum of
P330,000.00 to Constancia and the monthly
amortizations to BLISS.
Considering that Lourdes had incurred x x x
delay in the performance of her obligations,
she should pay (i) interest at the rate of 2%
per month on the sum of P300,000.00 from
May 1, 1993 until fully paid and (ii) interest
at the legal rate on the amounts of
P330,000.00 and P214,492.62 from the
date of default (August 1, 1993 and April 4,
1997 date of the appealed decision,
respectively) until the same are fully paid x x
x21
Hence, the dispositive portion of the said
Decision:
WHEREFORE, the appealed decision is
AFFIRMED with the MODIFICATIONS that
paragraphs 2, 3, and 4 of its dispositive
portion shall now read:
2.) Ordering the defendants to pay plaintiffs
the sum of P300,000.00 plus interest
thereon at the rate of 2% per month from
May 1, 1993 until fully paid;
3.) Ordering the defendants to pay plaintiffs
the sum of P330,000.00 plus interest
thereon at the legal rate from August 1,
1993 until fully paid; and
4.) Ordering the defendants to reimburse
plaintiffs the sum of P214,492.62, which
plaintiffs paid to Bliss Development
Corporation, plus interest thereon at the
legal rate from filing of the complaint until
fully reimbursed.

Our Ruling
The Petition lacks merit.
The spouses Bonrostros reliance on the
RTCs factual finding that Lourdes was
willing and ready to pay on November 24,
1993 is misplaced.

Issue
The basic issue in this case is whether the
CA correctly modified the RTC Decision with
respect to interests.
The Parties Arguments

However, the CA modified the RTC Decision

with respect to interest, viz:

the spouses Bonrostro were spared from

the interests and penalties which would
have been imposed by Bliss if the
amortizations remained unpaid.

As may be recalled, the RTC under

paragraphs 2 and 3 of the dispositive
portion of its Decision ordered the spouses
Bonrostro to pay the spouses Luna the
sums of P300,000.00 plus interest of 2%
per month from April 1993 to November
1993 and P330,000.00 plus interest of 2%
per month from July 1993 to November
1993, respectively. The CA modified these
by reckoning the payment of the 2% interest
on the P300,000.00 from May 1, 1993 until
fully paid and by imposing interest at the
legal rate on the P330,000.00 reckoned
from August 1, 1993 until fully paid.
The spouses Bonrostro harp on the factual
finding of the RTC, as affirmed by the CA,
that Lourdes was willing and ready to pay
her obligation as evidenced by her
November 24, 1993 letter to Atty. Carbon.
They also assert that the sending of the said
letter constitutes a valid tender of payment
on their part. Hence, they argue that they
should not be assessed any interest
subsequent to the date of the said letter.
Neither should they be ordered to pay
interest on the amount of P214,492.62
which covers the amortizations paid by the
spouses Luna to Bliss. They point out that it
was Constancia who prevented them from
fulfilling their obligation to pay the
amortizations when she instructed Bliss not
to accept payment from them.25
The spouses Luna, on the other hand, aver
that the November 24, 1993 letter of
Lourdes is not equivalent to tender of
payment since the mere sending of a letter
expressing the intention to pay, without the
accompanying
payment,
cannot
be
considered a valid tender of payment. Also,
if the spouses Bonrostro were really willing
and ready to pay at that time and assuming
that the spouses Luna indeed refused to
accept payment, the former should have
resorted to consignation. Anent the payment
of amortization, the spouses Luna explain
that under the parties Contract to Sell,
Lourdes was to assume Constancias
balance to Bliss by paying the monthly
amortization in order to avoid the
cancellation of the earlier Contract to Sell
entered into by Constancia with Bliss.26
However, since Lourdes was remiss in
paying the same, the spouses Luna were
constrained to pay the amortization. They
thus assert that reimbursement to them of
the said amount with interest is proper
considering that by reason of such payment,

Page 48 of 109

As mentioned, the RTC in resolving the

Complaint focused on the sole issue of
whether the failure of spouses Bonrostro to
pay the installments of P300,000.00 on April
30, 1993 and P330,000.00 on July 31, 1993
is a substantial breach of their obligation
under the contract as to warrant the
rescission of the same.27 The said court
ratiocinated, viz:
After careful evaluation of the evidence
testimonial and documentary, the Court
believes that the defendants delay in the
payment of the two installments is not so
substantial as to warrant rescission of
contract. Although, the defendant failed to
pay the two installments in due time, she
was able to communicate with the plaintiffs
through letters requesting for an extension
of two months within which to pay the
installments. In fact, on November 24, 1993
defendant informed Atty. Arlene Carbon that
she was ready to pay the installments and
the money is ready for pick-up. However,
plaintiff did not bother to get or pick-up the
money without any valid reason. It would be
very prejudicial on the part of the defendant
if the contract to sell be rescinded
considering that she made a downpayment
of
P200,000.00
and
made
partial
amortization to the Bliss Development
Corporation. In fact, the defendant testified
that she is willing and ready to pay the
balance including the interest on November
24, 1993.
The Court is of the opinion that the delay in
the payment of the balance of the purchase
price of the house and lot is not so
substantial as to warrant the rescission of
the contract to sell. The question of whether
a breach of contract is substantial depends
upon the attendant circumstance. x x x28
Clearly, the RTC arrived at the abovequoted conclusion based on its mistaken
premise that rescission is applicable to the
case. Hence, its determination of whether
there was substantial breach. As may be
recalled, however, the CA, in its assailed
Decision, found the contract between the
parties as a contract to sell, specifically of a
real property on installment basis, and as
such categorically declared rescission to be
not the proper remedy. This is considering
that in a contract to sell, payment of the
price is a positive suspensive condition,
failure of which is not a breach of contract
warranting rescission under Article 119129
of the Civil Code but rather just an event
that prevents the supposed seller from
being bound to convey title to the supposed
buyer.30 Also, and as correctly ruled by the
CA, Article 1191 cannot be applied to sales
of real property on installment since they
are governed by the Maceda Law.31

There being no breach to speak of in case

of non-payment of the purchase price in a
contract to sell, as in this case, the RTCs
factual finding that Lourdes was willing and
able to pay her obligation a conclusion
arrived at in connection with the said courts
determination of whether the non-payment
of the purchase price in accordance with the
terms of the contract was a substantial
breach warranting rescission therefore
loses significance. The spouses Bonrostros
reliance on the said factual finding is thus
misplaced. They cannot invoke their
readiness and willingness to pay their
obligation on November 24, 1993 as an
excuse from being made liable for interest
beyond the said date.

payment. They did not resort to

consignation of the payment with the proper
court despite knowledge that under the
contract, non-payment of the installments
on the agreed date would make them liable
for interest thereon. The spouses Bonrostro
erroneously assumed that their notice to
pay would excuse them from paying
interest. Their claimed tender of payment
did not produce any effect whatsoever
because it was not accompanied by actual
payment or followed by consignation.
Hence, it did not suspend the running of
interest. The spouses Bonrostro are
therefore liable for interest on the subject
installments from the date of default until full
payment of the sums of P300,000.00 and
P330,000.00.

the contract in January 1993, they

immediately took possession of the property
but failed to make amortization payments. It
was only after seven months or on
November 18, 1993 that they made
payments to Bliss in the amount of
P46,303.44.40 Whether the same covers
previous unpaid amortizations is also not
clear as the receipt does not indicate the
same41 and per Statement of Account42 as
of March 8, 1994 issued by Bliss, the unpaid
monthly amortizations for February to
November 1993 in the total amount of
P78,271.69 remained outstanding. There
was also no payment made of the
amortizations due on December 4, 1993
and January 4, 199443 before the filing of
the Complaint on January 11, 1994.

The spouses Bonrostro are liable for

interest on the installments due from the
date of default until fully paid.

The spouses Bonrostro are likewise liable

for interest on the amount paid by the
spouses Luna to Bliss as amortization.

The spouses Bonrostro assert that Lourdes

letter of November 24, 1993 amounts to
tender of payment of the remaining balance
amounting to P630,000.00. Accordingly,
thenceforth, accrual of interest should be
suspended.

The spouses Bonrostro want to be relieved

from paying interest on the amount of
P214,492.62 which the spouses Luna paid
to Bliss as amortizations by asserting that
they were prevented by the latter from
fulfilling such obligation. They invoke Art.
1186 of the Civil Code which provides that
"the condition shall be deemed fulfilled
when the obligor voluntarily prevents its
fulfillment."

On the part of the spouses Luna, it is

understandable that they paid the
amortizations due.1wphi1 The assumption
of payment of the monthly amortization to
Bliss was made part of the obligations of the
spouses Bonrostro under their contract with
the spouses Luna precisely to avoid the
cancellation of the earlier contract entered
into by Constancia with Bliss. But as the
spouses Bonrostro failed in this obligation,
the spouses Luna were constrained to pay
Bliss to avoid the adverse effect of such
failure. This act of the spouses Luna proved
to be even more beneficial to the spouses
Bonrostro as the cancellation of the
Contract to Sell between Constancia and
Bliss would result in the cancellation of the
subsequent Contract to Sell between
Constancia and Lourdes. Also, the spouses
Bonrostro were relieved from paying the
penalties that would have been imposed by
Bliss if the monthly amortizations covered
by the said payment remained unpaid. The
Statements of Account44 issued by Bliss
clearly state that each monthly amortization
is due on or before the fourth day of every
month and a penalty equivalent to 1/10th of
1% per day of delay shall be imposed for all
payments made after due date. That
translates to 3% monthly or 36% per annum
rate of interest, three times higher than the
12% per annum rate of interest correctly
imposed by the CA.

Tender of payment "is the manifestation by

the debtor of a desire to comply with or pay
an obligation. If refused without just cause,
the tender of payment will discharge the
debtor of the obligation to pay but only after
a valid consignation of the sum due shall
have been made with the proper court."32
"Consignation is the deposit of the proper
amount with a judicial authority in
accordance with rules prescribed by law,
after the tender of payment has been
refused or because of circumstances which
render direct payment to the creditor
impossible or inadvisable."33
"Tender of payment, without more, produces
no effect."34 "To have the effect of payment
and the consequent extinguishment of the
obligation to pay, the law requires the
companion acts of tender of payment and
consignation."35
As to the effect of tender of payment on
interest, noted civilist Arturo M. Tolentino
explained as follows:
When a tender of payment is made in such
a form that the creditor could have
immediately realized payment if he had
accepted the tender, followed by a prompt
attempt of the debtor to deposit the means
of payment in court by way of consignation,
the accrual of interest on the obligation will
be suspended from the date of such tender.
But when the tender of payment is not
accompanied by the means of payment,
and the debtor did not take any immediate
step to make a consignation, then interest is
not suspended from the time of such tender.
x x x x36 (Emphasis supplied)
Here, the subject letter merely states
Lourdes willingness and readiness to pay
but it was not accompanied by payment.
She claimed that she made numerous
telephone calls to Atty. Carbon reminding
the latter to collect her payment, but, neither
said lawyer nor Constancia came to collect
the payment. After that, the spouses
Bonrostro took no further steps to effect

However, the Court finds Art. 1186

inapplicable to this case. The said provision
explicitly speaks of a situation where it is the
obligor who voluntarily prevents fulfillment of
the condition. Here, Constancia is not the
obligor but the obligee. Moreover, even if
this significant detail is to be ignored, the
mere intention to prevent the happening of
the condition or the mere placing of
ineffective obstacles to its compliance,
without actually preventing fulfillment is not
sufficient for the application of Art. 1186.37
Two requisites must concur for its
application, to wit: (1) intent to prevent
fulfillment of the condition; and, (2) actual
prevention of compliance.38
In this case, while it is undisputed that
Constancia indeed instructed Bliss on
March 4, 1994 not to accept payment from
anyone but her, there is nothing on record to
show that Bliss heeded the instruction of
Constancia as to actually prevent the
spouses Bonrostro from making payments
to Bliss. There is no showing that
subsequent to the said letter, the spouses
Bonrostro attempted to make payment to
and was refused by Bliss. Neither was there
a witness presented to prove that Bliss
indeed gave effect to the instruction
contained in Constancias letter. While Bliss
Project Development Officer, Mr. Ariel
Cordero, testified during trial, nothing could
be gathered from his testimony regarding
this except for the fact that Bliss received
the said letter.39 In view of these, the
spouses Luna could not be said to have
placed an effective obstacle as to actually
prevent the spouses Bonrostro from making
amortization payments to Bliss.
On the other hand, there are telling
circumstances which militate against the
spouses Bonrostros claimed keenness to
comply with their obligation to pay the
monthly amortization. After the execution of

Page 49 of 109

Hence, the resulting situation is that the

spouses Luna are constrained to part with
their money while the spouses Bonrostro,
despite being remiss in their obligation to
pay the monthly amortization, are relieved
from paying higher penalties at the expense
of the former. This is aside from the fact that
the spouses Bonrostro are in continued
possession of the subject property and are
enjoying the beneficial use thereof. Under
the circumstances and considering that the
spouses Bonrostro are obviously in delay in
complying with their obligation to pay the
amortizations due from February 1993 to
January 1995 for which the spouses Luna
paid P214,492.62,45 the CA correctly
ordered the reimbursement to the latter of
the said amount with interest. "Delay in the
performance of an obligation is looked upon
with disfavor because, when a party to a
contract incurs delay, the other party who
performs his part of the contract suffers
damages thereby."46 As discussed, the
spouses Luna obviously suffered damages
brought about by the failure of the spouses
Bonrostro to comply with their obligation on
time. "And, sans elaboration of the matter at

hand, damages take the form of interest x x

x."47
Under Article 2209 of the Civil Code, "if the
obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the
indemnity for damages, there being no
stipulation to the contrary, shall be the
payment of the interest agreed upon, and in
the absence of stipulation, the legal interest
x x x." There being no stipulation on interest
in case of delay in the payment of
amortization, the CA thus correctly imposed
interest at the legal rate which is now 12%
per annum.
WHEREFORE, the Petition for Review on
Certiorari is DENIED and the assailed
Decision dated April 15, 2005 and the
Resolution dated April 17, 2006 of the Court
of Appeals in CA-G.R. CV No. 56414 are
AFFIRMED.
G.R. No. 177050

July 01, 2013

CARLOS LIM, CONSOLACION LIM,

EDMUNDO LIM,* CARLITO LIM, SHIRLEY
LEODADIA DIZON,** AND ARLEEN LIM
FERNANDEZ, PETITIONERS,
vs.
DEVELOPMENT
BANK
OF
THE
PHILIPPINES, RESPONDENT.
"While the law recognizes the right of a
bank to foreclose a mortgage upon the
mortgagors failure to pay his obligation, it is
imperative that such right be exercised
according to its clear mandate. Each and
every requirement of the law must be
complied with, lest, the valid exercise of the
right would end."1
This Petition for Review on Certiorari2
under Rule 45 of the Rules of Court assails
the February 22, 2007 Decision3 of the
Court of Appeals (CA) in CA-G.R. CV No.
59275.
Factual Antecedents
On November 24, 1969, petitioners Carlos,
Consolacion, and Carlito, all surnamed Lim,
obtained a loan of P40,000.00 (Lim
Account) from respondent Development
Bank of the Philippines (DBP) to finance
their cattle raising business.4 On the same
day, they executed a Promissory Note5
undertaking to pay the annual amortization
with an interest rate of 9% per annum and
penalty charge of 11% per annum.
On December 30, 1970, petitioners Carlos,
Consolacion, Carlito, and Edmundo, all
surnamed Lim; Shirley Leodadia Dizon,
Arleen Lim Fernandez, Juan S. Chua,6 and
Trinidad D. Chua7 obtained another loan
from DBP8 in the amount of P960,000.00
(Diamond L Ranch Account).9 They also
executed a Promissory Note,10 promising
to pay the loan annually from August 22,
1973 until August 22, 1982 with an interest
rate of 12% per annum and a penalty
charge of 1/3% per month on the overdue
amortization.
To secure the loans, petitioners executed a
Mortgage11 in favor of DBP over real
properties covered by the following titles
registered in the Registry of Deeds for the
Province of South Cotabato:

(a) TCT No. T-6005 x x x in the name of

Edmundo Lim;
(b) TCT No. T-6182 x x x in the name of
Carlos Lim;
(c) TCT No. T-7013 x x x in the name of
Carlos Lim;
(d) TCT No. T-7012 x x x in the name of
Carlos Lim;
(e) TCT No. T-7014 x x x in the name of
Edmundo Lim;
(f) TCT No. T-7016 x x x in the name of
Carlito Lim;
(g) TCT No. T-28922 x x x in the name of
Consolacion Lim;
(h) TCT No. T-29480 x x x in the name of
Shirley Leodadia Dizon;
(i) TCT No. T-24654 x x x in the name of
Trinidad D. Chua; and
(j) TCT No. T-25018 x x x in the name of
Trinidad D. Chuas deceased husband Juan
Chua.12
Due to violent confrontations between
government troops and Muslim rebels in
Mindanao from 1972 to 1977, petitioners
were forced to abandon their cattle ranch.13
As a result, their business collapsed and
they failed to pay the loan amortizations.14
In 1978, petitioners made a partial payment
in the amount of P902,800.00,15 leaving an
outstanding loan balance of P610,498.30,
inclusive of charges and unpaid interest, as
of September 30, 1978.16
In 1989, petitioners, represented by
Edmundo Lim (Edmundo), requested from
DBP Statements of Account for the "Lim
Account" and the "Diamond L Ranch
Account."17 Quoted below are the
computations in the Statements of Account,
as of January 31, 1989 which were stamped
with the words "Errors & Omissions
Excepted/Subject to Audit:"
1wphi1
Diamond L Ranch Account:
Matured [Obligation]:
Principal
P 939,973.33
Regular Interest
561,037.14
Advances 34,589.45
Additional Interest
2,590,786.26
Penalty Charges
1,068,147.19
Total claims as of January 31, 1989
5,194,533.37
18
Lim Account:
Matured [Obligation]:

Edmundo asked DBP how the mortgaged

properties were ceded by DAR to other
persons without their knowledge.25 No
reply was made.26
On April 30, 1991, Edmundo again signified
petitioners intention to settle the Diamond L
Ranch Account.27 Again, no reply was
made.28
On February 21, 1992, Edmundo received a
Notice of Foreclosure scheduled the
following day.29 To stop the foreclosure, he
was advised by the banks Chief Legal
Counsel to pay an interest covering a 60days period or the amount of P60,000.00 to
postpone the foreclosure for 60 days.30 He
was also advised to submit a written
proposal for the settlement of the loan
accounts.31
In a letter32 dated March 20, 1992,
Edmundo proposed the settlement of the
accounts through dacion en pago, with the
balance to be paid in equal quarterly
payments over five years.
In a reply-letter33 dated May 29, 1992, DBP
rejected the proposal and informed
Edmundo that unless the accounts are fully
settled as soon as possible, the bank will
pursue foreclosure proceedings.
DBP then sent Edmundo the Statements of
Account34 as of June 15, 1992 which were
stamped with the words "Errors &
Omissions Excepted/Subject to Audit"
indicating the following amounts: (1)
Diamond L Ranch: P7,210,990.27 and (2)
Lim Account: P187,494.40.
On June 11, 1992, Edmundo proposed to
pay the principal and the regular interest of
the
loans
in
36
equal
monthly
installments.35

Principal
P 40,000.00
Regular Interest
5,046.97
Additional Interest
92,113.56
Penalty Charges
39,915.46
Total claims as of January 31, 1989
P
177,075.99 19
Claiming to have already paid P902,800.00,
Edmundo requested for an amended
statement of account.20

Page 50 of 109

On May 4, 1990, Edmundo made a followup on the request for recomputation of the
two accounts.21 On May 17, 1990, DBPs
General Santos Branch informed Edmundo
that the Diamond L Ranch Account
amounted to P2,542,285.60 as of May 31,
199022 and that the mortgaged properties
located at San Isidro, Lagao, General
Santos City, had been subjected to
Operation Land Transfer under the
Comprehensive Agrarian Reform Program
(CARP) of the government.23 Edmundo
was also advised to discuss with the
Department of Agrarian Reform (DAR) and
the Main Office of DBP24 the matter of the
expropriated properties.

On July 3, 1992, DBP advised Edmundo to

coordinate with Branch Head Bonifacio
Tamayo, Jr. (Tamayo).36 Tamayo promised
to review the accounts.37
On September 21, 1992, Edmundo received
another Notice from the Sheriff that the
mortgaged properties would be auctioned
on November 22, 1992.38 Edmundo again
paid P30,000.00 as additional interest to
postpone the auction.39 But despite
payment of P30,000.00, the mortgaged
properties were still auctioned with DBP
emerging as the highest bidder in the
amount of P1,086,867.26.40 The auction
sale, however, was later withdrawn by DBP
for lack of jurisdiction.41

Thereafter, Tamayo informed Edmundo of

the banks new guidelines for the settlement
of outstanding loan accounts under Board
Resolution No. 0290-92.42 Based on these
guidelines, petitioners outstanding loan
obligation was computed at P3,500,000.00
plus.43 Tamayo then proposed that
petitioners pay 10% downpayment and the
remaining
balance
in
36
monthly
installments.44 He also informed Edmundo
that the bank would immediately prepare
the Restructuring Agreement upon receipt of
the downpayment and that the conditions
for the settlement have been "pre-cleared"
with
the
banks
Regional
Credit
Committee.45 Thus, Edmundo wrote a
letter46 on October 30, 1992 manifesting
petitioners assent to the proposal.
On November 20, 1992, Tamayo informed
Edmundo that the proposal was accepted
with some minor adjustments and that an
initial payment should be made by
November 27, 1992.47
On December 15, 1992, Edmundo paid the
downpayment of P362,271.7548 and was
asked to wait for the draft Restructuring
Agreement.49
However, on March 16, 1993, Edmundo
received a letter50 from Tamayo informing
him that the Regional Credit Committee
rejected
the
proposed
Restructuring
Agreement; that it required downpayment of
50% of the total obligation; that the
remaining balance should be paid within
one year; that the interest rate should be
non prime or 18.5%, whichever is higher;
and that the proposal is effective only for 90
days from March 5, 1993 to June 2, 1993.51
Edmundo, in a letter52 dated May 28, 1993,
asked for the restoration of their previous
agreement.53 On June 5, 1993, the bank
replied,54 viz:
This has reference to your letter dated May
28, 1993, which has connection to your
desire to restructure the Diamond L
Ranch/Carlos Lim Accounts.
We wish to clarify that what have been
agreed between you and the Branch are not
final until [the] same has been approved by
higher authorities of the Bank. We did [tell]
you during our discussion that we will be
recommending the restructuring of your
accounts with the terms and conditions as
agreed. Unfortunately, our Regional Credit
Committee did not agree to the terms and
conditions as recommended, hence, the
subject of our letter to you on March 15,
1993.
Please be informed further, that the Branch
cannot do otherwise but to comply with the
conditions imposed by the Regional Credit
Committee. More so, the time frame given
had already lapsed on June 2, 1993.
Unless we will receive a favorable action on
your part soonest, the Branch will be
constrained to do appropriate action to
protect the interest of the Bank."55
On July 28, 1993, Edmundo wrote a letter56
of appeal to the Regional Credit Committee.

In a letter57 dated August 16, 1993, Tamayo

informed Edmundo that the previous
Restructuring Agreement was reconsidered
and approved by the Regional Credit
Committee subject to the following
additional conditions, to wit:
1) Submission of Board Resolution and
Secretarys Certificate designating you as
authorized representative in behalf of
Diamond L Ranch;
2) Payment of March 15 and June 15, 1993
amortizations within 30 days from date
hereof; and
3) Submission of SEC registration.
In this connection, please call immediately x
x x our Legal Division to guide you for the
early documentation of your approved
restructuring.
Likewise, please be reminded that upon
failure on your part to sign and perfect the
documents and comply [with] other
conditions within (30) days from date of
receipt, your approved recommendation
shall be deemed CANCELLED and your
deposit of P362,271.75 shall be applied to
your account.

Edmundo that he would send the draft of

the Restructuring Agreement by courier on
November 15, 1993 to the Main Office of
DBP in Makati, and that Diamond L Ranch
need not submit the Board Resolution, the
Secretarys Certificate, and the SEC
Registration
since
it
is
a
single
proprietorship.64
On November 24, 1993 and December 3,
1993, Edmundo sent telegrams to Tamayo
asking for the draft of the Restructuring
Agreement.65
On November 29, 1993, the documents
were forwarded to the Legal Services
Department of DBP in Makati for the parties
signatures. At the same time, Edmundo was
required
to
pay
the
amount
of
P1,300,672.75, plus a daily interest of
P632.15 starting November 16, 1993 up to
the date of actual payment of the said
amount.66
On December 19, 1993, Edmundo received
the draft of the Restructuring Agreement.67
In a letter68 dated January 6, 1994, Tamayo
informed Edmundo that the bank cancelled
the Restructuring Agreement due to his
failure to comply with the conditions within a
reasonable time.

No compliance was made by Edmundo.58

On September 21, 1993, Edmundo received
Notice that the mortgaged properties were
scheduled to be auctioned on that day.59 To
stop the auction sale, Edmundo asked for
an extension until November 15, 199360
which was approved subject to additional
conditions:
Your request for extension is hereby granted
with the conditions that:
1) This will be the last and final extension to
be granted your accounts; and
2) That all amortizations due from March
1993 to November 1993 shall be paid
including the additional interest computed at
straight 18.5% from date of your receipt of
notice of approval, viz:

On January 10, 1994, DBP sent Edmundo a

Final Demand Letter asking that he pay the
outstanding amount of P6,404,412.92, as of
November 16, 1993, exclusive of interest
and penalty charges.69
Edmundo, in a letter70 dated January 18,
1994, explained that his lawyer was not able
to review the agreement due to the
Christmas holidays. He also said that his
lawyer was requesting clarification on the
following points:
Can the existing obligations of the
Mortgagors, if any, be specified in the
Restructuring Agreement already?
Is there a statement showing all the accrued
interest and advances that shall first be paid
before
the
restructuring
shall
be
implemented?

xxxx
Failure on your part to comply with these
conditions, the Bank will undertake
appropriate legal measures to protect its
interest.
Please give this matter your preferential
attention.61
On November 8, 1993, Edmundo sent
Tamayo a telegram, which reads:
Acknowledge receipt of your Sept. 27 letter.
I would like to finalize documentation of
restructuring Diamond L Ranch and Carlos
Lim Accounts. However, we would need
clarification on amortizations due on NTFI
means [sic]. I will call x x x your Legal
Department at DBP Head Office by Nov. 11.
Pls. advise who[m] I should contact. Thank
you.62
Receiving
no
response,
Edmundo
scheduled a meeting with Tamayo in
Manila.63 During their meeting, Tamayo told

Page 51 of 109

Should Mr. Jun Sarenas Chua and his wife

Mrs. Trinidad Chua be required to sign as
Mortgagors considering that Mr. Chua is
deceased and the pasture lease which he
used to hold has already expired?71
Edmundo also indicated that he was
prepared to pay the first quarterly
amortization on March 15, 1994 based on
the total obligations of P3,260,445.71, as of
December 15, 1992, plus interest.72
On January 28, 1994, Edmundo received
from the bank a telegram73 which reads:
We refer to your cattle ranch loan carried at
our DBP General Santos City Branch.
Please coordinate immediately with our
Branch Head not later than 29 January
1994, to forestall the impending foreclosure
action on your account.
Please give
attention.

the

matter

your

utmost

The bank also

queries, viz:

answered

Edmundos

In view of the extended leave of absence of

AVP Bonifacio A. Tamayo, Jr. due to the
untimely demise of his father, we regret
[that] he cannot personally respond to your
letter of January 18, 1994. However, he
gave us the instruction to answer your letter
on direct to the point basis as follows:
- Yes to Items No. 1 and 2,

against DBP for Annulment of Foreclosure

and Damages with Prayer for Issuance of a
Writ of Preliminary Injunction and/or
Temporary Restraining Order. Petitioners
alleged that DBPs acts and omissions
prevented them from fulfilling their
obligation; thus, they prayed that they be
discharged from their obligation and that the
foreclosure of the mortgaged properties be
declared void. They likewise prayed for
actual damages for loss of business
opportunities,
moral
and
exemplary
damages, attorneys fees, and expenses of
litigation.84

- No longer needed on Item No. 3

AVP Tamayo would like us also to convey to
you to hurry up with your move to settle the
obligation, while the foreclosure action is
still pending with the legal division. He is
afraid you might miss your last chance to
settle the account of your parents.74
Edmundo then asked about the status of the
Restructuring Agreement as well as the
computation of the accrued interest and
advances75 but the bank could not provide
any definite answer.76
On June 8, 1994, the Office of the Clerk of
Court and Ex-Officio Provincial Sheriff of the
RTC of General Santos City issued a
Notice77 resetting the public auction sale of
the mortgaged properties on July 11, 1994.
Said Notice was published for three
consecutive weeks in a newspaper of
general circulation in General Santos
City.78
On July 11, 1994, the Ex-Officio Sheriff
conducted a public auction sale of the
mortgaged properties for the satisfaction of
petitioners total obligations in the amount of
P5,902,476.34. DBP was the highest bidder
in the amount of P3,310,176.55.79
On July 13, 1994, the Ex-Officio Sheriff
issued the Sheriffs Certificate of ExtraJudicial Sale in favor of DBP covering 11
parcels of land.80
In a letter81 dated September 16, 1994,
DBP informed Edmundo that their right of
redemption over the foreclosed properties
would expire on July 28, 1995, to wit:
This is to inform you that your right of
redemption over your former property/ies
acquired by the Bank on July 13, 1994, thru
Extra-Judicial Foreclosure under Act 3135
will lapse on July 28, 1995.
In view thereof, to entitle you of the
maximum condonable amount (Penal
Clause, AI on Interest, PC/Default Charges)
allowed by the Bank, we are urging you to
exercise your right within six (6) months
from the date of auction sale on or before
January 12, 1995.
Further, failure on your part to exercise your
redemption right by July 28, 1995 will
constrain us to offer your former
property/ies in a public bidding.

On same date, the RTC issued a Temporary

Restraining Order85 directing DBP to cease
and desist from consolidating the titles over
petitioners foreclosed properties and from
disposing the same.
In an Order86 dated August 18, 1995, the
RTC granted the Writ of Preliminary
Injunction and directed petitioners to post a
bond in the amount of P3,000,000.00.

[Respondent] Banks
hereby DISMISSED.

counterclaims

are

[Respondent] Bank is likewise ordered to

pay the costs of suit.
SO ORDERED.96
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside
the RTC Decision. Thus:
WHEREFORE, in view of the foregoing, the
instant appeal is hereby GRANTED. The
assailed Decision dated 10 December 1996
is hereby REVERSED and SET ASIDE. A
new judgment is hereby rendered. It shall
now read as follows:
WHEREFORE,
premises
judgment is hereby rendered:

considered,

DBP filed its Answer,87 arguing that

petitioners have no cause of action;88 that
petitioners failed to pay their loan
obligation;89 that as mandated by
Presidential Decree No. 385, initial
foreclosure proceedings were undertaken in
1977 but were aborted because petitioners
were able to obtain a restraining order;90
that on December 18, 1990, DBP revived its
application for foreclosure but it was again
held in abeyance upon petitioners
request;91 that DBP gave petitioners written
and verbal demands as well as sufficient
time to settle their obligations;92 and that
under Act 3135,93 DBP has the right to
foreclose the properties.94

Ordering the dismissal of the Complaint in

Civil Case No. 5608;

Ruling of the Regional Trial Court

SO ORDERED.

On December 10, 1996, the RTC rendered

a Decision,95 the dispositive portion of
which reads:

SO ORDERED.97

WHEREFORE, in light of the foregoing,

judgment is hereby rendered:

Hence, the instant recourse by petitioners

raising the following issues:

(1) Declaring that the [petitioners] have fully

extinguished and discharged their obligation
to the [respondent] Bank;

1. Whether x x x respondents own wanton,

reckless and oppressive acts and omissions
in discharging its reciprocal obligations to
petitioners
effectively
prevented
the
petitioners from paying their loan obligations
in a proper and suitable manner;

(2) Declaring the foreclosure of [petitioners]

mortgaged properties, the sale of the
properties
under
the
foreclosure
proceedings and the resultant certificate of
sale issued by the foreclosing Sheriff by
reason of the foreclosure NULL and VOID;
(3) Ordering the return of the [properties] to
[petitioners] free from mortgage liens;
(4) Ordering [respondent] bank to pay
[petitioners], actual and compensatory
damages of P170,325.80;
(5) Temperate damages of P50,000.00;
(c) Moral damages of P500,000.00;
(d) Exemplary damages of P500,000.00;

Please give this matter your preferential

attention. Thank you.82

(f) Expenses of litigation in the amount of

P20,000.00.

(e) Attorneys fees in the amount of

P100,000.00; and

On July 28, 1995, petitioners filed before the

RTC of General Santos City, a Complaint83

Declaring the extrajudicial foreclosure of

[petitioners] mortgaged properties as valid;
Ordering
[petitioners]
to
pay
the
[respondent] the amount of Two Million Five
Hundred Ninety Two Thousand Two
Hundred Ninety Nine [Pesos] and SeventyNine Centavos (P2,592,299.79) plus
interest and penalties as stipulated in the
Promissory Note computed from 11 July
1994 until full payment; and
Ordering [petitioners] to pay the costs.

Issues

2. Whether x x x as a result of respondents

said acts and omissions, petitioners
obligations should be deemed fully complied
with and extinguished in accordance with
the principle of constructive fulfillment;
3. Whether x x x the return by the trial Court
of the mortgaged properties to petitioners
free from mortgage liens constitutes unjust
enrichment;
4. Whether x x x the low bid price made by
the respondent for petitioners mortgaged
properties during the foreclosure sale is so
gross, shocking to the conscience and
inherently iniquitous as to constitute
sufficient ground for setting aside the
foreclosure sale;
5. Whether x x x the restructuring
agreement reached and perfected between

Page 52 of 109

the petitioners and the respondent novated

and
extinguished
petitioners
loan
obligations to respondent under the
Promissory Notes sued upon; and
6. Whether x x x the respondent should be
held liable to pay petitioners actual and
compensatory
damages,
temperate
damages, moral damages, exemplary
damages, attorneys fees and expenses of
litigation.98
Petitioners Arguments
Petitioners seek the reinstatement of the
RTC Decision which declared their
obligation fully extinguished and the
foreclosure proceedings of their mortgaged
properties void.
Relying on the Principle of Constructive
Fulfillment, petitioners insist that their
obligation should be deemed fulfilled since
DBP prevented them from performing their
obligation by charging excessive interest
and penalties not stipulated in the
Promissory Notes, by failing to promptly
provide them with the correct Statements of
Account,
and
by
cancelling
the
Restructuring Agreement even if they
already
paid
P362,271.75
as
downpayment.99 They likewise deny any
fault or delay on their part in finalizing the
Restructuring Agreement.100
In addition, petitioners insist that the
foreclosure sale is void for lack of personal
notice101 and the inadequacy of the bid
price.102 They contend that at the time of
the foreclosure, petitioners obligation was
not yet due and demandable,103 and that
the restructuring agreement novated and
extinguished petitioners loan obligation.104
Finally, petitioners claim that DBP acted in
bad faith or in a wanton, reckless, or
oppressive manner; hence, they are entitled
to actual, temperate, moral and exemplary
damages, attorneys fees, and expenses of
litigation.105
Respondents Arguments
DBP, on the other hand, denies acting in
bad faith or in a wanton, reckless, or
oppressive manner106 and in charging
excessive interest and penalties.107
According to it, the amounts in the
Statements of Account vary because the
computations were based on different cutoff
dates
and
different
incentive
schemes.108
DBP further argues that the foreclosure sale
is valid because gross inadequacy of the bid
price as a ground for the annulment of the
sale applies only to judicial foreclosure.109
It likewise maintains that the Promissory
Notes and the Mortgage were not novated
by
the
proposed
Restructuring
Agreement.110
As to petitioners claim for damages, DBP
contends it is without basis because it did
not act in bad faith or in a wanton, reckless,
or oppressive manner.111
Our Ruling

The foreclosure sale is not valid.

The obligation was not extinguished
or discharged.
The Promissory Notes subject of the instant
case became due and demandable as early
as 1972 and 1976. The only reason the
mortgaged properties were not foreclosed in
1977 was because of the restraining order
from the court. In 1978, petitioners made a
partial payment of P902,800.00. No
subsequent payments were made. It was
only in 1989 that petitioners tried to
negotiate the settlement of their loan
obligations. And although DBP could have
foreclosed the mortgaged properties, it
instead agreed to restructure the loan. In
fact, from 1989 to 1994, DBP gave several
extensions for petitioners to settle their
loans, but they never did, thus, prompting
DBP to cancel the Restructuring Agreement.
Petitioners, however, insist that DBPs
cancellation of the Restructuring Agreement
justifies the extinguishment of their loan
obligation
under
the
Principle
of
Constructive Fulfillment found in Article
1186 of the Civil Code.
We do not agree.
As aptly pointed out by the CA, Article 1186
of the Civil Code, which states that "the
condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment,"
does not apply in this case,112 viz:
Article 1186 enunciates the doctrine of
constructive fulfillment of suspensive
conditions, which applies when the following
three (3) requisites concur, viz: (1) The
condition is suspensive; (2) The obligor
actually prevents the fulfillment of the
condition; and (3) He acts voluntarily.
Suspensive condition is one the happening
of which gives rise to the obligation. It will
be irrational for any Bank to provide a
suspensive condition in the Promissory
Note or the Restructuring Agreement that
will allow the debtor-promissor to be freed
from the duty to pay the loan without paying
it.113
Besides, petitioners have no one to blame
but themselves for the cancellation of the
Restructuring Agreement. It is significant to
point out that when the Regional Credit
Committee
reconsidered
petitioners
proposal to restructure the loan, it imposed
additional conditions. In fact, when DBPs
General Santos Branch forwarded the
Restructuring Agreement to the Legal
Services Department of DBP in Makati,
petitioners were required to pay the amount
of P1,300,672.75, plus a daily interest of
P632.15 starting November 16, 1993 up to
the date of actual payment of the said
amount.114 This, petitioners failed to do.
DBP therefore had reason to cancel the
Restructuring Agreement.
Moreover,
since
the
Restructuring
Agreement was cancelled, it could not have
novated or extinguished petitioners loan
obligation. And in the absence of a
perfected Restructuring Agreement, there
was no impediment for DBP to exercise its
right
to
foreclose
the
mortgaged
properties.115

The Petition is partly meritorious.

Page 53 of 109

But while DBP had a right to foreclose the

mortgage, we are constrained to nullify the
foreclosure sale due to the banks failure to
send a notice of foreclosure to petitioners.
We have consistently held that unless the
parties stipulate, "personal notice to the
mortgagor in extrajudicial foreclosure
proceedings is not necessary"116 because
Section 3117 of Act 3135 only requires the
posting of the notice of sale in three public
places and the publication of that notice in a
newspaper of general circulation.
In this case, the parties stipulated in
paragraph 11 of the Mortgage that:
11. All correspondence relative to this
mortgage,
including
demand
letters,
summons, subpoenas, or notification of any
judicial or extra-judicial action shall be sent
to the Mortgagor at xxx or at the address
that may hereafter be given in writing by the
Mortgagor or the Mortgagee;118
However, no notice of the extrajudicial
foreclosure was sent by DBP to petitioners
about the foreclosure sale scheduled on
July 11, 1994. The letters dated January 28,
1994 and March 11, 1994 advising
petitioners to immediately pay their
obligation
to
avoid
the
impending
foreclosure of their mortgaged properties
are not the notices required in paragraph 11
of the Mortgage. The failure of DBP to
comply with their contractual agreement
with petitioners, i.e., to send notice, is a
breach
sufficient
to
invalidate
the
foreclosure sale.
In Metropolitan Bank and Trust Company v.
Wong,119 we explained that:
x x x a contract is the law between the
parties and, that absent any showing that its
provisions are wholly or in part contrary to
law, morals, good customs, public order, or
public policy, it shall be enforced to the letter
by the courts. Section 3, Act No. 3135
reads:
Sec. 3. Notice shall be given by posting
notices of the sale for not less than twenty
days in at least three public places of the
municipality or city where the property is
situated, and if such property is worth more
than four hundred pesos, such notice shall
also be published once a week for at least
three consecutive weeks in a newspaper of
general circulation in the municipality and
city.
The Act only requires (1) the posting of
notices of sale in three public places, and
(2) the publication of the same in a
newspaper of general circulation. Personal
notice to the mortgagor is not necessary.
Nevertheless, the parties to the mortgage
contract are not precluded from exacting
additional requirements. In this case,
petitioner and respondent in entering into a
contract of real estate mortgage, agreed
inter alia:
all correspondence relative to this
mortgage,
including
demand
letters,
summonses, subpoenas, or notifications of
any judicial or extra-judicial action shall be

sent to the MORTGAGOR at 40-42

Aldeguer St. Iloilo City, or at the address
that may hereafter be given in writing by the
MORTGAGOR to the MORTGAGEE.
Precisely, the purpose of the foregoing
stipulation is to apprise respondent of any
action which petitioner might take on the
subject property, thus according him the
opportunity to safeguard his rights. When
petitioner failed to send the notice of
foreclosure sale to respondent, he
committed a contractual breach sufficient to
render the foreclosure sale on November
23, 1981 null and void.120 (Emphasis
supplied)
In view of foregoing, the CA erred in finding
the foreclosure sale valid.
Penalties and interest rates should
be expressly stipulated in writing.
As to the imposition of additional interest
and penalties not stipulated in the
Promissory Notes, this should not be
allowed. Article 1956 of the Civil Code
specifically states that "no interest shall be
due unless it has been expressly stipulated
in writing." Thus, the payment of interest
and penalties in loans is allowed only if the
parties agreed to it and reduced their
agreement in writing.121
In this case, petitioners never agreed to pay
additional interest and penalties. Hence, we
agree with the RTC that these are illegal,
and thus, void. Quoted below are the
findings of the RTC on the matter, to wit:
Moreover, in its various statements of
account, [respondent] Bank charged
[petitioners] for additional interests and
penalties which were not stipulated in the
promissory notes.
In the Promissory Note, Exhibit "A," for the
principal amount of P960,000.00, only the
following interest and penalty charges were
stipulated:
(1) interest at the rate of twelve percent
(12%) per annum;
(2) penalty charge of one-third percent
(1/3%) per month on overdue amortization;
(3) attorneys fees equivalent to ten percent
(10%) of the total indebtedness then unpaid;
and
(4) advances and interest thereon at one
percent (1%) per month.
[Respondent] bank, however, charged
[petitioners] the following items as shown in
its Statement of Account for the period as of
31 January 1989, Exhibit "D:"
(1) regular interest in the amount of
P561,037.14;

The Court finds no basis under the

Promissory Note, Exhibit "A," for charging
the additional interest in the amount of
P2,590,786.26.
Moreover,
it
is
incomprehensible how the penalty charge of
1/3% per month on the overdue
amortization could amount to P1,086,147.19
while the regular interest, which was
stipulated at the higher rate of 12% per
annum, amounted to only P561,037.14 or
about half of the amount allegedly due as
penalties.
In Exhibit "N," which is the statement of
account x x x as of 15 June 1992,
[respondent] bank charged plaintiffs the
following items:
(1) regular interest in the amount of
P561,037.14;
(2) advances in the amount of P106,893.93;
(3) additional interest on principal in the
amount of P1,233,893.79;
(4) additional interest on regular interest in
the amount of P859,966.83;
(5) additional interest on advances in the
amount of P27,206.45;
(6) penalty charges on principal in the
amount of P1,639,331.15;
(7) penalty charges on regular interest in the
amount of P1,146,622.55;
(8) penalty charges on advances in the
amount of P40,520.53.
Again, the Court finds no basis in the
Promissory Note, Exhibit "A," for the
imposition of additional interest on principal
in the amount of P1,233,893.79, additional
interest on regular interest in the amount of
P859,966.83, penalty charges on regular
interest in the amount of P1,146,622.55 and
penalty charges on advances in the amount
of P40,520.53.
In the Promissory Note, Exhibit "C," for the
principal amount of P40,000.00, only the
following charges were stipulated:
(1) interest at the rate of nine percent (9%)
per annum;
(2) all unpaid amortization[s] shall bear
interest at the rate of eleven percent (11%)
per annum; and,

(4) penalty charges in the amount of

P1,068,147.19.

In Exhibit "O," which is the statement of

account x x x as of 15 June 1992,
[respondent] charged [petitioners] with the
following:
(1) regular interest in the amount of
P4,621.25;
(2) additional interest on principal in the
amount of P65,303.33;
(3) additional interest on regular interest in
the amount of P7,544.58;
(4) penalty charges on principal in the
amount of P47,493.33;
(5) penalty charges on regular interest in the
amount of P5,486.97;
(6) penalty charges on advances in the
amount of P40,520.53.
[Respondent] bank failed to show the basis
for charging additional interest on principal,
additional interest on regular interest and
penalty charges on principal and penalty
charges on regular interest under items (2),
(3), (4) and (5) above.
Moreover, [respondent] bank charged
[petitioners] twice under the same
provisions in the promissory notes. It
categorically admitted that the additional
interests and penalty charges separately
being charged [petitioners] referred to the
same provision of the Promissory Notes,
Exhibits "A" and "C." Thus, for the Lim
Account in the amount of P40,000.00,
[respondents] Mr. Ancheta stated:
Q:

(3) attorneys fees equivalent to ten percent

(10%) of the total indebtedness then unpaid.
In its statement of account x x x as of 31
January 1989, Exhibit "E," [respondent]
bank charged [petitioners] with the following
items:
(1) regular interest in the amount of
P5,046.97

(2) advances in the amount of P34,589.45;

(3) additional interest in the amount of
P2,590,786.26; and

There was nothing in the Promissory Note,

Exhibit "C," which authorized the imposition
of additional interest. Again, this Court notes
that the additional interest in the amount of
P92,113.56 is even larger than the regular
interest in the amount of P5,046.97.
Moreover, based on the Promissory Note,
Exhibit "C," if the 11% interest on unpaid
amortization is considered an "additional
interest," then there is no basis for
[respondent] bank to add penalty charges
as there is no other provision providing for
this charge. If, on the other hand, the 11%
interest
on
unpaid
amortization
is
considered the penalty charge, then there is
no basis to separately charge plaintiffs
additional interest. The same provision
cannot be used to charge plaintiffs both
interest and penalties.

In Exhibit 14, it is stated that for a principal

amount of P40,000.00 you imposed an
additional interest in the amount of
P65,303.33 in addition to the regular
interest of P7,544.58, can you tell us looking
[at] the mortgage contract and promissory
note what is your basis for charging that
additional interest?
A:

(2) additional interest in the amount of

P92,113.56; and
(3) penalty charges in the amount of
P39,915.46.

Page 54 of 109

The same as that when I answered Exhibit

No. 3, which shall cover amortization on the
principal and interest at the abovementioned rate. All unpaid amortization[s]
shall bear interest at the rate of eleven per
centum (11%) per annum.

Q:

Yes (TSN, 28 May 1996, pp. 41-42.)

You also imposed penalty which is on the

principal in the amount of P40,000.00 in the
amount of P47,493.33 in addition to regular
interest of P5,486.96. Can you point what
portion of Exhibit 3 gives DBP the right to
impose such penalty?

A perusal of the promissory notes, however,

failed to justify [respondent] banks
computation of both interest and penalty
under the same provision in each of the
promissory notes.

A:
The same paragraph as stated.
Q:
Can you please read the portion referring to
penalty?
A:
All unpaid amortization shall bear interest at
the rate of 11% per annum.
Q:
The additional interest is based on 11% per
annum and the penalty is likewise based on
the same rate?
A:
Yes, it is combined (TSN, 28 May 1996, pp.
39-40.)
With respect to the Diamond L. Ranch
account in the amount of P960,000.00, Mr.
Ancheta testified as follows:
Q:
Going back to Exhibit 14 Statement of
Accounts. Out of the principal of
P939,973.33 you imposed an additional
interest of P1,233,893.79 plus P859,966.83
plus P27,206.45. Can you tell us what is the
basis of the imposition?
A:
As earlier stated, it is only the Promissory
Note as well as the Mortgage Contract.
Q:
Please point to us where in the Promissory
Note is the specific portion?
A:
In Exhibit 1: "in case of failure to pay in full
any amortization when due, a penalty
charge of 1/3% per month on the overdue
amortization shall be paid."
Q:
What is the rate?
A:

[Respondent] bank also admitted that the

additional interests and penalties being
charged [petitioners] were not based on the
stipulations in the Promissory Notes but
were imposed unilaterally as a matter of its
internal banking policies. (TSN, 19 March
1996, pp. 23-24.) This banking policy,
however, has been declared null and void in
Philippine National Bank vs. CA, 196 SCRA
536 (1991). The act of [respondent] bank in
unilaterally changing the stipulated interest
rate is violative of the principle of mutuality
of contracts under 1308 of the Civil Code
and contravenes 1956 of the Civil Code.
[Respondent] bank completely ignored
[petitioners] "right to assent to an important
modification in their agreement and
(negated) the element of mutuality in
contracts." (Philippine National Bank vs. CA,
G.R. No. 109563, 9 July 1996; Philippine
National Bank vs. CA, 238 SCRA 20 1994).
As in the PNB cases, [petitioners] herein
never agreed in writing to pay the additional
interest, or the penalties, as fixed by
[respondent] bank; hence [respondent]
banks imposition of additional interest and
penalties is null and void.122 (Emphasis
supplied)
Consequently, this case should be
remanded to the RTC for the proper
determination of petitioners total loan
obligation based on the interest and
penalties stipulated in the Promissory
Notes.
DBP did not act in bad faith or in a
wanton, reckless, or oppressive manner.
Finally, as to petitioners claim for damages,
we find the same devoid of merit.
DBP did not act in bad faith or in a wanton,
reckless, or oppressive manner in
cancelling the Restructuring Agreement. As
we have said, DBP had reason to cancel
the Restructuring Agreement because
petitioners failed to pay the amount required
by it when it reconsidered petitioners
request to restructure the loan.
Likewise, DBPs failure to send a notice of
the foreclosure sale to petitioners and its
imposition of additional interest and
penalties do not constitute bad faith. There
is no showing that these contractual
breaches were done in bad faith or in a
wanton,
reckless,
or
oppressive
manner.1wphi1
In Philippine National Bank v. Spouses
Rocamora,123 we said that:

1/3% per month.

Q:
So, the imposition of the additional interest
and the penalty charge is based on the
same provision?
A:

Moral damages are not recoverable simply

because a contract has been breached.
They are recoverable only if the defendant
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. Likewise, a breach

Page 55 of 109

of contract may give rise to exemplary

damages only if the guilty party acted in a
wanton, fraudulent, reckless, oppressive or
malevolent manner.
We are not sufficiently convinced that PNB
acted fraudulently, in bad faith, or in wanton
disregard of its contractual obligations,
simply because it increased the interest
rates and delayed the foreclosure of the
mortgages. Bad faith cannot be imputed
simply because the defendant acted with
bad judgment or with attendant negligence.
Bad faith is more than these; it pertains to a
dishonest purpose, to some moral obliquity,
or to the conscious doing of a wrong, a
breach of a known duty attributable to a
motive, interest or ill will that partakes of the
nature of fraud. Proof of actions of this
character is undisputably lacking in this
case. Consequently, we do not find the
spouses Rocamora entitled to an award of
moral and exemplary damages. Under
these circumstances, neither should they
recover attorneys fees and litigation
expense. These awards are accordingly
deleted.124 (Emphasis supplied)
WHEREFORE, the Petition is PARTLY
GRANTED. The assailed February 22, 2007
Decision of the Court of Appeals in CA-G.R.
CV No. 59275 is hereby MODIFIED in
accordance with this Decision. The case is
hereby REMANDED to the Regional Trial
Court of General Santos City, Branch 22, for
the proper determination of petitioners total
loan obligations based on the interest and
penalties stipulated in the Promissory Notes
dated November 24, 1969 and December
30, 1970. The foreclosure sale of the
mortgaged properties held on July 11, 1994
is DECLARED void ab initio for failure to
comply with paragraph 11 of the Mortgage,
without prejudice to the conduct of another
foreclosure sale based on the recomputed
amount of the loan obligations, if necessary.
G.R. No. 72313
December 29, 1989
RICARDO CRUZ, petitioner,
vs.
HON.
INTERMEDIATE
APPELLATE
COURT and ROMAN LEGARDA SO,
respondents.
G.R. No. 72326. December 29,1989.*
ROMAN LEGARDA SO, petitioner vs.
RICARDO CRUZ, respondent.
Armando
M.
Pulgado
petitioner/respondent.

for

Ruben
F.
Balane
respondent/petitioner.

for

Bautista

Before us are two separate petitions filed

by Ricardo Cruz (G.R. No. 72313) and
Roman Legarda So. (G.R. No. 72326) to
review on certiorari the decision of the Court
of Appeals in AC-G.R. CV No. 03291
entitled "Ricardo Cruz vs. Roman Legarda
So," dated May 28, 1985, 1 the dispositive
portion of which provides:
WHEREFORE, the decision appealed from
is hereby MODIFIED as follows:
1. The lease contract is extended for a
period of 57 months to be reckoned from
March 31, 1982.

2. The compensatory damages and actual

damages awarded to the petitioner are
eliminated.
3. The writ of preliminary injunction is
granted only for a period of the extension of
the lease.
4. The counterclaim of the respondent is
hereby dismissed.
No costs. 2
Called from the decision of respondent
Court of Appeals are the following factual
findings:
It is not disputed in the record that the
Padre Rada market consisted of six parcels
of land belonging to different person, one
parcel of which with an area of 651.80
square meters is owned by Roman Legarda
So.
The petitioners evidence shows that the
Padre Rada Market Operators Association,
an unregistered partnership, constructed the
market with leasehold right from the owners
of the lots (Exhs. L & L-1). The lease with
respondent So was of an indefinite duration
at a monthly rent of P 3,500 (Exhs. E to E14 & G).
Petitioner has been the manager of said
association
supervising
the
market,
assigning market inspectors and collectors,
and collecting from stallholders and
merchants (biyaheros) doing business in the
market. He also takes charge of rental
payments of the market so that rental
receipts issued by So were all made out in
his name. (Exhibits 'E' to 'E-14').
Communications
intended
for
the
association are also addressed by So to
him. And when So demanded the liquidation
of the alleged rental arrearages of the
association, a letter to this effect was sent to
Cruz by the lawyer of So (Exhibit 'A'), and
other letters by So himself (Exhibits 'B', 'G',
'G-l' and 'H').
On April 18, 1977 Cruz received a letter
from respondent advising him to pay the
rentals in arrears and to vacate the
premises on or before April 30, 1977 (Exh.
B). The petitioner, nevertheless, continued
operating the market and paid the monthly
rental to respondent for May 1977 without
any protest.
Sometime in June, the petitioner was
suddenly served a copy of a temporary
restraining order issued by the then Court of
First Instance of Manila, Branch XXII in its
Civil Case No. 109218, which was an action
commenced against Cruz by So and one
Antonio Barredo, Jr. to prohibit his market
operation and collection of rentals (t.s.n.,
March 1, 1983, p. 4).
It turned out that respondent So leased out
a portion of the Padre Rada market to
Antonio Barredo, Jr. for a period of five
years. So also entered into a lease
agreement with Antonio Gonzales, Jr. and
Milagros de Leon for a three year period
ending March 31, 1982. 3

By virtue of said injunction proceeding

commenced by So and Barredo, Ricardo
Cruz was compelled to stop his market
operations and collection of market fees
from June, 1977 to March, 1982 or a period
of fifty-seven (57) months.
After the expiration of the lease contract
between Roman So and Milagros de Leon,
Ricardo Cruz immediately filed Civil Case
No. 82-8098 in the Regional Trial Court of
Manila 4 on March 31, 1982 to enjoin
Roman So from leasing out the market to
third parties. Upon application of Ricardo
Cruz, a writ of preliminary injunction was
issued on May 4, 1982, enjoining Roman So
from leasing the market to third parties,
renewing his contract with Antonio
Gonzales, Jr. and/or Milagros de Leon and
from collecting rentals from stallholders
thereat during the existence of the lease
agreement with Cruz and his association.
On May 13, 1983, the trial court rendered a
decision the dispositive portion of which
decrees:
WHEREFORE,
judgment
rendered as follows:

is

hereby

1) Declaring petitioner as the lawful

representative of the Padre Rada Market
Association or as one of the members
thereof;
2) Declaring the lease contract over the
Padre Rada Market entered into by the
petitioner's association with the respondent
as having lawfully expired on March 31,
1982;

rendered a new decision on February 6,

1984, the decretal portion of which reads:
WHEREFORE,
judgment
rendered as follows:

is

hereby

1. The Decision of May l3, 1983 reiterated

insofar as it is not inconsistent with the
following dispositions;
2. It is declared that the lease contract of
the parties is still good and subsisting, and
with an extended term of fifteen (15) years,
reckoned from the date this New Decision
shall have become final, under the same
terms and conditions of their agreement,
including the amount of rental which is P
3,500 per month, unless the parties
mutually agree on other terms, conditions
and stipulations;
3. Making permanent the writ of preliminary
injunction previously granted therein;
4. Ordering respondent to pay the
petitioner the sum of P 285,000 (P 5,000 x
57 months) as compensatory and actual
damages in the form of losses suffered
and/or loss of profit; and
5. Respondent's counterclaim is denied
and dismiss Respondent is ordered to pay
the costs. 6
On appeal, respondent court rendered the
decision hereinbefore mentioned, hence,
the
instant
petitions
which
were
consolidated by the resolution of this Court
on October 6, 1986.

5) Ordering petitioner to pay a monthly

rental of P 3,500.00 to the respondent up to
March 31, 1982;

In G.R. No. 72313, Ricardo Cruz avers that

respondent Court of Appeals erred in
reducing the lease period fixed by the trial
court, and in eliminating the compensation
award to him for losses arising from his
unlawful dispossession of the Padre Rada
Market. On the other hand, Roman Legarda
So alleges, in G.R. No. 72326, that
respondent court erred: (1) in not declaring
the lease to have been validly terminated for
non-payment of rentals; (2) in not holding
that the lease, being on a month-to-month
basis, could be terminated at the end of
every month; (3) in applying Article 1687 of
the Civil Code to extend the lease of Cruz to
December, 1986; and (4) in not ordering
Cruz to pay rentals up to the time of actual
relinquishment of the premises.

6) Ordering respondent in turn to make an

immediate accounting of receipts from
stallholders paid to him during the present
controversy without the knowledge of the
petitioner, and to credit the petitioner for
such collections. If the collections exceed P
3,500 monthly, the excess thereof shall be
paid the petitioner;

The main issue for resolution in this case is

whether or not Roman Legarda So could
validly terminate his contract of lease with
Ricardo Cruz and enter into a new contract
with third persons. A corollary issue is
whether Ricardo Cruz is entitled to have the
term of his lease fixed for another and
longer period of time.

7) The writ of preliminary injunction issued

in this case is hereby lifted and set aside;

We hold that there was a valid termination

of the lease contract executed between
Ricardo Cruz and Roman Legarda So for
several reasons.

3) Declaring petitioner as no longer without

any right to continue occupying, possessing
and enjoying the MARKET starting April 1,
1982, and ordering said petitioner to
forthwith vacate the premises and surrender
possession to the respondent;
4) Ordering the petitioner to make an
accounting of all the collections and
expenses made for the administration of the
property from April 1, 1982 until petitioner
shall have surrendered possession thereof
to respondent;

8) The claim for other damages by one

party
against
the
other,
including
respondent's
counterclaim,
are
both
dismissed. Petitioner shall pay the costs of
suit. 5
This decision was, however, reconsidered
upon motion of Ricardo Cruz, as a
consequence of which the court a quo

Page 56 of 109

Firstly, the applicable provision of the Civil

Code states:
Art. 1687. If the period for the lease has not
been fixed, it is understood to be from year
to year, if the rent agreed upon is annual;
from month to month, if it is monthly; from

week to week, if the rent is weekly; and from

day to day, if the rent is to be paid daily....
In the case at bar, there is no debate that
Ricardo Cruz pays his rent monthly which
thus makes his lease contract terminable at
the end of every month without need of any
special notice to vacate. 7 Roman Legarda
So may exercise his right to terminate the
contract at the end of any month even if any
of the conditions of the contract had not
been violated, 8 and such right cannot be
defeated by the lessee's timely payment of
the rent or by his willingness to continue
doing so. 9 Furthermore, the contract of
lease being on a month-to-month basis,
Ricardo Cruz cannot validly claim that the
lease is for an indefinite period. Article 1687
specifically provides that the term is month
to month if the rent is paid monthly, hence it
is a lease with a definite term. Such lease
contract expires at the end of every month
unless there is an implied or tacit renewal
thereof as when the lessee is allowed to
continue enjoying the leased premises for
fifteen (15) days at the end of every month
with the acquiescence of the lessor. Such
exception, however, cannot be invoked
when notice to vacate is given to the lessee
in which case the contract of lease expires
at the end of the month.
In the case at bar, Ricardo Cruz does not
refute, and in fact he even admits, that a
notice to vacate was issued to him on April
18, 1977 by Roman Legarda So informing
him that their lease contract would expire on
April 30, 1977. Although payment of rental
was made for the month of May, 1977 and
accepted by Roman Legarda So, this does
not by itself curtail the latter's right to
terminate the lease contract at the end of
every succeeding month. Besides, the
lessor is entitled to payment for the
occupancy of his premises even after the
contract has expired.
Secondly, without explicitly admitting the
breach, Cruz offers the flimsy and
unsubstantiated excuse that there is a preexisting remittance arrangement between
the parties over the settlement of his rental
arrearages and erroneously postulates that,
by virtue of said arrangement, he cannot
now be considered as in default. 10 For all
intents and purposes, the fact remains that
the failure of Cruz to pay the rents when
due constitutes a breach of the contract of
lease which gives rise to So's right of
rescission under Article 1191 of the Civil
Code which states:
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.
We are convinced that So acted well within
his rights in terminating his contract with

Cruz and in entering into a new one with

third persons, without need of resorting to
judicial action. This finds support in our
ruling in the case of University of the
Philippines vs. De los Angeles, etc., et al. 11
which involved the question of whether the
injured party may consider the contract as
rescinded even before any judicial
pronouncement has been made to that
effect. This Court, in holding in the
affirmative, ruled 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 deed 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, 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.
(Emphasis supplied)
Ricardo Cruz further maintains that the
lease contract with Roman Legarda So is
one with an indefinite period, no specific
term having been agreed upon by the
parties, hence the court can legally fix a
longer term. He invokes the second
sentence of Article 1687 of the Civil Code
which states that even though a monthly
rental is paid, and no period for the lease
has been set, the courts may fix a longer

Page 57 of 109

term for the lease after the lessee has

occupied the premises for over one year.
We reject such proposition.
As earlier stated, the contract of Ricardo
Cruz, being on a month-to- month basis, is
a lease with a definite period. Since the
contract of lease is for a definite term, the
lessee cannot avail of the benefits under
Article 1687 which applies only if there is no
definite term. And, even assuming arguendo
that Article 1687 applies, Ricardo Cruz
would still not be entitled to have the term
fixed for a longer period since his action
was filed only after the contract had expired.
As held in Vda. de Prieto us. Santos, et al.
12
Under this provision, if the period of a lease
contract has not been specified by the
parties therein, it is understood to be from
month to month, if the rent agreed upon is
monthly, as in the cases at bar.
Consequently, the contract expires at the
end of such month, unless, prior thereto, the
extension of said term has been sought by
appropriate action and judgment is,
eventually, rendered therein granting said
relief.
Defendants herein maintain that their lease
contracts did not, and could not, come to an
end until after the court has fixed its lifetime
and the term thus fixed has expired. This
view, is, to our mind, untenable. To begin
with, defendants assume that their contracts
are without term, prior to the judicial action
authorized in said Article 1687, whereas the
same provides that the duration of lease
contracts shall be yearly, monthly, weekly, or
daily depending upon whether the rental
agreed upon is annual, monthly, weekly, or
daily. In other words, said contracts have a
term fixed by law, and are not indefinite in
duration, before said judicial intervention.
Secondly, said Article 1687 merely gives the
court discretion to extend the period of the
lease. The court is not bound to extend said
term. It may legally refuse to do so, if the
circumstances surrounding the case
warrants such action. ... (Emphasis
reproduced)
Additionally, under the factual features of
this case, there is nothing in the law which
confers upon the lessee the preferential
right to occupy the premises over other
prospective lessees when his lease contract
has been terminated. To require otherwise
will unduly deprive the lessor of his
ownership rights without due process of law.
Lastly, if Ricardo Cruz actually believed that
he had every right to continue with the lease
of the subject premises, we find no plausible
reason for his inscrutable silence on and
apparent acquiescence to the lease contract
executed by Roman Legarda So with third
persons in 1977. His inexplicable inaction
when ordinary reason and prudence dictate
that he should have done something about
it operates as an admission that his lease
contract had been validly terminated.
While we are inclined, on equitable
considerations, to allow the period of
extension provided for the Court of Appeals,
the grant thereof has been rendered moot

by the fact that Ricardo Cruz had recovered

and has been in possession of the premises
since May 4, 1982 when a writ of
preliminary injunction was issued by the trial
court. In fact, it appears that he continues to
do so up to the present, which is clearly
beyond the 57-month period fixed by the
Court of Appeals, without paying the
corresponding rentals for his occupancy.
Under the circumstances, the legal
imperative is that Ricardo Cruz should pay
Roman Legarda So a monthly rent of P
3,500.00 starting May 4,1982 until Cruz
surrenders possession of the leased
premises to So. Correlatively, Ricardo Cruz
should immediately desist from operating
the market and from collecting rentals from
stallholders occupying the premises of
Roman Legarda So and to peaceably
surrender the said premises to So or the
latter's authorized representatives.
WHEREFORE, the judgment of the Court of
Appeals is hereby MODIFIED as follows:
1. Ricardo Cruz is hereby ordered to
forthwith desist from operating the market
and from collecting rentals from stallholders
occupying the premises of Roman Legarda
So;
2. Ricardo Cruz is further ordered to pay a
monthly rental of P3,500.00 to Roman
Legarda So from May 4,1982 until he fully
surrenders possession of the entire leased
premises to Roman Legarda So.
3. The writ of preliminary injunction issued
by the court a quo is hereby dissolved.
G.R. No. 75096

October 23, 1990

SATURNINO SONGCUAN, petitioner,

vs.
Hon.
INTERMEDIATE
APPELLATE
COURT, MARIANO ALVIAR BELEN
ALVIAR and LUZ ALVIAR PINLAC
respondents.
G.R. No. 80851

realties they had previously sold to him] ...

at the price of P34,026.09 ... for, during and
within the period of 10 years counted from
the date of execution of [the] instrument"
provided that the redemptioner also pays
the cost of improvements.

On July 29, 1977, the then Court of First

Instance of La Union rendered its decision
decreeing the following:

Appearing at the dorsal portion of the

instrument below the notarial subscription is
an undated additional condition which
reads, to wit:

(a) Declaring that the true and real

agreement or contract of the parties Exhs.
C, D, E & F for plaintiffs; (Exhs. 1, 2, 3 and 4
for the defendant) on the two parcels of land
with the commercial building is that of a
deed of sale with right to repurchase and
hereby enjoins the parties to comply and
abide by the terms of their contract;

P.S. (Additional condition)

In the event the said Victoriano Alviar,
Mariano S. Alviar and Belen F. Alviar or
either of them, exercise or exercises the
right to repurchase the above described
properties and they or either of them
become the owner and possessor of the
premises, they shall or either of them be
obliged to give me (Saturnino A. Songcuan)
the right of lease and are or is obliged to
execute a lease contract with me for a
period of twenty five (25) years from the
time of exercising the right to repurchase
the premises, at a monthly rental of three
hundred ninety pesos (P390.00), for the
premises actually occupied by me
(Saturnino Songcuan) at the time of the
execution of this instrument. (p. 6, Records
[Exhibit])
The signatures of the Alviars appear at the
bottom of the paragraph. At the time of the
execution of the instrument, Songcuan,
though then already the owner of the
realties, was admittedly actually occupying
only one-third portion of the ground floor of
the 3 storey building, apparently having
leased the remaining portion to third
persons.
Sometime in March, 1969 the mentioned
building was razed by fire and Songcuan
erected another at his own expense.
Subsequently, Songcuan had the realties
registered in his name and was issued OCT
No. 0-1029 sometime in 1969.

IN VIEW OF THE FOREGOING, judgment

is hereby rendered

(b) Declaring that plaintiffs' right to

repurchase the property as admitted by the
defendant for a period of 10 years from
October 10, 1966 to October 10, 1976, as
stipulated in their contracts, have been
suspended by the filing of the complaint on
November 22, 1974. Said redemption
period is suspended during the pendency of
this case. Plaintiffs-vendor-a-retro may
exercise their right to repurchase the
properties within the remaining period of
one (1) year, 10 months and 18 days from
the finality of this decision (Ong Chua v.
CARR, 53 Phil. 975) or within the period of
30 days from finality of this decision as
provided for under Art. 1606 of the New Civil
Code;
(c) The plaintiffs in exercising their right to
repurchase the properties should pay the
defendant the necessary and useful
improvement in putting up the building in the
amount of P30,000.00, in addition to the
repurchase price of P34,026.09, and the
additional expenses of P1,000.00 for the
registration of the land under Act 496;
otherwise, the defendant may retain
possession of the parcels of land and
building until reimbursement is fully made;
(d) No damages, including attorney's fees
and litigation expenses is awarded to both
parties.

October 23, 1990

SATURNINO SONGCUAN, petitioner,

vs.
HON. GENARO C. GINES, in his capacity
as Judge of the Regional Trial Court,
Branch 26, San Fernando, La Union,
ATTY. ALFREDO A. TALAVERA, in his
capacity as Clerk of Court, Regional Trial
Court of San Fernando, La Union,
MARIANO ALVIAR, BELEN ALVIAR and
LUZ ALVIAR PINLAC respondents.
Arcadio G. De la Cruz for petitioner.
Alfredo F. Tadiar for private respondents.
Victoriano Alviar was the owner of two
parcels of land located at San Fernando, La
Union. On the land stands a building owned
by his son, Mariano, and his wife, Belen. On
September 29, 1966, the Alviars sold these
realties to Saturnino Songcuan for
P34,026.09. On October 10, 1966
Songcuan executed an instrument entitled
"Deed of Repurchase of Two Parcels of
Land
and
a
Residential-Commercial
Building" (pp. 5-6, Records [Exhibit])
wherein he gave the Alviars, or any one of
them or "their respective heirs and assigns,
the right and privilege to repurchase [the

In 1974, the Alviars filed a complaint against

Songcuan, docketed as Civil Case No.
2621, for "Redemption with Consignation" to
compel the defendant to effect the
redemption to them of the subject realties.
Victoriano Alviar having died at this time, he
was represented by his heirs. Songcuan
refused to sell back to the Alviars the
properties because the latter was tendering
only the price of P34,026.00 whereas
Songcuan wanted reimbursement for the
cost of the building he erected and also for
the cost of the registration of the realties.
The Alviars, on the other hand, claimed that
the transactions between them and
Songcuan were one of equitable mortgage
and, therefore, Songcuan cannot compel
them to pay for the cost of the building he
had erected without their permission.
In his Answer, Songcuan prays, in the
alternative, that in the event the Alviars be
allowed to repurchase the realties the latter
be also compelled to lease the properties to
him pursuant to the "P.S. (Additional
Condition)" embodied in the instrument
dated October 10, 1966 as above quoted.

Without pronouncement as to costs. (P. 57,

Record [Exhibits]
From this decision Songcuan appealed
alleging among others that "[the [lower
court] erred in refusing to make a finding as
to the appellants' right to lease the property
for 25 years ... "
On July 15, 1980 the Court of Appeals, in
CA-G.R. No. 62934, affirmed in toto the
appealed decision. With respect to
Songcuan's alleged right to lease, the
appellate court stated that the lower court
had already upheld the validity of the deeds
executed by the parties and, therefore,
"such pronouncement regarding appellant's
right to lease the premises for 25 years is
unnecessary. The condition is already there
in the contract itself which is the law
between the parties."
This decision became final and executory
on March 9, 1981, the petition for its review
having been denied in our resolution, in
G.R. No. 55196 dated January 26, 1981.
The writ of execution was issued on April 1,
1981 but was returned unsatisfied because
Songcuan refused to accept the manager's

Page 58 of 109

check tendered to him claiming that it was

not legal tender and for the further reason
that the Alviars refused to execute a lease
contract in his favor as embodied in their
October 10, 1966 contract. An alias writ of
execution was issued on June 1, 1981 but
also was not satisfied.
On July 7, 1981, Songcuan filed a complaint
with the same Court of First Instance of La
Union for Rescission of Right to
Repurchase which was docketed as Civil
Case No. 3213 and which gave rise to this
petition. Songcuan was of the opinion that
the Alviars' forfeited their right to repurchase
the realties for having failed to redeem them
within 30 days from the finality of the
decision in Civil Case No. 2621 contrary to
the mandate of Article 1606 of the Civil
Code.
On July 9, 1981, the trial court in Civil Case
No. 2621 issued an order for its Clerk of
Court to issue a Deed of Reconveyance in
behalf of Songcuan and in favor of the
Alviars.
On July 11, 1981, Songcuan amended his
complaint alleging that rescission lies for the
further reason that the Alviars failed to
execute in his favor a lease contract citing
Article 1191 of the Civil Code, and that if the
Deed of Reconveyance had already been
executed by the Clerk of Court it be
declared null since the Alviars had already
forfeited their right to redeem the realties.
Songcuan's amended complaint further
added an alternative prayer that in the event
the court decides to compel him to reconvey
the properties, the Alviars be also compelled
to lease the realties to him for 25 years
according to the terms of their contract.
On July 17, 1981, the Clerk of Court of the
Court of First Instance of La Union issued a
Deed
of
Reconveyance
transferring
ownership of the properties to the Alviars.
Possession of the properties, however, was
retained by Songcuan as the trial court
granted his prayer for a writ of preliminary
injunction in Civil Case No. 3213 to enjoin
the Alviars from taking possession of the
realties.
In their Answer, the Alviars alleged that their
tender to Songcuan of a manager's check
was a valid tender of payment and that
Songcuan is no longer entitled to lease the
premises because the subject matter of the
contract was burned in 1969 citing Article
1655 of the Civil Code.
On March 19, 1984, the trial court rendered
its decision, the dispositive portion of which
reads, to wit:
WHEREFORE judgment is hereby rendered
as follows:
1. That defendants exercised (sic) their
right of redemption within the specific period
of one (1) year, ten (10) months and
eighteen (18) days from March 9, 1981 as
provided for in the decision of Civil Case
No. 2621;
2. That the Deed of Reconveyance
executed by the Clerk of Court and ExOfficio Provincial Sheriff dated July 17, 1981
is valid and cannot be rescinded;

3. That plaintiff is the lessee of the

defendant on the entire properties
mentioned in the Deed of Reconveyance for
a period of twenty-five (25) years to be
counted from July 17, 1981 at the monthly
rental of THREE HUNDRED NINETY
(P390.00) PESOS;
4. That
the
preliminary
injunction
restraining defendants or any of their
representatives or agents or persons acting
on their behalf from committing acts of
dispossession against plaintiff on the
premises of this complaint is now made
PERMANENT during the existence of the
lease contract, ...;
5. That defendants shall maintain the
plaintiff in the peaceful and adequate
enjoyment of the lease for the entire
duration of the lease;
6. That defendants shall pay plaintiff the
amount of P50,000.00 by way of attorney's
fees as damages with interest at the legal
rate of 12% per year until fully paid; and
7. That defendants pay costs of this suit.
SO ORDERED. (pp. 363-386, Records)
Both parties appealed, Songcuan pressing
for rescission while the Alviars disclaiming
any obligation to lease the premises to
Songcuan. The Alviars, in the alternative
countered, that if Songcuan was entitled to
lease the premises, the lease should cover
only 1/3 of the building.
On June 27, 1986 the Court of Appeals in
AC G.R. CV No. 04325 rendered its
decision (pp. 58-69, Rollo) modifying that of
the trial court's by limiting the area
Songcuan is entitled to lease to only 1/3 of
the building; declaring the Alviars entitled to
a writ of possession with regard the rest of
the premises; deleting the award of
attorney's fees and ordering the parties to
each bear the cost of litigation.
From this decision Songcuan appealed by
certiorari to this Court (G.R. No. 75096).
The principal issue here is the same as that
presented in the lower court and the Court
of Appeals, which is, whether or not the
Alviars had forfeited their right to
repurchase, or whether the right may be
rescinded under the grounds advanced by
Songcuan. After deliberating on the
arguments raised, this Court rules in the
negative.
We do not find merit in Songcuan's
argument that the Alviars had forfeited their
right to repurchase the subject premises for
having failed to exercise it within thirty days
from the finality of the decision in Civil Case
No. 2621 citing the third paragraph of Article
1606 of the Civil Code which provides that a
vendor-a-retro may still exercise his right to
repurchase "within thirty days from the time
the final judgment was rendered in a civil
action on the basis that the contract was a
true sale with right to repurchase." The
judgment in Civil Case No. 2621 which had
become final on March 9, 1981, had
ordained that the running of the period
within which the Alviars could repurchase
the premises had been suspended during

Page 59 of 109

the pendency of the case and they were

given the option either to repurchase the
premises within 30-days from the finality of
the judgment, as provided by the law, or
within the remaining period of one year, ten
months and 18 days therefrom. It is
axiomatic that a final judgment may no
longer be amended and to limit now to 30
days the period within which the Alviars may
repurchase the premises would be an open
violation of the rule. A final judgment is the
law between the parties to a case and
controls their relation with respect to the
controversy there presented. We thus fully
agree with the pronouncement of the
appellate court on this matter that:
There is no merit in Songcuan's claim that
the Alviars' failure to abide by Article 1606 of
the New Civil Code foreclosed their right to
repurchase. Indeed, Art. 1606 provides that
the vendors-a-retro may repurchase within
30 days from the finality of the judgment ...
However, it is noted that the final decision in
Case 2621, which became final on March 9,
1981, gave the Alviars two alternative
periods within which to exercise the right to
repurchase either within 30 days as
prescribed in Article 1606, or within 1 year,
10 months and 18 days from March 9, 1981,
... Accordingly, whichever of the alternative
periods the Alviars may avail of, would still
constitute a valid exercise of their right. (pp.
64-65, Rollo)
Neither do We agree that the right of the
Alviars to repurchase may be rescinded
under Article 1191 of the Civil Code.
Songcuan asserts that the October 10, 1966
contract he entered into with the Alviars
created a reciprocal obligation between
them for him to reconvey the subject
premises and for the Alviars to lease the
realties to him and the refusal of the latter to
fulfill their obligation giving him the right,
under Article 1191, to rescind "the right of
[the Alviars] to repurchase" the realties. The
law provides in part:
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.
xxxxxx

xxx

The cited law is not applicable in this case.

Although the parties are each obligor and
obligee of the other, their corresponding
obligation can hardly be called reciprocal. In
reciprocal obligations the obligation of one
is a resolutory condition of the obligation of
the other, the non-fulfillment of which
entitles the other party to rescind the
contract. In the case at bar, there are two
separate and distinct obligations, each
independent of the other. The obligation of
Songcuan to reconvey the property is not
dependent on the obligation of the Alviars to
lease the premises to the former. The
obligation of the Alviars is not an essential
part of the contract. This is evident in the
wordings of the "P.S. (Additional Condition)"
itself which states that "in the event [the
Alviars] exercised the right to repurchase ...
and becomes the owner and possessor of
the premises, they shall ... be obliged to
give [Songcuan] the right of lease and are ...
obliged to execute a lease contract .... " In
other words, the obligation of the Alviars to

lease to Songcuan the subject premises

arises only after the latter had reconveyed
the realties to them. We quote with approval
the following statements of the respondent
appellate court:
For the stipulation imposes on them the
obligation to execute the lease only at such
time when the Alviars or any one among
them exercises the right and becomes the
possessor of the properties in question ...
Otherwise stated, the obligation to execute
the lease emerges only if the Alviars had
already
repurchased
and
obtained
possession of the repurchased properties.
(p. 66, Rollo)
Should the Alviars fail to lease the subject
premises to Songcuan after reconveyance,
then the latter's remedy is not for rescission
but for specific performance, which in fact
he asked for in the alternative and was
granted by the trial court and the Court of
Appeals.
Thus, the right of the Alviars to repurchase
must be upheld notwithstanding the fact that
such right had not been annotated at the
back of Songcuan's certificate of title. The
purpose of annotation is only to serve notice
to third persons and not to lend validity or
nullity to an instrument.
The next question to be resolved is how
much area Songcuan is entitled to lease.
The trial court, awarded Songcuan the
whole premises, based on the "P.S.
(Additional Condition)" which speaks of "the
premises actually occupied by [Songcuan]"
and there was no evidence presented by
the Alviars on the area Songcuan was
actually occupying. Further, the trial court
said that the right of Songcuan to lease the
whole premises is strengthened by the fact
that he became the registered owner of the
realties and hence, has complete dominion
over the properties.
We rule, however, that the P.S. clause refers
to the area Songcuan was actually
occupying and not to what he constructively
may possess as the owner of the premises
at the time of the execution of the October
10, 1966 contract. Further, as pointed out by
private respondents, there was no need to
present any evidence as to the area
Songcuan was actually occupying since at
the pre-trial conference in the trial court,
Songcuan had admitted that he was
occupying only one-third of the single story
Alviar building.
Under the parties' agreement, Songcuan's
lease was to start from the time the Alviars
exercised their right to repurchase.
Songcuan should therefore be deemed to
have become the Alviar's lessee on July 17,
1981 and should pay rent in the amount
agreed upon from said date.
As regards the deletion by the respondent
court of the award to Songcuan of attorney's
fees, We fully agree and quote its
pronouncement that:
We find no justification for the exorbitant
award in Songcuan's favor of attorney's fees
of P50,000.00 considered as damages.
Attorney's fees in concept of damages may
be awarded only if the defendant acted in

gross and evident bad faith in refusing

plaintiffs just and demandable claim. (Art.
2208, New Civil Code). In the case at bar,
there is no showing that the Alviars acted in
bad faith in refusing Songcuan's claim to a
25-year lease of the entire premises. The
stipulation to that effect merely refers to the
premises Songcuan was occupying at the
execution of the deed on October 10, 1966,
which admittedly, was only 1/3 of the ground
floor of the Alviar building, not the entire
building. .... " (p. 68, Rollo)

(SUPER HIGHWAY for brevity), a business

run by his wife and engaged in the business
of supplying construction materials.

With respect to G.R. No. 80851, which is a

petition to enjoin the implementation of the
writ of possession in favor of the Alviars,
there is no need to discuss the issues
therein, as the same has become moot and
academic, this Court having pronounced
that Songcuan is entitled to lease only onethird of the ground floor of the subject
building, with the Alviars being entitled to a
writ of possession as to the rest.

In the course of operation, MASSIVE

became indebted to SUPER HIGHWAY for
purchase of construction materials in an
amount exceeding P100,000.00. In order to
settle this obligation, negotiations were
started between the stockholders of
MASSIVE on one hand and UY on the
other. After several meetings, the parties
signed on 16 December 1972 their
AGREEMENT, particularly entered into by
and among JAIME C. UY as First Party,
RAMON P. SYQUIA as Second Party, and
JOSE MA. MENDIETA, JAIME STA.
MARIA, ROMEO ALMARIO, JESUS P.
SYQUIA and ENRIQUE P. SYQUIA jointly
as Third Party, with Jose Ma. Mendieta
signing his CONFORME in behalf of
MASSIVE, the pertinent terms of which
follow:

ACCORDINGLY, the decision under review

in G.R. No. 75096 is hereby AFFIRMED,
and the petition in G.R. No. 80851 is
DISMISSED for having become moot and
academic.
G.R. Nos. 70310-11 June 1, 1993
MASSIVE
CONSTRUCTION,
INC.,
ENRIQUE P. SYQUIA, RAMON P. SYQUIA,
JOSE
MA.
MENDIETA,
JAIME
SANTAMARIA, and JESUS P. SYQUIA,
petitioner,
vs.
THE
HONORABLE
INTERMEDIATE
APPELLATE COURT and JAIME C. UY,
respondents.
Syquia Law Offices for petitioners.
R.A. V. Saguisag for private respondent.
This is an appeal by certiorari under Rule
45, Revised Rules of Court, from the
consolidated decision of the Court of
Appeals in AC-G. R. No. 64077-CV, entitled
"Massive Construction Inc. v. Jaime C. Uy,"
and AC-G. R. No. 65234-CV, entitled "Jaime
Uy v. Enrique P. Syquia, et al."
In AC-G. R. NO. 64077-CV, the Court of
Appeals reversed the decision of the Court
of First Instance of Manila in Civil Code No.
87006, which ordered defendant Jaime C.
Uy, (UY for brevity) to pay plaintiff
(MASSIVE for brevity) a sum of money for
unrealized profits resulting from UY's
violation of the Agreement dated December
16, 1971 (AGREEMENT for brevity),
attorney's fees and costs.
In AC-G. R. No. 65234-CV, the Court of
Appeals reversed the decision of the Court
of First Instance of Manila in Civil Case No.
87511, which declared the AGREEMENT as
rescinded due to the breach thereof by both
UY and defendants Enrique Syquia, et al.
(stockholders of MASSIVE).
The two cases arose from a common
background.
MASSIVE was engaged in the construction
business in the Greater Manila Area while
UY was connected with Super Highway
Lumber and Construction Supply, Inc.

Page 60 of 109

In the latter part of 1971, MASSIVE suffered

financial reverses, resulting in its corporate
reorganization. Ramon P. Syquia, the
general manager of MASSIVE, asked his
relatives to help bail out the company from
its financial difficulties. Enrique P. Syquia,
Jose Ma. Mendieta, Jaime Sta. Maria, and
Jesus P. Syquia were thus elected directors.

1. That the SECOND PARTY and the

THIRD
PARTY
are
the
complete
stockholders and directors of MASSIVE
CONSTRUCTION, INC., a corporation duly
organized and existing under the laws of the
Philippines.
2. That the FIRST PARTY is desirous of
buying the entire shares of stock of said
corporation;
3. That the FIRST PARTY, SECOND
PARTY and THIRD PARTY have agreed
that the FIRST PARTY will purchase the
entire shares of stock of the corporation
belonging to the SECOND PARTY for
P250,000.00, under the following terms and
conditions:
a) That the FIRST PARTY will pay to the
SECOND PARTY and THIRD PARTY as
earnest money, P20,000.00 upon the
signing of this Agreement, and which will
constitute as down payment after which the
FIRST
PARTY
complies
with
this
Agreement, but which will be forfeited in
favor of the SECOND and THIRD PARTY in
case of failure to comply with this
Agreement;
b) That aside from the P20,000.00 earnest
money, the FIRST PARTY will pay
P30,000.00 on or before January 5, 1973
and the balance of P200,000.00 shall be
paid in monthly installments of P50,000.00
every 5th day of the month thereafter until
the entire amount of P250,000.00 is paid;
c) That the corporation has monies due it
from its receivable and collections; and the
corporation has also a pending obligation
with the FIRST PARTY; and all parties
agree that from this date, 50% of the
receivable collected and 30% of the
collections received by the corporation shall
be applied to the balance of P230,000.00
owing from the FIRST PARTY to the

SECOND PARTY and THIRD PARTY; and

these amounts, in turn, shall be paid by the
FIRST PARTY to the corporation by the
reduction and partial payment of the
obligation of the corporation to the FIRST
PARTY;
d) That upon payment of the FIRST PARTY
of P20,000.00 to the SECOND PARTY and
THIRD PARTY, the SECOND PARTY and
THIRD PARTY will give P25,000.00 worth of
shares to the FIRST PARTY, and said
FIRST PARTY shall also be elected as
director of the Corporation; and upon
succeeding payments made by the FIRST
PARTY, shares of stock will be transferred
to him until the total of P100,000.00 worth of
shares have been transferred to the name
of the FIRST PARTY; and once the entire
amount of P250,000.00 is paid by the
FIRST PARTY to the SECOND PARTY and
THIRD PARTY, then the remaining balance
of the shares of stock shall be transferred to
him immediately;
e) That until the FIRST PARTY has fully
paid said amount of P250,000.00, the
corporate structure and management at the
present time shall be maintained, and all the
stockholders and directors shall continue
with their present rights, privileges, and
prerogatives;
f) That upon payment by the FIRST
PARTY to the SECOND PARTY and THIRD
PARTY of the said amount of P250,000.00,
all the obligations of the corporation to the
SECOND and THIRD PARTY, which are
purely personal in nature, shall be
considered fully liquidated; but this shall not
exceed P4,650.00 a month;
g) That said P250,000.00 shall be utilized
in paying primarily to the SECOND and
THIRD PARTY the monies they have
advanced and loaned to the corporation;
h) That immediately upon the singing of
this agreement, the FIRST PARTY shall
make available to the corporation such
materials and capital as the corporation may
need for its projects as determined by the
SECOND PARTY, but this shall be
considered as an obligation of the
corporation to the FIRST PARTY.
4.) That as soon as the FIRST PARTY has
paid P250,000.00 to the SECOND and
THIRD PARTY, and the entire shares of the
corporation are transferred to him, it is
agreed that the FIRST PARTY, in turn, will
transfer half of these shares to the
SECOND PARTY; and the FIRST PARTY
and SECOND PARTY shall manage and
control the corporation in equal shares, in
equal proportion and with equal participation
in the
profits. 1
At the signing of the AGREEMENT, the
stockholders of MASSIVE informed UY that
the company had several on-going
construction projects, including those of
Queen's Row Subdivision, Republic Flour
Mills, and B. F. Homes. On the same
occasion, Uy issued to Enrique P. Syquia a
check postdated 22 December 1971 which
bounced for lack of funds. UY, however,
made good the check by paying Syquia

P20,000.00 in cash on 29 December 1971.

2
Out of the P20,000 paid by UY to Enrique P.
Syquia, UY borrowed P2,000.00 payable on
or before 5 July 1972. UY failed to pay this
amount, which compelled Syquia to file a
collection suit against him in the City Court
of Manila (Civil Case No. 209298). The
latter Court rendered judgment against UY,
who appealed the decision to the Court of
First Instance of Manila (Civil Case No.
87310).
Immediately after the signing of the
AGREEMENT, UY was made a co-manager
of MASSIVE, pursuant to the AGREEMENT.
Ramon P. Syquia also asked Uy for his
promised contribution of materials and
funds. Out of P100,000.00 worth of
materials needed for the projects, UY was
able to deliver only P6,085.69. He gave as
an excuse the non-payment by his relatives
of the dividends which he intended to invest
in MASSIVE.
MASSIVE made three demands for
payment of the damages caused by UY's
failure to comply with his obligation under
the AGREEMENT: the first, addressed to
UY dated 14 January 1972, 3 the second,
addressed to UY's counsel dated 18
January 1972, 4 and the third, addressed to
UY himself dated 18 January 1972. 5
In his answer to the letter dated 14 January
1972 of MASSIVE, 6 UY wrote that he had
been relieved from payment of the
P30,000.00 required under paragraph 3(b)
of the AGREEMENT because of the failure
of the stockholders of MASSIVE to deliver
to him the company's share of stock worth
P25,000.00 upon his payment to them of
the sum of P20,000.00. 7
While Uy received the letters dated 17 and
18 January 1972, he did not reply to them.
Because of the lack of fresh capital and
construction materials, MASSIVE aborted
all its projects.
In Civil Case No. 87006, the trial court found
that UY failed to make available to
MASSIVE the construction materials and
funds needed for its projects; that the
construction materials delivered by UY to
MASSIVE valued at P6,085.69 were
inadequate to carry out its various projects;
that UY's claim that he did not understand
the import of the AGREEMENT was
unbelievable; and, that it was UY who
reneged on his obligations under the
AGREEMENT. 8
The trial court, after finding that it was UY
who had violated the terms of the contract,
particularly paragraph 3(h) thereof, held him
liable to pay MASSIVE P20,000.00 as
damages for the Republic Flour Mills
project, P80,000.00 for the Queen's Row
Subdivision project, and P10,000.00 as
attorneys' fees. The trial court denied
MASSIVE's claim for damages with respect
to the B. F. Homes project.
The trial court did not resolve the issue on
the right of UY to rescind the contract,
saying that this issue would have to be
resolved in Civil Case No. 87511.

Page 61 of 109

In Civil Case No. 87511, the trial court found

that Uy entered into the contract freely and
even with the assistance and advice of
counsel; that there was no undue influence
or fraud exerted on him by MASSIVE's
stockholders as to justify the nullification of
the contract; and, that the said stockholders
did not conceal from Uy the financial status
of MASSIVE. 9
The trial court however did not award any
damages after finding that all the parties
had defaulted in the fulfillment of their
obligations but it could not determine who of
the parties first violated the contract. 10
Uy appealed to the Court of Appeals from
the decisions in both cases. The Court of
Appeals, viewing the evidence in a different
light, found that the stockholders of
MASSIVE were the ones who first violated
the terms of the AGREEMENT when they
failed to assign to UY the P25,000.00 worth
of the company's shares of stock and to
elect him a director of the company upon his
payment of P20,000.00. 11
In both AC-G.R. No. 64977-CV and AC-G.R.
No. 65234-CV, the Court of Appeals
reversed the decisions of the Court of First
Instance. In addition, in AC-G.R. No. 65234CV, the Court of Appeals ordered MASSIVE
to refund to Uy the sum of P20,000.00 and
to pay P6,085.69, representing the cost of
materials delivered by UY to MASSIVE,
P5,000.00 as attorney's fees and costs. In
AC-G.R. No. 65234-CV, the Court of
Appeals made the stockholders of
MASSIVE subsidiarily liable to pay UY the
amounts adjudged in AC-G.R. No. 64077CV to be paid by MASSIVE. 12 The Court of
Appeals, however, did not sustain UY's
claim that his consent to the contract was
obtained by fraud. 13
The Court of Appeals sustained the trial
court in its finding that MASSIVE was a
proper party to ask for specific performance
of the contract. The appellate court noted
that the contract was signed by all the
directors-stockholders of MASSIVE and
even had the conformity of said company.
14
This Court can review the findings of facts
of the Court of Appeals when the same are
contrary to the findings of the trial court 15
and to the stipulation of facts of the parties.
16
Inasmuch as the AGREEMENT imposed
reciprocal obligations, the question to
resolve is who of the parties breached the
contract first. The starting point of the
inquiry is the contract itself.
Under the AGREEMENT, UY, as First Party,
agreed to buy all the outstanding shares of
stock of MASSIVE and the stockholders of
MASSIVE, as Second and Third Parties,
agreed to sell to him the said shares for
P250,000.00, under the following terms:
1) Upon the signing of the contract, Uy,
would pay Ramon P. Syquia and the other
stockholders of Massive the sum of
P20,000.00 as earnest money;

2) Immediately upon the signing of the

contract, Uy would "make available to
Massive such materials and capital as the
company may need for its projects as
determined by Ramon P. Syquia. All the
materials and capital given by Uy would be
considered an obligation of Massive;
3) On or before January 5, 1973, Uy would
pay the stockholders of Massive the sum of
P30,000.00;
4) Every 5th day of the month beginning
February 5, 1973, Uy would pay the amount
of P50,000.00 until the balance of
P200,000.00 was paid;
5) Upon the payment of the P20,000.00 to
the stockholders of Massive the latter would
give him P25,000.00 worth of shares and
would elect him a director of the company.
The party required to act first in compliance
with the terms of the contract is no other
than UY.
While UY issued a postdated check for
P20,000.00 on 16 December 1972 in
payment of the earnest money required
under paragraph 3 (a) of the AGREEMENT,
the check bounced when it was deposited
for collection. True, UY made good the
check on 29 December 1971 but he had to
borrow P2,000.00 out of his payment of
P20,000.00. Having failed to pay this
amount by 5 July 1972 as promised, UY
was sued in the City Court of Manila for its
collection. Effectively, UY was able to pay
only P18,000.00 out of the P20,000.00 he
was supposed to pay as earnest money.
This aspect of the case showed the financial
difficulties besetting UY and reflecting poorly
on his ability to meet his financial
commitments.
In addition to his obligation to pay the
earnest money of P20,000.00 Uy was
required under paragraph 3(h) of the
AGREEMENT to make available to
MASSIVE immediately upon the signing of
the contract, such "materials and capital as
the corporation may need for its projects as
determined by" Ramon P. Syquia. Uy was
able to deliver to MASSIVE materials valued
at only P6,085.69 out of the P100,000.00
worth as required by the on-going projects.
The infusion of fresh capital was the
lifeblood of the projects and the essence of
his being brought in as an investor. Without
his capital contribution, the company could
not possibly operate.
Lastly, UY failed to pay on or before 5
January 1972 the P30,000.00 required
under paragraph 3(b) of the AGREEMENT.
UY cannot claim that he was relieved from
the payment of the monthly installment of
P50,000.00 beginning 5 January 1973.
When the parties agreed that the monthly
installments should be paid out of the
receivables and collections of MASSIVE
(paragraph 3[c], AGREEMENT), it was
implied that there was actual cash received
or collected.
The Court of Appeals held that UY was
relieved of his obligation to pay the
P30,000.00 after the stockholders of
MASSIVE failed to deliver the P20,000.00

worth of shares of stock of the company.

The thinking of the Court of Appeals was
that after UY had paid the P20,000.00
earnest money, it became the seller's turn to
assign the shares of stock to UY.
The Court of Appeals erred in concluding
that the stockholders of MASSIVE were the
first to default on their obligations because it
overlooked the fact that under paragraph
3(h) of the AGREEMENT, UY was also
obligated "immediately upon the signing of
the contract" to contribute materials and
funds needed for the on-going projects.
Uy was aware of these twin-obligations of
his, so much so that his complaint in Civil
Case No. 87511 against the stockholders of
MASSIVE was anchored on his alleged
compliance with the provisions of paragraph
3(a) and (h) of the AGREEMENT. 17
The failure of the stockholders to deliver to
UY the P25,000.00 worth of shares is not as
substantial a breach as that accorded it by
the appellate court. As a matter of fact, Uy
did not set up such default as a defense in
his answer in Civil Case No. 87006, leading
one to conclude that such contention was a
mere after-thought.
Under Art. 1191 of the Civil Code, the power
to rescind or the right to resolve is not
absolute and must be based on a serious
breach of an obligation as to defeat the
object of the parties in making the
agreement. 18 The non-delivery of the
certificates of stock to Uy and his nonelection to the board of director were not
serious breaches, particularly considering
that he has not shown the necessity or
urgency for the transfer of the shares in his
name or his election as director. Besides,
the trial court is given the discretion to allow
a period within which a party in default may
be permitted to perform the stipulation upon
which the claim for rescission of the contract
is based, especially when the breach is not
substantial. 19
WHEREFORE, the decision of the Court of
Appeals is reversed and, in lieu thereof, the
decision of the trial court in Civil Case No.
87006 is AFFIRMED in toto, and the
decision in Civil Case No. 87511 is likewise
AFFIRMED but only insofar as it dismissed
the monetary reliefs including attorney's
fees sought by both parties.
G.R. No. 101762

July 6, 1993

WHEREFORE, the decision a quo is set

aside. As prayed for by plaintiff-appellant,
the "Offsetting Agreement" (Exhibit "E" or
"2") is hereby rescinded. Room 601 of
Phase I of the Vermen Pines Condominium
should be returned by plaintiff-appellant to
defendant-appellee upon payment by the
latter of the sum of P330,855.25 to the
former, plus damages in the sum of
P5,000.00 and P50.00 for the furnishings of
Phase I of Condo (sic) Units Nos. 601 and
602, and three (3) day rental of Room 402
during the Holy Week of 1982, respectively.
In addition, defendant-appellee is hereby
ordered to pay plaintiff-appellant, who was
compelled to litigate and hire the services of
counsel to protect its interests against
defendant-appellee's violation of their
Offsetting
Agreement,
the
sum
of
P10,000.00 as an award for attorney's fee
(sic) and other expenses of litigation. The
claim for unrealized profits in a sum
equivalent to 10% to 20% percent or
P522,000.00 not having been duly proved,
is therefore DENIED. No costs. (Rollo, p.
31)
On March 2, 1981, petitioner Vermen Realty
and Development Corporation, as First
Party, and private respondent Seneca
Hardware Co., Inc., as Second Party,
entered into a contract denominated as
"Offsetting Agreement". The said agreement
contained the following stipulations:
1. That the FIRST PARTY is the
owner/developer of VERMEN PINES
CONDOMINIUM located at Bakakeng
Road, Baguio City;
2. That the SECOND PARTY is in business
of construction materials and other
hardware items;
3. That the SECOND PARTY desires to
buy from the FIRST PARTY two (2)
residential condominium units, studio type,
with a total floor area of 76.22 square meter
(sic) more or less worth TWO HUNDRED
SEVENTY SIX THOUSAND (P276,000.00)
PESOS only;
4. That the FIRST PARTY desires to but
from the SECOND PARTY construction
materials mostly steel bars, electrical
materials and other related items worth
FIVE HUNDRED FIFTY TWO THOUSAND
(P552,000.00) PESOS only;

Adriano Velasco for private respondent.

5. That the FIRST PARTY shall pay the

SECOND
PARTY
TWO
HUNDRED
SEVENTY SIX THOUSAND (P276,000.00)
PESOS in cash upon delivery of said
construction materials and the other TWO
HUNDRED SEVENTY SIX THOUSAND
(P276,000.00) PESOS shall be paid in the
form of two (2) residential condominium
units, studio type, with a total floor area of
76.22 square meter (sic) more or less also
worth P276,000.00;

Petitioner seeks a review of the decision of

the Court of Appeals in CA-G.R. CV No.
15730, which set aside the decision of the
Regional Trial Court of Quezon City, Branch
92 in Civil Case No. Q-45232. The
dispositive portion of the assailed decision
reads as follows:

6. That, for every staggered delivery of

construction materials, fifty percent (50%)
shall be paid by the FIRST PARTY to the
SECOND PARTY C.O.D. and, fifty percent
(50%) shall be credited to the said
condominium unit in favor of the SECOND
PARTY;

VERMEN
REALTY
DEVELOPMENT
CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and SENECA
HARDWARE CO., INC., respondents.
Ramon P. Gutierrez for petitioner.

Page 62 of 109

7. That the SECOND PARTY shall deliver

to the FIRST PARTY said construction
materials under the agreed price and
conditions stated in the price quotation
approved by both parties and made an
integral part of this document;
8. That the SECOND PARTY is obliged to
start delivering to the FIRST PARTY all
items in the purchase order seven (7) days
from receipt of said purchase order until
such time that the whole amount of
P552,000.00 is settled;
9. That the place of delivery shall be
Vermen Pines Condominium at Bakakeng
Road, Baguio City;
10. That the freight cost of said materials
shall be borne fifty percent (50%) by the
FIRST PARTY and fifty percent (50%) by
the SECOND PARTY;
11. That the FIRST PARTY pending
completion of the VERMEN PINES
CONDOMINIUM PHASE II which is the
subject of this contract, shall deliver to the
SECOND PARTY the possession of
residential condominium, Phase I, Unit Nos.
601 and 602, studio type with a total area of
76.22 square meters or less, worth
P276,000.00;
12. That after the completion of Vermen
Pines Condominium Phase II, the SECOND
PARTY shall be given by the FIRST PARTY
the first option to transfer from Phase I to
Phase II under the same price, terms and
conditions. (Rollo, pp. 26-28).
As found by the appellate court and
admitted by both parties, private respondent
had paid petitioner the amount of
P110,151.75, and at the same time
delivered construction materials worth
P219,727.00. Pending completion of Phase
II of the Vermen Pines Condominiums,
petitioner delivered to private respondent
units 601 and 602 at Phase I of the Vermen
Pines Condominiums (Rollo, p. 28). In 1982,
the petitioner repossessed unit 602. As a
consequence of the repossession, the
officers
of
the
private
respondent
corporation had to rent another unit for their
use when they went to Baguio on April 8,
1982. On May 10, 1982, the officers of the
private respondent corporation requested
for a clarification of the petitioner's action of
preventing them and their families from
occupying condominium unit 602.
In its reply dated May 24, 1982, the
petitioner corporation averred that Room
602 was leased to another tenant because
private respondent corporation had not paid
anything for purchase of the condominium
unit. Petitioner corporation demanded
payment of P27,848.25 representing the
balance of the purchase price of Room 601.
In 1983, the loan application for the
construction
of
the
Vermen
Pines
Condominium Phase II was denied.
Consequently,
construction
of
the
condominium project stopped and has not
been resumed since then.
On June 21, 1985, private respondent filed
a complaint with the Regional Trial Court of
Quezon City (Branch 92) for rescission of

the Offsetting Agreement with damages. In

said complaint, private respondent alleged
that petitioner Vermen Realty Corporation
had stopped issuing purchase orders of
construction materials after April, 1982,
without valid reason, thus resulting in the
stoppage of deliveries of construction
materials on its (Seneca Hardware) part, in
violation of the Offsetting Agreement.
In its Answer filed on August 15, 1985,
petitioner alleged that the fault lay with
private respondent
(plaintiff therein):
although petitioner issued purchase orders,
it was private respondent who could not
deliver the supplies ordered, alleging that
they were out of stock. (However, during a
hearing on January 28, 1987, the Treasurer
of petitioner corporation, when asked where
the purchase orders were, alleged that she
was going to produce the same in court, but
the same was never produced (Rollo, p.
30). Moreover, private respondent quoted
higher prices for the construction materials
which were available. Thus, petitioner had
to resort to its other suppliers. Anent the
query as to why Unit 602 was leased to
another tenant, petitioner averred that this
was done because private respondent had
not paid anything for it.
As of December 16, 1986, private
respondent had paid petitioner P110,151.75
in cash, made deliveries of construction
materials worth P219,727.00, leaving a
balance of P27,848.25 representing the
purchase price of unit 601 (Rollo, p. 28).
The price of one condominium unit was
P138,000.00.
After conducting hearings, the trial court
rendered a decision dismissing the
complaint and ordering the plaintiff (private
respondent in this petition) to pay defendant
(petitioner in this petition) on its
counterclaim in the amount of P27,848.25
representing the balance due on the
purchase price of condominium unit 601.
On appeal, respondent court reversed the
trial court's decision as adverted to above.
Petitioner now comes before us with the
following assignment of errors:
I
THE RESPONDENT COURT OF APPEALS
ERRED,
AND
ITS
ERROR
IS
REVIEWABLE BY THIS HONORABLE
COURT,
WHEN
IT
SUPPLANTED
CONTRARY TO THE EVIDENCE ON
RECORD,
THE
TRIAL
COURT'S
CONCLUSIONS THAT PETITIONER DID
NOT
VIOLATE
THE
"OFFSETTING
AGREEMENT" IT ENTERED INTO WITH
THE SENECA HARDWARE CO., INC.
WITH
ITS
TOTALLY
BASELESS
"PERCEPTION"
THAT
IT
WAS
PETITIONER WHICH DISCONTINUED TO
ISSUE PURCHASE ORDERS DUE TO
THE
STOPPAGE
OF
THE
CONSTRUCTION OF PHASE II OF THE
CONDOMINIUM PROJECT WHEN THE
LOAN ON THE SAID PROJECT WAS
STOPPED.
II

Page 63 of 109

THE RESPONDENT COURT OF APPEALS

ERRED,
AND
ITS
ERROR
IS
REVIEWABLE BY THIS HONORABLE
COURT, WHEN IT CONCLUDED THAT IT
WAS PETITIONER WHICH BREACHED
THE
"OFFSETTING
AGREEMENT"
BECAUSE IT DID NOT SEND PURCHASE
ORDERS TO PRIVATE RESPONDENT
AND
DISCONTINUED
THE
CONSTRUCTION OF THE CONDOMINIUM
PROJECT DESPITE THE FACT THAT THE
EXHIBITS ATTESTING TO THIS FACT
WAS FORMALLY OFFERED IN EVIDENCE
IN COURT AND MENTIONED BY IT IN ITS
DECISION.
III
THE RESPONDENT COURT OF APPEALS
ERRED,
AND
ITS
ERROR
IS
REVIEWABLE BY THIS HONORABLE
COURT, WHEN IT CONCLUDED THAT IT
WAS PETITIONER WHICH BREACHED
THE
"OFFSETTING
AGREEMENT"
DESPITE THE ADMISSION MADE BY
PRIVATE
RESPONDENT'S
OWN
WITNESS THAT PETITIONER HAD THE
DISCRETION TO ORDER OR NOT TO
ORDER THE CONSTRUCTION MATERIAL
(SIC) FROM THE FORMER. (Rollo, p. )
The issue presented before the Court is
whether or not the circumstances of the
case warrant rescission of the Offsetting
Agreement as prayed for by Private
Respondent when he instituted the case
before the trial court.
We rule in favor of private respondent.
There is no controversy that the provisions
of the Offsetting Agreement are reciprocal in
nature. Reciprocal obligations are those
created or established at the same time, out
of the same cause, and which results in a
mutual relationship of creditor and debtor
between parties. In reciprocal obligations,
the performance of one is conditioned on
the simultaneous fulfillment of the other
obligation (Abaya vs. Standard Vacuum Oil
Co., 101 Phil. 1262 [1957]). Under the
agreement, private respondent shall deliver
to petitioner construction materials worth
P552,000.00 under the conditions set forth
in the Offsetting Agreement. Petitioner's
obligation under the agreement is three-fold:
he
shall
pay
private
respondent
P276,000.00 in cash; he shall deliver
possession of units 601 and 602, Phase I,
Vermen Pines Condominiums (with total
value
of
P276,000.00)
to
private
respondent; upon completion of Vermen
Pines Condominiums Phase II, private
respondent shall be given option to transfer
to similar units therein.
Article 1191 of the Civil Code provides the
remedy of rescission in (more appropriately,
the term is "resolution") in case of reciprocal
obligations, where one of the obligors fails
to comply with that is incumbent upon him.
The general rule is that rescission of a
contract will not be permitted for a slight or
causal breach, but only for such substantial
and fundamental breach as would defeat
the very object of the parties in executing
the agreement. The question of whether a
breach of contract is substantial depends
upon
the
attendant
circumstances

(Universal Food Corp. vs. Court of Appeals,

33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it
was private respondent who failed to
perform its obligation in the Offsetting
Agreement. It averred that contrary to the
appellate court's ruling, the mere stoppage
of the loan for the construction of Phase II of
the Vermen Pines Condominiums should
not have had any effect on the fulfillment of
the obligations set forth in the Offsetting
Agreement. Petitioner moreover stresses
that contrary to private respondent's
averments, purchase orders were sent, but
there was failure to deliver the materials
ordered because they were allegedly out of
stock. Petitioner points out that, as admitted
by private respondent's witness, petitioner
had the discretion to order or not to order
constructions materials, and that it was only
after petitioner approved the price, after
making a canvass from other suppliers, that
the latter would issue a purchase order.
Petitioner argues that this was the
agreement, and therefore the law between
the parties, hence, when no purchase
orders were issued, no provision of the
agreement was violated.
Private respondent, on the other hand,
points out that the subject of the Offsetting
Agreement is Phase II of the Vermen Pines
Condominiums. It alleges that since
construction of Phase II of the Vermen
Pines Condominiums has failed to begin
(Rollo, p. 104), it has reason to move for
rescission of the Offsetting Agreement, as it
cannot forever wait for the delivery of the
condominium units to it.
It is evident from the facts of the case that
private respondent did not fail to fulfill its
obligation in the Offsetting Agreement. The
discontinuance of delivery of construction
materials to petitioner stemmed from the
failure of petitioner to send purchase orders
to private respondent. The allegation that
petitioner had been sending purchase
orders to private respondent, which the
latter could not fill, cannot be given
credence. Perhaps in the beginning, it
would send purchase orders to private
respondent (as evidenced by the purchase
orders presented in court), and the latter
would deliver the construction materials
ordered. However, according to private
respondent, after April, 1982, petitioner
stopped sending purchase orders. Petitioner
failed to refute this allegation. When
petitioner's witness, Treasurer of the
petitioner corporation, was asked to
produce the purchase orders in court, the
latter promised to do so, but this was never
complied with.
On the other hand, petitioner would never
able to fulfill its obligation in allowing private
respondent to exercise the option to transfer
from Phase I to Phase II, as the
construction of Phase II has ceased and the
subject condominium units will never be
available.
The impossibility of fulfillment of the
obligation on the part of petitioner
necessitates resolution of the contract for
indeed, the non-fulfillment of the obligation
aforementioned
constitutes
substantial
breach of the Offsetting Agreement. The

possibility of exercising the option of

whether or not to transfer to condominium
units in Phase II was one of the factors
which were considered by private
respondent when it entered into the
agreement. Since the construction of the
Vermen Pines Condominium Phase II has
stopped, petitioner would be in no position
to perform its obligation to give private
respondent the option to transfer to Phase
II. It would be the height of injustice to make
private respondent wait for something that
may never come.
WHEREFORE, the petition is DENIED for
lack of merit. Costs against petitioner.
G.R. No. 107207

November 23, 1995

VIRGILIO R. ROMERO, petitioner,

vs.
HON. COURT OF APPEALS and
ENRIQUETA CHUA VDA. DE ONGSIONG,
respondents.

ENRIQUETA CHUA VDA. DE ONGSIONG,

of legal age, widow, Filipino and residing at
105 Simoun St., Quezon City, Metro Manila,
hereinafter referred to as the VENDOR;
-andVIRGILIO R. ROMERO, married to
Severina L. Lat, of Legal age, Filipino, and
residing at 110 San Miguel St., Plainview
Subd.,
Mandaluyong
Metro
Manila,
hereinafter referred to as the VENDEE:
WITNESSETH:

WHEREAS, the VENDOR is the owner of

One (1) parcel of land with a total area of
ONE THOUSAND NINE HUNDRED FIFTY
TWO (1,952) SQUARE METERS, more or
less, located in Barrio San Dionisio,
Municipality of Paraaque, Province of
Rizal, covered by TCT No. 361402 issued
by the Registry of Deeds of Pasig and more
particularly described as follows:
xxxxxx

VITUG, J.:
The parties pose this question: May the
vendor demand the rescission of a contract
for the sale of a parcel of land for a cause
traceable to his own failure to have the
squatters on the subject property evicted
within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil
engineer, was engaged in the business of
production, manufacture and exportation of
perlite filter aids, permalite insulation and
processed perlite ore. In 1988, petitioner
and his foreign partners decided to put up a
central warehouse in Metro Manila on a
land area of approximately 2,000 square
meters. The project was made known to
several freelance real estate brokers.
A day or so after the announcement,
Alfonso Flores and his wife, accompanied
by a broker, offered a parcel of land
measuring 1,952 square meters. Located in
Barangay San Dionisio, Paraaque, Metro
Manila, the lot was covered by TCT No.
361402 in the name of private respondent
Enriqueta Chua vda. de Ongsiong.
Petitioner visited the property and, except
for the presence of squatters in the area, he
found the place suitable for a central
warehouse.
Later, the Flores spouses called on
petitioner with a proposal that should he
advance the amount of P50,000.00 which
could be used in taking up an ejectment
case against the squatters, private
respondent would agree to sell the property
for only P800.00 per square meter.
Petitioner expressed his concurrence. On
09 June 1988, a contract, denominated
"Deed of Conditional Sale," was executed
between petitioner and private respondent.
The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the
Municipality of Makati, Philippines this 9th
day of June, 1988 by and between:

Page 64 of 109

That

xxx

WHEREAS, the VENDEE, for (sic) has

offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to
the terms and conditions hereinafter
stipulated:
NOW,
THEREFORE,
for
and
in
consideration of the sum of ONE MILLION
FIVE HUNDRED SIXTY ONE THOUSAND
SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by
VENDEE to in to (sic) manner set forth, the
VENDOR agrees to sell to the VENDEE,
their heirs, successors, administrators,
executors, assign, all her rights, titles and
interest in and to the property mentioned in
the FIRST WHEREAS CLAUSE, subject to
the following terms and conditions:
1. That the sum of FIFTY THOUSAND
PESOS (P50,000.00) ONLY Philippine
Currency, is to be paid upon signing and
execution of this instrument.
2. The balance of the purchase price in the
amount of ONE MILLION FIVE HUNDRED
ELEVEN THOUSAND SIX HUNDRED
PESOS (P1,511,600.00) ONLY shall be paid
45 days after the removal of all squatters
from the above described property.
3. Upon full payment of the overall
purchase price as aforesaid, VENDOR
without necessity of demand shall
immediately sign, execute, acknowledged
(sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free
from all liens and encumbrances and all
Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and
stipulated by and between the parties
hereto that if after 60 days from the date of
the signing of this contract the VENDOR
shall not be able to remove the squatters
from the property being purchased, the
downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the
VENDEE.
That in the event that the VENDEE shall not
be able to pay the VENDOR the balance of

the purchase price of ONE MILLION FIVE

HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY
after 45 days from written notification to the
VENDEE of the removal of the squatters
from the property being purchased, the
FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be
forfeited in favor of the VENDOR.
Expenses for the registration such as
registration fees, documentary stamp,
transfer fee, assurances and such other
fees and expenses as may be necessary to
transfer the title to the name of the VENDEE
shall be for the account of the VENDEE
while capital gains tax shall be paid by the
VENDOR.
IN WITNESS WHEREOF, the parties
hereunto signed those (sic) presents in the
City of Makati MM, Philippines on this 9th
day of June, 1988.
(Sgd.)

(Sgd.)

VIRGILIO R. ROMERO
CHUA VDA.

ENRIQUETA

Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.)

(Sgd.)

Rowena C. Ongsiong
1

On 08 June 1989, Atty. Apostol reminded

private respondent on the expiry of the 45day grace period and his client's willingness
to "underwrite the expenses for the
execution of the judgment and ejectment of
the occupants." 5
In his letter of 19 June 1989, Atty. Joaquin
Yuseco, Jr., counsel for private respondent,
advised Atty. Apostol that the Deed of
Conditional Sale had been rendered null
and void by virtue of his client's failure to
evict the squatters from the premises within
the agreed 60-day period. He added that
private respondent had "decided to retain
the property." 6
On 23 June 1989, Atty. Apostol wrote back
to explain:

DE ONGSIONG
Vendee

Meanwhile, the Presidential Commission for

the Urban Poor ("PCUD"), through its
Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of
Paraaque for a grace period of 45 days
from 21 April 1989 within which to relocate
and transfer the squatter families. Acting
favorably on the request, the court
suspended the enforcement of the writ of
execution accordingly.

Jack M. Cruz

Alfonso Flores, in behalf of private

respondent,
forthwith
received
and
acknowledged a check for P50,000.00 2
from petitioner. 3
Pursuant to the agreement, private
respondent filed a complaint for ejectment
(Civil Case No. 7579) against Melchor Musa
and 29 other squatter families with the
Metropolitan Trial Court of Paraaque. A few
months later, or on 21 February 1989,
judgment was rendered ordering the
defendants to vacate the premises. The
decision was handed down beyond the 60day period (expiring 09 August 1988)
stipulated in the contract. The writ of
execution of the judgment was issued, still
later, on 30 March 1989.
In a letter, dated 07 April 1989, private
respondent sought to return the P50,000.00
she received from petitioner since, she said,
she could not "get rid of the squatters" on
the lot. Atty. Sergio A.F. Apostol, counsel for
petitioner, in his reply of 17 April 1989,
refused the tender and stated:.
Our client believes that with the exercise of
reasonable diligence considering the
favorable decision rendered by the Court
and the writ of execution issued pursuant
thereto, it is now possible to eject the
squatters from the premises of the subject
property, for which reason, he proposes that
he shall take it upon himself to eject the
squatters, provided, that expenses which
shall be incurred by reason thereof shall be
chargeable to the purchase price of the
land. 4

The contract of sale between the parties

was perfected from the very moment that
there was a meeting of the minds of the
parties upon the subject lot and the price in
the amount of P1,561,600.00. Moreover, the
contract had already been partially fulfilled
and executed upon receipt of the
downpayment of your client. Ms. Ongsiong
is precluded from rejecting its binding
effects relying upon her inability to eject the
squatters from the premises of subject
property during the agreed period. Suffice it
to state that, the provision of the Deed of
Conditional Sale do not grant her the option
or prerogative to rescind the contract and to
retain the property should she fail to comply
with the obligation she has assumed under
the contract. In fact, a perusal of the terms
and conditions of the contract clearly shows
that the right to rescind the contract and to
demand the return/reimbursement of the
downpayment is granted to our client for his
protection.
Instead, however, of availing himself of the
power to rescind the contract and demand
the
return,
reimbursement
of
the
downpayment, our client had opted to take it
upon himself to eject the squatters from the
premises. Precisely, we refer you to our
letters addressed to your client dated April
17, 1989 and June 8, 1989.
Moreover, it is basic under the law on
contracts that the power to rescind is given
to the injured party. Undoubtedly, under the
circumstances, our client is the injured
party.
Furthermore, your client has not complied
with her obligation under their contract in
good faith. It is undeniable that Ms.
Ongsiong deliberately refused to exert
efforts to eject the squatters from the
premises of the subject property and her
decision to retain the property was brought
about by the sudden increase in the value of
realties in the surrounding areas.

Page 65 of 109

Please consider this letter as a tender of

payment to your client and a demand to
execute the absolute Deed of Sale. 7
A few days later (or on 27 June 1989),
private respondent, prompted by petitioner's
continued refusal to accept the return of the
P50,000.00 advance payment, filed with the
Regional Trial Court of Makati, Branch 133,
Civil Case No. 89-4394 for rescission of the
deed of "conditional" sale, plus damages,
and for the consignation of P50,000.00
cash.
Meanwhile, on 25 August 1989, the
Metropolitan Trial Court issued an alias writ
of execution in Civil Case No. 7579 on
motion of private respondent but the
squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June
1990, the Regional Trial Court of Makati 8
rendered decision holding that private
respondent had no right to rescind the
contract since it was she who "violated her
obligation to eject the squatters from the
subject property" and that petitioner, being
the injured party, was the party who could,
under Article 1191 of the Civil Code, rescind
the agreement. The court ruled that the
provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if
the vendor were to fail in her obligation to
free the property from squatters within the
stipulated period or (b), upon the other
hand, the sum's forfeiture by the vendor if
the vendee were to fail in paying the agreed
purchase price, amounted to "penalty
clauses". The court added:
This Court is not convinced of the ground
relied upon by the plaintiff in seeking the
rescission, namely: (1) he (sic) is afraid of
the squatters; and (2) she has spent so
much to eject them from the premises (p. 6,
tsn, ses. Jan. 3, 1990). Militating against her
profession of good faith is plaintiffs conduct
which is not in accord with the rules of fair
play and justice. Notably, she caused the
issuance of an alias writ of execution on
August 25, 1989 (Exh. 6) in the ejectment
suit which was almost two months after she
filed the complaint before this Court on June
27, 1989. If she were really afraid of the
squatters, then she should not have
pursued the issuance of an alias writ of
execution. Besides, she did not even report
to the police the alleged phone threats from
the squatters. To the mind of the Court, the
so-called squatter factor is simply factuitous
(sic). 9
The lower court, accordingly, dismissed the
complaint and ordered, instead, private
respondent to eject or cause the ejectment
of the squatters from the property and to
execute the absolute deed of conveyance
upon payment of the full purchase price by
petitioner.
Private respondent appealed to the Court of
Appeals. On 29 May 1992, the appellate
court rendered its decision. 10 It opined that
the contract entered into by the parties was
subject to a resolutory condition, i.e., the
ejectment of the squatters from the land, the
non-occurrence of which resulted in the
failure of the object of the contract; that
private respondent substantially complied
with her obligation to evict the squatters;

that it was petitioner who was not ready to

pay the purchase price and fulfill his part of
the contract, and that the provision requiring
a mandatory return/reimbursement of the
P50,000.00 in case private respondent
would fail to eject the squatters within the
60-day period was not a penal clause. Thus,
it concluded.
WHEREFORE, the decision appealed from
is REVERSED and SET ASIDE, and a new
one entered declaring the contract of
conditional sale dated June 9, 1988
cancelled and ordering the defendantappellee to accept the return of the
downpayment in the amount of P50,000.00
which was deposited in the court below. No
pronouncement as to costs. 11
Failing to obtain a reconsideration,
petitioner filed this petition for review on
certiorari raising issues that, in fine, center
on the nature of the contract adverted to
and the P50,000.00 remittance made by
petitioner.
A perfected contract of sale may either be
absolute or conditional 12 depending on
whether the agreement is devoid of, or
subject to, any condition imposed on the
passing of title of the thing to be conveyed
or on the obligation of a party thereto. When
ownership is retained until the fulfillment of
a positive condition the breach of the
condition will simply prevent the duty to
convey title from acquiring an obligatory
force. If the condition is imposed on an
obligation of a party which is not complied
with, the other party may either refuse to
proceed or waive said condition (Art. 1545,
Civil Code). Where, of course, the condition
is imposed upon the perfection of the
contract itself, the failure of such condition
would prevent the juridical relation itself
from coming into existence. 13
In determining the real character of the
contract, the title given to it by the parties is
not as much significant as its substance.
For example, a deed of sale, although
denominated as a deed of conditional sale,
may be treated as absolute in nature, if title
to the property sold is not reserved in the
vendor or if the vendor is not granted the
right to unilaterally rescind the contract
predicated
on the fulfillment or non-fulfillment, as the
case may be, of the prescribed condition. 14
The term "condition" in the context of a
perfected contract of sale pertains, in reality,
to the compliance by one party of an
undertaking the fulfillment of which would
beckon, in turn, the demandability of the
reciprocal prestation of the other party. The
reciprocal obligations referred to would
normally be, in the case of vendee, the
payment of the agreed purchase price and,
in the case of the vendor, the fulfillment of
certain express warranties (which, in the
case at bench is the timely eviction of the
squatters on the property).
It would be futile to challenge the agreement
here in question as not being a duly
perfected contract. A sale is at once
perfected when a person (the seller)
obligates himself, for a price certain, to
deliver and to transfer ownership of a

specified thing or right to another (the

buyer) over which the latter agrees. 15
The object of the sale, in the case before
us, was specifically identified to be a 1,952square meter lot in San Dionisio,
Paraaque, Rizal, covered by Transfer
Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein
technically described. The purchase price
was fixed at P1,561,600.00, of which
P50,000.00 was to be paid upon the
execution of the document of sale and the
balance of P1,511,600.00 payable "45 days
after the removal of all squatters from the
above described property."
From the moment the contract is perfected,
the parties are bound not only to the
fulfillment of what has been expressly
stipulated but also to all the consequences
which, according to their nature, may be in
keeping with good faith, usage and law.
Under the agreement, private respondent is
obligated to evict the squatters on the
property. The ejectment of the squatters is a
condition the operative act of which sets into
motion the period of compliance by
petitioner of his own obligation, i.e., to pay
the balance of the purchase price. Private
respondent's failure "to remove the
squatters from the property" within the
stipulated period gives petitioner the right to
either refuse to proceed with the agreement
or waive that condition in consonance with
Article 1545 of the Civil Code. 16 This
option clearly belongs to petitioner and not
to private respondent.
We share the opinion of the appellate court
that the undertaking required of private
respondent
does
not
constitute
a
"potestative condition dependent solely on
his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil
Code 17 but a "mixed" condition "dependent
not on the will of the vendor alone but also
of third persons like the squatters and
government agencies and personnel
concerned." 18 We must hasten to add,
however, that where the so-called
"potestative condition" is imposed not on the
birth of the obligation but on its fulfillment,
only the obligation is avoided, leaving
unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545
of the Civil Code, aforementioned, allows
the obligee to choose between proceeding
with the agreement or waiving the
performance of the condition. It is this
provision which is the pertinent rule in the
case at bench. Here, evidently, petitioner
has waived the performance of the condition
imposed on private respondent to free the
property from squatters. 20
In any case, private respondent's action for
rescission is not warranted. She is not the
injured party. 21 The right of resolution of a
party to an obligation under Article 1191 of
the Civil Code is predicated on a breach of
faith by the other party that violates the
reciprocity between them. 22 It is private
respondent who has failed in her obligation
under the contract. Petitioner did not breach
the agreement. He has agreed, in fact, to
shoulder the expenses of the execution of
the judgment in the ejectment case and to
make arrangements with the sheriff to effect

Page 66 of 109

such execution. In his letter of 23 June

1989, counsel for petitioner has tendered
payment and demanded forthwith the
execution of the deed of absolute sale.
Parenthetically, this offer to pay, having
been made prior to the demand for
rescission, assuming for the sake of
argument that such a demand is proper
under Article 1592 23 of the Civil Code,
would likewise suffice to defeat private
respondent's
prerogative
to
rescind
thereunder.
There is no need to still belabor the
question of whether the P50,000.00
advance payment is reimbursable to
petitioner
or
forfeitable
by
private
respondent, since, on the basis of our
foregoing conclusions, the matter has
ceased to be an issue. Suffice it to say that
petitioner having opted to proceed with the
sale, neither may petitioner demand its
reimbursement from private respondent nor
may private respondent subject it to
forfeiture.
WHEREFORE, the questioned decision of
the Court of Appeals is hereby REVERSED
AND SET ASIDE, and another is entered
ordering petitioner to pay private respondent
the balance of the purchase price and the
latter to execute the deed of absolute sale in
favor of petitioner. No costs.
G.R. No. 129760

December 29, 1998

RICARDO CHENG, petitioner,

vs.
RAMON B. GENATO and ERNESTO R. DA
JOSE
&
SOCORRO
DA
JOSE,
respondents.
This petition for review on certiorari seeks to
annul and set aside the Decision of the
Court of Appeals (CA) 1 dated July 7, 1997
in CA-G.R. No. CV No. 44706 entitled
"Ricardo Cheng, plaintiff-appellee vs.
Ramon B. Genato, defendant-appellant,
Ernesto R. Da Jose & Socorro B. Da Jose,
Intervenors-Appellants" which reversed the
ruling of the Regional Trial Court, Branch 96
of Quezon City dated January 18, 1994. The
dispositive portion of the CA Decision reads:
WHEREFORE, based on the foregoing,
appealed decision is hereby REVERSED
and SET ASIDE and judgment is rendered
ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of
the defendant-appellant's Affidavit to Annul
Contract to Sell and plaintiff-appellee's
Notice of Adverse Claim in the subject
TCT's, namely, TCT No. T-76.196 (M) and
TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants
of the remaining balance of the purchase
price pursuant to their agreement with the
defendant-appellant
to
suspend
encashment of the three post-dated checks
issued since 1989.
4. Ordering
the
execution
by
the
defendant-appellant Genato of the Deed of
Absolute Sale over the subject two lots
covered by TCT No. T-76.196 (M) and TCT

No. T-76.197 (M) in favor of intervenorsappellants Spouses Da Jose;

5. The return by defendant-appellant
Genato of the P50,000.00 paid to him by the
plaintiff-appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of
moral damages to herein intervenorsappellants Da Jose of P100,000.00,
exemplary
damages
of
P50,000.00,
attorney's fees of P50,000.00, and costs of
suit; and to defendant-appellant, of
P100,000.00 in exemplary damages,
P50,000.00 in attorney's fees. The amounts
payable to the defendant-appellant may be
compensated by plaintiff appellee with the
amount ordered under the immediately
foregoing paragraph which defendantappellant has to pay the plaintiff-appellee.
SO ORDERED. 2
The antecedents of the case are as follows:
Respondent Ramon B. Genato (Genato) is
the owner of two parcels of land located at
Paradise Farms, San Jose del Monte,
Bulacan covered by TCT No. T-76.196 (M) 3
and TCT No. T-76.197 (M) 4 with an
aggregate area of 35,821square meters,
more or less.

granted on condition that a new set of

documents is made seven (7) days from
October 4, 1989. 6 This was denied by the
Da Jose spouses.
Pending the effectivity of the aforesaid
extension period, and without due notice to
the Da Jose spouses, Genato executed an
Affidavit to Annul the Contract to Sell, 7 on
October 13, 1989. Moreover, no annotation
of the said affidavit at the back of his titles
was made right away. The affidavit
contained, inter alia, the following
paragraphs;
xxxxxx

xxx

That it was agreed between the parties that

the agreed downpayment of P950,000.00
shall be paid thirty (30) days after the
execution of the Contract, that is on or
before October 6, 1989;
The supposed VENDEES failed to pay the
said full downpayment even up to this
writing, a breach of contract;
That this affidavit is being executed to Annul
the aforesaid Contract to Sell for the vendee
having committed a breach of contract for
not having complied with the obligation as
provided in the Contract to Sell; 8

On September 6, 1989, respondent Genato

entered into an agreement with respondentspouses Ernesto R. Da Jose and Socorro B.
Da Jose (Da Jose spouses) over the abovementioned two parcels of land. The
agreement culminated in the execution of a
contract to sell for which the purchase price
was P80.00 per square meter. The contract
was in a public instrument and was duly
annotated at the back of the two certificates
of title on the same day. Clauses 1and 3
thereof provide:

On October 24, 1989, herein petitioner

Ricardo Cheng (Cheng) went to Genato's
residence and expressed interest in buying
the subject properties. On that occasion,
Genato showed to Ricardo Cheng copies of
his transfer certificates of title and the
annotations at the back thereof of his
contract to sell with the Da Jose spouses.
Genato
also
showed
him
the
aforementioned Affidavit to Annul the
Contract to Sell which has not been
annotated at the back of the titles.

1. That the purchase price shall be

EIGHTY (P80.00) PESOS, Philippine
Currency per square meter, of which the
amount of FIFTY THOUSAND (P50,000.00)
PESOS shall be paid by the VENDEE to the
VENDOR as partial down payment at the
time of execution of this Contract to Sell.

Despite these, Cheng went ahead and

issued a check for P50,000.00 upon the
assurance by Genato that the previous
contract with the Da Jose spouses will be
annulled for which Genato issued a
handwritten receipt (Exh. "D"), written in this
wise:

xxxxxx

10/24/89

xxx

3. That the VENDEE, Thirty (30) DAYS

after the execution of this contract, and only
after having satisfactorily verified and
confirmed the truth and authenticity of
documents, and that no restrictions,
limitations, and developments imposed on
and/or affecting the property subject of this
contract shall be detrimental to his interest,
the VENDEE shall pay to the VENDOR,
NINE HUNDRED FIFTY THOUSAND
(P950,00.00) PESOS. Philippine Currency,
representing the full payment of the agreed
Down Payment, after which complete
possession of the property shall be given to
the VENDEE to enable him to prepare the
premises and any development therein.
On October 4, 1989, the Da Jose spouses,
not having finished verifying the titles
mentioned in clause 3 as aforequoted,
asked for and was granted by respondent
Genato an extension of another 30 days
or until November 5, 1989. However,
according to Genato, the extension was

The following day, or on October 26, 1989,

acting on Cheng's request, Genato caused
the registration of the Affidavit to Annul the
Contract to Sell in the Registry of Deeds,
Meycauayan, Bulacan as primary entry No.
262702. 11
While the Da Jose spouses were at the
Office of the Registry of Deeds of
Meycauayan, Bulacan on October 27, 1989,
they met Genato by coincidence. It was only
then that the Da Jose spouses discovered
about the affidavit to annul their contract.
The latter were shocked at the disclosure
and protested against the rescission of their
contract. After being reminded that he
(Genato) had given them (Da Jose
spouses) an additional 30-day period to
finish their verification of his titles, that the
period was still in effect, and that they were
willing and able to pay the balance of the
agreed down payment, later on in the day,
Genato decided to continue the Contract he
had with them. The agreement to continue
with their contract was formalized in a
conforme letter dated October 27, 1989.
Thereafter, Ramon Genato advised Ricardo
Cheng of his decision to continue his
contract with the Da Jose spouses and the
return of Cheng's P50,000.00 check.
Consequently, on October 30, 1989,
Cheng's lawyer sent a letter 12 to Genato
demanding compliance with their agreement
to sell the property to him stating that the
contract to sell between him and Genato
was already perfected and threatening legal
action.
On November 2, 1989, Genato sent a letter
13 to Cheng (Exh. "6") enclosing a BPI
Cashier's Check for P50,000.00 and
expressed regret for his inability to
"consummate his transaction" with him.
After having received the letter of Genato on
November 4, 1989, Cheng, however,
returned the said check to the former via
RCPI telegram 14 dated November 6, 1989,
reiterating that "our contract to sell your
property had already been perfected."
Meanwhile, also on November 2, 1989,
Cheng executed an affidavit of adverse
claim 15 and had it annotated on the subject
TCT's.

Received from Ricardo Cheng

the Sum of Fifty Thousand Only (P50.000-)
as partial for T-76196 (M)
T-76197 (M) area 35.821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del
Monte
P70/m2

Bulacan

plus C. G. T. etc.
Check # 470393
Genato

(SGD.)

Ramon

B.

10/24/89 9
On October 25, 1989, Genato deposited
Cheng's check. On the same day, Cheng
called up Genato reminding him to register
the affidavit to annul the contract to sell. 10

Page 67 of 109

On the same day, consistent with the

decision of Genato and the Da Jose
spouses to continue with their Contract to
Sell of September 6, 1989, the Da Jose
spouses paid Genato the complete down
payment of P950,000.00 and delivered to
him three (3) postdated checks (all dated
May 6, 1990, the stipulated due date) in the
total amount of P1,865,680.00 to cover full
payment of the balance of the agreed
purchase price. However, due to the filing of
the pendency of this case, the three (3)
postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a
complaint 16 for specific performance to
compel Genato to execute a deed of sale to
him of the subject properties plus damages
and prayer for preliminary attachment. In his
complaint, Cheng averred that the
P50,000.00 check he gave was a partial
payment to the total agreed purchase price
of the subject properties and considered as

an earnest money for which Genato

acceded. Thus, their contract was already
perfected.
In Answer 17 thereto, Genato alleged that
the agreement was only a simple receipt of
an option-bid deposit, and never stated that
it was a partial payment, nor is it an earnest
money and that it was subject to condition
that the prior contract with the Da Jose
spouses be first cancelled.
The Da Jose spouses, in their Answer in
Intervention, 18 asserted that they have a
superior right to the property as first buyers.
They alleged that the unilateral cancellation
of the Contract to Sell was without effect
and void. They also cited Cheng's bad faith
as a buyer being duly informed by Genato
of the existing annotated Contract to Sell on
the titles.
After trial on the merits, the lower court
ruled that the receipt issued by Genato to
Cheng unerringly meant a sale and not just
a priority or an option to buy. It cannot be
true that the transaction was subjected to
some condition or reservation, like the
priority in favor of the Da Jose spouses as
first buyer because, if it were otherwise, the
receipt would have provided such material
condition or reservation, especially as it was
Genato himself who had made the receipt in
his own hand. It also opined that there was
a valid rescission of the Contract to Sell by
virtue of the Affidavit to Annul the Contract
to Sell. Time was of the essence in the
execution of the agreement between
Genato and Cheng, under this circumstance
demand, extrajudicial or judicial, is not
necessary. It falls under the exception to the
rule provided in Article 1169 19 of the Civil
Code. The right of Genato to unilaterally
rescind the contract is said to be under
Article 1191 20 of the Civil Code.
Additionally, after reference was made to
the substance of the agreement between
Genato and the Da Jose spouses, the lower
court also concluded that Cheng should be
preferred over the intervenors-Da Jose
spouses in the purchase of the subject
properties. Thus, on January 18, 1994 the
trial court rendered its decision the decretal
portion of which reads:
WHEREFORE,
rendered:

judgment

is

hereby

1. Declaring the contract to sell dated

September 6, 1989 executed between
defendant Ramon Genato, as vendor, and
intervenors Spouses Ernesto and Socorro
Da Jose, as vendees, resolved and
rescinded in accordance with Art. 1191, Civil
Code, by virtue of defendant's affidavit to
annul contract to sell dated October 13,
1989 and as the consequence of
intervenors' failure to execute within seven
(7) days from October 4, 1989 another
contract to sell pursuant to their mutual
agreement with defendant;

4. Commanding defendant to execute with

and in favor of the plaintiff Ricardo Cheng,
as vendee, a deed of conveyance and sale
of the real properties described and covered
in Transfer Certificates of Title No. T-76-196
(M) and T-76.197 (M) of the Registry of
Deeds of Bulacan, Meycauayan Branch, at
the rate of P70.000/square meter, less the
amount of P50,000.00 alreaddy paid to
defendant, which is considered as part of
the purchase price, with the plaintiff being
liable for payment of the capital gains taxes
and other expenses of the transfer pursuant
to the agreement to sell dated October 24,
1989; and
5 Ordering defendant to pay the plaintiff
and the intervenors as follows:
a/ P50,000.00, as nominal damages, to
plaintiff;
b/ P50,000.00, as nominal damages, to
intervenors;
c/ P20,000.00, as and for attorney's fees,
to plaintiff;
d/ P20,000.00, as and for attorney's fees,
to intervenors; and
e/ Cost of the suit.
xxxxxx

xxx

Not satisfied with the aforesaid decision,

herein respondents Ramon Genato and Da
Jose spouses appealed to the court a quo
which reversed such judgment and ruled
that the prior contract to sell in favor of the
Da Jose spouses was not validly rescinded;
that the subsequent contract to sell between
Genato and Cheng, embodied in the
handwritten receipt, was without force and
effect due to the failure to rescind the prior
contract; and that Cheng should pay
damages to the respondents herein being
found to be in bad faith.

breach, casual or serious, but a situation

that prevents the obligation of the vendor to
convey title from acquiring an obligatory
force. 22 It is one where the happening of
the event gives rise to an obligation. Thus,
for its non-fulfillment there will be no
contract to speak of, the obligor having
failed to perform the suspensive condition
which enforces a juridical relation. In fact
with this circumstance, there can be no
rescission of an obligation that is still nonexistent, the suspensive condition not
having occurred as yet. 23 Emphasis should
be made that the breach contemplated in
Article 1191 of the New Civil Code is the
obligor's failure to comply with an obligation
already extant, not a failure of a condition to
render binding that obligation. 24
Obviously, the foregoing jurisprudence
cannot be made to apply to the situation in
the instant case because no default can be
ascribed to the Da Jose spouses since the
30-day extension period has not yet
expired. The Da Jose spouses' contention
that no further condition was agreed when
they were granted the 30-days extension
period from October 7, 1989 in connection
with clause 3 of their contract to sell dated
September 6, 1989 should be upheld for the
following reason, to wit; firstly, If this were
not true, Genato could not have been
persuaded to continue his contract with
them and later on agree to accept the full
settlement of the purchase price knowing
fully well that he himself imposed such sine
qua non condition in order for the extension
to be valid; secondly, Genato could have
immediately annotated his affidavit to annul
the contract to sell on his title when it was
executed on October 13, 1989 and not only
on October 26, 1989 after Cheng reminded
him of the annotation; thirdly, Genato could
have sent at least a notice of such fact,
there being no stipulation authorizing him
for automatic rescission, so as to finally
clear the encumbrance on his titles and
make it available to other would be buyers.
It likewise settles the holding of the trial
court that Genato "needed money urgently."

Hence this petition. 21

This petition for review, assails the Court of
Appeals' Decision on the following grounds:
(1) that the Da Jose spouses' Contract to
Sell has been validly rescinded or resolved;
(2) that Ricardo Cheng's own contract with
Genato was not just a contract to sell but
one of conditional contract of sale which
gave him better rights, thus precluding the
application of the rule on double sales under
Article 1544, Civil Code; and (3) that, in any
case, it was error to hold him liable for
damages.
The petition must be denied for failure to
show that the Court of Appeals committed a
reversible error which would warrant a
contrary ruling.

2. Ordering defendant to return to the

intervenors the sum of P1,000,000.00, plus
interest at the legal rate from November 2,
1989 until full payment;

No reversible error can be ascribed to the

ruling of the Court of Appeals that there was
no valid and effective rescission or
resolution of the Da Jose spouses Contract
to Sell, contrary to petitioner's contentions
and the trial court's erroneous ruling.

3. Directing defendant to return to the

intervenors the three (3) postdated checks
immediately upon finality of this judgment;

In a Contract to Sell, the payment of the

purchase price is a positive suspensive
condition, the failure of which is not a

Page 68 of 109

Even assuming in gratia argumenti that the

Da Jose spouses defaulted, as claimed by
Genato, in their Contract to Sell, the
execution by Genato of the affidavit to annul
the contract is not even called for. For with
or without the aforesaid affidavit their nonpayment to complete the full downpayment
of the purchase price ipso facto avoids their
contract to sell, it being subjected to a
suspensive condition. When a contract is
subject to a suspensive condition, its birth or
effectivity can take place only if and when
the event which constitutes the condition
happens or is fulfilled. 25 If the suspensive
condition does not take place, the parties
would stand as if the conditional obligation
had never
existed. 26
Nevertheless, this being so Genato is not
relieved from the giving of a notice, verbal
or written, to the Da Jose spouses for his
decision to rescind their contract. In many
cases, 27 even though we upheld the
validity of a stipulation in a contract to sell
authorizing automatic rescission for a
violation of its terms and conditions, at least
a written notice must be sent to the
defaulter informing him of the same. The act

of a party in treating a contract as cancelled

should be made known to the other. 28 For
such act is always provisional. It is always
subject to scrutiny and review by the courts
in case the alleged defaulter brings the
matter to the proper courts. In University of
the Philippines vs. De Los Angeles, 29 this
Court stressed and we quote:
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).
This rule validates, both in equity and
justice, contracts such as the one at bat, in
order to avoid and prevent the defaulting
party from assuming the offer as still in
effect due to the obligee's tolerance for such
non-fulfillment. Resultantly, litigations of this
sort shall be prevented and the relations
among would-be parties may be preserved.
Thus, Ricardo Cheng's contention that the
Contract to Sell between Genato and the Da
Jose spouses was rescinded or resolved
due to Genato's unilateral rescission finds
no support in this case.
Anent the issue on the nature of the
agreement between Cheng and Genato, the
records of this case are replete with
admissions 30 that Cheng believed it to be
one of a Contract to Sell and not one of
Conditional Contract of Sale which he, in a
transparent turn-around, now pleads in this
Petition. This ambivalent stance of Cheng is
even noted by the appellate court, thus:
At the outset, this Court notes that plaintiffappellee was inconsistent in characterizing
the contract he allegedly entered into. In his
complaint. 31 Cheng alleged that the
P50,000.00 down payment was earnest
money. And next, his testimony 32 was
offered to prove that the transaction
between him and Genato on October 24,
1989 was actually a perfected contract to
sell. 33
Settled is the rule that an issue which was
not raised during the trial in the court below
cannot be raised for the first time on appeal.
34 Issues of fact and arguments not
adequately brought to the attention of the
trial court need not be and ordinarily will not
be considered by a reviewing court as they
cannot be raised for the first time on appeal.
35 In fact, both courts below correctly held
that the receipt which was the result of their
agreement, is a contract to sell. This was, in
fact Cheng's contention in his pleadings
before said courts. This patent twist only

operates against Cheng's posture which is

indicative of the weakness of his claim.
But even if we are to assume that the
receipt, Exh. "D," is to be treated as a
conditional contract of sale, it did not
acquire any obligatory force since it was
subject to suspensive condition that the
earlier contract to sell between Genato and
the Da Jose spouses should first be
cancelled or rescinded a condition never
met, as Genato, to his credit, upon realizing
his error, redeemed himself by respecting
and maintaining his earlier contract with the
Da Jose spouses. In fact, a careful reading
of the receipt, Exh. "D," alone would not
even show that a conditional contract of
sale has been entered by Genato and
Cheng. When the requisites of a valid
contract of sale are lacking in said receipt,
therefore the "sale" is neither valid or
enfoceable. 36
To support his now new theory that the
transaction was a conditional contract of
sale, petitioner invokes the case of Coronel
vs. Court of Appeals 37 as the law that
should govern their Petition. We do not
agree. Apparently, the factual milieu in
Coronel is not on all fours with those in the
case at bar.
In Coronel, this Court found that the
petitioners therein clearly intended to
transfer title to the buyer which petitioner
themselves admitted in their pleading. The
agreement of the parties therein was
definitively outlined in the "Receipt of Down
Payment" both as to property, the purchase
price, the delivery of the seller of the
property and the manner of the transfer of
title subject to the specific condition that
upon the transfer in their names of the
subject property the Coronels will execute
the deed of absolute sale.
Whereas, in the instant case, even by a
careful perusal of the receipt, Exh. "D,"
alone such kind of circumstances cannot be
ascertained without however resorting to the
exceptions of the Rule on Parol Evidence.
To our mind, the trial court and the appellate
court correctly held that the agreement
between Genato and Cheng is a contract to
sell, which was, in fact, petitioner
connection in his pleadings before the said
courts. Consequently, both to mind, which
read:
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 it be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in the Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in possession; and in the
absence thereof, to the person who
presents he oldest title, provided there is
good faith.

However, a meticulous reading of the

aforequoted provision shows that said law is
not apropos to the instant case. This
provision connotes that the following
circumstances must concur:
(a) The two (or more) sales transactions in
issue must pertain to exactly the same
subject matter, and must be valid sales
transactions.
(b) The two (or more) buyers at odds over
the rightful ownership of the subject matter
must each represent conflicting interests;
and
(c) The two (or more) buyers at odds over
the rightful ownership of the subject matter
must each have bought from the very same
seller.
These situations obviously are lacking in a
contract to sell for neither a transfer of
ownership nor a sales transaction has been
consummated. The contract to be binding
upon the obligee or the vendor depends
upon the fulfillment or non-fulfillment of an
event.
Notwithstanding this contrary finding with
the appellate court, we are of the view that
the governing principle of Article 1544, Civil
Code, should apply in this situation.
Jurisprudence 38 teaches us that the
governing principle is PRIMUS TEMPORE,
PORTIOR JURE (first in time, stronger in
right). For not only was the contract
between herein respondents first in time; it
was also registered long before petitioner's
intrusion as a second buyer. This principle
only applies when the special rules provided
in the aforcited article of the Civil Code do
not apply or fit the specific circumstances
mandated under said law or by
jurisprudence interpreting the article.
The rule exacted by Article 1544 of the Civil
Code for the second buyer to be able to
displace the first buyer are:
(1) that the second buyer must show that he
acted in good faith (i.e. in ignorance of the
first sale and of the first buyer's rights) from
the time of acquisition until title is
transferred to him by registration or failing
registration, by delivery of possession; 39
(2) the second buyer must show continuing
good faith and innocence or lack of
knowledge of the first sale until his contract
ripens into full ownership through prior
registration as provided by law. 40
Thus, in the case at bar, the knowledge
gained by the Da Jose spouses, as first
buyers, of the new agreement between
Cheng and Genato will not defeat their
rights as first buyers except where Cheng,
as second buyer, registers or annotates his
transaction or agreement on the title of the
subject properties in good faith ahead of the
Da Jose spouses. Moreover, although the
Da Jose spouses, as first buyers, knew of
the second transaction it will not bar them
from availing of their rights granted by law,
among them, to register first their
agreement as against the second buyer.
In contrast, knowledge gained by Cheng of
the first transaction between the Da Jose

Page 69 of 109

spouses and Genato defeats his rights even

if he is first to register the second
transaction, since such knowledge taints his
prior registration with bad faith.
"Registration", as defined by Soler and
Castillo, means any entry made in the
books of the registry, including both
registration in its ordinary and strict sense,
and cancellation, annotation, and even
marginal notes. 41 In its strict acceptation, it
is the entry made in the registry which
records solemnly and permanently the right
of ownership and other real rights. 42 We
have ruled 43 before that when a Deed of
Sale is inscribed in the registry of property
on the original document itself, what was
done with respect to said entries or
annotations and marginal notes amounted
to a registration of the sale. In this light, we
see no reason why we should not give
priority in right the annotation made by the
Da Jose spouses with respect to their
Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases
without good faith is not sufficient. Good
faith must concur with registration for such
prior right to be enforceable. In the instant
case, the annotation made by the Da Jose
spouses on the titles of Genato of their
"Contract To Sell" more than satisfies this
requirement. Whereas in the case of
Genato's agreement with Cheng such is
unavailing. For even before the receipt, Exh.
"D," was issued to Cheng information of
such pre-existing agreement has been
brought to his knowledge which did not
deter him from pursuing his agreement with
Genato. We give credence to the factual
finding of the appellate court that "Cheng
himself admitted that it was he who sought
Genato in order to inquire about the
property and offered to buy the same. 44
And since Cheng was fully aware, or could
have been if he had chosen to inquire, of
the rights of the Da Jose spouses under the
Contract to Sell duly annotated on the
transfer certificates of titles of Genato, it
now becomes unnecessary to further
elaborate in detail the fact that he is indeed
in bad faith in entering into such agreement.
As we have held in Leung Yee vs. F.L.
Strong Machinery Co.: 45
One who purchases real estate with
knowledge of a defect . . . of title in his
vendor cannot claim that he has acquired
title thereto in good faith as against . . . . an
interest therein; and the same rule must be
applied to one who has knowledge of facts
which should have put him upon such
inquiry and investigation as might be
necessary to acquaint him with the defects
in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a
reasonable man upon his guard, and then
claim that he acted in good faith under the
belief that there was no defect in the title of
the vendor. His mere refusal to believe that
such defect exists, or his willful closing of
his eyes to the possibility of the existence of
a defect in his vendor's title, will not make
him an innocent purchaser for value, if it
afterwards develops that the title was in fact
defective, and it appears that he had such
notice of the defect as would have led to its
discovery had he acted with that measure of
precaution which may reasonably be
required of a prudent man in a like situation.

Good faith, or lack of it, is in its last analysis

a question of intention; but in ascertaining
the intention by which one is actuated on a
given occasion, we are necessarily
controlled by the evidence as to the conduct
and outward acts by which alone the inward
motive may with safety, be determined. So it
is that "the honesty of intention," "the honest
lawful intent," which constitutes good faith
implies a "freedom from knowledge and
circumstances which ought to put a person
on inquiry," and so it is that proof of such
knowledge overcomes the presumption of
good faith in which the courts always
indulge in the absence of the proof to the
contrary. "Good faith, or the want of it, is not
a visible, tangible fact that can be seen or
touched, but rather a state or condition of
mind which can only be judge of by actual
or fancied tokens or signs." (Wilder vs.
Gilman, 55 Vt. 504, 505; Cf. Cardenas vs.
Miller, 108 Cal., 250; Breaux-Renoudet,
Cypress Lumber Co. vs. Shadel, 52 La.
Ann., 2094-2098; Pinkerton Bros. Co. vs.
Bromely, 119 Mich., 8, 10, 17.) (Emphasis
ours)
Damages were awarded by the appellate
court on the basis of its finding that
petitioner "was in bad faith when he filed the
suit for specific performance knowing fully
well that his agreement with Genato did not
push through. 46 Such bad faith, coupled
with his wrongful interference with the
contractual relations between Genato and
the Da Jose spouses, which culminated in
his filing of the present suit and thereby
creating what the counsel for the
respondents describes as "a prolonged and
economically unhealthy gridlock 47 on both
the land itself and the respondents' rights
provides ample basis for the damages
awarded. Based on these overwhelming
evidence of bad faith on the part of herein
petitioner Ricardo Cheng, we find that the
award of damages made by the appellate
court is in order.
WHEREFORE, premises considered, the
instant petition for review is DENIED and
the assailed decision is hereby AFFIRMED
EN TOTO.
G.R. No. 133491

October 13, 1999

ALEXANDER G. ASUNCION, petitioner,

vs.
EDUARDO B. EVANGELISTA and COURT
OF APPEALS, respondents.
This is a petition for review of the Decision
of the respondent Court of Appeals 1
rescinding the Memorandum of Agreement
of the parties and assessing against the
petitioner damages in the amount of
P32,644,420.55.
These are the relevant facts.
Since 1970, private respondent has been
operating a piggery on his landholdings in
Barangay Loma de Gato, Marilao, Bulacan.
2 Until 1980, he operated the piggery under
the trade name Embassy Farms as a single
proprietorship. 3 In October 1981, private
respondent,
his
wife,
Epifania
C.
Evangelista, and three (3) others, namely,
Angel L. Santos, Jr., Amando C. Martin and
Teofilo J. Mesina, organized Embassy

Page 70 of 109

Farms, Inc. and registered it with the

Securities and Exchange Commission. 4
Private respondent was the majority
stockholder of the corporation, with ninety
percent (90%) of the shares in his name. He
also served as its president and chief
executive officer. Its principal office was
established at the piggery facility that had
been existing on the landholdings of private
respondent in Barangay Loma de Gato,
Marilao, Bulacan, consisting of about
104,447 sq. m. 5
On September 9, 1980, private respondent
borrowed five hundred thousand pesos
(P500,000.00) from Paluwagan ng Bayan
Savings and Loan Association to use as
working capital for Embassy Farms. He
executed a real estate mortgage on three of
his properties in Barangay Loma de Gato,
Marilao, Bulacan as security for the loan. 6
On November 4, 1981, private respondent
mortgaged ten (10) titles more in favor of
PAIC Savings and Mortgage Bank, formerly
First Summa Savings and Mortgage Bank,
as security for a loan he obtained from it in
the amount of one million seven hundred
twelve thousand pesos (P1,712,000.00). 7
On February 16, 1982, private respondent
obtained another loan in the amount of eight
hundred forty four thousand six hundred
twenty five and seventy eight centavos
(P844,625.78) from Mercator Finance
Corporation. The loan was secured by a real
estate mortgage 8 on five (5) other
landholdings of private respondent, all
situated in Bulacan.
Private respondent obtained these personal
loans to provide himself working capital to
run the farm and sustain its operations. His
aggregate debt exposure totaled three
million fifty six thousand six hundred twenty
five
and
seventy
eight
centavos
(P3,056,625.78).
Private respondent defaulted in his loan
payments. Of the PAIC loan that should
have been paid on an equal quarterly
amortization basis for three (3) years from
October 31, 1981, eight (8) quarterly
amortizations totaling one million five
hundred one thousand nine hundred eighty
eight and eight centavos (P1,501,988.08)
fell due by January 12, 1984. Against this
overdue amount, only two hundred eighty
thousand seven hundred forty eight and fifty
one centavos (P280,748.51) was remitted
by private respondent. 9
By June 1984, private respondent's
aggregate debt had ballooned to almost six
million pesos (P6,000,000.00) 10 in overdue
principal payments, interests, penalties and
other financial charges.
On August 2, 1984, petitioner and private
respondent executed a Memorandum of
Agreement containing the following terms
and conditions:
MEMORANDUM OF AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:

This Memorandum of Agreement made and

executed this __ day of July, 1984, here in
______, Metro Manila, by and between
ALEXANDER G. ASUNCION, of legal age,
Filipino, married to Perlita Asuncion, and
resident of No. 7 A. Lake Street, San Juan,
Metro Manila, hereinafter referred to as
AGA;
and
EDUARDO B. EVANGELISTA, of legal age,
Filipino, married to Epifania C. Evangelista,
and resident of No. 113 R. Terona Street,
BF Homes, Paranaque, Metro Manila,
hereinafter referred to as EBE.
WITNESSETH:
WHEREAS, EBE is the registered and
absolute owner of nineteen (19) parcels of
agricultural lands with an aggregate area of
104,447 square meters more or less, all
situated in LOMA DE GATO, Marilao,
Bulacan, hereinbelow enumerated by the
covering certificates of title and the
corresponding area as follows:
xxxxxx

xxx

WHEREAS, EBE is likewise the controlling

interest of 90% to 100% of the paid-in equity
of EMBASSY FARMS, INC., which
corporation is the registered owner of a
piggery, situated in the above enumerated
real properties, with stocks, equipment and
facilities as shown in the inventory thereof
as of July 4, 1984, hereto attached as
Schedule "A" and made an integral part
hereof;
WHEREAS, EBE has personal loans with
the institutions herein below enumerated
correspondingly with the amount of
indebtedness, inclusive of interest, up to
June 30, 1984:
a) PAIC BANK

P2,758,968.49

b) PALUWAGAN SAVINGS BANK

1. CB-IBRD

P558,110.44

2. Comm'l loan
P1,393,974.20

P835,863.76

c) MERCATOR
1,846,012.96

FINANCE

CORP.

TOTAL

P5,998,955.65

WHEREAS, EBE has offered to AGA and

the latter has accepted the transfer to him
by EBE, of the whole of EBE's controlling
interest in EMBASSY FARMS, INC. as well
as all of his above enumerated parcels of
real property together with any and all
improvements thereon subject to the
following terms and conditions:
NOW,
THEREFORE,
for
and
in
consideration of the foregoing, the parties
herein agree as follows:

1) That EBE hereby cedes, transfers and

conveys unto AGA all of his above
enumerated parcels of real property
together with any and all improvements
thereon, and in connection with such
transfer, hereby undertakes to execute, sign
and deliver any and all documents
appropriate for the same, either in favor of
AGA or his nominees;
2) That EBE hereby likewise cedes,
transfers and conveys in a manner absolute
and irrevocable any and all of his shares [of]
stocks in the aforesaid EMBASSY FARMS,
INC., outstanding [in] his name in the books
of incorporation, as well as any and all
rights, interests and participation in the said
corporation by reason of such shares [of]
stocks or otherwise, EBE shall, within a
reasonable time, from signing hereof, cause
to be so transferred to AGA or his nominee
such shares of stocks in said corporation as
are held on record by 3rd parties, until the
total of such shares so transferred shall
constitute 90% of the paid-in equity of said
corporation;
3) That upon signing hereof, AGA shall pay
EBE the sum of P1,000,000.00 and the
further amount of P500,000.00 within a
period of 90 days from and after such
signing;
4) That AGA shall upon signing hereof,
make available, as and for operating
expenses of the farm or piggery the sum of
P300,000.00 to be followed by amount of
P300,000.00 within 30 days from such
signing and 60 days thereafter, the amount
of P150,000.00;
5) AGA shall assume all of the aforestated
obligations of EBE with the institution
aforementioned
and
in
connection
therewith, he shall make available for
payment to PALUWAGAN SAVINGS BANK,
upon signing of this "MEMORANDUM OF
AGREEMENT", the amount of P100,000.00,
representing 50% of the amount required by
the said bank for the restructuring of the
aforestated loan of EBE therewith;
6) That also upon signing of these
presents, AGA shall make available for
payment
to
MERCATOR
FINANCE
CORPORATION
the
amount
of
P100,000.00 representing 50% of the
amount required by the latter for
restructuring of the aforesaid obligation to it
of EBE;
7) That upon signing of this agreement,
EBE shall make available for payment to
PALUWAGAN SAVINGS BANK the amount
of P100,000.00 and the same amount to
MERCATOR FINANCE CORPORATION
corresponding to the other halves of the
aforestated amount called for by the said
institution in the preceding paragraphs 5
and 6 hereof;
8) That upon signing hereof, EBE shall
cause the turn-over to AGA of the effective
control and management of the aforesaid
piggery, from EMBASSY FARMS, over
which EBE hereby warrants to have
effective control up to and until such
turnover to AGA;

Page 71 of 109

9) EBE hereby warrants not only free and

marketable titles to the shares (of) stock of
EMBASSY FARMS, INC. that he transfers
hereby but also effective control, amounting
to ownership of the other shares of stock of
such corporation which are outstanding in
the books of said corporation in the name of
3rd parties, which shares of stock he could
always dispose of therefore [sic] any time
and in any manner he may deem proper;
10)EBE shall secure supplier's credit and
feed ingredients, veterinary supplies, etc. up
to P500,000.00 and over a period of three
(3) months in order to be able to augment
the effective operation of the farm;
11) Within 90 days from signing of this
agreement, AGA shall make available for
the farm P250,000.00, payable to him within
one year from and after the grant of the
same, with stated interest of 24% per
annum, the proceeds of which to be utilized
exclusively for the operation of the farm;
12)That within a reasonable time from
signing of this agreement, AGA shall
organize and register a corporation
(thereafter referred to as new corporation)
with authorized capital stock of exactly
P10,000,000.00 with P1,000,000.00 worth
of paid-in shares of stock thereof, to be
allocated or assigned to EBE [sic] said
corporation shall, upon its registration take
over all the rights and liabilities of AGA
hereunder saving the one stipulated in
paragraph no. ___ hereof;
13)On or before November 1984, AGA shall
pay EBE P144,941.88 plus interest at 24%
per annum in payment of the feed
ingredients, mixed feeds and veterinary
supplies mentioned in Schedule "A" which
EBE makes available to aforesaid piggery.
He shall likewise reimburse to EBE on or
before January 1985, the amount of
P200,000.00 with interest at 24% per
annum representing advances of the latter
to PALUWAGAN SAVINGS BANK and
MERCATOR FINANCE CORPORATION
pursuant to paragraph 7 above;
14)That in connection with the aforesaid
P1,000,000.00 worth of shares [of] stock in
the new corporation, stipulated above to be
allocated or assigned to EBE, the parties
hereby agree that within eighteen (18)
months from and after such assignment or
allotment, AGA shall acquire, at par from
EBE 50% thereof, with reservation to
acquire the other 50% within a period of 30
months after such allotment, with premium
of 50% of par value, if the commitments or
targets mentioned in paragraph 17 herein
shall have been met;
15)That for the operation of the farm or
piggery, the parties hereby agree that EBE
shall serve as President and Chief
Executive thereof, at a stated monthly
salary P15,000.00; Alberto M. Ladores as
General Manager at P10,000.00 a month, V.
Gregorio as Comptroller at P3,500.00 a
month;
16)The parties herein likewise agree to pay,
when able, compensation to the following
the amounts correspondingly indicated.
Thus

a) V.S. Abadia Chairperson of the Board

at P10,000.00

Aug. 23,
3504 14 Victoria
P100,000.00

b) A.G. Asuncion

1984

c) V.M. de Vera

Aug. 29,
3547 15 Victoria
P100,000.00

Gregorio

17)Being senior operating officers of the

farm, EBE and A.M. Ladores, shall submit to
AGA, their respective position charter plans
and programs for the farm for the next three
(3) years, within 30 to 45 days after signing
hereof, substantially in the form hereto
attached as Schedule "B";

Gregorio

1984

Total

P500,000.00

Respondent

18)That within the next three (3) months, an

Agribusiness Management Company which
includes a feedmilling operations shall be
established. The officers thereof shall be
Alexander G. Asuncion as Chairman,
Vicente M. de Vera as Vice-Chairman,
Edgardo LI. Umali as Treasurer, Eduardo B.
Evangelista as President and General
Manager, and Alberto M. Ladores as
Executive Vice-President. This management
company shall be contracted for providing
the over-all management of EMBASSY
FARMS. EDUARDO B. EVANGELISTA and
ALBERTO M. LADORES will have shares in
the company and shall form the executive
management team of said company, for
which they will be remunerated in terms of
salary and profit sharing.1wphi1.nt

In compliance with paragraph 4 of the

Memorandum of Agreement, petitioner paid
private
respondent
three
hundred
thousands pesos
(P300,000.00), 17 upon its signing on
August 2, 1984.

IN WITNESS WHEREOF, the parties have

hereunto affixed their signatures this 2nd
day of August, 1984.

Date of

Actual Recipient Amount

Payment
Paid

Voucher No.

(Sgd.)

The second installment, in the like amount

of
three
hundred
thousand
pesos
(P300,000.00) which became due between
August 2, 1984 and September 2, 1984,
was supposed to be remitted by petitioner to
private respondent for the purpose of
financing the operations of the piggery
pursuant to the Memorandum. Instead,
petitioner agreed to pay to PAIC Savings &
Mortgage Bank the following amounts, to
wit:

of the Money

(Sgd.)
Aug. 8,
3224 18 PAIC
P200,000.00 19

ALEXANDER G. ASUNCION EDUARDO

B. EVANGELISTA

1984

Savings

&

Mortgage Bank

SIGNED IN THE PRESENCE OF:

(Sgd.)

Aug. 27,
3310 20 PAIC
P100,000.00 21

(Sgd.)

VIOLETA S. ABADIA ALBERTO

LADORES
xxxxxx

M.

xxx 11

Upon the execution of the Memorandum of

Agreement,
petitioner
paid
private
respondent
one
million
pesos
(P1,000,000.00)
in
compliance
with
paragraph 3 thereof. Although this was
unreceipted, private respondent admitted
receiving the same when he testified in
open court. 12
In further compliance with paragraph 3,
petitioner paid to private respondent the
amount of five hundred thousand pesos
(P500,000.00) within a ninety-day (90)
period in four (4) disbursements, to wit:
Date of

Actual Recipient Amount

Payment
Paid

Voucher No.

Aug. 15,
3468 13 Victoria
P100,000.00
1984

1984

Savings

(for private respondent)

Private

25

Private

1984.
Aside from paying the aforesaid amount of
three
hundred
thousand
pesos
(P300,000.00) to PAIC Savings & Mortgage
Bank in compliance with paragraph 5 of the
Memorandum of Agreement requiring
petitioner to assume the loan obligations of
private respondent, petitioner also paid four
hundred thousand pesos (P400,000.00) in
favor of Paluwagan ng Bayan Savings and
Loan Association for the restructuring of
private respondent's 26 loan and one
hundred thousand pesos (P100,000.00) 27
for the restructuring of his loan with
Mercator Finance Corporation.
In substantial compliance with paragraph 11
wherein petitioner was further obligated to
provide credit in the amount of two hundred
fifty thousand pesos (P250,000.00) to be
exclusively spent for the operations of the
piggery but payable to him within one (1)
year from the grant thereof with stated
interest of 24% per annum, petitioner made
available two hundred thousand pesos
(P200,000.00). 28
Under paragraph 13, petitioner paid one
hundred forty four thousand nine hundred
forty one pesos and eighty eight centavos
(P144,941.88) for feed ingredients, mixed
feeds and veterinary supplies included in
the inventory turned over by private
respondent to petitioner. Petitioner made
the payment in the following tranches:

and
Date of
Recipient

Disbursement/
Amount

Actual

Payment
Paid

Cash Voucher

of the Money

Mortgage Bank

in order to facilitate the restructuring of

private respondent's loans with said bank. It
is significant to note that under the
Memorandum of Agreement, petitioner
agreed to shoulder only the loan restructing
fees required by Paluwagan ng Bayan
Savings and Loan Association Bank and
Mercator
Finance
Corporation.
22
Nonetheless, petitioner made the above
payment in view of the letter of PAIC
Savings & Mortgage Bank dated July 6,
1984 approving private respondent's
request for the restructuring of his loan.
A third installment in the amount of one
hundred fifty thousand pesos (P150,000.00)
which was due between September 2, 1984
and November 2, 1984 was paid by
petitioner to private respondent in the
following tranches:

of the Money
Gregorio

24

1984
Oct. 16,
DV No. 3878
Respondent P100,000.00

(for private respondent)

Sept. 26,
3765 16 Private
P200,000.00

(for Embassy Farms)

Sept. 26,
DV No. 3770
Respondent P30,000.00

(for private respondent)

d) E. LI. Umali
1984

1984

March 28, DV No. 4760 29 private

respondent P37,000.00
1985
July 30,
DV No. 266 30
respondent P30,000.00
1985
Aug. 9,
DV No. 337 31
P30,000.00
1985

Actual Recipient Amount

Payment
Paid

Voucher No.

Sept. 19,
Gregorio

DV No. 3707 23 Victoria

P20,000.00

of the Money

Page 72 of 109

Tamaliga

R.

Tamaliga

(for private respondent)

Aug. 23,
DV No. 411 33
P17,941.88
1985
(for

TOTAL

R.

(for private respondent)

Aug. 16,
DV No. 379 32
P30,000.00
1985

Date of

private

private

P144,941.88

R.

Tamaliga

respondent)

Over and above all the foregoing amounts

paid by petitioner to private respondent in
accordance with his undertakings under the
Memorandum of Agreement, he also paid
management
bonuses
to
private
respondent, Vicente M. de Vera and
Edgardo LI. Umali, in the amounts of fifty
thousand
pesos
(P50,000.00),
thirty
thousand pesos (P30,000.00), and twenty
thousand pesos (P20,000.00), respectively.
34 The total amount thus paid by petitioner
to private respondent and invested in
Embassy Farms, Inc. as of August 1985, or
in a span of a year from the time that they
executed the Memorandum of Agreement,
was three million one hundred ninety four
thousand nine hundred forty one and eighty
eight centavos (P3,194,941.88).
For his part, private respondent was
obligated under the Memorandum of
Agreement to "execute, sign and deliver any
and all documents" necessary for the
transfer and conveyance of several parcels
of land he owned but mortgaged with the
banks and financial institutions and to
"cede, transfer and convey in a manner
absolute and irrevocable any and all of his
shares of stocks in Embassy Farms, Inc." as
well as "cause to be transferred to petitioner
or his nominee such shares of stock until
they constitute 90% of the paid-in equity of
said corporation" 35. By December 1985,
however, more than a year after the signing
of the Memorandum of Agreement, the
landholdings of private respondent which
were mortgaged to Paluwagan ng Bayan
Savings and Loan Association, PAIC
Savings and Mortgage Bank and Mercator
Finance Corporation still remained titled in
his name. Neither did he inform said
mortgagees of the transfer of his lands. As
to the shares of stock, it was incumbent
upon private respondent to endorse and
deliver them to petitioner so he could also
have them transferred in his name, but
private respondent never did. He refused to
honor
his
obligations
under
the
Memorandum of Agreement and even
countered with a demand letter of his own.
He accused petitioner of having failed to
restructure his loans with Paluwagan ng
Bayan Savings and Loan Association, PAIC
Savings Mortgage Bank and Mercator
Finance Corporation and blamed him for the
foreclosure of his landholdings, including
the piggery site of Embassy Farms, Inc.

Mercator Finance Corporation amounting in

the aggregate to P5,998,955.65. In addition
[petitioner] also failed to comply with his
obligations under paragraph 12 and 18 of
the Agreement . . . .
xxxxxx

xxx

The Memorandum of Agreement is

essentially a contract of sale where [private
respondent] agreed to sell his nineteen
parcels of land and his shares in Embassy
Farms, in consideration, among others, of
the assumption by [petitioner] of [private
respondent's] loans with three financial
institutions. As a matter of law and practice,
it is incumbent upon the vendee to first
comply with his obligations under the
contract of sale before he can demand
performance by the vendor. In a contract of
sale, the vendor is not required to deliver
the thing sold until the price is paid . . . .
Consequently, since [petitioner], at the time
of the commencement of the action, had
admittedly not complied with his obligations
under the Agreement, he had no right to
demand compliance on the part of [private
respondent] with the latter's obligations or to
ask rescission with damages. If there is
anybody who has the right to seek
rescission and ask for damages, it is
certainly [private respondent] the injured
party who in fact has opted for
rescission. Accordingly, the Court holds that
[private respondent] is entitled to rescission
of the Agreement.
xxxxxx

Since it was [petitioner] who failed to

perform his obligations as vendee under the
Agreement and there is no showing that
[private respondent] refused or was not in a
position to comply with is own undertakings,
the latter is entitled to recover damages.
The
evidence
shows
that
[private
respondent] actually formally demanded
compliance by [petitioner] with his
obligations in a letter dated January 31,
1986. 37 [Emphasis ours.]
The dispositive portion of the foregoing
decision reads as follows:
WHEREFORE, this Court hereby declares
the Memorandum of Agreement dated 2
August 1984 rescinded and of no further
force and effect.
This Court likewise orders the payment by
the plaintiff to the defendant of the following:

On July 1, 1994, the trial court rendered

judgment in favor of private respondent. It
ruled:

(1) P32,644,420.55
as
actual
or
compensatory damages arising from the
rescission of the Memorandum of
Agreement with legal rate of interest at 6%
per annum until fully paid;

Based upon the pleadings and the

evidence, it is clear that [petitioner] failed to
comply with his undertaking under
paragraph 5 of the Memorandum of
Agreement to assume all of the obligations
of [private respondent] with the PAIC Bank,
the Paluwagan Savings Bank and the

However, unknown to petitioner, Atty. Comia

died while the case was still pending in the
trial court.
On August 25, 1994, private respondent
filed in the trial court a Notice of Death of
petitioner's counsel, with a request that a
copy of its decision be personally served on
petitioner.
On August 31, 1994, the trial court issued
an Order stating that the registry receipt
evidencing the mailing of a copy of its
decision to petitioner did not bear any date.
It nonetheless denied the motion of private
respondent for personal service of a copy of
its decision on petitioner.
On September 12, 1994, private respondent
filed by registered mail a Motion for
Execution.
On September 28, 1994, the trial court
granted said motion.
On October 3, 1994, private respondent
filed an Ex Parte Motion for Appointment of
Special Sheriff. Accordingly, Deputy Sheriff
Solminio de las Armas was appointed by the
trial court.
On October 6, 1994, the trial court issued a
writ of execution against petitioner.

xxx

On April 10, 1986, petitioner filed in the

Regional Trial Court a complaint for
recission of the Memorandum of Agreement
with a prayer for damages. 36

The principal issue in this case is whether it

is [petitioner] or [private respondent] who
reneged on their obligations under the
Memorandum of Agreement.

On July 12, 1994, a copy of the decision of

the trial court was sent by registered mail to
petitioner's counsel of record, Atty. Romeo
Z. Comia.

(2) P887,300.00 for the repayment of the

loan granted by the defendant to the
plaintiff, with interest at the stipulated rate of
36% per annum until fully paid; and
(3) P100,000.00 as attorney's fees.
No pronouncement as to costs.
SO ORDERED. 38

Page 73 of 109

October 20, 1994, petitioner filed in the trial

court a Notice of Appeal, Substitution of
Counsel, and an Urgent Motion to Recall
the Order of Execution and Quash the Writ
of Execution.
On October 28, 1994, the trial court issued
an Order suspending the execution of its
decision.
On November 9, 1994, the trial court issued
an
Order
stopping
the
execution
proceedings and approving petitioner's
appeal.
Both petitioner and private respondent
repaired to the Court of Appeals. Petitioner
prayed for the reversal of the decision of the
trial court while private respondent assailed
the last two orders of the trial court dated
October 28 and November 9, 1994.
On February 2, 1998, respondent Court of
Appeals affirmed the decision of the trial
court and ordered its immediate execution.
The orders dated October 28 and
November 9, 1994 halting execution
proceedings were nullified. The respondent
Court of Appeals held, first, as concerns the
undated registry receipt:
The rule that if no date appears in the
registry receipt there is no period within
which
to
reckon
the
fifteen-day
reglementary period to appeal is however
subject to waiver. The motion for a writ of
execution and the corresponding order for
the enforcement of the writ of execution
were duly served upon [petitioner] yet he
failed to question the irregularity before filing
a notice of appeal. 39

and second, as concerns the nature of the

Memorandum of Agreement:
[Petitioner] contended that the MOA is
actually a joint venture agreement.

counsel. Indeed, it was private respondent

who notified the trial court of the death of
petitioner's counsel and who requested that
a copy of the decision be served personally
to petitioner. His request was, however,
denied.

documents
of
conveyance
for
the
mortgaged parcels of land and to deliver the
certificates of stock in Embassy Farms in
favor of petitioner. He stated on the witness
stand, thus:
ATTY. MECIAS:

xxxxxx

xxx

The element that there be mutual right of

control is wanting in the MOA entered into
between
[petitioner]
and
[private
respondent]. Under Condition No. 9, [private
respondent] shall transfer the effective
control, amounting to ownership of the
Embassy Farms, Inc. to [petitioner]. The
creation of a new company by [petitioner]
under Conditions No. 12 and 15 wherein
[private respondent] was to be appointed as
President and Chief Executive does not
partake of the nature of joint venture by
[petitioner] as the absolute owner and
[private respondent] who is to be
remunerated only in terms of salaries and
profit sharing, the later being a usual fringe
benefit in private associations.
Instead, the MOA is akin to a contract of
sale as correctly held by the trial court . . ..
xxxxxx

xxx 40

On February 2, 1998, petitioner filed a

Motion for Reconsideration of the foregoing
decision.
On March 17, 1998, private respondent filed
an Opposition thereto with an Ex-parte
Motion for Issuance of a Writ of Attachment.
On April 17, 1998, respondent Court of
Appeals issued a Resolution 41 denying
petitioner's Motion for Reconsideration and
noting private respondent's Ex-Parte Motion
for Issuance of a Writ of Attachment.
Hence this petition raising the following
issues:
1. WHETHER OR NOT THE JULY 1, 1994
DECISION OF THE REGIONAL TRIAL
COURT WAS ALREADY FINAL AND
EXECUTORY WHEN ASUNCION FILED
HIS NOTICE OF APPEAL.
2. WHETHER
OR
NOT
THE
MEMORANDUM
OF
AGREEMENT
EXECUTED BETWEEN ASUNCION AND
EVANGELISTA WAS IN THE NATURE OF A
CONTRACT OF SALE OR A JOINT
VENTURE.
3. WHETHER IT WAS ASUNCION OR
EVANGELISTA WHO FIRST RENEGED OR
FAILED
TO
COMPLY
WITH
HIS
CORRESPONDING
OBLIGATIONS
UNDER
THE
MEMORANDUM
OF
AGREEMENT. 42
The petition is meritorious.
One.
The respondent Court of
Appeals erred in holding that the decision of
the trial court dated July 1, 1994 had
become final and executory. It is established
that petitioner was not aware of his
counsel's death while the case was pending
in the trial court. He could not have known,
therefore, that a copy of the trial court's
decision was sent by registered mail to his

While petitioner was furnished a copy of the

decision by mail, the registry receipt
evidencing its date of mailing did not bear a
date. There was, therefore, no date from
which to reckon the reglementary period to
appeal. That petitioner received a copy of
the motion and order for writ of execution
should not be taken as a waiver of his right
to appeal. Not only is petitioner a nonlawyer who could not be expected to know
the legal consequences of the motion and
the order, but the case is of such merit that
it deserves a liberal interpretation of the
rules in the interest of justice.

Q Now, there is also a mention of nineteen

(19) parcels of land as being owned by you
as situated in Don Marigato, Marilao,
Bulacan and do you know where are the
certificates of title over these parcels of
land?
WITNESS:
A This certificate of title mentioned these
are all in the possession of PAEC Bank and
MERCATOR Finance Corporation.
ATTY. MECIAS:

Two. The respondent Court of Appeals ruled

that the Memorandum of Agreement was a
contract of sale whereby private respondent
sold his piggery, Embassy Farms, Inc., with
the land on which it stood and his shares of
stock therein, in consideration of the
monetary equivalent of his aggregate debt
obligations to be assumed and paid by
petitioner. It found that petitioner failed to
assume private respondent's loans with
Paluwagan ng Bayan Savings & Loan
Association, PAIC Savings & Mortgage
Bank and Mercator Finance Corporation.
Consequently,
rescission
of
the
Memorandum of Agreement was ordered
and private respondent was awarded more
than
thirty
two
million
pesos
(P32,000,000.00)
in
compensatory
damages, which included the alleged
proceeds from the sale of hogs during the
period of time that private respondent was
replaced as president and chief executive
officer as well as the value of his
landholdings
which
were
foreclosed
because of his failure to pay his debt
obligations with the said banks.
After a meticulous perusal of the
voluminous records of this case, we hold
that the respondent Court of Appeals
grossly misappreciated the facts and the
applicable law. Under the Memorandum of
Agreement, it was the obligation of private
respondent to cede and convey, in a
manner absolute and irrevocable, his real
properties and stockholdings in the farm in
favor of petitioner in exchange for, among
others, the outright payment by petitioner of
a lump sum, the continuous operation of the
piggery at his the expense and the
assumption by petitioner of all the financial
obligations of private respondent upon their
restructuring. The records show that while
petitioner paid private respondent the
stipulated lump sum and gave more money
for the restructing of private respondent's
loans and for the continued operation of
Embassy Farms, Inc., private respondent
never executed a deed of sale with
assumption
of
mortgage
over
his
landholdings, and although he endorsed in
blank his certificates of stock, he never
delivered them to petitioner to effectuate
their valid transfer.
Private respondent admitted in open court
that he refused to comply with his twin
obligations to execute the necessary

Page 74 of 109

Q Were there any titles given or delivered

to Paluwagan Savings Bank?
A There was one (1), but when I was about
to pay the loan they were returned to me.
Q In paragraph 1 of Exhibit "C" you
undertook to cede, transfer and convey to
Asuncion, the plaintiff the execution of said
parcels
of
property
together
with
improvements in connection with such
transfer you undertook to execute, sign and
deliver the whole document appropriate on
the same in favor of the plaintiff Asuncion or
his nominees. Did you actually execute and
sign, deliver that document as mentioned
here?
A May I have an [sic] specific document.
What kind of document?
Q Appropriate conveyance of sale?
A The only document I know which
mention (sic) here is the memorandum of
agreement which we sign together with the
plaintiff.
ATTY. MECIAS:
Q I am referring to the document which you
have to execute in favor of Alexander G.
Asuncion to cede, transfer and convey
those property. Did you execute the
document?
WITNESS:
A I did not.
Q What was your reason for not executing
those documents?
A I did hold on to convey those documents
particularly the stock certificate because I
was waiting for the plaintiff Asuncion to
comply with his obligation to assume all my
loan with the three (3) financial institutions.
43
It is specious for private respondent to
justify his refusal to execute the deed of
conveyance on the alleged petitioner's
failure to assume his loans with the three
financial institutions. It is an established fact
that petitioner made, in behalf of private
respondent, loan payments in the amount of

four hundred thousand pesos (P400,000.00)

to Paluwagan ng Bayan Savings and Loan
Association, one hundred thousand pesos
(P100,000.00)
to
Mercator
Finance
Corporation and three hundred thousand
pesos (P300,000.00) to PAIC Savings &
Mortgage Bank. These payments, which
were made in addition to outright sums of
money given by petitioner to private
respondent and to the farm for its operation,
prove petitioner's willingness and readiness
to assume private respondent's obligations.
It is true that petitioner stopped making
further loan payments to the banks, causing
them to foreclose private respondent's
mortgaged properties. He could hardly,
however, be faulted for stopping his further
exposure,
considering
that
private
respondent has reneged with his obligation
to cede his lands and his shareholdings.
Private respondent is clearly obliged under
the Memorandum of Agreement to execute
the deed of conveyance with assumption of
mortgage in favor of petitioner. Had such
deed been executed, the interests of both
petitioner and private respondent would
have been simultaneously secured, the
former, as regards his ownership rights over
the subject lands sold to him, and the latter,
as regards the substitution, in his place, of
petitioner as the new debtor in his loan
obligations with Paluwagan ng Bayan
Savings and Loan Association, PAIC
Savings and Mortgage Bank and Mercator
Finance Corporation. Private respondent,
however, failed and refused, despite
demands, to execute this legal document. It
follows that petitioner could not be faulted
when he desisted from further paying
private respondent's debts.
It strikes us as strange that the respondent
court failed to appreciate these facts which
were
established
by
overwhelming
evidence. The very evidence of the private
respondent showed that petitioner did make
the payments for the restructuring of the
former's debts. In light of these payments,
private respondent errs in insisting that
petitioner cannot be said to have assumed
his loan obligations because petitioner
never executed a formal assumption of
mortgage. It is private respondent's
obligation under the Memorandum of
Agreement to execute a deed of sale with
assumption of mortgage, and he cannot
insist that it was petitioner's obligation to
execute a formal assumption of mortgage
independent of and distinct from the deed of
sale. Under private respondent's inequitous
thesis, petitioner would have shelled out
millions of pesos to pay his loans and save
his lands from foreclosure, only to leave him
with
nothing
in
exchange
therefor.1wphi1.nt
Three. The impugned Decision rests on the
conclusion that the parties' Memorandum of
Agreement is a contract of sale where a
price certain is paid in exchange for a
determinate thing that is sold and delivered.
An examination of the Memorandum of
Agreement, however, will show that it
constitutes not a mere isolated, simple,
short-term business deal calling for the
outright sale and purchase of land and
shares of stocks belonging to private
respondent, but a set of chronological,

reciprocal and conditional obligations that

both petitioner and private respondent must
faithfully comply with to ensure the full
enforcement of all its stipulations.
The Memorandum of Agreement does not
merely stipulate that petitioner has
purchased
private
respondent's
landholdings and shares of stock in
Embassy Farms, Inc. for the price
equivalent to private respondent's total
outstanding loans which petitioner shall
assume. The Memorandum of Agreement
spells out a much more complicated, longterm business arrangement involving the
transfer of Embassy Farms, Inc. to
petitioner, the restructuring of private
respondent's loans, the financing by
petitioner of the continued operations of the
piggery, the organization of a new
corporation to replace Embassy Farms, Inc.
as well as an agribusiness management
company, all at the expense of petitioner,
and the payment of specified compensation
packages to certain officers of Embassy
Farms, Inc. In fine, petitioner and private
respondent entered into what the law
regards as reciprocal obligations. Of such
specie of legal contracts, Tolentino says:
. . . Reciprocity arises from identity of cause,
and necessarily the two obligations are
created at the same time.
Reciprocal obligations, therefore, 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. 44
Art. 1191 of the Civil Code governs the
situation where there is non-compliance by
one party in case of reciprocal obligations. It
provides:
The power to rescind the 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 2388 and the Mortgage
Law.
The effect of rescission is also provided in
the Civil Code in Article 1385:

rescission can return whatever he may be

obligated 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 persons causing the
loss.
Private respondent admitted in open court
that petitioner paid him the initial sum of one
million pesos (P1,000,000.00) upon the
signing of the Memorandum of Agreement
as well as various sums of money as fees
for the restructuring of his loans. Thereupon,
private respondent was obligated to execute
a deed of sale with assumption of mortgage,
both in compliance with the Memorandum of
Agreement and to ensure the legal efficacy
of petitioner's promise to assume his loan
obligations.
We find that private respondent failed to
perform his substantial obligations under the
Memorandum of Agreement. Hence,
petitioner sought the rescission of the
Memorandum of Agreement and ceased
infusing capital into the piggery business of
private respondent. Private respondent later
justified his refusal to execute any deed of
sale and deliver the certificates of stock by
accusing petitioner of having failed to
assume his debts. We hold that private
respondent's insistence that petitioner
execute a formal assumption of mortgage
independent and separate from his own
execution of a deed of sale is legally
untenable, considering that a recorded real
estate mortgage is a lien inseparable from
the
property
mortgaged
and
until
discharged, if follows the property. 45 In his
testimony, private respondent stated that he
would be committing economic suicide if he
execute a deed of sale because he would
then be transferring his lands to petitioner
without the latter first assuming his loan
obligations. This posturing is puerile. Even
without a formal assumption of mortgage,
the mortgage follows the property whoever
the possessor may be. It is an elementary
principle in civil law that a real mortgage
subsists notwithstanding changes of
ownership and all subsequent purchases of
the property must respect the mortgage,
whether the transfer to them be with or
without the consent of the mortgagee. 46
Four. Prescinding from these premises, we
hold that the award of thirty two million six
hundred forty-four thousand four hundred
twenty pesos and fifty five centavos
(P32,644,420.55) in damages to private
respondent is totally baseless. The trial
court and the respondent court computed
the award in the following manner:
. . . [T]his Court finds that [private
respondent] is entitled to the following
actual damages:
I. LAND

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

Page 75 of 109

Value of Land
Mortgaged to and

Foreclosed
P2,726,100.00

by

Mercator

Less: Mortgage
as of 8/2/84 1,846,012.96

P880,087.04

Value of Land
Mortgaged to and
Foreclosed by PAIC 6,736,180.00
Less: Mortgage
as of 8/2/84 2,758,968.49
P3,977,211.04
II. STOCKS AND FACILITIES
Livestock

P2,889,998.00

Feedmill
Machinery 70,000.00
Feed Ingredients

144,941.88

Less: Payments
made

103,941.88

41,000.00

Feed Mixer 2,128.00

Drugs Inventory

The circumstances of this case indicate that

[petitioner] acted in a wanton, fraudulent,
reckless or malevolent manner within the
purview of Article 2232 of the Civil Code.
Despite the fact that [petitioner] had not
performed his obligations as a vendee, he
pre-empted [private respondent] by filing
this action for rescission, ousted [private
respondent] as a director of Embassy
Farms, Inc., transferred the shares of
[private respondent] to himself and his
nominees, and assumed full control and
management of Embassy Farms, Inc. until
he was enjoined by Court in an order issued
by then Presiding Judge Zenaida Baltazar
dated July 30, 1987. Considering the bad
faith and malevolence shown by [petitioner]
in his conduct towards [private respondent]
in the performance of his obligations under
the Memorandum of Agreement, this Court,
by way of example and correction for the
public good, holds that [private respondent]
is entitled to exemplary damages in the
amount of P500,000.00.
This Court likewise finds that [private
respondent] is entitled to attorney's fees and
expenses of litigation. Considering the
complexity and difficulty of this case and the
protracted proceedings, this Court awards
attorney's fees and expenses of litigation in
the amount of P350,000.00, 47 summarized
in the following dispositive portion:

35,258.00

III. EARNINGS OF
EMBASSY FARMS 27,748,738.00

WHEREFORE, this Court hereby declares

the Memorandum of Agreement dated 2
August 1984 rescinded and of no further
force and effect.
This Court likewise orders the payment by
the plaintiff to the defendant of the following:

P35,644,420.55
From the aforesaid aggregate amount of
P35,644,420.55 should be deducted the
payments made by [petitioner] totaling
P3,000,000.00. Thus, the net effect is that
[private respondent] is entitled to the
amount of P32,644,420.55, with interest at
the legal rate of 6% until fully paid.
In addition, [private respondent] is entitled to
be paid the amount of P500,000.00 which
he granted as a loan to [petitioner] outside
of the Memorandum of Agreement. What is
due to [private respondent] after deducting
the payments made by [petitioner] and
adding the interest is as follows:
Loan of [private respondent]
to [petitioner]

P500,000.00

Less: Payments made

P230,000.00

270,000.00

Add: Stipulated interest

(36% p.a. up to 1/31/93

540,000.00

Add: Stipulated interest

up to 6/30/94
657,300.00

P887,300.00

117,300.00

(1) P32,644,420.55
as
actual
or
compensatory damages arising from the
rescission of the Memorandum of
Agreement with legal rate of interest at 6%
per annum until fully paid;
(2) P887,300.00 for the repayment of the
loan granted by the defendant to the
plaintiff, with interest at the stipulated rate of
36% per annum until fully paid; and
(3) P100,000.00 as attorney's fees.
No pronouncement as to costs.
SO ORDERED. 48
We, therefore, strike down the foregoing
award of actual or compensatory damages
and attorney's fees.
Petitioner was further ordered to pay twenty
seven million seven hundred forty-eight
thousand seven hundred thirty eight pesos
(P27,718,738.00) representing earnings of
Embassy Farms, Inc. as additional
compensatory damages. The only piece of
evidence supporting the award is private
respondent's Exh. "29" 49 which was signed
as certified correct by no one else but
private respondent. It bore no reference to
any receipt, voucher or any other document
signed by petitioner or anyone in his behalf,
and it even states that it was Vicky
Gregorio, not private respondent, who was
present during the alleged sales of hogs at
the piggery. Exh. "29" was duly objected to

Page 76 of 109

and its contents vehemently denied by

petitioner but to no avail. This Court cannot
countenance the grant of such an unjustified
and unconscionable amount of damages on
the basis of nothing but a self-serving and
hearsay document. As we have ruled in the
case of Lufthansa German Airlines vs. CA,
et al.: 50
Actual or compensatory damages cannot be
presumed, but must be duly proved and
proved with reasonable degree of certainty.
A court cannot rely on speculations,
conjectures or guesswork as to the fact and
the amount of damages, but must depend
upon competent proof that they have (been)
suffered and on evidence of the actual
amount thereof.
Neither may this Court allow the grant of
damages corresponding to the value of the
land foreclosed by private respondent's
creditors upon the latter's failure to make his
loan payments. Private respondent, in his
amended counterclaim, prayed for the
rescission of the Memorandum
of
Agreement. In case of rescission, while
damages may be assessed in favor of the
prejudiced party, only those kinds of
damages consistent with the remedy of
rescission may be granted, keeping in mind
that had the parties opted for specific
performance, other kinds of damages would
have been called for which are absolutely
distinct from those kinds of damages
accruing in the case of rescission. The
vintage but still sound teaching of the case
of Rios and Reyes v. Jacinto, Palma y
Hermanos, S.C., 51 a 1926 case, is
apropos:
. . . [A]n obligation may be resolved if one of
the obligors fails to comply with that which is
incumbent upon him; and it is declared that
the person prejudiced may elect between
exacting the fulfillment of the obligation
(specific performance) and its resolution,
with compensation for damage and
payment of interest in either case . . . . It will
be noted that he is not entitled to pursue
both of these inconsistent remedies; and
slight advertence to the logic of the situation
will teach us that, in estimating the damages
to be awarded in case of rescission, those
elements of damages only can be admitted
that are compatible with the idea of
rescission; and of course in estimating the
damages to be awarded in case the lessor
elects for specific performance only those
elements of damages can be admitted
which are compatible with the conception of
specific performance. It follows that
damages which would only be consistent
with the conception of specific performance
cannot be awarded in an action where
rescission is sought.
. . . Now it is an inseparable incident of
resolution or rescission that the parties are
bound to restore to each the thing which
has been the subject matter of the contract,
precisely as in the situation where a decree
of nullity is granted. In the common case of
the resolution of a contract of sale for failure
of the purchaser to pay the stipulated price,
the seller is entitled to be restored to the
possession of the thing sold, if it has already
been delivered. But he cannot have both the
thing sold and the price which was agreed
to be paid, for the resolution of the contract

has the effect of destroying the obligation to

pay the price. Similarly, in the case of the
resolution, or rescission of a contract of
lease, the lessor is entitled be restored to
the possession of the leased premises, but
he cannot have both the possession of the
leased premises for the remainder of the
term and the rent which the other party had
contracted to pay. The termination of the
lease has the effect of destroying the
obligation to pay rent for the future.
Compensatory damages consisting of the
value of private respondent's foreclosed
landholdings would have been proper in
case he resorted to remedy of specific
performance, not rescission. Since his
counterclaim prayed for the rescission of the
Memorandum of Agreement, it was grave
error on the part of the respondent court to
have enforced said agreement by ordering
petitioner to pay him the value of the
landholdings.
This Court holds, in fine, that the
Memorandum of Agreement entered into by
petitioner and private respondent should
indeed be rescinded. As aforediscussed, the
respondent appellate court erred in
assessing damages against petitioner for
his refusal to fully pay private respondent's
overdue loans. Such refusal was justified,
considering that private respondent was the
first to refuse to deliver to petitioner the
lands and certificates of stock that were the
consideration for the almost six million
pesos in debt that petitioner was to assume
and pay.
Five.
Nevertheless,
neither
is
petitioner entitled to recover the amount of
P3,194,941.88 that he spent as lump sum
payment, as feeds and veterinary costs for
the continued operation of the piggery and
as loan restructuring fees. Mutual restitution
is required in rescission, but this
presupposes that both parties may be
restored in their original situation. 52 In this
case, it cannot be gainsaid that an essential
part of the consideration of the amount of
P3,194,941.88 paid by the petitioner was
taking over the effective management of
Embassy Farms, Inc. Mutual restitution
would require, thus, that petitioner restore
private respondent in the effective
management of said corporation and that
private respondent return said amount to
petitioner. This, however, has been
rendered impossible by the foreclosure of
the landholdings of private respondent and
the shutdown of the piggery's operations.
Private respondent has lost in his venture,
and while he is not blameless for his
unfortunate fate, to still order him to remit a
considerable amount of money without
receiving anything in return would certainly
run counter to the essence of rescission as
a remedy in equity. 53
WHEREFORE, the instant petition for
review is hereby GRANTED. The Decision
of the Court of Appeals dated February 2,
1998 is REVERSED and SET ASIDE. The
Memorandum of Agreement entered into by
petitioner and private respondent on August
2,
1984
is
hereby
DECLARED
RESCINDED. No damages. No costs.
G.R. No. 194846

June 19, 2013

*HOSPICIO D. ROSAROSO, ANTONIO D.

ROSAROSO, MANUEL D. ROSAROSO,
ALGERICA D. ROSAROSO, and CLEOFE
R. LABINDAO, Petitioners,
vs.
LUCILA LABORTE SORIA, SPOUSES
HAM SOLUTAN and **LAILA SOLUTAN,
and MERIDIAN REALTY CORPORATION,
Respondents.
This is a petition for review on certiorari
under Rule 45 of the Rules of Court
assailing the December 4, 2009 Decision1
of the Court of Appeals (CA). in CA G.R. CV
No. 00351, which reversed and set aside
the July 30, 2004 Decision2 of the Regional
Trial Court, Branch 8, 7th Judicial Region,
Cebu City (RTC), in Civil Case No. CEB16957, an action for declaration of nullity of
documents.
The Facts
Spouses Luis Rosaroso (Luis) and
Honorata Duazo (Honorata) acquired
several real properties in Daan Bantayan,
Cebu City, including the subject properties.
The couple had nine (9) children namely:
Hospicio, Arturo, Florita, Lucila, Eduardo,
Manuel, Cleofe, Antonio, and Angelica. On
April 25, 1952, Honorata died. Later on, Luis
married
Lourdes
Pastor
Rosaroso
(Lourdes).
On January 16, 1995, a complaint for
Declaration of Nullity of Documents with
Damages was filed by Luis, as one of the
plaintiffs, against his daughter, Lucila R.
Soria (Lucila); Lucilas daughter, Laila S.
Solutan (Laila); and Meridian Realty
Corporation (Meridian). Due to Luis
untimely death, however, an amended
complaint was filed on January 6, 1996, with
the spouse of Laila, Ham Solutan (Ham);
and Luis second wife, Lourdes, included as
defendants.3
In the Amended Complaint, it was alleged
by petitioners Hospicio D. Rosaroso,
Antonio D. Rosaroso (Antonio), Angelica D.
Rosaroso (Angelica), and Cleofe R.
Labindao (petitioners) that on November 4,
1991, Luis, with the full knowledge and
consent of his second wife, Lourdes,
executed the Deed of Absolute Sale4 (First
Sale) covering the properties with Transfer
Certificate of Title (TCT) No. 31852 (Lot No.
8); TCT. No. 11155 (Lot 19); TCT No. 10885
(Lot No. 22); TCT No. 10886 (Lot No. 23);
and Lot Nos. 5665 and 7967, all located at
Daanbantayan, Cebu, in their favor.5
They also alleged that, despite the fact that
the said properties had already been sold to
them, respondent Laila, in conspiracy with
her mother, Lucila, obtained the Special
Power of Attorney (SPA),6 dated April 3,
1993, from Luis (First SPA); that Luis was
then sick, infirm, blind, and of unsound
mind; that Lucila and Laila accomplished
this by affixing Luis thumb mark on the SPA
which purportedly authorized Laila to sell
and convey, among others, Lot Nos. 8, 22
and 23, which had already been sold to
them; and that on the strength of another
SPA7 by Luis, dated July 21, 1993 (Second
SPA), respondents Laila and Ham
mortgaged Lot No. 19 to Vital Lending
Investors, Inc. for and in consideration of

Page 77 of 109

the amount of P150,000.00

concurrence of Lourdes.8

with

the

Petitioners further averred that a second

sale took place on August 23, 1994, when
the respondents made Luis sign the Deed of
Absolute Sale9 conveying to Meridian three
(3) parcels of residential land for
P960,500.00 (Second Sale); that Meridian
was in bad faith when it did not make any
inquiry as to who were the occupants and
owners of said lots; and that if Meridian had
only investigated, it would have been
informed as to the true status of the subject
properties and would have desisted in
pursuing their acquisition.
Petitioners, thus, prayed that they be
awarded moral damages, exemplary
damages, attorneys fees, actual damages,
and litigation expenses and that the two
SPAs and the deed of sale in favor of
Meridian be declared null and void ab
initio.10
On their part, respondents Lucila and Laila
contested the First Sale in favor of
petitioners. They submitted that even
assuming that it was valid, petitioners were
estopped from questioning the Second Sale
in favor of Meridian because they failed not
only in effecting the necessary transfer of
the title, but also in annotating their interests
on the titles of the questioned properties.
With respect to the assailed SPAs and the
deed of absolute sale executed by Luis,
they claimed that the documents were valid
because he was conscious and of sound
mind and body when he executed them. In
fact, it was Luis together with his wife who
received the check payment issued by
Meridian where a big part of it was used to
foot his hospital and medical expenses.11
Respondent Meridian, in its Answer with
Compulsory Counterclaim, averred that Luis
was fully aware of the conveyances he
made. In fact, Sophia Sanchez (Sanchez),
Vice-President of the corporation, personally
witnessed Luis affix his thumb mark on the
deed of sale in its favor. As to petitioners
contention that Meridian acted in bad faith
when it did not endeavor to make some
inquiries as to the status of the properties in
question,
it
countered
that
before
purchasing the properties, it checked the
titles of the said lots with the Register of
Deeds of Cebu and discovered therein that
the First Sale purportedly executed in favor
of the plaintiffs was not registered with the
said Register of Deeds. Finally, it argued
that the suit against it was filed in bad
faith.12
On her part, Lourdes posited that her
signature as well as that of Luis appearing
on the deed of sale in favor of petitioners,
was obtained through fraud, deceit and
trickery. She explained that they signed the
prepared deed out of pity because
petitioners told them that it was necessary
for a loan application. In fact, there was no
consideration involved in the First Sale.
With respect to the Second Sale, she never
encouraged the same and neither did she
participate in it. It was purely her husbands
own volition that the Second Sale
materialized. She, however, affirmed that
she received Meridians payment on behalf
of her husband who was then bedridden.13

RTC Ruling
After the case was submitted for decision,
the RTC ruled in favor of petitioners. It held
that when Luis executed the second deed of
sale in favor of Meridian, he was no longer
the owner of Lot Nos. 19, 22 and 23 as he
had already sold them to his children by his
first marriage. In fact, the subject properties
had already been delivered to the vendees
who had been living there since birth and so
had been in actual possession of the said
properties. The trial court stated that
although the deed of sale was not
registered, this fact was not prejudicial to
their interest. It was of the view that the
actual registration of the deed of sale was
not necessary to render a contract valid and
effective because where the vendor
delivered the possession of the parcel of
land to the vendee and no superior rights of
third persons had intervened, the efficacy of
said deed was not destroyed. In other
words, Luis lost his right to dispose of the
said properties to Meridian from the time he
executed the first deed of sale in favor of
petitioners. The same held true with his
alleged sale of Lot 8 to Lucila Soria.14
Specifically, the dispositive portion of the
RTC decision reads:
IN VIEW OF THE FOREGOING, the Court
finds that a preponderance of evidence
exists in favor of the plaintiffs and against
the defendants. Judgment is hereby
rendered:
a. Declaring that the Special Power of
Attorney, Exhibit "K," for the plaintiffs and
Exhibit "3" for the defendants null and void
including all transactions subsequent
thereto and all proceedings arising
therefrom;
b. Declaring the Deed of Sale marked as
Exhibit "E" valid and binding;
c. Declaring the Deed of Absolute Sale of
Three (3) Parcels of Residential Land
marked as Exhibit "F" null and void from the
beginning;
d. Declaring the Deed of Sale, Exhibit "16"
(Solutan) or Exhibit "FF," null and void from
the beginning;
e. Declaring the vendees named in the
Deed of Sale marked as Exhibit "E" to be
the lawful, exclusive and absolute owners
and possessors of Lots Nos. 8, 19, 22, and
23;
f. Ordering the defendants to pay jointly and
severally each plaintiff P50,000.00 as moral
damages; and
g. Ordering the defendants to pay plaintiffs
P50,000.00 as attorneys fees; and
P20,000.00 as litigation expenses.
The crossclaim made by defendant
Meridian
Realty Corporation
against
defendants Soria and Solutan is ordered
dismissed for lack of sufficient evidentiary
basis.
SO ORDERED."15

On appeal, the CA reversed and set aside

the RTC decision. The CA ruled that the first
deed of sale in favor of petitioners was void
because they failed to prove that they
indeed tendered a consideration for the four
(4) parcels of land. It relied on the testimony
of Lourdes that petitioners did not pay her
husband. The price or consideration for the
sale was simulated to make it appear that
payment had been tendered when in fact no
payment was made at all.16
With respect to the validity of the Second
Sale, the CA stated that it was valid
because the documents were notarized
and, as such, they enjoyed the presumption
of regularity. Although petitioners alleged
that Luis was manipulated into signing the
SPAs, the CA opined that evidence was
wanting in this regard. Dr. Arlene Letigio
Pesquira, the attending physician of Luis,
testified that while the latter was physically
infirmed, he was of sound mind when he
executed the first SPA.17

3. DECLARING the Deed of Absolute sale,

dated 04 November 1991, as ineffective and
without any force and effect;
4. DECLARING the Deed of Absolute Sale
of Three (3) Parcels of Residential Land,
dated 23 August 1994, valid and binding
from the very beginning;
5. DECLARING the Deed of Absolute Sale,
dated 27 September 1994, also valid and
binding from the very beginning;
6. ORDERING the substituted plaintiffs to
pay jointly and severally the defendantappellant Meridian Realty Corporation the
sum of Php100,000.00 as moral damages,
Php100,000.00 as attorneys fee and
Php100,000.00 as litigation expenses; and
7. ORDERING the substituted plaintiffs to
pay jointly and severally the defendantappellants Leila Solutan et al., the sum of
Php50,000.00 as moral damages.
SO ORDERED.21

With regard to petitioners assertion that the

First SPA was revoked by Luis when he
executed the affidavit, dated November 24,
1994, the CA ruled that the Second Sale
remained valid. The Second Sale was
transacted on August 23, 1994, before the
First SPA was revoked. In other words,
when the Second Sale was consummated,
the First SPA was still valid and subsisting.
Thus, "Meridian had all the reasons to rely
on the said SPA during the time of its
validity until the time of its actual filing with
the Register of Deeds considering that
constructive notice of the revocation of the
SPA only came into effect upon the filing of
the Adverse Claim and the aforementioned
Letters addressed to the Register of Deeds
on 17 December 1994 and 25 November
1994, respectively, informing the Register of
Deeds of the revocation of the first SPA."18
Moreover, the CA observed that the affidavit
revoking the first SPA was also revoked by
Luis on December 12, 1994.19
Furthermore, although Luis revoked the
First SPA, he did not revoke the Second
SPA which authorized respondent Laila to
sell, convey and mortgage, among others,
the property covered by TCT T-11155 (Lot
No. 19). The CA opined that had it been the
intention of Luis to discredit the
Second Sale, he should have revoked not
only the First SPA but also the Second SPA.
The latter being valid, all transactions
emanating from it, particularly the mortgage
of Lot 19, its subsequent redemption and its
second sale, were valid.20 Thus, the CA
disposed in this wise:
WHEREFORE, the appeal is hereby
GRANTED. The Decision dated 30 July
2004 is hereby REVERSED AND SET
ASIDE, and in its stead a new decision is
hereby rendered:
1. DECLARING the Special Power of
Attorney, dated 21 July 1993, as valid;
2. DECLARING the Special Power of
Attorney, dated 03 April 1993, as valid up to
the time of its revocation on 24 November
1994;

Ruling of the Court of Appeals

Page 78 of 109

Petitioners
filed
a
motion
for
reconsideration, but it was denied in the CA
Resolution,22 dated November 18, 2010.
Consequently, they filed the present petition
with the following ASSIGNMENT OF
ERRORS
I.
THE HONORABLE COURT OF APPEALS
(19TH DIVISION) GRAVELY ERRED
WHEN IT DECLARED AS VOID THE FIRST
SALE EXECUTED BY THE LATE LUIS
ROSAROSO IN FAVOR OF HIS CHILDREN
OF HIS FIRST MARRIAGE.
II.
THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN NOT SUSTAINING
AND AFFIRMING THE RULING OF THE
TRIAL
COURT
DECLARING
THE
MERIDIAN REALTY CORPORATION A
BUYER IN BAD FAITH, DESPITE THE
TRIAL COURTS FINDINGS THAT THE
DEED OF SALE (First Sale), IS GENUINE
AND HAD FULLY COMPLIED WITH ALL
THE LEGAL FORMALITIES.
III.
THE HONORABLE COURT OF APPEALS
FURTHER ERRED IN NOT HOLDING THE
SALE (DATED 27 SEPTEMBER 1994),
NULL AND VOID FROM THE VERY
BEGINNING SINCE LUIS ROSAROSO ON
NOVEMBER 4, 1991 WAS NO LONGER
THE OWNER OF LOTS 8, 19, 22 AND 23
AS HE HAD EARLIER DISPOSED SAID
LOTS IN FAVOR OF THE CHILDREN OF
HIS
(LUIS
ROSAROSO)
FIRST
MARRIAGE.23
Petitioners argue that the second deed of
sale was null and void because Luis could
not have validly transferred the ownership of
the subject properties to Meridian, he being
no longer the owner after selling them to his
children. No less than Atty. William Boco,
the lawyer who notarized the first deed of
sale, appeared and testified in court that the
said deed was the one he notarized and
that Luis and his second wife, Lourdes,

signed the same before him. He also

identified the signatures of the subscribing
witnesses.24 Thus, they invoke the finding
of the RTC which wrote:
In the case of Heirs of Joaquin Teves,
Ricardo Teves versus Court of Appeals, et
al., G.R. No. 109963, October 13, 1999, the
Supreme Court held that a public document
executed [with] all the legal formalities is
entitled to a presumption of truth as to the
recitals contained therein. In order to
overthrow a certificate of a notary public to
the effect that a grantor executed a certain
document and acknowledged the fact of its
execution before him, mere preponderance
of evidence will not suffice. Rather, the
evidence must (be) so clear, strong and
convincing as to exclude all reasonable
dispute as to the falsity of the certificate.
When the evidence is conflicting, the
certificate will be upheld x x x .
A notarial document is by law entitled to full
faith and credit upon its face. (Ramirez vs.
Ner, 21 SCRA 207). As such it must be
sustained in full force and effect so long as
he who impugns it shall not have presented
strong, complete and conclusive proof of its
falsity or nullity on account of some flaw or
defect provided against by law (Robinson
vs. Villafuerte, 18 Phil. 171, 189-190).25
Furthermore, petitioners aver that it was
erroneous for the CA to say that the records
of the case were bereft of evidence that
they paid the price of the lots sold to them.
In fact, a perusal of the records would
reveal that during the cross-examination of
Antonio Rosaroso, when asked if there was
a monetary consideration, he testified that
they indeed paid their father and their
payment helped him sustain his daily
needs.26
Petitioners also assert that Meridian was a
buyer in bad faith because when its
representative visited the site, she did not
make the necessary inquiries. The fact that
there were already houses on the said lots
should have put Meridian on its guard and,
for said reason, should have made inquiries
as to who owned those houses and what
their rights were over the same.27
Meridians assertion that the Second Sale
was registered in the Register of Deeds was
a falsity. The subject titles, namely: TCT No.
11155 for Lot 19, TCT No. 10885 for Lot 22,
and TCT No. 10886 for Lot 23 were free
from any annotation of the alleged sale.28
After an assiduous assessment of the
records, the Court finds for the petitioners.
The First Deed Of Sale Was Valid
The fact that the first deed of sale was
executed, conveying the subject properties
in favor of petitioners, was never contested
by the respondents. What they vehemently
insist, though, is that the said sale was
simulated because the purported sale was
made without a valid consideration.
Under Section 3, Rule 131 of the Rules of
Court, the following are disputable
presumptions: (1) private transactions have
been fair and regular; (2) the ordinary
course of business has been followed; and

(3) there was sufficient consideration for a

contract.29 These presumptions operate
against an adversary who has not
introduced proof to rebut them. They create
the necessity of presenting evidence to
rebut the prima facie case they created, and
which, if no proof to the contrary is
presented and offered, will prevail. The
burden of proof remains where it is but, by
the presumption, the one who has that
burden is relieved for the time being from
introducing evidence in support of the
averment, because the presumption stands
in the place of evidence unless rebutted.30
In this case, the respondents failed to
trounce the said presumption. Aside from
their bare allegation that the sale was made
without a consideration, they failed to supply
clear and convincing evidence to back up
this claim. It is elementary in procedural law
that bare allegations, unsubstantiated by
evidence, are not equivalent to proof under
the Rules of Court.31
The CA decision ran counter to this
established rule regarding disputable
presumption. It relied heavily on the account
of Lourdes who testified that the children of
Luis approached him and convinced him to
sign the deed of sale, explaining that it was
necessary for a loan application, but they
did not pay the purchase price for the
subject properties.32 This testimony,
however, is self-serving and would not
amount to a clear and convincing evidence
required by law to dispute the said
presumption. As such, the presumption that
there was sufficient consideration will not be
disturbed.
Granting that there was no delivery of the
consideration, the seller would have no right
to sell again what he no longer owned. His
remedy would be to rescind the sale for
failure on the part of the buyer to perform
his part of their obligation pursuant to Article
1191 of the New Civil Code. In the case of
Clara M. Balatbat v. Court Of Appeals and
Spouses Jose Repuyan and Aurora
Repuyan,33 it was written:
The failure of the buyer to make good the
price does not, in law, cause the ownership
to revest to the seller unless the bilateral
contract of sale is first rescinded or resolved
pursuant to Article 1191 of the New Civil
Code. Non-payment only creates a right to
demand the fulfillment of the obligation or to
rescind the contract. [Emphases supplied]
Meridian is Not a
Buyer in Good Faith
Respondents Meridian and Lucila argue
that, granting that the First Sale was valid,
the properties belong to them as they
acquired these in good faith and had them
first recorded in the Registry of Property, as
they were unaware of the First Sale.34

ownership shall be transferred to the person

who may have first possession thereof in
good faith, if it should be movable property.
Should it be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in the Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in possession; and, in
the absence thereof; to the person who
presents the oldest title, provided there is
good faith.
Otherwise stated, ownership of an
immovable property which is the subject of
a double sale shall be transferred: (1) to the
person acquiring it who in good faith first
recorded it in the Registry of Property; (2) in
default thereof, to the person who in good
faith was first in possession; and (3) in
default thereof, to the person who presents
the oldest title, provided there is good faith.
The requirement of the law then is two-fold:
acquisition in good faith and registration in
good faith. Good faith must concur with the
registration. If it would be shown that a
buyer was in bad faith, the alleged
registration they have made amounted to no
registration at all.
The principle of primus tempore, potior jure
(first in time, stronger in right) gains greater
significance in case of a double sale of
immovable property. When the thing sold
twice is an immovable, the one who
acquires it and first records it in the Registry
of Property, both made in good faith, shall
be deemed the owner. Verily, the act of
registration must be coupled with good faith
that is, the registrant must have no
knowledge of the defect or lack of title of his
vendor or must not have been aware of
facts which should have put him upon such
inquiry and investigation as might be
necessary to acquaint him with the defects
in the title of his vendor.)35 [Emphases and
underlining supplied]
When a piece of land is in the actual
possession of persons other than the seller,
the buyer must be wary and should
investigate the rights of those in possession.
Without making such inquiry, one cannot
claim that he is a buyer in good faith. When
a man proposes to buy or deal with realty,
his duty is to read the public manuscript,
that is, to look and see who is there upon it
and what his rights are. A want of caution
and diligence, which an honest man of
ordinary prudence is accustomed to
exercise in making purchases, is in
contemplation of law, a want of good faith.
The buyer who has failed to know or
discover that the land sold to him is in
adverse possession of another is a buyer in
bad faith.36 In the case of Spouses
Sarmiento v. Court of Appeals,37 it was
written:

Again, the Court is not persuaded.

The fact that Meridian had them first
registered will not help its cause. In case of
double sale, Article 1544 of the Civil Code
provides:
ART. 1544. If the same thing should have
been sold to different vendees, the

Page 79 of 109

Verily, every person dealing with registered

land may safely rely on the correctness of
the certificate of title issued therefor and the
law will in no way oblige him to go behind
the certificate to determine the condition of
the property. Thus, the general rule is that a
purchaser may be considered a purchaser
in good faith when he has examined the

latest certificate of title. An exception to this

rule is when there exist important facts that
would create suspicion in an otherwise
reasonable man to go beyond the present
title and to investigate those that preceded
it. Thus, it has been said that a person who
deliberately ignores a significant fact which
would create suspicion in an otherwise
reasonable man is not an innocent
purchaser for value. A purchaser cannot
close his eyes to facts which should put a
reasonable man upon his guard, and then
claim that he acted in good faith under the
belief that there was no defect in the title of
the vendor. As we have held:
The failure of appellees to take the ordinary
precautions which a prudent man would
have taken under the circumstances,
specially in buying a piece of land in the
actual, visible and public possession of
another person, other than the vendor,
constitutes gross negligence amounting to
bad faith.
In this connection, it has been held that
where, as in this case, the land sold is in the
possession of a person other than the
vendor, the purchaser is required to go
beyond the certificate of title to make
inquiries concerning the rights of the actual
possessor. Failure to do so would make him
a purchaser in bad faith. (Citations omitted).
One who purchases real property which is
in the actual possession of another should,
at least make some inquiry concerning the
right of those in possession. The actual
possession by other than the vendor should,
at least put the purchaser upon inquiry. He
can scarely, in the absence of such inquiry,
be regarded as a bona fide purchaser as
against such possessors. (Emphases
supplied)
Prescinding from the foregoing, the fact that
private respondent RRC did not investigate
the Sarmiento spouses' claim over the
subject land despite its knowledge that
Pedro Ogsiner, as their overseer, was in
actual possession thereof means that it was
not an innocent purchaser for value upon
said land. Article 524 of the Civil Code
directs that possession may be exercised in
one's name or in that of another. In herein
case, Pedro Ogsiner had informed RRC that
he was occupying the subject land on behalf
of the Sarmiento spouses. Being a
corporation engaged in the business of
buying and selling real estate, it was gross
negligence on its part to merely rely on Mr.
Puzon's assurance that the occupants of the
property were mere squatters considering
the invaluable information it acquired from
Pedro Ogsiner and considering further that
it had the means and the opportunity to
investigate for itself the accuracy of such
information. [Emphases supplied]
In another case, it was held that if a vendee
in a double sale registers the sale after he
has acquired knowledge of a previous sale,
the registration constitutes a registration in
bad faith and does not confer upon him any
right. If the registration is done in bad faith,
it is as if there is no registration at all, and
the buyer who has first taken possession of
the property in good faith shall be
preferred.38

In the case at bench, the fact that the

subject properties were already in the
possession of persons other than Luis was
never disputed. Sanchez, representative
and witness for Meridian, even testified as
follows:
x x x; that she together with the two agents,
defendant Laila Solutan and Corazon Lua,
the
president
of
Meridian
Realty
Corporation, went immediately to site of the
lots; that the agents brought with them the
three titles of the lots and Laila Solutan
brought with her a special power of attorney
executed by Luis B. Rosaroso in her favor
but she went instead directly to Luis
Rosaroso to be sure; that the lots were
pointed to them and she saw that there
were houses on it but she did not have any
interest of the houses because her interest
was on the lots; that Luis Rosaroso said that
the houses belonged to him; that he owns
the property and that he will sell the same
because he is very sickly and he wanted to
buy medicines; that she requested someone
to check the records of the lots in the
Register of Deeds; that one of the titles was
mortgaged and she told them to redeem the
mortgage because the corporation will buy
the property; that the registered owner of
the lots was Luis Rosaroso; that in more or
less three months, the encumbrance was
cancelled and she told the prospective
sellers to prepare the deed of sale; that
there were no encumbrances or liens in the
title; that when the deed of absolute sale
was prepared it was signed by the vendor
Luis Rosaroso in their house in Opra x x
x.39 (Underscoring supplied)
From the above testimony, it is clear that
Meridian, through its agent, knew that the
subject properties were in possession of
persons other than the seller. Instead of
investigating the rights and interests of the
persons occupying the said lots, however, it
chose to just believe that Luis still owned
them. Simply, Meridian Realty failed to
exercise the due diligence required by law
of purchasers in acquiring a piece of land in
the possession of person or persons other
than the seller.
In this regard, great weight is accorded to
the findings of fact of the RTC. Basic is the
rule that the trial court is in a better position
to examine real evidence as well as to
observe the demeanor of witnesses who
testify in the case.40
WHEREFORE, the petition is GRANTED.
The December 4, 2009 Decision and the
November 18, 201 0 Resolution of the Court
of Appeals, in CA-G.R. CV No. 00351, are
REVERSED and SET ASIDE. The July 30,
2004 Decision of the Regional Trial Court,
Branch 8, 7th Judicial Region, Cebu City, in
Civil Case No. CEB-16957, is hereby
REINSTATED.
G.R. No. 202079

June 10, 2013

FIL-ESTATE GOLF AND DEVELOPMENT,

INC. and FILESTATE LAND, INC.,
Petitioners,
vs.
VERTEX SALES AND TRADING, INC.,
Respondent.

Page 80 of 109

Before the Court is the petition for review on

certiorari1 under Rule 45 of the Rules of
Court, filed by petitioners Fil-Estate Golf and
Development, Inc. (FEGDI) and Fil-Estate
Land, Inc. (FELl), assailing the decision2
dated February 22, 2012 and the
resolution3 dated May 31, 2012 of the Court
of Appeals (CA) in CA-G.R. CV No. 89296.
The assailed CA rulings reversed the
decision dated March 1, 2007 of the
Regional Trial Court (RTC) of Pasig City,
Branch 161, in Civil Case No. 68791.4
FEGDI is a stock corporation whose primary
business is the development of golf
courses. FELI is also a stock corporation,
but is engaged in real estate development.
FEGDI was the developer of the Forest Hills
Golf and Country Club (Forest Hills) and, in
consideration for its financing support and
construction efforts, was issued several
shares of stock of Forest Hills.
Sometime in August 1997, FEGDI sold, on
installment, to RS Asuncion Construction
Corporation (RSACC) one Class "C"
Common Share of Forest Hills for
P1,100,000.00. Prior to the full payment of
the purchase price, RSACC sold, on
February 11, 1999,5 the Class "C" Common
Share to respondent Vertex Sales and
Trading, Inc. (Vertex). RSACC advised
FEGDI of the sale to Vertex and FEGDI, in
turn, instructed Forest Hills to recognize
Vertex as a shareholder. For this reason,
Vertex enjoyed membership privileges in
Forest Hills.
Despite Vertexs full payment, the share
remained in the name of FEGDI. Seventeen
(17) months after the sale (or on July 28,
2000), Vertex wrote FEDGI a letter
demanding the issuance of a stock
certificate in its name. FELI replied, initially
requested Vertex to first pay the necessary
fees for the transfer. Although Vertex
complied with the request, no certificate was
issued. This prompted Vertex to make a
final demand on March 17, 2001. As the
demand went unheeded, Vertex filed on
January 7, 2002 a Complaint for Rescission
with Damages and Attachment against
FEGDI, FELI and Forest Hills. It averred
that the petitioners defaulted in their
obligation as sellers when they failed and
refused to issue the stock certificate
covering the subject share despite repeated
demands. On the basis of its rights under
Article 1191 of the Civil Code, Vertex prayed
for the rescission of the sale and demanded
the reimbursement of the amount it paid (or
P1,100,000.00), plus interest. During the
pendency of the rescission action (or on
January 23, 2002), a certificate of stock was
issued in Vertexs name, but Vertex refused
to accept it.
RULING OF THE RTC
The RTC dismissed the complaint for
insufficiency of evidence. It ruled that delay
in the issuance of stock certificates does not
warrant rescission of the contract as this
constituted a mere casual or slight breach. It
also observed that notwithstanding the
delay in the issuance of the stock certificate,
the sale had already been consummated;
the issuance of the stock certificate is just a
collateral matter to the sale and the stock

certificate is not essential to "the creation of

the relation of shareholder."6

Physical delivery is necessary to

transfer ownership of stocks

RULING OF THE CA

The factual backdrop of this case is similar

to that of Raquel-Santos v. Court of
Appeals,9 where the Court held that in "a
sale of shares of stock, physical delivery of
a stock certificate is one of the essential
requisites for the transfer of ownership of
the stocks purchased."

Vertex appealed the dismissal of its

complaint. In its decision, the CA reversed
the RTC and rescinded the sale of the
share. Citing Section 63 of the Corporation
Code, the CA held that there can be no valid
transfer of shares where there is no delivery
of the stock certificate. It considered the
prolonged issuance of the stock certificate a
substantial breach that served as basis for
Vertex to rescind the sale. 7 The CA
ordered the petitioners to return the
amounts paid by Vertex by reason of the
sale.
THE PARTIES ARGUMENTS
FEGDI and FELI filed the present petition
for review on certiorari to assail the CA
rulings. They contend that the CA erred
when it reversed the RTCs dismissal of
Vertexs complaint, declaring that the delay
in the issuance of a stock certificate
constituted as substantial breach that
warranted a rescission.
FEGDI argued that the delay cannot be
considered a substantial breach because
Vertex was unequivocally recognized as a
shareholder of Forest Hills. In fact, Vertexs
nominees became members of Forest Hills
and fully enjoyed and utilized all its facilities.
It added that RSACC also used its
shareholder rights and eventually sold its
share to Vertex despite the absence of a
stock certificate. In light of these
circumstances, delay in the issuance of a
stock certificate cannot be considered a
substantial breach.
For its part, FELI stated that it is not a party
to the contract sought to be rescinded. It
argued that it was just recklessly dragged
into the action due to a mistake committed
by FEGDIs staff on two instances. The first
was when their counsel used the letterhead
of FELI instead of FEGDI in its reply-letter to
Vertex; the second was when they used the
receipt of FELI for receipt of the
documentary stamp tax paid by Vertex.

In that case, Trans-Phil Marine Ent., Inc.

(Trans-Phil) and Roland Garcia bought Piltel
shares from Finvest Securities Co., Inc.
(Finvest Securities) in February 1997. Since
Finvest Securities failed to deliver the stock
certificates, Trans-Phil and Garcia filed an
action first for specific performance, which
was later on amended to an action for
rescission. The Court ruled that Finvest
Securities failure to deliver the shares of
stock constituted substantial breach of their
contract which gave rise to a right on the
part of Trans-Phil and Garcia to rescind the
sale.
Section 63
provides:

of

the

Corporation

the Civil Code; such restitution is necessary

to bring back the parties to their original
situation prior to the inception of the
contract.10 Accordingly, the amount paid to
FEGDI by reason of the sale should be
returned to Vertex. On the amount of
damages, the CA is correct in not awarding
damages since Vertex failed to prove by
sufficient evidence that it suffered actual
damage due to the delay in the issuance of
the certificate of stock.
Regarding the involvement of FELI in this
case, no privity of contract exists between
Vertex and FELI. "As a general rule, a
contract is a meeting of minds between two
persons.1wphi1 The Civil Code upholds
the spirit over the form; thus, it deems an
agreement to exist, provided the essential
requisites are present. A contract is upheld
as long as there is proof of consent, subject
matter and cause. Moreover, it is generally
obligatory in whatever form it may have
been entered into. From the moment there
is a meeting of minds between the parties,
[the contract] is perfected."11

Code

SEC. 63. Certificate of stock and transfer of

shares. The capital stock of stock
corporations shall be divided into shares for
which certificates signed by the president or
vice-president, countersigned by the
secretary or assistant secretary, and sealed
with the seal of the corporation shall be
issued in accordance with the by-laws.
Shares of stock so issued are personal
property and may be transferred by delivery
of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other
person legally authorized to make the
transfer.1wphi1 No transfer, however, shall
be valid, except as between the parties,
until the transfer is recorded in the books of
the corporation showing the names of the
parties to the transaction, the date of the
transfer, the number of the certificate or
certificates and the number of shares
transferred.
No shares of stock against which the
corporation holds any unpaid claim shall be
transferable in the books of the corporation.

In the sale of the Class "C" Common Share,

the parties are only FEGDI, as seller, and
Vertex, as buyer. As can be seen from the
records, FELl was only dragged into the
action when its staff used the wrong
letterhead in replying to Vertex and issued
the wrong receipt for the payment of
transfer taxes. Thus FELl should be
absolved from any liability.
WHEREFORE, we hereby DENY the
petition. The decision dated February 22,
2012 and the resolution dated May 31, 2012
of the Court of Appeals in CA-G.R. CV No.
89296
are
AFFIRMED
with
the
MODIFICATION that Fil-Estate Land, Inc. is
ABSOLVED from any liability.
G.R. No. 172346
July 24, 2013
SPOUSES NAMEAL and LOURDES
BONROSTRO, Petitioners,
vs.
SPOUSES JUAN and CONSTANCIA LUNA,
Respondents.
DECISION
DEL CASTILLO, J.:

In its comment to the petition,8 Vertex

alleged that the fulfillment of its obligation to
pay the purchase price called into action the
petitioners reciprocal obligation to deliver
the stock certificate. Since there was delay
in the issuance of a certificate for more than
three years, then it should be considered a
substantial breach warranting the rescission
of the sale. Vertex further alleged that its
use and enjoyment of Forest Hills facilities
cannot be considered delivery and transfer
of ownership.
THE ISSUE
Given the parties arguments, the sole issue
for the Court to resolve is whether the delay
in the issuance of a stock certificate can be
considered a substantial breach as to
warrant rescission of the contract of sale.
THE COURTS RULING
The petition lacks merit.

In this case, Vertex fully paid the purchase

price by February 11, 1999 but the stock
certificate was only delivered on January
23, 2002 after Vertex filed an action for
rescission against FEGDI.
Under these facts, considered in relation to
the governing law, FEGDI clearly failed to
deliver the stock certificates, representing
the shares of stock purchased by Vertex,
within a reasonable time from the point the
shares should have been delivered. This
was a substantial breach of their contract
that entitles Vertex the right to rescind the
sale under Article 1191 of the Civil Code. It
is not entirely correct to say that a sale had
already been consummated as Vertex
already enjoyed the rights a shareholder
can exercise. The enjoyment of these rights
cannot suffice where the law, by its express
terms, requires a specific form to transfer
ownership.
"Mutual restitution is required in cases
involving rescission under Article 1191" of

Page 81 of 109

Questioned in this case is the Court of

Appeals' (CA) disquisition on the matter of
interest.
Petitioners spouses Nameal and Lourdes
Bonrostro (spouses Bonrostro) assail
through this Petition for Review on
Certiorari1 the April 15, 2005 Decision2 of
the CA in CA-G.R. CV No. 56414 which
affirmed with modifications the April 4, 1997
Decision3 of the Regional Trial Court (RTC)
of Quezon City, Branch 104 in Civil Case
No. Q-94-18895. They likewise question the
CA April17, 2006 Resolution4 denying their
motion for partial reconsideration.
Factual Antecedents
In 1992, respondent Constancia Luna
(Constancia), as buyer, entered into a
Contract to Sell5 with Bliss Development
Corporation (Bliss) involving a house and lot
identified as Lot 19, Block 26 of New Capitol
Estates in Diliman, Quezon City. Barely a

year after, Constancia, this time as the

seller, entered into another Contract to Sell6
with petitioner Lourdes Bonrostro (Lourdes)
concerning the same property under the
following terms and conditions:
1. The stipulated price of P1,250,000.00
shall be paid by the VENDEE to the
VENDOR in the following manner:
(a) P200,000.00 upon signing x x x the
Contract To Sell,
(b) P300,000.00 payable on or before April
30, 1993,
(c) P330,000.00 payable on or before July
31, 1993,
(d) P417,000.00 payable to the New Capitol
Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to
pay the second installment on time, the
VENDEE will pay starting May 1, 1993 a 2%
interest on the P300,000.00 monthly.
Likewise, in the event the VENDEE fails to
pay the amount of P630,000.00 on the
stipulated time, this CONTRACT TO SELL
shall likewise be deemed cancelled and
rescinded and x x x 5% of the total contract
price of P1,250,000.00 shall be deemed
forfeited in favor of the VENDOR. Unpaid
monthly amortization shall likewise be
deducted from the initial down payment in
favor of the VENDOR.7
Immediately after the execution of the said
second contract, the spouses Bonrostro
took possession of the property. However,
except for the P200,000.00 down payment,
Lourdes failed to pay any of the stipulated
subsequent amortization payments.
Ruling of the Regional Trial Court
On January 11, 1994, Constancia and her
husband, respondent Juan Luna (spouses
Luna), filed before the RTC a Complaint8
for Rescission of Contract and Damages
against the spouses Bonrostro praying for
the rescission of the contract, delivery of
possession of the subject property, payment
by the latter of their unpaid obligation, and
awards of actual, moral and exemplary
damages, litigation expenses and attorneys
fees.

asserted that on November 18, 1993, they

paid Bliss, the developer of New Capitol
Estates, the amount of P46,303.44. Later
during
trial,
Lourdes
testified
that
Constancia instructed Bliss not to accept
amortization payments from anyone as
evidenced by her March 4, 1993 letter12 to
Bliss.
On April 4, 1997, the RTC rendered its
Decision13 focusing on the sole issue of
whether the spouses Bonrostros delay in
their payment of the installments constitutes
a substantial breach of their obligation
under the contract warranting rescission.
The RTC ruled that the delay could not be
considered a substantial breach considering
that Lourdes (1) requested for an extension
within which to pay; (2) was willing and
ready to pay as early as the last week of
October 1993 and even wrote Atty. Carbon
about this on November 24, 1993; (3) gave
Constancia
a
down
payment
of
P200,000.00; and, (4) made payment to
Bliss.

The spouses Bonrostro likewise belied that

they were not paying the monthly
amortization to New Capitol Estates and

If the buyer fails to pay the installments due

at the expiration of the grace period, the
seller may cancel the contract after thirty
days from receipt by the buyer of the notice
of cancellation or the demand for rescission
of the contract by a notarial act. (Emphases
supplied)
The CA held that while the spouses Luna
sent the spouses Bonrostro letters20
rescinding the contract for non-payment of
the sum of P630,000.00, the same could not
be considered as valid and effective
cancellation under the Maceda Law since
they were made within the 60-day grace
period and were not notarized. The CA
concluded that there being no cancellation
effected in accordance with the procedure
prescribed by law, the contract therefore
remains valid and subsisting.

The dispositive portion of the said Decision

reads:

The CA also affirmed the RTCs finding that

Lourdes was ready to pay her obligation on
November 24, 1993.

WHEREFORE, in view of the foregoing,

judgment is hereby rendered as follows:

However, the CA modified the RTC Decision

with respect to interest, viz:

1.) Declaring the Contract to Sell executed

by the plaintiff Constancia and defendant
Lourdes with respect to the house and lot
located at Blk. 26, Lot 19, New Capitol
Estates, Diliman, Quezon City to be in force
and effect. And that Lourdes Bonrostro must
remain in the possession of the premises.

Nevertheless, there is a need to modify the

appealed decision insofar as (i) the interest
imposed on the sum of P300,000.00 is only
for the period April 1993 to November 1993;
(ii) the interest imposed on the sum of
P330,000.00 is 2% per month and is only
for the period July 1993 to November 1993;
(iii) it does not impose interest on the
amount of P214,492.62 which was paid by
Constancia to BLISS in behalf of Lourdes x
xx

2.) Ordering the defendants to pay plaintiffs

within 60 days from receipt of this decision
the sum of P300,000.00 plus an interest of
2% per month from April 1993 to November
1993.
3.) Ordering the defendants to pay plaintiffs
within sixty (60) days from receipt of this
decision the sum of P330,000.00 plus an
interest of 2% per month from July 1993 to
November 1993.
4.) Ordering the defendants to reimburse
plaintiffs the sum of P214,492.62 which
plaintiffs paid to Bliss Development
Corporation.
No pronouncement as to Cost.

In
their
Answer
with
Compulsory
Counterclaim,9 the spouses Bonrostro
averred that they were willing to pay their
total balance of P630,000.00 to the spouses
Luna after they sought from them a 60-day
extension to pay the same.10 However,
during the time that they were ready to pay
the said amount in the last week of October
1993, Constancia and her lawyer, Atty.
Arlene Carbon (Atty. Carbon), did not show
up at their rendezvous. On November 24,
1993, Lourdes sent Atty. Carbon a letter11
expressing her desire to pay the balance,
but received no response from the latter.
Claiming that they are still willing to settle
their obligation, the spouses Bonrostro
prayed that the court fix the period within
which they can pay the spouses Luna.

the buyer a grace period of not less than

sixty days from the date the installment
became due.

SO ORDERED.14
As their Motion for Reconsideration15 was
likewise denied in an Order16 dated July
15, 1997, the spouses Luna appealed to the
CA.17

The rule is that no interest shall be due

unless it has been expressly stipulated in
writing (Art. 1956, Civil Code). However, the
contract does not provide for interest in
case of default in payment of the sum of
P330,000.00 to Constancia and the monthly
amortizations to BLISS.
Considering that Lourdes had incurred x x x
delay in the performance of her obligations,
she should pay (i) interest at the rate of 2%
per month on the sum of P300,000.00 from
May 1, 1993 until fully paid and (ii) interest
at the legal rate on the amounts of
P330,000.00 and P214,492.62 from the
date of default (August 1, 1993 and April 4,
1997 date of the appealed decision,
respectively) until the same are fully paid x x
x21
Hence, the dispositive portion of the said
Decision:

Ruling of the Court of Appeals

In its Decision18 of April 15, 2005, the CA
concluded that since the contract entered
into by and between the parties is a
Contract to Sell, rescission is not the proper
remedy. Moreover, the subject contract
being specifically a contract to sell a real
property on installment basis, it is governed
by Republic Act No. 655219 or the Maceda
Law, Section 4 of which states:
Sec. 4. In case where less than two years of
installment were paid, the seller shall give

Page 82 of 109

WHEREFORE, the appealed decision is

AFFIRMED with the MODIFICATIONS that
paragraphs 2, 3, and 4 of its dispositive
portion shall now read:
2.) Ordering the defendants to pay plaintiffs
the sum of P300,000.00 plus interest
thereon at the rate of 2% per month from
May 1, 1993 until fully paid;
3.) Ordering the defendants to pay plaintiffs
the sum of P330,000.00 plus interest

thereon at the legal rate from August 1,

1993 until fully paid; and
4.) Ordering the defendants to reimburse
plaintiffs the sum of P214,492.62, which
plaintiffs paid to Bliss Development
Corporation, plus interest thereon at the
legal rate from filing of the complaint until
fully reimbursed.
SO ORDERED.22
The spouses Luna no longer assailed the
ruling. On the other hand, the spouses
Bonrostro filed a Partial Motion for
Reconsideration23 questioning the abovementioned modifications. The CA, however,
denied for lack of merit the said motion in a
Resolution24 dated April 17, 2006.
Hence, this
Certiorari.

Petition

for

Review

on

balance to Bliss by paying the monthly

amortization in order to avoid the
cancellation of the earlier Contract to Sell
entered into by Constancia with Bliss.26
However, since Lourdes was remiss in
paying the same, the spouses Luna were
constrained to pay the amortization. They
thus assert that reimbursement to them of
the said amount with interest is proper
considering that by reason of such payment,
the spouses Bonrostro were spared from
the interests and penalties which would
have been imposed by Bliss if the
amortizations remained unpaid.
Our Ruling
The Petition lacks merit.
The spouses Bonrostros reliance on the
RTCs factual finding that Lourdes was
willing and ready to pay on November 24,
1993 is misplaced.

Issue
The basic issue in this case is whether the
CA correctly modified the RTC Decision with
respect to interests.
The Parties Arguments
As may be recalled, the RTC under
paragraphs 2 and 3 of the dispositive
portion of its Decision ordered the spouses
Bonrostro to pay the spouses Luna the
sums of P300,000.00 plus interest of 2%
per month from April 1993 to November
1993 and P330,000.00 plus interest of 2%
per month from July 1993 to November
1993, respectively. The CA modified these
by reckoning the payment of the 2% interest
on the P300,000.00 from May 1, 1993 until
fully paid and by imposing interest at the
legal rate on the P330,000.00 reckoned
from August 1, 1993 until fully paid.
The spouses Bonrostro harp on the factual
finding of the RTC, as affirmed by the CA,
that Lourdes was willing and ready to pay
her obligation as evidenced by her
November 24, 1993 letter to Atty. Carbon.
They also assert that the sending of the said
letter constitutes a valid tender of payment
on their part. Hence, they argue that they
should not be assessed any interest
subsequent to the date of the said letter.
Neither should they be ordered to pay
interest on the amount of P214,492.62
which covers the amortizations paid by the
spouses Luna to Bliss. They point out that it
was Constancia who prevented them from
fulfilling their obligation to pay the
amortizations when she instructed Bliss not
to accept payment from them.25
The spouses Luna, on the other hand, aver
that the November 24, 1993 letter of
Lourdes is not equivalent to tender of
payment since the mere sending of a letter
expressing the intention to pay, without the
accompanying
payment,
cannot
be
considered a valid tender of payment. Also,
if the spouses Bonrostro were really willing
and ready to pay at that time and assuming
that the spouses Luna indeed refused to
accept payment, the former should have
resorted to consignation. Anent the payment
of amortization, the spouses Luna explain
that under the parties Contract to Sell,
Lourdes was to assume Constancias

As mentioned, the RTC in resolving the

Complaint focused on the sole issue of
whether the failure of spouses Bonrostro to
pay the installments of P300,000.00 on April
30, 1993 and P330,000.00 on July 31, 1993
is a substantial breach of their obligation
under the contract as to warrant the
rescission of the same.27 The said court
ratiocinated, viz:
After careful evaluation of the evidence
testimonial and documentary, the Court
believes that the defendants delay in the
payment of the two installments is not so
substantial as to warrant rescission of
contract. Although, the defendant failed to
pay the two installments in due time, she
was able to communicate with the plaintiffs
through letters requesting for an extension
of two months within which to pay the
installments. In fact, on November 24, 1993
defendant informed Atty. Arlene Carbon that
she was ready to pay the installments and
the money is ready for pick-up. However,
plaintiff did not bother to get or pick-up the
money without any valid reason. It would be
very prejudicial on the part of the defendant
if the contract to sell be rescinded
considering that she made a downpayment
of
P200,000.00
and
made
partial
amortization to the Bliss Development
Corporation. In fact, the defendant testified
that she is willing and ready to pay the
balance including the interest on November
24, 1993.
The Court is of the opinion that the delay in
the payment of the balance of the purchase
price of the house and lot is not so
substantial as to warrant the rescission of
the contract to sell. The question of whether
a breach of contract is substantial depends
upon the attendant circumstance. x x x28
Clearly, the RTC arrived at the abovequoted conclusion based on its mistaken
premise that rescission is applicable to the
case. Hence, its determination of whether
there was substantial breach. As may be
recalled, however, the CA, in its assailed
Decision, found the contract between the
parties as a contract to sell, specifically of a
real property on installment basis, and as
such categorically declared rescission to be
not the proper remedy. This is considering
that in a contract to sell, payment of the

Page 83 of 109

price is a positive suspensive condition,

failure of which is not a breach of contract
warranting rescission under Article 119129
of the Civil Code but rather just an event
that prevents the supposed seller from
being bound to convey title to the supposed
buyer.30 Also, and as correctly ruled by the
CA, Article 1191 cannot be applied to sales
of real property on installment since they
are governed by the Maceda Law.31
There being no breach to speak of in case
of non-payment of the purchase price in a
contract to sell, as in this case, the RTCs
factual finding that Lourdes was willing and
able to pay her obligation a conclusion
arrived at in connection with the said courts
determination of whether the non-payment
of the purchase price in accordance with the
terms of the contract was a substantial
breach warranting rescission therefore
loses significance. The spouses Bonrostros
reliance on the said factual finding is thus
misplaced. They cannot invoke their
readiness and willingness to pay their
obligation on November 24, 1993 as an
excuse from being made liable for interest
beyond the said date.
The spouses Bonrostro are liable for
interest on the installments due from the
date of default until fully paid.
The spouses Bonrostro assert that Lourdes
letter of November 24, 1993 amounts to
tender of payment of the remaining balance
amounting to P630,000.00. Accordingly,
thenceforth, accrual of interest should be
suspended.
Tender of payment "is the manifestation by
the debtor of a desire to comply with or pay
an obligation. If refused without just cause,
the tender of payment will discharge the
debtor of the obligation to pay but only after
a valid consignation of the sum due shall
have been made with the proper court."32
"Consignation is the deposit of the proper
amount with a judicial authority in
accordance with rules prescribed by law,
after the tender of payment has been
refused or because of circumstances which
render direct payment to the creditor
impossible or inadvisable."33
"Tender of payment, without more, produces
no effect."34 "To have the effect of payment
and the consequent extinguishment of the
obligation to pay, the law requires the
companion acts of tender of payment and
consignation."35
As to the effect of tender of payment on
interest, noted civilist Arturo M. Tolentino
explained as follows:
When a tender of payment is made in such
a form that the creditor could have
immediately realized payment if he had
accepted the tender, followed by a prompt
attempt of the debtor to deposit the means
of payment in court by way of consignation,
the accrual of interest on the obligation will
be suspended from the date of such tender.
But when the tender of payment is not
accompanied by the means of payment,
and the debtor did not take any immediate
step to make a consignation, then interest is
not suspended from the time of such tender.
x x x x36 (Emphasis supplied)

Here, the subject letter merely states

Lourdes willingness and readiness to pay
but it was not accompanied by payment.
She claimed that she made numerous
telephone calls to Atty. Carbon reminding
the latter to collect her payment, but, neither
said lawyer nor Constancia came to collect
the payment. After that, the spouses
Bonrostro took no further steps to effect
payment. They did not resort to
consignation of the payment with the proper
court despite knowledge that under the
contract, non-payment of the installments
on the agreed date would make them liable
for interest thereon. The spouses Bonrostro
erroneously assumed that their notice to
pay would excuse them from paying
interest. Their claimed tender of payment
did not produce any effect whatsoever
because it was not accompanied by actual
payment or followed by consignation.
Hence, it did not suspend the running of
interest. The spouses Bonrostro are
therefore liable for interest on the subject
installments from the date of default until full
payment of the sums of P300,000.00 and
P330,000.00.
The spouses Bonrostro are likewise liable
for interest on the amount paid by the
spouses Luna to Bliss as amortization.
The spouses Bonrostro want to be relieved
from paying interest on the amount of
P214,492.62 which the spouses Luna paid
to Bliss as amortizations by asserting that
they were prevented by the latter from
fulfilling such obligation. They invoke Art.
1186 of the Civil Code which provides that
"the condition shall be deemed fulfilled
when the obligor voluntarily prevents its
fulfillment."
However, the Court finds Art. 1186
inapplicable to this case. The said provision
explicitly speaks of a situation where it is the
obligor who voluntarily prevents fulfillment of
the condition. Here, Constancia is not the
obligor but the obligee. Moreover, even if
this significant detail is to be ignored, the
mere intention to prevent the happening of
the condition or the mere placing of
ineffective obstacles to its compliance,
without actually preventing fulfillment is not
sufficient for the application of Art. 1186.37
Two requisites must concur for its
application, to wit: (1) intent to prevent
fulfillment of the condition; and, (2) actual
prevention of compliance.38
In this case, while it is undisputed that
Constancia indeed instructed Bliss on
March 4, 1994 not to accept payment from
anyone but her, there is nothing on record to
show that Bliss heeded the instruction of
Constancia as to actually prevent the
spouses Bonrostro from making payments
to Bliss. There is no showing that
subsequent to the said letter, the spouses
Bonrostro attempted to make payment to
and was refused by Bliss. Neither was there
a witness presented to prove that Bliss
indeed gave effect to the instruction
contained in Constancias letter. While Bliss
Project Development Officer, Mr. Ariel
Cordero, testified during trial, nothing could
be gathered from his testimony regarding
this except for the fact that Bliss received
the said letter.39 In view of these, the

spouses Luna could not be said to have

placed an effective obstacle as to actually
prevent the spouses Bonrostro from making
amortization payments to Bliss.
On the other hand, there are telling
circumstances which militate against the
spouses Bonrostros claimed keenness to
comply with their obligation to pay the
monthly amortization. After the execution of
the contract in January 1993, they
immediately took possession of the property
but failed to make amortization payments. It
was only after seven months or on
November 18, 1993 that they made
payments to Bliss in the amount of
P46,303.44.40 Whether the same covers
previous unpaid amortizations is also not
clear as the receipt does not indicate the
same41 and per Statement of Account42 as
of March 8, 1994 issued by Bliss, the unpaid
monthly amortizations for February to
November 1993 in the total amount of
P78,271.69 remained outstanding. There
was also no payment made of the
amortizations due on December 4, 1993
and January 4, 199443 before the filing of
the Complaint on January 11, 1994.
On the part of the spouses Luna, it is
understandable that they paid the
amortizations due.1wphi1 The assumption
of payment of the monthly amortization to
Bliss was made part of the obligations of the
spouses Bonrostro under their contract with
the spouses Luna precisely to avoid the
cancellation of the earlier contract entered
into by Constancia with Bliss. But as the
spouses Bonrostro failed in this obligation,
the spouses Luna were constrained to pay
Bliss to avoid the adverse effect of such
failure. This act of the spouses Luna proved
to be even more beneficial to the spouses
Bonrostro as the cancellation of the
Contract to Sell between Constancia and
Bliss would result in the cancellation of the
subsequent Contract to Sell between
Constancia and Lourdes. Also, the spouses
Bonrostro were relieved from paying the
penalties that would have been imposed by
Bliss if the monthly amortizations covered
by the said payment remained unpaid. The
Statements of Account44 issued by Bliss
clearly state that each monthly amortization
is due on or before the fourth day of every
month and a penalty equivalent to 1/10th of
1% per day of delay shall be imposed for all
payments made after due date. That
translates to 3% monthly or 36% per annum
rate of interest, three times higher than the
12% per annum rate of interest correctly
imposed by the CA.
Hence, the resulting situation is that the
spouses Luna are constrained to part with
their money while the spouses Bonrostro,
despite being remiss in their obligation to
pay the monthly amortization, are relieved
from paying higher penalties at the expense
of the former. This is aside from the fact that
the spouses Bonrostro are in continued
possession of the subject property and are
enjoying the beneficial use thereof. Under
the circumstances and considering that the
spouses Bonrostro are obviously in delay in
complying with their obligation to pay the
amortizations due from February 1993 to
January 1995 for which the spouses Luna
paid P214,492.62,45 the CA correctly
ordered the reimbursement to the latter of

Page 84 of 109

the said amount with interest. "Delay in the

performance of an obligation is looked upon
with disfavor because, when a party to a
contract incurs delay, the other party who
performs his part of the contract suffers
damages thereby."46 As discussed, the
spouses Luna obviously suffered damages
brought about by the failure of the spouses
Bonrostro to comply with their obligation on
time. "And, sans elaboration of the matter at
hand, damages take the form of interest x x
x."47
Under Article 2209 of the Civil Code, "if the
obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the
indemnity for damages, there being no
stipulation to the contrary, shall be the
payment of the interest agreed upon, and in
the absence of stipulation, the legal interest
x x x." There being no stipulation on interest
in case of delay in the payment of
amortization, the CA thus correctly imposed
interest at the legal rate which is now 12%
per annum.
WHEREFORE, the Petition for Review on
Certiorari is DENIED and the assailed
Decision dated April 15, 2005 and the
Resolution dated April 17, 2006 of the Court
of Appeals in CA-G.R. CV No. 56414 are
AFFIRMED.
G.R. No. 179594
September 11,
2013
MANUEL UY & SONS, INC., Petitioner,
vs.
VALBUECO,
INCORPORATED,
Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 of
the Court of Appeals Decision2 dated
December 11, 2006 in CA-G.R. CV No.
85877, and its Resolution dated September
4, 2007, denying petitioners motion for
reconsideration.
The Court of Appeals reversed and set
aside the Decision3 of the Regional Trial
Court (RTC) of Manila, Branch 1, dismissing
the Complaint for specific performance and
damages. The Court of Appeals reinstated
the Complaint and directed petitioner to
execute deeds of absolute sale in favor of
respondent after payment of the purchase
price of the subject lots.
The facts, as stated by the Court of
Appeals, are as follows:
Petitioner Manuel Uy & Sons, Inc. is the
registered owner of parcels of land located
in Teresa, Rizal covered by Transfer
Certificate of Title(TCT) No. 59534, covering
an area of about 6,119 square meters; TCT
No.59445, covering an area of about 6,838
square meters; TCT No. 59446,covering an
area of about 12,389 square meters; and
TCT No. 59444,covering an area of about
32,047 square meters.
On November 29, 1973, two Conditional
Deeds of Sale were executed by petitioner,
as vendor, in favor of respondent Valbueco,
Incorporated, as vendee. The first
Conditional Deed of Sale4 covered TCT

Nos. 59534, 59445 and

contained the following
conditions:

59446,
terms

and
and

That for and in consideration of the sum of

ONE HUNDREDSIXTY-FOUR THOUSAND
SEVEN
HUNDRED
FORTYNINE(Php164,749.00) PESOS, Philippine
currency, the VENDOR hereby agrees to
SELL, CEDE, TRANSFER and CONVEY
unto the VENDEE xx x the aforementioned
properties, payable under the following
terms and conditions:
1. The sum of FORTY-ONE THOUSAND
ONE
HUNDREDEIGHTY-SEVEN
and
25/100 (Php 41,187.25) PESOS shall be
paid upon signing of this conditional deed of
sale; and
2. The balance of ONE HUNDRED
TWENTY-THREETHOUSAND
FIVE
HUNDRED
SIXTY-ONE
and
75/100
(Php123,561.75) PESOS shall be paid
within a period of one (1) year from
November 15, 1973, with interest of 12%
per annum based on the balance, in the
mode and manner specified below:
a) January 4, 1974 P16,474.90 plus
interest
b) On or before May 15, 1974 P53,543.43
plus interest
c) On or before November 15, 1974
P53,543.32 plus interest
3. That the vendee shall be given a grace
period of thirty (30)days from the due date
of any installment with corresponding
interest to be added, but should the
VENDEE fail to make such payment within
the grace period this contract shall be
deemed rescinded and without force and
effect after notice in writing by VENDOR to
VENDEE.
4. That the VENDOR agrees to have the
existing Mortgages on the properties subject
of this sale released on or before May 20,
1974.
5. That the VENDOR agrees to have the
above-described properties freed and
cleared of all lessees, tenants, adverse
occupants or squatters within 100 days from
the execution of this conditional deed of
sale. In case of failure by the VENDOR to
comply with the undertaking provided in this
paragraph and the VENDEE shall find it
necessary to file a case or cases in court to
eject the said lessees, tenants, occupants
and/or squatters from the land, subject of
this sale, the VENDOR agrees to answer
and pay for all the expenses incurred and to
be incurred in connection with said cases
until the same are fully and finally
terminated.
6. That the VENDOR and the VENDEE
agree that during the existence of this
Contract and without previous expressed
written permission from the other, they shall
not sell, cede, assign, transfer or mortgage,
or in any way encumber unto another
person or party any right, interest or equity
that they may have in and to said parcels of
land. x x x x

8. That it is understood that ownership of

the properties herein conveyed shall not
pass to the VENDEE until after payment of
the full purchase price; provided, however,
that the VENDOR shall allow the annotation
of this Conditional Deed of Sale at the back
of the titles of the above-described parcels
of land in the corresponding Registry of
Deeds x xx.
9. That upon full payment of the total
purchase price, a Deed of Absolute Sale
shall be executed in favor of the VENDEE
and the VENDOR agrees to pay the
documentary stamps and the science stamp
tax of the Deed of Sale; while the VENDEE
agrees to pay the registration and other
expenses for the issuance of a new title.
10. That it is mutually agreed that in case of
litigation, the venue of the case shall be in
the courts of Manila, having competent
jurisdiction, any other venue being
expressly waived.5
On the other hand, the second Conditional
Deed of Sale6 covering Lot No. 59444
provides, thus:
1. The sum of FIFTY-TWO THOUSAND
SEVENTY-SIXAND 37/100 (Php 52,076.37)
PESOS, shall be paid upon signing of this
conditional deed of sale; and
2. The balance of ONE HUNDRED FIFTYSIXTHOUSAND
TWO
HUNDRED
TWENTY-NINE
and
13/100
(Php156,229.13) PESOS shall be paid
within a period of one (1) year from
November 15, 1973, with interest of 12%
per annum based on the balance, in the
mode and manner specified below:
a) January 4, 1974 P20,830.55 plus
interest
b) On or before May 15, 1974 P67,699.29
plus interest
c) On or before November 15, 1974,
P67,699.29 plus interest
3. That the VENDEE shall be given a grace
period of thirty (30) days from the due date
of any installment with corresponding
interest to be added, but should the
VENDEE fail to make such payment within
the grace period, this contract shall be
deemed rescinded and without force and
effect after notice in writing by VENDOR to
VENDEE.
4. That the VENDOR agrees and
acknowledges that any and all payments to
be made by the VENDEE by reason of this
presents unless hereafter advised by
VENDOR to the contrary, shall be made in
favor of and to the Philippine Trust
Company by way of liquidation and payment
of the existing mortgage on the property
subject of this sale.
5. That after each payment adverted to
above the VENDOR shall issue the
corresponding receipt for the amount paid
by the VENDOR to the Philippine Trust
Company.
6. That the VENDOR agrees to have the
above-described property freed and cleared

Page 85 of 109

of all lessees, tenants, adverse occupants

or squatters within 100 days from the
execution of this conditional deed of sale. In
case of failure by the VENDOR to comply
with this undertaking provided in this
paragraph and the VENDEE shall find it
necessary to file a case or cases in court to
eject the said lessees, tenants, occupants
and/or squatters from the land, subject of
this sale, the VENDOR agrees to answer
and pay for all the expenses incurred and to
be incurred in connection with said cases
until the same are fully and finally
terminated.
7. That the VENDOR and the VENDEE
agree that during the existence of this
Contract and without previous expressed
written permission from the other, they shall
not sell, cede, assign, transfer or mortgage,
or in any way encumber unto another
person or party any right, interest or equity
that they may have in and to said parcel of
land.
xxxx
9. That it is understood that ownership of
the property herein conveyed shall not pass
to the VENDEE until after payment of the
full purchase price, provided, however, that
the VENDOR shall allow the annotation of
the Conditional Deed of Sale at the back of
the Title of the above-described parcel of
land in the corresponding Registry of
Deeds; x xx.
10. That upon full payment of the total
purchase price, a Deed of Absolute Sale
shall be executed in favor of the VENDEE
and the VENDOR agrees to pay the
documentary stamps and the science stamp
tax of the Deed of Sale; while the VENDEE
agrees to pay the registration and other
expenses for the issuance of a new title.
11. That it is mutually agreed that in case of
litigation, the venue of the case shall be in
the courts of Manila, having competent
jurisdiction, any other venue being
expressly waived.7
Respondent was able to pay petitioner the
amount of P275,055.558 as partial payment
for the two properties corresponding to the
initial payments and the first installments of
the said properties.
At the same time, petitioner complied with
its obligation under the conditional deeds of
sale, as follows: (1) the mortgage for TCT
No. 59446 was released on May 18, 1984,
while the mortgages for TCT Nos. 59445and
59534 were released on July 19, 1974; (2)
the unlawful occupants of the lots covered
by TCT Nos. 59444, 59534, 59445 and
59446 surrendered their possession and
use of the said lots in consideration of the
amount of P6,000.00 in a document9 dated
November 19, 1973, and they agreed to
demolish their shanties on or before
December 7, 1973; and (3) the mortgage
with Philippine Trust Company covering
TCT No. 59444 was discharged10 in 1984.
However, respondent suspended further
payment as it was not satisfied with the
manner petitioner complied with its
obligations under the conditional deeds of
sale. Consequently, on March 17, 1978,

petitioner sent respondent a letter 11

informing respondent of its intention to
rescind the conditional deeds of sale and
attaching therewith the original copy of the
respective notarial rescission.

the contracts. The dispositive portion of the

Decision reads:

On November 28, 1994, respondent filed a

Complaint12 for specific performance and
damages against petitioner with the RTC of
Antipolo City. However, on January 15,
1996, the case was dismissed without
prejudice13 for lack of interest, as
respondent's counsel failed to attend the
pre-trial conference.

Claims and counterclaims for damages are

also dismissed.19

Five years later, or on March 16, 2001,

respondent again filed with the RTC of
Manila, Branch 1 (trial court) a Complaint14
for specific performance and damages,
seeking to compel petitioner to accept the
balance of the purchase price for the two
conditional deeds of sale and to execute the
corresponding deeds of absolute sale.
Respondent contended that its nonpayment of the installments was due to the
following reasons:(1) Petitioner refused to
receive the balance of the purchase price as
the properties were mortgaged and had to
be redeemed first before a deed of absolute
sale could be executed; (2) Petitioner
assured that the existing mortgages on the
properties would be discharged on or before
May 20,1974, or that petitioner did not
inform it (respondent) that the mortgages on
the properties were already released; and
(3) Petitioner failed to fully eject the unlawful
occupants in the area.
In its Answer,15 petitioner argued that the
case should be dismissed, as it was barred
by prior judgment. Moreover, petitioner
contended that it could not be compelled to
execute any deed of absolute sale, because
respondent failed to pay in full the purchase
price of the subject lots. Petitioner claimed
that it gave respondent a notice of notarial
rescission of both conditional deeds of sale
that would take effect 30 days from receipt
thereof. The notice of notarial rescission
was allegedly received by respondent on
March 17,1978. Petitioner asserted that
since respondent failed to pay the full
purchase price of the subject lots, both
conditional deeds of sale were rescinded as
of April 16, 1978; hence, respondent had no
cause of action against it.
In its Reply,16 respondent denied that it
received the alleged notice of notarial
rescission. Respondent also denied that the
alleged
recipient
(one
Wenna
Laurenciana)17 of the letter dated March
17, 1978, which was attached to the notice
of notarial rescission, was its employee.
Respondent stated that assuming arguendo
that the notice was sent to it, the address
(6th Floor, SGC Bldg., Salcedo Street,
Legaspi Village, Makati, Metro Manila) was
not the given address of respondent.
Respondent contended that its address on
the conditional deeds of sale and the
receipts issued by it and petitioner showed
that its principal business address was the
7th Floor, Bank of P.I. Bldg, Ayala Avenue,
Makati, Rizal.
On August 1, 2005, the trial court rendered
a Decision,18 dismissing the complaint, as
petitioner had exercised its right to rescind

WHEREFORE, premises considered, the

complaint is DISMISSED for lack of merit.

The trial court stated that the issues before

it were: (1) Did petitioner unlawfully evade
its obligation to execute the final deed of
sale and to eject the squatters/occupants on
the properties; (2) Is the case barred by
prior judgment; and (3) Does respondent
have a cause of action against petitioner.
The trial court said that both conditional
deeds of sale clearly provided that
"ownership x x x shall not pass to the
VENDEE until after full payment of the
purchase price." Respondent admitted that
it has not yet fully paid the purchase price.
The trial court held that the conditions in the
conditional deeds of sale being suspensive,
that is, its fulfillment gives rise to the
obligation, the reasons for the inability of
respondent to fulfill its own obligations is
material, in order that the obligation of
petitioner to execute the final deeds of
absolute sale will arise. The trial court
stated that the evidence showed that
petitioner had exercised its right to rescind
the contract by a written notice dated March
17, 1978 and notarial acts both dated
March15, 1978. The trial court noted that
respondent denied having received the
notice and disclaimed knowing the recipient,
Wenna Laurenciana. However, on crossexamination,
respondent's
witness,
Gaudencio Juan, who used to be
respondent's Personnel Manager and
Forester at the same time, admitted
knowing Laurenciana because she was the
secretary of Mr. Valeriano
Bueno,
respondent's president at that time,
although Laurenciana was not employed by
respondent, but she was employed by
Mahogany
Products
Corporation,
presumably one of the 14 other companies
being controlled by Mr. Bueno.20
The trial court held that the conditional
deeds of sale were executed on November
29, 1973 and were already covered by
Republic Act (R.A.) No. 6552, otherwise
known as the Realty Installment Buyer Act.
Under Section 4 of the law, if the buyer fails
to pay the installments due at the expiration
of the grace period, which is not less than
60 days from the date the installment
became due, the seller may cancel the
contract after 30 days from receipt of the
buyer of the notice of cancellation or the
demand for rescission of the contracts by
notarial act. The trial court found no lawful
ground to grant the relief prayed for and
dismissed the complaint for lack of merit.
Respondent appealed the decision of the
trial court to the Court of Appeals, and made
these assignments of error: (1) the trial
court erred in holding that petitioner did not
unlawfully evade executing a final deed of
sale, since respondent's failure to fulfill its
own obligation is material; (2) the trial court
erred in holding that it is unbelievable and a
self-contradiction that respondent was
informed of the mortgage only when it was
paying the balance of the properties; and (3)

Page 86 of 109

the trial court erred in holding that as early

as November 19, 1973, petitioner had
already taken necessary steps to evict the
squatters/occupants
through
the
intercession of the agrarian reform officer.
On December 11, 2006, the Court of
Appeals rendered a Decision, reversing and
setting aside the Decision of the trial court.
It reinstated the complaint of respondent,
and directed petitioner to execute deeds of
absolute sale in favor of respondent after
payment of the balance of the purchase
price of the subject lots. The dispositive
portion of the Decision reads:
WHEREFORE, premises considered, the
August 1, 2005Decision of the Regional
Trial Court of Manila, Branch 1, in Civil Case
No. 01-100411, is hereby REVERSED and
SET ASIDE.
A
new
one
is
hereby
entered:
REINSTATING
the
complaint
and
defendant-appellee MANUEL UY & SONS
INC. is hereby DIRECTED, pursuant to Sec.
4, R. A. No. 6552, otherwise known as the
Maceda Law, to EXECUTE and DELIVER:
(1) Deeds of Absolute Sale in favor of
VALBUECO, INC.; and
(2) Transfer Certificates of Title pertaining to
Nos. 59534, 59445,59446 and 59444, in the
name of plaintiff-appellant VALBUECO,
INC., after VALBUECO pays MANUEL UY &
SONS, without additional interest, within
thirty days from finality of this judgment, the
balance of the contract price.
If MANUEL UY & SONS refuses to deliver
the Deeds of Absolute Sale and the coowner's copy of the TCTs, the Register of
Deeds of Antipolo, Rizal is hereby
DIRECTED to CANCEL the latest TCTs
issued derived from TCT Nos. 59534,
59445, 59446 and 59444, and to
ISSUE new
VALBUECO.

TCTS

in

the

name

of

Only if VALBUECO fails in the payment

directed above, then defendant-appellee
MANUEL UY & SONS INC. has the
opportunity to serve a valid notice of notarial
rescission.
SO ORDERED.21
The Court of Appeals held that the two
conditional deeds of sale in this case are
contracts to sell. It stated that the law
applicable to the said contracts to sell on
installments is R.A. No. 6552, specifically
Section 4thereof, as respondent paid less
than two years in installments. It held that
upon repeated defaults in payment by
respondent, petitioner had the right to
cancel the said contracts, but subject to the
proper receipt of respondent of the notice of
cancellation or the demand for the
rescission of the contracts by notarial act.
However, the Court of Appeals found that
petitioner sent the notice of notarial
rescission to the wrong address. The
business address of respondent, as used in
all its transactions with petitioner, was the
7th Floor, Bank of the Philippine Islands

Building, Ayala Avenue, Makati City, but the

notice of notarial rescission was sent to the
wrong address at the 6th Floor, SGC
Building, Salcedo Street, Legaspi Village,
Makati, Metro Manila. Petitioner served the
notice to the address of Mahogany Products
Corporation. It was established that the
person who received the notice, one Wenna
Laurenciana, was an employee of
Mahogany Products Corporation and not an
employee of respondent or Mr. Valeriano
Bueno, the alleged president of Mahogany
Products Corporation and respondent
company.22 The appellate court stated that
this cannot be construed as to have been
contructively received by respondent as the
two corporations are two separate entities
with a distinct personality independent from
each other. Thus, the Court of Appeals held
that the notarial rescission was in validly
served. It stated that it is a general rule that
when service of notice is an issue, the
person alleging that the notice was served
must prove the fact of service by a
preponderance of evidence. In this case,
the Court of Appeals held that there was no
evidence that the notice of cancellation by
notarial act was actually received by
respondent. Thus, for petitioner's failure to
cancel the contract in accordance with the
procedure provided by law, the Court of
Appeals held that the contracts to sell on
installment were valid and subsisting, and
respondent has the right to offer to pay for
the balance of the purchase price before
actual cancellation.
Petitioner's motion for reconsideration was
denied for lack of merit by the Court of
Appeals in a Resolution23 dated September
4, 2007.
Petitioner filed this petition raising the
following issues:
I
THE HONORABLE COURT OF APPEALS
GRAVELY ERRED INREVERSING THE
RTC DECISION AND REINSTATING
THECOMPLAINT WHEN ON ITS FACE IT
HAS LONG BEENPRESCRIBED, AS IT
WAS FILED AFTER 27 YEARS AND HAS
NOJURISDICTION (SIC).
II
THE HONORABLE COURT OF APPEALS
SERIOUSLY
ERRED
ANDGRAVELY
ABUSED
ITS
DISCRETION
IN
COMPELLINGPETITIONER TO EXECUTE
A FINAL DEED OF ABSOLUTE SALE
EVEN IF RESPONDENT JUDICIALLY
ADMITTED ITS NON-PAYMENT OF THE
BALANCE
OF
THE
DEEDS
OF
CONDITIONALSALE DUE SINCE 1974.
III
THE HONORABLE COURT OF APPEALS
GRAVELY ERRED INGRANTING THE
RELIEFS PRAYED BY RESPONDENT IN
ITSCOMPLAINT
FOR
SPECIFIC
PERFORMANCE
WHEN
IT
WASRESPONDENT WHO BREACHED
THE CONTRACT.
IV

THE HONORABLE COURT OF APPEALS

COMMITTED GRAVEINJUSTICE WHEN IT
PENALIZED
PETITIONER
FOR
EXERCISINGITS LEGAL RIGHT AND DID
NOT COMMIT AN ACTIONABLEWRONG
WHILE
IT
HEFTILY
REWARDED
RESPONDENT, WHOBREACHED THE
CONTRACT, AND ORDERED TO PAY
WITHOUTINTEREST
PHP
97,998.95,
WHICH IS DUE SINCE 1974 UNDER
THECONTRACT, FOR FOUR (4) PARCELS
OF LAND (57,393 SQUAREMETERS),
NOW WORTH HUNDRED MILLIONS.
V
THE HONORABLE COURT OF APPEALS
GRAVELY ERRED INANNULING THE
NOTARIAL RESCISSION WHEN THE
COMPLAINT IS ONLY FOR SPECIFIC
PERFORMANCE AND WAS NOT AN
ISSUE RAISED IN THE PLEADINGS OR
DURING THETRIAL.24
The main issue is whether respondent is
entitled to the relief granted by the Court of
Appeals. Petitioner contends that the Court
of Appeals erred in directing it to execute
deeds of absolute sale over the subject lots
even if respondent admitted non-payment of
the balance of the purchase price.
As found by the Court of Appeals, the two
conditional deeds of sale entered into by the
parties are contracts to sell, as they both
contained a stipulation that ownership of the
properties shall not pass to the vendee until
after full payment of the purchase price. In a
conditional sale, as in a contract to sell,
ownership remains with the vendor and
does not pass to the vendee until full
payment of the purchase price.25 The full
payment of the purchase price partakes of a
suspensive condition, and non-fulfillment of
the condition prevents the obligation to sell
from arising.26 To differentiate, a deed of
sale is absolute when there is no stipulation
in the contract that title to the property
remains with the seller until full payment of
the purchase price.
Ramos v. Heruela27 held that Articles 1191
and 1592 of the Civil Code28 are applicable
to contracts of sale, while R.A. No. 6552
applies to contracts to sell.
The Court of Appeals correctly held that
R.A. No. 6552, otherwise known as the
Realty Installment Buyer Act, applies to the
subject contracts to sell. R.A. No. 6552
recognizes in conditional sales of all kinds
of real estate (industrial, commercial,
residential) the right of the seller to cancel
the contract upon non-payment of an
installment by the buyer, which is simply an
event that prevents the obligation of the
vendor to convey title from acquiring binding
force.29
It also provides the right of the buyer on
installments in case he defaults in the
payment of succeeding installments30 as
follows:
Section 3. In all transactions or contracts
involving the sale or financing of real estate
on
installment
payments,
including
residential condominium apartments but
excluding industrial lots, commercial

Page 87 of 109

buildings and sales to tenants under

Republic
Act
Numbered
Thirty-eight
hundred forty-four, as amended by Republic
Act Numbered Sixty-three hundred eightynine, where the buyer has paid at least two
years of installments, the buyer is entitled to
the following rights in case he defaults in the
payment of succeeding installments:
(a) To pay, without additional interest, the
unpaid installments due within the total
grace period earned by him which is hereby
fixed at the rate of one month grace period
for every one year of installment payments
made: Provided, That this right shall be
exercised by the buyer only once in every
five years of the life of the contract and its
extensions, if any.
(b) If the contract is canceled, the seller
shall refund to the buyer the cash surrender
value of the payments on the property
equivalent to fifty per cent of the total
payments made, and, after five years of
installments, an additional five per cent
every year but not to exceed ninety per cent
of the total payments made: Provided, That
the actual cancellation of the contract shall
take place after thirty days from receipt by
the buyer of the notice of cancellation or the
demand for rescission of the contract by a
notarial act and upon full payment of the
cash surrender value to the buyer.
Down payments, deposits or options on the
contract shall be included in the
computation of the total number of
installment payments made. chanrobles a
law library
Sec. 4. In case where less than two years of
installments were paid, the seller shall give
the buyer a grace period of not less than
sixty days from the date the installment
became due.
If the buyer fails to pay the installments due
at the expiration of the grace period, the
seller may cancel the contract after thirty
days from receipt by the buyer of the notice
of cancellation or the demand for rescission
of the contract by a notarial act.31
In this case, respondent has paid less than
two years of installments; therefore, Section
4 of R.A. No. 6552 applies.
The Court of Appeals held that even if
respondent defaulted in its full payment of
the purchase price of the subject lots, the
conditional deeds of sale remain valid and
subsisting, because there was no valid
notice of notarial rescission to respondent,
as the notice was sent to the wrong
address, that is, to Mahogany Products
Corporation, and it was received by a
person employed by Mahogany Products
Corporation and not the respondent. The
Court of Appeals stated that the allegation
that Mahogany Products Corporation and
respondent have the same President, one
Valeriano Bueno, is irrelevant and has not
been actually proven or borne by evidence.
The appellate court held that there was
insufficient proof that respondent actually
received the notice of notarial rescission of
the conditional deeds of sale; hence, the
unilateral rescission of the conditional deeds
of sale cannot be given credence.

However, upon review of the records of this

case, the Court finds that respondent had
been served a notice of the notarial
rescission of the conditional deeds of sale
when it was furnished with the petitioner's
Answer, dated February 16, 1995, to its first
Complaint filed on November 28, 1994with
the RTC of Antipolo City, which case was
docketed as Civil Case No.94-3426, but the
complaint was later dismissed without
prejudice on January15, 1996.32

case, respondent has paid less than two

years of installments; hence, it is not entitled
to a refund.35

satisfactorily apparent on the record; either

in the averments of the plaintiff's complaint,
or otherwise established by the evidence.39

Moreover, petitioner raises the issue of

improper venue and lack of jurisdiction of
the RTC of Manila over the case. It
contends that the complaint involved real
properties in Antipolo City and cancellation
of titles; hence, it was improperly filed in the
RTC of Manila.

Moreover, Dino v. Court of Appeals40 held:

It appears that after respondent filed its first

Complaint for specific performance and
damages with the RTC of Antipolo City on
November 28,1994, petitioner filed an
Answer and attached thereto a copy of the
written notice dated March 17, 1978 and
copies of the notarial acts of rescission
dated March 15, 1978, and that respondent
received a copy of the said Answer with the
attached notices of notarial rescission.
However, to reiterate, the first Complaint
was dismissed without prejudice.

Petitioner's contention lacks merit, as

petitioner and respondent stipulated in both
Conditional Deeds of Sale that they
mutually agreed that in case of litigation, the
case shall be filed in the courts of Manila.36

Five years after the dismissal of the first

Complaint, respondent again filed this case
for specific performance and damages, this
time, with the RTC of Manila. Petitioner filed
an Answer, and alleged, among others, that
the case was barred by prior judgment,
since respondent filed a complaint on
November 28, 1994 before the RTC of
Antipolo City, Branch 73, against it
(petitioner) involving the same issues and
that the case, docketed as Civil Case No.
94-3426, was dismissed on January 15,
1996 for lack of interest. Respondent filed a
Reply33 dated July 18, 2001, asserting that
petitioner prayed for the dismissal of the first
case filed on November 28, 1994 (Civil
Case No. 94-3426) on the ground of
improper venue as the parties agreed in the
deeds of conditional sale that in case of
litigation, the venue shall be in the courts of
Manila. To prove its assertion, respondent
attached to its Reply a copy of petitioners
Answer to the first Complaint in Civil Case
No. 94-3426, which Answer included the
written notice dated March 17, 1978 and
two notarial acts of rescission, both dated
March 15, 1978, of the two conditional
deeds of sale. Hence, respondent is
deemed to have had notice of the notarial
rescission of the two conditional deeds of
sale when it received petitioners Answer to
its first complaint filed with the RTC of
Antipolo, since petitioners Answer included
notices of notarial rescission of the two
conditional deeds of sale. The first
complaint was filed six years earlier before
this complaint was filed. As stated earlier,
the first complaint was dismissed without
prejudice, because respondents counsel
failed to appear at the pre-trial. Since
respondent already received notices of the
notarial rescission of the conditional deeds
of sale, together with petitioners Answer to
the first Complaint five years before it filed
this case, it can no longer deny having
received notices of the notarial rescission in
this case, as respondent admitted the same
when it attached the notices of notarial
rescission to its Reply in this case.
Consequently, respondent is not entitled to
the relief granted by the Court of Appeals.
Under R.A. No. 6552, the right of the buyer
to refund accrues only when he has paid at
least two years of installments.34 In this

Further, petitioner contends that the action

has prescribed. Petitioner points out that the
cause of action is based on a written
contract; hence, the complaint should have
been brought within 10 years from the time
the right of action accrues under Article
1144 of the Civil Code. Petitioner argues
that it is evident on the face of the complaint
and the two contracts of conditional sale
that the cause of action accrued in 1974;
yet, the complaint for specific performance
was filed after 27 years. Petitioner asserts
that the action has prescribed.
The contention is meritorious.
Section 1, Rule 9 of the 1997 Rules of Civil
Procedure provides:
Section 1. Defense and objections not
pleaded. - Defenses and objections not
pleaded whether in a motion to dismiss or in
the answer are deemed waived. However,
when it appears from the pleadings that the
court has no jurisdiction over the subject
matter, that there is another action pending
between the same parties for the same
cause, or that the action is barred by a prior
judgment or by statute of limitations, the
court shall dismiss the claim.37
In Gicano v. Gegato,38 the Court held:
x x x (T)rial courts have authority and
discretion to dismiss an action on the
ground of prescription when the parties'
pleadings or other facts on record show it to
be indeed time-barred; (Francisco v.
Robles, Feb, 15,1954; Sison v. Mc Quaid,
50 O.G. 97; Bambao v. Lednicky, Jan. 28,
1961;Cordova v. Cordova, Jan. 14, 1958;
Convets, Inc. v. NDC, Feb. 28, 1958;32
SCRA 529; Sinaon v. Sorongan, 136 SCRA
408); and it may do so on the basis of a
motion to dismiss (Sec. 1,f, Rule 16, Rules
of Court), or an answer which sets up such
ground as an affirmative defense (Sec. 5,
Rule16), or even if the ground is alleged
after judgment on the merits, as in a motion
for reconsideration (Ferrer v. Ericta, 84
SCRA 705); or even if the defense has not
been asserted at all, as where no statement
thereof is found in the pleadings (Garcia v.
Mathis, 100 SCRA 250;PNB v. Pacific
Commission House, 27 SCRA 766; Chua
Lamco v.Dioso, et al., 97 Phil. 821);
or where a defendant has been declared in
default (PNB v. Perez, 16 SCRA 270). What
is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive
period, be otherwise sufficiently and

Page 88 of 109

Even if the defense of prescription was

raised for the first time on appeal in
respondent's Supplemental Motion for
Reconsideration of the appellate court's
decision, this does not militate against the
due process right of the petitioners. On
appeal, there was no new issue of fact that
arose in connection with the question of
prescription, thus it cannot be said that
petitioners were not given the opportunity to
present evidence in the trial court to meet a
factual issue. Equally important, petitioners
had the opportunity to oppose the defense
of prescription in their Opposition to the
Supplemental Motion for Reconsideration
filed in the appellate court and in their
Petition for Review in this Court.41
In this case, petitioner raised the defense of
prescription for the first time before this
Court, and respondent had the opportunity
to oppose the defense of prescription in its
Comment to the petition. Hence, the Court
can resolve the issue of prescription as both
parties were afforded the opportunity to
ventilate their respective positions on the
matter. The Complaint shows that the
Conditional Deeds of Sale were executed
on November 29, 1973, and payments were
due on both Conditional Deeds of Sale on
November 15, 1974. Article 114442 of the
Civil Code provides that actions based upon
a written contract must be brought within ten
years from the time the right of action
accrues. Non-fulfillment of the obligation to
pay on the last due date, that is, on
November 15, 1974, would give rise to an
action by the vendor, which date of
reckoning may also apply to any action by
the vendee to determine his right under R.A.
No. 6552. The vendee, respondent herein,
filed this case on March 16, 2001, which is
clearly beyond the 10-year prescriptive
period; hence, the action has prescribed.
WHEREFORE, the petition is GRANTED.
The Decision of the Court of Appeals, dated
December 11, 2006, in CA-G.R. CV No.
85877 and its Resolution dated September
4, 2007 are REVERSED and SET ASIDE.
The Decision of the Regional Trial Court of
Manila, Branch I, dated August 1, 2005 in
Civil Case No. 01-100411, dismissing the
case for lack of merit, is REINSTATED.
SO ORDERED.
G.R. No. 185798

January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FILESTATE NETWORK INC., Petitioners,

vs.
SPOUSES CONRADO AND MARIA
VICTORIA RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on
certiorari under Rule 45 of the 1997
Rules .of Civil Procedure assailing the
Decision1 of the Court of Appeals in CAG.R. SP No. 100450 which affirmed the

Decision of the Office of the President in

O.P. Case No. 06-F-216.
As culled from the records, the facts are as
follow:
Petitioner Fil-Estate Properties, Inc. is the
owner and developer of the Central Park
Place Tower while co-petitioner Fil-Estate
Network, Inc. is its authorized marketing
agent. Respondent Spouses Conrado and
Maria Victoria Ronquillo purchased from
petitioners
an
82-square
meter
condominium unit at Central Park Place
Tower in Mandaluyong City for a pre-selling
contract price of FIVE MILLION ONE
HUNDRED SEVENTY-FOUR THOUSAND
ONLY (P5,174,000.00). On 29 August 1997,
respondents executed and signed a
Reservation Application Agreement wherein
they deposited P200,000.00 as reservation
fee. As agreed upon, respondents paid the
full downpayment of P1,552,200.00 and had
been paying the P63,363.33 monthly
amortizations until September 1998.
Upon learning that construction works had
stopped, respondents likewise stopped
paying their monthly amortization. Claiming
to have paid a total of P2,198,949.96 to
petitioners, respondents through two (2)
successive letters, demanded a full refund
of their payment with interest. When their
demands went unheeded, respondents
were constrained to file a Complaint for
Refund and Damages before the Housing
and Land Use Regulatory Board (HLURB).
Respondents
prayed
for
reimbursement/refund of P2,198,949.96
representing
the
total
amortization
payments, P200,000.00 as and by way of
moral damages, attorneys fees and other
litigation expenses.
On 21 October 2000, the HLURB issued an
Order of Default against petitioners for
failing to file their Answer within the
reglementary period despite service of
summons.2
Petitioners filed a motion to lift order of
default and attached their position paper
attributing the delay in construction to the
1997 Asian financial crisis. Petitioners
denied
committing
fraud
or
misrepresentation which could entitle
respondents to an award of moral damages.
On 13 June 2002, the HLURB, through
Arbiter Atty. Joselito F. Melchor, rendered
judgment ordering petitioners to jointly and
severally pay respondents the following
amount:
a) The amount of TWO MILLION ONE
HUNDRED NINETY-EIGHT THOUSAND
NINE HUNDRED FORTY NINE PESOS &
96/100 (P2,198,949.96) with interest
thereon at twelve percent (12%) per annum
to be computed from the time of the
complainants demand for refund on
October 08, 1998 until fully paid,

e) An administrative fine of TEN

THOUSAND PESOS (P10,000.00) payable
to this Office fifteen (15) days upon receipt
of this decision, for violation of Section 20 in
relation to Section 38 of PD 957.3
The Arbiter considered petitioners failure to
develop the condominium project as a
substantial breach of their obligation which
entitles respondents to seek for rescission
with payment of damages. The Arbiter also
stated that mere economic hardship is not
an excuse for contractual and legal delay.
Petitioners appealed the Arbiters Decision
through a petition for review pursuant to
Rule XII of the 1996 Rules of Procedure of
HLURB. On 17 February 2005, the Board of
Commissioners of the HLURB denied4 the
petition and affirmed the Arbiters Decision.
The HLURB reiterated that the depreciation
of the peso as a result of the Asian financial
crisis is not a fortuitous event which will
exempt petitioners from the performance of
their contractual obligation.
Petitioners filed a motion for reconsideration
but it was denied5 on 8 May 2006.
Thereafter, petitioners filed a Notice of
Appeal with the Office of the President. On
18 April 2007, petitioners appeal was
dismissed6 by the Office of the President for
lack of merit. Petitioners moved for a
reconsideration but their motion was
denied7 on 26 July 2007.
Petitioners sought relief from the Court of
Appeals through a petition for review under
Rule 43 containing the same arguments
they raised before the HLURB and the
Office of the President:

c) FIFTY THOUSAND PESOS (P50,000.00)

as attorneys fees,
d) The costs of suit, and

On 30 July 2008, the Court of Appeals

denied the petition for review for lack of
merit. The appellate court echoed the
HLURB Arbiters ruling that "a buyer for a
condominium/subdivision unit/lot unit which
has not been developed in accordance with
the approved condominium/subdivision plan
within the time limit for complying with said
developmental requirement may opt for
reimbursement under Section 20 in relation
to Section 23 of Presidential Decree (P.D.)
957 x x x."9 The appellate court supported
the HLURB Arbiters conclusion, which was
affirmed by the HLURB Board of
Commission and the Office of the President,
that petitioners failure to develop the
condominium project is tantamount to a
substantial breach which warrants a refund
of the total amount paid, including interest.
The appellate court pointed out that
petitioners failed to prove that the Asian
financial crisis constitutes a fortuitous event
which could excuse them from the
performance of their contractual and
statutory obligations. The appellate court
also affirmed the award of moral damages
in light of petitioners unjustified refusal to
satisfy respondents claim and the legality of
the administrative fine, as provided in
Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was
denied in a Resolution10 dated 11
December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant
petition advancing substantially the same
grounds for review:

I.

A.

THE HONORABLE OFFICE OF THE

PRESIDENT ERRED IN AFFIRMING THE
DECISION
OF
THE
HONORABLE
HOUSING AND LAND USE REGULATORY
BOARD AND ORDERING PETITIONERSAPPELLANTS
TO
REFUND
RESPONDENTS-APPELLEES THE SUM
OF P2,198,949.96 WITH 12% INTEREST
FROM 8 OCTOBER 1998 UNTIL FULLY
PAID,
CONSIDERING
THAT
THE
COMPLAINT STATES NO CAUSE OF
ACTION
AGAINST
PETITIONERSAPPELLANTS.

THE HONORABLE COURT OF APPEALS

ERRED WHEN IT AFFIRMED IN TOTO
THE DECISION OF THE OFFICE OF THE
PRESIDENT
WHICH
SUSTAINED
RESCISSION AND REFUND IN FAVOR OF
THE RESPONDENTS DESPITE LACK OF
CAUSE OF ACTION.

II.
THE HONORABLE OFFICE OF THE
PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE OFFICE BELOW
ORDERING PETITIONERS-APPELLANTS
TO PAY RESPONDENTS-APPELLEES
THE SUM OF P100,000.00 AS MORAL
DAMAGES
AND
P50,000.00
AS
ATTORNEYS FEES CONSIDERING THE
ABSENCE OF ANY FACTUAL OR LEGAL
BASIS THEREFOR.
III.

b) ONE HUNDRED THOUSAND PESOS

(P100,000.00) as moral damages,

THE ABSENCE OF ANY FACTUAL OR

LEGAL BASIS TO SUPPORT SUCH
FINDING.8

THE HONORABLE OFFICE OF THE

PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HOUSING AND LAND
USE REGULATORY BOARD ORDERING
PETITIONERS-APPELLANTS TO PAY
P10,000.00 AS ADMINISTRATIVE FINE IN

Page 89 of 109

B.
GRANTING
FOR
THE
SAKE
OF
ARGUMENT THAT THE PETITIONERS
ARE LIABLE UNDER THE PREMISES,
THE HONORABLE COURT OF APPEALS
ERRED WHEN IT AFFIRMED THE HUGE
AMOUNT OF INTEREST OF TWELVE
PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS
LIKEWISE ERRED WHEN IT AFFIRMED IN
TOTO THE DECISION OF THE OFFICE OF
THE PRESIDENT INCLUDING THE
PAYMENT OF P100,000.00 AS MORAL
DAMAGES, P50,000.00 AS ATTORNEYS
FEES
AND
P10,000.00
AS
ADMINISTRATIVE FINE IN THE ABSENCE
OF ANY FACTUAL OR LEGAL BASIS TO
SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states
no cause of action because they allegedly
have
not
committed
any
act
of
misrepresentation amounting to bad faith

which could entitle respondents to a refund.

Petitioners claim that there was a mere
delay in the completion of the project and
that they only resorted to "suspension and
reformatting as a testament to their
commitment to their buyers." Petitioners
attribute the delay to the 1997 Asian
financial crisis that befell the real estate
industry. Invoking Article 1174 of the New
Civil Code, petitioners maintain that they
cannot be held liable for a fortuitous event.
Petitioners contest the payment of a huge
amount of interest on account of suspension
of development on a project. They liken
their situation to a bank which this Court, in
Overseas Bank v. Court of Appeals,12
adjudged as not liable to pay interest on
deposits during the period that its
operations are ordered suspended by the
Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not
be ordered to pay moral damages because
they never intended to cause delay, and
again blamed the Asian economic crisis as
the direct, proximate and only cause of their
failure to complete the project. Petitioners
submit that moral damages should not be
awarded unless so stipulated except under
the instances enumerated in Article 2208 of
the New Civil Code. Lastly, petitioners
refuse to pay the administrative fine
because the delay in the project was
caused not by their own deceptive intent to
defraud their buyers, but due to unforeseen
circumstances beyond their control.
Three issues are presented for our
resolution: 1) whether or not the Asian
financial crisis constitute a fortuitous event
which would justify delay by petitioners in
the performance of their contractual
obligation; 2) assuming that petitioners are
liable, whether or not 12% interest was
correctly imposed on the judgment award,
and 3) whether the award of moral
damages, attorneys fees and administrative
fine was proper.
It is apparent that these issues were
repeatedly raised by petitioners in all the
legal fora. The rulings were consistent that
first, the Asian financial crisis is not a
fortuitous event that would excuse
petitioners from performing their contractual
obligation; second, as a result of the breach
committed by petitioners, respondents are
entitled to rescind the contract and to be
refunded the amount of amortizations paid
including interest and damages; and third,
petitioners are likewise obligated to pay
attorneys fees and the administrative fine.
This petition did not present any justification
for us to deviate from the rulings of the
HLURB, the Office of the President and the
Court of Appeals.
Indeed, the non-performance of petitioners
obligation entitles respondents to rescission
under Article 1191 of the New Civil Code
which states:
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.
More in point is Section 23 of Presidential
Decree No. 957, the rule governing the sale
of condominiums, which provides:
Section
23.
Non-Forfeiture
of
Payments.1wphi1 No installment payment
made by a buyer in a subdivision or
condominium project for the lot or unit he
contracted to buy shall be forfeited in favor
of the owner or developer when the buyer,
after due notice to the owner or developer,
desists from further payment due to the
failure of the owner or developer to develop
the subdivision or condominium project
according to the approved plans and within
the time limit for complying with the same.
Such buyer may, at his option, be
reimbursed the total amount paid including
amortization
interests
but
excluding
delinquency interests, with interest thereon
at the legal rate. (Emphasis supplied).
Conformably with these provisions of law,
respondents are entitled to rescind the
contract and demand reimbursement for the
payments they had made to petitioners.
Notably, the issues had already been settled
by the Court in the case of Fil-Estate
Properties,
Inc.
v. Spouses
Go13
promulgated on 17 August 2007, where the
Court stated that the Asian financial crisis is
not an instance of caso fortuito. Bearing the
same factual milieu as the instant case,
G.R. No. 165164 involves the same
company, Fil-Estate, albeit about a different
condominium property. The company
likewise reneged on its obligation to
respondents therein by failing to develop the
condominium project despite substantial
payment of the contract price. Fil-Estate
advanced the same argument that the 1997
Asian financial crisis is a fortuitous event
which justifies the delay of the construction
project. First off, the Court classified the
issue as a question of fact which may not be
raised in a petition for review considering
that there was no variance in the factual
findings of the HLURB, the Office of the
President and the Court of Appeals.
Second, the Court cited the previous rulings
of Asian Construction and Development
Corporation v. Philippine Commercial
International Bank14 and Mondragon
Leisure and Resorts Corporation v. Court of
Appeals15 holding that the 1997 Asian
financial crisis did not constitute a valid
justification to renege on obligations. The
Court expounded:
Also, we cannot generalize that the Asian
financial crisis in 1997 was unforeseeable
and beyond the control of a business
corporation. It is unfortunate that petitioner
apparently met with considerable difficulty
e.g. increase cost of materials and labor,
even before the scheduled commencement
of its real estate project as early as 1995.
However, a real estate enterprise engaged
in the pre-selling of condominium units is
concededly a master in projections on
commodities and currency movements and
business risks. The fluctuating movement of

Page 90 of 109

the Philippine peso in the foreign exchange

market is an everyday occurrence, and
fluctuations in currency exchange rates
happen everyday, thus, not an instance of
caso fortuito.16
The aforementioned decision becomes a
precedent to future cases in which the facts
are substantially the same, as in this case.
The principle of stare decisis, which means
adherence to judicial precedents, applies.
In said case, the Court ordered the refund of
the total amortizations paid by respondents
plus 6% legal interest computed from the
date of demand. The Court also awarded
attorneys fees. We follow that ruling in the
case before us.
The resulting modification of the award of
legal interest is, also, in line with our recent
ruling in Nacar v. Gallery Frames,17
embodying the amendment introduced by
the Bangko Sentral ng Pilipinas Monetary
Board in BSP-MB Circular No. 799 which
pegged the interest rate at 6% regardless of
the source of obligation.
We likewise affirm the award of attorneys
fees because respondents were forced to
litigate for 14 years and incur expenses to
protect their rights and interest by reason of
the unjustified act on the part of
petitioners.18 The imposition of P10,000.00
administrative fine is correct pursuant to
Section 38 of Presidential Decree No. 957
which reads:
Section 38. Administrative Fines. The
Authority may prescribe and impose fines
not exceeding ten thousand pesos for
violations of the provisions of this Decree or
of any rule or regulation thereunder. Fines
shall be payable to the Authority and
enforceable through writs of execution in
accordance with the provisions of the Rules
of Court.
Finally, we sustain the award of moral
damages. In order that moral damages may
be awarded in breach of contract cases, the
defendant must have acted in bad faith,
must be found guilty of gross negligence
amounting to bad faith, or must have acted
in wanton disregard of contractual
obligations.19 The Arbiter found petitioners
to have acted in bad faith when they
breached their contract, when they failed to
address respondents grievances and when
they
adamantly
refused
to
refund
respondents' payment.
In fine, we find no reversible error on the
merits in the impugned Court of Appeals'
Decision and Resolution.
WHEREFORE, the petition is PARTLY
GRANTED. The appealed Decision is
AFFIRMED with the MODIFICATION that
the legal interest to be paid is SIX
PERCENT (6%) on the amount due
computed from the time of respondents'
demand for refund on 8 October 1998.
G.R. No. 81158

May 22, 1992

OSCAR A. JACINTO and LIBRADA

FRANCO-JACINTO, petitioners,
vs.

ROGELIO KAPARAZ, RAUL KAPARAZ

and
ROSE
MARIET
KAPARAZ,
respondents.
Petitioners urge this Court to review and set
aside the decision of the respondent Court
of Appeals of 30 July 1987 in C.A.-G.R. CV
No. 69357, 1 the dispositive portion of which
reads:
WHEREFORE, the appealed decision is
hereby REVERSED and SET ASIDE and
judgment is hereby rendered as follows:
1. The Complaint/Amended Complaint is
hereby dismissed.
2. The agreement between the parties
dated March 11, 1966 (Exhibit "A"; also
marked as Exhibit "1" ) is hereby declared
extinguished.
3. To prevent unjust enrichment at the
expense of another, the defendantsappellants are hereby ordered to reimburse
to the plaintiffs-appellees the sum of
P500.00 paid by the latter to the
Development Bank of the Philippines for the
defendants-appellants'
P2,600.00
loan
account.
No pronouncement as to costs.
SO ORDERED. 2
The undisputed antecedent facts are as
follows:
On 11 March 1966, herein petitioners and
private respondents entered into an
agreement (hereinafter referred to as
Agreement) under which the private
respondents agreed to sell and convey to
petitioners a portion consisting of six
hundred (600) square meters of a lot
located in Matiao, Mati, Davao Oriental and
covered by Transfer Certificate of Title No.
T-3694 for a total consideration of
P1,800.00 of downpayment of P800.00 was
paid upon execution of the Agreement. The
balance of P1,000.00 was to be paid by
petitioners on installment at the rate of
P100.00 a month to the Development Bank
of the Philippines (DBP) to be applied to
private
respondents'
loan
accounts.
Paragraphs 5, 6, 7 and 8 of the Agreement
read as follows:
That the PARTY OF THE FIRST PART is
very much in need of cash to pay the loan to
the DEVELOPMENT BANK OF THE
PHILIPPINES
herein
abovementioned
which is very much in arrears and the
PARTY OF THE SECOND PART is
agreeable to advance the sum of EIGHT
HUNDRED (P800.00) PESOS as partial
payment of the said loan to the
Development Bank of the Philippines
provided that the PARTY OF THE FIRST
PARTY (sic) shall sell, transfer, cede and
convey absolutely to the party of the
SECOND PART an area of SIX HUNDRED
(600) SQUARE METERS with a frontage of
twenty (20) METERS along the present
national highway, at the corner of the
aforementioned land bordering a proposed
five-meter subdivision road adjacent to the
property of the PARTY OF THE SECOND
PART;

That for and in consideration of the

foregoing premises and of the sum of
EIGHT HUNDRED (800.00) PESOS which
the PARTY OF THE FIRST PARTY (sic)
hereby acknowledges to have received from
the PARTY OF THE SECOND PART, THE
PARTY OF THE FIRST PART hereby
agrees, promises and binds himself to sell,
cede, transfer, and convey absolutely to the
PARTY OF THE SECOND PART SIX
HUNDRED (600) SQUARE METERS
portion of the property covered by
TRANSFER CERTIFICATE OF TITLE NO.
T-3694 together with all the improvements
thereon, which portion is situated along the
national highway and shown as the shaded
area in the sketch at the back hereof; the
total consideration of the sale of the said
SIX HUNDRED (600) SQUARE METERS
shall be ONE THOUSAND EIGHT
HUNDRED PESOS (P1,800.00), including
the amount of EIGHT HUNDRED PESOS
(P800.00) advanced by the PARTY OF THE
SECOND PART upon the execution of this
document;
That the unpaid balance of the total
consideration of the sale amounting to ONE
THOUSAND (P1,000.00) PESOS shall be
paid by the PARTY OF THE SECOND
PART directly to the DEVELOPMENT BANK
OF THE PHILIPPINES, DAVAO BRANCH,
in ten (10) equal monthly installments of
ONE HUNDRED (P100.00) PESOS each
not later than the 15th day following the end
of each month beginning May 10, 1966;

Answer filed on 28 June 1977, later

amended on 19 December 1979 as a
consequence of the filing of the amended
complaint, private respondents alleged that
the sale did not materialize because of the
failure of petitioners to fulfill their promise to
make timely payments on the stipulated
price to the DBP; as a result of such failure,
they (private respondents) failed to secure
the release of the mortgage on the property.
They then prayed for the dismissal of the
case and a declaration that the agreement
is null and void.
After due trial, the court below rendered on
19 November 1981 a decision in favor of the
petitioners, the dispositive portion of which
reads as follows:
FOR ALL THE FOREGOING, judgment is
hereby rendered in favor of the plaintiffs and
against the defendants
(1) Declaring the plaintiffs to be the owners
of the property consisting of six hundred
(600) square meters, more or less,
denominated as Lot H-12, Psd-11-000576,
which was formerly a portion of the property
covered by Transfer Certificate of Title No.
T-3694, and now covered by Transfer
Certificate of Title No. T-5824 in the name of
defendant Rogelio Kaparaz;
(2) Ordering defendant Rogelio Kaparaz to
reconvey this property to the plaintiffs
herein;

That the PARTY OF THE SECOND PART

has the right and privilege by virtue of this
(sic) presents to take possession of the area
of SIX HUNDRED (600) SQUARE METERS
subject of this agreement and to appropriate
for himself all the improvements existing
thereon effective from the date of execution
of this agreement; 3

(3) Ordering defendants to pay plaintiffs

reasonable attorney's fees in the amount of
P3,000.00 and to pay the costs.

Paragraph 9 thereof reads:

xxxxxx

That the PARTY OF THE FIRST PART

agrees and binds himself to acknowledge
receipt of every and all monthly payments
remitted to the DEVELOPMENT BANK OF
THE PHILIPPINES by the PARTY OF THE
SECOND PART and further agrees and
binds himself to execute the final deed of
absolute sale of the SIX HUNDRED (600)
SQUARE METERS herein above referred to
in favor of the PARTY OF THE SECOND
PART as soon as the settlement or partition
of the estate of the deceased NARCISA R.
KAPARAZ shall have been consummated
and effected, but not later than March 31,
1967; 4

The adduced evidence will show that the

parties herein above executed a certain
agreement (Exh. "A" for the plaintiffs; Exhibit
"1" for the defendants) dated March 11,
1966, the pertinent portions of which are
hereunder quoted, to wit:

Upon the execution of the agreement,

petitioners paid the downpayment of
P800.00 and were placed in possession of
the portion described therein. As to the
P1,000.00 which was to be paid directly to
the DBP, petitioners claim that they had
even made an excess payment of P100.00.
In view of the refusal of private respondents
to execute the deed of sale, petitioners filed
against them a complaint for specific
performance with the then Court of First
Instance (now Regional Trial Court) of
Davao Oriental. The complaint was
docketed as Civil Case No. 586 and was
amended on 23 January 1979. In their

Page 91 of 109

SO ORDERED. 5
The facts as found by the trial court are as
follows:

xxxxxx

xxx

xxx

From the foregoing provisions of the said

agreement, the defendants herein have
bound themselves to sell and convey a
portion of the property covered by Transfer
Certificate of Title No. T-3694, consisting of
SIX HUNDRED (600) SQUARE METERS,
to the plaintiffs for a consideration of
P1,800.00, P800.00 of which had been
received by the defendants upon the
execution of the document and the
remaining balance of P1,000.00 shall be
paid by the plaintiffs directly to the
Development Bank of the Philippines in "ten
(10) equal monthly installments of ONE
HUNDRED (P100.00) PESOS EACH not
later than the 15th day following the end of
each month beginning May 10, 1966". The
defendants, on the other hand, have also
bound themselves to execute the final deed
of absolute sale of the portion abovementioned in favor of the plaintiffs "as soon
as the settlement or partition of the estate of
the deceased NARCISA R. KAPARAZ shall

have been consummated and effected, but

not later than March 31, 1967."
It appears that plaintiffs had paid defendant
Domingo Kaparaz the amount of P400.00
(Exh. "B"), the P200.00 which was paid by
plaintiffs to the development Bank of the
Philippines for the account of the late
Domingo Kaparaz and the P200.00 was
given to said defendant. Plaintiff Oscar
Jacinto made another payment to the
Development Bank of the Philippines for the
account of Domingo and Narcisa Kaparaz
covered by Official Receipt No. 1113990,
dated November 29, 1966, in the amount of
P200.00 (Exh. "F"). Another payment was
again made to the Development Bank of the
Philippines for the same account by plaintiff
Oscar Jacinto covered by Official Receipt
No. 1334193, dated December 5, 1968, in
the amount of P300.00 (Exh. "C") and
another payment also was made on
December 9, 1968 in the amount of
P200.00 covered by Official Receipt No.
1334196 (Exh. ''H''). All of these payments
are certified by the Development Bank of
the Philippines (Exh. "E") to have been
made by plaintiff Oscar Jacinto and applied
to the accounts of Domingo and Narcisa
Kaparaz. For the subdivision survey of the
lot of six (600) square meters involved in
this case, plaintiffs contributed the amount
of P80.00 (Exh. "J") and another amount of
P350.00 was paid also to Engr. Ladera
(Exh. "I") plaintiffs, all in all, aside from the
payments that they made to the Surveyor,
have paid the Development Bank of the
Philippines for the account of the late
Domingo Kaparaz in the total amount of
P700.00 which in already in excess of the
price consideration of P1,800.00 after
defendants had received the amount of
P1,200.00. Plaintiff Oscar Jacinto explained
that the payment was in excess of P100.00
because the balance of P600.00 which was
originally intended to be paid for the
surveyor was instead paid by him to the
bank plus P100.00 to cover the
accumulated interests. Thus (sic), making
the total payments to the Development
Bank of the Philippines in the amount of
P700.00.
On the other (hand), defendant Rogelio
Kaparaz testified that plaintiffs did not
comply with the terms of the agreement
(Exh. "A") by having failed to pay the ten
(10) equal monthly installments. For failure
of plaintiffs to pay the monthly installments,
as agreed (sic) in the agreement (Exh. "A" ),
he decided to pay the Development Bank of
the Philippines of (sic) their accounts. The
partial payment was made on July 3, 1967
in the amount of P3,000.00 covered by
Official Receipt No. 1160314 (Exh. "2") and
another payment for the balance was made
on August 15, 1967 in the amount of
73,124.11 covered by Official Receipt No.
1160831 (Exh. "4").
It is likewise admitted that the estate of the
late Narcisa R. Kaparaz had already been
settled and that six hundred (600) square
meters portion of the lot covered by Transfer
Certificate of Title No. T-3694, or Lot No. H12, Psd-11-000576, has already been
adjudicated to defendant Rogelio Kaparaz
and is now registered in his name under
Transfer Certificate of Title No. T-5824. 6

Private respondents appealed from said

decision to the Court of Appeals which
docketed the case as C.A.-G.R. CV No.
69357. In their Brief, they contended that
the trial court erred in: (a) finding that
petitioners had fully paid the consideration
for the property subject of the agreement,
(b) ruling that the delay in the payments to
the DBP is only a slight breach of the
agreement, (c) holding private respondents'
failure to protest petitioners' delay of
payment amounted to implied waiver to
rescind the agreement, (d) declaring that
laches did not operate against petitioners
considering that the prescriptive period has
not even expired, (e) not holding that the
parties are in pari delicto, and (f) ordering
Rogelio Kaparaz to reconvey the property in
question to petitioners.
As earlier adverted to, in its decision of 30
July 1987, the respondent Court of Appeals
reversed the decision of the trial court. The
respondent Court was of the opinion that:
(a) The petitioners had not fully discharged
their obligation under the agreement
considering that their last payments to DBP
of P300.00 7 and P200.00 8 were "several
months delayed beyond the date/s agreed
upon by the parties," and that the
agricultural loan to which the amortizations
of the unpaid balance of P1,000.00 of the
purchase price were to be applied had in
fact been fully settled by the private
respondents. The application of these
payments by the DBP to another account of
the private respondents was of no moment
because the agreement of the parties
specifically referred to the agricultural loan.
(b) No evidence supports the .conclusion of
the trial court that private respondents failed
to protest the delay in the payments. On the
contrary, the evidence discloses that private
respondents demanded from the petitioners
the balance of the obligation after the latter
had defaulted; having received no
response, private respondents themselves
paid .the agricultural loan. (c) The delay in
the payments was not a slight breach. The
dates of the payments were so essential
that they were specifically stipulated upon
by the parties. The primary importance of
timely payments sprang from the nature of
the subject bank account consisting of a
loan secured by a real estate mortgage
which demanded up-to-date amortization to
prevent foreclosure. (d) While the trial court
was correct in holding that both parties
defaulted in the performance of their
respective obligations, petitioners were the
first to incur in delay. There is, therefore,
greater justification to decree rescission.
Moreover, even granting that there was no
evidence as to who violated the agreement
first, then the contract is deemed
extinguished pursuant to the second
sentence of Article 1192 of the Civil Code.
This Article provides that:
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 damage.
Unable to accept the above verdict,
petitioner commenced this petition wherein
they allege that respondent Court erred in

Page 92 of 109

not finding that: (a) petitioners had fully paid

the consideration for the 600 square meters
of Lot H; (b) private respondents' failure to
protest the delay of payments can be
considered as estoppel on their part and an
implied waiver of their right to rescind the
sale; (c) assuming that the last two
payments to the DBP were not valid as they
were applied to another account, there was
at least substantial performance by the
petitioners of their obligation; (d) the breach
on the part of petitioners was only slight or
casual and would not warrant rescission of
the sale; (e) under the circumstances, it was
necessary for the respondents to make a
notarial demand or obtain prior judicial
approval to effect rescission of the sale; and
finally, (e) the agreement was extinguished.
After the filing of the Comments by private
respondents, the reply thereto by petitioners
and the rejoinder to the latter by private
respondents, the Court gave due course to
the petition and required the parties to
submit simultaneously their respective
Memoranda, 9 which they subsequently
complied with. 10
The petition is impressed with merit.
Vital to the resolution of the controversy is
the determination of the true nature of the
questioned agreement. Is it a contract of
sale or a contract to sell? The two are not,
of course, the same. In the latter case,
ownership is retained by the seller and is
not to pass until full payment of the price.
Such payment is a positive suspensive
condition the failure of which is not a
broach, casual or serious, but simply an
event that prevents the obligation of the
vendor to convey title from acquiring binding
force. In such a situation, 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 question. 11 Otherwise stated, as
capsulized in Luzon Brokerage Co., Inc. vs.
Maritime Building Co., Inc., 12 "there can be
no rescission or resolution of an obligation
as
yet
non-existent,
because
the
suspensive condition did not happen."
Expanding on this point, this Court, in said
case, made the following disquisitions:
. . . 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 suspensive Ilega a faltar,

la obligacion se tiene por no existente, y el
acreedor pierde todo derecho, incluso el de
utilizar las medidas conservativas. (3 Catan
Derecho Civil, 7a Ed., p. 107). (Also Puig
Pea, Der. Civ., T. IV (1), p. 113).
On the other hand, since in a contract of
sale, the non-payment of the price is a
resolutory condition, 13 the remedy of the
seller under Article 1191 of the Civil Code is
to exact fulfillment or to rescind the contract.
In respect, however, to the sale of
immovable property, this Article must be
read together with Article 1592 of the same
Code:
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.
This Article applies to instances where no
stipulation for automatic rescission is made
because it says "even though". 14
The agreement in the instant case has all
the earmarks of a contract of sale. The
possession of the portion sold was
immediately delivered to the petitioners.
They were granted the right to enjoy all the
improvements therein effective from the
date of the execution of the agreement.
Private respondents unqualifiedly bound
themselves to execute the final deed of sale
"as soon as the settlement or partition of the
estate of the deceased Narcisa R. Kaparaz
shall have been consummated and effected,
but not later than March 31, 1967" and only
upon full payment of the unpaid portion of
the purchase price. The private respondents
did not reserve unto themselves the
ownership of the property until full payment
of the unpaid balance of P1,000.00. Finally,
there is no stipulation giving the private
respondents the right to unilaterally rescind
the contract the moment the vendee fails to
pay within a fixed period. In reality, the
agreement was an absolute sale which
allowed the petitioners to pay the remaining
balance of the purchase price in installment.
We agree with the submission of
petitioners 15 that Dignos vs. Court of
Appeals 16 applies in this case. In said
case, this Court stated:
Thus, it has been held that a deed of sale is
absolute in nature although denominated as
a "Deed of Conditional Sale" where
nowhere in the contract in question is a
proviso or stipulation to the effect that title to
the property sold is reserved in the vendor
until full payment of the purchase price, nor
is there a stipulation giving the vendor the
right to unilaterally rescind the contract the
moment the vendee fails to pay within a
fixed period (Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v.
Maritime Building Co., Inc., 86 SCRA 305).
As stated earlier, in a contract of sale, the
remedy of an unpaid seller is either specific
performance or rescission. The latter, with

respect to the sale of immovables, is

specifically governed by Article 1592 of the
Civil Code. 17 In the case at bar, there was
non-compliance with the requirements
prescribed in these provisions. It is not
controverted that private respondents had
neither filed an action for specific
performance nor demanded the rescission
of the agreement either judicially or by a
notarial act before the filing of the complaint
in Civil Case No. 586. It is only in their
Answer that they belatedly raised the
defense of resolution of the contract
pursuant to Article 1191 by reason of
petitioners' breach of their obligation.
Even if the general law on resolution, Article
1191 of the Civil Code, is to be applied, Our
decision would still be for the petitioners.
The third paragraph of this Article reads:
xxxxxx

xxx

The Court shall decree the rescission

claimed, unless there be just cause
authorizing the fixing of a period.
It is not denied that petitioners made two (2)
payments in the sums of P200.00 and
P300.00 at a time when what remained
unsettled under the agreement was only
P400.00. There was then an excess
payment of P100.00. These payments were
made to the DBP which applied them to an
outstanding account of the private
respondents. Private respondents neither
complained of the delay in these payments
nor rejected their application to their
account. They were, undoubtedly, benefited
by the application because it either satisfied
their account or correspondingly reduced it.
The claim that the account to which it was
applied was not the account stipulated in
the agreement is without merit. In the first
place, the agreement fails to disclose an
express agreement that the monthly
amortizations on the P1,000.00 unpaid
balance of the purchase price to be made to
the DBP should be applied exclusively to
the agricultural loan indicated in the
exordium of the agreement. The loan was
mentioned only to lay the basis for private
respondents' need for the downpayment. In
the second place, to allow private
respondents to reject the payment of
P400.00, plus the excess of P100.00 after
they benefited therefrom, would be unjust.
Then too, at no time before the filing of their
Answer did private respondents declare
their intention to rescind the agreement, or if
they did, communicate such intention to the
petitioners. It was necessary for private
respondents to have done so. As this Court
held in University of the Philippines vs. De
los Angeles: 18
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

Page 93 of 109

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 others' 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).
Finally, the delay incurred by petitioners was
but a casual or slight breach of the
agreement, which did not defeat the object
of the parties in entering into the agreement.
A mere casual breach does not justify
rescission. 19 The prompt payment of the
monthly amortizations of the unpaid balance
of P1,000.00 was not a condition precedent
to the execution of the final deed of sale.
Besides, petitioners had already paid
P1,400.00 of the total consideration of
P1,800.00, or exactly 77.77% of the
purchase price within the period stipulated.
Moreover, they had in fact overpaid the
private respondents by P100.00.
Accordingly, We rule that rescission of the
agreement was not available to private
respondents.
We further rule that the respondent Court
erred
in
declaring
the
agreement
extinguished pursuant to the second
sentence of Article 1192 of the Civil Code.
Having concluded, although erroneously,
that petitioners were the first to breach the
agreement, it should have applied the first
sentence thereof by equitably tempering
petitioners' liability. The second sentence
applies only to cases where it cannot be
determined which of the parties first violated
the contract.
The
foregoing
disquisitions
render
unnecessary any discussion on the other
issues raised by petitioners.
WHEREFORE, the petition is GRANTED.
The challenged decision of the Court of
Appeals is REVERSED and the judgment of
the lower court is hereby REINSTATED and
AFFIRMED.
Costs
against
private
respondents.
G.R. No. L-16570

March 9, 1922

SMITH, BELL & CO., LTD., plaintiffappellant,

vs.
VICENTE SOTELO MATTI, defendantappellant.

In August, 1918, the plaintiff corporation and

the defendant, Mr. Vicente Sotelo, entered
into contracts whereby the former obligated
itself to sell, and the latter to purchase from
it, two steel tanks, for the total price of
twenty-one thousand pesos (P21,000), the
same to be shipped from New York and
delivered at Manila "within three or four
months;" two expellers at the price of twenty
five thousand pesos (P25,000) each, which
were to be shipped from San Francisco in
the month of September, 1918, or as soon
as possible; and two electric motors at the
price of two thousand pesos (P2,000) each,
as to the delivery of which stipulation was
made,
couched
in
these
words:
"Approximate delivery within ninety days.
This is not guaranteed."
The tanks arrived at Manila on the 27th of
April, 1919: the expellers on the 26th of
October, 1918; and the motors on the 27th
of February, 1919.
The plaintiff corporation notified the
defendant, Mr. Sotelo, of the arrival of these
goods, but Mr. Sotelo refused to receive
them and to pay the prices stipulated.
The plaintiff brought suit against the
defendant, based on four separate causes
of action, alleging, among other facts, that it
immediately notified the defendant of the
arrival of the goods, and asked instructions
from him as to the delivery thereof, and that
the defendant refused to receive any of
them and to pay their price. The plaintiff,
further, alleged that the expellers and the
motors were in good condition. (Amended
complaint, pages 16-30, Bill of Exceptions.)
In their answer, the defendant, Mr. Sotelo,
and the intervenor, the Manila Oil Refining
and By-Products Co., Inc., denied the
plaintiff's allegations as to the shipment of
these goods and their arrival at Manila, the
notification to the defendant, Mr. Sotelo, the
latter's refusal to receive them and pay their
price, and the good condition of the
expellers and the motors, alleging as
special defense that Mr. Sotelo had made
the contracts in question as manager of the
intervenor, the Manila Oil Refining and ByProducts Co., Inc which fact was known to
the plaintiff, and that "it was only in May,
1919, that it notified the intervenor that said
tanks had arrived, the motors and the
expellers having arrived incomplete and
long after the date stipulated." As a
counterclaim or set-off, they also allege that,
as a consequence of the plaintiff's delay in
making delivery of the goods, which the
intervenor intended to use in the
manufacture of cocoanut oil, the intervenor
suffered damages in the sums of one
hundred sixteen thousand seven hundred
eighty-three pesos and ninety-one centavos
(P116,783.91) for the nondelivery of the
tanks, and twenty-one thousand two
hundred and fifty pesos (P21,250) on
account of the expellers and the motors not
having arrived in due time.
The case having been tried, the court below
absolved the defendants from the complaint
insofar as the tanks and the electric motors
were concerned, but rendered judgment
against them, ordering them to "receive the
aforesaid expellers and pay the plaintiff the
sum of fifty thousand pesos (P50,00), the

price of the said goods, with legal interest

thereon from July 26, 1919, and costs."
Both parties appeal from this judgment,
each assigning several errors in the findings
of the lower court.
The principal point at issue in this case is
whether or not, under the contracts entered
into and the circumstances established in
the record, the plaintiff has fulfilled, in due
time, its obligation to bring the goods in
question to Manila. If it has, then it is
entitled to the relief prayed for; otherwise, it
must be held guilty of delay and liable for
the consequences thereof.
To solve this question, it is necessary to
determine what period was fixed for the
delivery of the goods.
As regards the tanks, the contracts A and B
(pages 61 and 62 of the record) are similar,
and in both of them we find this clause:
To be delivered within 3 or 4 months The
promise or indication of shipment carries
with it absolutely no obligation on our part

Government
regulations,
railroad
embargoes, lack of vessel space, the
exigencies of the requirement of the United
States Government, or a number of causes
may act to entirely vitiate the indication of
shipment as stated. In other words, the
order is accepted on the basis of shipment
at Mill's convenience, time of shipment
being merely an indication of what we hope
to accomplish.

contains this expression, "Approximate

delivery within ninety days," but right after
this, it is noted that "this is not guaranteed."
The oral evidence falls short of fixing such
period.
From the record it appears that these
contracts were executed at the time of the
world war when there existed rigid
restrictions on the export from the United
States of articles like the machinery in
question, and maritime, as well as railroad,
transportation was difficult, which fact was
known to the parties; hence clauses were
inserted in the contracts, regarding
"Government
regulations,
railroad
embargoes, lack of vessel space, the
exigencies of the requirements of the United
States Government," in connection with the
tanks and "Priority Certificate, subject to the
United State Government requirements,"
with respect to the motors. At the time of the
execution of the contracts, the parties were
not unmindful of the contingency of the
United States Government not allowing the
export of the goods, nor of the fact that the
other foreseen circumstances therein stated
might prevent it.
Considering these contracts in the light of
the civil law, we cannot but conclude that
the term which the parties attempted to fix is
so uncertain that one cannot tell just
whether, as a matter of fact, those articles
could be brought to Manila or not. If that is
the case, as we think it is, the obligations
must be regarded as conditional.

In the contract Exhibit C (page 63 of the

record), with reference to the expellers, the
following stipulation appears:

Obligations for the performance of which a

day certain has been fixed shall be
demandable only when the day arrives.

The following articles, hereinbelow more

particularly described, to be shipped at San
Francisco within the month of September /
18, or as soon as possible. Two
Anderson oil expellers . . . .

A day certain is understood to be one which

must necessarily arrive, even though its
date be unknown.

And in the contract relative to the motors

(Exhibit D, page 64, rec.) the following
appears:
Approximate delivery within ninety days.
This is not guaranteed. This sale is
subject to our being able to obtain Priority
Certificate, subject to the United States
Government requirements and also subject
to confirmation of manufactures.
In all these contracts, there is a final clause
as follows:
The sellers are not responsible for delays
caused by fires, riots on land or on the sea,
strikes or other causes known as "Force
Majeure" entirely beyond the control of the
sellers or their representatives.
Under these stipulations, it cannot be said
that any definite date was fixed for the
delivery of the goods. As to the tanks, the
agreement was that the delivery was to be
made "within 3 or 4 months," but that period
was subject to the contingencies referred to
in a subsequent clause. With regard to the
expellers, the contract says "within the
month of September, 1918," but to this is
added "or as soon as possible." And with
reference to the motors, the contract

Page 94 of 109

If the uncertainty should consist in the

arrival or non-arrival of the day, the
obligation is conditional and shall be
governed by the rules of the next preceding
section. (referring to pure and conditional
obligations). (Art. 1125, Civ. Code.)
And as the export of the machinery in
question was, as stated in the contract,
contingent upon the sellers obtaining
certificate of priority and permission of the
United States Government, subject to the
rules and regulations, as well as to railroad
embargoes, then the delivery was subject to
a condition the fulfillment of which
depended not only upon the effort of the
herein plaintiff, but upon the will of third
persons who could in no way be compelled
to fulfill the condition. In cases like this,
which are not expressly provided for, but
impliedly covered, by the Civil Code, the
obligor will be deemed to have sufficiently
performed his part of the obligation, if he
has done all that was in his power, even if
the condition has not been fulfilled in reality.
In such cases, the decisions prior to the
Civil Code have held that the obligee having
done all that was in his power, was entitled
to enforce performance of the obligation.
This performance, which is fictitious not
real is not expressly authorized by the
Code, which limits itself only to declare valid

those conditions and the obligation thereby

affected; but it is neither disallowed, and the
Code being thus silent, the old view can be
maintained as a doctrine. (Manresa's
commentaries on the Civil Code [1907], vol.
8, page 132.)
The decisions referred to by Mr. Manresa
are those rendered by the supreme court of
Spain on November 19, 1896, and February
23, 1871.
In the former it is held:
First. That when the fulfillment of the
conditions does not depend on the will of
the obligor, but on that of a third person who
can in no way be compelled to carry it out,
and it is found by the lower court that the
obligor has done all in his power to comply
with the obligation, the judgment of the said
court, ordering the other party to comply
with his part of the contract, is not contrary
to the law of contracts, or to Law 1, Tit. I,
Book 10, of the "Novsima Recopilacin," or
Law 12, Tit. 11, of Partida 5, when in the
said finding of the lower court, no law or
precedent is alleged to have been violated.
(Jurisprudencia Civil published by the
directors of the Revista General de
Legislacion y Jurisprudencia [1866], vol. 14,
page 656.)
In the second decision, the following
doctrine is laid down:
Second. That when the fulfillment of the
condition does not depend on the will of the
obligor, but on that of a third person, who
can in no way be compelled to carry it out,
the obligor's part of the contract is complied
withalf Belisario not having exercised his
right of repurchase reserved in the sale of
Basilio Borja mentioned in paragraph (13)
hereof, the affidavit of Basilio Borja for the
consolidacion de dominio was presented for
record in the registry of deeds and recorded
in the registry on the same date.
(32) The Maximo Belisario left a widow, the
opponent Adelina Ferrer and three minor
children, Vitaliana, Eugenio, and Aureno
Belisario as his only heirs.
(33) That in the execution and sales
thereunder, in which C. H. McClure appears
as the judgment creditor, he was
represented by the opponent Peter W.
Addison, who prepared and had charge of
publication of the notices of the various
sales and that in none of the sales was the
notice published more than twice in a
newspaper.
The claims of the opponent-appellant
Addison have been very fully and ably
argued by his counsel but may, we think, be
disposed of in comparatively few words. As
will be seen from the foregoing statement of
facts, he rest his title (1) on the sales under
the executions issued in cases Nos. 435,
450, 454, and 499 of the court of the justice
of the peace of Dagupan with the priority of
inscription of the last two sales in the
registry of deeds, and (2) on a purchase
from the Director of Lands after the land in
question had been forfeited to the
Government for non-payment of taxes
under Act No. 1791.

The sheriff's sales under the execution

mentioned are fatally defective for what of
sufficient publication of the notice of sale.
Section 454 of the Code of civil Procedure
reads in part as follows:
SEC. 454. Before the sale of property on
execution, notice thereof must be given, as
follows:
1. In case of perishable property, by posing
written notice of the time and place of the
sale in three public places of the
municipality or city where the sale is to take
place, for such time as may be reasonable,
considering the character and condition of
the property;
2. *

3. In cases of real property, by posting a

similar notice particularly describing the
property, for twenty days in three public
places of the municipality or city where the
property is situated, and also where the
property is to be sold, and publishing a copy
thereof once a week, for the same period, in
some newspaper published or having
general circulation in the province, if there
be one. If there are newspaper published in
the province in both the Spanish and
English languages, then a like publication
for a like period shall be made in one
newspaper published in the Spanish
language, and in one published in the
English language: Provided, however, That
such publication in a newspaper will not be
required when the assessed valuation of the
property does not exceed four hundred
pesos;
4. *

Examining the record, we find that in cases

Nos. 435 and 450 the sales took place on
October 14, 1916; the notice first published
gave the date of the sale as October 15th,
but upon discovering that October 15th was
a Sunday, the date was changed to October
14th. The correct notice was published
twice in a local newspaper, the first
publication was made on October 7th and
the second and last on October 14th, the
date of the sale itself. The newspaper is a
weekly periodical published every Saturday
afternoon.
In case No. 454 there were only two
publications of the notice in a newspaper,
the first publication being made only
fourteen days before the date of the sale. In
case No. 499, there were also only two
publications, the first of which was made
thirteen days before the sale. In the last
case the sale was advertised for the hours
of from 8:30 in the morning until 4:30 in the
afternoon, in violation of section 457 of the
Code of Civil Procedure. In cases Nos. 435
and 450 the hours advertised were from
9:00 in the morning until 4.30 in the
afternoon. In all of the cases the notices of
the sale were prepared by the judgment
creditor or his agent, who also took charged
of the publication of such notices.
In the case of Campomanes vs. Bartolome
and Germann & Co. (38 Phil., 808), this
court held that if a sheriff sells without the
notice prescribe by the Code of Civil
Procedure induced thereto by the judgment

Page 95 of 109

creditor and the purchaser at the sale is the

judgment creditor, the sale is absolutely void
and not title passes. This must now be
regarded as the settled doctrine in this
jurisdiction whatever the rule may be
elsewhere.
It appears affirmatively from the evidence in
the present case that there is a newspaper
published in the province where the sale in
question took place and that the assessed
valuation of the property disposed of at
each sale exceeded P400. Comparing the
requirements of section 454, supra, with
what was actually done, it is self-evident
that notices of the sales mentioned were not
given as prescribed by the statute and
taking into consideration that in connection
with these sales the appellant Addison was
either the judgment creditor or else
occupied a position analogous to that of a
judgment creditor, the sales must be held
invalid.
The conveyance or reconveyance of the
land from the Director of Lands is equally
invalid. The provisions of Act No. 1791
pertinent to the purchase or repurchase of
land confiscated for non-payment of taxes
are found in section 19 of the Act and read:
. . . In case such redemption be not made
within the time above specified the
Government of the Philippine Islands shall
have an absolute, indefeasible title to said
real property. Upon the expiration of the said
ninety days, if redemption be not made, the
provincial treasurer shall immediately notify
the Director of Lands of the forfeiture and
furnish him with a description of the
property, and said Director of Lands shall
have full control and custody thereof to
lease or sell the same or any portion thereof
in the same manner as other public lands
are leased or sold: Provided, That the
original owner, or his legal representative,
shall have the right to repurchase the entire
amount of his said real property, at any time
before a sale or contract of sale has been
made by the director of Lands to a third
party, by paying therefore the whole sum
due thereon at the time of ejectment
together with a penalty of ten per
centum . . . .
The appellant Addison repurchased under
the final proviso of the section quoted and
was allowed to do so as the successor in
interest of the original owner under the
execution sale above discussed. As we
have seen, he acquired no rights under
these sales, was therefore not the
successor of the original owner and could
only have obtained a valid conveyance of
such titles as the Government might have
by following the procedure prescribed by the
Public Land Act for the sale of public lands.
he is entitled to reimbursement for the
money paid for the redemption of the land,
with interest, but has acquired no title
through the redemption.
The question of the priority of the record of
the sheriff's sales over that of the sale from
Belisario to Borja is extensively argued in
the briefs, but from our point of view is of no
importance; void sheriff's or execution sales
cannot be validated through inscription in
the Mortgage Law registry.

The opposition of Adelina Ferrer must also

be overruled. She maintained that the land
in question was community property of the
marriage of Eulalio Belisario and Paula Ira:
that upon the death of Paula Ira inealed
from is modified, and the defendant Mr.
Vicente Sotelo Matti, sentenced to accept
and receive from the plaintiff the tanks, the
expellers and the motors in question, and to
pay the plaintiff the sum of ninety-six
thousand pesos (P96,000), with legal
interest thereon from July 17, 1919, the date
of the filing of the complaint, until fully paid,
and the costs of both instances. So ordered.
G.R. No. L-18500

October 2, 1922

FILOMENA
SARMIENTO
and
her
husband EUSEBIO M. VILLASEOR,
plaintiffs-appellants,
vs.
GLICERIO
JAVELLANA,
defendantappellant.
On August 28, 1991, the defendant loaned
the plaintiffs the sum of P1,500 with interest
at the rate of 25 per cent per annum for the
term of one year. To guarantee this loan, the
plaintiffs pledged a large medal with a
diamond in the center and surrounded with
ten diamonds, a pair of diamond earrings, a
small comb with twenty-two diamonds, and
two diamond rings, which the contracting
parties appraised at P4,000. This loan is
evidenced by two documents (Exhibits A
and 1) wherein the amount appears to be
P1,875, which includes the 25 per cent
interest on the sum of P1,500 for the term of
one year.
The plaintiffs allege that at the maturity of
this loan, August 31, 1912, the plaintiff
Eusebio M. Villaseor, being unable to pay
the loan, obtained from the defendant an
extension, with the condition that the loan
was to continue, drawing interest at the rate
of 25 per cent per annum, so long as the
security given was sufficient to cover the
capital and the accrued interest. In the
month of August, 1919, the plaintiff Eusebio
M. Villaseor, in company with Carlos M.
Dreyfus, went to the house of the defendant
and offered to pay the loan and redeem the
jewels, taking with him, for this purpose, the
sum of P11,000, but the defendant then
informed them that the time for the
redemption had already elapsed. The
plaintiffs renewed their offer to redeem the
jewelry by paying the loan, but met with the
same reply. These facts are proven by the
testimony of the plaintiffs, corroborated by
Carlos M. Dreyfus.
The plaintiffs now bring this action to
compel the defendant to return the jewels
pledged, or their value, upon the payment
by them of the sum they owe the defendant,
with the interest thereon.
The defendant alleges, in his defense, that
upon the maturity of the loan, August 31,
1912, he requested the plaintiff, Eusebio M.
Villaseor, to secure the money, pay the
loan and redeem the jewels, as he needed
money to purchase a certain piece of land;
that one month thereafter, the plaintiff,
Filomena Sarmiento, went to his house and
offered to sell him the jewels pledged for
P3,000; that the defendant then told her to
come back on the next day, as he was to

see his brother, Catalino Javellana, and ask

him if he wanted to take the jewels for that
sum; that on the next day the plaintiff,
Filomena Sarmiento, went back to the
house of the defendant who then paid her
the sum of P1,125, which was the balance
remaining of the P3,000 after deducting the
plaintiff's loan.
It appearing that the defendant possessed
these jewels originally, as a pledge to
secure the payment of a loan stated in
writing, the mere testimony of the defendant
to the effect that later they were sold to him
by the plaintiff, Filomena Sarmiento, against
the positive testimony of the latter that she
did not make any such sale, requires a
strong corroboration to be accepted. We do
not find the testimony of Jose Sison to be of
sufficient value as such corroboration. This
witness testified to having been in the house
of the defendant when Filomena went there
to offer to sell the defendant the jewels, as
well as on the third day when she returned
to receive the price. According to this
witness, he happened to be in the house of
the defendant, having gone there to solicit a
loan, and also accidentally remained in the
house of the defendant for three days, and
that that was how he happened to witness
the offer to sell, as well as the receipt of the
price on the third day. But not only do we
find that the defendant has not sufficiently
established, by his evidence, the fact of the
purchase of the jewels, but also that there is
a circumstance tending to show the
contrary, which is the fact that up to the trial
of this cause the defendant continued in
possession of the documents, Exhibits A
and 1, evidencing the loan and the pledge.
If the defendant really bought these jewels,
its seems natural that Filomena would have
demanded the surrender of the documents
evidencing the loan and the pledge, and the
defendant would have returned them to
plaintiff.
Our conclusion is that the jewels pledged to
defendant were not sold to him afterwards.
Another point on which evidence was
introduced by both parties is as to the value
of the jewels in the event that they were not
returned by the defendant. In view of the
evidence of record, we accept the value of
P12,000 fixed by the trial court.
From the foregoing it follows that, as the
jewels in question were in the possession of
the defendant to secure the payment of a
loan of P1,500, with interest thereon at the
rate of 25 per cent per annum from Augusts
31, 1911, to August 31, 1912, and the
defendant having subsequently extended
the term of the loan indefinitely, and so long
as the value of the jewels pledged was
sufficient to secure the payment of the
capital and the accrued interest, the
defendant is bound to return the jewels or
their value (P12,000) to plaintiffs, and the
plaintiffs have the right to demand the same
upon the payment by them of the sum of
P1,5000, plus the interest thereon at the
rate of 25 per cent per annum from August
28, 1911.
The judgment appealed from being in
accordance with this findings, the same is
affirmed without special pronouncement as
to costs. So ordered.

Page 96 of 109

G.R. No. L-45656

May 5, 1989

PACIFIC BANKING CORPORATION and

CHESTER G. BABST, petitioners,
vs.
THE COURT OF APPEALS, JOSEPH C.
HART
and
ELEANOR
HART,
respondents.
This is a petition for review of the decision
of the Court of Appeals in CA-G.R. Nos.
52573 and 52574 directing petitioners to
pay to respondent Hart ONE HUNDRED
THOUSAND (P 100,000.00) PESOS with
legal interest from February 19, 1958 until
fully paid, plus FIFTEEN THOUSAND (P
15,000.00) PESOS attorneys fees, but
subject to the right of reimbursement of
petitioner Pacific Banking Corporation
(PBC) from petitioner Babst, whatever
amounts PBC should pay on account of the
judgment.
Briefly, the facts of the case are as follows:
On April 15, 1955, herein private
respondents Joseph and Eleanor Hart
discovered an area consisting of 480
hectares of tidewater land in Tambac Gulf of
Lingayen which had great potential for the
cultivation of fish and saltmaking. They
organized Insular Farms Inc., applied for
and, after eleven months, obtained a lease
from the Department of Agriculture for a
period of 25 years, renewable for another
25 years.
Subsequently Joseph Hart approached
businessman John Clarkin, then President
of Pepsi-Cola Bottling Co. in Manila, for
financial assistance.
On July 15, 1956, Joseph Hart and Clarkin
signed a Memorandum of Agreement
pursuant to which: a) of 1,000 shares outstanding, Clarkin was issued 500 shares in
his and his wife's name, one share to J.
Lapid, Clarkin's secretary, and nine shares
in the name of the Harts were indorsed in
blank and held by Clarkin so that he had
510 shares as against the Harts' 490; b)
Hart was appointed President and General
Manager as a result of which he resigned as
Acting Manager of the First National City
Bank at the Port Area, giving up salary of P
1,125.00 a month and related fringe
benefits.
Due to financial difficulties, Insular Farms
Inc. borrowed P 250,000.00 from Pacific
Banking Corporation sometime in July of
1956.
On July 31, 1956 Insular Farms Inc.
executed a Promissory Note of P
250,000.00 to the bank payable in five equal
annual installments, the first installment
payable on or before July 1957. Said note
provided that upon default in the payment of
any installment when due, all other
installments shall become due and payable.
This loan was effected and the money
released without any security except for the
Continuing Guaranty executed on July 18,
1956, of John Clarkin, who owned seven
and half percent of the capital stock of the
bank, and his wife Helen.

Unfortunately, the business floundered and

while attempts were made to take in other
partners, these proved unsuccessful.
Nevertheless, petitioner Pacific Banking
Corporation and its then Executive Vice
President, petitioner Chester Babst, did not
demand payment for the initial July 1957
installment nor of the entire obligation, but
instead opted for more collateral in addition
to the guaranty of Clarkin.
As the business further deteriorated and the
situation became desperate, Hart agreed to
Clarkin's proposal that all Insular Farms
shares of stocks be pledged to petitioner
bank in lieu of additional collateral and to
insure an extension of the period to pay the
July 1957 installment. Said pledge was
executed on February 19, 1958.
Less than a month later, on March 3,1958,
Pacific Farms Inc, was organized to engage
in the same business as Insular Farms Inc.
The next day, or on March 4, 1958, Pacific
Banking Corporation, through petitioner
Chester Babst wrote Insular Farms Inc.
giving the latter 48 hours to pay its entire
obligation.
On March 7, 1958, Hart received notice that
the pledged shares of stocks of Insular
Farms Inc. would be sold at public auction
on March 10, 1958 at 8:00 A.M. to satisfy
Insular Farms' obligation.
On March 8, 1958, the private respondents
commenced the case below by filing a
complaint for reconveyance and damages
with prayer for writ of preliminary injunction
before the Court of First Instance of Manila
docketed as Civil Case No. 35524. On the
same date the Court granted the prayer for
a writ of pre- preliminary injunction.
However, on March 19, 1958, the trial court,
acting on the urgent petitions for dissolution
of preliminary injunction filed by petitioners
PBC and Babst on March 11 and March
14,1958, respectively, lifted the writ of
preliminary injunction.
The next day, or on March 20, 1958
respondents Hart received a notice from
PBC signed by Babst that the shares of
stocks of Insular Farms will be sold at public
auction on March 21,1958 at 8:00 A.M.
In the morning of March 21, 1958, PBC
through its lawyer notary public sold the
1,000 shares of stocks of Insular Farms to
Pacific Farms for P 285,126.99. The latter
then sold its shares of stocks to its own
stockholders, who constituted themselves
as stockholders of Insular Farms and then
resold back to Pacific Farms Inc. all of
Insular Farms assets except for a certificate
of public convenience to operate an
iceplant.
On September 28, 1959 Joseph Hart filed
another case for I recovery of sum of money
comprising his investments and earnings
against Insular Farms, Inc. before the Court
of First Instance of Manila, docketed as Civil
Case No. 41557.
The two cases below having been heard
jointly, the court of origin through then
Judge Serafin R. Cuevas rendered a

decision on August 3, 1972, the pertinent

portions of which are as follows:
xxxxxx

xxx

It is plaintiffs' contention that the sale by

Pacific Banking Corporation of the shares of
stock of plaintiffs to the Pacific Farms on
March 21, 1958 is void on the ground that
when said shares were pledged to the bank
it was done to cause an indefinite extension
of time to pay their obligation under the
promissory note marked Exh. E. Plaintiffs
observed that under said promissory note
marked Exh. E, no demand was made
whatsoever by the bank for its payment.
The bank merely asked for more collateral
in addition to Clarkin's continuing guarantee
In other words, it is the view of the plaintiffs
that the pledge of said shares of stock
upersed the terms and conditions of the
promissory note marked Exh. E and that the
same was only to insure an indefinite
extension on the part of the plaintiffs to pay
their obligation under said promissory note.
Plaintiffs accuse defendants of conspiracy
or a unity of purpose in divesting said
plaintiffs of their shares of stock and
relieving Clarkin of his guarantee and
obligation to Hart as well as to enable the
bank to recover its loan with a big profit and
Pacific Farms, of which Papa was
President, to take over Insular Farms.
Plaintiffs contend that the purchase by
Pacific Farms of the shares of stock of
Insular Farms is void, the former having
been organized like the latter for the
purpose of engaging in agriculture (Section
190-1/7 of the Corporation Law); and that
the transfer of all the substantial assets of
Insular Farms to Pacific Farms for the
nominal cost of P10,000.00 is in violation of
the Bulk Sales Law, plaintiffs and other
creditors of Insular Farms not having been
notified of said sale and that said sale was
not registered in accordance with said law
(Bulk Sales Law) which in effect is in fraud
of creditors.
As a result of defendant's acts, plaintiffs
contend that they lost their 490 shares, the
return of their 10 shares from Clarkin and
their exclusive and irrevocable right to
preference in the purchase of Clarkin's 50%
in Insular Farms not to mention the mental
anguish, pain, suffering and embarrassment
on their part for which they are entitled to at
least P 100,000.00 moral damages. They
also claim that they have been deprived of
their expected profits to be realized from the
operations and development of Insular
Farms; the sum of P 112,500.00
representing salary and pecuniary benefits
of Joseph C. Hart from the First National
City Bank of New York when he was
required to resign by Clarkin, and finally,
Joseph C. Hart and his wife being the
beneficial owners of 499 shares in Insular
Farms that were pledged to the Pacific
Banking Corporation which was sold for P
142,176.37 to satisfy the obligation of
Insular Farms, the latter became indebted to
plaintiffs for said amount with interest from
March 21, 1958, the date of the auction
sale.
On the other hand, defendant Pacific
Banking Corporation contends that it merely

Page 97 of 109

exercised its legal right under the law when

it caused the foreclosure of the pledged
(sic) executed by plaintiffs, together with
defendant John P. Clarkin to secure a loan
of P 250,000.00, said loan having become
overdue. True the payment of a note my be
extended by an oral agreement, but that
agreement to extend the time of payment in
order to be valid must be for a definite time
(Philippine Engineering Co. vs. Green, 48
Phil. 466,468). Such being the case, it is the
opinion of the Court that plaintiffs contention
that there was an indefinite extension of
time with respect to the payment of the loan
in question appears to be untenable. It
cannot be admitted that the terms and
conditions of the pledged (sic) superseded
the terms and conditions of the promissory
note.
With respect to the charge of conspiracy or
unity of purpose on the part of all
defendants to divest plaintiffs of the latter's
shares of stock, relieving Clarkin of his
guaranty and obligation to Hart, to enable
the bank to recover its loan and to enable
Pacific Farms to take over Insular Farms,
suffice it to state that the charge of
conspiracy has not been sufficiently
established.
Considering plaintiffs' contention that the
purchase by Pacific Farms of the shares of
stock of Insular Farms and the transfer of all
of the substantial assets of Insular Farms to
Pacific Farms are in violation of the
Provisions of the Bulk Sales Law, the Court
cannot see its way in crediting plaintiffs'
contention considering the prevailing
jurisprudence on the mater (People vs.
Wong Szu Tung, 50 OG, pp. 48-57, 58-69,
March 26,1954).
With respect, however, to the claim of
plaintiff Joseph C. Hart for payment of
salary as Director and General Manager of
Insular Farms for a period of almost one
year at the rate of P 2,000.00 a month, the
Court believes that said plaintiff is entitled to
said amount. On the basis of equity and
there appearing sufficient proof that said
plaintiff has served the corporation not only
as Director but as General Manager, the
Court believes that he should be paid by the
Insular Farms, Inc. the sum of P 25,333.30,
representing his salaries for the period
March 1, 1957 to March 20,1958.
Again, with respect to the advances in the
form of loans to the corporation made by
plaintiff Joseph C. Hart, the Court is of the
opinion that he should be reimbursed and
paid therefor, together with interest thereon
from March 21, 1958, or the sum of P
86,366.91. This is so because said loans
were ratified by the Board of Directors of
Insular Farms, Inc. in a special meeting held
on July 22, 1957. There is no showing that
the aforesaid special meeting was
irregularly or improperly held.
The Court having maintained that the
auction sale conducted by the Bank's
Notary Public which resulted in the
purchase by Pacific Farms of the 1,000
shares of stock of Insular Farms, 490 of
which were owned by plaintiffs, to be valid,
the Court cannot approve the claim of
plaintiffs for the reconveyance to them of
said 490 shares of stock of Insular Farms. If

there is anybody to answer for the pledging

of said shares of stock to the bank, there is
no one except the defendant John Clarkin
who induced plaintiff to do so. Again, it is
noteworthy to note that Clarkin owned and
controlled 501 shares of said outstanding
shares of stock and have not made any
claim for the reconveyance of the same.
In view of the foregoing, judgment is hereby
rendered in favor of plaintiffs and against
defendant Insular Farms, Inc., sentencing
the latter to pay the former the sum of P
25,333.30, representing unpaid salaries to
plaintiff Joseph C. Hart; the further sum of P
86,366.91 representing loans made by
plaintiffs to Insular Farms, Inc. and
attorney's fees equivalent to 10% of the
amount due plaintiffs.
With respect to the other claims of plaintiffs,
the same are hereby denied in the same
manner that all counter-claims filed against
said Plaintiff are dismissed. Likewise,
Francisco T. Papa's cross-claim against
defendant Pacific Farms, Inc. is, as it is
hereby, ordered dismissed for insufficiency
of evidence. (pp. 462-467 of the Record on
Appeal [p. 83, Rollo])
Dissatisfied with the foregoing decision,
private respondents appealed the two
consolidated cases to the Court of Appeals
contending that:
I
THE LOWER COURT ERRED IN HOLDING
THAT PLAINTIFFS' CONTENTION TO THE
EFFECT
THAT
THERE
WAS
AN
INDEFINITE EXTENSION OF TIME WITH
RESPECT TO THE PAYMENT OF THE
LOAN IN QUESTION "APPEARS TO BE
UNTENABLE
II
THE LOWER COURT ERRED IN HOLDING
THAT THE SALE BY THE PACIFIC
BANKING CORPORATION OF THE
SHARES OF STOCKS OF PLAINTIFFS
WITH THE PACIFIC FARMS, INC. ON
MARCH 21, 1958 IS VALID.
III
THE LOWER COURT ERRED IN HOLDING
THAT
PLAINTIFFS'
CHARGE
OF
CONSPIRACY
AGAINST
THE
DEFENDANTS
HAS
NOT
BEEN
SUFFICIENTLY ESTABLISHED."
IV
THE LOWER COURT ERRED IN NOT
HOLDING DEFENDANTS LIABLE FOR
DAMAGES CAUSED TO THE PLAINTIFFS
BY THEIR INDIVIDUAL AND COLLECTIVE
ACTS WHICH ARE CONTRARY TO THE
PROVISIONS OF THE CIVIL CODE ON
HUMAN RELATIONS.
V
THE LOWER COURT WAS CORRECT IN
HOLDING THAT "IF THERE IS ANYBODY
TO ANSWER FOR THE PLEDGE OF SAID
SHARES OF STOCK TO THE BANK,
THERE IS NO ONE EXCEPT DEFENDANT
JOHN P. CLARKIN WHO INDUCED

PLAINTIFFS TO DO SO", BUT ERRED IN

NOT FINDING DEFENDANT JOHN P.
CLARKIN LIABLE AS PRAYED FOR IN
PLAINTIFFS' COMPLAINT." (pp. 9-10,
Rollo)
On December 9, 1986, the Court of Appeals
rendered its assailed decision, the
dispositive portion of which follows:
IN VIEW WHEREOF, judgment modified,
such that defendant Babst and defendant
Pacific Banking are both condemned in their
primary capacity to pay unto Hart the sum of
P l00,000.00 with legal interest from the
date of the foreclosure sale on 19 February
1958 until fully paid, plus P 15,000.00 as
attorney's fees, also to earn legal interest
from the date of the filing of Civil Case Nos.
35524, until fully paid, plus the costs, but
subject to reimbursement of Pacific Banking
from Babst whatever Pacific Banking should
pay unto Hart on account of this judgment,
the other defendants are absolved with no
more pronouncement as to costs with
respect to them. (pp. 62-63, Rollo)
Hence this petition
contending that:

with

petitioners

a. Respondent Court of Appeals committed

a grave error in not applying in favor of the
herein petitioner the clear unequivocal ruling
of this Honorable Court in the case of
Philippine Engineering vs. Green, 48 Phil.
466, that "an agreement to extend the time
of payment in order to be valid must be for a
definite time," which was relied upon by the
trial court in overruling the private
respondents' claim that petitioners had
granted them orally an indefinite extension
of time to pay the loan.
b. Respondent Court of Appeals committed
a grave error in finding that petitioner bank
agreed to an indefinite extension of time to
pay the loan on the basis of the testimony of
private respondent Hart contained in his
deposition which was admitted in evidence
over the petitioners' objection; and that said
finding is clearly violative of parol evidence
rule.
c. Respondent Court of Appeals committed
a grave error in ignoring the legal
presumption of good faith established by
Article 527 of the New Civil Code when it
imputed bad faith to petitioner in foreclosing
the pledge and in not considering the issue
to have been finally disposed of by the trial
court in its resolution, dated March 19, 1958
dissolving the writ of preliminary injunction
and expressly allowing the foreclosure sale.
d. Respondent Court of Appeals committed
a grave error in condemning petitioners to
pay damages to private respondents
notwithstanding that petitioner bank merely
exercised a right under the law in
foreclosing the pledge.
e. Respondent Court of Appeals committed
a grave error in holding petitioner Chester
G. Babst personally liable to private
respondents under Articles 2180 and 2181
of the New civil Code.
f. Respondent Court of Appeals committed
a grave error in sentencing petitioner
Chester G. Babst to reimburse his co-

Page 98 of 109

petitioner bank, whatever amounts the latter

may be required to pay the private
respondents on account of the judgment,
notwithstanding that said bank had not filed
a cross-claim against him and there was
absolutely no litigation between them. (pp.
14-15, Rollo)
We find for the respondents on the following
grounds:
First, petitioners allege that the Court of
Appeals erred in deviating from the principle
and rule of stare decisis by not applying in
favor of petitioners the ruling in the case of
Philippine Engineering v. Green (48 Phil.
466) that "an agreement to extend the time
of payment in order to be valid must be for a
definite time" which was relied upon by the
trial court in overruling the private
respondents' claim that the petitioners had
granted them orally an indefinite extension
of time to pay the loan.
A reading of the Philippine Engineering Co.
case shows that the authority quoted from
(i.e. 8 Corpus Juris 425-429) was not the
ground used by the Court in not giving credit
to therein defendant's statement as to the
purported agreement for an indefinite
extension of time for the payment of the
note. The principle relied upon in that case
was the dead man's statute. The Court
stated that the reason for not believing the
purported agreement for extension of time
to pay the note was that there was no
sufficient proof of the purported agreement
because:
Here we have only the defendant's
statement as to the purported agreement for
an indefinite period of grace, with one now
dead. Such proof falls far short of satisfying
the rules of evidence. (Phil. Engineering v.
Green, 48 Phil. p. 468)
In the case at bar, the parties to the
purported agreement, Hart and Babst, were
still alive, and both testified in the trial court
regarding the purported extension. Their
testimonies are in fact, quoted in the
decision of the respondent Court of Appeals
(pp. 49-54, Rollo).
We also note, that the rule which states that
there can be no valid extension of time by
oral agreement unless the extension is for a
definite time, is not absolute but admits of
qualifications and exceptions.
The general rule is that an agreement to
extend the time of payment, in order to be
valid, must be for a definite time, although it
seems that no precise date be fixed, it being
sufficient that the time can be readily
determined. (8 C.J. 425)
In case the period of extension is not
precise, the provisions of Article 1197 of the
Civil Code should apply. In this case, there
was an agreement to extend the payment of
the loan, including the first installment
thereon which was due on or before July
1957. As the Court of Appeals stated:
...-and here, this court is rather well
convinced that Hart had been given the
assurance by the conduct of Babst,
Executive Vice President of Pacific Bank,
that payment would not as yet be pressed,

and under 1197 New Civil Code, the

meaning must be that there having been
intended a period to pay modifying the fixed
period in original promissory note, really, the
cause of action of Pacific Bank would have
been to ask the Courts for the fixing of the
term; (pp. 59-60, Rollo)
The pledge executed as collateral security
on February 9, 1958 no longer contained
the provision on an installment of P
50,000.00 due on or before July 1957. This
can mean no other thing than that the time
of payment of the said installment of P
50,000.00 was extended.
It is settled that bills and notes may be
varied by subsequent agreement. Thus,
conditions may be introduced and
arrangements made changing the terms of
payment (10 CJS 758). The agreement for
extension of the parties is clearly indicated
and may be inferred from the acts and
declarations of the parties, as testified to in
court (pp. 49-52, Rollo).
The pledge constituted on February 19,
1958 on the shares of stocks of Insular
Farms, Inc. was sufficient consideration for
the extension, considering that this pledge
was the additional collateral required by
Pacific Banking in addition to the continuing
guarantee of Clarkin.
Petitioners contend that the admission of
Joseph Hart's testimony regarding the
extension of time to pay, over the
petitioners' objections, was violative of the
parol evidence rule. This argument is
untenable in view of the fact that Hart's
testimony regarding the oral agreement for
extension of time to pay was admitted in
evidence without objection from petitioner
Babst when the same was first offered as
evidence before the trial court. Without need
therefore of a lengthy discussion of the
background facts on this issue, and even
granting that said testimony violated the
parol evidence rule, it was nevertheless
properly admitted for failure of petitioner to
timely object to the same. Well settled is the
rule that failure to object to parol evidence
constitutes a waiver to the admissibility of
said parol evidence (see Talosig v. Vda. de
Niebe, 43 SCRA 472).

cannot stand in the light of the evidence to

the contrary in the record.
It was established that there was an
agreement to extend indefinitely the
payment of the installment of P50,000.00 in
July 1957 as provided in the promissory
note.
Consequently, Pacific
Banking
Corporation was precluded from enforcing
the payment of the said installment of July
1957, before the expiration of the indefinite
period of extension, which period had to be
fixed by the court as provided in Art. 1197 of
the Civil Code (10 CJS p. 7611, citing Drake
vs. Pueblo Nat. Bank, 96 P. 999, 44 Colo.
49).
Even the pledge which modified the fixed
period in the original promissory note, did
not provide for dates of payment of
installments, nor of any fixed date of
maturity of the whole amount of
indebtedness. Accordingly, the date of
maturity of the indebtedness should be as
may be determined by the proper court
under Art. 1197 of the Civil Code. Hence,
the
disputed
foreclosure
and
the
subsequent sale were premature.
The whole indebtedness was guaranteed by
the continuing guaranty of Clarkin, who had
a corresponding deposit with Pacific
Banking which guaranty and deposit, Babst
and Charles Chua, president of Pacific
Banking, had actual knowledge of.
The Court of Appeals noted that no demand
for payment of the P50,000.00 was made
right after it allegedly fell due. It was only on
March 4, 1958 or 13 days after the
execution of the pledge instrument on
February 19,1958 that PBC presented its
demand for payment to Insular Farms.
As found by the Court of Appeals, there was
really no investigation of Insular Farms'
ability to pay the loan after the pledge was
executed but before the demand for
payment, considering that the latter was
made barely two weeks after the execution
of the pledge.

Petitioners likewise argue that the Court of

Appeals erred in ignoring the presumption
of good faith provided in Art. 527 of the Civil
Code when it imputed bad faith to
petitioners in foreclosing the pledge, They
argue in support thereof that the
extrajudicial foreclosure was held only after
it was sanctioned by the trial court; and that
the main ground alleged by the private
respondents against the foreclosure was the
alleged
grant
by
Pacific
Banking
Corporation of an indefinite extension of
time to pay the obligation; that private
respondents did not adduce any evidence to
prove the grant of extension, for which
reason the trial court did not believe that
there was such a grant, that in view thereof,
the foreclosure which even the Court of
Appeals considered as valid, cannot be
considered to have been done in bad faith.

The inconsistency of the petitioner's position

vis-a-vis the evidence on record is apparent.
According to Babst, the investigation was
made by Mr. Joseph Tupaz, who rendered
his report (TSN, IX: 6-9, C Babst). The
report, however, as found by the Court of
Appeals,, was dated August 28, 1957 way
before the pledge was executed on
February 19, 1958. Babst also Identified an
auditor's report by Sycip, Gorres and Velayo
dated March 17, 1958. The first paragraph
of the report states that the auditors went to
inspect Insular Farms pursuant to a request
of Babst dated March 5, 1958 that is, as
found by the Court of Appeals just one day
after Babst had through his letter of March
4,1958, threatened Insular Farms, Clarkin
and Hart, with the remedies available to
Pacific Bank if the whole loan was not paid
within 48 hours. This can also mean that the
investigation by the auditing firm was a well
conceived subterfuge, when all the while,
foreclosure was already intended against
private respondents.

The presumption of good faith of

possession provided in Article 527, is only a
presumption juris tantum Said presumption

On account of the foregoing, the Court of

Appeals concluded that the foreclosure was
an act of bad faith:

Page 99 of 109

5th-Foregoing cannot but convince this

Court that the foreclosure was not an act of
good faith on the part of the Pacific Banking
for it must be bound by the acts or
representations, active or tacit of its agent
or its Executive Vice-President Babst, ...
(pp. 56-57, Rollo)
Petitioners furthermore claim that the Court
of Appeals erred in ordering them to pay
damages to private respondents as they
were merely exercising a light under the law
in foreclosing the pledge. They also argue
that assuming that private respondent
suffered damages on account of the
foreclosure, such damages would be
aminimum absque injuria, the damage
having been caused by the lawful and
proper exercise of the right to foreclosure,
and an act of prudence on the part of Pacific
Banking Corporation to protect its own
interests and those of its depositors.
In the light of the above discussion and our
finding that the foreclosure sale was
premature and done in bad faith, petitioners
are liable for damages arising from a quasidelict. We see no compelling reason to set
aside the findings of the respondent court
on this matter.
Finally, the petitioners claim that it was error
for the respondent court to hold petitioner
Chester G. Babst personally liable to private
respondents under Articles 2180 and 2181
of the Civil Code. Petitioners also contend
that it was error to order Chester G. Babst
to reimburse Pacific Banking whatever
Pacific Banking may be required to pay the
private respondents, inasmuch as Pacific
Banking has not filed a cross claim against
Chester G. Babst.
The Court of Appeals applied Article 2180 of
the Civil Code, under which, "employers
shall be liable for the damages caused by
their employees ... acting within the scope
of their assigned tasks." Chester G. Babst,
as admitted, was Executive Vice-President
of Pacific Banking Corporation and "acted
only upon direction by the Board of
Directors
of
the
Pacific
Banking
Corporation." (p. 127, Rollo) The appellate
court also applied Article 2181 of the same
Code which provides that "whoever pays for
the damages caused by his dependents or
employees may recover from the latter what
he has paid or delivered in satisfaction of
the claim." (Art. 2181, Civil Code)
It must be noted, however, that as between
Pacific Banking and Babst, the law merely
gives the employer a right to reimbursement
from the employee for what is paid to the
private respondent. Article 2181 does not
make recovery from the employee a
mandatory requirement. A right to relief shall
be recognized only when the party
concerned asserts it through a proper
pleading filed in court. In this case, the
employer, Pacific Banking Corporation did
not manifest any claim against Babst by
filing a cross-claim before the trial court;
thus, it cannot make its light automatically
enforceable. Babst was made a party to the
case upon the complaint of the private
respondents in his official capacity as
Executive Vice President of the bank. In the
absence of a cross-claim against Babst, the

court has no basis for enforcing a right

against him to which his co-defendant may
be entitled. We leave the matter to the two
petitioners' own internal arrangements or
actions should the bank decide to charge its
own officer.
WHEREFORE, the petition for review on
certiorari is DISMISSED subject to a
MODIFICATION with respect to the
personal liability of petitioner Chester G.
Babst to Pacific Banking Corporation which
is SET ASIDE.
G.R. No. 146839

March 23, 2011

ROLANDO T. CATUNGAL, JOSE T.

CATUNGAL,
JR.,
CAROLYN
T.
CATUNGAL and ERLINDA CATUNGALWESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
Before the Court is a Petition for Review on
Certiorari, assailing the following issuances
of the Court of Appeals in CA-G.R. CV No.
40627 consolidated with CA-G.R. SP No.
27565: (a) the August 8, 2000 Decision,1
which affirmed the Decision2 dated May 30,
1992 of the Regional Trial Court (RTC),
Branch 27 of Lapu-lapu City, Cebu in Civil
Case No. 2365-L, and (b) the January 30,
2001
Resolution,3
denying
herein
petitioners motion for reconsideration of the
August 8, 2000 Decision.
The relevant factual and procedural
antecedents of this case are as follows:
This controversy arose from a Complaint for
Damages and Injunction with Preliminary
Injunction/Restraining Order4 filed on
December 10, 1990 by herein respondent
Angel S. Rodriguez (Rodriguez), with the
RTC, Branch 27, Lapu-lapu City, Cebu,
docketed as Civil Case No. 2365-L against
the spouses Agapita and Jose Catungal (the
spouses Catungal), the parents of
petitioners.

a. FIVE HUNDRED THOUSAND PESOS

(P500,000.00) downpayment upon the
signing of this agreement, receipt of which
sum is hereby acknowledged in full from the
VENDEE.
b. The balance of TWENTY[-]FOUR
MILLION FIVE HUNDRED THOUSAND
PESOS (P24,500,000.00) shall be payable
in five separate checks, made to the order
of JOSE Ch. CATUNGAL, the first check
shall be for FOUR MILLION FIVE
HUNDRED
THOUSAND
PESOS
(P4,500,000.00) and the remaining balance
to be paid in four checks in the amounts of
FIVE MILLION PESOS (P5,000,000.00)
each after the VENDEE have (sic)
successfully negotiated, secured and
provided a Road Right of Way consisting of
12 meters in width cutting across Lot 10884
up to the national road, either by widening
the existing Road Right of Way or by
securing a new Road Right of Way of 12
meters in width. If however said Road Right
of Way could not be negotiated, the
VENDEE shall give notice to the VENDOR
for them to reassess and solve the problem
by taking other options and should the
situation ultimately prove futile, he shall take
steps to rescind or cancel the herein
Conditional Deed of Sale.
c. That the access road or Road Right of
Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and
any or all cost relative to the acquisition
thereof shall be borne solely by the
VENDEE. He shall, however, be accorded
with enough time necessary for the success
of his endeavor, granting him a free hand in
negotiating for the passage.
BY THESE PRESENTS, the VENDOR do
hereby agree to sell by way of herein
CONDITIONAL DEED OF SALE to
VENDEE, his heirs, successors and
assigns, the real property described in the
Original Certificate of Title No. 105 x x x.
xxxx

In the said Complaint, it was alleged that

Agapita T. Catungal (Agapita) owned a
parcel of land (Lot 10963) with an area of
65,246 square meters, covered by Original
Certificate of Title (OCT) No. 1055 in her
name situated in the Barrio of Talamban,
Cebu City. The said property was allegedly
the exclusive paraphernal property of
Agapita.
On April 23, 1990, Agapita, with the consent
of her husband Jose, entered into a
Contract
to
Sell6
with
respondent
Rodriguez. Subsequently, the Contract to
Sell was purportedly "upgraded" into a
Conditional Deed of Sale7 dated July 26,
1990 between the same parties. Both the
Contract to Sell and the Conditional Deed of
Sale were annotated on the title.
The provisions of the Conditional Deed of
Sale pertinent to the present dispute are
quoted below:
1. The VENDOR for and in consideration of
the sum of TWENTY[-]FIVE MILLION
PESOS (P25,000,000.00) payable as
follows:

5. That the VENDEE has the option to

rescind the sale. In the event the VENDEE
exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE
shall notify the VENDOR by way of a written
notice relinquishing his rights over the
property. The VENDEE shall then be
reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS
(P500,000.00)
representing
the
downpayment, interest free, payable but
contingent upon the event that the
VENDOR shall have been able to sell the
property to another party.8
In accordance with the Conditional Deed of
Sale, Rodriguez purportedly secured the
necessary surveys and plans and through
his efforts, the property was reclassified
from agricultural land into residential land
which he claimed substantially increased
the propertys value. He likewise alleged
that he actively negotiated for the road right
of way as stipulated in the contract.9
Rodriguez further claimed that on August
31, 1990 the spouses Catungal requested
an advance of P5,000,000.00 on the
purchase price for personal reasons.

Page 100 of 109

Rodriquez allegedly refused on the ground

that the amount was substantial and was
not due under the terms of their agreement.
Shortly after his refusal to pay the advance,
he purportedly learned that the Catungals
were offering the property for sale to third
parties.10
Thereafter, Rodriguez received letters dated
October 22, 1990,11 October 24, 199012
and October 29, 1990,13 all signed by Jose
Catungal who was a lawyer, essentially
demanding that the former make up his
mind about buying the land or exercising his
"option" to buy because the spouses
Catungal allegedly received other offers and
they needed money to pay for personal
obligations and for investing in other
properties/business
ventures.
Should
Rodriguez fail to exercise his option to buy
the land, the Catungals warned that they
would consider the contract cancelled and
that they were free to look for other buyers.
In a letter dated November 4, 1990,14
Rodriguez registered his objections to what
he termed the Catungals unwarranted
demands in view of the terms of the
Conditional Deed of Sale which allowed him
sufficient time to negotiate a road right of
way and granted him, the vendee, the
exclusive right to rescind the contract. Still,
on November 15, 1990, Rodriguez
purportedly received a letter dated
November 9, 199015 from Atty. Catungal,
stating that the contract had been cancelled
and terminated.
Contending that the Catungals unilateral
rescission of the Conditional Deed of Sale
was unjustified, arbitrary and unwarranted,
Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a
restraining order be issued enjoining
defendants [the spouses Catungal], their
employees, agents, representatives or other
persons acting in their behalf from offering
the property subject of this case for sale to
third persons; from entertaining offers or
proposals by third persons to purchase the
said property; and, in general, from
performing
acts
in
furtherance
or
implementation of defendants rescission of
their Conditional Deed of Sale with plaintiff
[Rodriguez].
2. After hearing, a writ of preliminary
injunction be issued upon such reasonable
bond as may be fixed by the court enjoining
defendants and other persons acting in their
behalf from performing any of the acts
mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to
plaintiff, jointly and solidarily:
Actual damages in the amount of
P400,000.00 for their unlawful rescission of
the Agreement and their performance of
acts in violation or disregard of the said
Agreement;
Moral damages
P200,000.00;

in

the

amount

of

Exemplary damages in the amount of

P200,000.00; Expenses of litigation and
attorneys fees in the amount of
P100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court
issued a temporary restraining order and set
the application for a writ of preliminary
injunction for hearing on December 21,
1990 with a directive to the spouses
Catungal to show cause within five days
from notice why preliminary injunction
should not be granted. The trial court
likewise ordered that summons be served
on them.17
Thereafter, the spouses Catungal filed their
opposition18 to the issuance of a writ of
preliminary injunction and later filed a
motion to dismiss19 on the ground of
improper
venue. According
to
the
Catungals, the subject property was located
in Cebu City and thus, the complaint should
have been filed in Cebu City, not Lapu-lapu
City. Rodriguez opposed the motion to
dismiss on the ground that his action was a
personal action as its subject was breach of
a contract, the Conditional Deed of Sale,
and not title to, or possession of real
property.20
In an Order dated January 17, 1991,21 the
trial court denied the motion to dismiss and
ruled that the complaint involved a personal
action, being merely for damages with a
prayer for injunction.
Subsequently, on January 30, 1991, the trial
court ordered the issuance of a writ of
preliminary injunction upon posting by
Rodriguez of a bond in the amount of
P100,000.00 to answer for damages that
the defendants may sustain by reason of
the injunction.
On February 1, 1991, the spouses Catungal
filed their Answer with Counterclaim22
alleging that they had the right to rescind
the contract in view of (1) Rodriguezs
failure to negotiate the road right of way
despite the lapse of several months since
the signing of the contract, and (2) his
refusal to pay the additional amount of
P5,000,000.00 asked by the Catungals,
which to them indicated his lack of funds to
purchase the property. The Catungals
likewise contended that Rodriguez did not
have an exclusive right to rescind the
contract and that the contract, being
reciprocal, meant both parties had the right
to rescind.23 The spouses Catungal further
claimed that it was Rodriguez who was in
breach of their agreement and guilty of bad
faith which justified their rescission of the
contract.24 By way of counterclaim, the
spouses Catungal prayed for actual and
consequential damages in the form of
unearned interests from the balance (of the
purchase price in the amount) of
P24,500,000.00, moral and exemplary
damages in the amount of P2,000,000.00,
attorneys fees in the amount of
P200,000.00 and costs of suits and litigation
expenses in the amount of P10,000.00.25
The spouses Catungal prayed for the
dismissal of the complaint and the grant of
their counterclaim.

The Catungals amended their Answer

twice,26 retaining their basic allegations but
amplifying their charges of contractual
breach and bad faith on the part of
Rodriguez and adding the argument that in
view of Article 1191 of the Civil Code, the
power to rescind reciprocal obligations is
granted by the law itself to both parties and
does not need an express stipulation to
grant the same to the injured party. In the
Second
Amended
Answer
with
Counterclaim, the spouses Catungal added
a prayer for the trial court to order the
Register of Deeds to cancel the annotations
of the two contracts at the back of their
OCT.27
On October 24, 1991, Rodriguez filed an
Amended Complaint,28 adding allegations
to the effect that the Catungals were guilty
of
several
misrepresentations
which
purportedly induced Rodriguez to buy the
property at the price of P25,000,000.00.
Among others, it was alleged that the
spouses Catungal misrepresented that their
Lot 10963 includes a flat portion of land
which later turned out to be a separate lot
(Lot 10986) owned by Teodora Tudtud who
sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented
that the road right of way will only traverse
two lots owned by Anatolia Tudtud and her
daughter Sally who were their relatives and
who had already agreed to sell a portion of
the said lots for the road right of way at a
price of P550.00 per square meter.
However, because of the Catungals acts of
offering the property to other buyers who
offered to buy the road lots for P2,500.00
per square meter, the adjacent lot owners
were no longer willing to sell the road lots to
Rodriguez at P550.00 per square meter but
were asking for a price of P3,500.00 per
square meter. In other words, instead of
assisting Rodriguez in his efforts to
negotiate the road right of way, the spouses
Catungal
allegedly
intentionally
and
maliciously
defeated
Rodriguezs
negotiations for a road right of way in order
to justify rescission of the said contract and
enable them to offer the property to other
buyers.

denied reconsideration in an Order dated

February 3, 1992.34 Undeterred, the
Catungals subsequently filed a Motion to Lift
and to Set Aside Order of Default35 but it
was likewise denied for being in violation of
the rules and for being not meritorious.36
On February 28, 1992, the Catungals filed a
Petition for Certiorari and Prohibition37 with
the Court of Appeals, questioning the denial
of their motion to dismiss and the order of
default. This was docketed as CA-G.R. SP
No. 27565.
Meanwhile, Rodriguez proceeded to present
his evidence before the trial court.
In a Decision dated May 30, 1992, the trial
court ruled in favor of Rodriguez, finding
that: (a) under the contract it was
complainant (Rodriguez) that had the option
to rescind the sale; (b) Rodriguezs
obligation to pay the balance of the
purchase price arises only upon successful
negotiation of the road right of way; (c) he
proved his diligent efforts to negotiate the
road right of way; (d) the spouses Catungal
were guilty of misrepresentation which
defeated Rodriguezs efforts to acquire the
road right of way; and (e) the Catungals
rescission of the contract had no basis and
was in bad faith. Thus, the trial court made
the injunction permanent, ordered the
Catungals to reduce the purchase price by
the amount of acquisition of Lot 10963
which they misrepresented was part of the
property sold but was in fact owned by a
third party and ordered them to pay
P100,000.00 as damages, P30,000.00 as
attorneys fees and costs.
The Catungals appealed the decision to the
Court of Appeals, asserting the commission
of the following errors by the trial court in
their appellants brief38 dated February 9,
1994:
I
THE COURT A QUO ERRED IN NOT
DISMISSING OF (SIC) THE CASE ON THE
GROUNDS OF IMPROPER VENUE AND
LACK OF JURISDICTION.
II

Despite requesting the trial court for an

extension of time to file an amended
Answer,29 the Catungals did not file an
amended Answer and instead filed an
Urgent Motion to Dismiss30 again invoking
the ground of improper venue. In the
meantime, for failure to file an amended
Answer within the period allowed, the trial
court set the case for pre-trial on December
20, 1991.
During the pre-trial held on December 20,
1991, the trial court denied in open court the
Catungals Urgent Motion to Dismiss for
violation of the rules and for being
repetitious and having been previously
denied.31 However, Atty. Catungal refused
to enter into pre-trial which prompted the
trial court to declare the defendants in
default and to set the presentation of the
plaintiffs evidence on February 14, 1992.32
On December 23, 1991, the Catungals filed
a motion for reconsideration33 of the
December 20, 1991 Order denying their
Urgent Motion to Dismiss but the trial court

Page 101 of 109

THE COURT A QUO ERRED IN

CONSIDERING THE
CASE AS A
PERSONAL AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT
VENUE WAS PROPERLY LAID AND THE
CASE IS A PERSONAL ACTION, THE
COURT A QUO ERRED IN DECLARING
THE DEFENDANTS IN DEFAULT DURING
THE PRE-TRIAL WHEN AT THAT TIME
THE DEFENDANTS HAD ALREADY FILED
THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN
CONSIDERING THE DEFENDANTS AS
HAVING LOST THEIR LEGAL STANDING
IN COURT WHEN AT MOST THEY COULD
ONLY BE CONSIDERED AS IN DEFAULT
AND STILL ENTITLED TO NOTICES OF
ALL
FURTHER
PROCEEDINGS
ESPECIALLY AFTER THEY HAD FILED

THE MOTION TO LIFT THE ORDER OF

DEFAULT.

February 17, 1999 a motion for Agapitas

substitution by her surviving children.46

On August 8, 2000, the Court of Appeals

rendered a Decision in the consolidated
cases CA-G.R. CV No. 40627 and CA-G.R.
SP No. 27565,47 affirming the trial courts
Decision.

THE COURT A QUO ERRED IN ISSUING

THE
WRIT
[OF]
PRELIMINARY
INJUNCTION
RESTRAINING
THE
EXERCISE OF ACTS OF OWNERSHIP
AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURTS
TERRITORIAL
JURISDICTION
AND
INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION,
THUS THE NULLITY OF THE WRIT.
VI
THE COURT A QUO ERRED IN NOT
RESTRAINING ITSELF MOTU PROP[R]IO
FROM
CONTINUING
WITH
THE
PROCEEDINGS IN THE CASE AND IN
RENDERING DECISION THEREIN IF
ONLY FOR REASON OF COURTESY AND
FAIRNESS
BEING
MANDATED
AS
DISPENSER OF FAIR AND EQUAL
JUSTICE TO ALL AND SUNDRY WITHOUT
FEAR OR FAVOR IT HAVING BEEN
SERVED EARLIER WITH A COPY OF THE
PETITION
FOR
CERTIORARI
QUESTIONING
ITS
VENUE
AND
JURISDICTION IN CA-G.R. NO. SP 27565
IN FACT NOTICES FOR THE FILING OF
COMMENT THERETO HAD ALREADY
BEEN SENT OUT BY THE HONORABLE
COURT
OF
APPEALS,
SECOND
DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID
NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING
THE CASE IN FAVOR OF THE PLAINTIFF
AND AGAINST THE DEFENDANTS ON
THE BASIS OF EVIDENCE WHICH ARE
IMAGINARY, FABRICATED, AND DEVOID
OF TRUTH, TO BE STATED IN DETAIL IN
THE DISCUSSION OF THIS PARTICULAR
ERROR,
AND,
THEREFORE,
THE
DECISION IS REVERSIBLE.39
On August 31, 1995, after being granted
several extensions, Rodriguez filed his
appellees brief,40 essentially arguing the
correctness of the trial courts Decision
regarding the foregoing issues raised by the
Catungals. Subsequently, the Catungals
filed a Reply Brief41 dated October 16,
1995.
From the filing of the appellants brief in
1994 up to the filing of the Reply Brief, the
spouses Catungal were represented by
appellant Jose Catungal himself. However,
a new counsel for the Catungals, Atty. Jesus
N. Borromeo (Atty. Borromeo), entered his
appearance before the Court of Appeals on
September 2, 1997.42 On the same date,
Atty. Borromeo filed a Motion for Leave of
Court to File Citation of Authorities43 and a
Citation of Authorities.44 This would be
followed by Atty. Borromeos filing of an
Additional Citation of Authority and Second
Additional Citation of Authority both on
November 17, 1997.45
During the pendency of the case with the
Court of Appeals, Agapita Catungal passed
away and thus, her husband, Jose, filed on

In a Motion for Reconsideration dated

August 21, 2000,48 counsel for the
Catungals, Atty. Borromeo, argued for the
first time that paragraphs 1(b) and 549 of
the Conditional Deed of Sale, whether taken
separately or jointly, violated the principle of
mutuality of contracts under Article 1308 of
the Civil Code and thus, said contract was
void ab initio. He adverted to the cases
mentioned in his various citations of
authorities to support his argument of nullity
of the contract and his position that this
issue may be raised for the first time on
appeal.
Meanwhile,
a
Second
Motion
for
Substitution50 was filed by Atty. Borromeo
in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the
Court of Appeals allowed the substitution of
the deceased Agapita and Jose Catungal by
their surviving heirs and denied the motion
for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose
Catungal filed on March 27, 2001 the
present petition for review,51 which
essentially argued that the Court of Appeals
erred in not finding that paragraphs 1(b)
and/or 5 of the Conditional Deed of Sale,
violated the principle of mutuality of
contracts under Article 1308 of the Civil
Code. Thus, said contract was supposedly
void ab initio and the Catungals rescission
thereof was superfluous.
In his Comment,52 Rodriguez highlighted
that (a) petitioners were raising new matters
that cannot be passed upon on appeal; (b)
the validity of the Conditional Deed of Sale
was already admitted and petitioners cannot
be allowed to change theories on appeal;
(c) the questioned paragraphs of the
Conditional Deed of Sale were valid; and (d)
petitioners were the ones who committed
fraud and breach of contract and were not
entitled to relief for not having come to court
with clean hands.
The Court gave due course to the Petition53
and the parties filed their respective
Memoranda.
The issues to be resolved in the case at bar
can be summed into two questions:
I. Are petitioners allowed to raise their
theory of nullity of the Conditional Deed of
Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the
Conditional Deed of Sale violate the
principle of mutuality of contracts under
Article 1308 of the Civil Code?
On petitioners change of theory
Petitioners claimed that the Court of
Appeals should have reversed the trial
courts Decision on the ground of the

Page 102 of 109

alleged nullity of paragraphs 1(b) and 5 of

the
Conditional
Deed
of
Sale
notwithstanding that the same was not
raised as an error in their appellants brief.
Citing Catholic Bishop of Balanga v. Court of
Appeals,54 petitioners argued in the Petition
that this case falls under the following
exceptions:
(3) Matters not assigned as errors on
appeal but consideration of which is
necessary in arriving at a just decision and
complete resolution of the case or to serve
the interest of justice or to avoid dispensing
piecemeal justice;
(4) Matters not specifically assigned as
errors on appeal but raised in the trial court
and are matters of record having some
bearing on the issue submitted which the
parties failed to raise or which the lower
court ignored;
(5) Matters not assigned as errors on
appeal but closely related to an error
assigned; and
(6) Matters not assigned as errors but upon
which the determination of a question
properly assigned is dependent.55
We are not persuaded.
This is not an instance where a party merely
failed to assign an issue as an error in the
brief nor failed to argue a material point on
appeal that was raised in the trial court and
supported by the record. Neither is this a
case where a party raised an error closely
related to, nor dependent on the resolution
of, an error properly assigned in his brief.
This is a situation where a party completely
changes his theory of the case on appeal
and abandons his previous assignment of
errors in his brief, which plainly should not
be allowed as anathema to due process.
Petitioners should be reminded that the
object of pleadings is to draw the lines of
battle between the litigants and to indicate
fairly the nature of the claims or defenses of
both parties.56 In Philippine National
Construction Corporation v. Court of
Appeals,57 we held that "[w]hen a party
adopts a certain theory in the trial court, he
will not be permitted to change his theory on
appeal, for to permit him to do so would not
only be unfair to the other party but it would
also be offensive to the basic rules of fair
play, justice and due process."58
We have also previously ruled that "courts
of justice have no jurisdiction or power to
decide a question not in issue. Thus, a
judgment that goes beyond the issues and
purports to adjudicate something on which
the court did not hear the parties, is not only
irregular but also extrajudicial and invalid.
The rule rests on the fundamental tenets of
fair play."59
During the proceedings before the trial
court, the spouses Catungal never claimed
that the provisions in the Conditional Deed
of Sale, stipulating that the payment of the
balance of the purchase price was
contingent upon the successful negotiation
of a road right of way (paragraph 1[b]) and
granting Rodriguez the option to rescind
(paragraph 5), were void for allegedly

making the fulfillment of the contract

dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph
1(b), the Catungals did not aver in the
Answer (and its amended versions) that the
payment of the purchase price was subject
to the will of Rodriguez but rather they
claimed that paragraph 1(b) in relation to
1(c) only presupposed a reasonable time be
given to Rodriguez to negotiate the road
right of way. However, it was petitioners
theory that more than sufficient time had
already been given Rodriguez to negotiate
the road right of way. Consequently,
Rodriguezs refusal/failure to pay the
balance of the purchase price, upon
demand, was allegedly indicative of lack of
funds and a breach of the contract on the
part of Rodriguez.
Anent paragraph 5 of the Conditional Deed
of Sale, regarding Rodriguezs option to
rescind, it was petitioners theory in the
court a quo that notwithstanding such
provision, they retained the right to rescind
the contract for Rodriguezs breach of the
same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their
theory of the nullity of the Conditional Deed
of Sale in view of the questioned provisions
was only in their Motion for Reconsideration
of the Court of Appeals Decision, affirming
the trial courts judgment. The previous filing
of various citations of authorities by Atty.
Borromeo and the Court of Appeals
resolutions noting such citations were of no
moment. The citations of authorities merely
listed cases and their main rulings without
even any mention of their relevance to the
present case or any prayer for the Court of
Appeals to consider them.1wphi1 In sum,
the Court of Appeals did not err in
disregarding the citations of authorities or in
denying
petitioners
motion
for
reconsideration of the assailed August 8,
2000 Decision in view of the proscription
against changing legal theories on appeal.
Ruling on the questioned provisions of the
Conditional Deed of Sale
Even assuming for the sake of argument
that this Court may overlook the procedural
misstep of petitioners, we still cannot uphold
their belatedly proffered arguments.
At the outset, it should be noted that what
the parties entered into is a Conditional
Deed of Sale, whereby the spouses
Catungal agreed to sell and Rodriguez
agreed to buy Lot 10963 conditioned on the
payment of a certain price but the payment
of the purchase price was additionally made
contingent on the successful negotiation of
a road right of way. It is elementary that "[i]n
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."60
Petitioners rely on Article 1308 of the Civil
Code to support their conclusion regarding
the claimed nullity of the aforementioned
provisions. Article 1308 states that "[t]he
contract must bind both contracting parties;
its validity or compliance cannot be left to
the will of one of them."

Article 1182 of the Civil Code, in turn,

provides:
Art. 1182. When the fulfillment of the
condition depends upon the sole will of the
debtor, the conditional obligation shall be
void. If it depends upon chance or upon the
will of a third person, the obligation shall
take effect in conformity with the provisions
of this Code.
In the past, this Court has distinguished
between a condition imposed on the
perfection of a contract and a condition
imposed merely on the performance of an
obligation. While failure to comply with the
first condition results in the failure of a
contract, failure to comply with the second
merely gives the other party the option to
either refuse to proceed with the sale or to
waive the condition.61 This principle is
evident in Article 1545 of the Civil Code on
sales, which provides in part:
Art. 1545. Where the obligation of either
party to a contract of sale is subject to any
condition which is not performed, such party
may refuse to proceed with the contract or
he may waive performance of the condition
x x x.
Paragraph 1(b) of the Conditional Deed of
Sale, stating that respondent shall pay the
balance of the purchase price when he has
successfully negotiated and secured a road
right of way, is not a condition on the
perfection of the contract nor on the validity
of the entire contract or its compliance as
contemplated in Article 1308. It is a
condition imposed only on respondents
obligation to pay the remainder of the
purchase price. In our view and applying
Article 1182, such a condition is not purely
potestative as petitioners contend. It is not
dependent on the sole will of the debtor but
also on the will of third persons who own the
adjacent land and from whom the road right
of way shall be negotiated. In a manner of
speaking, such a condition is likewise
dependent on chance as there is no
guarantee that respondent and the third
party-landowners would come to an
agreement regarding the road right of way.
This type of mixed condition is expressly
allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v.
Court of Appeals,62 wherein the Court
interpreted the legal effect of a condition in
a deed of sale that the balance of the
purchase price would be paid by the vendee
when the vendor has successfully ejected
the informal settlers occupying the property.
In Romero, we found that such a condition
did not affect the perfection of the contract
but only imposed a condition on the
fulfillment of the obligation to pay the
balance of the purchase price, to wit:
From the moment the contract is perfected,
the parties are bound not only to the
fulfillment of what has been expressly
stipulated but also to all the consequences
which, according to their nature, may be in
keeping with good faith, usage and law.
Under the agreement, private respondent is
obligated to evict the squatters on the
property. The ejectment of the squatters is a
condition the operative act of which sets into

Page 103 of 109

motion the period of compliance by

petitioner of his own obligation, i.e., to pay
the balance of the purchase price. Private
respondent's failure "to remove the
squatters from the property" within the
stipulated period gives petitioner the right to
either refuse to proceed with the agreement
or waive that condition in consonance with
Article 1545 of the Civil Code. This option
clearly belongs to petitioner and not to
private respondent.
We share the opinion of the appellate court
that the undertaking required of private
respondent
does
not
constitute
a
"potestative condition dependent solely on
his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil
Code but a "mixed" condition "dependent
not on the will of the vendor alone but also
of third persons like the squatters and
government agencies and personnel
concerned." We must hasten to add,
however, that where the so-called
"potestative condition" is imposed not on the
birth of the obligation but on its fulfillment,
only the condition is avoided, leaving
unaffected
the
obligation
itself.63
(Emphases supplied.)
From the provisions of the Conditional Deed
of Sale subject matter of this case, it was
the vendee (Rodriguez) that had the
obligation to successfully negotiate and
secure the road right of way. However, in
the decision of the trial court, which was
affirmed by the Court of Appeals, it was
found that respondent Rodriguez diligently
exerted efforts to secure the road right of
way but the spouses Catungal, in bad faith,
contributed to the collapse of the
negotiations for said road right of way. To
quote from the trial courts decision:
It is therefore apparent that the vendees
obligations (sic) to pay the balance of the
purchase price arises only when the roadright-of-way to the property shall have been
successfully negotiated, secured and
provided. In other words, the obligation to
pay the balance is conditioned upon the
acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181
of the New Civil Code. Accordingly, "an
obligation dependent upon a suspensive
condition cannot be demanded until after
the condition takes place because it is only
after the fulfillment of the condition that the
obligation arises." (Javier v[s] CA 183
SCRA) Exhibits H, D, P, R, T, FF and JJ
show that plaintiff [Rodriguez] indeed was
diligent in his efforts to negotiate for a roadright-of-way to the property. The written
offers, proposals and follow-up of his
proposals show that plaintiff [Rodriguez]
went all out in his efforts to immediately
acquire an access road to the property,
even going to the extent of offering
P3,000.00 per square meter for the road
lots (Exh. Q) from the original P550.00 per
sq. meter. This Court also notes that
defendant (sic) [the Catungals] made
misrepresentation in the negotiation they
have entered into with plaintiff [Rodriguez].
(Exhs. F and G) The misrepresentation of
defendant (sic) [the Catungals] as to the
third lot (Lot 10986) to be part and parcel of
the
subject
property [(]Lot
10963)
contributed in defeating the plaintiffs
[Rodriguezs] effort in acquiring the road-

right-of-way to the property. Defendants [the

Catungals] cannot now invoke the nonfulfillment of the condition in the contract as
a ground for rescission when defendants
[the Catungals] themselves are guilty of
preventing the fulfillment of such condition.
From the foregoing, this Court is of the
considered view that rescission of the
conditional deed of sale by the defendants
is without any legal or factual basis.64 x x x.
(Emphases supplied.)
In all, we see no cogent reason to disturb
the foregoing factual findings of the trial
court.
Furthermore, it is evident from the language
of paragraph 1(b) that the condition
precedent (for respondents obligation to
pay the balance of the purchase price to
arise) in itself partly involves an obligation to
do, i.e., the undertaking of respondent to
negotiate and secure a road right of way at
his own expense.65 It does not escape our
notice as well, that far from disclaiming
paragraph 1(b) as void, it was the
Catungals contention before the trial court
that said provision should be read in relation
to paragraph 1(c) which stated:
c. That the access road or Road Right of
Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and
any or all cost relative to the acquisition
thereof shall be borne solely by the
VENDEE. He shall, however, be accorded
with enough time necessary for the success
of his endeavor, granting him a free hand in
negotiating for the passage.66 (Emphasis
supplied.)
The Catungals interpretation of the
foregoing stipulation was that Rodriguezs
obligation to negotiate and secure a road
right of way was one with a period and that
period, i.e., "enough time" to negotiate, had
already lapsed by the time they demanded
the payment of P5,000,000.00 from
respondent. Even assuming arguendo that
the Catungals were correct that the
respondents obligation to negotiate a road
right of way was one with an uncertain
period, their rescission of the Conditional
Deed of Sale would still be unwarranted.
Based on their own theory, the Catungals
had a remedy under Article 1197 of the Civil
Code, which mandates:
Art. 1197. If the obligation does not fix a
period, but from its nature and the
circumstances it can be inferred that a
period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the
period when it depends upon the will of the
debtor.
In every case, the courts shall determine
such
period
as
may
under
the
circumstances
have
been
probably
contemplated by the parties. Once fixed by
the courts, the period cannot be changed by
them.
What the Catungals should have done was
to first file an action in court to fix the period
within which Rodriguez should accomplish
the successful negotiation of the road right

of way pursuant to the above quoted

provision. Thus, the Catungals demand for
Rodriguez to make an additional payment of
P5,000,000.00
was
premature
and
Rodriguezs failure to accede to such
demand did not justify the rescission of the
contract.
With respect to petitioners argument that
paragraph 5 of the Conditional Deed of Sale
likewise rendered the said contract void, we
find no merit to this theory. Paragraph 5
provides:
5. That the VENDEE has the option to
rescind the sale. In the event the VENDEE
exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE
shall notify the VENDOR by way of a written
notice relinquishing his rights over the
property. The VENDEE shall then be
reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS
(P500,000.00)
representing
the
downpayment, interest free, payable but
contingent upon the event that the
VENDOR shall have been able to sell the
property to another party.67
Petitioners posited that the above stipulation
was the "deadliest" provision in the
Conditional Deed of Sale for violating the
principle of mutuality of contracts since it
purportedly rendered the contract subject to
the will of respondent.
We do not agree.
It is petitioners strategy to insist that the
Court examine the first sentence of
paragraph 5 alone and resist a correlation of
such sentence with other provisions of the
contract. Petitioners view, however, ignores
a basic rule in the interpretation of contracts
that the contract should be taken as a
whole.
Article 1374 of the Civil Code provides that
"[t]he 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." The same
Code further sets down the rule that "[i]f
some stipulation of any contract should
admit of several meanings, it shall be
understood as bearing that import which is
most adequate to render it effectual."68
Similarly, under the Rules of Court it is
prescribed that "[i]n 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"69 and "for the proper
construction of an instrument, the
circumstances under which it was made,
including the situation of the subject thereof
and of the parties to it, may be shown, so
that the judge may be placed in the position
of those whose language he is to
interpret."70
Bearing in mind the aforementioned
interpretative rules, we find that the first
sentence of paragraph 5 must be taken in
relation with the rest of paragraph 5 and
with the other provisions of the Conditional
Deed of Sale.

Page 104 of 109

Reading paragraph 5 in its entirety will show

that Rodriguezs option to rescind the
contract is not absolute as it is subject to the
requirement that there should be written
notice to the vendor and the vendor shall
only return Rodriguezs downpayment of
P500,000.00, without interest, when the
vendor shall have been able to sell the
property to another party. That what is
stipulated to be returned is only the
downpayment of P500,000.00 in the event
that Rodriguez exercises his option to
rescind is significant. To recall, paragraph
1(b) of the contract clearly states that the
installments on the balance of the purchase
price shall only be paid upon successful
negotiation and procurement of a road right
of way. It is clear from such provision that
the existence of a road right of way is a
material consideration for Rodriguez to
purchase the property. Thus, prior to him
being able to procure the road right of way,
by express stipulation in the contract, he is
not bound to make additional payments to
the Catungals. It was further stipulated in
paragraph 1(b) that: "[i]f however said road
right of way cannot be negotiated, the
VENDEE shall give notice to the VENDOR
for them to reassess and solve the problem
by taking other options and should the
situation ultimately prove futile, he
[Rodriguez] shall take steps to rescind or
[cancel] the herein Conditional Deed of
Sale." The intention of the parties for
providing subsequently in paragraph 5 that
Rodriguez has the option to rescind the sale
is undeniably only limited to the contingency
that Rodriguez shall not be able to secure
the road right of way. Indeed, if the parties
intended to give Rodriguez the absolute
option to rescind the sale at any time, the
contract would have provided for the return
of all payments made by Rodriguez and not
only the downpayment. To our mind, the
reason only the downpayment was
stipulated to be returned is that the
vendees option to rescind can only be
exercised in the event that no road right of
way is secured and, thus, the vendee has
not made any additional payments, other
than his downpayment.
In sum, Rodriguezs option to rescind the
contract is not purely potestative but rather
also subject to the same mixed condition as
his obligation to pay the balance of the
purchase price i.e., the negotiation of a
road right of way. In the event the condition
is fulfilled (or the negotiation is successful),
Rodriguez must pay the balance of the
purchase price. In the event the condition is
not fulfilled (or the negotiation fails),
Rodriguez has the choice either (a) to not
proceed with the sale and demand return of
his downpayment or (b) considering that the
condition was imposed for his benefit, to
waive the condition and still pay the
purchase price despite the lack of road
access. This is the most just interpretation
of the parties contract that gives effect to all
its provisions.
In any event, even if we assume for the
sake of argument that the grant to
Rodriguez of an option to rescind, in the
manner provided for in the contract, is
tantamount to a potestative condition, not
being a condition affecting the perfection of
the contract, only the said condition would
be considered void and the rest of the

contract will remain valid. In Romero, the

Court observed that "where the so-called
potestative condition is imposed not on the
birth of the obligation but on its fulfillment,
only the condition is avoided, leaving
unaffected the obligation itself."71
It cannot be gainsaid that "contracts have
the force of law between the contracting
parties and should be complied with in good
faith."72 We have also previously ruled that
"[b]eing the primary law between the
parties,
the
contract
governs
the
adjudication of their rights and obligations. A
court has no alternative but to enforce the
contractual stipulations in the manner they
have been agreed upon and written."73 We
find no merit in petitioners contention that
their parents were merely "duped" into
accepting the questioned provisions in the
Conditional Deed of Sale. We note that
although the contract was between Agapita
Catungal and Rodriguez, Jose Catungal
nonetheless signed thereon to signify his
marital consent to the same. We concur
with the trial courts finding that the spouses
Catungals claim of being misled into signing
the contract was contrary to human
experience and conventional wisdom since
it was Jose Catungal who was a practicing
lawyer while Rodriquez was a nonlawyer.74 It can be reasonably presumed
that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and
accepted its provisions before they affixed
their signatures thereon.
After thorough review of the records of this
case, we have come to the conclusion that
petitioners failed to demonstrate that the
Court of Appeals committed any reversible
error in deciding the present controversy.
However, having made the observation that
it was desirable for the Catungals to file a
separate action to fix the period for
respondent Rodriguezs obligation to
negotiate a road right of way, the Court finds
it necessary to fix said period in these
proceedings. It is but equitable for us to
make a determination of the issue here to
obviate further delay and in line with the
judicial policy of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a
period of thirty (30) days from the finality of
this decision to negotiate a road right of
way. In the event no road right of way is
secured by Rodriquez at the end of said
period, the parties shall reassess and
discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of
Sale and, for this purpose, they are given a
period of thirty (30) days to agree on a
course of action. Should the discussions of
the parties prove futile after the said thirty
(30)-day period, immediately upon the
expiration of said period for discussion,
Rodriguez may (a) exercise his option to
rescind the contract, subject to the return of
his downpayment, in accordance with the
provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the
road right of way and pay the balance of the
deducted purchase price as determined in
the RTC Decision dated May 30, 1992.
WHEREFORE, the Decision dated August
8, 2000 and the Resolution dated January
30, 2001 of the Court of Appeals in CA-G.R.
CV No. 40627 consolidated with CA-G.R.

SP No. 27565 are AFFIRMED with the

following modification:
If still warranted, respondent Angel S.
Rodriguez is given a period of thirty (30)
days from the finality of this Decision to
negotiate a road right of way. In the event
no road right of way is secured by
respondent at the end of said period, the
parties shall reassess and discuss other
options as stipulated in paragraph 1(b) of
the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty
(30) days to agree on a course of action.
Should the discussions of the parties prove
futile after the said thirty (30)-day period,
immediately upon the expiration of said
period for discussion, Rodriguez may (a)
exercise his option to rescind the contract,
subject to the return of his downpayment, in
accordance with the provisions of
paragraphs 1(b) and 5 of the Conditional
Deed of Sale or (b) waive the road right of
way and pay thhe balance of the deducted
purchase price as determined in the RTC
Decision dated May 30, 1992.
G.R. No. L-12611

August 7, 1918

FELIPE AGONCILLO, and his wife,

MARCELA MARIO, plaintiff-appellees,
vs.
CRISANTO JAVIER, administrator of the
estate of the late Anastasio Alano.
FLORENCIO ALANO and JOSE ALANO,
defendants-appellants.
On the twenty-seventh day of February,
1904, Anastasio Alano, Jose Alano, and
Florencio Alano executed in favor of the
plaintiff, Da. Marcela Mario, a document of
the following tenor:
We, the undersigned, Jose Alano and
Florencio Alano (on our own behalf), and
Anastasio Alano (on behalf of his children
Leonila, Anastasio and Leocadio), the
former and the latter testamentary heirs of
the Rev. Anastasio C. Cruz, deceased,
hereby solemnly promise under oath:
1. We will pay to Da. Marcela Mario within
one year from this date together with
interest thereon at the rate of 12 per cent
per annum, the sum of P2,730.50,
Philippine currency, this being the present
amount of indebtedness incurred in favor of
that lady on the 20th of April 1897, by our
testator, the Rev. Anastasio C. Cruz;
2. To secure the payment of this debt we
mortgage to the said Da. Marcela Mario
the house and lot bequeathed to us by the
deceased, situated in this town, on calle
Evangelista, formerly Asturias, recorded in
the register of deeds on the twenty-second
of April, 1895, under number 730;
3. In case of insolvency on our part, we
cede by virtue of these presents the said
house and lot to Da. Marcela Mario,
transferring to her all our rights to the
ownership and possession of the lot; and if
the said property upon appraisal at the time
of the maturity of this obligation should not
be of sufficient value to cover the total
amount of this indebtedness, I, Anastasio
Alano, also mortgage to the said lady my
four parcels of land situated in the barrio of
San Isidro, to secure the balance, if any; the

Page 105 of 109

title deeds of said property, as well as the

title deeds of the said house and lot are this
day delivered to Sr. Vicente Ilustre, general
attorney-in-fact of Da. Marcela Mario.
In witness whereof we have signed these
presents in Batangas, this twenty-seventh
day of February, 1904.
(Sgd.)

JOSE ALANO.

(Sgd.)

ANASTASIO ALANO.

(Sgd.)

FLORENCIO ALANO.

No part of the interest or of the principal due

upon this undertaking has been paid, except
the sum of P200 paid in the year 1908 by
the late Anastasio Alano.
In 1912, Anastasio Alano died intestate. At
the instance of one of his creditors,
proceedings upon the administration of his
estate were had in the Court of First
Instance of Batangas. By order dated
August 8, 1914, the court appointed an
administrator and a committee to hear
claims. Notices were published, as required,
in a newspaper of general circulation, to
inform the creditors of the time and place at
which they might appear to present their
claims against the estate of the deceased
(Exhibit No. 1). The time designated in the
notice for the presentation of claims expired
on March 24, 1915. It appears that no
claims whatever were presented to the
committee, and it having been shown to the
court, by the statement of the administrator,
that the claim of the creditor at whose
instance the administration proceeding was
commenced, had been settled by the heirs,
the administrator was discharged and the
proceeding terminated by order dated
November 8, 1915.
On April 27, 1916, at the instance of the
plaintiff, Da. Marcela Mario, and upon the
statement, made on her behalf, that she
was a creditor of the deceased and that her
claim was secured by mortgage upon real
estate belonging to the said deceased, the
court reopened the intestate proceeding,
and appointed one Javier to be
administrator of the estate. No request was
made for a renewal of the commission of
the committee on claims. The appellants
Jose and Florencio Alano objected to the
appointment of Javier, but their objection
was overruled by the court.
On March 17, 1916, the plaintiffs filed the
complaint in this action against Javier, as
administrator of the estate of Anastasio
Alano and against Florencio Alano and Jose
Alano personally. The action is based upon
the execution of the document of February
27, 1904, above set forth, which is
transcribed literally in the complaint. It is
averred that defendants have paid no part
of the indebtedness therein acknowledged,
with the exception of the P200 paid on
account in 1908. It is further averred that on
April 22, 1910, the debtors promised in
writing that they would pay the debt in 1911,
but that they had failed to do so. The prayer
of the complaint is that, unless defendants
pay the debt for the recovery of which the
action was brought, they be required to
convey to plaintiffs the house and lot
described in paragraph two of the said

document; that this property be appraised;

and that if its value is found to be less than
the amount of the debt, with the accrued
interest at the stipulated rate, judgment be
rendered in favor of the plaintiffs for the
balance. No relief is requested with respect
to the undertaking of Anastasio Alano
expressed in the third paragraph of the
document in suit, as guarantor for the
payment of the difference, if any, between
the value of the said house and lot and the
total amount of the indebtedness.
The
defendants
answered
denying
generally the facts alleged in the complaint,
and setting up, as special defenses that (1)
any cause of action which plaintiff might
have had against the estate of Anastasio
Alano has been barred by failure of the
plaintiff to present her claim to the
committee on claims for allowance; (2) that
the document upon which plaintiff relies
does not constitute a valid mortgage; and
(3) that as to all of the defendants, the
action is barred by the general statute of
limitations.
The findings of the trial court upon the
evidence were substantially as follows:
1. That the document set forth in paragraph
two of plaintiffs' complaint was executed by
the deceased, Anastasio Alano, and by the
defendants Javier and Jose Alano, as
alleged;
2. That one year after the execution of the
document, plaintiffs made a demand upon
Anastasio Alano, deceased, and the other
two defendants herein, to comply with the
terms of the agreement by the execution of
the conveyance of the house and lot, but
that they requested an extension of time for
the payment of the debt, which was granted
them;
3. That on March 27, 1908, the defendants
paid P200 on account of the debt.
Upon these findings the court below gave
judgment for plaintiffs, and from that
judgment the defendants have appealed to
his court upon the law and the facts.
The question raised by the appellants
require us to analyze the document upon
which this action is based, and to determine
its legal effect. Appellants contend that the
contract evidenced by that instrument is
merely a loan coupled with an ineffectual
attempt to create a mortgage to effect the
payment of debt. The court below regarded
it as a conveyance of the house and lot
described in the contract, which took effect
upon the failure of the debtors to pay the
debt.
The principal undertaking evidenced by the
document is, obviously, the payment of
money. The attempt to create a mortgage
upon the house and lot described in the
second clause of the contract is, of course,
invalid, as it is admitted that the so-called
mortgage was never recorded. Equally
inefficacious, and for the same reasons, is
the purported mortgage by Anastasio Alano
of his land in the barrio of San Isidro
described in the third paragraph of the
document. (Compaia General de Tabacos
vs. Jeanjaquet, 12 Phil. Rep., 195.)

The agreement to convey the house and lot

at an appraised valuation in the event of
failure to pay the debt in money a t its
maturity is, however, in our opinion,
perfectly valid. It is simply an undertaking
that if the debt is not paid in money, it will be
paid in another way. As we read the
contract, the agreement is not open to the
objection that the stipulation is a pacto
comisorio. It is not an attempt to permit the
creditor to declare a forfeiture of the security
upon the failure of the debtor to pay the
debt at maturity. It is simply provided that if
the debt is not paid in money it shall be paid
in another specific was by the transfer of
property at a valuation. Of course, such an
agreement, unrecorded, creates no right in
rem; but as between the parties it is
perfectly valid, and specific performance of
its terms may be enforced, unless
prevented by the creation of superior rights
in favor of third persons.
The contract now under consideration is not
susceptible of the interpretation that the title
to the house and lot in question was to be
transferred to the creditor ipso facto upon
the mere failure of the debtors to pay the
debt at its maturity. The obligations
assumed by the debtors were alternative,
and they had the right to elect which they
would perform (Civil Code, art. 1132). The
conduct of the parties (Civil Code, art. 1782)
shows that it was not their understanding
that the right to discharge the obligation by
the payment of money was lost to the
debtors by their failure to pay the debt at its
maturity. The plaintiff accepted a partial
payment from Anastasio Alano in 1908,
several years after the debt matured. The
prayer of the complaint is that the
defendants be required to execute a
conveyance of the house and lot, after its
appraisal, "unless the defendants pay the
plaintiff the debt which is the subject of this
action."
It is quite clear, therefore, that under the
terms of the contract, as we read it, and as
the parties themselves have interpreted it,
the liability of the defendants as to the
conveyance of the house and lot is
subsidiary and conditional, being dependent
upon their failure to pay the debt in money.
It must follow, therefore, that if the action to
recover the debt has prescribed, the action
to compel a conveyance of the house and
lot is likewise barred, as the agreement to
make such conveyance was not an
independent principal undertaking, but
merely a subsidiary alternative pact relating
to the method by which the debt might be
paid.
The undertaking to pay the debt,
acknowledged by the contract in suit, is
indisputably conjoint (mancomunada). The
concurrence of two or more debtors does
not in itself create a solidary liability.
Obligations in solido arise only when it is
expressly stipulated that they shall have this
character (Civil Code, art. 1137). That being
so, the debt must be regarded as divided
into as many equal parts as there are
debtors, each part constituting a debt
distinct from the others. (Civil Code, art.
1138.) The result of this principle is that the
extinction of the debt of one of the various

Page 106 of 109

debtors does not necessarily affect the

debts of the others.
It is contended on behalf of the
administrator of the estate of Anastasio
Alano that the failure of the plaintiff to
present her claim for allowance to the
committee on claims is a bar to her action
so far as this defendant is concerned. We
are of the opinion that this objection is welltaken. Section 695 of the Code of Civil
Procedure expressly requires that a claim of
this kind be presented for allowance to the
committee, and declares that the failure to
do so operates to extinguish the claim. The
operation of this statute and the absolute
nature of the bar which it interposes against
the subsequent assertion of claims not
presented
in
accordance
with
its
requirements
have
frequently
been
considered by this court, and the doctrines
announced need not be here repeated.
(Estate of De Dios, 24 Phil. Rep., 573;
Santos vs. Manarang, 27 Phil. Rep., 209).
While it is true that under certain
circumstances and within the statutory limits
(sec. 690 of the Code of Civil Procedure)
the probate court may renew the
commission of the committee on claims,
and permit the presentation of belated
demands, in no case may a claim proper to
be allowed by the committee, such as is the
one now under consideration, be enforced
by an original action against the executor or
administrator of the state. Our opinion is,
therefore, that the objection to the action
interposed on behalf of the administrator of
the estate of Anastasio Alano was welltaken and that the court erred in rejecting it.
This conclusion makes it unnecessary to
consider the effect of the payment made by
Anastasio Alano in 1908 as regards the
interruption of the period of prescription with
respect to him. In this connection, however,
we feel constrained to remark that a careful
reading of the document makes it extremely
doubtful whether Anastasio Alano was ever
personally bound by its terms. It will be
noted that he purports to have signed it only
as the representative of his children,
Leonina, Anastasio, and Leocadio, who are
not parties to this suit.
With respect to the defendants Florencio
and Jose Alano, their original liability admits
of no dispute and the only question open for
consideration is that presented by their plea
of prescription. The debt matured February
27, 1905, and as the complaint was not filed
within ten years from that date (Code of
Civil Procedure, sec. 43), it is obvious that
the plea of prescription is well-taken, unless
the running of the statute was interrupted.
While it appears that some verbal and
written demands for payment were made
upon these defendants, it has been recently
decided, upon mature consideration, that an
extrajudicial demand is not sufficient, under
the law as it now stands, to stop the running
of the statute. (Pelaez vs. Abreu, 26 Phil.
Rep., 415). There must be either (1) a
partial
payment,
(2)
a
written
acknowledgment or (3) a written promise to
pay the debt. It is not contended that there
has been any written acknowledgment or
promise on the part of the defendants Jose
and Florencio Alano, or either of them
plaintiff relies solely upon the payment

made in 1908 by Anastasio Alano. But there

is not the slightest foundation in the
evidence for the belief that the payment
made by Anastasio was for the benefit of
Jose or Florencio or that it was authorized
by either of them. Bearing in mind the
express declaration of article 1138 of the
Civil Code that joint (mancomunada)
obligations are, as regard each of the
debtors, to be reputed as separate debts
with respect to each of the debtors, it
follows of necessity that a payment or
acknowledgment by one of such joint
debtors will not stop the running of the
period of prescription as to the others. That
such is the law may be demonstrated by
ample authority.
In his commentaries on article 1138 and
1139 of the Civil Code, Manresa says that
one of the effects of the rule established by
the code that the debt is to be regarded as
"divided into as many parts . . . as there are
debtors" is that "the interruption of
prescription by the claim of a creditor
addressed to a single debtor or by an
acknowledgment made by one of the
debtors in favor of one or more of the
creditors is not to be understood as
prejudicial to or in favor of the other debtors
or creditors." (Manresa, Commentaries on
the Civil Code, vol. 8, p. 182.)
The same doctrine is recognized in the
Italian Civil Law, as stated by Giorgi in his
work on Obligations as follows:
The obligation appears to be one, when as
a matter of fact it is an aggregate of as
many separate and independent obligations
as there are creditors and debtors. Each
creditor cannot demand more than his part;
each debtor cannot be required to pay more
than his share. Prescription, novation,
merger, and any other cause of modification
or extinction does not extinguish or modify
the obligation except with respect to the
creditor or debtor affected, without
extending its operation to any other part of
the debt or of the credit. The obligation is, in
a word, pro rata, or in partes viriles. (Giorgi
on Obligations, vol. 1, p. 83, Spanish
translation.)
The same view is taken by the French law
writers. In the article on obligations in
Dalloz'
Encyclopedia
(Jurisprudence
Generale) vol. 33, p. 297, the author says:
The conjoint (pro rata) obligation is divided
by operation of law among the non-solidary
co-debtors. It is as though there were many
debts as there are persons bound. Hence it
follows that if one of the debtors is insolvent
the loss falls upon the creditor and not upon
the other debtors, and that if prescription is
interrupted with respect to one of the
debtors, it is not interrupted with respect to
the others.
In the State of Louisiana, whose Civil Code,
like ours, is largely taken from the Code of
Napoleon, the Supreme Court has
established the same doctrine on the
subject of the interruption of prescription.
In the case of Buard vs. Lemee, Syndic (12
Robinson's Reports, 243), the Supreme
Court of Louisiana said:

It results . . . that when the acknowledgment

of a debt is made by a joint debtor, such
acknowledgment does not interrupt the
prescription with regard to the others. Each
is bound for his virile share of the debt; and,
therefore, each is at liberty to act for
himself, and the effect of his acts cannot be
extended to the benefit or prejudice of his
co-debtors; so true is this that the law has
never intended that a suit brought against
one of the several debtors should interrupt
prescription with regard to all, unless they
be debtors in solido.

indefensible from the standpoint of fair

dealing and honesty as it is unassailable
from the standpoint of legal technicality.
However, the law, as we see it, is clear and
it is our duty to enforce it.
The judgment of the lower court is reversed
and the action is dismissed as to all the
defendants. No costs will be allowed. So
ordered. R E S O L U T I O N
September 20, 1918.
FISHER, J.:

This doctrine was recognized and applied

by the Supreme Court of Louisiana in the
subsequent cases of Succession of
Cornelius Voorhies (21 La. Ann., 659) and
Smith vs. Coon (22 La. Ann., 445).
There is no presumption that one conjoint
( pro-rata) debtor is authorized to perform
any act having the effect of stopping the
running of the statute of limitations as to the
others. When the act relied upon is
performed by some person other than the
debtor, the burden rests upon the plaintiff to
show that it was expressly authorized. (17
R.C.L., 911 and the cases there cited.) In
this case there is no such evidence. The
statement in the letter of Da. Maria Lontok,
to whom the P200 payment was made, is
that it was a payment made on account of
"the debt of Anastasio Alano." (Plaintiffs'
Exhibit D.) Da. Maria Lontok in her
testimony does not attempt to say that the
payment was made for the account of any
one but Anastasio Alano, from whom she
received it. The statement that Florencio
Alano was with Anastasio at the time is not
in itself sufficient to constitute proof that the
payment was made for his benefit.
(Lichauco vs. Limjuco and Gonzalo, 19 Phil.
Rep., 12.)
Plaintiff argues that the undertaking to
convey the house and lot constitutes an
indivisible obligation, and that even where
the promise is not in solidum, the
concurrence of two or more debtors in an
obligation whose performance is indivisible
creates such a relation between them that
the interruption of prescription as to one of
necessity interrupts it as to all. The
distinction is one which is well-established,
although the authorities cited do not fully
support plaintiffs' contentions, but in this
particular case the question is academic, for
the undertaking is in the alternative to pay a
sum of money an essentially divisible
obligation or to convey the house. As the
alternative indivisible obligation is imposed
only in the event that the debtors fail to pay
the money, it is subject to a suspensive
condition, and the prescription of the
obligation
whose
non-performance
constitutes the condition effectively prevents
the condition from taking place.
We are, therefore, constrained to hold with
defendants and to reverse the decision of
the lower court. We do this most regretfully,
as the evidence in this case shows that
plaintiff has been extremely lenient with
defendants and has refrained from pressing
her claim against them when it fell due, and
for a long period of years thereafter, purely
out of consideration for them. The defense
of prescription interposed, particularly as
regards Jose and Florencio Alano, is an

Page 107 of 109

Plaintiff seeks a consideration of the

decision of this court rendered herein. With
respect to plaintiff's contention concerning
the action against the estate of Anastasio
Alano, we have nothing to add to what was
said in the former decision. As regards the
defendants, Florencio Alano and Jose
Alano, the principal argument advanced by
plaintiff is that those defendants, as
testamentary heirs of the late Anastasio C.
Cruz, are liable, in solidum, for the debt in
suit, which is evidenced by the document
signed by these defendants on February 27,
1904, set forth at length in our decision.
Plaintiff argues that he obligation being
solidary, by reason of its hereditary origin
(Fabie vs. Yulo, 24 Phil. Rep., 240) the
running of the statute of limitations was
interrupted with respect to all the debtors,
by the payment of P200 made by the late
Anastasio Alano in 1908. The whole
argument rests upon article 1084 of the Civil
Code and the statement contained in the
document of February 27, 1904, that the
Alano brothers are the "testamentary heirs"
of the original debtor, and the assumption
that the latter died, and that his inheritance
was accepted, before the present Code of
Civil Procedure was enacted. There is
nothing in the record to indicate, even
remotely, when the Reverend Cruz died. If
he died after the new Code took effect, the
acceptance of his inheritance did not
impose upon his testamentary heirs any
personal obligation to respond to the
payment of the debts of the deceased.
(Pavia vs. De la Rosa, 8 Phil. Rep., 70.)
There having been neither allegation nor
proof with respect to the date of the death of
the original debtor, we cannot presume, to
the prejudice of the defendants, that he died
and that his succession was opened under
the old regime.
But even had it been proved that the late
Reverend Cruz died before Act No. 190 took
effect, and that the debt, by reason of its
hereditary origin, imposed upon the five
Alano brothers the solidary obligation of
paying it, as the evidence does not show
that the payment made by Anastasio Alano
in 1908 was authorized by any one of the
solidary debtors, it cannot have the effect of
interrupting the prescription. It must be kept
in mind that Anastasio Alano was in no
sense a solidary debtor of the plaintiff, either
with respect to the origin of the obligation or
by his participation in the execution of the
document by which the indebtedness was
acknowledged. it is unquestionable that
payment made by any one of the several
solidary debtors interrupts the running of the
statute of limitations with respect to the
others, and that a third person may make a
payment without the knowledge and even

against the will of the debtor, but payments

so made by a stranger to the debt do not
interrupt the operation of the statute of
limitations.
The general rule is that an acknowledgment
or new promise to pay must, in order to take
a case out of the statute, be made by the
person to be charged or by some person
legally authorized by him so to act. (17
Ruling Case Law, p. 911.)
In the case of a part payment by a stranger,
or by a person not authorized to represent
the debtor, it is obvious that there is no
ground for assuming any admission of an
existing liability on his part or for inferring a
new promise by him to pay the balance of
the debt. (17 Ruling Case Law, p. 935.)
Furthermore, it is to be observed that in
accordance with the express terms of article
50 of the Code of Civil Procedure, payment
in order to have the effect of interrupting the
running of the statute, must be made by the
person to be charged.
Independently of these considerations, it is
obvious that this action was not brought as
though based upon an obligation which had
accrued under the provisions of the Civil
Code, formerly in force, relating to the
acceptance of an estate without benefit of
inventory. The action has been brought
solely and exclusively for the enforcement
of the obligation created by the execution of
the document of credit of 1904. This is the
reason, no doubt, why plaintiff made no
effort to prove the date of the death of
Reverend Cruz; whether his heirs accepted
the inheritance with or without the benefit of
inventory; if they were all adults at the time
of the death of the testator; whether they
inherited in equal parts or in some
proportion. It is natural that she should have
made no effort to produce evidence upon
these points, as there is nothing in the
allegations of the complaint to support its
admission. If the defendants had replied
admitting the facts alleged, it is evident that
it would have been necessary to decide the
case in accordance with the law in force in
1904, considering the execution of the
document in question as the act from which
the obligation in suit originated, although it
appears from the document that the
consideration for its execution was the debt
of a third person.
When the plaintiff deliberately adopts a
certain theory with respect to the basis of
his right of action, and the case is tried and
decided in the court below and in this court
upon that theory, plaintiff will not be
permitted to change the theory of his action
upon a motion for rehearing. (Molina vs.
Somes, 24 Phil. Rep., 49.) To do so would
be to deprive the defendant of an
opportunity to defend. The defendant
naturally produces evidence relating to the
evidence offered on behalf of plaintiff. If the
issue of the liability of Florencio and Jose
Alano upon the theory now advanced by
plaintiff had been presented in the court
below, it is possible that these defendants
might have been able to prove that their
testator died after the enactment of the new
code or, if he died before, that they were
minors at that time; that the inheritance was
accepted by their guardian without the

intervention of the family council (Civil

Code, art. 992), or that it was expressly
accepted with benefit of inventory, and that
the value of the property inherited is less
than the amount of the debt (Civil Code, art.
1023), or that the effect of the execution of
the document of 1904 was a novation of the
obligation by which the latter was converted
into a simple joint indebtedness. The
defendants Florencio and Jose Alano
having had no opportunity to invoke any of
these defenses, which might have been
available to them, it would be unjust to give
judgment against them upon the theory of
their obligation now invoked by plaintiff. The
motion for a rehearing is denied.
G.R. No. L-21196

February 6, 1924

ONG GUAN CAN, plaintiff-appellee,

vs.
THE CENTURY INSURANCE COMPANY,
LTD., defendant-appellant.
Eiguren and Razon for appellant.
Montinola, Montinola and Hontiveros for
appellee.
The only question presented by the appeal
is whether or not the judgment by default
rendered by the lower court should be set
aside and annulled. We think it should be,
for the following reasons:
The action was commenced in the Court of
First Instance of the City of Iloilo on the 15th
day of May, 1923. Its purpose was to
recover an amount due on the policy of
insurance issued by the defendant to the
plaintiff. On the same day a copy of the
complaint was served upon the defendant,
through its duly authorized representative in
the City of Iloilo, Messrs. Andrew & Co. The
defendant filed its appearance with the clerk
of the court on the 7th day of June, 1923.
The notice of appearance, it is alleged and
not denied, was mailed at the City of Manila
on the 2d day of June, 1923. On the 5th day
of June, 1923, the attorneys for the plaintiff
presented a motion praying that a judgment
by default be rendered against the
defendant. Said motion was granted on the
same day, and a judgment by default was
duly entered. On the 8th day of June, 1923,
the defendant, through its attorneys, filed a
motion praying that the judge set aside said
judgment by default and permit the
defendant to answer. Said motion recited
that the said notice of appearance was
mailed at the City of Manila on the 2nd day
of June, 1923, and that the steamship
Vizcaya, carrying mails, including the letter
containing the notice of appearance on the
2d day of June, did not arrive at Iloilo in the
usual course until after the time had expired
for filing its appearance, or on the 7th day of
June, 1923, due to the fact that said ship
encountered a storm at sea. The lower court
denied said motion on the 11th day of June,
1923, to which order the defendant duly
expected, and later presented another
motion to the same effect, alleging and
asserting that it had a valid and meritorious
defense to the cause of action presented by
the plaintiff. Later the second motion was
also denied, to which the defendant also
excepted. Some further proceedings were
had in the lower court concerning the
judgment by default, which have no

Page 108 of 109

importance in the consideration of the

question presented.
From the judgment by default of the lower
court the defendant appealed and now
alleges that it committed an error in not
granting the motions to set aside said
judgment and permit the defendant to
answer. It is admitted that the plaintiff and
defendant resided in the same province.
Under paragraph 2 of section 392 of Act No.
190 it became the duty of the defendant to
appear within twenty days from the service
of the summons. The summons was served
on the 15th day of May. The twenty days
within which the defendant was required to
appear expired on the 5th day of June. No
appearance was filed by the defendant until
perhaps the 7th day of June. It is admitted
that the defendant mailed its appearance in
the City of Manila on the 2d day of June,
1923. It is also a fact that mail, in the
ordinary course, will arrive at Iloilo from
Manila in two days. The defendant mailed
its appearance at a time when in the
ordinary course of events it would have
reached the hand of the clerk of the court on
or before the expiration of the time within
which it was obliged to make its
appearance.
The
reason
that
the
appearance did not reach its destination
was due to a fact over which the defendant
had no control. The failure to make the
appearance within the time prescribed by
law was due to no fault of the defendant.
The defendant evidently made an honest
effort to comply with the law. To render a
judgment
against
it
under
these
circumstances would be to render a
judgment against it without giving it an
opportunity to be heard.
It has been frequently decided that, if
pleadings or other papers essential to a
case are entrusted to the mails in due
season and under proper precaution and
are lost or miscarried, it will be ground for
vacating a judgment by default. (Boyd vs.
Williams and Overbaugh, 70 N.J. Law, 185;
Corning vs. Tripp, 1 Howard's Practice
[N.Y.], 14; Williams vs. Richmond, etc.
Railroad Co., 110 N. C., 466; Chicago, etc.
Railway Co. vs. Eastham, 30 L.R.A. [N.S.],
740; 23 Cyc., 943; 15 Ruling Case Law,
708.)
A delay of mail, such as occurred in the
present case, in our opinion amounts to
accident or surprise for which judgments by
default may be set aside, especially when
the defendant shows by affidavit or
otherwise that he has a valid and
meritorious defense. The time fixed for filing
papers in a cause is generally directory and
the court always has it in its power, in the
exercise of a proper discretion, to extend
the time fixed by law whenever the ends of
justice would seem to demand such an
extension. (Wood vs. Fobes and Farnham,
5 Cal., 62.)
Considering the causes which prevented
the defendant from making its appearance
within the time prescribed by subparagraph
2 of article 392 of Act No. 190 and
considering its showing that, if permitted to
answer, it has a meritorious defense, we are
of the opinion, and so decide, that the
judgment by default rendered by the lower
court should be and is hereby set aside, and

it is hereby ordered and decreed that the

defendant's appearance be admitted and
that it be given ten days in which to answer

from notice of this decision. And without any

findings as to costs, it is so ordered.

Page 109 of 109